Exhibit 2.1
FORM
OF
SEPARATION AND DISTRIBUTION AGREEMENT
AMONG
CADBURY PLC,
CADBURY SCHWEPPES PLC
AND
DR PEPPER SNAPPLE GROUP, INC.
Dated as of [_______], 2008
Table of Contents
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Page
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ARTICLE I DEFINITIONS AND INTERPRETATION
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1
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Section 1.01
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Certain Defined Terms
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1
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Section 1.02
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Interpretation and Rules of Construction
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16
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ARTICLE II THE SEPARATION
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16
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Section 2.01
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Transfer of Assets
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16
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Section 2.02
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Assumption and Satisfaction of Liabilities
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18
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Section 2.03
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Intercompany Balances
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18
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Section 2.04
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Transfers Not Effected on or Prior to the Demerger Effective Time;
Transfers Deemed Effective as of the Demerger Effective Time
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19
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Section 2.05
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Transfer Documents
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20
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Section 2.06
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Further Assurances
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20
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Section 2.07
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Replacement of Guarantors and Obligors
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21
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Section 2.08
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Disclaimer of Representations and Warranties
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22
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ARTICLE III CERTAIN ACTIONS AT OR PRIOR TO THE DISTRIBUTION
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23
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Section 3.01
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Certificate of Incorporation; Bylaws
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23
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Section 3.02
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Directors
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23
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Section 3.03
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Resignations
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23
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Section 3.04
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Ancillary Agreements
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23
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ARTICLE IV THE DISTRIBUTION
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23
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Section 4.01
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The Distribution
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23
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Section 4.02
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Fractional Shares
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24
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Section 4.03
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Actions in Connection with the Distribution.
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24
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Section 4.04
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Distribution Date
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25
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Section 4.05
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Conditions to Distribution
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25
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Section 4.06
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Consent to the Reduction
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26
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ARTICLE V CERTAIN COVENANTS
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26
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Section 5.01
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Non-Solicitation of Employees
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26
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Section 5.02
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Auditors and Audits; Annual and Quarterly Financial Statements and
Accounting
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27
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Section 5.03
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CS Obligations
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29
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ARTICLE VI INTELLECTUAL PROPERTY MATTERS
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29
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Section 6.01
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Cadbury Names and Marks
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29
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Section 6.02
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Beverages Names and Marks
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30
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Section 6.03
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Memorabilia
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32
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Section 6.04
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Additional Licenses
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32
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Section 6.05
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Know-How Agreement
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33
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Section 6.06
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Domain Names Agreement
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33
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i
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Page
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ARTICLE VII INDEMNIFICATION
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33
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Section 7.01
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Release of Pre-Distribution Claims
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33
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Section 7.02
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Indemnification by CS
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35
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Section 7.03
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Indemnification by DPS
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36
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Section 7.04
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Procedures for Indemnification
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36
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Section 7.05
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Cooperation in Defense and Settlement
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38
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Section 7.06
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Indemnification Obligations Net of Insurance Proceeds and Other Amounts
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38
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Section 7.07
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Additional Matters; Survival of Indemnities
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39
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ARTICLE VIII ACCESS TO RECORDS; ACCESS TO INFORMATION; LEGAL AND OTHER MATTERS
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39
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Section 8.01
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Provision of Corporate Records
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39
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Section 8.02
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Access to Information
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40
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Section 8.03
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Disposition of Information
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40
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Section 8.04
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Witness Services
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41
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Section 8.05
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Reimbursement; Other Matters
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41
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Section 8.06
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Confidentiality
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41
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Section 8.07
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Privileged Matters
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42
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Section 8.08
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Ownership of Information
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43
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Section 8.09
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Other Agreements
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44
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Section 8.10
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Control of Legal Matters
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44
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ARTICLE IX INSURANCE
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46
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Section 9.01
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Policies and Rights Included Within Assets
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46
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Section 9.02
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Administration; Other Matters
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47
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Section 9.03
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Agreement for Waiver of Conflict and Shared Defense
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48
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ARTICLE X DISPUTE RESOLUTION
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48
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Section 10.01
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Disputes
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48
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Section 10.02
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Dispute Resolution
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48
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Section 10.03
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Continuity of Service and Performance
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50
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ARTICLE XI TERMINATION
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50
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Section 11.01
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Termination
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50
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Section 11.02
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Effect of Termination
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50
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Section 11.03
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Amendment
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50
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Section 11.04
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Waiver
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50
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ARTICLE XII MISCELLANEOUS
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50
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Section 12.01
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Limitation of Liability
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50
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Section 12.02
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Expenses
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51
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Section 12.03
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Notices
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51
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Section 12.04
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Public Announcements
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52
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Section 12.05
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Severability
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52
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Section 12.06
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Entire Agreement
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52
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Section 12.07
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Assignment
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52
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ii
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Page
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Section 12.08
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Parties in Interest
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52
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Section 12.09
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Currency
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52
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Section 12.10
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Tax Matters
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52
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Section 12.11
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Employee Matters
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53
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Section 12.12
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Governing Law
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53
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Section 12.13
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Waiver of Jury Trial
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53
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Section 12.14
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Survival of Covenants
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53
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Section 12.15
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Counterparts
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53
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SCHEDULES
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Schedule 1.01(a)
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AsiaPac Territory
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Schedule 1.01(b)
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Beverages Assets
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Schedule 1.01(c)
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Beverages Balance Sheet
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Schedule 1.01(d)
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Beverages Liabilities
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Schedule 1.01(e)
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Beverages Litigation Matters
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Schedule 1.01(f)
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Beverages Policies
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Schedule 1.01(g)
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Beverages Shared Policies
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Schedule 1.01(h)
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Cadbury plc Assets
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Schedule 1.01(i)
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Cadbury plc Balance Sheet
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Schedule 1.01(j)
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Cadbury plc Entities
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Schedule 1.01(k)
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Cadbury plc Liabilities
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Schedule 1.01(l)
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Cadbury plc Litigation Matters
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Schedule 1.01(m)
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Continuing Arrangements
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Schedule 1.01(n)
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DPS Entities
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Schedule 1.01(o)
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DPS Transaction Costs
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Schedule 1.01(p)
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Intercompany Balances
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Schedule 1.01(q)
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Territory
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Schedule 2.01(a)
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Transfer of Assets
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Schedule 2.01(c)
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Shared Contracts
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Schedule 2.07(a)
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DPS Guarantees and Obligations
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Schedule 2.07(d)
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Cadbury plc Guarantees and Obligations
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Schedule 8.10(c)(i)
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Cadbury plc Claims
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Schedule 8.10(c)(ii)
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Beverages Claims
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Schedule 8.10(c)(iii)
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Joint Cadbury plc and Beverages Claims
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EXHIBITS
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Exhibit 1.01(a)
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Form of Employee Matters Agreement
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Exhibit 1.01(b)
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Form of Tax Sharing Agreement
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Exhibit 1.01(c)
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Form of Transition Services Agreement
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Exhibit 4.06
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Form of Letter of Consent to Reduction
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Exhibit 6.06(a)
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Form of Know-How Agreement
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Exhibit 6.07
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Form of Domain Names Agreement
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iii
SEPARATION AND DISTRIBUTION AGREEMENT
SEPARATION
AND DISTRIBUTION AGREEMENT (this
Agreement
), dated as of [___], 2008,
among Cadbury Schweppes plc, a United Kingdom public limited company incorporated in England and Wales with
registered number 0052457 and whose registered office is at 25 Berkeley
Square, London W1J 6HB (
CS
), Dr Pepper
Snapple Group, Inc., a Delaware corporation (
DPS
) and, solely for the purposes of
Sections 4.01(a)
and
(b)
and
Section 5.03
, Cadbury plc, a United Kingdom
public limited company incorporated in England and Wales with
registered number 06497379 and whose registered office is at 25 Berkeley
Square, London W1J 6HB. Each of CS and DPS is sometimes referred to herein as a
Party
and together, as the
Parties
.
WHEREAS, CS, directly and through its various Subsidiaries, is engaged in the Cadbury plc
Business and the Beverages Business;
WHEREAS, the board of directors of CS has determined that it is in the best interests of CS
and its shareholders to separate CS into two separate, publicly traded companies, which shall
operate the Cadbury plc Business and the Beverages Business, respectively;
WHEREAS, for U.S. federal income tax purposes, the separation and certain related transactions
are intended to qualify as a tax-free transaction under Sections 355 and 368 of the Internal
Revenue Code of 1986, as amended;
WHEREAS, in order to effect such separation, the board of directors of CS has determined,
among other things, that it is in the best interests of CS and its shareholders to enter into
transactions pursuant to which (i) CS will become a wholly-owned subsidiary of Cadbury plc; (ii) CS
and/or one or more members of the Cadbury plc Group will, collectively, retain or acquire
beneficial ownership of all of the Cadbury plc Assets and Assume all of the Cadbury plc Liabilities
and DPS and/or one or more members of the DPS Group will, collectively, retain or acquire
beneficial ownership of all of the Beverages Assets and Assume all of the Beverages Liabilities;
and (iii) DPS will distribute to the holders of Cadbury plc Beverages Shares on a pro rata basis
(in each case without consideration being paid by such shareholders) all of the outstanding shares
of common stock, par value $0.01 per share, of DPS (the
DPS Common Stock
) (such
transactions as they may be amended or modified from time to time, collectively, the
Plan of
Separation
); and
WHEREAS, CS and DPS have determined that it is necessary and desirable to set forth the
agreements that will effect the Plan of Separation and to set forth certain other agreements that
will govern certain other matters following the Demerger Effective Time;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements
herein contained, and intending to be legally bound hereby, CS and DPS hereby agree as follows:
ARTICLE I
DEFINITIONS AND INTERPRETATION
Section 1.01
Certain Defined Terms
. For purposes of this Agreement:
Action
shall mean any demand, action, claim, suit, countersuit, arbitration,
inquiry, subpoena, proceeding or investigation by or before any Governmental Entity or any
arbitration or mediation tribunal.
Affiliate
shall mean, with respect to any specified Person, any other Person that
directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under
common control with, such specified Person. For the purposes of this definition, control, when
used with respect to any specified Person, shall mean the possession, directly or indirectly, of
the power to direct or cause the direction of the management and policies of such Person, whether
through the ownership of voting securities or other interests, by Contract or otherwise.
Ancillary Agreements
shall mean the Transfer Documents, the Transition Services
Agreement, the Tax Sharing Agreement, the Employee Matters Agreement, the Domain Names Agreement
and the Know-How Agreement.
AsiaPac Territory
shall mean the countries as set forth in
Schedule 1.01(a)
.
Assets
shall mean all assets, properties, claims and rights (including goodwill),
wherever located (including in the possession of vendors or other third parties or elsewhere), of
every kind, character and description, whether real, personal or mixed, tangible, intangible or
contingent, in each case, whether or not recorded or reflected or required to be recorded or
reflected on the Records or financial statements of any Person, including the following:
(i) all accounting and other legal and business books, records, ledgers and files,
whether printed, electronic or written;
(ii) all apparatuses, computers and other electronic data processing and communications
equipment, fixtures, machinery, equipment, furniture, office equipment, automobiles, trucks,
aircraft and other transportation equipment, special and general tools, test devices,
prototypes and models and other tangible personal property;
(iii) all inventories of products, goods, materials, parts, raw materials, packaging,
ingredients and supplies, in each case, whether finished or in process;
(iv) all interests in real property of whatever nature, including easements, whether as
owner, mortgagee or holder of a Security Interest in real property, lessor, sublessor,
lessee, sublessee or otherwise;
(v) (A) all interests in any capital stock or other equity interests of any Subsidiary
or any other Person, (B) all bonds, notes, debentures or other securities issued by any
Subsidiary or any other Person, and (C) all loans, advances or other extensions of credit or
capital contributions to any Subsidiary or any other Person;
(vi) all Contracts, including license Contracts, leases of personal property, open
purchase orders for raw materials, packaging, ingredients, supplies, parts or services,
unfilled orders for the manufacture and sale of products and other Contracts or commitments;
(vii) all deposits, letters of credit and performance and surety bonds;
2
(viii) all written (including in electronic form) technical information, data,
specifications, research and development information, engineering drawings and
specifications, operating and maintenance manuals, and materials and analyses prepared by
consultants and other third parties;
(ix) all Intellectual Property;
(x) all Software;
(xi) all cost information, sales and pricing data, customer prospect lists, supplier
records, customer and supplier lists, customer and vendor data, correspondence and lists,
product data and literature, artwork, design, development and business process files and
data, vendor and customer drawings, specifications, quality records and reports and other
books, records, studies, surveys, reports, plans and documents;
(xii) all prepaid expenses, trade accounts and other accounts and notes receivables;
(xiii) all claims, rights or benefits against any Person or pursuant to any Action,
choses in action or similar rights, whether accrued or contingent;
(xiv) all rights under insurance policies and all rights in the nature of insurance,
indemnification or contribution;
(xv) all licenses, permits, approvals and authorizations which have been issued by any
Governmental Entity;
(xvi) all cash or cash equivalents, bank accounts, lock boxes and other deposit
arrangements; and
(xvii) all interest rate, currency, commodity or other swap, collar, cap or other
hedging or similar Contracts or arrangements.
Beverages Assets
shall mean:
(i) the ownership interests in those Business Entities that are included in the
definition of the DPS Group and all of the Assets owned or held by
such Business Entities (other than any Assets that constitute Cadbury
plc Assets);
(ii) all Beverages Contracts and any rights or claims arising thereunder;
(iii) any rights or claims or contingent rights or claims primarily relating to or
arising from the Beverages Business;
(iv) any and all Assets reflected on the Beverages Balance Sheet or the accounting
records supporting such balance sheet and any Assets acquired by or for DPS or any member of
the DPS Group subsequent to the date of such balance sheet which,
had they been so acquired on or before such date and owned as of such date, would have
been reflected on such balance sheet if prepared on a consistent basis, subject to any
3
dispositions of any of such Assets subsequent to the date of such balance sheet;
(v) subject to
ARTICLE IX
, any rights of any member of the DPS Group under
any Policies, including any rights thereunder arising after the Distribution Date in respect
of any Policies that are occurrence policies;
(vi) all Beverages Claims and, to the extent relating to the Beverages Business,
Joint Cadbury plc and Beverages Claims; and
(vii) the Assets set forth in
Schedule 1.01(b)
and any and all Assets that are
expressly contemplated by this Agreement or any Ancillary Agreement as Assets which have
been or are to be Transferred to DPS or any other member of the DPS Group.
Notwithstanding the foregoing, the Beverages Assets shall not include any Assets that are
expressly contemplated by this Agreement or any Ancillary Agreement (or the Schedules hereto or
thereto) as Assets to be retained by or Transferred to any member of the Cadbury plc Group.
Beverages Balance Sheet
shall mean the combined balance sheet of the DPS Group,
including the notes thereto, as of December 31, 2007, prepared to give effect to the Transactions
contemplated hereby, as set forth in
Schedule 1.01(c)
;
provided
that to the extent
any Assets or Liabilities are Transferred by CS or any member of the Cadbury plc Group to DPS or
any member of the DPS Group or vice versa in connection with the Plan of Separation and on or prior
to the Distribution Date, such Assets and/or Liabilities shall be deemed to be included or excluded
from the Beverages Balance Sheet, as the case may be.
Beverages Business
shall mean the business of (i) manufacturing, distributing,
selling, marketing and promoting carbonated and non-carbonated beverages and other food products
throughout the Territory bearing brands owned by or licensed to a member of the DPS Group and (ii)
licensing brands owned by or licensed to a member of the DPS Group, including for use with
confectionery and other products, to the extent permitted, in the Territory.
Beverages Contracts
shall mean the following Contracts to which any member of the
Cadbury plc Group or any member of the DPS Group is a party or by which any member of the Cadbury
plc Group or any member of the DPS Group or any of their respective Assets is bound, whether or not
in writing:
(i) any Contract that relates primarily to the Beverages Business;
(ii) any Contract or part thereof that is otherwise expressly contemplated pursuant to
this Agreement (including pursuant to
Section 2.01(c)
) or any of the Ancillary
Agreements to be assigned to any member of the DPS Group; and
(iii) any Beverages IP Agreement.
Beverages Indemnitees
shall mean each member of the DPS Group and each of
their directors, officers, employees and agents and each of the heirs, executors, successors
and assigns of any of the foregoing, other than the Cadbury plc Indemnitees.
4
Beverages Intellectual Property
shall mean the Beverages Owned Intellectual Property
and the Beverages Licensed Intellectual Property.
Beverages IP Agreements
shall mean all licenses of Intellectual Property (i) from
any member of the DPS Group to any other Person and (ii) to any member of the DPS Group from any
other Person.
Beverages Liabilities
shall mean:
(i) any Liabilities that are expressly contemplated by this Agreement or any Ancillary
Agreement (or the Schedules hereto or thereto, including
Schedule 1.01(d)
hereto) as
Liabilities to be Assumed by any member of the DPS Group, and all obligations and
Liabilities expressly Assumed by any member of the DPS Group under this Agreement or any of
the Ancillary Agreements;
(ii) any Liabilities to the extent relating to, arising out of or resulting from:
(A) the operation or conduct of the Beverages Business prior to, on or after
the Demerger Effective Time (including any such Liability to the extent relating to,
arising out of or resulting from any act or failure to act by any director, officer,
employee, agent or representative (whether or not such act or failure to act is or
was within such Persons authority) with respect to the Beverages Business);
(B) the operation or conduct of any business conducted by any member of the DPS
Group at any time after the Demerger Effective Time (including any such Liability to
the extent relating to, arising out of or resulting from any act or failure to act
by any director, officer, employee, agent or representative (whether or not such act
or failure to act is or was within such Persons authority) with respect to the
Beverages Business);
(C) any Beverages Assets, whether arising before, on or after the Demerger
Effective Time;
(D) any terminated or divested Business Entity, business or operation formerly
and primarily owned or managed by or associated with DPS or any Beverages Business;
(E) any indebtedness (including debt securities and asset-backed debt) of any
member of the DPS Group or indebtedness (regardless of the issuer of such
indebtedness) exclusively relating to the Beverages Business or any indebtedness
(regardless of the issuer of such indebtedness) secured exclusively by any of the
Beverages Assets (including any Liabilities relating to, arising out of or resulting
from a claim by a holder of any such indebtedness, in its capacity as such); and
(F) any Beverages Litigation Matter, Future Beverages Litigation
Matter and, to the extent relating to the Beverages Business, any Future Joint
Litigation Matter; and
5
(iii) all Liabilities reflected as liabilities or obligations on the Beverages Balance
Sheet or the accounting records supporting such balance sheet, and all Liabilities arising
or Assumed after the date of such balance sheet which, had they arisen or been Assumed on or
before such date and been retained as of such date, would have been reflected on such
balance sheet or such records if prepared on a consistent basis, subject to any discharge of
such Liabilities subsequent to the date of the Beverages Balance Sheet.
Notwithstanding anything to the contrary herein, the Beverages Liabilities shall not include
any Cadbury plc Liabilities.
Beverages Licensed Intellectual Property
shall mean all Intellectual Property that a
member of the DPS Group is licensed to use pursuant to the Beverages IP Agreements.
Beverages Litigation Matters
means the Actions set forth in
Schedule 1.01(e)
hereto and any other Actions related to the Beverages Assets or Beverages Liabilities commenced on
or before the Distribution Date.
Beverages Owned Intellectual Property
shall mean all Intellectual Property owned by
a member of the DPS Group.
Beverages Policies
shall mean the Policies, current or past, that are owned or
maintained by or on behalf of any member of the Cadbury plc Group or any member of the DPS Group,
which relate exclusively to the Beverages Business and are either maintained by DPS or a member of
the DPS Group or assignable to DPS or a member of the DPS Group, as set forth in
Schedule
1.01(f)
.
Beverages Shared Policies
shall mean the Policies, current or past, that are owned
or maintained by or on behalf of any member of the Cadbury plc Group or any member of the DPS Group
which relate to the Beverages Business, other than Beverages Policies, as set forth in
Schedule
1.01(g)
.
Beverages Shared Policy Insured Claims
shall mean those Liabilities that, individually or in
the aggregate, are covered within the terms and conditions of any of the Beverages Shared Policies, whether
or not subject to deductibles, co-insurance, uncollectibility or retrospectively-rated premium
adjustments.
Business Day
shall mean any day that is not a Saturday, a Sunday or any other day on
which banks are required or authorized by Law to be closed in The City of New York, United States
or London, England.
Business Entity
shall mean any Person (other than a natural person) which may
legally hold title to Assets.
Cadbury plc Assets
shall mean:
(i) the ownership interests in those Business Entities that are included in the
definition of the Cadbury plc Group and all of the Assets owned or held by such Business Entities (other than any Assets that constitute Beverages Assets);
(ii) all Cadbury plc Contracts and any rights or claims arising thereunder;
(iii) any rights or claims or contingent rights or claims primarily relating to or
arising from the Cadbury plc Business;
6
(iv) any and all Assets reflected on the Cadbury plc Balance Sheet or the accounting
records supporting such balance sheet and any Assets acquired by or for CS or any
member of the Cadbury plc Group subsequent to the date of such balance sheet which, had they
been so acquired on or before such date and owned as of such date, would have been reflected
on such balance sheet if prepared on a consistent basis, subject to any dispositions of any
of such Assets subsequent to the date of such balance sheet;
(v) subject to
ARTICLE IX
, any rights of any member of the Cadbury plc Group
under any Policies, including any rights thereunder arising after the Distribution Date in
respect of any Policies that are occurrence policies;
(vi) all Cadbury plc Claims and, to the extent relating to the Cadbury plc Business,
Joint Cadbury plc and Beverages Claims; and
(vii) the Assets set forth in
Schedule 1.01(h)
and any and all Assets that are
expressly contemplated by this Agreement or any Ancillary Agreement as Assets which have
been or are to be Transferred to CS or any other member of the Cadbury plc Group.
Notwithstanding the foregoing, the Cadbury plc Assets shall not include any Assets that are
expressly contemplated by this Agreement or any Ancillary Agreement (or the Schedules hereto or
thereto) as Assets to be retained by or Transferred to any member of the DPS Group.
Cadbury plc Balance Sheet
shall mean the unaudited pro forma statement of net assets
of the Cadbury plc Group, as of December 31, 2007, prepared to give effect to the transactions
contemplated hereby, including the notes thereto, as set forth in
Schedule 1.01(i)
;
provided
that to the extent any Assets or Liabilities are Transferred by DPS or any member
of the DPS Group to CS or any member of the Cadbury plc Group or vice versa in connection with the
Plan of Separation and on or prior to the Distribution Date, such assets and/or liabilities shall
be deemed to be included or excluded from the Cadbury plc Balance Sheet, as the case may be.
Cadbury plc Beverages Shares
shall mean the issued and outstanding shares of 500 pence each of Cadbury plc.
Cadbury plc Business
shall mean the business of manufacturing, distributing,
selling, marketing and promoting (i) confectionery and other food products throughout the world and
(ii) carbonated and non-carbonated beverages outside of the Territory.
Cadbury plc Contracts
shall mean the following Contracts to which CS or any of its
Affiliates is a party as of the date hereof or by which it or any of its Affiliates as of the date
hereof or any of their respective Assets is bound, whether or not in writing:
(i) any Contract that relates primarily to the Cadbury plc Business; and
(ii) any Contract or part thereof that is otherwise expressly contemplated pursuant to
this Agreement (including pursuant to
Section 2.01(c)
) or any of the Ancillary
Agreements to be assigned to any member of the Cadbury plc Group.
7
Cadbury plc Group
shall mean Cadbury plc and each Business Entity that is a
Subsidiary of Cadbury plc immediately after the Demerger Effective Time, and each Business Entity
that becomes a Subsidiary of Cadbury plc after the Demerger Effective Time, which shall include
those entities identified as such in
Schedule 1.01(j)
.
Cadbury plc Indemnitees
shall mean each member of the Cadbury plc Group and each of
their respective directors, officers, employees and agents and each of the heirs, executors,
successors and assigns of any of the foregoing, other than the Beverages Indemnitees.
Cadbury plc Liabilities
shall mean:
(i) any and all Liabilities that are expressly contemplated by this Agreement or any
Ancillary Agreement (or the Schedules hereto or thereto, including
Schedule 1.01(k)
hereto) as Liabilities to be Assumed by any member of the Cadbury plc Group, and all
obligations and Liabilities expressly Assumed by any member of the Cadbury plc Group under
this Agreement or any of the Ancillary Agreements;
(ii) any and all Liabilities to the extent relating to, arising out of or resulting
from:
(A) the operation or conduct of the Cadbury plc Business prior to, on or after
the Demerger Effective Time (including any such Liability to the extent relating to,
arising out of or resulting from any act or failure to act by any director, officer,
employee, agent or representative (whether or not such act or failure to act is or
was within such Persons authority) with respect to the Cadbury plc Business);
(B) the operation or conduct of any business conducted by any member of the
Cadbury plc Group at any time after the Demerger Effective Time (including any such
Liability to the extent relating to, arising out of or resulting from any act or
failure to act by any director, officer, employee, agent or representative (whether
or not such act or failure to act is or was within such Persons authority) with
respect to the Cadbury plc Business);
(C) any Cadbury plc Assets, whether arising before, on or after the Demerger
Effective Time;
(D) any terminated or divested Business Entity, business or operation formerly
and primarily owned or managed by or associated with CS or any Cadbury plc Business;
(E) any indebtedness (including debt securities and asset-backed debt) of any
member of the Cadbury plc Group or indebtedness (regardless of the issuer of such
indebtedness) exclusively relating to the Cadbury plc Business or any
indebtedness (regardless of the issuer of such indebtedness) secured
exclusively by any of the Cadbury plc Assets (including any Liabilities relating to,
arising out of or resulting from a claim by a holder of any such indebtedness, in
its capacity as such); and
8
(F) any Cadbury plc Litigation Matter, any Future Cadbury plc Litigation Matter
and, to the extent relating to the Cadbury plc Business, any Future Joint Litigation
Matter; and
(iii) all Liabilities reflected as liabilities or obligations on the Cadbury plc
Balance Sheet or the accounting records supporting such balance sheet, and all Liabilities
arising or Assumed after the date of such balance sheet which, had they arisen or been
Assumed on or before such date and been retained as of such date, would have been reflected
on such balance sheet or such records if prepared on a consistent basis, subject to any
discharge of such Liabilities subsequent to the date of the Cadbury plc Balance Sheet.
Notwithstanding anything to the contrary herein, the Cadbury plc Liabilities shall not include
any Beverages Liabilities.
Cadbury plc Litigation Matters
means the Actions set forth in
Schedule
1.01(l)
hereto and any other Actions related to the Cadbury plc Assets or Cadbury plc
Liabilities commenced on or before the Distribution Date.
Cadbury plc Ordinary Shares
shall mean the issued and outstanding ordinary shares of
500 pence each of Cadbury plc.
Circular
shall mean the circular sent to holders of CS Ordinary Shares containing
details of the Plan of Separation.
Claims Administration
shall mean the processing of claims made under the Beverages Shared
Policies, including the reporting of claims to the insurance carriers, management and defense of
claims and providing for appropriate releases upon settlement of claims.
Confidential Information
shall mean confidential or proprietary Information
concerning a Party and/or its Subsidiaries which, prior to or following the Demerger Effective
Time, has been disclosed by a Party or its Subsidiaries to another Party or its Subsidiaries, in
written, oral (including by recording), electronic, or visual form to, or otherwise has come into
the possession of, the other Party or its Subsidiaries, including pursuant to the provisions of
Section 8.01
,
8.02
or
8.03
or any other provision of this Agreement (except
to the extent that such Information can be shown to have been (i) in the public domain through no
fault of such Party or its Subsidiaries or (ii) lawfully acquired from other sources by such Party
or its Subsidiaries to which it was furnished;
provided
,
however
, in the case of
clause (ii) that, to the furnished Partys knowledge, such sources did not provide such Information
in breach of any confidentiality obligations).
Consents
shall mean any consents, waivers or approvals from, or notification
requirements to, any Person other than a Governmental Entity, in each case, in connection with
the Plan of Separation.
Continuing Arrangements
shall mean those arrangements set forth in
Schedule
1.01(m)
and such other commercial arrangements among the Parties that are intended to survive
and continue following the Demerger Effective Time.
9
Contract
shall mean any agreement, contract, obligation, indenture, instrument,
lease, arrangement, commitment or undertaking (whether written or oral and whether express or
implied).
CS ADRs
shall mean the American Depositary Receipts evidencing the American
depository shares representing CS Ordinary Shares.
CS Ordinary Shares
shall mean the issued and outstanding ordinary shares of 12.5
pence each of CS.
Demerger Effective Time
shall mean the time at which the Plan of Separation becomes
effective, expected to be at or around 2:30 p.m. British Summer Time on May 7, 2008 or such other time as
the Court Order is registered.
Disclosure Documents
shall mean any registration statement or other document
(including the Form 10 and the Prospectus) filed with the SEC or the FSA by or on behalf of any
Party or any of its controlled Affiliates in connection with the Plan of Separation, and also
includes any information statement, prospectus, offering memorandum, offering circular (including
the Circular and any franchise offering circular or any similar disclosure statement), or similar
disclosure document, whether or not filed with the SEC or the FSA or any other Governmental Entity
related to the Plan of Separation, which offers for sale or registers the Transfer or distribution
of any security of such Party or any of its controlled Affiliates.
Distribution
shall mean the distribution by DPS on the Distribution Date to holders
of record of shares of Cadbury plc Beverages Shares as of the Distribution Record Date of the
issued and outstanding DPS Common Stock on the basis of 12 shares of DPS Common Stock for every
36 outstanding Cadbury plc Beverages Shares.
Distribution Date
shall mean the date which DPS distributes all of the issued and
outstanding shares of DPS Common Stock to the holders of Cadbury plc Beverages Shares.
Distribution Record Date
shall mean 6:00 p.m. Greenwich Mean Time or British Summer
Time, as applicable to the time of year, on the Business Day immediately preceding the date on
which the Court Order is registered by the UK Registrar of Companies at Companies House.
DPS Group
shall mean DPS and each Business Entity that is a Subsidiary of DPS
immediately after the Demerger Effective Time, and each Business Entity that becomes a Subsidiary
of DPS after the Demerger Effective Time, which shall include those entities identified as such in
Schedule 1.01(n)
.
DPS Transaction Costs
shall mean the categories of out-of-pocket transaction costs and expenses incurred by CS, DPS or any member of their respective Groups in connection
with the Plan of Separation set forth in
Schedule 1.01(o)
.
Employee
Matters Agreement
shall mean the Employee Matters Agreement
among CS and DPS and, solely for certain limited sections therein,
Cadbury plc, substantially in the form of attached hereto as
Exhibit 1.01(a)
.
10
Exchange Act
shall mean the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder, all as the same shall be in effect at the time that
reference is made thereto.
Form 10
shall mean the registration statement on Form 10 filed by DPS with the SEC
in connection with the Distribution, and all amendments and supplements thereto.
FSA
shall mean the UK Financial Services Authority.
Governmental Approvals
shall mean any notice or report to be submitted to, or other
filing to be made with, or any consent, registration, approval, permit or authorization to be
obtained from, any Governmental Entity, in each case in connection with the Plan of Separation.
Governmental Entity
shall mean any nation or government, any state, municipality or
other political subdivision thereof and any entity, body, agency, department, board, bureau or
court, whether domestic, foreign or multinational, exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government and any executive official
thereof.
Group
shall mean the Cadbury plc Group or the DPS Group, as the context may require.
Indemnifiable Loss
shall mean any and all damages, losses, Liabilities, penalties,
judgments, settlements, claims, payments, fines, interest, costs and expenses (including the costs
and expenses of any and all Actions and demands, assessments, judgments, settlements and
compromises relating thereto and the reasonable costs and expenses of attorneys, accountants,
consultants and other professionals fees and expenses incurred in the investigation or defense
thereof or the enforcement of rights hereunder), excluding special, consequential, indirect,
punitive damages (other than special, consequential, indirect and/or punitive damages awarded to
any third party against an indemnified party) and excluding Taxes. In addition, an
Indemnifiable Loss
shall not include any non-cash costs or charges, except to the extent
such non-cash costs or charges result in a cash payment by the applicable Indemnitee.
Information
shall mean all information, whether or not patentable or copyrightable,
in written, oral, electronic, visual or other tangible or intangible form, stored in any medium,
including studies, reports, Records, instruments, surveys, discoveries, ideas, concepts, know-how,
techniques, designs, specifications, drawings, blueprints, diagrams, models, prototypes, samples,
flow charts, data, computer data, disks, diskettes, tapes, computer programs or other Software,
marketing plans, customer names, communications by or to attorneys (including attorney-client
privileged communications), memos and other materials prepared by attorneys or under their
direction (including attorney work product), communications and materials otherwise related to or
made or prepared in connection with or in preparation for any legal proceeding, and other technical, financial, employee or business
information or data.
Information Statement
shall mean the Information Statement attached as an exhibit to
the Form 10 sent to the holders of CS Ordinary Shares in connection with the Distribution,
including any amendment or supplement thereto.
11
Insurance Administration
shall mean, with respect to each Beverages Shared Policy, the
accounting for premiums, retrospectively-rated premiums, defense costs, indemnity payments,
deductibles and retentions, as appropriate, under the terms and conditions of each of the Beverages Shared
Policies; and the reporting to excess insurance carriers of any losses or claims which may cause
the per-occurrence, per claim or aggregate limits of any Beverages Shared Policy to be exceeded, and the
distribution of Insurance Proceeds as contemplated by this Agreement.
Insurance Proceeds
shall mean those monies (i) received by an insured from an
insurance carrier or (ii) paid by an insurance carrier on behalf of an insured, in either case net
of any applicable premium adjustment, retrospectively-rated premium, deductible, retention, or cost
of reserve paid or held by or for the benefit of such insured.
Intellectual Property
shall mean (i) patents and patent applications; (ii)
Trademarks; (iii) copyrights and design rights, including registrations and applications for
registration thereof; (iv) database rights; and (v) confidential and proprietary information,
including trade secrets and know-how.
Intercompany Balances
shall mean the intercompany accounts receivable, accounts
payable, loans and corporate cross-charges (other than current intercompany accounts receivables
and accounts payable arising out of the ordinary course of business or any balances outstanding
under any Continuing Arrangement), including the interest accrued thereon as of the date hereof,
between any member of the DPS Group, on the one hand, and any member of the Cadbury plc Group, on
the other hand, set forth in
Schedule 1.01(p)
.
Law
shall mean any applicable U.S., English or other federal, national,
supranational, state, provincial, local or similar statute, law, ordinance, regulation, rule, code,
order, requirement or rule of law (including common law).
Liabilities
shall mean any and all debts, liabilities, costs, expenses and
obligations, whether accrued or fixed, absolute or contingent, matured or unmatured, reserved or
unreserved, or determined or determinable, including those arising under any Law, Action, whether
asserted or unasserted, or order, writ, judgment, injunction, decree, stipulation, determination or
award entered by or with any Governmental Entity and those arising under any Contract or any fines,
damages or equitable relief which may be imposed and including all costs and expenses related
thereto.
Listing Rules
shall mean the Listing Rules of the UKLA.
London Stock Exchange
shall mean the London Stock Exchange plc.
NYSE
shall mean the New York Stock Exchange.
Person
shall mean any natural person, firm, individual, corporation, business trust,
joint venture, association, company, limited liability company, partnership or other organization
or entity, whether incorporated or unincorporated, or any Governmental Entity.
Policies
shall mean insurance policies and insurance Contracts of any kind (other
than life and benefits policies or Contracts), including primary, excess and umbrella
12
policies,
comprehensive general liability policies, director and officer liability, fiduciary liability,
automobile, aircraft, property and casualty, workers compensation and employee dishonesty
insurance policies, bonds and self-insurance and captive insurance company arrangements, together
with the rights, benefits and privileges thereunder.
Prospectus
shall mean the prospectus issued by Cadbury plc in relation to the
admission by the UKLA of the Cadbury plc Ordinary Shares and the admission of the Cadbury plc
Ordinary Shares to trading on the main market for listed securities of the London Stock Exchange,
prepared, published and approved by, and filed with, the FSA in accordance with the Prospectus
Rules.
Prospectus Rules
shall mean the Prospectus Rules of the FSA made under section 73A
of the Financial Services and Markets Act 2000, as amended.
Records
shall mean any Contracts, documents, books, records or files.
Scheme
shall mean the scheme of arrangement under Section 425 of the Companies Act
1985 between CS and the CS shareholders, with or subject to any modification, addition or condition
approved or imposed by the Court pursuant to which the CS Ordinary Shares will be cancelled, CS
will become a wholly-owned subsidiary of Cadbury plc and each holder of CS Ordinary Shares will be
entitled to receive 64 Cadbury plc Ordinary Shares and 36 Cadbury plc Beverages Shares for
every 100 CS Ordinary Shares that such holder holds as of the Scheme Record Date.
Scheme Record Date
shall mean 6:00 p.m. Greenwich Mean Time or British Summer Time,
as applicable to the time of year, on the date of the Court hearing to confirm the reduction of
capital of CS provided under the Scheme.
SEC
shall mean the United States Securities and Exchange Commission or any successor
agency.
Securities Act
shall mean the Securities Act of 1933, as amended, and the rules and
regulations of the SEC thereunder, all as the same shall be in effect at the time that reference is
made thereto.
Security Interest
shall mean any mortgage, security interest, pledge, lien, charge,
claim, option, right to acquire, voting or other restriction, right-of-way, easement, encroachment,
restriction on transfer, or other encumbrance of any nature whatsoever, excluding (i) restrictions
on transfer under securities Laws and (ii) licenses of Intellectual Property.
13
Software
shall mean all computer programs, applications and code (including source
code and object code), and all media and documentation (including user manuals and training
materials) relating to or embodying any of the foregoing or on which any of the foregoing are
recorded.
Subsidiary
shall mean, with respect to any Person, (i) a corporation, 50% or more of
the voting or capital stock of which is, as of the time in question, directly or indirectly owned
by such Person and (ii) any other partnership, joint venture, association, joint stock company,
trust, unincorporated organization or other entity in which such Person, directly or indirectly,
owns 50% or more of the equity economic interest thereof or has the power to elect or direct the
election of 50% or more of the members of the governing body of such entity or otherwise has
control over such entity (
e.g.,
as the managing partner of a partnership).
Tax
shall have the meaning set forth in the Tax Sharing Agreement.
Tax Return
shall have the meaning set forth in the Tax Sharing Agreement.
Tax
Sharing Agreement
shall mean the Tax Sharing and
Indemnification Agreement among CS and DPS and, solely for certain
limited sections therein, Cadbury plc, substantially in the form attached hereto as
Exhibit 1.01(b)
.
Territory
shall mean the countries listed across from the brands owned by or
licensed to a member of the DPS Group as of the Distribution Date or otherwise Transferred to a
member of the DPS Group after the Distribution Date pursuant to
Section 2.04
, as set forth
in
Schedule 1.01(q)
. For the avoidance of doubt, the
Territory is specific as to each brand identified in
Schedule 1.01(q)
.
Trademarks
means trademarks, service marks, trade names, trade dress and Internet
domain names, and registrations and applications for registration thereof, together with the
goodwill associated therewith.
Transaction Costs
shall mean all out-of-pocket costs and expenses incurred by CS,
DPS or any member of their respective Groups in connection with the Plan of Separation other than
the DPS Transaction Costs.
Transfer Agent
shall mean Computershare Trust Company, N.A.
Transfer Documents
shall mean, collectively, the various Contracts and other
documents heretofore entered into and to be entered into to effect the Transfer of Assets and the Assumption of Liabilities in the manner contemplated by this Agreement and the Plan of
Separation, or otherwise relating to, arising out of or resulting from the transactions
contemplated by this Agreement, which shall be, as applicable, in such form or forms as the
applicable Parties thereto agree.
14
Transition Services Agreement
shall mean the Transition Services Agreement between
CS and DPS, substantially in the form attached hereto as
Exhibit 1.01(c)
.
UK
shall mean the United Kingdom of Great Britain and Northern Ireland.
UKLA
shall mean the FSA acting in its capacity as the competent authority for the
purposes of Part VI of the Financial Services and Markets Act 2000, as amended.
The following terms have the meanings set forth in the Sections set forth below:
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Definition
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Location
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Agreement
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Preamble
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Agreement Disputes
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10.01
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American Samoa Business
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6.02
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(d)
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AsiaPac Licensed Intellectual Property
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6.04
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(c)
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Assume or Assumed
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2.02
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Audited Party
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5.02
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(d)
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Beverages Claims
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8.10
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(c)
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Beverages Names and Marks
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6.02
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(a)
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Cadbury Names and Marks
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6.01
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(a)
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Cadbury plc Claims
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8.10
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(c)
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Corporate Name
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6.01
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(b)
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Court
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4.01
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(a)
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Court Order
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4.01
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(b)
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CS
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Recitals
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Domain Names Agreement
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6.06
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DPS
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Preamble
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DPS Common Stock
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Recitals
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DPS Licensed Intellectual Property
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6.04
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(b)
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Escalation Notice
|
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10.02
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(a)
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Existing Stock
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6.01
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(c)
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Future Beverages Litigation Matter
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8.10(b)(ii)
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Future Cadbury plc Litigation Matter
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8.10
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(b)(i)
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Future Joint Litigation Matters
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8.10(b)(iii)
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Improvements
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6.04
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(b)
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Indemnifying Party
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7.04
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(b)
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Indemnitee
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7.04
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(b)
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Indemnity Payment
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7.06
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(a)
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Interim Financial Statements
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5.02
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(c)
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Internal Control Audit and Management Assessments
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5.02
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(b)
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Know-How Agreement
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6.05
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(a)
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Joint Cadbury plc and Beverages Claims
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8.10
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(c)
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Memorabilia
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6.03
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Other Partys Auditors
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5.02
|
(b)
|
Party
|
|
Preamble
|
Plan of Separation
|
|
Recitals
|
15
|
|
|
|
|
Definition
|
|
Location
|
|
Reduction
|
|
|
4.01
|
(a)
|
Shared Contract
|
|
|
2.01
|
(c)(i)
|
Third Party Claim
|
|
|
7.04
|
(b)
|
Third Party Proceeds
|
|
|
7.06
|
(a)
|
Transfer
|
|
|
2.01
|
(a)(i)
|
Section 1.02
Interpretation and Rules of Construction
. In this Agreement, except to the extent otherwise provided or that the context otherwise
requires:
(a) when a reference is made in this Agreement to an Article, Section, Exhibit or
Schedule, such reference is to an Article or Section of, or an Exhibit or Schedule to, this
Agreement unless otherwise indicated;
(b) the table of contents and headings for this Agreement are for reference purposes
only and do not affect in any way the meaning or interpretation of this Agreement;
(c) whenever the words include, includes or including are used in this Agreement,
they are deemed to be followed by the words without limitation;
(d) the words hereof, herein and hereunder and words of similar import, when used
in this Agreement, refer to this Agreement as a whole and not to any particular provision of
this Agreement;
(e) all terms defined in this Agreement have the defined meanings when used in any
Ancillary Agreement, or any certificate or other document made or delivered pursuant hereto,
unless otherwise defined therein;
(f) the definitions contained in this Agreement are applicable to the singular as well
as the plural forms of such terms; and
(g) references to a Person are also to its successors and permitted assigns.
ARTICLE II
THE SEPARATION
Section 2.01
Transfer of Assets
.
(a) On or prior to the Demerger Effective Time and to the extent not already completed:
(i) CS shall, on behalf of itself and the members of the Cadbury plc Group, as
applicable, transfer, contribute, assign and convey or cause to be transferred, contributed,
assigned and conveyed (
Transfer
) to DPS or another member of the DPS Group all of
its and its Subsidiaries right, title and interest, if any and to the extent of such right,
title and interest, in and to the Beverages Assets owned or held by a
member of the Cadbury
16
plc Group as of the Distribution Date, including taking the actions necessary to consummate
the transactions set forth in
Schedule 2.01(a)
; and
(ii) DPS shall, on behalf of itself and the members of the DPS Group, as applicable,
Transfer to CS or another member of the Cadbury plc Group all of its and its Subsidiaries
right, title and interest, if any and to the extent of such right, title and interest, in
and to the Cadbury plc Assets owned or held by a member of the DPS Group as of the
Distribution Date, including taking the actions necessary to consummate the transactions set
forth in
Schedule 2.01(a)
.
(b) Unless otherwise agreed to by the Parties, each of CS and DPS shall be entitled to
designate the Business Entity within such Partys respective Group to which any Assets are to be
Transferred pursuant to this
Section 2.01
or
Section 2.04
.
(c) Without limiting the generality of the obligations set forth in
Section 2.01(a)
and
2.01(b)
:
(i) Unless the Parties otherwise agree or the benefits of any Contract described in
this Section are expressly conveyed to the applicable Party pursuant to an Ancillary
Agreement, to the extent any Contract is (1) a Cadbury plc Asset but inures in part to the
benefit or burden of any member of the DPS Group or (2) a Beverages Asset but inures in part
to the benefit or burden of any member of the Cadbury plc Group, including those contracts
listed in
Schedule 2.01(c)
(each, a
Shared Contract
), such Shared Contract
shall be assigned in part to the applicable member(s) of the applicable Group, if so
assignable, or appropriately amended prior to, on or after the Demerger Effective Time, so
that each Party or the members of their respective Groups shall be entitled to the rights
and benefits, and shall Assume the related portion of any Liabilities, inuring to their
respective businesses;
provided
,
however
, that (x) in no event shall any
member of any Group be required to assign (or amend) any Shared Contract in its entirety or
to assign a portion of any Shared Contract (including any Policy) which is not assignable
(or cannot be amended) by its terms (including any terms imposing consents or conditions on
an assignment where such consents or conditions have not been obtained or fulfilled) and (y)
if any Shared Contract cannot be so partially assigned by its terms or otherwise, or cannot
be amended or if such assignment or amendment would impair the benefit the Parties thereto
derive from such Shared Contract, the Parties shall, and shall cause each of their
respective Subsidiaries to, take such other reasonable and permissible actions to cause a
member of the DPS Group or the Cadbury plc Group, as the case may be, to receive the benefit
of that portion of each Shared Contract that relates to the Beverages Business or the
Cadbury plc Business (to the extent so related) as if such Shared Contract had been assigned
to (or amended to allow) a member of the applicable Group pursuant to this
Section 2.01
and to bear the burden of the corresponding
Liabilities (including any Liabilities that may arise by reason of such arrangement) as if
such Liabilities had been Assumed by a member of the applicable Group pursuant to this
Section 2.01
.
(ii)
Each of CS and DPS shall, and shall cause the respective members of its
Group to, (A) treat for all Tax purposes the portion of each Shared
17
Contract inuring to its
respective businesses as Assets owned by, and/or Liabilities of, as applicable, such Party
not later than the Demerger Effective Time and (B) neither report nor take any Tax position
(on a Tax Return or otherwise) inconsistent with such treatment (in the case of clauses (A)
and (B), unless required by Tax Law or any other Law or the good faith resolution of a
contest or other proceeding relating to Taxes).
(iii) Nothing in this
Section 2.01(c)
shall require any member of any Group to
make any payment (except to the extent advanced, Assumed or agreed in advance to be
reimbursed by any member of the other Group), incur any obligation or grant any concession
for the benefit of any member of any other Group in order to effect any transaction
contemplated by this
Section 2.01(c)
, in each case, other than an incidental
payment, obligation or concession.
Section 2.02
Assumption and Satisfaction of Liabilities
. Except as otherwise specifically set forth in any Ancillary Agreement, from and after the
Demerger Effective Time, (a) CS shall, or shall cause a member of the Cadbury plc Group to, accept,
assume (or, as applicable, retain), perform, discharge and fulfill, in accordance with their
respective terms (
Assume
), all of the Cadbury plc Liabilities and (b) DPS shall, or shall
cause a member of the DPS Group to, Assume all the Beverages Liabilities, in each case, regardless
of (i) when or where such Liabilities arose or arise, (ii) whether the facts upon which they are
based occurred prior to, on or subsequent to the Demerger Effective Time, (iii) where or against
whom such Liabilities are asserted or determined and (iv) whether arising from or alleged to arise
from negligence, recklessness, violation of Law, fraud or misrepresentation by any member of the
Cadbury plc Group or the DPS Group, as the case may be, or any of their past or present respective
directors, officers, employees, agents, Subsidiaries or Affiliates.
Section 2.03
Intercompany Balances
.
(a) All of the Intercompany Balances set forth on
Schedule 1.01(p)
shall, prior to or
at the Demerger Effective Time, be repaid, settled or otherwise eliminated, by means of cash
payments, a dividend, capital contribution, a combination of the foregoing or otherwise, as
determined by CS.
(b) Except as may be contemplated by this Agreement or any Ancillary Agreement and the
transactions contemplated hereby and thereby, from [______], 2008 until the Distribution Date,
DPS shall, and shall cause each member of the DPS Group to, manage its working capital in the
ordinary course of business consistent with past practice.
(c) As between the Parties (and the members of their respective Groups), all payments and
reimbursements received after the Demerger Effective Time by any Party (or member of its Group)
that relate to a Business, Asset or Liability of the other Party (or member of its Group) shall be
held by such Party in trust for the use and benefit of the Party entitled thereto (at the expense
of the Party entitled thereto) and, promptly upon receipt by such Party of any such payment or
reimbursement, such Party shall pay or shall cause the applicable member
18
of its Group to pay over
to the applicable Party the amount of such payment or reimbursement without right of set-off, net
of any costs, including Tax costs, to the Party making the payment.
Section 2.04
Transfers Not Effected on or Prior to the Demerger Effective Time; Transfers
Deemed Effective as of the Demerger Effective Time
.
(a) To the extent that any Transfers contemplated by this Agreement (other than any Transfer
contemplated by
Section 2.01(c)
) shall not have been consummated on or prior to the
Demerger Effective Time, the Parties shall cooperate to effect such Transfers as promptly as
practicable following the Demerger Effective Time. Nothing herein shall be deemed to require the
Transfer of any Assets or the Assumption of any Liabilities which by their terms or operation of
Law cannot be Transferred;
provided
,
however
, that the Parties and their respective
Subsidiaries shall cooperate and use commercially reasonable efforts
following the Distribution Date to seek to obtain any
necessary Consents or Governmental Approvals for the Transfer of all Assets and the Assumption of
all Liabilities contemplated to be Transferred and Assumed pursuant to this Agreement.
(b) In the event that any such Transfer of Assets or Assumption of Liabilities has not been
consummated, from and after the Demerger Effective Time (i) the Party whose Group retains such
Asset shall thereafter hold, or cause the applicable member of its Group to hold, such Asset (at no
net Tax cost to such Party or such member) for the use and benefit of the member of the other Group
entitled thereto (at the expense of the member entitled thereto) to the extent related to such
other Partys business and (ii) the Party intended to Assume such Liability shall, or shall cause
the applicable member of its Group to, pay or reimburse the member of the other Group retaining
such Liability (at no net Tax cost to such retaining member) for all amounts paid or incurred in
connection with the retention of such Liability to the extent related to such other Partys
business. In addition, the Party whose Group retains such Asset or Liability shall, insofar as
reasonably possible and to the extent permitted by applicable Law, treat such Asset or Liability in
the ordinary course of business in accordance with past practice and take such other actions as may
be reasonably requested by the Party to whose Group such Asset is to be Transferred or by the Party
whose Group will Assume such Liability in order to place such Party, insofar as reasonably
possible, in the same position as if such Asset or Liability had been Transferred or Assumed as
contemplated hereby and so that all the benefits and burdens relating to such Asset or Liability,
including possession, use, risk of loss, potential for gain, and dominion, control and command over
such Asset or Liability, are to inure from and after the Demerger Effective Time to the member or
members of the Cadbury plc Group or the DPS Group entitled to the receipt of such Asset or required
to Assume such Liability. In furtherance of the foregoing, the Parties agree that, as of the
Demerger Effective Time, each Party shall be deemed to have acquired complete and sole beneficial
ownership over all of the Assets, together with all rights, powers and privileges incident thereto,
and shall be deemed to have Assumed in accordance with the terms of this Agreement all of the
Liabilities, and all duties, obligations and responsibilities incident thereto, which such Party is entitled to acquire or required to
Assume pursuant to the terms of this Agreement.
(c) If and when the Consents, Governmental Approvals and/or conditions, the absence or
non-satisfaction of which caused the deferral of Transfer of any Asset or deferral of the
Assumption of any Liability pursuant to
Section 2.04(a)
, are obtained or satisfied, the
19
Transfer, assignment, Assumption or novation of the applicable Asset or Liability shall be effected
in accordance with and subject to the terms of this Agreement and/or the applicable Ancillary
Agreement.
(d) The Person retaining any Asset or Liability due to the deferral of the Transfer of such
Asset or the deferral of the Assumption of such Liability pursuant to
Section 2.04(a)
or
otherwise shall not be obligated, in connection with the foregoing, to expend any money unless the
necessary funds are advanced, assumed, or agreed in advance to be reimbursed by the Person entitled
to such Asset or the Person intended to be subject to such Liability and at no net Tax cost to such
retaining Person, other than reasonable attorneys fees and recording or similar fees, all of which
shall be promptly reimbursed by the Person entitled to such Asset or the Person intended to be
subject to such Liability.
(e) Each of CS and DPS shall, and shall cause the members of its respective Group to, (i)
treat for all Tax purposes (A) the deferred Assets as Assets having been Transferred to and owned
by the Party entitled to such Assets not later than the Demerger Effective Time and (B) the
deferred Liabilities as Liabilities having been Assumed and owed by the Person intended to be
subject to such Liabilities not later than the Demerger Effective Time and (ii) neither report nor
take any Tax position (on a Tax Return or otherwise) inconsistent with such treatment (in the case
of clauses (i) and (ii), unless required by a Tax Law or any other Law or good faith resolution of
a contest or proceeding relating to Taxes).
(f) Nothing in this
Section 2.04
shall be deemed to modify the terms of any Beverages
IP Agreement entered into between any member of the DPS Group, on the one hand, and any member of
the Cadbury plc Group on the other.
Section 2.05
Transfer Documents
. In connection with, and in furtherance of, the Transfer of Assets and the acceptance and
Assumption of Liabilities contemplated by this Agreement, to the extent necessary, the Parties
shall execute or cause to be executed, on or prior to the Demerger Effective Time, the Transfer
Documents reasonably necessary to evidence the valid and effective Assumption by the applicable
Party or the members of its Group of the Cadbury plc Liabilities or Beverages Liabilities, as
applicable, and the valid Transfer to the applicable Party or member of such Partys Group of all
right, title and interest in and to the Cadbury plc Assets or the Beverages Asset, as applicable,
to be Transferred hereunder.
Section 2.06
Further Assurances
.
(a) In addition to and without limiting the actions specifically provided for elsewhere in
this Agreement, including
Section 2.04
, each of the Parties shall cooperate with each other
and use (and will cause their respective Subsidiaries and Affiliates to use) commercially
reasonable efforts, on and after the Demerger Effective Time, to take, or to cause to be taken, all actions, and to do, or to cause to be done, all things reasonably necessary
on its part under applicable Law or contractual obligations to consummate and make effective the
transactions contemplated by this Agreement and the Ancillary Agreements.
(b) Without limiting the foregoing, on and after the Demerger Effective Time, each Party shall
cooperate with the other Parties, and without any further consideration, but at
20
the expense of the
requesting Party from and after the Demerger Effective Time, to execute and deliver, or use
commercially reasonable efforts to cause to be executed and delivered, all instruments, including
instruments of Transfer, and to make all filings with, and to obtain all Consents and/or
Governmental Approvals, any permit, license, Contract, indenture or other instrument (including any
Consents or Governmental Approvals), and to take all such other actions as such Party may
reasonably be requested to take by the other Party from time to time, consistent with the terms of
this Agreement and the Ancillary Agreements, in order to effectuate the provisions and purposes of
this Agreement and the Ancillary Agreements and the Transfers of the applicable Assets and the
assignment and Assumption of the applicable Liabilities and the other transactions contemplated
hereby and thereby.
Section 2.07
Replacement of Guarantors and Obligors
.
(a) DPS shall (with the reasonable cooperation of CS) use its commercially reasonable efforts
to have any member of the Cadbury plc Group removed as guarantor of or obligor for any Beverages
Liability, including in respect of those guarantees and obligations set forth in
Schedule
2.07(a)
, to the extent that they relate to Beverages Liabilities.
(b) On or prior to the Demerger Effective Time, to the extent required to obtain a release
from a guaranty or obligation for any Beverages Liability of any member of the Cadbury plc Group, a
member of the DPS Group, as applicable, shall either (i) execute a guaranty agreement in the form
of the existing guaranty or such other form as is agreed to by the relevant Parties to such
guaranty agreement or (ii) execute an amendment to the agreement giving rise to such obligation in
such form as is necessary to obtain such release, except to the extent that such existing guaranty
or amendment contains representations, covenants or other terms or provisions either (1) with which
DPS would be reasonably unable to comply or (2) which would be reasonably expected to be breached.
(c) If DPS is unable to obtain, or to cause to be obtained, any such required removal as set
forth in clause (a) and (b) of this
Section 2.07
, (i) the relevant DPS Group beneficiary
and DPS shall, and shall cause the members of the DPS Group to, indemnify and hold harmless the
Cadbury plc Group guarantor or obligor for any Indemnifiable Loss arising from or relating thereto
(in accordance with the provisions of
ARTICLE VII
) and shall or shall cause one of its
Affiliates, as agent or subcontractor for such guarantor or obligor to pay, perform and discharge
fully all the obligations or other Liabilities of such guarantor or obligor thereunder.
(d) CS shall (with the reasonable cooperation of DPS) use its commercially reasonable efforts
to have any member of the DPS Group removed as guarantor of or obligor for any Cadbury plc
Liability, including in respect of the guarantees or obligations set forth in
Schedule
2.07(d)
, to the extent that they relate to Cadbury plc Liabilities.
(e) On or prior to the Demerger Effective Time, to the extent required to obtain a release
from a guaranty or obligation for any Cadbury plc Liability of any member of the DPS Group, a
member of the Cadbury plc Group, as applicable, shall either (i) execute a guaranty agreement in
the form of the existing guaranty or such other form as is agreed to by the relevant Parties to
such guaranty agreement or (ii) execute an amendment to the agreement
21
giving rise to such
obligation in such form as is necessary to obtain such release, except to the extent that such
guaranty or amendment contains representations, covenants or other terms or provisions either (1)
with which CS would be reasonably unable to comply or (2) which would be reasonably expected to be
breached.
(f) If CS is unable to obtain, or to cause to be obtained, any such required removal as set
forth in clause (d) and (e) of this
Section 2.07
, (i) the relevant Cadbury plc Group
beneficiary and CS shall, and shall cause the other members of the Cadbury plc Group to, indemnify
and hold harmless the DPS Group guarantor or obligor for any Indemnifiable Loss arising from or
relating thereto (in accordance with the provisions of
ARTICLE VII
) and shall or shall
cause one of its Affiliates, as agent or subcontractor for such guarantor or obligor to pay,
perform and discharge fully all the obligations or other Liabilities of such guarantor or obligor
thereunder.
Section 2.08
Disclaimer of Representations and Warranties
. EACH OF CS (ON BEHALF OF ITSELF AND EACH MEMBER OF THE CADBURY PLC GROUP) AND DPS (ON
BEHALF OF ITSELF AND EACH MEMBER OF THE DPS GROUP) UNDERSTANDS AND AGREES THAT, EXCEPT AS EXPRESSLY
SET FORTH HEREIN, IN ANY ANCILLARY AGREEMENT OR IN ANY CONTINUING ARRANGEMENT, NO PARTY TO THIS
AGREEMENT, ANY ANCILLARY AGREEMENT, ANY CONTINUING ARRANGEMENT OR ANY OTHER AGREEMENT OR DOCUMENT
CONTEMPLATED BY THIS AGREEMENT, ANY ANCILLARY AGREEMENTS, ANY CONTINUING ARRANGEMENTS OR OTHERWISE,
IS REPRESENTING OR WARRANTING IN ANY WAY AS TO THE ASSETS, BUSINESSES, INFORMATION OR LIABILITIES
CONTRIBUTED, TRANSFERRED OR ASSUMED AS CONTEMPLATED HEREBY OR THEREBY, AS TO ANY CONSENTS OR
GOVERNMENTAL APPROVALS REQUIRED IN CONNECTION HEREWITH OR THEREWITH, AS TO THE VALUE OR FREEDOM
FROM ANY SECURITY INTERESTS OF, OR ANY OTHER MATTER CONCERNING, ANY ASSETS OF SUCH PARTY, OR AS TO
THE ABSENCE OF ANY DEFENSES OR RIGHT OF SET-OFF OR FREEDOM FROM COUNTERCLAIM WITH RESPECT TO ANY
ACTION OR OTHER ASSET, INCLUDING ACCOUNTS RECEIVABLE, OF ANY PARTY, OR AS TO THE LEGAL SUFFICIENCY
OF ANY CONTRIBUTION, ASSIGNMENT, DOCUMENT, CERTIFICATE OR INSTRUMENT DELIVERED HEREUNDER TO CONVEY
TITLE TO ANY ASSET OR THING OF VALUE UPON THE EXECUTION, DELIVERY AND FILING HEREOF OR THEREOF.
EXCEPT AS MAY EXPRESSLY BE SET FORTH HEREIN OR IN ANY ANCILLARY AGREEMENT OR CONTINUING
ARRANGEMENT, ALL SUCH ASSETS ARE BEING TRANSFERRED ON AN AS IS, WHERE IS BASIS (AND, IN THE
CASE OF ANY REAL PROPERTY, BY MEANS OF A QUITCLAIM OR SIMILAR FORM DEED OR CONVEYANCE) AND THE
RESPECTIVE TRANSFEREES SHALL BEAR THE ECONOMIC AND LEGAL RISKS THAT (I) ANY CONVEYANCE SHALL PROVE
TO BE INSUFFICIENT TO VEST IN THE TRANSFEREE GOOD TITLE, FREE AND CLEAR OF ANY SECURITY INTEREST
AND (II) ANY NECESSARY CONSENTS OR GOVERNMENTAL APPROVALS ARE NOT OBTAINED OR THAT ANY REQUIREMENTS OF LAWS OR JUDGMENTS ARE
NOT COMPLIED WITH.
22
ARTICLE III
CERTAIN ACTIONS AT OR PRIOR TO THE DISTRIBUTION
Section 3.01
Certificate of Incorporation; Bylaws
. On or prior to the Distribution Date, all necessary actions shall be taken to adopt the
form of Certificate of Incorporation and Bylaws filed by DPS with the SEC as exhibits to the Form
10.
Section 3.02
Directors
. On or prior to the Distribution Date, CS shall take all necessary actions to cause the
board of directors of DPS to consist of the individuals identified in the Information Statement as
directors of DPS.
Section 3.03
Resignations
. On or prior to the Distribution Date, (i) CS shall cause all its employees and any
employees of any member of the Cadbury plc Group (excluding any employees of any member of the DPS
Group) to resign, effective as of the Distribution Date, from all positions as officers or
directors of any member of the DPS Group in which they serve and (ii) DPS shall cause all its
employees and any employees of any member of the DPS Group to resign, effective as of the
Distribution Date, from all positions as officers or directors of any members of the Cadbury plc
Group.
Section 3.04
Ancillary Agreements
. On or prior to the Distribution Date, each of CS and DPS shall enter into, and/or (where
applicable) shall cause a member or members of their respective Group to enter into, the Ancillary
Agreements and any other Contracts in respect of the Distribution reasonably necessary or
appropriate in connection with the transactions contemplated hereby and thereby.
ARTICLE IV
THE DISTRIBUTION
Section 4.01
The Distribution
. Subject to
Sections 4.04
and
4.05
:
(a) Promptly following the sanction by the High Court of Justice of England and Wales (the
Court
) of the Scheme, Cadbury plc shall apply to the Court to approve a reduction in
capital pursuant to Section 135 of the Companies Act 1985 (the
Reduction
) under which the
share capital of Cadbury plc shall be reduced by decreasing the nominal value of each Cadbury plc
Ordinary Share from 500 to 10 pence and the Cadbury plc Beverages Shares will be cancelled in
their entirety.
(b) Promptly after receipt of the order (the
Court Order
) from the Court approving
the Reduction, Cadbury plc shall file the Court Order at Companies House.
(c) On the Distribution Date, DPS shall issue to each holder of a Cadbury plc Beverages Share
12 shares of DPS Common Stock for every 36 Cadbury plc Beverages
Shares held by such shareholder and the shares of DPS Common Stock
held by CS shall be
cancelled. No action by any such shareholder shall be necessary for such shareholder (or such
shareholders designated transferee or transferees) to receive the applicable number of shares of
(and, if applicable, cash in lieu of any fractional shares) DPS Common Stock such shareholder is
23
entitled to in the Distribution. The Transfer Agent shall credit the appropriate class and number
of such shares of DPS Common Stock to book entry accounts for each such holder or designated
transferee or transferees of such holder of DPS Common Stock.
Section 4.02
Fractional Shares
. Shareholders holding a number of shares of Cadbury plc Beverages Shares, on the
Distribution Record Date, which would entitle such shareholders to receive less than one whole share
of DPS Common Stock in the applicable Distribution will receive cash in lieu of fractional shares.
Fractional shares of DPS Common Stock will not be distributed in the Distribution nor credited to
book-entry accounts. The Transfer Agent shall, as soon as practicable after the applicable
Distribution Date, (a) determine the number of whole shares and fractional shares of DPS Common
Stock allocable to each holder of record or beneficial owner of Cadbury plc Beverages Shares as of
close of business on the Distribution Record Date, (b) aggregate all such fractional shares into
whole shares and sell the whole shares obtained thereby in open market transactions, in each case,
at then prevailing trading prices on behalf of holders who would otherwise be entitled to
fractional share interests and (c) distribute to each such holder, or for the benefit of each such
beneficial owner, such holder or owners ratable share of the net proceeds of such sale, based upon
the average gross selling price per share of DPS Common Stock after making appropriate deductions
for any amount required to be withheld for United States federal income tax purposes. DPS shall
bear the cost of brokerage fees incurred in connection with these sales of fractional shares, which
sales shall occur as soon after the applicable Distribution Date as practicable and as determined
by the Transfer Agent. Neither CS nor DPS or the Transfer Agent will guarantee any minimum sale
price for the fractional shares of DPS Common Stock. Neither CS nor DPS will pay any interest on
the proceeds from the sale of fractional shares. The Transfer Agent will have the sole discretion
to select the broker-dealers through which to sell the aggregated fractional shares and to
determine when, how and at what price to sell such shares. Neither the Transfer Agent nor the
broker-dealers through which the aggregated fractional shares are sold will be Affiliates of CS or
DPS.
Section 4.03
Actions in Connection with the Distribution
.
(a) DPS shall file such amendments and supplements to the Form 10 as CS may reasonably request
and such amendments as may be necessary in order to cause the same to become and remain effective
as required by Law, including filing such amendments and supplements to the Form 10 as may be
required by the SEC or federal, state or foreign securities Laws. A member of the Cadbury plc
Group, on behalf of DPS, shall mail to the holders of CS Ordinary Shares and CS ADRs, at such time
on or prior to the applicable Distribution Date as CS shall determine, the Information Statement
included in the Form 10, as well as any other information concerning DPS, its business, operations
and management, the Plan of Separation and such other matters as CS shall reasonably determine are
necessary and as may be required by Law.
(b) DPS shall cooperate with CS in preparing, filing with the SEC and causing to become effective a registration statement or amendments thereof which are required to
reflect the establishment of, or amendments to, any employee benefit and other plans necessary or
appropriate in connection with the Plan of Separation or other transactions contemplated by this
Agreement and the Ancillary Agreements. Promptly after receiving a request from CS, to the
24
extent
requested, DPS shall prepare and, in accordance with applicable Law, file with the SEC any such
documentation that CS determines is necessary or desirable to effectuate the Distribution, and CS
and DPS shall each use commercially reasonable efforts to obtain all necessary approvals from the
SEC with respect thereto as soon as practicable.
(c) DPS shall prepare and file, and shall use commercially reasonable efforts to have approved
and made effective, an application for the original listing of the DPS Common Stock to be
distributed in the Distribution on the NYSE, subject to official notice of distribution.
Section 4.04
Distribution Date
. CS shall, in its sole discretion, determine the Distribution Date and all terms of the
Distribution, including the form, structure and terms of any transactions and/or offerings to
effect the Distribution and the timing of and conditions to the consummation thereof. In addition,
regardless of whether the conditions to the consummation of the Distribution set forth in
Section 4.05
have been satisfied or waived, CS may, in accordance with
Section
11.01
, at any time and from time to time until the completion of the Distribution, decide to
modify or change the terms of the Distribution, including by accelerating or delaying the timing of
the consummation of all or part of the Distribution.
Section 4.05
Conditions to Distribution
. Subject to
Section 4.04
, the consummation of the Distribution shall be subject to
the satisfaction or waiver of the following conditions which satisfaction or waiver shall be
determined by CS in its sole discretion and which conditions are for the sole benefit of the
Cadbury plc Group and shall not give rise to or create any duty on the part of CS or the board of
directors of CS to waive or not waive any such condition:
(a) The Form 10 shall have been declared effective by the SEC, with no stop order in effect
with respect thereto, and the Information Statement shall have been mailed to the holders of CS
Ordinary Shares;
(b) The DPS Common Stock to be delivered in the Distribution shall have been approved for
listing on the NYSE, subject to official notice of issuance;
(c) Any Governmental Approvals shall have been obtained and be in
full force and effect;
(d) The Scheme shall have been sanctioned by the Court and office copies of the Scheme Court
Orders shall have been registered by the UK Registrar of Companies at Companies House;
(e) The Cadbury plc Ordinary Shares shall have been (i) admitted to the official list of the
UKLA and (ii) admitted to trading on the London Stock Exchanges main market for listed Securities;
(f) Cadbury plc shall have received the Court Order approving the Reduction and such Court Order shall have been delivered to the UK Registrar of Companies and been
registered by him;
(g) No order, injunction or decree issued by any Governmental Entity of
25
competent jurisdiction
or other legal restraint or prohibition preventing the consummation of the Distribution or any of
the transactions related thereto, including the transfers of Assets and Assumption of Liabilities
contemplated by this Agreement, shall be in effect;
(h) CS shall have completed the contribution/transfer of the Beverages Business to DPS;
(i) The financing transactions described in the Information Statement as having occurred prior
to the Distribution shall have been consummated on or prior to the Distribution;
(j) There shall not have occurred an event or development that, in the opinion of the board of
directors of CS, in its sole and absolute discretion, would result in the Distribution having a
material adverse effect on CS or any of its Subsidiaries or CS shareholders; and
(k) The Ancillary Agreements shall have been entered into by the applicable Parties.
Section 4.06
Consent to the Reduction
. DPS acknowledges that Cadbury plc is proposing to undertake the Reduction and DPS, on
behalf of itself and each member of the DPS Group, (i) shall as soon as reasonably practicable
after the date of this Agreement provide Cadbury plc with an executed letter of consent to the
Reduction in the form attached as
Exhibit 4.06
and agrees that a copy of this letter may be
presented to the Court as part of Cadbury plcs application for confirmation by the Court of the
Reduction; and (ii) undertakes that to the extent further consent is requested by Cadbury plc in
order to effect the Reduction, DPS shall (and shall procure that any member of the DPS Group shall)
give consent promptly on terms reasonably acceptable to Cadbury plc and, for the avoidance of
doubt, such consents shall not be conditional on the provision of any third party guarantee or the
deposit of any funds in any bank or escrow account or any other security, fact, event or thing.
This consent is (and any consent given after the date of this letter shall be) irrevocable.
ARTICLE V
CERTAIN COVENANTS
Section 5.01
Non-Solicitation of Employees
. During the period ending on the 18-month anniversary of the Distribution Date, none of the
Parties or any member of their respective Groups shall solicit for employment or interfere with or
attempt to interfere with any officers, employees, representatives or agents of any member of the
other Group, or induce or attempt to induce any of them to leave the employ of the other Group or
violate the terms of their contracts, or any employment arrangements, with the other Group;
provided
,
however
, that the foregoing will not prohibit (x) any advertising in publication or media of general circulation
including trade journals or similar media or hiring any officer, employee, representative or agent
who responds to such advertisement or (y) the soliciting or hiring of any officers, employees,
representatives or agents of any member of the other Group who are offered a position following
26
the
termination of employment by the other Group.
Section 5.02
Auditors and Audits; Annual and Quarterly Financial Statements and
Accounting
.
(a) DPS shall use its commercially reasonable efforts to cause its auditors to complete its
audit for the year ending December 31, 2008 such that the auditor will date its opinion of the
audited 2008 annual financial statements on the same date that Cadbury plcs auditors date their
opinion on Cadbury plcs audited annual financial statements, such that Cadbury plc is able to meet
its timetable for the printing, filing and public dissemination of Cadbury plcs 2008 annual
financial statements. In addition, DPS shall use its commercially reasonable efforts to cause its
auditors to comply with the processes and procedures required by Cadbury plc Groups auditors to
permit Cadbury plc Groups auditors to opine on the 2008 audited financial statements of Cadbury
plc.
(b) Each Party shall provide, or provide access to the other Party on a timely basis, all
information reasonably required to meet its schedule for the preparation, printing, filing, and
public dissemination of its 2008 annual financial statements and for managements assessment of the
effectiveness of its disclosure controls and procedures and its internal control over financial
reporting in accordance with Items 307 and 308, respectively, of Regulation S-K and, to the extent
applicable to such Party, its auditors audit of its internal control over financial reporting and
managements assessment thereof in accordance with Section 404 of the Sarbanes-Oxley Act of 2002
and the SECs and Public Company Accounting Oversight Boards rules and auditing standards
thereunder, if required (such assessments and audit being referred to as the
Internal Control
Audit and Management Assessments
). Such information shall be provided in the form, time and
manner reasonably requested by CS, which shall not be materially different than the form, time and
manner required by CS prior to the Distribution Date pursuant to the CS Group Reporting Manual in
effect as of the Distribution Date. Without limiting the generality of the foregoing, each Party
will provide all required financial and other information with respect to itself and its
Subsidiaries to its auditors in a sufficient and reasonable time and in sufficient detail to permit
its auditors to take all steps and perform all reviews necessary to provide sufficient assistance
to the other Partys auditors (each such other Partys auditors, collectively, the
Other
Partys Auditors
) with respect to information to be included or contained in such other
Partys annual financial statements and to permit the Other Partys Auditors and management to
complete the Internal Control Audit and Management Assessments, if required.
(c) Each Party shall provide, or provide access to the other Party on a timely basis, all
information reasonably required to meet its schedule for the preparation, printing, filing, and
public dissemination of its financial results for the period ending June 30, 2008 (the
Interim
Financial Statements
) and for its Internal Control Audit and Management Assessments, if
required. Such information shall be provided in the form, time and manner reasonably requested by
CS, which shall not be materially different than the form, time and manner required by CS prior to
the Distribution Date pursuant to the CS Group Reporting Manual in effect as of the Distribution Date. Without limiting the generality of the foregoing, each Party will provide
all required financial and other information with respect to itself and its Subsidiaries to its
auditors in a sufficient and reasonable time and in sufficient detail to permit its auditors to
take all steps and perform all reviews necessary to provide sufficient assistance to the Other
Partys Auditors
27
with respect to information to be included or contained in the Interim Financial
Statements and to permit the Other Partys Auditors and management to complete the Internal Control
Audit and Management Assessments, if required.
(d) Each Party shall authorize its respective auditors to make reasonably available to the
Other Partys Auditors both the personnel who performed or are performing the annual audits of such
audited Party (each such Party with respect to its own audit, the
Audited Party
) and work
papers related to the annual audits of such Audited Party, in all cases within a reasonable time
prior to such Audited Partys auditors opinion date, so that the Other Partys Auditors are able
to perform the procedures they reasonably consider necessary to take responsibility for the work of
the Audited Partys auditors as it relates to their auditors report on such other Partys
financial statements, all within sufficient time to enable such other Party to meet its timetable
for the printing, filing and public dissemination of its annual financial statements. Each Party
shall make reasonably available to the Other Partys Auditors and management its personnel and
Records in a reasonable time prior to the Other Partys Auditors opinion date and other Partys
managements assessment date so that the Other Partys Auditors and other Partys management are
able to perform the procedures they reasonably consider necessary to conduct the Internal Control
Audit and Management Assessments.
(e) To the extent it relates to a pre-Distribution Date period, (i) each of the Parties hereto
shall give the other Party hereto as much prior notice as is reasonably practicable of any changes
in, or proposed determination of, its accounting estimates from those in effect as of immediately
prior to the Distribution Date or of any other action with regard to its accounting estimates or
previously reported financial results which may affect the other Partys financial results, (ii)
each of the Parties hereto will consult with the other and, if requested by the Party contemplating
such changes, with the Other Partys Auditors and (iii) unless required by generally accepted
accounting principles or a reasonable interpretation thereof by either Partys auditors, Law or a
Governmental Entity, neither party shall make such determination or changes which would affect the
other Partys previously reported financial results without prior consent, which shall not be
unreasonably withheld. Further, each Party will give the other Party prompt notice of any
amendments or restatements of accounting statements with respect to pre-Distribution Date periods,
and will provide the other Party with access as provided in
Section 5.02(c)
hereof as
promptly as possible such that the other Party will be able to satisfy its financial reporting
requirements.
(f) In the event either Cadbury plc or DPS is the subject of any SEC, FSA or other
Governmental Entitys comment, review or investigation (formal or informal) relating to a period
prior to the Distribution Date and which in any way relates to the other Party or the other Partys
public filings, such Party shall provide the other Party with a copy of any comment or notice of
such review or investigation and shall give the other Party a reasonable opportunity to be involved
in responding to such comment, review or investigation, and such other Party shall cooperate with
such Party in connection with responding to such comment, review or investigation.
(g) Any Information exchanged pursuant to this
Section 5.02
is subject to
Section
8.06
.
28
Section 5.03
CS Obligations
. DPS and Cadbury plc agree that Cadbury plc shall not, and shall cause CS not to, take any
actions that would materially and adversely impact the ability of CS to fulfill its obligations
under this Agreement;
provided
that Cadbury plc may at any time following the Distribution Date
require CS to assign to Cadbury plc all of CS rights and obligations under this Agreement in
substitution for compliance by Cadbury plc and CS with the aforementioned obligation in this
Section 5.03, and upon such assignment, Cadbury plc shall assume all of CS obligations under this
Agreement.
ARTICLE VI
INTELLECTUAL PROPERTY MATTERS
Section 6.01
Cadbury Names and Marks
.
(a) DPS hereby acknowledges that all right, title and interest in and to the Cadbury name,
together with all variations and acronyms thereof and all Trademarks and other identifiers of
source or goodwill containing or incorporating any of the foregoing (the
Cadbury Names and
Marks
), are owned exclusively by the Cadbury plc Group, and that, except as expressly provided
below, any and all right of the DPS Group to use the Cadbury Names and Marks shall terminate as of
the Demerger Effective Time and shall immediately revert to the Cadbury plc Group, along with any
and all goodwill associated therewith. DPS acknowledges that (i) the Beverages Assets shall not
include any Cadbury Names and Marks, and (ii) it has no rights, and is not acquiring any rights, to
use the Cadbury Names and Marks, except as expressly provided herein.
(b) DPS shall, as soon as practicable after the Distribution Date, but in no event later than
10 Business Days thereafter, cause each member of the DPS Group to file amended certificates of
incorporation with the appropriate Governmental Entities changing its corporate name, doing
business as name, trade name and any other similar corporate identifier (each, a
Corporate
Name
) to a Corporate Name that does not contain any Cadbury Names and Marks and to supply
promptly any additional information, documents and materials that may be requested by CS with
respect to such filings.
(c) The DPS Group shall, for a period of 15 months after the Distribution Date, be entitled to
use, solely in connection with the operation of the Beverages Business as operated immediately
prior to the Demerger Effective Time, all of their existing stocks of product packaging, signs,
letterheads, business cards, invoice stock, advertisements and promotional materials (other than
Internet or intranet websites and web pages), inventory and other documents and materials
(
Existing Stock
) containing the Cadbury Names and Marks, after which 15-month period DPS
shall cause each member of the DPS Group to remove or obliterate all Cadbury Names and Marks from
such Existing Stock or cease using such Existing Stock;
provided
that the Cadbury Names and Marks shall be removed from (i) all of the
DPS Groups Internet websites and web pages within three months following the Distribution Date and
(ii) all of the DPS Groups intranet websites and web pages within three months following the
Distribution Date.
29
(d) Following the Distribution Date, except as expressly provided in this Agreement, (i) no
other right to use the Cadbury Names and Marks is granted by the Cadbury plc Group to DPS or the
DPS Group, whether by implication or otherwise, and (ii) nothing hereunder permits DPS or any
member of the DPS Group to use the Cadbury Names and Marks on or in connection with any documents,
materials, products or services. DPS shall ensure that all use of the Cadbury Names and Marks by
the DPS Group as provided in this
Section 6.01
shall be only with respect to goods and
services of a level of quality equal to or greater than the quality of goods and services with
respect to which the Cadbury Names and Marks were used in the Beverages Business prior to the
Distribution Date. Any and all goodwill generated by the use of the Cadbury Names and Marks under
this
Section 6.01
shall inure solely to the benefit of the Cadbury plc Group. In no event
shall DPS or any member of the DPS Group use the Cadbury Names and Marks in any manner that may
damage or tarnish the reputation of the Cadbury plc Group, or the goodwill associated with the
Cadbury Names and Marks.
(e) DPS agrees that the Cadbury plc Group shall not have any responsibility for claims by
third parties arising out of, or relating to, the use by the DPS Group of any Cadbury Names and
Marks after the Distribution Date. DPS shall indemnify and hold
harmless CS and its
Affiliates, and their respective officers, directors, employees, agents, successors and assigns
from any and all such claims that may arise out of the use of any Cadbury Names and Marks by DPS or
any member of the DPS Group (i) in accordance with the terms and conditions of this
Section
6.01
, other than such claims that the Cadbury Names and Marks infringe the Intellectual
Property rights of any third party, or (ii) in violation of or outside the scope permitted by this
Section 6.01
. Notwithstanding anything in this Agreement to the contrary, including
Section 10.02(f)
, DPS hereby acknowledges that CS, in addition to any other remedies
available to it for any breach or threatened breach of this
Section 6.01
, shall be entitled
to seek a preliminary injunction, temporary restraining order or other equivalent relief
restraining DPS and any member of the DPS Group from any such breach or threatened breach.
(f) Notwithstanding anything in this Agreement to the contrary, and without limiting the
rights otherwise granted in this
Section 6.01
, DPS and the DPS Group shall have the right,
at all times after the Distribution Date, to (i) keep records and other historical or archived
documents containing or referencing the Cadbury Names and Marks, (ii) use the Cadbury Names and
Marks to the extent required by or permitted as a fair use under applicable Law, and (iii) refer to
the historical fact that the DPS Group previously conducted the Beverages Business under the
Cadbury Names and Marks.
Section 6.02
Beverages Names and Marks
.
(a) For a period of 15 months after the Distribution Date, the Cadbury plc Group shall be
entitled to use, solely in connection with the continued operation of the Cadbury plc Business, all
of their Existing Stock containing any Trademark included in the Beverages Intellectual Property
and/or Beverages Assets, any variation or acronym thereof, or any
Trademark or other identifier of source or goodwill containing, incorporating or associated
with any such Trademark (collectively, the
Beverages Names and Marks
);
provided
that the Beverages Names and Marks shall be removed from (i) all of the Cadbury plc Groups
Internet websites and web pages within three months following the Distribution Date and (ii) all of
the Cadbury plc Groups intranet websites and web pages within three months following
the
30
Distribution Date. For the avoidance of doubt, (i) Beverages Names and Marks does not include
any Trademark owned by or licensed to the Cadbury plc Group as of or following the Distribution
Date and (ii) nothing in this
Section 6.02
shall be deemed to limit or modify in any way
any rights of the Cadbury plc Group in or to any Intellectual Property (other than the Beverages
Names and Marks) or under any agreement relating to Intellectual Property to which any member of
the Cadbury plc Group is or becomes a party or beneficiary.
(b) Following the Distribution Date, except as expressly provided in this Agreement, (i) no
other right to use the Beverages Names and Marks is granted by DPS or the DPS Group to the Cadbury
plc Group, whether by implication or otherwise, and (ii) nothing hereunder permits the Cadbury plc
Group to use the Beverages Names and Marks on or in connection with any documents, materials,
products or services. CS shall ensure that all use of the Beverages Names and Marks as
provided in this
Section 6.02
shall be only with respect to goods and services of a level
of quality equal to or greater than the quality of goods and services with respect to which the
Beverages Names and Marks were used in the businesses of the Cadbury plc Group prior to the
Distribution Date. Any and all goodwill generated by the use of the Beverages Names and Marks
under this
Section 6.02
shall inure solely to the benefit of the DPS Group following the
Distribution Date. In no event shall the Cadbury plc Group use the Beverages Names and Marks in
any manner that may damage or tarnish the reputation of DPS or the DPS Group or the goodwill
associated with the Beverages Names and Marks.
(c) CS agrees that DPS and the DPS Group shall not have any responsibility for claims
by third parties arising out of, or relating to, the use by the Cadbury plc Group of any Beverages
Names and Marks after the Distribution Date. CS shall, and shall cause each of the members of the Cadbury plc Group to, shall indemnify and hold harmless DPS and
the DPS Group, and their respective Affiliates, officers, directors, employees, agents, successors
and assigns, from any and all such claims that may arise out of the Cadbury plc Groups use of any
Beverages Names and Marks after the Distribution Date (i) in accordance with the terms and
conditions of this
Section 6.02
, other than such claims that the Beverages Names and Marks
infringe the Intellectual Property rights of any third party or (ii) in violation of or outside the
scope permitted by this
Section 6.02
. Notwithstanding anything in this Agreement to the
contrary, including
Section 10.02(f)
, CS hereby acknowledges that DPS, in addition
to any other remedies available to it for any breach or threatened breach of this
Section
6.02
, shall be entitled to seek a preliminary injunction, temporary restraining order or other
equivalent relief restraining the Cadbury plc Group from any such breach or threatened breach.
(d) Notwithstanding anything in this Agreement to the contrary, and without limiting the
rights otherwise granted in this
Section 6.02
, the Cadbury plc Group shall have the right,
at all times after the Distribution Date, to (i) keep records and other historical or archived
documents containing or referencing the Beverages Names and Marks, (ii) use the Beverages Names and
Marks to the extent required by or permitted as a fair use under applicable Law, (iii) refer to the
historical fact that the members of the Cadbury plc Group previously conducted their
respective businesses under the Beverages Names and Marks, (iv) use and sublicense the
Beverages Names and Marks in connection with the Cadbury plc Groups business of manufacturing,
distributing, selling, marketing and promoting carbonated and non-carbonated beverages and other
food products throughout American Samoa (the
American Samoa Business
), (v) use their
Existing Stock, web pages and Internet and intranet websites containing
31
any Beverages Names and
Marks in connection with the Cadbury plc Groups business of manufacturing, distributing, selling,
marketing and promoting carbonated and non-carbonated beverages and other food products throughout
the AsiaPac Territory and (vi) use the Schweppes name in any and all jurisdictions outside of the
United States, Canada and Mexico as or as part of any Corporate Name;
provided
that, no
later than 10 Business Days after the Distribution Date, CS shall use commercially reasonable
efforts to file amended organizational documents with the appropriate Governmental Entities
changing the Corporate Name of any Affiliate organized in any jurisdiction in the United States,
Canada and Mexico to a Corporate Name that does not contain the Schweppes name and to supply
promptly any additional information, documents and materials that may be requested by DPS with
respect to such filings.
Section 6.03
Memorabilia
.
As of the Distribution Date, any and all photographs, artwork and similar objects and other
physical assets owned by the DPS Group or the Cadbury plc Group that relate to the history or
historical activities of the Beverages Business (
Memorabilia
) shall be deemed to be
owned, as between CS and DPS, by (i) CS to the extent located on the premises of
any member of the Cadbury plc Group and (ii) DPS to the extent located on the premises of any
member of the DPS Group. DPS hereby grants the Cadbury plc Group from the Distribution Date a
worldwide, transferable, perpetual, royalty-free, irrevocable (with right to sub-license) license
to use any Memorabilia: (a) in documenting, memorializing and (if desired) use in marketing its
history; and (b) to the extent necessary to comply with the obligations of the Cadbury plc Group
under Section 18.14 of that certain Amended and Restated Sale and Purchase Agreement by and between
CS and Sapphire European Beverages Limited (among others), dated as of January 30, 2006.
Section 6.04
Additional Licenses
.
(a) Effective as of the Distribution Date, CS hereby grants to DPS, solely for the
benefit of each member of the DPS Group, an exclusive, perpetual, irrevocable, royalty-free license
(with the right to grant sub-licenses) of the design known as the modern egg bottle design for
use solely in the Territory;
provided
that DPS shall, and shall procure that each member of
the DPS Group shall, only use such design in relation to beverages sold under the Schweppes brand
and for no other purpose. DPS shall indemnify and hold harmless CS and its Affiliates,
officers, directors, employees, agents, successors and assigns from any and all claims that may
arise out of the DPS or the DPS Groups exercise of any rights granted under, or breach of, this
Section 6.04(a)
.
(b) Effective as of the Distribution Date, DPS hereby grants, and shall cause the DPS Group to
grant, to the Cadbury plc Group a perpetual, non-exclusive, transferable,
royalty-free right and license (with the right to grant sublicenses) in, to and under any and
all copyrights and design rights owned by or licensed to, to the extent permitted, the DPS Group as
of the Distribution Date in product packaging (including bottles), signs, business cards,
letterheads, invoice stock, advertisements and promotional materials and inventory (the
DPS
Licensed Intellectual Property
), to use the DPS Licensed Intellectual Property in connection
with the operation following the Distribution Date of the Cadbury plc Groups business of
manufacturing, distributing, selling, marketing and promoting carbonated and non-carbonated
beverages and other food products throughout the AsiaPac Territory and American Samoa, to the
extent of any existing use or good faith plans to use as of February 1, 2008 in the AsiaPac
32
Territory or American Samoa. The foregoing license includes the right for the Cadbury plc Group to
make, and have made on their behalf, modifications, enhancements, derivative works and improvements
(
Improvements
) to the DPS Licensed Intellectual Property, and as between the Parties to
this Agreement, any and all such Improvements shall be owned by a
member of the Cadbury plc Group without a duty of
accounting or disclosure to DPS or the DPS Group.
(c) Effective
as of the Distribution Date, CS hereby grants, and shall cause the
Cadbury plc Group to grant, to the DPS Group a perpetual, non-exclusive, transferable, royalty-free
right and license (with the right to grant sublicenses) in, to and under any and all copyrights and
design rights owned by or licensed to, to the extent permitted, the Cadbury plc Group conducting
its beverages business in the AsiaPac Territory and American Samoa as of the Distribution Date in
product packaging (including bottles), signs, business cards, letterheads, invoice stock,
advertisements and promotional materials and inventory (the
AsiaPac Licensed Intellectual
Property
), to use the AsiaPac Licensed Intellectual Property in connection with the operation
of the Beverages Business by the DPS Group following the Distribution Date, to the extent of any
existing use or good faith plans to use as of February 1, 2008 in the Territory. The foregoing
license includes the right for the DPS Group to make, and have made on their behalf, Improvements
to the AsiaPac Licensed Intellectual Property, and as between the Parties to this Agreement, any
and all such Improvements shall be owned by DPS without a duty of accounting or disclosure to
a member of the Cadbury plc Group.
Section 6.05
Know-How Agreement
.
(a) Effective
as of the Distribution Date, CS, DPS and the DPS Group shall enter into a know-how agreement substantially in the form attached hereto as
Exhibit 6.06(a)
(the
Know-How Agreement
).
(b) At
CS request, following the Distribution Date, DPS shall reasonably cooperate
with CS and negotiate in good faith to obtain an assignment and novation in favor of DPS
of CS rights and obligations under (i) that certain know-how agreement entered into by and among
CS, The Coca-Cola Company and Atlantic Industries, dated as of July 29, 1999, as amended, and (ii)
that certain know-how agreement entered into by and among CS and Sapphire European Beverages
Limited (among others), dated as of February 2, 2006.
Section 6.06
Domain Names Agreement
.
Effective
as of the Distribution Date, CS and DPS shall enter into a domain names agreement substantially in the form attached hereto as
Exhibit 6.07
(the
Domain Names Agreement
).
ARTICLE VII
INDEMNIFICATION
Section 7.01
Release of Pre-Distribution Claims
.
(a) Except (i) as provided in
Section 7.01(b)
, (ii) as may be otherwise expressly
provided in this Agreement or any Ancillary Agreement and (iii) for any matter with
33
respect to
which any Party is entitled to indemnification or contribution pursuant to this
ARTICLE
VII
, each Party, on behalf of itself and each member of its respective Group, its and their
respective Affiliates and all Persons who at any time prior to the Demerger Effective Time were
shareholders (other than the public shareholders of CS), directors, officers, agents or employees
of it or any member of its Group (in their respective capacities as such), in each case do hereby
remise, release and forever discharge the other Party and the other members of such other Partys
Group, their respective Affiliates and all Persons who at any time prior to the Demerger Effective
Time were shareholders, directors, officers, agents or employees of any member of such other Party
(in their respective capacities as such), in each case from any and all Liabilities whatsoever,
whether at Law or in equity (including any right of contribution), whether arising under any
Contract, by operation of Law or otherwise, existing or arising from any acts or events occurring
or failing to occur or alleged to have occurred or alleged to have failed to occur or any
conditions, in each case, existing on or before the Demerger Effective Time, including in
connection with the Plan of Separation and all other activities to implement the Distribution and
any of the other transactions contemplated hereunder and under the Ancillary Agreements.
(b) Nothing contained in
Section 7.01(a)
shall release any Person from:
(i) any Liability Assumed, Transferred or allocated to a Party or a member of such
Partys Group pursuant to or contemplated by, or any other Liability of any member of such
Group arising under, this Agreement or any Ancillary Agreement;
(ii) any Liability for the sale or receipt of goods or property or services purchased,
obtained or used in the ordinary course of business by a member of one Group from a member
of the other Group prior to the Demerger Effective Time;
(iii) any Liability (other than the Intercompany Balances settled pursuant to
Section 2.03
) for unpaid amounts for products or services or refunds owing on
products or services due for work done by a member of one Group at the request or on behalf
of a member of the other Group;
(iv) any Liability provided in or resulting from any other Contract or understanding
that is entered into after the Demerger Effective Time between a Party (and/or a member of
such Partys Group), on the one hand, and the other Party (and/or a member of such Partys
Group), on the other hand;
(v) any Liability with respect to the Continuing Arrangements;
(vi) any Liability that the Parties have with respect to indemnification or
contribution pursuant to this Agreement or otherwise for claims brought against the Parties
by third Persons, which Liability shall be governed by the provisions of this
ARTICLE
VII
and, if applicable, the appropriate provisions of the Ancillary Agreements;
(vii) any Liability relating to any agreements, arrangements, commitments or
understandings to which any Person other than the Parties and their respective Affiliates is
a Party (it being understood that to the extent that the rights and obligations of the
Parties and the members of their respective Groups under any such Contracts constitute
Beverages Assets or Beverages Liabilities or Cadbury plc Assets or Cadbury plc
34
Liabilities,
such Contracts shall be assigned or retained pursuant to
ARTICLE II
); or
(viii) any Liability relating to agreements, arrangements, commitments or
understandings to which any non-wholly-owned Subsidiary of CS or DPS, as the case
may be, is a Party.
(c) Neither Party shall permit any member of its Group to make any claim or demand, or
commence any Action asserting any claim or demand, including any claim of contribution or any
indemnification, against the other Party or any member of the other Partys Group, or any other
Person released pursuant to
Section 7.01(a)
, with respect to any Liabilities released
pursuant to
Section 7.01(a)
.
(d) It is the intent of each Party, pursuant to the provisions of this
Section 7.01
,
to provide for a full and complete release and discharge of all Liabilities existing or arising
from all acts and events occurring and all conditions existing on or before the Demerger Effective
Time, whether known or unknown, between or among any Party (and/or a member of such Partys Group),
on the one hand, and the other Party (and/or a member of such Partys Group), on the other hand
(including any contractual agreements or arrangements existing or alleged to exist between or among
any such members on or before the Demerger Effective Time), except as specifically set forth in
Section 7.01(a)
and
Section 7.01(b)
. At any time, at the reasonable request of the
other Party, each Party shall cause each member of its respective Group to execute and deliver
releases reflecting the provisions hereof.
(e) For the avoidance of doubt, neither Party shall have any Liability to the other Party in
the event that any information exchanged or provided to the other Party pursuant to this Agreement
(but excluding any such information included in a Disclosure Document) which is an estimate or
forecast, or which is based on an estimate or forecast, is found to be inaccurate.
Section 7.02
Indemnification by CS
. Except as otherwise set forth in any provision of this Agreement or any Ancillary Agreement
or Continuing Arrangement, following the Demerger Effective Time, CS shall and shall cause the
other members of the Cadbury plc Group to indemnify, defend and hold harmless the Beverages
Indemnitees from and against any and all Indemnifiable Losses of the Beverages Indemnitees to the
extent arising out of, by reason of or otherwise in connection with (i) the Cadbury plc Liabilities
or alleged
Cadbury plc Liabilities, (ii) any breach by any member of the Cadbury plc Group of any of the
Shared Contracts, (iii) with respect to statements or omissions made or occurring after the
Demerger Effective Time, any misstatement or alleged misstatement of a material fact contained in
any document filed with the SEC or the FSA by any member of the DPS Group pursuant to the
Securities Act, the Exchange Act, the Prospectus Rules or the Listing Rules, or any omission or
alleged omission to state therein a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were made, not
misleading, in each case to the extent, but only (A) to the extent that those Liabilities are caused by
any misstatement or omission or alleged misstatement or omission in any information that is
furnished in writing to any member of the DPS Group by any member of the Cadbury plc Group after
the Demerger Effective Time, (B) if such member of the Cadbury plc Group has been informed in
writing in advance that such information will be used in such filing
and (C) if the information used by a member of the DPS Group in any
such filing is not materially different to the information furnished by
a member of the Cadbury plc Group, or (iv) any
35
breach by CS or
any member of the Cadbury plc Group of any provision of this Agreement or any Ancillary Agreement
or Continuing Arrangement unless such Ancillary Agreement or Continuing Arrangement expressly
provides for separate indemnification therein, in which case any such indemnification claims shall
be made thereunder.
Section 7.03
Indemnification by DPS
. Except as otherwise specifically set forth in any provision of this Agreement or any
Ancillary Agreement, following the Demerger Effective Time, DPS shall and shall cause the other
members of the DPS Group to indemnify, defend and hold harmless the Cadbury plc Indemnitees from
and against any and all Indemnifiable Losses of the Cadbury plc Indemnitees to the extent arising
out of, by reason of or otherwise in connection with (i) the Beverages Liabilities or any alleged
Beverages Liabilities, (ii) any breach by any member of the DPS Group of any of the Shared
Contracts, (iii) with respect to statements or omissions made or occurring after the Demerger
Effective Time, any misstatement or alleged misstatement of a material fact contained in any
document filed with the SEC or the FSA by any member of the Cadbury plc Group pursuant to the
Securities Act, the Exchange Act, the Prospectus Rules or the Listing Rules, or any omission or
alleged omission to state therein a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were made, not
misleading, in each case to the extent, but only (A) to the extent that those Liabilities are caused by
any misstatement or omission or alleged misstatement or omission in any information that is
furnished in writing to any member of the Cadbury plc Group by any member of the DPS Group after
the Demerger Effective Time, (B) if such member of the DPS Group has been informed in writing
in advance that such information will be used in such filing and (C)
if the information used by a member of the Cadbury plc Group in any
such filing is not materially different to the information furnished by
a member of the DPS Group, or (iv) any breach by DPS or any
member of the DPS Group of any provision of this Agreement or any Ancillary Agreement or Continuing
Arrangement unless such Ancillary Agreement or Continuing Arrangement expressly provides for
separate indemnification therein, in which case any such indemnification claims shall be made
thereunder.
Section 7.04
Procedures for Indemnification
.
(a) An Indemnitee shall give the Indemnifying Party notice of any matter that an Indemnitee
has determined has given, or reasonably anticipates could give rise to, a right of indemnification
under this Agreement (other than a Third Party Claim which shall be governed by
Section
7.04(b)
), within 30 days of such determination, stating the amount of the Indemnifiable Loss
claimed, if known, and method of computation thereof, and containing a
reference to the provisions of this Agreement in respect of which such right of
indemnification is claimed by such Indemnitee or arises;
provided
,
however
, that
the failure to provide such notice shall not release the Indemnifying Party from any of its
obligations except to the extent the Indemnifying Party shall have been actually materially
prejudiced as a result of such failure.
(b) If an Action is made against a Cadbury plc Indemnitee or a Beverages Indemnitee (each, an
Indemnitee
) by any Person who is not a Party or a member of a Group of a Party (a
Third Party Claim
) as to which such Indemnitee is or may be entitled to indemnification
pursuant to this Agreement, such Indemnitee shall notify the other Party which is or may be
required pursuant to this
ARTICLE VII
or pursuant to any Ancillary Agreement or Continuing
Arrangement to make such indemnification (the
Indemnifying Party
) in writing, and in
reasonable detail, of the Third Party Claim promptly (and in any event within 30 days)
36
after
receipt by such Indemnitee of written notice of the Third Party Claim;
provided
,
however
, that the failure to provide notice of any such Third Party Claim pursuant to this
sentence shall not release the Indemnifying Party from any of its obligations except to the extent
the Indemnifying Party shall have been actually materially prejudiced as a result of such failure.
Thereafter, the Indemnitee shall deliver to the Indemnifying Party, promptly after the Indemnitees
receipt thereof (and in any event within 10 Business Days), copies of all notices and documents
(including court papers) received by the Indemnitee relating to the Third Party Claim.
(c) An Indemnifying Party shall be entitled (but shall not be required) to assume and control
the defense of any Third Party Claim, at such Indemnifying Partys own cost and expense and by such
Indemnifying Partys own counsel that is reasonably acceptable to the applicable Indemnitees, if it
gives notice of its intention to do so to the applicable Indemnitees within 30 days of the receipt
of notice of the Third Party Claim from such Indemnitees. After notice from an Indemnifying Party
to an Indemnitee of its election to assume the defense of a Third Party Claim, such Indemnitee
shall have the right to employ separate counsel and to participate in (but not control) the
defense, compromise, or settlement thereof, at its own expense and, in any event, shall cooperate
with the Indemnifying Party in such defense and make available to the Indemnifying Party, at the
Indemnifying Partys expense, all witnesses, pertinent Information and materials in such
Indemnitees possession or under such Indemnitees control relating thereto as are reasonably
required by the Indemnifying Party.
(d) If an Indemnifying Party elects not to assume responsibility for defending a Third Party
Claim, or fails to notify an Indemnitee of its election as provided in
Section 7.04(c)
,
such Indemnitee may defend such Third Party Claim at the cost and expense of the Indemnifying
Party. If the Indemnitee is conducting the defense against any such Third Party Claim, the
Indemnifying Party shall cooperate with the Indemnitee in such defense and make available to the
Indemnitee, at the Indemnifying Partys expense, all witnesses, pertinent Information, material in
such Indemnifying Partys possession or under such Indemnifying Partys control relating thereto as
are reasonably required by the Indemnitee.
(e) If the Indemnifying Party has assumed the defense of the Third Party Claim in accordance
with the terms of this Agreement, no Indemnitee may settle or compromise any Third Party Claim
without the consent of the Indemnifying Party.
(f) In the case of a Third Party Claim, no Indemnifying Party shall consent to entry of any
judgment or enter into any settlement of the Third Party Claim without the consent of the
Indemnitee;
provided
that consent from the Indemnitee shall not be required if such
settlement contains a full and unconditional release of the Indemnitee and does not permit any
injunction, declaratory judgment, other order or other non-monetary relief to be entered, directly
or indirectly, against any Indemnitee.
(g) Except as may otherwise be specifically provided for in the Ancillary Agreements and
except as set forth in
Sections 10.02 (d)
and
(f)
hereof, the indemnification provisions
of this
ARTICLE VII
shall be the sole and exclusive remedy of the Parties for any failure
by the other Party to perform and comply with any covenants and agreements in this Agreement and
any other dispute, controversy or claim (whether arising in contract, tort or
37
otherwise) that may
arise out of or relate to, or arise under or in connection with, this Agreement or any Ancillary
Agreement or Continuing Arrangement, or the transactions contemplated hereby or thereby (including
all actions taken in furtherance of the transactions contemplated hereby or thereby on or prior to
the Demerger Effective Time), between or among any member of the Cadbury plc Group, on the one
hand, and any member of the DPS Group, on the other hand.
Section 7.05
Cooperation in Defense and Settlement
. CS and DPS agree that, from and after the Demerger Effective Time, if an Action is
commenced by a third party (or any member of either Partys respective Group) with respect to which
one or both Parties (or any member of either Partys respective Group) is a nominal defendant
and/or such Action is otherwise not a Liability allocated to such named Party under this Agreement
or any Ancillary Agreement or Continuing Arrangement, then the other Party shall use commercially
reasonable efforts to cause such nominal defendant to be removed from such Action.
Section 7.06
Indemnification Obligations Net of Insurance Proceeds and Other Amounts
.
(a) Any Indemnifiable Loss subject to indemnification or contribution pursuant to this
ARTICLE VII
will be calculated (i) net of Insurance Proceeds received by the Indemnitee
that actually reduce the amount of the Indemnifiable Loss, and (ii) net of any proceeds received by
the Indemnitee from any third party for indemnification for such Liability that actually reduce the
amount of the Indemnifiable Loss (
Third Party Proceeds
). If an Indemnitee receives a
payment required by this Agreement from an Indemnifying Party in respect of any Indemnifiable Loss
(an
Indemnity Payment
) and subsequently receives Insurance Proceeds or Third Party
Proceeds, then the Indemnitee will pay to the Indemnifying Party an amount equal to the excess of
the Indemnity Payment received over the amount of the Indemnity Payment that would have been due if
the Insurance Proceeds or Third Party Proceeds had been received, realized or recovered before the
Indemnity Payment was made.
(b) Any insurer that would otherwise be obligated to pay any claim shall not be relieved of
the responsibility with respect thereto or, solely by virtue of the indemnification and
contributions provisions hereof, have any subrogation rights with respect thereto. The Indemnitee
shall use reasonable best efforts to seek to collect or recover any third party Insurance Proceeds
and any Third Party Proceeds (other than Insurance Proceeds under an
arrangement where future premiums are adjusted to reflect prior claims in excess of prior
premiums) to which the Indemnitee is entitled in connection with any Indemnifiable Loss for which
the Indemnitee seeks contribution or indemnification pursuant to this
ARTICLE VII
(it being
understood that the obligation to use reasonable best efforts to collect or recover any third party
Insurance Proceeds or Third Party Proceeds shall not require the Indemnitee to commence any
litigation proceedings against any such third party);
provided
that the Indemnitees
inability to collect or recover any such Insurance Proceeds or Third Party Proceeds shall not limit
the Indemnifying Partys obligations hereunder.
(c) CS and DPS agree that any indemnification payment made pursuant to this
ARTICLE
VII
shall be paid free and clear of any Tax deduction or withholding. If any deduction or
withholding is required by applicable Law to be made from any indemnification
38
payment made pursuant
to this
ARTICLE VII
, the amount of the payment will be increased by such additional amount
as is necessary to ensure that the net amount received by the Indemnitee (after taking
account of all such deductions and withholdings) is equal to the amount which it would have received had the payment in
question not been subject to any deductions or withholdings. Notwithstanding the foregoing, the
Parties agree to use commercially reasonable efforts (to the extent such efforts will not result in
materially adverse consequences to a Party) to mitigate or avoid such
deductions and withholdings.
(d) Any indemnification payment made under this
ARTICLE VII
will be subject to
adjustment for certain net Tax benefits and net Tax costs
attributable to such indemnification payment (including gross-up) and
to amounts indemnified
against as provided in the Tax Sharing Agreement.
Section 7.07
Additional Matters; Survival of Indemnities
.
(a) The indemnity and contribution agreements contained in this
ARTICLE VII
shall
remain operative and in full force and effect, regardless of (i) any investigation made by or on
behalf of any Indemnitee; (ii) any knowledge prior to the date hereof by the Indemnitee of
Indemnifiable Losses for which it might be entitled to indemnification or contribution hereunder;
and (iii) any termination of this Agreement.
(b) The rights and obligations of each Party and their respective Indemnitees under this
ARTICLE VII
shall survive the sale or other Transfer by any Party or its respective
Subsidiaries of any Assets or businesses or the assignment by it of any Liabilities.
ARTICLE VIII
ACCESS TO RECORDS; ACCESS TO INFORMATION; LEGAL AND OTHER MATTERS
Section 8.01
Provision of Corporate Records
.
Other than in circumstances in which indemnification is or may be sought pursuant to
ARTICLE VII
(in which event the provisions of such Article will govern), and subject to
appropriate restrictions for privileged or
Confidential Information:
(a) After the Distribution Date until the earlier of (i) the seventh anniversary of the
Distribution Date or (ii) the date on which
CS is entitled to destroy Information related
to the period prior to the Distribution Date pursuant to its record retention policies, upon the
prior written request by DPS for specific and identified Information which relates to (i) DPS (or a
member of its Group) or the conduct of the Beverages Business prior to the Distribution Date, or
(ii) any Ancillary Agreement or Continuing Arrangement to which CS and DPS (or any member of their
respective Groups) are parties, CS shall provide, as soon as reasonably practicable following the
receipt of such request, appropriate copies of such documents (or the originals thereof if the
Party making the request has a reasonable need for such originals) in the possession or control of
CS or any of its Affiliates or Subsidiaries, but only to the extent such
39
items so relate and are
not already in the possession or control of the requesting Party. CS shall notify DPS at least 90
days in advance of destroying any such Information in order to provide DPS the opportunity to
access such Information in accordance with this
Section 8.01(a)
and if DPS fails to request
that such Information be delivered to them, at their expense, within 90 days after receipt of such
notice, CS may destroy such Information.
(b) After the Distribution Date until the earlier of (i) the seventh anniversary of the
Distribution Date or (ii) the date on which DPS is entitled to destroy Information related to the
period prior to the Distribution Date pursuant to its record retention policies, upon the prior
written request by CS for specific and identified Information which relates to (i) CS (or a member
of its Group) or the conduct of the Cadbury plc Business, prior to the Distribution Date, or (ii)
any Ancillary Agreement or Continuing Arrangement to which DPS and CS (or a member of their
respective Groups) are parties, as applicable, DPS shall provide, as soon as reasonably practicable
following the receipt of such request, appropriate copies of such documents (or the originals
thereof if the Party making the request has a reasonable need for such originals) in the possession
or control of DPS or any of its Subsidiaries, but only to the extent such items so relate and are
not already in the possession or control of the requesting Party. DPS shall notify CS at least 90
days in advance of destroying any such Information in order to provide CS the opportunity to access
such Information in accordance with this
Section 8.01(b)
and if CS fails to request that
such Information be delivered to them, at their expense, within 90 days after receipt of such
notice, DPS may destroy such Information.
Section 8.02
Access to Information
. Other than in circumstances in which indemnification is sought pursuant to
ARTICLE
VII
(in which event the provisions of such Article will govern), from the Distribution Date and
for so long as any access is required pursuant to
Section 8.01
, each of CS and DPS shall
afford to the other and its authorized accountants, counsel and other designated representatives
reasonable access during normal business hours, subject to appropriate restrictions for privileged
or Confidential Information and to preserve the completeness and integrity of the Information, to
the personnel, properties, and Information of such Party and its Subsidiaries insofar as such
access is reasonably required by the other Party and relates to (x) such other Party or the conduct
of its business prior to the Demerger Effective Time or (y) any Ancillary Agreement or Continuing
Arrangement. Nothing in this
Section 8.02
shall require any Party to violate any agreement
with any third party regarding the confidentiality of Confidential Information relating to that
third party or its business;
provided
,
however
, that in the event that a Party is
required to disclose any such
Information, such Party shall use commercially reasonable efforts to seek to obtain such third
party Consent to the disclosure of such Information.
Section 8.03
Disposition of Information
.
(a) Each Party acknowledges that Information in its or in a member of its Groups possession,
custody or control as of the Demerger Effective Time may include Information owned by the other
Party or a member of such Partys Group and not related to (i) its Group or its business or (ii)
any Ancillary Agreement to which it or any member of its Group is a Party.
(b) Notwithstanding such possession, custody or control, such Information
40
shall remain the
property of such other Party or member of such other Partys Group. Each Party agrees (i) that any
such Information is to be treated as Confidential Information of the Party or Parties to which it
relates and handled in accordance with
Section 8.07
(except that such Information will not
be used for any purpose other than a purpose permitted under this Agreement) and (ii) following a
reasonable request from the other Party, subject to applicable Law, use commercially reasonable
efforts within a reasonable time to (1) purge such Information from its databases, files and other
systems and not retain any copy of such Information (including, if applicable, by transferring such
Information to the Party to which such Information belongs), or (2) if such purging is not
practicable, to encrypt or otherwise make unreadable or inaccessible such Information.
Section 8.04
Witness Services
.
At all times from and after the Distribution Date, each of CS and DPS shall use its
commercially reasonable efforts to make available to the other, upon reasonable written request,
its and any member of its Groups officers, directors, employees and agents as witnesses to the
extent that (i) such Persons may reasonably be required to testify in connection with the
prosecution or defense of any Action in which the requesting Party may from time to time be
involved (except for claims, demands or Actions between members of each Group) and (ii) there is no
conflict of interest in the underlying Action between the requesting Party and CS and DPS, as
applicable;
provided
that the existence of a claim for indemnification under
ARTICLE
VII
shall not in and of itself be deemed a conflict of interest. A Party providing a witness
to the other Party under this Section shall be entitled to receive from the recipient of such
services, upon the presentation of invoices therefor, payments for such amounts, relating to
disbursements and other out-of-pocket expenses (which shall not include the costs of salaries and
benefits of employees who are witnesses or any pro rata portion of overhead or other costs of
employing such employees which would have been incurred by such employees employer regardless of
the employees service as witnesses), as may be reasonably incurred and properly paid under
applicable Law.
Section 8.05
Reimbursement; Other Matters
. Except to the extent otherwise contemplated by this Agreement, any Ancillary Agreement or
any Continuing Arrangement, a Party providing Information or access to Information to the other
Party under this
ARTICLE VIII
shall be entitled to receive from the recipient, upon the
presentation of invoices therefor, payments for such amounts, relating to supplies, disbursements
and other out-of-pocket expenses, as may be reasonably incurred in providing such Information or
access to such Information.
Section 8.06
Confidentiality
. Notwithstanding any termination of this Agreement, the Parties shall hold, and shall cause
each of the members of their respective Groups to hold, and shall each cause their respective
officers, employees, agents, consultants, representatives and advisors to hold, in strict
confidence, and not to disclose or release or use, without the prior written consent of the other
Party, any and all Confidential Information concerning the other Party;
provided
that the
Parties may disclose, or may permit disclosure of, Confidential Information (i) to their respective
auditors, attorneys, financial advisors, bankers and other appropriate consultants and advisors who
have a need to know such Information and are informed of their obligation to hold such Information
confidential to the same extent as is applicable to the Parties and in respect of whose failure to
comply with such obligations, the applicable Party will be responsible, (ii) if the Parties or any
member of their respective Groups
41
are required or compelled to disclose any such Confidential
Information by judicial or administrative process or by other requirements of Law or stock exchange
rule, (iii) as required in connection with any legal or other proceeding by one Party against the
other Party, or (iv) as necessary in order to permit a Party to prepare and disclose its financial
statements, Tax Returns or other required disclosures. Notwithstanding the foregoing, in the event
that any demand or request for disclosure of Confidential Information is made pursuant to clause
(ii) above, each Party, shall promptly notify the other of the existence of such request or demand
and shall provide the other a reasonable opportunity to seek an appropriate protective order or
other remedy, which such Parties will cooperate in obtaining. In the event that such appropriate
protective order or other remedy is not obtained, the Party whose Confidential Information is
required to be disclosed shall or shall cause the other Party to furnish, or cause to be furnished,
only that portion of the Confidential Information that is legally required to be disclosed and
shall take commercially reasonable steps to ensure that confidential treatment is accorded such
Information.
Section 8.07
Privileged Matters
.
(a) The Parties recognize that certain legal and other professional services (both internal
and external) have been and will be provided prior to and after the Distribution Date and have been
and will be rendered for the collective benefit of each of the members of the Cadbury plc Group and
the DPS Group, and that each of the members of the Cadbury plc Group and the DPS Group should be
deemed to be the client with respect to such services for the purposes of asserting all privileges
which may be asserted under applicable Law;
provided
that with respect to such services the
Parties agree as follows:
(i) the Parties shall not be entitled to assert privilege with respect to such legal
and other professional services provided prior to the Distribution Date against the other
Party or any member of the other Partys Group;
(ii) CS shall be entitled, on behalf of itself or any member of the Cadbury plc Group,
in perpetuity, to control the assertion or waiver of all privileges in connection with
privileged information to the extent relating to the Cadbury plc Business, whether or not
the privileged information is in the possession of or under the control of CS or DPS. CS
shall also be entitled, on behalf of itself or any member of the Cadbury plc Group, in
perpetuity, to control the assertion or waiver of all privileges in connection with
privileged information that relates solely to the subject matter of any claims constituting
Cadbury plc Liabilities, now pending or which may be asserted in the future, in any
lawsuits or other proceedings initiated against or by any member of the Cadbury plc Group,
whether or not the privileged information is in the possession of or under the control of CS
or DPS;
(iii) DPS shall be entitled, on behalf of itself or any member of the DPS Group, in
perpetuity, to control the assertion or waiver of all privileges in connection with
privileged information to the extent relating to the Beverages Business, whether or not the
privileged information is in the possession of or under the control of CS or DPS. DPS shall
also be entitled, on behalf of itself or any member of the DPS Group, in perpetuity, to
control the assertion or waiver of all privileges in connection with privileged
42
information
that relates solely to the subject matter of any claims constituting Beverages Liabilities,
now pending or which may be asserted in the future, in any lawsuits or other proceedings
initiated against or by any member of the DPS Group, whether or not the privileged
information is in the possession of or under the control of CS or DPS; and
(iv) the Parties shall have a shared privilege, with equal right to assert or waive,
subject to the restrictions in this
Section 8.07
, with respect to all privileges not
allocated pursuant to the terms of
Section 8.07(a)(ii)
and
(iii)
. All
privileges relating to any claims, proceedings, litigation, disputes, or other matters which
involve members of both the Cadbury plc Group and the DPS Group in respect of which such
Parties retain any responsibility or Liability under this Agreement, shall be subject to a
shared privilege among them.
(b) No Party may waive any privilege which could be asserted under any applicable Law, and in
which the other Party has a shared privilege, without the consent of the other Party, which shall
not be unreasonably withheld or delayed or as provided in
Section 8.07(c)
or
Section
8.07(d)
below. Consent shall be in writing, or shall be deemed to be granted unless written
objection is made within 10 Business Days after notice upon the other Party requesting such
consent.
(c) In the event of any litigation or dispute between or among the Parties, or any members of
their respective Groups, either Party may waive a privilege in which the other Party or member of
such Group has a shared privilege, without obtaining the consent of the other Party;
provided
that such waiver of a shared privilege shall be effective only as to the use of
Information with respect to the litigation or dispute between the relevant Parties and/or the
applicable members of their respective Groups, and shall not operate as a waiver of the shared
privilege with respect to third parties.
(d) If a dispute arises between or among the Parties or any member of their respective Groups
regarding whether a privilege should be waived to protect or advance the interest of any Party,
each Party agrees that it shall negotiate in good faith, shall endeavor to minimize any prejudice
to the rights of the other Party, and shall not unreasonably withhold consent to any request for
waiver by another Party. Each Party specifically agrees that it will not withhold consent to
waiver for any purpose except to protect its own legitimate interests.
(e) Upon receipt by any Party or by any member of a Partys Group of any
subpoena, discovery, court order or other request which arguably calls for the production or
disclosure of Information subject to a shared privilege or as to which another Party has the sole
right hereunder to assert a privilege, or if any Party obtains knowledge that any of its or any
member of its Groups current or former directors, officers, agents or employees have received any
subpoena, discovery or other requests which arguably calls for the production or disclosure of such
privileged Information, such Party shall promptly notify the other Party of the existence of the
request and shall provide the other Party a reasonable opportunity to review the Information and to
assert any rights it or they may have under this
Section 8.07
or otherwise to prevent the
production or disclosure of such privileged Information.
Section 8.08
Ownership of Information
.
43
(a) Any information owned by one Party or any of its Subsidiaries that is provided to a
requesting Party pursuant to this
ARTICLE VIII
shall be deemed to remain the property of
the providing Party. Unless specifically set forth herein, nothing contained in this Agreement
shall be construed as granting or conferring rights of license or otherwise in any such
information.
(b) Any Information provided by or on behalf of or made available by or on behalf of the other
Party hereto pursuant to this
ARTICLE VIII
shall be on an as is, where is basis and no
Party is making any representation or warranty with respect to such Information or the completeness
thereof.
Section 8.09
Other Agreements
. Except as otherwise provided in
Section 8.06
,
Sections 8.01
through
8.08
and
8.10
shall not apply with respect to Information, Records, actions and
other matters relating to Tax matters, all of which shall be governed by the Tax Sharing Agreement.
Section 8.10
Control of Legal Matters
.
(a)
General.
(i) On or prior to the Distribution Date, CS shall assume (or, as applicable,
retain), or cause the applicable member of the Cadbury plc Group to assume (or, as applicable,
retain) control of each of the Cadbury plc Litigation Matters, and CS shall use its reasonable best
efforts to have a member of the Cadbury plc Group substituted for any member of the DPS Group named
as a defendant in any such Cadbury plc Litigation Matters;
provided
,
however
, that
no member of the Cadbury plc Group shall be required to make any such effort if the removal of any
member of the DPS Group would jeopardize insurance coverage or rights to indemnification from third
parties applicable to such Cadbury plc Litigation Matters.
(ii) On or prior to the Distribution Date, DPS shall assume (or, as applicable,
retain), or cause the applicable member of the DPS Group to assume (or, as applicable,
retain) control of each of the Beverages Litigation Matters, and DPS shall use its
reasonable best efforts to have a member of the DPS Group substituted for any member of the
Cadbury plc Group named as a defendant in any such Beverages Litigation Matters;
provided
,
however
, that no member of the DPS Group shall be required to make
any such effort if the removal of any member of the Cadbury plc Group would jeopardize
insurance coverage or rights to indemnification from third parties applicable to such Beverages Litigation Matters.
(b) Except as provided in
Section 8.10(a)
, after the Distribution Date, the Parties
hereto agree that with respect to all Actions commenced against any member of the Cadbury plc
Group, any member of the DPS Group or members of both Groups relating to events that take place
before, on or after the Distribution Date, such demands, claims or Actions shall be controlled by:
(i) A member of the Cadbury plc Group, if such Action relates solely to the Cadbury plc
Assets, Cadbury plc Liabilities or Cadbury plc Business (as the Cadbury plc Business is
conducted after the Distribution Date) (a
Future Cadbury plc Litigation Matter
),
and CS shall use its reasonable best efforts to have a member of the Cadbury
44
plc Group substituted for any member of the DPS Group which may be named as a defendant in such Future
Cadbury plc Litigation Matter;
provided
,
however
, that no member of the
Cadbury plc Group shall be required to make any such effort if the removal of any member of
the DPS Group would jeopardize insurance coverage or rights to indemnification from third
parties applicable to such Future Cadbury plc Litigation Matter;
(ii) A member of the DPS Group, if such claim, demand or Action relates solely to the
Beverages Assets, Beverages Liabilities or Beverages Business (as the Beverages Business is
conducted after the Distribution Date) (a
Future Beverages Litigation Matter
), and
DPS shall use its reasonable best efforts to have a member of the DPS Group substituted for
any member of the Cadbury plc Group which may be named as a defendant in such Future
Beverages Litigation Matter;
provided
,
however
, that no member of the DPS
Group shall not be required to make any such effort if the removal of any member of the
Cadbury plc Group would jeopardize insurance coverage or rights to indemnification from
third parties applicable to such Future Beverages Litigation Matter; and
(iii) Except as provided in subparagraphs (i) or (ii) above, or as may be otherwise
agreed by DPS and CS, a member of each of the DPS Group and the Cadbury plc Group jointly if
(A) members of both Groups jointly operate or operated at the relevant time the Business to
which such Action relates or such Action relates to both the Cadbury plc Assets, Cadbury plc
Liabilities or Cadbury plc Business and the Beverages Assets, Beverages Liabilities or
Beverages Business, (B) an Action arises from or relates to any Disclosure Document or any
other document filed with any Governmental Authority (including the SEC or the FSA) at or
prior to the Distribution Date by CS, Cadbury plc or DPS in connection with the
Distribution, (C) an Action is brought by or on behalf of the current or former stockholders
of CS, Cadbury plc or DPS and relates to any filing by CS, Cadbury plc or DPS with the SEC
or the FSA other than those described in clause (B), (D) an Action is brought by any person
against CS, Cadbury plc or DPS with respect to the Distribution, (the matters in clauses (A)
through (D) being
Future Joint Litigation Matters
);
provided
,
however
, that no member of either Group may settle a Future Joint Litigation Matter
without the prior written consent of the members of the other Group named or involved in
such Future Joint Litigation Matter, which consent shall not be unreasonably withheld or
delayed;
provided
further
that either party may settle a Future Joint Litigation matter if such settlement is for money only
and provides a full release from any liability under such Future Joint Litigation Matter for
the other party and, as applicable, the members of the other partys Group.
(c)
Claims Against Third Parties.
Actions by any member of either Group against third
parties, and any proceeds or other benefits that may be received as a result of such Actions and
any Liabilities arising out of or resulting from such Actions, that are (i) listed in
Schedule
8.10(c)(i)
or that relate to the Cadbury plc Business and not to the Beverages Business shall
be the property of the applicable member of the Cadbury plc Group (
Cadbury plc Claims
),
(ii) listed in
Schedule 8.10(c)(ii)
or that relate to the Beverages Business and not to the
Cadbury plc Business shall be the property of the applicable member of the DPS Group
(
Beverages Claims
), and (iii) listed in
Schedule 8.10(c)(iii)
or that relate to both the Cadbury
45
plc Business and the Beverages Business shall be the property of, and shall be
shared by, CS and DPS in proportion to their respective interests (
Joint Cadbury plc
and Beverages Claims
).
(d)
Retention of Counsel.
The parties hereto agree that attorneys who have worked for any
member of the Cadbury plc Group or any member of the DPS Group prior to the Distribution Date are
not conflicted from representing any members of the Cadbury plc Group or the DPS Group, except to
the extent such representation is adverse to a member of the other Group.
(e)
Notice to Third Parties; Service of Process; Cooperation.
(i) To the extent necessary, to effectuate the provisions in this Agreement, CS and DPS
shall cause the members of their respective Groups to promptly notify their respective
agents for service of process and all other necessary parties, including plaintiffs and
courts and shall provide instructions for proper service of legal process and other
documents.
(ii) Each Party shall, and shall cause the members of its respective Groups to, attempt
in good faith to not accept service on behalf of any member of the other Partys Group, and
shall, and shall cause the members of their respective Groups to, use their reasonable best
efforts to deliver to each other any legal process or other documents incorrectly delivered
to them or their agents as soon as possible following receipt.
(f) Nothing in this
Section 8.10
shall effect in any way the indemnification
provisions in
ARTICLE VII
or the allocation of Liabilities between the Parties under this
Agreement.
ARTICLE IX
INSURANCE
Section 9.01
Policies and Rights Included Within Assets
. The Beverages Assets shall
include (i) any and all rights of an insured Party under each of the Beverages Shared
Policies, subject to the terms of such Beverages Shared Policies and any limitations or
obligations of DPS contemplated by this
ARTICLE IX
, specifically including rights of
indemnity and the right to be defended by or at the expense of the insurer, with respect to all
alleged wrongful acts, claims, suits, actions, proceedings, injuries, losses, liabilities, damages
and expenses incurred or claimed to have been incurred prior to the Distribution Date by any Party
in connection with the conduct of the Beverages Business or, to the extent any claim is made
against DPS or any of its Subsidiaries or conduct of the Cadbury plc Business, and which alleged
wrongful acts, claims, suits, actions, proceedings, injuries, losses, liabilities, damages and
expenses may arise out of an insured or insurable event, occurrence or wrongful act under one or
more of such Beverages Shared Policies;
provided
,
however
, that nothing in this
clause shall be deemed to constitute (or to reflect) an assignment of such Beverages Shared
Policies, or any of them, to DPS, and (ii) the Beverages Policies.
46
Section 9.02
Administration; Other Matters
.
(a)
Administration.
Except as otherwise provided in
Section 9.02
hereof, from and
after the Demerger Effective Time, CS shall be responsible for (i) Insurance Administration of the
Beverages Shared Policies; and (ii) Claims Administration under such Beverages Shared Policies with respect to Cadbury
plc Liabilities and (iii) reasonable oversight of Claims Administration by DPS under such Beverages Shared
Policies with respect to Beverages Liabilities;
provided
that the retention of such
responsibilities by CS is in no way intended to limit, inhibit or preclude any right to insurance
coverage for any Beverages Shared Policy Insured Claim of a named insured under such Policies as contemplated
by the terms of this Agreement;
provided
further
that CS retention of the
administrative responsibilities for the Beverages Shared Policies shall not relieve the Party submitting any
Beverages Shared Policy Insured Claim of the primary responsibility for reporting such Beverages Shared Policy Insured
Claim accurately, completely and in a timely manner or of such Partys authority to settle any such
Beverages Shared Policy Insured Claim within any period permitted or required by the relevant Policy. CS may
discharge its administrative responsibilities under this
Section 9.02
by contracting for
the provision of services by independent parties. Each of the applicable Parties shall pay any
costs relating to defending its respective Beverages Shared Policy Insured Claims under Beverages Shared Policies to
the extent such costs including defense, out-of-pocket expenses, and direct and indirect costs of
employees or agents of CS related to Claims Administration and Insurance Administration are not
covered under such Policies.
(b)
Claims Under Beverages Shared Policies.
Where Beverages Liabilities are specifically covered under
the same Beverages Shared Policy for periods prior to the Distribution Date, or where such Beverages Shared Policies
cover claims made after the Distribution Date with respect to an occurrence or wrongful act prior
to the Distribution Date, then from and after the Distribution Date, DPS may claim coverage for
Beverages Shared Policy Insured Claims under such Beverages Shared Policy as and to the extent that such insurance is
available up to the full extent of the applicable limits of liability of such Beverages Shared Policy (and
may receive any Insurance Proceeds with respect thereto as contemplated by
Section 9.02(c)
hereof), subject to the terms of this
Section 9.02
. Except as set forth in this
Section 9.02
, no member of the Cadbury plc Group or the DPS Group, as applicable, shall be
liable to a member of the other Partys Group for claims not reimbursed by insurers for any reason
not within the control of a member of the Cadbury plc Group or the DPS Group, as the case may be,
including coinsurance provisions, deductibles, quota share deductibles, self-insured retentions,
bankruptcy or insolvency of an insurance carrier, Beverages Shared Policy limitations or
restrictions, any coverage disputes, any failure to timely claim by a member of the Cadbury
plc Group or the DPS Group or any defect in such claim or its processing. It is expressly
understood that the foregoing shall not limit any Partys liability to the other Party for
indemnification pursuant to
ARTICLE VII
.
(c)
Allocation of Insurance Proceeds.
Except as otherwise provided in
Section 9.02
,
Insurance Proceeds received with respect to claims, costs and expenses under the Beverages Shared Policies
shall be paid to or on behalf of CS, which shall thereafter administer the Beverages Shared Policies by
paying the Insurance Proceeds, as appropriate, to CS with respect to Cadbury plc Liabilities and to
DPS with respect to Beverages Liabilities, net of the reasonable, documented out-of-pocket costs incurred by CS
in administering the applicable claim (it being understood that such costs shall fairly reflect the
costs to CS of providing such administrative services, including the costs incurred by CS in
respects of any increased premiums resulting from any such claims on
such Beverages Shared Policy and a reasonable allocation for
salary, wages, benefits, Taxes and other expenses directly attributable thereto and without any markup for profit).
CS will provide documentation of any reasonable out-of-pocket costs incurred at the time of payment of the allocable portions of the indemnity costs and Insurance Proceeds to DPS. Payment
47
of the allocable portions of indemnity costs of Insurance Proceeds resulting from such Policies will be made by CS
to the appropriate Party upon receipt from the insurance carrier. Each Party agrees to obtain for
itself and each member of its Group insurance policies (in forms and amounts determined by that
Party), which shall be effective as of the Distribution Date, to cover any Cadbury plc Liabilities
or Beverages Liabilities, as applicable, that exceed the Insurance Proceeds available from such
Beverages Shared Policies. Each of the Parties agrees to use commercially reasonable efforts to maximize
available coverage under those Beverages Shared Policies applicable to it, and to take all commercially
reasonable steps to recover from all other responsible parties in respect of an Beverages Shared Policy
Insured Claim to the extent coverage limits under a Beverages Shared Policy have been exceeded or would be
exceeded as a result of such Beverages Shared Policy Insured Claim (it being understood that the obligation
to use commercially reasonable efforts to recover from all other responsible parties in respect of
a Beverages Shared Policy Insured Claim shall not require any Party to commence any litigation proceedings
against any such other responsible party).
Section 9.03
Agreement for Waiver of Conflict and Shared Defense
. In the event that Beverages Shared Policy Insured Claims of both Parties exist relating to the same
occurrence, the Parties shall jointly defend and waive any conflict of interest necessary to the
conduct of the joint defense. Nothing in this
ARTICLE IX
shall be construed to limit or
otherwise alter in any way the obligations of the Parties to this Agreement, including those
created by this Agreement, by operation of Law or otherwise.
ARTICLE X
DISPUTE RESOLUTION
Section 10.01
Disputes
. Except as otherwise specifically provided in any Ancillary Agreement or Continuing
Arrangement (the terms of which, to the extent so provided therein, shall govern the resolution of
disputes, controversies or claims that are the subject of such Ancillary Agreement or Continuing
Arrangement), the procedures for discussion, negotiation and arbitration set forth in this
ARTICLE X
shall apply to all disputes, controversies or claims (whether arising in
contract, tort or otherwise) that may arise out of or relate to, or arise under or in connection
with, this Agreement or any Ancillary Agreement or Continuing Arrangement, or the transactions
contemplated hereby or thereby (including all actions taken in furtherance of the transactions
contemplated hereby or thereby on or prior to the Demerger Effective Time), between or among any
member of the Cadbury plc Group, on the one hand, and any member of the DPS Group, on the other
hand (collectively,
Agreement Disputes
).
Section 10.02
Dispute Resolution
.
(a) CS and DPS will use their respective commercially reasonable efforts to resolve
expeditiously any Agreement Dispute on a mutually acceptable negotiated basis. In furtherance of
the foregoing, any member of the DPS Group or the Cadbury plc Group involved in an Agreement
Dispute may deliver a notice (an
Escalation Notice
) demanding an in-person meeting
involving senior level management representatives of Cadbury plc and DPS (or, if CS and DPS agree,
of the appropriate strategic business unit or division within each such entity). A copy of any
such Escalation Notice shall be given to the Chief Legal Officer of each of Cadbury
48
plc and DPS (which copy shall state that it is an Escalation Notice pursuant to this
Section 10.02
).
Any agenda, location or procedures for such discussions or negotiations between CS and DPS
may be established by CS and DPS from time to time;
provided
,
however
, that the
representatives of Cadbury plc and DPS shall use their reasonable efforts to meet within 30 days of
the Escalation Notice.
(b) If the senior level management representatives of Cadbury plc and DPS are not able to
resolve the Agreement Dispute within 30 days after the date of receipt of the Escalation Notice (or
such shorter time as is necessary to avoid immediate irreparable injury), then the Agreement
Dispute shall be submitted to the chief executive officers of both Cadbury plc and DPS.
(c) If CS and DPS are not able to resolve the Agreement Dispute through the processes
set forth in subsections (a) and (b) of this
Section 10.02
within 60 days after the date of
the Escalation Notice, such Agreement Dispute shall be determined, at the request of either CS or DPS by
arbitration, which shall be conducted (i) by three arbitrators, consisting of one
arbitrator appointed by CS, one arbitrator appointed by DPS and a third arbitrator
appointed by the two arbitrators appointed by CS and DPS or, if the arbitrators appointed
by CS and DPS cannot agree on a third arbitrator, the third arbitrator shall be appointed
by the chief executive officers of both CS and DPS, and (ii) in accordance with the
Commercial Rules of the American Arbitration Association (except with respect to the selection of
arbitrators) in effect at the time of filing of the demand for arbitration.
(d) The decision of the arbitrators (which, notwithstanding any other provision of this
Agreement to the contrary, may include an order to specifically perform any provision of this
Agreement) shall be final and binding upon the Parties hereto, and the expense of the arbitration
(including the award of attorneys fees to the prevailing party) shall be paid as the arbitrators
determine. The decision of the arbitrators shall be executory, and judgment thereon may be entered
by any court of competent jurisdiction. The seat of the arbitration shall be New York, New York.
(e) The existence of, and any discussions, negotiations, arbitrations or other proceedings
relating to, any Agreement Dispute shall be considered by each Party hereto as Confidential
Information until such time as a judgment thereon is entered in a court of competent jurisdiction.
(f) Notwithstanding anything contained in this Agreement to the contrary, no member of the DPS
Group and no member of the Cadbury plc Group shall have the right to institute judicial proceedings
against the other Party or any Person acting by, through or under such other Party, in order to
enforce the instituting Partys rights hereunder, except that any such member shall be permitted to
seek an injunction in aid of arbitration with respect to an Agreement Dispute to preserve the
status quo during the pendency of any arbitration proceeding pursuant to paragraph (c) of this
Section 10.02
. All judicial proceedings arising out of or relating to this Agreement shall
be heard and determined exclusively in any New York state or federal court sitting in the Borough
of Manhattan in The City of New York.
49
Section 10.03
Continuity of Service and Performance
. Unless otherwise agreed in writing, the Parties will continue to provide service and honor
all other commitments under this Agreement and each Ancillary Agreement during the course of
dispute resolution pursuant to the provisions of this
ARTICLE X
with respect to all matters
not subject to such Agreement Dispute.
ARTICLE XI
TERMINATION
Section 11.01
Termination
. This Agreement may be terminated and the Distribution may be abandoned at any time prior to
the Distribution Date by and in the sole discretion of CS.
Section 11.02
Effect of Termination
. In the event of termination of this Agreement in accordance with
Section 11.01
,
this Agreement shall forthwith become void and there shall be no Liability on the part of either
Party hereto.
Section 11.03
Amendment
. This Agreement may not be amended or modified except (a) by an instrument in writing signed
by, or on behalf of, the Parties hereto or (b) by a waiver in accordance with
Section
11.04
.
Section 11.04
Waiver
. Either Party to this Agreement may (a) extend the time for the performance of any of the
obligations or other acts of the other Party and (b) waive compliance with any of the agreements of
the other Party or conditions to such Partys obligations contained herein. Any such extension or
waiver shall be valid only if set forth in an instrument in writing signed by the Party to be bound
thereby. Any waiver of any term or condition shall not be construed as a waiver of any subsequent
breach or a subsequent waiver of the same term or condition, or a waiver of any other term or
condition of this Agreement. The failure of either Party hereto to assert any of its rights
hereunder shall not constitute a waiver of any of such rights.
ARTICLE XII
MISCELLANEOUS
Section 12.01
Limitation of Liability
. IN NO EVENT SHALL ANY MEMBER OF THE CADBURY PLC GROUP OR THE DPS GROUP BE LIABLE TO ANY
MEMBER OF THE DPS GROUP OR THE CADBURY PLC GROUP, RESPECTIVELY, FOR ANY SPECIAL, CONSEQUENTIAL,
INDIRECT, INCIDENTAL OR PUNITIVE DAMAGES OR LOST PROFITS, HOWEVER CAUSED AND ON ANY THEORY OF
LIABILITY (INCLUDING NEGLIGENCE) ARISING IN ANY WAY OUT OF THIS AGREEMENT OR ANY ANCILLARY
AGREEMENT, WHETHER OR NOT SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES;
PROVIDED
,
HOWEVER
, THAT THE FOREGOING LIMITATIONS SHALL NOT LIMIT EACH PARTYS
50
INDEMNIFICATION OBLIGATIONS FOR LIABILITIES TO THIRD PARTIES AS SET FORTH IN
ARTICLE VII
.
Section 12.02
Expenses
. Notwithstanding anything in this Agreement or in any Ancillary Agreement to the contrary,
all DPS Transaction Costs shall be borne by DPS and all Transaction Costs shall be borne by CS.
Section 12.03
Notices
. All notices, requests, claims, demands and other communications hereunder shall be in
writing and shall be given or made (and shall be deemed to have been duly given or made upon
receipt) by delivery in person, by an internationally recognized overnight courier service, by
facsimile or registered or certified mail (postage prepaid, return receipt requested) to the
respective Parties hereto at the following addresses (or at such other address for a Party as shall
be specified in a notice given in accordance with this
Section 12.03
):
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(a)
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if to Cadbury plc or CS:
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Cadbury plc
25 Berkeley Square
London W1J 6HB
Facsimile: 44-20-7830-5015
Attention: Henry Udow, Esq.
Chief Legal Officer
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with a copies to:
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Shearman & Sterling LLP
599 Lexington Avenue
New York, NY 10022-6069
Telecopy: (212) 848-7179
Attention: Creighton OM. Condon, Esq.
Scott Petepiece, Esq.
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and
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Slaughter and May
One Bunhill Row
London EC1Y 8YY
Facsimile: 44-20-7090-5000
Attention: Tim Boxell
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(b)
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if to DPS:
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5301 Legacy Drive
Plano, TX 75024
Facsimile: (972) 673-8130
Attention: James L. Baldwin, Jr.
General Counsel
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51
Section 12.04
Public Announcements
. Following the Demerger Effective Time, neither Party to this Agreement shall make, or cause
to be made, any press release or public announcement in respect of this Agreement or the
transactions contemplated by this Agreement without the prior written consent of the other Party
unless otherwise required by Law or applicable stock exchange regulation, and the Parties to this
Agreement shall cooperate as to the timing and contents of any such press release or public
announcement. The Parties shall use commercially reasonable efforts to agree on the timing and
content of any announcement or communication relating to the financial results and/or results of
operations of the quarters ending March 31, 2008 and June 30, 2008 for DPS and the period ending
June 30, 2008 for Cadbury plc.
Section 12.05
Severability
. If any term or other provision of this Agreement is invalid, illegal or incapable of being
enforced by any Law or public policy, all other terms and provisions of this Agreement shall
nevertheless remain in full force and effect for so long as the economic or legal substance of the
transactions contemplated by this Agreement is not affected in any manner materially adverse to
either Party hereto. 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 in order that the transactions contemplated by this Agreement are consummated as
originally contemplated to the greatest extent possible.
Section 12.06
Entire Agreement
. This Agreement, the Ancillary Agreements and the Transfer Documents constitute the entire
agreement of the Parties hereto and their Affiliates with respect to the subject matter hereof and
thereof and supersede all prior agreements and undertakings, both written and oral, between the
Parties hereto with respect to the subject matter hereof and thereof.
Section 12.07
Assignment
. This Agreement may not be assigned by a Party hereto without the consent of the other Party
hereto;
provided
that a merger shall not be deemed to be an assignment under this
Agreement; and
provided
further
, that any Party may assign this Agreement or any of
its rights and obligations hereunder to one or more Affiliates of such Party without the consent of
the other Party
provided
that no such assignment shall relieve the assignor of any of its
obligations hereunder.
Section 12.08
Parties in Interest
. This Agreement shall be binding upon and inure solely to the benefit of the Parties hereto
and their respective successors and permitted assigns, and nothing herein, express or implied
(including the provisions of
ARTICLE VII
relating to indemnified parties), is intended to
or shall confer upon any other Person any legal or equitable right, benefit or remedy of any nature
whatsoever under or by reason of this Agreement.
Section 12.09
Currency
. Unless otherwise specified in this Agreement, all references to currency, monetary values
and dollars set forth herein means United States dollars and all payments hereunder shall be made
in United States dollars unless otherwise mutually agreed upon by the Parties.
Section 12.10
Tax Matters
. Except as otherwise specifically provided herein, this Agreement (including
ARTICLE
VII
(other than
Section 7.06
)) shall not govern Tax matters,
52
which shall be governed by the Tax Sharing Agreement.
Section 12.11
Employee Matters
. Except as otherwise provided herein and not inconsistent with the Employee Matters
Agreement, this Agreement shall not govern any employee matters, which shall be exclusively
governed by the Employee Matters Agreement.
Section 12.12
Governing Law
. This Agreement shall be governed by, and construed in accordance with, the laws of the
State of New York.
Section 12.13
Waiver of Jury Trial
. EACH OF THE PARTIES HERETO HEREBY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW
ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY LITIGATION DIRECTLY OR INDIRECTLY
ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT. EACH OF THE PARTIES HERETO HEREBY (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR
ATTORNEY OF THE OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT
HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT,
AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS
SECTION
12.13
.
Section 12.14
Survival of Covenants
. Except as expressly set forth in any Ancillary Agreement, the covenants and agreements
contained in this Agreement and each Ancillary Agreement, and Liability for the breach of any
obligations contained herein or therein, shall survive the Distribution Date and shall remain in
full force and effect.
Section 12.15
Counterparts
. This Agreement may be executed and delivered (including by facsimile transmission or
portable document format (
.pdf
)) in counterparts, and by the different Parties hereto in
separate counterparts, each of which when executed shall be deemed to be an original, but all of
which taken together shall constitute one and the same agreement.
[
Remainder of page intentionally left blank
]
53
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed as of the
date first written above by their respective officers thereunto duly authorized.
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CADBURY SCHWEPPES PLC
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By
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Name:
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Title:
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DR PEPPER SNAPPLE GROUP, INC.
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By
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Name:
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Title:
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CADBURY PLC, solely for the purposes of
Sections 4.01(a) and (b) and Section 5.03
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By:
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Name:
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Title:
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Exhibit 10.22
CREDIT AGREEMENT
dated as of
March 10, 2008
among
DR PEPPER SNAPPLE GROUP, INC.,
as Borrower
THE LENDERS AND ISSUING BANK PARTY HERETO
and
JPMORGAN CHASE BANK, N.A.
as Administrative Agent
BANK OF AMERICA, N.A.
as Syndication Agent
GOLDMAN SACHS CREDIT PARTNERS L.P.,
MORGAN STANLEY SENIOR FUNDING, INC.
and
UBS SECURITIES LLC
as Documentation Agents
J.P. MORGAN SECURITIES INC.
and
BANC OF AMERICA SECURITIES LLC
as Joint Lead Arrangers
J.P. MORGAN SECURITIES INC.,
BANC OF AMERICA SECURITIES LLC,
GOLDMAN SACHS CREDIT PARTNERS L.P.,
MORGAN STANLEY SENIOR FUNDING, INC.
and
UBS SECURITIES LLC
as Bookrunners
TABLE OF CONTENTS
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Page
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ARTICLE I Definitions
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1
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Section 1.01.
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Defined Terms
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1
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Section 1.02.
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Classification of Loans and Borrowings
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20
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Section 1.03.
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Terms Generally
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21
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Section 1.04.
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Accounting Terms; GAAP
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21
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ARTICLE II The Credits
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21
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Section 2.01.
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Commitments
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21
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Section 2.02.
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Loans and Borrowings
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22
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Section 2.03.
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Requests for Borrowings
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22
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Section 2.04.
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Swingline Loans
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23
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Section 2.05.
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Letters of Credit
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24
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Section 2.06.
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Funding of Borrowings
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28
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Section 2.07.
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Interest Elections
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28
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Section 2.08.
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Termination and Reduction of Commitments
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29
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Section 2.09.
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Repayment of Loans; Evidence of Debt
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30
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Section 2.10.
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Prepayment of Loans
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31
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Section 2.11.
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Fees
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32
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Section 2.12.
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Interest
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33
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Section 2.13.
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Alternate Rate of Interest
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33
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Section 2.14.
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Increased Costs
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34
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Section 2.15.
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Break Funding Payments
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35
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Section 2.16.
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Taxes
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35
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Section 2.17.
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Payments Generally; Pro Rata Treatment; Sharing of Set-offs
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Section 2.18.
|
|
Mitigation Obligations; Replacement of Lenders
|
|
|
39
|
|
|
|
|
|
|
|
|
ARTICLE III Representations and Warranties
|
|
|
39
|
|
Section 3.01.
|
|
Organization; Powers
|
|
|
40
|
|
Section 3.02.
|
|
Authorization; Enforceability
|
|
|
40
|
|
Section 3.03.
|
|
Governmental Approvals; No Conflicts
|
|
|
40
|
|
Section 3.04.
|
|
Financial Condition; No Material Adverse Change
|
|
|
41
|
|
Section 3.05.
|
|
Properties
|
|
|
41
|
|
Section 3.06.
|
|
Litigation and Environmental Matters
|
|
|
41
|
|
i
TABLE OF CONTENTS
(continued)
|
|
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|
Page
|
|
|
|
|
|
|
|
|
Section 3.07.
|
|
Compliance with Laws and Agreements
|
|
|
42
|
|
Section 3.08.
|
|
Investment Company Status
|
|
|
42
|
|
Section 3.09.
|
|
Taxes
|
|
|
42
|
|
Section 3.10.
|
|
ERISA
|
|
|
42
|
|
Section 3.11.
|
|
Disclosure
|
|
|
42
|
|
Section 3.12.
|
|
Margin Regulations
|
|
|
43
|
|
Section 3.13.
|
|
Labor Matters
|
|
|
43
|
|
Section 3.14.
|
|
Separation Transactions
|
|
|
43
|
|
|
|
|
|
|
|
|
ARTICLE IV Conditions
|
|
|
44
|
|
Section 4.01.
|
|
Effective Date
|
|
|
44
|
|
Section 4.02.
|
|
Initial Funding Date
|
|
|
44
|
|
Section 4.03.
|
|
Conditions to Transaction Closing Date
|
|
|
46
|
|
Section 4.04.
|
|
Conditions to Each Credit Event After the Transaction Closing Date
|
|
|
48
|
|
|
|
|
|
|
|
|
ARTICLE V Affirmative Covenants
|
|
|
48
|
|
Section 5.01.
|
|
Financial Statements; Ratings Change and Other Information
|
|
|
49
|
|
Section 5.02.
|
|
Notices of Material Events
|
|
|
50
|
|
Section 5.03.
|
|
Existence; Conduct of Business
|
|
|
50
|
|
Section 5.04.
|
|
Payment of Obligations
|
|
|
50
|
|
Section 5.05.
|
|
Maintenance of Properties; Insurance
|
|
|
50
|
|
Section 5.06.
|
|
Books and Records; Inspection Rights
|
|
|
50
|
|
Section 5.07.
|
|
Compliance with Laws
|
|
|
51
|
|
Section 5.08.
|
|
Use of Proceeds
|
|
|
51
|
|
Section 5.09.
|
|
Additional Guarantors
|
|
|
51
|
|
Section 5.10.
|
|
Ratings
|
|
|
51
|
|
|
|
|
|
|
|
|
ARTICLE VI Negative Covenants
|
|
|
52
|
|
Section 6.01.
|
|
Liens
|
|
|
52
|
|
Section 6.02.
|
|
Fundamental Changes
|
|
|
52
|
|
Section 6.03.
|
|
Investments, Loans, Advances, Guarantees and Acquisitions
|
|
|
53
|
|
Section 6.04.
|
|
Financial Covenants
|
|
|
54
|
|
Section 6.05.
|
|
Transactions with Affiliates
|
|
|
54
|
|
Section 6.06.
|
|
Restrictive Agreements
|
|
|
54
|
|
ii
TABLE OF CONTENTS
(continued)
|
|
|
|
|
|
|
|
|
|
|
Page
|
|
|
|
|
|
|
|
|
Section 6.07.
|
|
Subsidiary Indebtedness
|
|
|
55
|
|
|
|
|
|
|
|
|
ARTICLE VII Events of Default
|
|
|
55
|
|
|
|
|
|
|
|
|
ARTICLE VIII The Administrative Agent; the Agents and the Collateral Account
|
|
|
57
|
|
Section 8.01.
|
|
The Administrative Agent; the Agents
|
|
|
57
|
|
Section 8.02.
|
|
Collateral Account
|
|
|
59
|
|
|
|
|
|
|
|
|
ARTICLE IX Miscellaneous
|
|
|
60
|
|
Section 9.01.
|
|
Notices
|
|
|
60
|
|
Section 9.02.
|
|
Waivers; Amendments
|
|
|
61
|
|
Section 9.03.
|
|
Expenses; Indemnity; Damage Waiver
|
|
|
62
|
|
Section 9.04.
|
|
Successors and Assigns
|
|
|
63
|
|
Section 9.05.
|
|
Survival
|
|
|
66
|
|
Section 9.06.
|
|
Counterparts; Integration; Effectiveness
|
|
|
66
|
|
Section 9.07.
|
|
Severability
|
|
|
67
|
|
Section 9.08.
|
|
Right of Setoff
|
|
|
67
|
|
Section 9.09.
|
|
Governing Law; Jurisdiction; Consent to Service of Process
|
|
|
67
|
|
Section 9.10.
|
|
WAIVER OF JURY TRIAL
|
|
|
67
|
|
Section 9.11.
|
|
Headings
|
|
|
68
|
|
Section 9.12.
|
|
Confidentiality
|
|
|
68
|
|
Section 9.13.
|
|
Interest Rate Limitation
|
|
|
69
|
|
Section 9.14.
|
|
Patriot Act
|
|
|
69
|
|
Section 9.15.
|
|
No Advisory or Fiduciary Responsibility
|
|
|
70
|
|
Section 9.16.
|
|
Release of Guarantors
|
|
|
70
|
|
|
|
|
|
|
|
|
iii
TABLE OF CONTENTS
(continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
SCHEDULES
:
|
|
|
|
|
|
|
|
|
|
|
|
Schedule 2.01
|
|
Commitments
|
|
|
|
|
Schedule 2.05
|
|
Existing Letters of Credit
|
|
|
|
|
Schedule 3.01(b)
|
|
Subsidiaries
|
|
|
|
|
Schedule 3.06
|
|
Disclosed Matters
|
|
|
|
|
Schedule 6.01
|
|
Existing Indebtedness
|
|
|
|
|
Schedule 6.01
|
|
Existing Liens
|
|
|
|
|
Schedule 6.06
|
|
Existing Restrictions
|
|
|
|
|
EXHIBITS
:
Exhibit A Form of Assignment and Assumption
Exhibit B Form of Opinion of Borrowers Counsel
Exhibit C Form of Guaranty
ANNEXES
Annex I Information Memorandum
Annex II Separation Documents
iv
CREDIT AGREEMENT dated as of March 10, 2008, among DR PEPPER SNAPPLE GROUP, INC., as Borrower,
the LENDERS and ISSUING BANKS party hereto, JPMORGAN CHASE BANK, N.A., as Administrative Agent,
BANK OF AMERICA, N.A., as Syndication Agent, and GOLDMAN SACHS CREDIT PARTNERS L.P., MORGAN STANLEY
SENIOR FUNDING, INC. and UBS SECURITIES LLC, as Documentation Agents.
WITNESSETH:
WHEREAS, the Borrower has requested, and the Lenders and Issuing Bank are willing to make
available to the Borrower, the credit facilities described in this Agreement upon and subject to
the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises, covenants and agreements set forth herein,
the parties hereto agree as follows:
ARTICLE I
Definitions
SECTION 1.01.
Defined Terms.
As used in this Agreement, the following terms have the
meanings specified below:
ABR
, when used in reference to any Loan or Borrowing, refers to whether such Loan,
or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to
the Alternate Base Rate.
Adjusted LIBO Rate
means, with respect to any Eurodollar Borrowing for any Interest
Period, an interest rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to
(a) the LIBO Rate for such Interest Period multiplied by (b) the Statutory Reserve Rate.
Administrative Agent
means JPMorgan Chase Bank, N.A., in its capacity as
administrative agent for the Lenders hereunder, and, as applicable, JPMorgan Chase Bank, N.A., in
its capacity as collateral agent for the Lenders hereunder.
Administrative Questionnaire
means an Administrative Questionnaire in a form
supplied by the Administrative Agent.
Affiliate
means, with respect to a specified Person, another Person that directly,
or indirectly through one or more intermediaries, Controls or is Controlled by or is under common
Control with the Person specified.
Agents
means, collectively, the Administrative Agent, Syndication Agent and
Documentation Agent.
Alternate Base Rate
means, for any day, a rate per annum equal to the greater of (a)
the Prime Rate in effect on such day and (b) the Federal Funds Effective Rate in effect on such day
plus
1
/
2
of 1%. Any change in the Alternate Base Rate due to a change in the Prime Rate or the
Federal Funds
Effective Rate shall be effective from and including the effective date of such change in the
Prime Rate or the Federal Funds Effective Rate, respectively.
Applicable Percentage
means, (a) with respect to any Revolving Credit Lender, the
percentage of the total Revolving Credit Commitments represented by such Lenders Revolving Credit
Commitment, (b) with respect to any Term Lender, the percentage of the total Term Loan Commitments
represented by such Lenders Term Loan Commitment and (c) with respect to any Lender, the
percentage of the total Commitments represented by such Lenders Commitments. If the applicable
Commitments have terminated or expired, the Applicable Percentages shall be determined based upon
the applicable Commitments most recently in effect, giving effect to any assignments.
Applicable Rate
means, for any day, with respect to any ABR Loan or Eurodollar Loan,
or with respect to the Unused Commitment Fees payable hereunder, as the case may be, the applicable
rate per annum set forth below under the caption ABR Spread, Eurodollar Spread or Unused
Commitment Fee Rate, as the case may be, based upon the ratings by Moodys and S&P, respectively,
applicable on such date to the Index Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ABR
|
|
Eurodollar
|
|
Unused Commitment
|
Index Debt Ratings:
|
|
Spread
|
|
Spread
|
|
Fee Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Category 1
Index Debt ratings
of at least BBB+ by
S&P and/or Baa1 by
Moodys
|
|
|
0.00
|
%
|
|
|
1.00
|
%
|
|
|
0.15
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Category 2
Index Debt ratings
less than Category
1, but at least BBB
by S&P and/or Baa2
by Moodys
|
|
|
0.50
|
%
|
|
|
1.50
|
%
|
|
|
0.20
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Category 3
Index Debt ratings
less than Category
2, but at least BBB-
by S&P and/or Baa3
by Moodys
|
|
|
1.00
|
%
|
|
|
2.00
|
%
|
|
|
0.30
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Category 4
Index Debt ratings
less than Category
3, but at least BB+
by S&P and/or Ba1 by
Moodys
|
|
|
1.25
|
%
|
|
|
2.25
|
%
|
|
|
0.375
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Category 5
Index Debt ratings
less than Category 4
|
|
|
1.50
|
%
|
|
|
2.50
|
%
|
|
|
0.50
|
%
|
For purposes of the foregoing, (i) if either Moodys or S&P shall not have in effect a rating for
the Index Debt (other than by reason of the circumstances referred to in the last sentence of this
definition), then such rating agency shall be deemed to have established a rating in Category 5;
(ii) if the ratings established or deemed to have been established by Moodys and S&P for the Index
Debt shall fall within different Categories, the Applicable Rate shall be based on the higher of
the two ratings unless one of the two ratings is two or more Categories lower than the other, in
which case the Applicable Rate shall be determined by reference to the Category next below that of
the higher of the two ratings; and (iii) if the ratings established or deemed to have been
established by Moodys and S&P for the Index Debt shall be changed (other than as a result of a
change in the rating system of Moodys or S&P), such change shall be effective as of the date on
which it is first announced by the applicable rating agency, irrespective of when notice of such
change shall have been furnished by the Borrower to the Agent and the Lenders
2
pursuant to Section 5.01 or otherwise. Each change in the Applicable Rate shall apply during the
period commencing on the effective date of such change and ending on the date immediately preceding
the effective date of the next such change. If the rating system of Moodys or S&P shall change,
or if either such rating agency shall cease to be in the business of rating corporate debt
obligations, the Borrower and the Lenders shall negotiate in good faith to amend this definition to
reflect such changed rating system or the unavailability of ratings from such rating agency and,
pending the effectiveness of any such amendment, the Applicable Rate shall be determined by
reference to the rating most recently in effect prior to such change or cessation.
Approved Fund
has the meaning assigned to such term in Section 9.04.
Assignment and Assumption
means an assignment and assumption entered into by a
Lender and an assignee (with the consent of any party whose consent is required by Section 9.04),
and accepted by the Administrative Agent, in the form of Exhibit A or any other form approved by
the Administrative Agent.
Audited Financial Statements
has the meaning assigned to such term in Section
4.02(k).
Availability Period
means the period from and including the Transaction Closing Date
to but excluding the earlier of the Revolving Credit Facility Maturity Date and the date of
termination of the Revolving Credit Commitments in full.
Board
means the Board of Governors of the Federal Reserve System of the United
States of America.
Bookrunners
means, collectively, J.P. Morgan Securities Inc., Banc of America
Securities LLC, Goldman Sachs Credit Partners L.P., Morgan Stanley Senior Funding, Inc. and UBS
Securities LLC, in their capacities as bookrunners.
Borrower
means Dr Pepper Snapple Group, Inc., a Delaware corporation.
Borrowing
means an advance of (a) Revolving Loans of the same Type, made, converted
or continued on the same date and, in the case of Eurodollar Loans, as to which a single Interest
Period is in effect, (b) Term Loans of the same Type, made, converted or continued on the same date
and, in the case of Eurodollar Loans, as to which a single Interest Period is in effect, or (c) a
Swingline Loan, as applicable.
Borrowing Request
means a request by the Borrower for a Borrowing in accordance with
Section 2.03.
Business
means the beverage business in the United States, Canada, Mexico and the
Caribbean owned by Cadbury on the Effective Date and to be owned by the Borrower upon consummation
of the Separation Transactions.
Bridge Loan
means that certain 364-day loan made pursuant to the Bridge Loan
Agreement in an aggregate principal amount of up to $2,000,000,000.
Bridge Loan Agreement
means that certain 364-Day Senior Unsecured Bridge Loan
Agreement dated as of the date hereof, among the Borrower, the lenders party thereto and JP Morgan
Chase Bank, N.A., as administrative agent.
3
Bridge Loan Documents
means the Loan Documents (as defined in the Bridge Loan
Agreement).
Business Day
means any day that is not a Saturday, Sunday or other day on which
commercial banks in New York City are authorized or required by law to remain closed;
provided
that, when used in connection with a Eurodollar Loan, the term
Business
Day
shall also exclude any day on which banks are not open for dealings in dollar deposits in
the London interbank market.
Cadbury
means Cadbury Schweppes plc, a public limited company organized under the
laws of England and Wales with registered number 0052457.
Cadbury Material Adverse Effect
means a material adverse effect on the business,
operations, property or financial condition of Cadbury and its subsidiaries taken as a whole.
Cadbury UK
means Cadbury plc, a United Kingdom public limited company incorporated
in England and Wales with registered number 0649739.
Capital Lease Obligations
of any Person means the obligations of such Person to pay
rent or other amounts under any lease of (or other arrangement conveying the right to use) real or
personal property, or a combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such Person under GAAP, and the amount of
such obligations shall be the capitalized amount thereof determined in accordance with GAAP.
Change in Control
means (a) the acquisition of ownership, directly or indirectly,
beneficially or of record, by any Person or group (within the meaning of the Securities Exchange
Act of 1934 and the rules of the SEC thereunder as in effect on the date hereof), of Stock
representing more than 35% of the aggregate ordinary voting power represented by the issued and
outstanding Stock of the Borrower, (b) occupation of a majority of the seats (other than vacant
seats) on the board of directors of the Borrower by Persons who were neither (i) nominated by the
board of directors of the Borrower nor (ii) appointed by directors so nominated or (c) a
termination of Cadbury UKs and its subsidiaries indemnification obligations under the Tax Sharing
and Indemnification Agreement pursuant to the change of control provision therein.
Change in Law
means (a) the adoption of any law, rule or regulation after the date
of this Agreement, (b) any change in any law, rule or regulation or in the interpretation or
application thereof by any Governmental Authority after the date of this Agreement or (c) the
compliance by any Lender or the Issuing Bank (or, for purposes of Section 2.14(b), by any lending
office of such Lender or by such Lenders or the Issuing Banks holding company, if any) with any
request, guideline or directive (whether or not having the force of law) of any Governmental
Authority made or issued after the date of this Agreement.
Class
, when used in reference to any Loan or Borrowing, refers to whether such Loan,
or the Loans comprising such Borrowing, are Revolving Loans, Term Loans or Swingline Loans.
Code
means the Internal Revenue Code of 1986, as amended from time to time.
Collateral Account
means a deposit account that is (a) established by and with the
Administrative Agent for the purpose of receiving the proceeds of the Term Loans on the Initial
Funding Date (if the Initial Funding Date occurs prior to the Transaction Closing Date), (b) in the
name of the Borrower and (c) over which the Administrative Agent has exclusive control and a
perfected first-priority Lien as security for the Obligations.
4
Commitment
means, with respect to any Lender, such Lenders Revolving Credit
Commitment, if any, and such Lenders Term Loan Commitment, if any, and
Commitments
means
the aggregate Revolving Credit Commitments and Term Loan Commitments of all Lenders.
Consolidated
means, with respect to any Person, the consolidation of accounts of
such Person and its subsidiaries in accordance with GAAP.
Consolidated Cash Interest Expense
means, with respect to any Person, for any
period, the Consolidated Interest Expense of such Person and its subsidiaries for such period less
the Consolidated Non-Cash Interest Expense of such Person and its subsidiaries for such period.
Consolidated EBITDA
means, with respect to any Person, for any period, Consolidated
Net Income of such Person for such period
plus
(A) without duplication and to the extent deducted
in determining such Consolidated Net Income, the sum of (1) the aggregate amount of Consolidated
Interest Expense for such period, (2) the aggregate provision for federal, state, local or foreign
taxes based on income or profits or capital for such period, (3) all amounts attributable to
depreciation, amortization (including amortization of goodwill or other intangible assets) or
impairment of goodwill or other intangible assets for such period, (4) any extraordinary or
non-recurring non-cash charges for such period (provided,
however
, that cash expenditures
in respect of charges added back pursuant to this clause (4) shall be deducted in determining
Consolidated EBITDA for the period during which such expenditures are made), (5) the aggregate
amount of all non-cash compensation charges incurred during such period arising from the grant of
or the issuance of Stock or Stock Equivalents, (6) the aggregate amount of any extraordinary losses
plus
any loss realized by such Person or any of its subsidiaries in connection with any
dispositions that occur during such period, (7) the aggregate amount of any fees, expenses or
charges paid on or prior to the Transaction Closing Date related to the Separation Transactions and
the negotiation, execution and delivery of this Agreement, the Bridge Loan and the Senior Notes,
(8) the aggregate amount of any fees, expenses or charges paid after the Transaction Closing Date
related to a refinancing of the Bridge Loan, if any, and (9) for periods prior to the Transaction
Closing Date, the aggregate amount of corporate costs allocated to the Borrower in its combined
financial statements and
minus
(B) (1) for periods prior to the Transaction Closing Date,
the Borrowers good faith estimate of its costs of operating on a stand-alone basis as if the
Separation Transactions had occurred, which in no event shall be less than $11.25 million per
fiscal quarter (pro-rated in the case of a period comprising less than a full fiscal quarter), and
(2) without duplication and to the extent included in determining such Consolidated Net Income, the
sum of (i) any extraordinary gains and any non-recurring non-cash gains during such period, (ii)
any credit for federal, state, local or foreign taxes based on income or profits or capital during
such period, and (iii) any other gains realized by such Person or any of its subsidiaries in
connection with any dispositions that occur during such period. Notwithstanding the foregoing, the
following amounts (representing the aggregate effect of adjustments to (a) add back (I)
restructuring charges, reserves and integration costs, (II) anticipated benefits of organizational
restructuring, (III) losses associated with the launch of Accelerade and (b) subtract profits and
gains associated with Glaceau) shall be added-back without duplication in determining Consolidated
EBITDA during the following periods:
|
|
|
|
|
Four Fiscal Quarters Ending
|
|
Net Add Back Amount
|
June 30, 2008
|
|
$68 million
|
September 30, 2008
|
|
$51 million
|
December 31, 2008
|
|
$34 million
|
March 31, 2009
|
|
$17 million
|
5
Consolidated Interest Expense
means, with respect to any Person, for any period, the
amount of interest expense reflected on the consolidated statement of income of such Person and its
subsidiaries for such period in conformity with GAAP.
Consolidated Net Income
means, with respect to any Person, for any period, the
amount of net income reflected on the consolidated statement of income of such Person and its
subsidiaries for such period in conformity with GAAP.
Consolidated Net Tangible Assets
means, with respect to any Person, as of any date
of determination, the total assets less the sum of goodwill, net, and other intangible assets, net,
in each case reflected on the Consolidated balance sheet of such Person and its subsidiaries as of
the end of the most recently ended fiscal quarter of such Person for which financial statements
have been delivered to the Administrative Agent pursuant to clause (a) or (b), as applicable, of
Section 5.01, determined on a consolidated basis in accordance with GAAP.
Consolidated Non-Cash Interest Expense
means, with respect to any Person, for any
period, the sum of the following amounts to the extent included in the definition of Consolidated
Interest Expense of such Person: (a) the amount of debt discount and debt issuance costs amortized,
(b) charges relating to write-ups or write-downs in the book or carrying value of existing
Indebtedness, (c) interest payable in evidences of Indebtedness or by addition to the principal of
the related Indebtedness and (d) other non-cash interest.
Consolidated Total Debt
means, with respect to any Person, as of the date of
determination, the aggregate amount of Indebtedness reflected on the consolidated balance sheet of
such Person and its subsidiaries as of such date in conformity with GAAP,
plus
, without
duplication, synthetic leases, letters of credit (but only to the extent drawn and not reimbursed).
Control
means the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of a Person, whether through the ability to
exercise voting power, by contract or otherwise.
Controlling
and
Controlled
have meanings correlative thereto.
Credit Event
has the meaning assigned to such term in Section 4.04.
Default
means any event or condition which constitutes an Event of Default or which
upon notice, lapse of time or both would, unless cured or waived, become an Event of Default.
Disclosed Matters
means the events, actions, orders, decrees, judgments, inquiries,
investigations, reviews, suits and proceedings and the environmental matters disclosed in Schedule
3.06.
Documentation Agents
means Goldman Sachs Credit Partners L.P., Morgan Stanley Senior
Funding, Inc. and UBS Securities LLC.
dollars
or
$
refers to lawful money of the United States of America.
Early Commitment Termination Date
means the earlier of (i) April 18, 2008, if by
that date the shareholders of Cadbury have not duly approved the Separation Transaction at a court
meeting
6
and a general meeting as contemplated in the Registration Statement, (ii) the time any
borrowings are made under the UK Facility and (iii) 3:00 p.m. New York City time on May 13, 2008.
Effective Date
has the meaning assigned to such term in Section 4.01.
Environmental Laws
means all laws, rules, regulations, codes, ordinances, orders,
decrees, judgments, injunctions or binding agreements issued, promulgated or entered into by any
Governmental Authority, relating to the protection of the environment, preservation or reclamation
of natural resources, the management, release or threatened release of any Hazardous Material or,
as such relate to exposure to Hazardous Materials, to health and safety matters.
Environmental Liability
means any liability, contingent or otherwise (including any
liability for damages, costs of environmental remediation, fines, penalties or indemnities), of the
Borrower or any Subsidiary directly or indirectly resulting from or based upon (a) violation of any
Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or
disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or
threatened release of any Hazardous Materials into the environment or (e) any contract, agreement
or other consensual arrangement pursuant to which liability is assumed or imposed with respect to
any of the foregoing.
ERISA
means the Employee Retirement Income Security Act of 1974, as amended from
time to time, and the regulations promulgated and rulings issued thereuder.
ERISA Affiliate
means any trade or business (whether or not incorporated) that,
together with the Borrower, is treated as a single employer under Section 414(b) or (c) of the Code
or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single
employer under Section 414 of the Code
ERISA Event
means (a) any reportable event, as defined in Section 4043 of ERISA or
the regulations issued thereunder with respect to a Plan (other than an event for which the 30-day
notice period is waived); (b) any failure to satisfy statutory minimum funding standards; (c) the
filing pursuant to Section 412(d) of the Code of an application for a waiver of the minimum funding
standard with respect to any Plan; (d) the incurrence by the Borrower or any of its ERISA
Affiliates of any liability under Title IV of ERISA with respect to the termination of any Plan;
(e) the receipt by the Borrower or any ERISA Affiliate from the PBGC or a plan administrator of any
notice relating to an intention to terminate any Plan or Plans or to appoint a trustee to
administer any Plan; (f) the incurrence by the Borrower or any of its ERISA Affiliates of any
liability with respect to the withdrawal or partial withdrawal from any Plan or Multiemployer Plan;
or (g) the receipt by the Borrower or any ERISA Affiliate of any notice, or the receipt by any
Multiemployer Plan from the Borrower or any ERISA Affiliate of any notice, concerning the
imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected
to be, insolvent or in reorganization, within the meaning of Title IV of ERISA.
Eurodollar
, when used in reference to any Loan or Borrowing, refers to whether such
Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by
reference to the Adjusted LIBO Rate.
Event of Default
has the meaning assigned to such term in Article VII.
Excluded Subsidiary
means (a) any Subsidiary that is not a wholly-owned Material
Subsidiary, (b) any Foreign Subsidiary, (c) any Subsidiary that is prohibited by applicable law
from guaranteeing the Obligations;
provided
that Excluded Subsidiary shall not include
any Subsidiary that
7
guarantees, directly or indirectly, or otherwise provides a Guarantee for, any Material
Indebtedness of the Borrower or any other Loan Party or (d) Juice Guys Care, Inc. and Cadbury
Schweppes Americas Employee Relief Fund, so long as each remains qualified as a not-for-profit
corporation.
Excluded Taxes
means, with respect to the Administrative Agent, any Lender, the
Issuing Bank or any other recipient of any payment to be made by or on account of any obligation of
the Borrower hereunder, (a) income or franchise Taxes imposed on (or measured by) its net income
by the United States of America, or by the jurisdiction under the laws of which such recipient is
organized or in which its principal office is located or, in the case of any Lender, in which its
applicable lending office is located, (b) any branch profits Taxes imposed by the United States of
America (or any political subdivision thereof) or any similar Tax imposed by any other jurisdiction
in which the Borrower is located and (c) in the case of a Foreign Lender (other than an assignee
pursuant to a request by the Borrower under Section 2.18(b)), any withholding tax that is imposed
on amounts payable to such Foreign Lender at the time such Foreign Lender becomes a party to this
Agreement (or designates a new lending office), except to the extent that such Foreign Lender (or
its assignor, if any) was entitled, at the time of designation of a new lending office (or
assignment), to receive additional amounts from the Borrower with respect to such withholding tax
pursuant to Section 2.16(a).
Facilities
means (a) the Revolving Credit Facility and (b) the Term Loan Facility.
Federal Funds Effective Rate
means, for any day, the weighted average (rounded
upwards, if necessary, to the next 1/100 of 1%) of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal funds brokers, as
published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such
rate is not so published for any day that is a Business Day, the average (rounded upwards, if
necessary, to the next 1/100 of 1%) of the quotations for such day for such transactions received
by the Administrative Agent from three Federal funds brokers of recognized standing selected by it.
Fee and Syndication Letter
means that letter agreement dated March 10, 2008,
addressed to the Borrower and Cadbury from the Administrative Agent and the Bookrunners and
accepted by the Borrower and Cadbury on March 10, 2008.
Financial Officer
means the chief financial officer, principal accounting officer,
senior vice president corporate finance, treasurer or controller of the Borrower.
Financing Transactions
means the execution, delivery and performance of the Loan
Documents and the Bridge Loan Documents by the Loan Parties party thereto, the borrowing of Loans,
the borrowing of the Bridge Loan or the issuance of the Senior Notes, as applicable, and the use of
the proceeds thereof.
Foreign Lender
means any Lender that is organized under the laws of a jurisdiction
other than that in which the Borrower is located. For purposes of this definition, the United
States of America, each State thereof and the District of Columbia shall be deemed to constitute a
single jurisdiction.
Foreign Subsidiary
means any Subsidiary that is not organized under the laws of the
United States, any state thereof or the District of Columbia.
GAAP
means generally accepted accounting principles in the United States of America,
as in effect from time to time.
8
Governmental Authority
means the government of the United States of America, any
other nation or any political subdivision thereof, whether state or local, and any agency,
authority, instrumentality, regulatory body, court, central bank or other entity exercising
executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or
pertaining to government.
Guarantee
of or by any Person (the
guarantor
) means any obligation,
contingent or otherwise, of the guarantor guaranteeing or having the economic effect of
guaranteeing any Indebtedness or other payment obligation of any other Person (the
primary
obligor
) in any manner, whether directly or indirectly, and including any obligation of the
guarantor, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase
or payment of) such Indebtedness or other payment obligation or to purchase (or to advance or
supply funds for the purchase of) any security for the payment thereof, (b) to purchase or lease
property, securities or services for the purpose of assuring the owner of such Indebtedness or
other payment obligation of the payment thereof, (c) to maintain working capital, equity capital or
any other financial statement condition or liquidity of the primary obligor so as to enable the
primary obligor to pay such Indebtedness or other payment obligation or (d) as an account party in
respect of any letter of credit or letter of guaranty issued to support such Indebtedness or
payment obligation;
provided
, that the term Guarantee shall not include endorsements for
collection or deposit in the ordinary course of business, or customary and reasonable indemnity
obligations in effect on the Effective Date or entered into in connection with any acquisition or
disposition of assets.
Guarantor
means each Subsidiary party to or that becomes party to the Guaranty.
Guaranty
means the Guaranty, executed and delivered by each Guarantor, in
substantially the form of Exhibit C, as the same may be amended, supplemented or otherwise modified
from time to time.
Hazardous Materials
means all explosive or radioactive substances or wastes,
petroleum or petroleum distillates, asbestos or asbestos containing materials, polychlorinated
biphenyls, radon gas, infectious or medical wastes and all other substances, materials or wastes of
any nature regulated as hazardous or toxic, or a pollutant or contaminant, pursuant to any
Environmental Law.
Immaterial Insolvency Event
means, as of any date, any Default under clause (h) of
Article VII with respect to any Guarantor that is a Material Subsidiary or group of Guarantors that
are Material Subsidiaries in connection with which an executive officer of such Subsidiary and the
general counsel of the Borrower each have certified (in writing to the Administrative Agent) that
(a) they believe that the commencement of the involuntary proceeding or involuntary petition
causing such Default is without merit and not expected to be sustained in the applicable proceeding
and (b) the Borrower has in good faith undertaken commercially reasonable efforts to dismiss such
proceeding or petition or otherwise cure such Default;
provided
that, at no time shall any
such Material Subsidiary subject to such Default (i) have Consolidated Net Tangible Assets as of
December 31, 2007 in the aggregate with all other Guarantors that are Material Subsidiaries subject
to such Default and all other Subsidiaries subject to the events of the type described in clause
(h) of Article VII, equal to or exceeding 10% of the Consolidated Net Tangible Assets of the
Borrower at such date and (ii) have Consolidated gross revenues for the fiscal year ended December
31, 2007 in the aggregate with all other Guarantors that are Material Subsidiaries subject to such
Default and all other Subsidiaries subject to the events of the type described in clause (h) of
Article VII, equal to or exceeding 10% of the Consolidated gross revenues of the Borrower for such
period, in each case determined in accordance with GAAP.
Immaterial Subsidiary
means, any Subsidiary of the Borrower (including any Foreign
Subsidiary) that has been designated by the Borrower as an Immaterial Subsidiary for purposes of
this Agreement;
provided
that at no time shall (A) (i) the Consolidated Net Tangible Assets
of any Immaterial
9
Subsidiary (as determined as of the last day of the most recently ended fiscal quarter of the
Borrower for which financial statements have been delivered pursuant to the clauses (a) or (b), as
applicable, of Section 5.01 (or prior to such delivery, as of December 31, 2007)) equal or exceed
5% or, together with all other Immaterial Subsidiaries and their subsidiaries, 10%, of the
Consolidated Net Tangible Assets of the Borrower at such date or (ii) the Consolidated gross
revenues of such Subsidiary for the four fiscal quarter period ending on the last day of the most
recently ended fiscal quarter of the Borrower for which financial statements have been delivered
pursuant to the clauses (a) or (b), as applicable, of Section 5.01 (or prior to such delivery, as
of December 31, 2007) equal or exceed 5% or, together with all other Immaterial Subsidiaries and
their subsidiaries, 10%, of the Consolidated gross revenues of the Borrower for such period, in
each case determined in accordance with GAAP, or (B) any Immaterial Subsidiary own, or be licensed
to use, any Material Intellectual Property.
Indebtedness
of any Person means, without duplication, (a) all obligations of such
Person for borrowed money, (b) all obligations of such Person evidenced by bonds, debentures, notes
or similar instruments, (c) all obligations of such Person under conditional sale or other title
retention agreements relating to property acquired by such Person, (d) all obligations of such
Person in respect of the deferred purchase price of property or services (excluding (i) accounts
payable incurred in the ordinary course of business and not overdue by more than 120 days and (ii)
any earn-out obligation until such earn-out obligation becomes a liability on the balance sheet of
such Person in accordance with GAAP and if not paid after becoming due and payable), (e) all
Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing
right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such
Person, whether or not the Indebtedness secured thereby has been assumed, (f) all Guarantees by
such Person of Indebtedness of others, (g) all Capital Lease Obligations of such Person, (h) all
obligations, contingent or otherwise, of such Person as an account party in respect of letters of
credit and letters of guaranty and (i) all obligations, contingent or otherwise, of such Person in
respect of bankers acceptances. The Indebtedness of any Person shall include the Indebtedness of
any other entity (including any partnership in which such Person is a general partner) to the
extent such Person is liable therefor as a result of such Persons ownership interest in or other
relationship with such entity, except to the extent the terms of such Indebtedness provide that
such Person is not liable therefor. The amount of Indebtedness of any Person for purposes of
clause (e) above shall be deemed to be the lesser of (i) the aggregate unpaid amount of such
Indebtedness and (ii) the fair market value of the property encumbered thereby as determined by
such Person in good faith.
Indemnified Taxes
means Taxes other than Excluded Taxes.
Indemnitee
has the meaning set forth in Section 9.03(b).
Index Debt
means senior, unsecured, long-term indebtedness for borrowed money of the
Borrower that is not guaranteed by any other Person or subject to any other credit enhancement.
Information Memorandum
means that certain Confidential Information Memorandum
relating to the Borrower, the Business and the Transactions to be used in connection with the
syndication of the Facilities.
Initial Funding Date
has the meaning assigned to such term in Section 4.02.
Interest Election Request
means a request by the Borrower to convert or continue a
Revolving Borrowing in accordance with Section 2.07.
Interest Payment Date
means (a) with respect to any ABR Loan (including any
Swingline Loan), the last day of each March, June, September and December, and (b) with respect to
any
10
Eurodollar Loan, the last day of the Interest Period applicable to the Borrowing of which such
Loan is a part and, in the case of a Eurodollar Borrowing with an Interest Period of more than
three months duration, each day prior to the last day of such Interest Period that occurs at
intervals of three months duration after the first day of such Interest Period.
Interest Period
means with respect to any Eurodollar Borrowing, the period
commencing on the date of such Borrowing and ending on the numerically corresponding day in the
calendar month that is one, two, three or six months (or, with the consent of each Lender, nine or
twelve months) thereafter, as the Borrower may elect;
provided
, that (i) if any Interest
Period would end on a day other than a Business Day, such Interest Period shall be extended to the
next succeeding Business Day unless, in the case of a Eurodollar Borrowing only, such next
succeeding Business Day would fall in the next calendar month, in which case such Interest Period
shall end on the next preceding Business Day and (ii) any Interest Period pertaining to a
Eurodollar Borrowing that commences on the last Business Day of a calendar month (or on a day for
which there is no numerically corresponding day in the last calendar month of such Interest Period)
shall end on the last Business Day of the last calendar month of such Interest Period. For
purposes hereof, the date of a Borrowing initially shall be the date on which such Borrowing is
made and, in the case of a Revolving Borrowing, thereafter shall be the effective date of the most
recent conversion or continuation of such Borrowing.
Investments
has the meaning assigned to such term in Section 6.03.
Issuing Bank
means each Lender or Affiliate of a Lender that (a) is listed on the
signature pages hereof as an Issuing Bank or (b) hereafter becomes an Issuing Bank with the
approval of the Administrative Agent and the Borrower and that agrees to be bound by the terms
hereof applicable to Issuing Banks pursuant to an agreement with and in form and substance
satisfactory to the Administrative Agent and the Borrower.
JPMCB
means JPMorgan Chase Bank, N.A.
LC Disbursement
means a payment made by the Issuing Bank pursuant to a Letter of
Credit.
LC Exposure
means, at any time, the sum of (a) the aggregate undrawn amount of all
outstanding Letters of Credit at such time
plus
(b) the aggregate amount of all LC Disbursements
that have not yet been reimbursed by or on behalf of the Borrower at such time. The LC Exposure of
any Revolving Credit Lender at any time shall be its Applicable Percentage of the total LC Exposure
at such time.
LC Obligations
means, as at any date of determination, the aggregate amount
available to be drawn under all outstanding Letters of Credit
plus
the aggregate of all
Unreimbursed Amounts, including all LC Disbursements. For purposes of computing the amount
available to be drawn under any Letter of Credit, the amount of such Letter of Credit shall be
determined in accordance with Section 2.05.
Lenders
means the Term Lenders and the Revolving Credit Lenders as listed on
Schedule 2.01 and any other Person that shall have become a party hereto pursuant to an Assignment
and Assumption, other than any such Person that ceases to be a party hereto pursuant to an
Assignment and Assumption. Unless the context otherwise requires, the term Lenders includes the
Swingline Lender.
Letter of Credit
means any letter of credit issued pursuant to this Agreement.
11
LIBO Rate
means, with respect to any Eurodollar Borrowing for any Interest Period,
the rate appearing on Reuters Screen LIBOR01 Page (or otherwise on the Reuters screen) (or on any
successor or substitute page of such Service, or any successor to or substitute for such Service,
providing rate quotations comparable to those currently provided on such page of such Service, as
determined by the Administrative Agent from time to time for purposes of providing quotations of
interest rates applicable to dollar deposits in the London interbank market) at approximately 11:00
a.m., London time, two Business Days prior to the commencement of such Interest Period, as the rate
for dollar deposits with a maturity comparable to such Interest Period. In the event that such
rate is not available at such time for any reason, then the
LIBO Rate
with respect to
such Eurodollar Borrowing for such Interest Period shall be the rate at which dollar deposits with
a maturity comparable to such Interest Period are offered by the principal London office of the
Administrative Agent in immediately available funds in the London interbank market at approximately
11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period.
Lien
means, with respect to any asset, (a) any mortgage, deed of trust, lien,
pledge, hypothecation, encumbrance, charge or security interest in, on or of such asset and (b) the
interest of a vendor or a lessor under any conditional sale agreement, capital lease or title
retention agreement (or any financing lease having substantially the same economic effect as any of
the foregoing) relating to such asset.
Loan Documents
means, collectively, this Agreement, each Promissory Note, the Fee
and Syndication Letter, the Guaranty and, to the extent expressly designated as a Loan Document
by the Borrower and the Administrative Agent, each certificate, agreement or document executed by
the Borrower or any of its Subsidiaries and delivered to the Administrative Agent or any Lender in
connection with or pursuant to any of the foregoing.
Loan Parties
means, as of any date, the Borrower and each Subsidiary party to the
Guaranty on such date.
Loans
means the loans made by the Lenders to the Borrower pursuant to this
Agreement.
Material Adverse Change
means any material adverse change in the business,
operations, property or financial condition of the Borrower and its Subsidiaries taken as a whole.
Material Adverse Effect
means a material adverse effect on (a) the business,
operations, property or financial condition of the Borrower and its Subsidiaries taken as a whole,
(b) the ability of the Borrower and the Guarantors (taken as a whole) to perform their payment
obligations under this Agreement or (c) the rights and remedies of the Lenders under this
Agreement.
Material Indebtedness
means Indebtedness (other than the Loans and Letters of
Credit) of any Loan Party or Material Subsidiary, or payment obligations in respect of any Swap
Agreement, that is outstanding in an amount exceeding the Minimum Threshold. For purposes of
determining Material Indebtedness, the payment obligations of such Loan Party or Material
Subsidiary in respect of any Swap Agreement at any time shall be the maximum aggregate amount
(giving effect to any netting agreements) that such Loan Party or such Material Subsidiary would be
required to pay if such Swap Agreement were terminated at such time.
Material Intellectual Property
means any trademarks, tradenames, copyrights, patents
and other intellectual property owned or licensed by the Borrower or any of its Subsidiaries that
is material to the business of the Borrower and its Subsidiaries.
12
Material Subsidiary
means, at any date of determination, any Subsidiary (including
any Foreign Subsidiary) that is not an Immaterial Subsidiary.
Maturity Date
means (a) with respect to the Revolving Facility, the Revolving Credit
Facility Maturity Date, (b) with respect to the Term Loan Facility, the Term Loan Facility Maturity
Date, provided,
however
, that in each case, if such date is not a Business Day, the
Maturity Date shall be the next preceding Business Day.
Minimum Threshold
means $75,000,000.
Moodys
means Moodys Investors Service, Inc.
Multiemployer Plan
means a multiemployer plan as defined in Section 4001(a)(3) of
ERISA, to which the Borrower or any ERISA Affiliate has any obligation, contingent or otherwise.
Obligations
means the Loans, the LC Obligations and all other amounts owing by the
Borrower to the Administrative Agent, any Lender, any Issuing Bank, any Affiliate of any of them or
any Indemnitee, of every type and description (whether by reason of an extension of credit, opening
or amendment of a letter of credit or payment of any draft drawn thereunder, loan, guarantee,
indemnification or otherwise), present or future, arising under this Agreement or any other Loan
Document, whether direct or indirect (including those acquired by assignment), absolute or
contingent, due or to become due, now existing or hereafter arising and however acquired and
whether or not evidenced by any note, guarantee or other instrument or for the payment of money,
including all letter of credit and other fees, interest, charges, expenses, attorneys fees and
disbursements and other sums chargeable to the Borrower under this Agreement or any other Loan
Document, and all obligations of the Borrower under any Loan Document to provide cash collateral
for LC Obligations.
Offering Memorandum
means a complete preliminary prospectus or preliminary offering
memorandum or preliminary private placement memorandum customary for Rule 144A offerings, which
shall in any event contain (a) the Audited Financial Statements and the Pro Forma Financial
Statements delivered to the Bookrunners pursuant to Section 4.02(k), (b) summary
guarantor/nonguarantor net sales, income from operations, EBITDA, assets and debt information for
the fiscal years ended December 31, 2007, December 31, 2006 and January 1, 2006 and (c) all other
information that would be necessary for the investment banks thereunder to receive a customary
comfort letter from independent accountants in connection with an offering of the Senior Notes.
Other Taxes
means any and all present or future stamp or documentary taxes or any
other excise or property taxes, or similar charges or levies arising from any payment made
hereunder or from the execution, delivery or enforcement of, or otherwise with respect to, this
Agreement.
Participant
has the meaning set forth in Section 9.04(c).
Patriot Act
means the USA Patriot Act of 2001 (31 U.S.C. 5318
et seq.
) as amended
from time to time.
PBGC
means the Pension Benefit Guaranty Corporation referred to and defined in ERISA
and any successor entity performing similar functions.
Permitted Acquisitions
means any acquisition by the Borrower or a Subsidiary
(including any investments by the Borrower or any Subsidiary in any other Subsidiary for purposes
of financing such acquisition) of all or substantially all of the outstanding Stock (other than
directors
13
qualifying shares) in, or all or substantially all the assets of, or all or substantially all
the assets constituting a division or line of business of, a Person if:
(a) no Default would result therefrom and, at the time contractually binding obligations with
respect to such acquisition are incurred, no Event of Default described in clauses (a), (b) (solely
with respect to interest or commitment fees), (h) or (i) of Article VII has occurred and is
continuing; and
(b) the Borrower shall be in compliance, on a pro forma basis, with the covenants set forth in
Section 6.05 as if and for the last day of the most recently ended fiscal quarter of the Borrower
for which financial statements have been delivered pursuant to the clauses (a) or (b), as
applicable, of Section 5.01.
Permitted Encumbrances
means:
(a) Liens imposed by law for taxes, assessments or governmental charges that are not overdue
for a period of more than thirty (30) days or that are being contested in good faith in compliance
with Section 5.04;
(b) carriers, warehousemens, mechanics, materialmens, repairmens and other like Liens
imposed by law, arising in the ordinary course of business and securing obligations that are not
overdue by more than thirty (30) days (or if more than thirty (30) days overdue, are unfiled and no
other action has been taken to enforce such Liens) or are being contested in compliance with
Section 5.04;
(c) (i) pledges and deposits made in the ordinary course of business in compliance with
workers compensation, unemployment insurance and other social security laws or regulations and
(ii) pledges and deposits in the ordinary course of business securing liability for reimbursement
or indemnification obligations of (including obligations in respect of letters of credit or bank
guarantees for the benefit of) insurance carriers providing property, casualty or liability
insurance to the Borrower or any Subsidiary;
(d) deposits to secure the performance of bids, trade contracts (other than for the repayment
of borrowed money), leases, statutory obligations, surety and appeal bonds, performance bonds and
other obligations of a like nature (including those to secure health, safety and environmental
obligations), in each case in the ordinary course of business;
(e) judgment liens in respect of judgments that do not constitute an Event of Default under
clause (k) of Article VII;
(f) easements, restrictions, rights-of-way and similar encumbrances and minor title defects on
real property imposed by law or arising in the ordinary course of business that do not secure any
payment obligations and do not, in the aggregate, materially detract from the value of the affected
property or interfere with the ordinary conduct of business of the Borrower or any Subsidiary;
(g) leases, licenses, subleases or sublicenses granted to others in the ordinary course of
business which do not (i) interfere in any material respect with the business of the Borrower and
its Subsidiaries, taken as a whole, or (ii) secure any Indebtedness;
(h) Liens in favor of customs and revenue authorities arising as a matter of law to secure
payment of customs duties in connection with the importation of goods in the ordinary course of
business;
14
(i) Liens (i) of a collection bank on the items in the course of collection, (ii) attaching to
commodity trading accounts or other commodities brokerage accounts incurred in the ordinary course
of business and (iii) in favor of a banking or other financial institution arising as a matter of
law encumbering deposits or other funds maintained with a financial institution (including the
right of set off) and which are customary in the banking industry;
(j) any interest or title of a lessor under leases entered into by the Borrower or any
Subsidiaries in the ordinary course of business and financing statements with respect to a lessors
right in and to personal property leased to such Person in the ordinary course of such Persons
business other than through a capital lease;
(k) Liens arising out of conditional sale, title retention, consignment or similar
arrangements for sale of goods entered into by the Borrower or any Subsidiaries in the ordinary
course of business;
(l) Liens deemed to exist in connection with Permitted Investments and reasonable customary
initial deposits and margin deposits and similar Liens attaching to commodity trading accounts or
other brokerage accounts maintained in the ordinary course of business and not for speculative
purposes;
(m) Liens that are contractual rights of set-off (i) relating to the establishment of
depository relations with banks or other financial institutions not given in connection with the
issuance of Indebtedness, (ii) relating to pooled deposit or sweep accounts of the Borrower or any
Subsidiary to permit satisfaction of overdraft or similar obligations incurred in the ordinary
course of business of the Borrower and the Subsidiaries or (iii) relating to purchase orders and
other agreements entered into with customers of the Borrower or any Subsidiary in the ordinary
course of business;
(n) Liens solely on any cash earnest money deposits made by the Borrower or any Subsidiaries
in connection with any letter of intent or purchase agreement;
(o) ground leases in respect of real property on which facilities owned or leased by the
Borrower or any of its Subsidiaries are located;
(p) Liens on insurance policies and the proceeds thereof securing the financing of the
premiums with respect thereto;
(q) any zoning or similar law or right reserved to or vested in any Governmental Authority to
control or regulate the use of any real property that does not materially interfere with the
ordinary conduct of the business of the Borrower or any Subsidiary; and
(r) Liens on specific items of inventory or other goods and the proceeds thereof securing such
Persons obligations in respect of documentary letters of credit or bankers acceptances issued or
created for the account of such Person to facilitate the purchase, shipment or storage of such
inventory or goods.
Permitted Investments
means:
(a) direct obligations of, or obligations the principal of and interest on which are
unconditionally guaranteed by, the United States of America (or by any agency thereof to the extent
such obligations are backed by the full faith and credit of the United States of America), in each
case maturing within one year from the date of acquisition thereof;
15
(b) investments in commercial paper maturing within 270 days from the date of acquisition
thereof and having, at such date of acquisition, the highest credit rating obtainable from S&P or
from Moodys;
(c) investments in certificates of deposit, bankers acceptances and time deposits maturing
within 180 days from the date of acquisition thereof issued or guaranteed by or placed with, and
money market deposit accounts issued or offered by, any domestic office of any commercial bank
organized under the laws of the United States of America or any State thereof which has a combined
capital and surplus and undivided profits of not less than $500,000,000;
(d) fully collateralized repurchase agreements with a term of not more than 30 days for
securities described in clause (a) above and entered into with a financial institution satisfying
the criteria described in clause (c) above; and
(e) money market funds that (i) comply with the criteria set forth in SEC Rule 2a-7 under the
Investment Company Act of 1940, (ii) are rated AAA by S&P and Aaa by Moodys and (iii) have
portfolio assets of at least $5,000,000,000.
Person
means any natural person, corporation, limited liability company, trust,
joint venture, association, company, partnership, Governmental Authority or other entity.
Plan
means any employee pension benefit plan (other than a Multiemployer Plan)
subject to the provisions of Title IV of ERISA or Section 412 of
the Code or Section 302 of ERISA, and in respect of which the Borrower or any ERISA Affiliate is (or, if such plan were terminated,
would under Section 4069 of ERISA be deemed to be) an employer as defined in Section 3(5) of
ERISA.
Prime Rate
means the rate of interest per annum publicly announced from time to time
by JPMorgan Chase Bank as its prime rate in effect at its office located at 270 Park Avenue, New
York, New York; each change in the Prime Rate shall be effective from and including the date such
change is publicly announced as being effective.
Pro Forma Financial Statements
has the meaning assigned to such term in Section
4.02(k).
Promissory Note
has the meaning assigned to such term in Section 2.09(e).
Qualified CP Draw
means the borrowing of a Revolving Loan the proceeds of which are
used to repay obligations under a short-term commercial paper program of the Borrower;
provided
that at the time of such borrowing, the ratings of the Index Debt and the
corporate ratings of the Borrower shall be at least BBB from S&P and Baa2 from Moodys, and each
such ratings shall be stable and not subject to negative watch or negative outlook.
Register
has the meaning set forth in Section 9.04(b)(iv).
Regulation S-X
means Regulation S-X of the Securities Act of 1933, as amended.
Registration Statement
means the Registration Statement on Form 10, under the
Securities Exchange Act of 1934, as amended, of the Borrower filed with the SEC on February 12,
2008, including the exhibits filed therewith, without giving effect to any subsequent amendments
filed thereto;
provided
,
however
, that Exhibits 99.1, 2.1, 10.1, 10.2 and 10.3
contained in the Registration Statement
16
filed on February 12, 2008 shall, for the purposes of this definition, mean Annex I
(Information Memorandum) and Annex II (Separation Documents) hereof.
Related Parties
means, with respect to any specified Person, such Persons
Affiliates and the respective partners, directors, officers, employees, agents and advisors of such
Person and such Persons Affiliates.
Required Lenders
means, at any time, Lenders having more than 50% in total of (a)
the aggregate outstanding amount of the Revolving Credit Commitments or, after the Revolving Credit
Facility Maturity Date (or if earlier, any other date on which the Revolving Credit Commitments
have been terminated in full), the aggregate Revolving Credit Exposure and (b) the principal amount
of the Term Loans then outstanding.
Required Revolving Credit Lenders
means, at any time, the Revolving Credit Lenders
having more than 50% of the Revolving Credit Commitments or, after the Revolving Credit Facility
Maturity Date (or if earlier, any other date on which the Revolving Credit Commitments have been
terminated in full), the aggregate Revolving Credit Exposure at such time.
Revolving Credit Commitment
means, as to each Revolving Credit Lender, its
obligation to (a) make Revolving Loans to the Borrower pursuant to Section 2.01(b), (b) purchase
participations in LC Disbursements, and (c) purchase participations in Swingline Loans, in an
aggregate principal amount at any one time outstanding not to exceed the amount set forth opposite
such Lenders name on Schedule 2.01 under the caption Revolving Credit Commitment or opposite
such caption in the Assignment and Assumption pursuant to which such Lender becomes a party hereto,
as applicable, as such amount may be adjusted from time to time in accordance with this Agreement.
The aggregate amount of the Revolving Credit Commitments as of the Effective Date is $500,000,000.
Revolving Credit Exposure
means, with respect to any Lender at any time, the sum of
the outstanding principal amount of such Lenders Revolving Loans and its LC Exposure and Swingline
Exposure at such time.
Revolving Credit Facility
means the Revolving Credit Commitments and the provisions
herein related to the Revolving Loans, Swingline Loans and Letters of Credit.
Revolving Credit Facility Maturity Date
means the fifth anniversary of the Initial
Funding Date.
Revolving Credit Lender
means, at any time, any Lender that has a Revolving Credit
Commitment at such time.
Revolving Loan
means a Loan made pursuant to Section 2.01(b).
S&P
shall mean Standard & Poors Ratings Services, a Division of The McGraw-Hill
Companies, Inc.
SEC
means the Securities and Exchange Commission or any successor thereto.
Senior Notes
means an aggregate of up to $2,000,000,000 of the Borrowers senior
unsecured notes to be issued in an unregistered offering conducted pursuant to Rule 144A and
Regulation S under the U.S. Securities Act of 1933, as amended, the terms of which shall not
require scheduled
17
principal payments to be made at any time prior to the later of the Revolving Credit Facility
Maturity Date and the Term Loan Facility Maturity Date.
Separation and Distribution Agreement
means the Separation and Distribution
Agreement among Cadbury and the Borrower and, solely for certain sections set forth therein,
Cadbury UK, substantially in the form of the most recent draft delivered to the Bookrunners on or
prior to the date hereof and contained in Annex II, as amended to the extent permitted under
Section 3.14(d).
Separation Documents
means (i) the Separation and Distribution Agreement, (ii) the
Transition Services Agreement between Cadbury and the Borrower substantially in the form of the
most recent draft delivered to the Bookrunners on or prior to the date hereof and contained in
Annex II, (iii) the Employee Matters Agreement among Cadbury, the Borrower and, solely for certain
sections set forth therein, Cadbury UK substantially in the form of the most recent draft delivered
to the Bookrunners on or prior to the date hereof and contained in Annex II, (iv) the Omnibus Stock
Incentive Plan of 2008 substantially in the form of the most recent draft delivered to the
Bookrunners on or prior to the date hereof and contained in Annex II, (v) the Annual Cash Incentive
Plan substantially in the form of the most recent draft delivered to the Bookrunners on or prior to
the date hereof and contained in Annex II, (vi) the Employee Stock Purchase Plan substantially in
the form of the most recent draft delivered to the Bookrunners on or prior to the date hereof and
contained in Annex II, (vii) the Tax Sharing and Indemnification Agreement, (vii) the Know-How
Agreement among Cadbury, the Borrower and its Subsidiaries substantially in the form of the most
recent draft delivered to the Bookrunners on or prior to the date hereof and contained in Annex II
and (viii) the Domain Names Agreement among Cadbury and the Borrower substantially in the form of
the most recent draft delivered to the Bookrunners on or prior to the date hereof and contained in
Annex II, in each case, as amended to the extent permitted under Section 3.14(d).
Separation Transactions
means the series of transactions pursuant to which Cadbury
intends to effect a separation of the Business from its global confectionary business and beverage
business through a distribution of the common stock of the Borrower to shareholders of Cadbury and
a transfer of the Business to the Borrower pursuant to the Separation and Distribution Agreement
and as contemplated and described in the Registration Statement.
Solvent
means, with respect to any Person as of any date of determination, that, as
of such date, (a) the value of the assets of such Person (both at fair value and present fair
saleable value) is greater than the total amount of liabilities (including contingent and
unliquidated liabilities) of such Person, (b) such Person is able to pay all liabilities of such
Person as such liabilities mature and (c) such Person does not have unreasonably small capital. In
computing the amount of contingent or unliquidated liabilities at any time, such liabilities shall
be computed at the amount that, in light of all the facts and circumstances existing at such time,
represents the amount that can reasonably be expected to become an actual or matured liability.
Statutory Reserve Rate
means a fraction (expressed as a decimal), the numerator of
which is the number one and the denominator of which is the number one minus the aggregate of the
maximum reserve percentage (including any marginal, special, emergency or supplemental reserves)
expressed as a decimal established by the Board to which the Administrative Agent is subject with
respect to the Adjusted LIBO Rate, for eurocurrency funding (currently referred to as Eurocurrency
Liabilities in Regulation D of the Board). Such reserve percentage shall include those imposed
pursuant to such Regulation D. Eurodollar Loans shall be deemed to constitute eurocurrency funding
and to be subject to such reserve requirements without benefit of or credit for proration,
exemptions or offsets that may be available from time to time to any Lender under such Regulation D
or any comparable regulation. The
18
Statutory Reserve Rate shall be adjusted automatically on and as of the effective date of any
change in any reserve percentage.
Stock
means shares of capital stock (whether denominated as common stock or
preferred stock), beneficial, partnership or membership interests, participations or other
equivalents (regardless of how designated) of or in a corporation, partnership, limited liability
company or equivalent entity, whether voting or non-voting.
Stock Equivalents
means all securities convertible into or exchangeable for Stock
and all warrants, options or other rights to purchase or subscribe for any Stock, whether or not
presently convertible, exchangeable or exercisable.
subsidiary
means, with respect to any Person (the
parent
) at any date, any
corporation, limited liability company, partnership, association or other business entity of which
securities or other ownership interests representing more than 50% of the equity or more than 50%
of the ordinary voting power or, in the case of a partnership, more than 50% of the general
partnership interests are, as of such date, owned, controlled or held.
Subsidiary
means any subsidiary of the Borrower. Prior to the Initial Funding Date,
all references to Subsidiaries shall refer to those subsidiaries of Cadbury constituting a part of
the Business and that will become Subsidiaries upon the consummation of the Separation
Transactions.
Swap Agreement
means any agreement with respect to any swap, forward, future or
derivative transaction or option or similar agreement involving, or settled by reference to, one or
more rates, currencies, commodities, equity or debt instruments or securities, or economic,
financial or pricing indices or measures of economic, financial or pricing risk or value or any
similar transaction or any combination of these transactions;
provided
that no phantom
stock or similar plan providing for payments only on account of services provided by current or
former directors, officers, employees or consultants of the Borrower or the Subsidiaries shall be a
Swap Agreement.
Swingline Exposure
means, at any time, the aggregate principal amount of all
Swingline Loans outstanding at such time. The Swingline Exposure of any Lender at any time shall
be its Applicable Percentage of the total Swingline Exposure at such time.
Swingline Lender
means JPMorgan Chase Bank, in its capacity as lender of Swingline
Loans hereunder.
Swingline Loan
means a Loan made pursuant to Section 2.04.
Syndication Agent
means Bank of America, N.A..
Taxes
means any and all present or future taxes, levies, imposts, duties or similar
charges imposed (including by deduction or withholding) by any Governmental Authority.
Tax Sharing and Indemnification Agreement
means the Tax Sharing and Indemnification
Agreement among Cadbury, the Borrower and, solely for certain sections set forth therein, Cadbury
UK substantially in the form of the most recent draft delivered to the Bookrunners on or prior to
the date hereof and contained in Annex II.
19
Term Borrowing
means a borrowing consisting of simultaneous Term Loans of the same
Type and, in the case of Eurodollar Loans, having the same Interest Period made by each of the Term
Lenders pursuant to Section 2.01(a).
Term Lender
means (a) at any time on or prior to the Initial Funding Date, any
Lender that has a Term Loan Commitment at such time and (b) at any time after the Initial Funding
Date any Lender that holds Term Loans at such time.
Term Loan
means an advance made by any Term Lender under the Term Loan Facility.
Term Loan Commitment
means, as to each Term Lender, its obligation to make Term
Loans to the Borrower pursuant to Section 2.01(a) in an aggregate principal amount at any one time
outstanding not to exceed the amount set forth opposite such Term Lenders name on Schedule 2.01
under the caption Term Loan Commitment or opposite such caption in the Assignment and Assumption
pursuant to which such Term Lender becomes a party hereto, as applicable, as such amount may be
adjusted from time to time in accordance with this Agreement. The aggregate amount of the Term
Loan Commitments as of the Effective Date is $1,900,000,000.
Term Loan Facility
means the Term Loan Commitments and the provisions herein related
to the Term Loans.
Term Loan Facility Maturity Date
means the fifth anniversary of the Initial Funding
Date.
Transaction Closing Date
has the meaning assigned to such term in Section 4.03.
Transactions
means, collectively, the Financing Transactions and the Separation
Transactions.
Type
, when used in reference to any Loan or Borrowing, refers to whether the rate of
interest on such Loan, or on the Loans comprising such Borrowing, is determined by reference to the
Adjusted LIBO Rate or the Alternate Base Rate.
UK Facility
means the £1,750,000,000 multi-currency revolving credit facility to be
made available to Cadbury pursuant to the terms of the facility agreement dated on or about the
date of this agreement and made between, amongst others, Cadbury UK as borrower, Cadbury as
guarantor and JP Morgan Chase Bank, N.A., Bank of America N.A., Goldman Sachs Credit Partners L.P.,
Morgan Stanley Senior Funding Inc. and UBS AG, London Branch as lenders.
Unreimbursed Amount
has the meaning assigned to such term in Section 2.05(e).
Unused Commitment Fee
has the meaning assigned to such term in Section 2.11(a).
Withdrawal Liability
means liability to a Multiemployer Plan as a result of a
complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of
Subtitle E of Title IV of ERISA.
SECTION 1.02.
Classification of Loans and Borrowings
. For purposes of this Agreement,
Loans may be classified and referred to by Class (
e.g.
, a Revolving Loan) or by Type
(
e.g.
, a Eurodollar Loan) or by Class and Type (
e.g.
, a Eurodollar Revolving
Loan). Borrowings also may
20
be classified and referred to by Class (
e.g.
, a Revolving Borrowing) or by Type
(
e.g.
, a Eurodollar Borrowing) or by Class and Type (
e.g.
, a Eurodollar
Revolving Borrowing).
SECTION 1.03.
Terms Generally
. The definitions of terms herein shall apply equally to
the singular and plural forms of the terms defined. Whenever the context may require, any pronoun
shall include the corresponding masculine, feminine and neuter forms. The words include,
includes and including shall be deemed to be followed by the phrase without limitation. The
word will shall be construed to have the same meaning and effect as the word shall. Unless the
context requires otherwise (a) any definition of or reference to any agreement, instrument or other
document herein shall be construed as referring to such agreement, instrument or other document as
from time to time amended, supplemented or otherwise modified (subject to any restrictions on such
amendments, supplements or modifications set forth herein), (b) any reference herein to any Person
shall be construed to include such Persons successors and assigns, (c) the words herein,
hereof and hereunder, and words of similar import, shall be construed to refer to this
Agreement in its entirety and not to any particular provision hereof, (d) all references herein to
Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of,
and Exhibits and Schedules to, this Agreement and (e) the words asset and property shall be
construed to have the same meaning and effect and to refer to any and all tangible and intangible
assets and properties, including cash, securities, accounts and contract rights.
SECTION 1.04.
Accounting Terms; GAAP
. (a) Except as otherwise expressly provided
herein, all terms of an accounting or financial nature shall be construed in accordance with GAAP,
as in effect from time to time;
provided
that, if the Borrower notifies the Administrative
Agent that the Borrower requests an amendment to any provision hereof to eliminate the effect of
any change occurring after the date hereof in GAAP or in the application thereof on the operation
of such provision (or if the Administrative Agent notifies the Borrower that the Required Lenders
request an amendment to any provision hereof for such purpose), regardless of whether any such
notice is given before or after such change in GAAP or in the application thereof, then such
provision shall be interpreted on the basis of GAAP as in effect and applied immediately before
such change shall have become effective until such notice shall have been withdrawn or such
provision amended in accordance herewith.
(b) In calculating the ratios set forth in Section 6.04, (i) pro forma effect shall be given
to any Permitted Acquisitions or dispositions of all or substantially all the Stock or assets of
any Subsidiary or any division or line of business of the Borrower or any Subsidiary that occur
during the applicable reference period, or thereafter and on or prior to the reporting date with
respect thereto, as if they had occurred on the first day of the applicable reference period or as
of the last day of the applicable quarter, as the case may be and (ii) for any period prior to the
Transaction Closing Date, pro forma effect shall be given to the Transactions as if the
Indebtedness incurred in connection therewith had been incurred on the first date of the applicable
reference period.
ARTICLE II
The Credits
SECTION 2.01.
Commitments
. (a)
Term Loan
. Each Term Lender, subject to the
terms and conditions set forth herein, severally and not jointly with the other Term Lenders,
agrees to make on the Initial Funding Date a single Term Loan to the Borrower in an aggregate
principal amount not to exceed such Term Lenders Term Loan Commitment. Once prepaid or repaid, no
Term Loan may be re-borrowed.
21
(b)
Revolving Loans
. Subject to the terms and conditions set forth herein, each
Revolving Credit Lender agrees to make Revolving Loans to the Borrower from time to time during the
Availability Period in an aggregate principal amount that will not result in such Lenders
Revolving Credit Exposure exceeding such Revolving Lenders Revolving Credit Commitment. Within
the foregoing limits and subject to the terms and conditions set forth herein, the Borrower may
borrow, prepay and reborrow Revolving Loans.
SECTION 2.02.
Loans and Borrowings
. (a) Each Revolving Loan shall be made as part of
a Borrowing consisting of Revolving Loans made by the Revolving Credit Lenders ratably in
accordance with their respective Revolving Credit Commitments. Each Term Loan shall be made as
part of a Borrowing consisting of Term Loans made by the Term Lenders ratably in accordance with
their respective Term Loan Commitments. The failure of any Lender to make any Loan required to be
made by it shall not relieve any other Lender of its obligations hereunder;
provided
that
the Commitments of the Lenders are several and no Lender shall be responsible for any other
Lenders failure to make Loans as required.
(b) Subject to Section 2.13, each Borrowing shall be ABR Loans or Eurodollar Loans as the
Borrower may request in accordance herewith;
provided
that each Swingline Loan shall be an
ABR Loan. Each Lender at its option may make any Eurodollar Loan by causing any domestic or
foreign branch or Affiliate of such Lender to make such Loan;
provided
that any exercise of
such option shall not affect the obligation of the Borrower to repay such Loan in accordance with
the terms of this Agreement; and
provided
further
that, as a result of the exercise
of such option, such Lender, or such foreign branch or Affiliate of such Lender shall not be
entitled to receive any greater payment under Section 2.14 or 2.16 than such Lender is entitled to
prior to exercising such option.
(c) At the commencement of each Interest Period for any Eurodollar Borrowing, such Borrowing
shall be in an aggregate amount that is an integral multiple of $1,000,000 and not less than
$10,000,000. At the time that each ABR Borrowing is made, such Borrowing shall be in an aggregate
amount that is an integral multiple of $1,000,000 and not less than $10,000,000;
provided
that an ABR Revolving Borrowing may be in an aggregate amount that is equal to the entire unused
balance of the total Revolving Credit Commitments or that is required to finance the reimbursement
of an LC Disbursement as contemplated by Section 2.05(e). Each Swingline Loan shall be in an
amount that is an integral multiple of $100,000 and not less than $500,000. Borrowings of more
than one Type and Class may be outstanding at the same time;
provided
that there shall not
at any time be more than a total of fifteen (15) Eurodollar Revolving Borrowings and ten (10)
Eurodollar Term Borrowings outstanding.
(d) Notwithstanding any other provision of this Agreement, the Borrower shall not be entitled
to request, or to elect to convert or continue, any Borrowing if the Interest Period requested with
respect thereto would end after the Term Loan Facility Maturity Date or the Revolving Credit
Facility Maturity Date, as applicable.
SECTION 2.03.
Requests for Borrowings
. To request a Borrowing, the Borrower shall
notify the Administrative Agent of such request by telephone (a) in the case of a Eurodollar
Borrowing, not later than 11:00 a.m., New York City time, three (3) Business Days before the date
of the proposed Borrowing or (b) in the case of an ABR Borrowing, not later than 12:00 noon, New
York City time, the same Business Day as the proposed Borrowing;
provided
that any such
notice of an ABR Revolving Borrowing to finance the reimbursement of an LC Disbursement as
contemplated by Section 2.05(e) may be given not later than 10:00 a.m., New York City time, on the
date of the proposed Borrowing. Each such telephonic Borrowing Request shall be irrevocable and
shall be confirmed promptly by hand delivery or telecopy to the Administrative Agent of a written Borrowing
Request in a
22
form approved by the Administrative Agent and signed by the Borrower. Each such
telephonic and written Borrowing Request shall specify the following information in compliance with
Section 2.02:
(i) the aggregate amount of the requested Borrowing;
(ii) the date of such Borrowing, which shall be a Business Day;
(iii) whether such Borrowing is to be an ABR Borrowing or a Eurodollar
Borrowing;
(iv) in the case of a Eurodollar Borrowing, the initial Interest Period to be
applicable thereto, which shall be a period contemplated by the definition of the
term Interest Period; and
(v) the location and number of the Borrowers account to which funds are to be
disbursed, which shall comply with the requirements of Section 2.06.
If no election as to the Type of Revolving Borrowing is specified, then the requested Revolving
Borrowing shall be an ABR Borrowing. If no Interest Period is specified with respect to any
requested Eurodollar Borrowing, then the Borrower shall be deemed to have selected an Interest
Period of one months duration. Promptly following receipt of a Borrowing Request in accordance
with this Section, the Administrative Agent shall advise each Lender of the details thereof and of
the amount of such Lenders Loan to be made as part of the requested Borrowing.
SECTION 2.04.
Swingline Loans
. (a) Subject to the terms and conditions set forth
herein, the Swingline Lender agrees to make Swingline Loans to the Borrower from time to time
during the Availability Period, in an aggregate principal amount at any time outstanding that will
not result in (i) the aggregate principal amount of outstanding Swingline Loans exceeding
$25,000,000 or (ii) the sum of the total Revolving Credit Exposures exceeding the Revolving Credit
Commitments then in effect;
provided
that the Swingline Lender shall not be required to
make a Swingline Loan to refinance an outstanding Swingline Loan. Within the foregoing limits and
subject to the terms and conditions set forth herein, the Borrower may borrow, prepay and reborrow
Swingline Loans.
(b) To request a Swingline Loan, the Borrower shall notify the Administrative Agent of such
request by telephone (confirmed by telecopy), not later than 12:00 noon, New York City time, on the
day of a proposed Swingline Loan. Each such notice shall be irrevocable and shall specify the
requested date (which shall be a Business Day) and amount of the requested Swingline Loan. The
Administrative Agent will promptly advise the Swingline Lender of any such notice received from the
Borrower. The Swingline Lender shall make each Swingline Loan available to the Borrower by means
of a credit to the general deposit account of the Borrower with the Swingline Lender (or, in the
case of a Swingline Loan made to finance the reimbursement of an LC Disbursement as provided in
Section 2.05(e), by remittance to the Issuing Bank) by 3:00 p.m., New York City time, on the
requested date of such Swingline Loan.
(c) The Swingline Lender may by written notice given to the Administrative Agent not later
than 12:00 noon, New York City time, on any Business Day require the Revolving Credit Lenders to
acquire participations on such Business Day in all or a portion of the Swingline Loans outstanding.
Such notice shall specify the aggregate amount of Swingline Loans in which the Revolving Credit
Lenders will participate. Promptly upon receipt of such notice, the Administrative Agent will give
notice thereof to each Revolving Credit Lender, specifying in such notice such Revolving Credit
Lenders Applicable Percentage of such Swingline Loan or Loans. Each Revolving Credit Lender hereby
23
absolutely and unconditionally agrees, upon receipt of such notice as provided above, to pay to the
Administrative Agent, for the account of the Swingline Lender, such Revolving Credit Lenders
Applicable Percentage of such Swingline Loan or Loans. Each Revolving Credit Lender acknowledges
and agrees that its obligation to acquire participations in Swingline Loans pursuant to this
paragraph is absolute and unconditional and shall not be affected by any circumstance whatsoever,
including the occurrence and continuance of a Default or reduction or termination of the Revolving
Credit Commitments, and that each such payment shall be made without any offset, abatement,
withholding or reduction whatsoever. Each Lender shall comply with its obligation under this
paragraph by wire transfer of immediately available funds, in the same manner as provided in
Section 2.06 with respect to Loans made by such Revolving Credit Lender (and Section 2.06 shall
apply,
mutatis mutandis
, to the payment obligations of the Revolving Credit Lenders), and
the Administrative Agent shall promptly pay to the Swingline Lender the amounts so received by it
from the Revolving Credit Lenders. The Administrative Agent shall notify the Borrower of any
participations in any Swingline Loan acquired pursuant to this paragraph, and thereafter payments
in respect of such Swingline Loan shall be made to the Administrative Agent and not to the
Swingline Lender. Any amounts received by the Swingline Lender from the Borrower (or other party
on behalf of the Borrower) in respect of a Swingline Loan after receipt by the Swingline Lender of
the proceeds of a sale of participations therein shall be promptly remitted to the Administrative
Agent; any such amounts received by the Administrative Agent shall be promptly remitted by the
Administrative Agent to the Revolving Credit Lenders that shall have made their payments pursuant
to this paragraph and to the Swingline Lender, as their interests may appear;
provided
that
any such payment so remitted shall be repaid to the Swingline Lender or to the Administrative
Agent, as applicable, if and to the extent such payment is required to be refunded to the Borrower
for any reason. The purchase of participations in a Swingline Loan pursuant to this paragraph
shall not relieve the Borrower of any default in the payment thereof.
SECTION 2.05.
Letters of Credit
. (a)
General
. Subject to the terms and
conditions set forth herein, the Borrower may request the issuance of Letters of Credit for its own
account, in a form reasonably acceptable to the Administrative Agent and the Issuing Bank, at any
time and from time to time during the Availability Period. In the event of any inconsistency
between the terms and conditions of this Agreement and the terms and conditions of any form of
letter of credit application or other agreement submitted by the Borrower to, or entered into by
the Borrower with, the Issuing Bank relating to any Letter of Credit, the terms and conditions of
this Agreement shall control.
(b)
Notice of Issuance, Amendment, Renewal, Extension; Certain Conditions
. To request
the issuance of a Letter of Credit (or the amendment, renewal or extension of an outstanding Letter
of Credit), the Borrower shall hand deliver or telecopy (or transmit by electronic communication,
if arrangements for doing so have been approved by the Issuing Bank) to the Issuing Bank and the
Administrative Agent (reasonably in advance of the requested date of issuance, amendment, renewal
or extension) a notice requesting the issuance of a Letter of Credit, or identifying the Letter of
Credit to be amended, renewed or extended, and specifying the date of issuance, amendment, renewal
or extension (which shall be a Business Day), the date on which such Letter of Credit is to expire
(which shall comply with paragraph (c) of this Section), the amount of such Letter of Credit, the
name and address of the beneficiary thereof and such other information as shall be necessary to
prepare, amend, renew or extend such Letter of Credit. If requested by the Issuing Bank, the
Borrower also shall submit a letter of credit application on the Issuing Banks standard form in
connection with any request for a Letter of Credit. A Letter of Credit shall be issued, amended,
renewed or extended only if (and upon issuance, amendment, renewal or extension of each Letter of
Credit the Borrower shall be deemed to represent and warrant that), after giving effect to such
issuance, amendment, renewal or extension (i) the LC Exposure shall not exceed $75,000,000 and (ii)
the sum of the total Revolving Credit Exposures shall not exceed the total Revolving Credit
Commitments.
24
(c)
Expiration Date
. Each Letter of Credit shall expire at or prior to the close of
business on the date one year after the date of the issuance of such Letter of Credit (or, in the
case of any renewal or extension thereof, one year after such renewal or extension);
provided
that, a Letter of Credit may provide for automatic renewals for additional periods
of up to one year, subject to a right on the part of the Issuing Bank to prevent any such renewal
from occurring by giving notice to the beneficiary during a period satisfactory to the
Administrative Agent in advance of any such renewal.
(d)
Participations
. By the issuance of a Letter of Credit (or an amendment to a
Letter of Credit increasing the amount thereof) and without any further action on the part of the
Issuing Bank issuing such Letter of Credit or the Revolving Credit Lenders, the Issuing Bank hereby
grants to each Revolving Credit Lender, and each Revolving Credit Lender hereby acquires from the
Issuing Bank, a participation in such Letter of Credit equal to such Revolving Credit Lenders
Applicable Percentage of the aggregate amount available to be drawn under such Letter of Credit.
In consideration and in furtherance of the foregoing, each Revolving Credit Lender hereby
absolutely and unconditionally agrees to pay to the Administrative Agent, for the account of the
Issuing Bank, such Revolving Credit Lenders Applicable Percentage of each LC Disbursement made by
the Issuing Bank and not reimbursed by the Borrower on the date due as provided in paragraph (e) of
this Section, or of any reimbursement payment required to be refunded to the Borrower for any
reason. Each Revolving Credit Lender acknowledges and agrees that its obligation to acquire
participations pursuant to this paragraph in respect of Letters of Credit is absolute and
unconditional and shall not be affected by any circumstance whatsoever, including any amendment,
renewal or extension of any Letter of Credit or the occurrence and continuance of a Default or
reduction or termination of the Revolving Credit Commitments, and that each such payment shall be
made without any offset, abatement, withholding or reduction whatsoever.
(e)
Reimbursement
. If the Issuing Bank shall make any LC Disbursement in respect of a
Letter of Credit, the Borrower shall reimburse such LC Disbursement by paying to the Administrative
Agent an amount equal to such LC Disbursement not later than 12:00 noon, New York City time, on the
date that such LC Disbursement is made, if the Borrower shall have received notice of such LC
Disbursement prior to 10:00 a.m., New York City time, on such date, or, if such notice has not been
received by the Borrower prior to such time on such date, then not later than 12:00 noon, New York
City time, on (i) the Business Day that the Borrower receives such notice, if such notice is
received prior to 10:00 a.m., New York City time, on the day of receipt, or (ii) the Business Day
immediately following the day that the Borrower receives such notice, if such notice is not
received prior to such time on the day of receipt;
provided
that, if such LC Disbursement
is not less than $1,000,000, the Borrower may, subject to the conditions to borrowing set forth
herein, request in accordance with Section 2.03 or 2.04 that such payment be financed with an ABR
Revolving Borrowing or Swingline Loan in an equivalent amount and, to the extent so financed, the
Borrowers obligation to make such payment shall be discharged and replaced by the resulting ABR
Revolving Borrowing or Swingline Loan. If the Borrower fails to make such payment when due, the
Administrative Agent shall notify each Lender of the applicable LC Disbursement, the payment then
due from the Borrower in respect thereof (the
Unreimbursed Amount
) and such Revolving
Credit Lenders Applicable Percentage thereof. Promptly following receipt of such notice, each
Lender shall pay to the Administrative Agent its Applicable Percentage of the payment then due from
the Borrower, in the same manner as provided in Section 2.06 with respect to Revolving Credit Loans
made by such Revolving Credit Lender (and Section 2.06 shall apply,
mutatis mutandis
, to
the payment obligations of the Lenders), and the Administrative Agent shall promptly pay to the
Issuing Bank the amounts so received by it from the Revolving Credit Lenders. Promptly following
receipt by the Administrative Agent of any payment from the Borrower pursuant to this paragraph,
the Administrative Agent shall distribute such payment to the Issuing Bank or, to the extent that
Revolving Credit Lenders have made payments pursuant to this paragraph to reimburse the Issuing
Bank, then to such Revolving Credit Lenders and the Issuing Bank as their interests may appear.
Any payment made by a Revolving Credit Lender pursuant to this paragraph to reimburse the Issuing
Bank for any LC
25
Disbursement (other than the funding of ABR Revolving Loans or a Swingline Loan as
contemplated above) shall not constitute a Loan and shall not relieve the Borrower of its
obligation to reimburse such LC Disbursement.
(f)
Obligations Absolute
. The Borrowers obligation to reimburse LC Disbursements as
provided in paragraph (e) of this Section shall be absolute, unconditional and irrevocable, and
shall be performed strictly in accordance with the terms of this Agreement under any and all
circumstances whatsoever and irrespective of (i) any lack of validity or enforceability of any
Letter of Credit or this Agreement, or any term or provision therein, (ii) any draft or other
document presented under a Letter of Credit proving to be forged, fraudulent or invalid in any
respect or any statement therein being untrue or inaccurate in any respect, (iii) payment by the
Issuing Bank under a Letter of Credit against presentation of a draft or other document that does
not comply with the terms of such Letter of Credit, or (iv) any other event or circumstance
whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of
this Section, constitute a legal or equitable discharge of, or provide a right of setoff against,
the Borrowers obligations hereunder. Neither the Administrative Agent, the Revolving Credit
Lenders nor the Issuing Bank, nor any of their Related Parties, shall have any liability or
responsibility by reason of or in connection with the issuance or transfer of any Letter of Credit
or any payment or failure to make any payment thereunder (irrespective of any of the circumstances
referred to in the preceding sentence), or any error, omission, interruption, loss or delay in
transmission or delivery of any draft, notice or other communication under or relating to any
Letter of Credit (including any document required to make a drawing thereunder), any error in
interpretation of technical terms or any consequence arising from causes beyond the control of the
Issuing Bank;
provided
that the foregoing shall not be construed to excuse the Issuing Bank
from liability to the Borrower to the extent of any direct damages (as opposed to consequential
damages, claims in respect of which are hereby waived by the Borrower to the extent permitted by
applicable law) suffered by the Borrower that are caused by the Issuing Banks failure to exercise
care when determining whether drafts and other documents presented under a Letter of Credit comply
with the terms thereof. The parties hereto expressly agree that, in the absence of gross
negligence or willful misconduct on the part of the Issuing Bank (as finally determined by a court
of competent jurisdiction), the Issuing Bank shall be deemed to have exercised care in each such
determination. In furtherance of the foregoing and without limiting the generality thereof, the
parties agree that, with respect to documents presented which appear on their face to be in
substantial compliance with the terms of a Letter of Credit, the Issuing Bank may, in its sole
discretion, either accept and make payment upon such documents without responsibility for further
investigation, regardless of any notice or information to the contrary, or refuse to accept and
make payment upon such documents if such documents are not in strict compliance with the terms of
such Letter of Credit.
(g)
Disbursement Procedures
. The Issuing Bank shall, promptly following its receipt
thereof, examine all documents purporting to represent a demand for payment under a Letter of
Credit. The Issuing Bank shall promptly notify the Administrative Agent and the Borrower by
telephone (confirmed by telecopy) of such demand for payment and whether the Issuing Bank has made
or will make an LC Disbursement thereunder;
provided
that any failure to give or delay in
giving such notice shall not relieve the Borrower of its obligation to reimburse the Issuing Bank
and the Revolving Credit Lenders with respect to any such LC Disbursement. On the last Business
Day of each month, the Issuing Bank shall submit to the Administrative Agent a report in reasonable
detail setting forth any activity taken with respect to each Letter of Credit that it has issued at
the request of the Borrower that was outstanding as of the date of the report last submitted.
(h)
Interim Interest
. If the Issuing Bank shall make any LC Disbursement, then,
unless the Borrower shall reimburse such LC Disbursement in full on the date such LC Disbursement
is made, the unpaid amount thereof shall bear interest, for each day from and including the date
such LC Disbursement is made to but excluding the date that the Borrower reimburses such LC
Disbursement, at
26
the rate per annum then applicable to ABR Revolving Loans;
provided
that, if the
Borrower fails to reimburse such LC Disbursement when due pursuant to paragraph (e) of this
Section, then Section 2.12(d) shall apply. Interest accrued pursuant to this paragraph shall be
for the account of the Issuing Bank, except that interest accrued on and after the date of payment
by any Revolving Credit Lender pursuant to paragraph (e) of this Section to reimburse the Issuing
Bank shall be for the account of such Revolving Credit Lender to the extent of such payment.
(i)
Replacement of the Issuing Bank
. The Issuing Bank may be replaced at any time by
written agreement among the Borrower, the Administrative Agent, the replaced Issuing Bank and the
successor Issuing Bank. The Administrative Agent shall notify the Revolving Credit Lenders of any
such replacement of the Issuing Bank. At the time any such replacement shall become effective, the
Borrower shall pay all unpaid fees accrued for the account of the replaced Issuing Bank pursuant to
Section 2.11(b). From and after the effective date of any such replacement, (i) the successor
Issuing Bank shall have all the rights and obligations of the Issuing Bank under this Agreement
with respect to Letters of Credit to be issued thereafter and (ii) references herein to the term
Issuing Bank shall be deemed to refer to such successor or to any previous Issuing Bank, or to
such successor and all previous Issuing Banks, as the context shall require. After the replacement
of an Issuing Bank hereunder, the replaced Issuing Bank shall remain a party hereto and shall
continue to have all the rights and obligations of an Issuing Bank under this Agreement with
respect to Letters of Credit issued by it prior to such replacement, but shall not be required to
issue additional Letters of Credit.
(j)
Cash Collateralization
. On the Revolving Credit Facility Maturity Date (or if
earlier, any other date on which the Revolving Credit Commitments have been terminated in full)
and, if any Event of Default under clauses (a), (b), (f), (h) or (i) of Article VII) shall have
occurred and be continuing, on the Business Day that the Borrower receives notice from the
Administrative Agent or the Required Revolving Credit Lenders demanding the deposit of cash
collateral pursuant to this paragraph, the Borrower shall deposit in an account with the
Administrative Agent, in the name of the Administrative Agent and for the benefit of the Revolving
Credit Lenders, an amount in cash equal to 103% of the LC Exposure as of such date
plus
any accrued
and unpaid interest thereon;
provided
that the obligation to deposit such cash collateral
shall become effective immediately, and such deposit shall become immediately due and payable,
without demand or other notice of any kind, upon the occurrence of any Event of Default with
respect to the Borrower described in clause (h) or (i) of Article VII or any other date upon which
the Revolving Credit Commitments are terminated in full. Such deposit shall be held by the
Administrative Agent as collateral for the payment and performance of the obligations of the
Borrower under this Agreement. The Administrative Agent shall have exclusive dominion and control,
including the exclusive right of withdrawal, over such account. Other than any interest earned on
the investment of such deposits, which investments shall be made at the option and sole discretion
of the Administrative Agent and at the Borrowers risk and expense, such deposits shall not bear
interest. Interest or profits, if any, on such investments shall accumulate in such account.
Moneys in such account shall be applied by the Administrative Agent to reimburse the Issuing Bank
for LC Disbursements for which it has not been reimbursed and, to the extent not so applied, shall
be held for the satisfaction of the reimbursement obligations of the Borrower for the LC Exposure
at such time or, if the maturity of the Loans has been accelerated (but subject to the consent of
Required Revolving Credit Lenders), be applied to satisfy other obligations of the Borrower under
this Agreement. If the Borrower is required to provide an amount of cash collateral hereunder as a
result of the occurrence of an Event of Default, such amount (to the extent not applied as
aforesaid) shall be returned to the Borrower within three Business Days after all Events of Default
have been cured or waived.
(k) Schedule 2.05 contains a schedule of certain letters of credit issued prior to the
Effective Date by JPMCB for the account of the Borrower. On the Transaction Closing Date (i) such
letters of credit, to the extent outstanding, shall be automatically and without further action by
the parties
27
thereto converted to Letters of Credit issued pursuant to this Section 2.05 for the account of
the Borrower and subject to the provisions hereof, and for this purpose the fees specified in
Section 2.11(b) shall be payable (in substitution for any fees set forth in the applicable letter
of credit reimbursement agreements or applications relating to such letters of credit) as if such
letters of credit had been issued on the Transaction Closing Date, (ii) the issuers of such Letters
of Credit (unless otherwise an Issuing Bank) shall be deemed to be Issuing Banks hereunder solely
for the purpose of maintaining such letters of credit, for purposes of Section 2.16(e) relating to
the obligation to provide the appropriate forms, certificates and statements to the Borrower and
the Administrative Agent and any updates required by Section 2.16(e) and for purposes of Section
9.04(b)(iv) relating to the entries to be made in the Register, (iii) the face amount of such
letters of credit shall be included in the calculation of LC Obligations and (iv) all liabilities
of the Borrower with respect to such letters of credit shall constitute Obligations. No letter of
credit converted in accordance with this clause (k) shall be amended, extended or renewed without
the prior written consent of the Administrative Agent.
SECTION 2.06.
Funding of Borrowings
. (a) Each Lender shall make each Loan to be made
by it hereunder on the proposed date thereof by wire transfer of immediately available funds by
12:00 noon, New York City time, to the account of the Administrative Agent most recently designated
by it for such purpose by notice to the Lenders;
provided
that Swingline Loans shall be
made as provided in Section 2.04. On the Initial Funding Date, the Administrative Agent will
deposit the proceeds of the Term Loans into the Collateral Account (if the Transaction Closing Date
does not occur on the same date) and will release such funds (or make such funds available) on the
Transaction Closing Date to the Borrower for the purposes of funding the Separation Transactions on
such date as contemplated in Section 5.08(a). After the Transaction Closing Date, the
Administrative Agent will make any Revolving Loans available to the Borrower by promptly crediting
the aggregate amounts so received from the Revolving Credit Lenders, in immediately available
funds, to an account of the Borrower pursuant to instructions of the Borrower on file with the
Administrative Agent and designated by the Borrower in the applicable Borrowing Request;
provided
,
that Base Rate Revolving Loans made to finance the reimbursement of an LC
Disbursement as provided in Section 2.05(e) shall be remitted by the Administrative Agent to the
Issuing Banks.
(b) Unless the Administrative Agent shall have received notice from a Lender prior to the
proposed date of any Borrowing that such Lender will not make available to the Administrative Agent
such Lenders share of such Borrowing, the Administrative Agent may assume that such Lender has
made such share available on such date in accordance with paragraph (a) of this Section and may, in
reliance upon such assumption, make available to the Borrower a corresponding amount. In such
event, if a Lender has not in fact made its share of the applicable Borrowing available to the
Administrative Agent, then the applicable Lender and the Borrower severally agree to pay to the
Administrative Agent forthwith on demand such corresponding amount with interest thereon, for each
day from and including the date such amount is made available to the Borrower to but excluding the
date of payment to the Administrative Agent, at (i) in the case of such Lender, the greater of the
Federal Funds Effective Rate and a rate determined by the Administrative Agent in accordance with
banking industry rules on interbank compensation or (ii) in the case of the Borrower, the interest
rate applicable to ABR Loans. If such Lender pays such amount to the Administrative Agent, then
such amount shall constitute such Lenders Loan included in such Borrowing.
SECTION 2.07.
Interest Elections
. (a) Each Borrowing initially shall be of the Type
specified in the applicable Borrowing Request and, in the case of a Eurodollar Borrowing, shall
have an initial Interest Period as specified in such Borrowing Request. Thereafter, the Borrower
may elect to convert such Borrowing to a different Type or to continue such Borrowing and, in the
case of a Eurodollar Borrowing, may elect Interest Periods therefor, all as provided in this
Section. The Borrower may elect different options with respect to different portions of the
affected Borrowing, in which case
28
each such portion shall be allocated ratably among the Lenders holding the Loans comprising
such Borrowing, and the Loans comprising each such portion shall be considered a separate
Borrowing. This Section shall not apply to Swingline Borrowings, which may not be converted or
continued.
(b) To make an election pursuant to this Section, the Borrower shall notify the Administrative
Agent of such election by telephone by the time that a Borrowing Request would be required under
Section 2.03 if the Borrower were requesting a Borrowing of the Type resulting from such election
to be made on the effective date of such election. Each such telephonic Interest Election Request
shall be irrevocable and shall be confirmed promptly by hand delivery or telecopy to the
Administrative Agent of a written Interest Election Request in a form approved by the
Administrative Agent and signed by the Borrower.
(c) Each telephonic and written Interest Election Request shall specify the following
information in compliance with Section 2.03:
(i) the Borrowing to which such Interest Election Request applies and, if
different options are being elected with respect to different portions thereof, the
portions thereof to be allocated to each resulting Borrowing (in which case the
information to be specified pursuant to clauses (iii) and (iv) below shall be
specified for each resulting Borrowing);
(ii) the effective date of the election made pursuant to such Interest Election
Request, which shall be a Business Day;
(iii) whether the resulting Borrowing is to be an ABR Borrowing or a Eurodollar
Borrowing; and
(iv) if the resulting Borrowing is a Eurodollar Borrowing, the Interest Period
to be applicable thereto after giving effect to such election, which shall be a
period contemplated by the definition of the term Interest Period.
If any such Interest Election Request requests a Eurodollar Borrowing but does not specify an
Interest Period, then the Borrower shall be deemed to have selected an Interest Period of one
months duration.
(d) Promptly following receipt of an Interest Election Request, the Administrative Agent shall
advise each Revolving Credit Lender or Term Lender, as applicable, of the details thereof and of
such Lenders portion of each resulting Borrowing.
(e) If the Borrower fails to deliver a timely Interest Election Request with respect to a
Eurodollar Borrowing prior to the end of the Interest Period applicable thereto, then, unless such
Borrowing is repaid as provided herein, at the end of such Interest Period such Borrowing shall be
converted to an ABR Borrowing. Notwithstanding any contrary provision hereof, if an Event of
Default has occurred and is continuing and the Administrative Agent, at the request of the Required
Lenders, so notifies the Borrower, then, so long as an Event of Default is continuing (i) no
outstanding Borrowing may be converted to or continued as a Eurodollar Borrowing and (ii) unless
repaid, each Eurodollar Borrowing shall be converted to an ABR Borrowing at the end of the Interest
Period applicable thereto.
SECTION 2.08.
Termination and Reduction of Commitments
. (a) Unless previously
terminated, (i) the Revolving Credit Commitments shall terminate on the Revolving Credit Facility
Maturity Date;
provided
that, if both the Initial Funding Date and the Transaction Closing
Date have not occurred prior to the Early Commitment Termination Date, then the Revolving Credit
29
Commitments shall terminate on the Early Commitment Termination Date and (ii) the Term Loan
Commitments shall terminate on the Initial Funding Date immediately after giving effect to all
Borrowings of Term Loans which are made on such date;
provided
that, if the Initial Funding
Date does not occur prior to the Early Commitment Termination Date, then the Term Loan Commitments
shall terminate on the Early Commitment Termination Date.
(b) The Borrower may at any time terminate, or from time to time reduce, the Revolving Credit
Commitments;
provided
that (i) each reduction of the Revolving Credit Commitments shall be
in an amount that is an integral multiple of $1,000,000 and not less than $10,000,000 and (ii) the
Borrower shall not terminate or reduce the Revolving Credit Commitments if, after giving effect to
any concurrent prepayment of the Revolving Loans in accordance with Section 2.10, the sum of the
Revolving Credit Exposures would exceed the total Revolving Credit Commitments.
(c) The Borrower shall notify the Administrative Agent of any election to terminate or reduce
the Revolving Credit Commitments under paragraph (b) of this Section at least three Business Days
prior to the effective date of such termination or reduction, specifying such election and the
effective date thereof. Promptly following receipt of any notice, the Administrative Agent shall
advise the Revolving Credit Lenders of the contents thereof. Each notice delivered by the Borrower
pursuant to this Section shall be irrevocable;
provided
that a notice of termination of the
Revolving Credit Commitments delivered by the Borrower may state that such notice is conditioned
upon the occurrence of an event, in which case such notice may be revoked by the Borrower (by
notice to the Administrative Agent on or prior to the specified effective date) if such condition
is not satisfied. Any termination or reduction of the Revolving Credit Commitments shall be
permanent. Each reduction of the Revolving Credit Commitments shall be made ratably among the
Lenders in accordance with their respective Revolving Credit Commitments.
SECTION 2.09.
Repayment of Loans; Evidence of Debt
. (a) The Borrower hereby
unconditionally promises to pay:
(i) in respect of Revolving Loans, to the Administrative Agent for the account
of each Revolving Credit Lender, the then unpaid principal amount of each Revolving
Credit Loan on the Revolving Credit Facility Maturity Date (or if earlier, the date
of the termination of the Revolving Credit Commitments in full);
(ii) in respect to the Term Loans, to the Administrative Agent for the account
of each Term Loan Lender, in consecutive quarterly installments, in the an aggregate
amount equal to (i) 10% in the case of installments due in the first and second year
following the Initial Funding Date, (ii) 15% in the case of installments due in the
third and fourth years following the Initial Funding Date, and (iii) 50% in the case
of installments due in the fifth year following the Initial Funding Date, in all
cases of the aggregate principal amount of the Term Loans outstanding immediately
following the Initial Funding Date (which payments in each case shall be reduced as
a result of the application of prepayments in accordance with Section 2.10), on the
last day of each March, June, September and December and on the Term Loan Facility
Maturity Date, with the first such payment to be made on June 30, 2008 to be applied
against the Term Loans (
provided
,
however
, that the Borrower shall
repay the entire unpaid principal amount of the Term Loans on the Term Loan Facility
Maturity Date);
(iii) in respect of Swingline Loans, to the Swingline Lender the then unpaid
principal amount of each Swingline Loan on the earlier of the Revolving Credit
Facility Maturity Date (or if earlier, the date of the termination of the Revolving
Credit
30
Commitments in full) and the first date after such Swingline Loan is made that
is the 15th or last day of a calendar month and is at least three Business Days
after such Swingline Loan is made;
provided
,
that on each date a Revolving
Borrowing is made, the Borrower shall repay all Swingline Loans then outstanding.
(b) Each Lender shall maintain in accordance with its usual practice an account or accounts
evidencing the indebtedness of the Borrower to such Lender resulting from each Loan made by such
Lender, including the amounts of principal and interest payable and paid to such Lender from time
to time hereunder.
(c) The Administrative Agent shall maintain accounts in which it shall record (i) the amount
of each Loan made hereunder, the Class and Type thereof and the Interest Period applicable thereto,
(ii) the amount of any principal or interest due and payable or to become due and payable from the
Borrower to each Lender hereunder and (iii) the amount of any sum received by the Administrative
Agent hereunder for the account of the Lenders and each Lenders share thereof.
(d) The entries made in the accounts maintained pursuant to paragraph (b) or (c) of this
Section shall be
prima facie
evidence of the existence and amounts of the obligations recorded
therein (absent manifest error);
provided
that the failure of any Lender or the
Administrative Agent to maintain such accounts or any error therein shall not in any manner affect
the obligation of the Borrower to repay the Loans in accordance with the terms of this Agreement.
(e) Any Lender may request that Loans made by it be evidenced by a promissory note (a
Promissory Note
). In such event, the Borrower shall prepare, execute and deliver to such
Lender a Promissory Note payable to the order of such Lender (or, if requested by such Lender, to
such Lender and its registered assigns) and in a form approved by the Administrative Agent.
SECTION 2.10.
Prepayment of Loans
. (a) The Borrower shall have the right at any time
and from time to time to prepay any Borrowing in whole or in part, subject to prior notice in
accordance with paragraph (b) of this Section.
(b) The Borrower shall notify the Administrative Agent (and, in the case of prepayment of a
Swingline Loan, the Swingline Lender) by telephone (confirmed by telecopy) of any prepayment
hereunder (i) in the case of prepayment of a Eurodollar Borrowing, not later than 12:00 noon, New
York City time, three Business Days before the date of prepayment, (ii) in the case of prepayment
of an ABR Borrowing, not later than 12:00 noon, New York City time, one Business Day before the
date of prepayment or (iii) in the case of prepayment of a Swingline Loan, not later than 12:00
noon, New York City time, on the date of prepayment. Each such notice shall be irrevocable and
shall specify the prepayment date and the principal amount of each Borrowing or portion thereof to
be prepaid;
provided
that, a notice of prepayment delivered by the Borrower may state that
such notice is conditioned upon the occurrence of an event, in which case such notice may be
revoked by the Borrower (by notice to the Administrative Agent on or prior to the specified
effective date) if such condition is not satisfied. Promptly following receipt of any such notice
of prepayment relating to the Term Loans, the Administrative Agent shall advise the Term Lenders of
the contents of such notice. Each prepayment of the Term Loans shall be applied to reduce the
remaining future quarterly installment amounts thereof payable under Section 2.09(a)(ii) as
directed by the Borrower.
(c) If the Transaction Closing Date has not occurred on or prior to the Early Commitment
Termination Date, the Borrower shall immediately prepay the entire principal amount of the Loans
then outstanding, together with all accrued but unpaid interest and fees thereon and all other
Obligations of the Borrower owing on such date (other than indemnities and contingent claims which
by
31
their terms would survive the termination of this Agreement). The Borrower authorizes the
release of all funds on deposit in the Collateral Account on such date and hereby irrevocably
authorizes and directs the Administrative Agent to apply such funds to such Obligations in the
manner set forth in Section 2.17(b) without any further action or authorization by the Borrower.
In the event there are excess funds in the Collateral Account after all such Obligations have been
paid in full, such funds shall be made available to the Borrower.
SECTION 2.11.
Fees
. (a) The Borrower agrees to pay to each Revolving Credit Lender a
commitment fee on the actual daily amount by which the Revolving Credit Commitment of such
Revolving Credit Lender exceeds (i) the aggregate outstanding principal amount of such Lenders
Revolving Loans and (ii) such Lenders LC Exposure (the
Unused Commitment Fee
) from the
Initial Funding Date hereof through the Revolving Credit Facility Maturity Date (or if earlier, the
date of the termination of the Revolving Credit Commitments in full) at the Applicable Rate
payable, in arrears (x) on the last day of March, June, September and December of each year,
commencing on the first such date to occur after the Initial Funding Date and (y) on the Revolving
Credit Facility Maturity Date (or if earlier, the date of the termination of the Revolving Credit
Commitments in full). All Unused Commitment Fees shall be computed on the basis of a year of 360
days and shall be payable for the actual number of days elapsed (including the first day but
excluding the last day).
(b) The Borrower agrees to pay (i) to the Administrative Agent for the account of each
Revolving Credit Lender a participation fee with respect to its participations in Letters of
Credit, which shall accrue at the same Applicable Rate used to determine the interest rate
applicable to Eurodollar Revolving Loans on the average daily amount of such Revolving Credit
Lenders LC Exposure (excluding any portion thereof attributable to unreimbursed LC Disbursements)
during the period from and including the Initial Funding Date to but excluding the later of the
date on which such Revolving Credit Lenders Commitment terminates and the date on which such
Lender ceases to have any LC Exposure, and (ii) to the Issuing Bank a fronting fee, which shall
accrue at the rate or rates per annum separately agreed upon between the Borrower and the Issuing
Bank on the average daily amount of the LC Exposure (excluding any portion thereof attributable to
unreimbursed LC Disbursements) during the period from and including the Initial Funding Date to but
excluding the later of the date of termination of the Revolving Credit Commitments and the date on
which there ceases to be any LC Exposure, as well as the Issuing Banks standard fees with respect
to the issuance, amendment, renewal or extension of any Letter of Credit or processing of drawings
thereunder. Participation fees and fronting fees accrued through and including the last day of
March, June, September and December of each year shall be payable on the third Business Day
following such last day, commencing on the first such date to occur after the Initial Funding Date;
provided
that all such fees shall be payable on the date on which the Revolving Credit
Commitments terminate and any such fees accruing after the date on which the Revolving Credit
Commitments terminate shall be payable on demand. Any other fees payable to the Issuing Bank
pursuant to this paragraph shall be payable within 10 days after demand. All participation fees
and fronting fees shall be computed on the basis of a year of 360 days and shall be payable for the
actual number of days elapsed (including the first day but excluding the last day).
(c) The Borrower agrees to pay to the Agents and the Bookrunners the additional fees, the
amount and dates of payment of which are embodied in the Fee and Syndication Letter.
(d) All fees payable hereunder (other than under the Fee and Syndication Letter) shall be paid
on the dates due, in immediately available funds, to the Administrative Agent (or to the Issuing
Bank, in the case of fees payable to it) for distribution, in the case of facility fees and
participation fees, to the Lenders and Bookrunners. Fees paid shall not be refundable under any
circumstances. All fees payable under the Fee and Syndication Letter shall be paid in accordance
with the terms thereof.
32
SECTION 2.12.
Interest
. (a) The Loans comprising each ABR Borrowing (including each
Swingline Loan) shall bear interest at the Alternate Base Rate
plus
the Applicable Rate.
(b) The Loans comprising each Eurodollar Borrowing shall bear interest at the Adjusted LIBO
Rate for the Interest Period in effect for such Borrowing
plus
the Applicable Rate
(c) Notwithstanding the foregoing, if any principal of or interest on any Loan or any fee or
other amount payable by the Borrower hereunder is not paid when due (after giving effect to any
applicable grace periods), whether at stated maturity, upon acceleration or otherwise, such overdue
amount shall bear interest, after as well as before judgment, at a rate per annum equal to (i) in
the case of overdue principal of any Loan, 2%
plus
the rate otherwise applicable to such Loan as
provided in the preceding paragraphs of this Section or (ii) in the case of any other amount, 2%
plus
the rate applicable to ABR Loans as provided in paragraph (a) of this Section.
(d) Accrued interest on each Loan shall be payable in arrears on each Interest Payment Date
for such Loan and, in the case of Revolving Loans, upon termination of the Revolving Credit
Commitments;
provided
that (i) interest accrued pursuant to paragraph (c) of this Section
shall be payable on demand, (ii) in the event of any repayment or prepayment of any Loan (other
than a prepayment of an ABR Revolving Loan prior to the end of the Availability Period), accrued
interest on the principal amount repaid or prepaid shall be payable on the date of such repayment
or prepayment and (iii) in the event of any conversion of any Eurodollar Loan prior to the end of
the current Interest Period therefor, accrued interest on such Loan shall be payable on the
effective date of such conversion.
(e) All interest hereunder shall be computed on the basis of a year of 360 days, except that
interest computed by reference to the Alternate Base Rate at times when the Alternate Base Rate is
based on the Prime Rate shall be computed on the basis of a year of 365 days (or 366 days in a leap
year), and in each case shall be payable for the actual number of days elapsed (including the first
day but excluding the last day). The applicable Alternate Base Rate, Adjusted LIBO Rate or LIBO
Rate shall be determined by the Administrative Agent, and such determination shall be conclusive
absent manifest error.
SECTION 2.13.
Alternate Rate of Interest
. If prior to the commencement of any
Interest Period for a Eurodollar Borrowing:
(a) the Administrative Agent determines (which determination shall be conclusive absent
manifest error) that adequate and reasonable means do not exist for ascertaining the Adjusted LIBO
Rate or the LIBO Rate, as applicable, for such Interest Period; or
(b) the Administrative Agent is advised by the Required Lenders that the Adjusted LIBO Rate or
the LIBO Rate, as applicable, for such Interest Period will not adequately and fairly reflect the
cost to such Lenders (or Lender) of making or maintaining their Loans (or its Loan) included in
such Borrowing for such Interest Period;
then the Administrative Agent shall give notice thereof to the Borrower and the Lenders by
telephone or telecopy as promptly as practicable thereafter and, until the Administrative Agent
notifies the Borrower and the Lenders that the circumstances giving rise to such notice no longer
exist, (i) any Interest Election Request that requests the conversion of any Borrowing to, or
continuation of any Borrowing as, a Eurodollar Borrowing shall be ineffective, and (ii) if any
Borrowing Request requests a Eurodollar Revolving Borrowing, such Borrowing shall be made as an ABR
Borrowing;
provided
that if the circumstances giving rise to such notice affect only one
Type of Borrowings, then the other Type of Borrowings shall be permitted.
33
SECTION 2.14.
Increased Costs
. (a) If any Change in Law shall:
(i) impose, modify or deem applicable any reserve, special deposit or similar
requirement against assets of, deposits with or for the account of, or credit
extended by, any Lender (except any such reserve requirement reflected in the
Adjusted LIBO Rate) or the Issuing Bank; or
(ii) impose on any Lender or the Issuing Bank or the London interbank market
any other condition affecting this Agreement or Eurodollar Loans made by such Lender
or any Letter of Credit or participation therein;
and the result of any of the foregoing shall be to increase the cost to such Lender of making or
maintaining any Eurodollar Loan (or of maintaining its obligation to make any such Loan) or to
increase the cost to such Lender or the Issuing Bank of participating in, issuing or maintaining
any Letter of Credit or to reduce the amount of any sum received or receivable by such Lender or
the Issuing Bank hereunder (whether of principal, interest or otherwise), then the Borrower will
pay to such Lender or the Issuing Bank, as the case may be, such additional amount or amounts as
will compensate such Lender or the Issuing Bank, as the case may be, for such additional costs
incurred or reduction suffered.
(b) If any Lender or the Issuing Bank determines that any Change in Law regarding capital
requirements has or would have the effect of reducing the rate of return on such Lenders or the
Issuing Banks capital or on the capital of such Lenders or the Issuing Banks holding company, if
any, as a consequence of this Agreement or the Loans made by, or participations in Letters of
Credit held by, such Lender, or the Letters of Credit issued by the Issuing Bank, to a level below
that which such Lender or the Issuing Bank or such Lenders or the Issuing Banks holding company
could have achieved but for such Change in Law (taking into consideration such Lenders or the
Issuing Banks policies and the policies of such Lenders or the Issuing Banks holding company
with respect to capital adequacy), then from time to time the Borrower will pay to such Lender or
the Issuing Bank, as the case may be, such additional amount or amounts as will compensate such
Lender or the Issuing Bank or such Lenders or the Issuing Banks holding company for any such
reduction suffered.
(c) A certificate of a Lender or the Issuing Bank setting forth the amount or amounts
necessary to compensate such Lender or the Issuing Bank or its holding company, as the case may be,
as specified in paragraph (a) or (b) of this Section shall be delivered to the Borrower and shall
be conclusive absent manifest error. The Borrower shall pay such Lender or the Issuing Bank, as
the case may be, the amount shown as due on any such certificate within ten (10) days after receipt
thereof.
(d) Failure or delay on the part of any Lender or the Issuing Bank to demand compensation
pursuant to this Section shall not constitute a waiver of such Lenders or the Issuing Banks right
to demand such compensation;
provided
that the Borrower shall not be required to compensate
a Lender or the Issuing Bank pursuant to this Section for any increased costs or reductions
incurred more than 180 days prior to the date that such Lender or the Issuing Bank, as the case may
be, notifies the Borrower of the Change in Law giving rise to such increased costs or reductions
and of such Lenders or the Issuing Banks intention to claim compensation therefor;
provided
further
that, if the Change in Law giving rise to such increased costs or
reductions is retroactive, then the 180-day period referred to above shall be extended to include
the period of retroactive effect thereof.
(e) Notwithstanding anything to the contrary herein, this Section 2.14 shall not apply to any
Taxes, which are governed exclusively by Section 2.16.
34
SECTION 2.15.
Break Funding Payments
. In the event of (a) the payment of any
principal of any Eurodollar Loan other than on the last day of an Interest Period applicable
thereto (including as a result of an Event of Default), (b) the conversion of any Eurodollar Loan
other than on the last day of the Interest Period applicable thereto, (c) the failure to borrow,
convert, continue or prepay any Eurodollar Loan on the date specified in any notice delivered
pursuant hereto (regardless of whether such notice may be revoked under Section 2.10(b) and is
revoked in accordance therewith), or (d) the assignment of any Eurodollar Loan other than on the
last day of the Interest Period applicable thereto as a result of a request by the Borrower
pursuant to Section 2.18, then, in any such event, the Borrower shall compensate each Lender for
the loss, cost and expense attributable to such event. In the case of a Eurodollar Loan, such
loss, cost or expense to any Lender shall be deemed to include an amount determined by such Lender
to be the excess, if any, of (i) the amount of interest which would have accrued on the principal
amount of such Loan had such event not occurred, at the Adjusted LIBO Rate that would have been
applicable to such Loan, for the period from the date of such event to the last day of the then
current Interest Period therefor (or, in the case of a failure to borrow, convert or continue, for
the period that would have been the Interest Period for such Loan), over (ii) the amount of
interest which would accrue on such principal amount for such period at the interest rate which
such Lender would bid were it to bid, at the commencement of such period, for dollar deposits of a
comparable amount and period from other banks in the eurodollar market. A certificate of any
Lender setting forth any amount or amounts that such Lender is entitled to receive pursuant to this
Section shall be delivered to the Borrower and shall be conclusive absent manifest error. The
Borrower shall pay such Lender the amount shown as due on any such certificate within ten (10) days
after receipt thereof.
SECTION 2.16.
Taxes
. (a) Any and all payments by or on account of any obligation of
the Borrower hereunder shall be made free and clear of and without deduction for any Indemnified
Taxes or Other Taxes;
provided
that if the Borrower shall be required to deduct any
Indemnified Taxes or Other Taxes from such payments, then (i) the sum payable shall be increased as
necessary so that after making all required deductions (including deductions applicable to
additional sums payable under this Section) the Administrative Agent, Lender or Issuing Bank (as
the case may be) receives an amount equal to the sum it would have received had no such deductions
been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall pay the full
amount deducted to the relevant Governmental Authority in accordance with applicable law.
(b) In addition, the Borrower shall pay any Other Taxes to the relevant Governmental Authority
in accordance with applicable law.
(c) The Borrower shall indemnify the Administrative Agent, each Lender and the Issuing Bank,
within twenty (20) days after written demand therefor, for the full amount of any Indemnified Taxes
or Other Taxes paid by the Administrative Agent, such Lender or the Issuing Bank, as the case may
be, on or with respect to any payment by or on account of any obligation of the Borrower hereunder
(including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts
payable under this Section) and any penalties, interest and reasonable expenses arising therefrom
or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or
legally imposed or asserted by the relevant Governmental Authority (which demand shall be made
within 180 days of the earlier of (x) if the Administrative Agent, such Lender or the Issuing Bank
received written notice from a Governmental Authority demanding payment of such Indemnified Taxes
or Other Taxes, the date the Administrative Agent, such Lender or the Issuing Bank received such
written notice or (y) the date the Administrative Agent, such Lender or the Issuing Bank filed a
tax return on which such Indemnified Taxes or Other Taxes is reflected). A certificate as to the
amount of such payment or liability delivered to the Borrower by a Lender or the Issuing Bank, or
by the Administrative Agent on its own behalf or on behalf of a Lender or the Issuing Bank, shall
be conclusive absent manifest error. If the Borrower determines in good faith that a reasonable
basis exists for contesting an Indemnified Tax or Other Tax
35
with respect to which it has made an indemnification payment under this subsection (c), the
relevant Administrative Agent, Lender or Issuing Bank shall cooperate with the Borrower in
challenging such Tax at the Borrowers expense and if requested by the Borrower in writing;
provided
,
however
, that no Administrative Agent, Lender or Issuing Bank shall be
required to take any action hereunder that, in the sole discretion of such Administrative Agent,
Lender or Issuing Bank, would cause such Administrative Agent, Lender or Issuing Bank to suffer any
material economic, legal or regulatory disadvantage. Additionally, nothing herein contained shall
interfere with the right of an Administrative Agent, Lender or Issuing Bank to arrange its tax
affairs in whatever manner it thinks fit nor oblige any Administrative Agent, Lender or Issuing
Bank to make available its tax returns or disclose any information relating to its tax affairs or
any computations in respect thereof to the Borrower or require any Administrative Agent, Lender or
Issuing Bank to do anything that would materially prejudice its ability to benefit from any other
refunds, credits, reliefs, remissions or repayments to which it may be entitled.
(d) As soon as practicable after any payment of Indemnified Taxes or Other Taxes by the
Borrower to a Governmental Authority, the Borrower shall deliver to the Administrative Agent the
original or a certified copy of a receipt issued by such Governmental Authority evidencing such
payment, a copy of the return reporting such payment or other evidence of such payment reasonably
satisfactory to the Administrative Agent.
(e) (i) Each Lender (other than a Lender described in Treasury Regulation Section
1.6049-4(c)(1)(ii)(A)(1) unless reasonably requested by the Borrower and the Administrative Agent
in writing) shall deliver documentation prescribed by applicable laws as will enable the Borrower
or the Administrative Agent to determine whether or not such Lender is subject to United States
federal backup withholding or information reporting requirements, but only if such Lender is
legally entitled to do so.
(ii) Any Foreign Lender that is entitled to an exemption from or reduction of withholding tax
under the law of the jurisdiction in which the Borrower is located, or any treaty to which such
jurisdiction is a party, with respect to payments under this Agreement shall deliver to the
Borrower (with a copy to the Administrative Agent), at the time or times prescribed by applicable
law, such properly completed and executed documentation prescribed by applicable law or reasonably
requested by the Borrower as will permit such payments to be made without withholding or at a
reduced rate. Without limiting the foregoing, each Foreign Lender shall deliver to the Borrower
and the Administrative Agent on or prior to the date on which such Foreign Lender becomes a Lender
under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower
or the Administrative Agent), but only if such Foreign Lender is legally entitled to do so,
whichever of the following is applicable:
(A) two (2) duly completed copies of Internal Revenue Service Form W-8BEN (or successor form)
claiming eligibility for benefits of an income tax treaty to which the United States is a party;
(B) two (2) duly completed copies of Internal Revenue Service Form W-8ECI (or successor
form);
(C) in the case of a Foreign Lender claiming the benefits of the exemption for portfolio
interest under section 881(c) of the Code, (x) a certificate to the effect that such Foreign Lender
is not (I) a bank within the meaning of section 881(c)(3)(A) of the Code, (II) a 10 percent
shareholder of the Borrower within the meaning of section 881(c)(3)(B) of the Code, or (III) a
controlled foreign corporation described in section 881(c)(3)(C) of the Code and (y) two duly
completed copies of Internal Revenue Service Form W-8BEN (or successor form); or
36
(D) any other form prescribed by applicable laws (including Internal Revenue Service Form
W-8IMY) as a basis for claiming exemption from or a reduction in United Stated federal withholding
tax duly completed together with such supplementary documentation as may be prescribed by
applicable law to permit the Borrower to determine the withholding or deduction required to be
made.
(iii) Each Lender, if reasonably requested by the Borrower or the Administrative Agent, shall
deliver to the Borrower and the Administrative Agent such additional duly completed forms,
certificates or documentation described in this subsection (e) that such Lender is legally entitled
to so deliver upon or prior to the expiration or obsolescence of any such forms, certificates or
documentation previously delivered by it pursuant to this subsection (e). Additionally, each
Lender shall deliver to the Borrower and the Administrative Agent such additional duly completed
forms, certificates or documentation described in this subsection (e) that such Lender is legally
entitled to so deliver after the occurrence of a change in the material facts reflected on any such
forms, certificates or documentation previously delivered by it pursuant to this subsection (e) (or
if, as a result of such change in material facts, such Lender is no longer legally entitled to
deliver any forms, certificates or documentation pursuant to this subsection (e), such Lender shall
so notify the Borrower and the Administrative Agent).
(f) For any period with respect to which a Lender has failed to provide the Borrower with the
appropriate form, certificate or other document described in subsection (e) above (other than if
such failure is due to a change in law, or in the interpretation or application thereof, occurring
after the date on which a form, certificate or other document originally was required to be
provided or if such form, certificate or other document otherwise is not required under subsection
(e) above, including because such Lender is not legally entitled to provide such form, certificate
or other document), such Lender shall not be entitled to indemnification under subsection (a) or
(c) of this Section 2.16 with respect to Indemnified Taxes imposed by the United States by reason
of such failure.
(g) If the Administrative Agent or a Lender determines, in its sole discretion, that it has
received a refund of any Taxes or Other Taxes as to which it has been indemnified by the Borrower
or with respect to which the Borrower has paid additional amounts pursuant to this Section 2.16, it
shall pay over such refund to the Borrower (but only to the extent of indemnity payments made, or
additional amounts paid, by the Borrower under this Section 2.16 with respect to the Taxes or Other
Taxes giving rise to such refund), net of all out-of-pocket expenses of the Administrative Agent or
such Lender and without interest (other than any interest paid by the relevant Governmental
Authority with respect to such refund);
provided
, that the Borrower, upon the request of
the Administrative Agent or such Lender, agrees to repay the amount paid over to the Borrower (
plus
any penalties, interest or other charges imposed by the relevant Governmental Authority) to the
Administrative Agent or such Lender in the event the Administrative Agent or such Lender is
required to repay such refund to such Governmental Authority. This Section shall not be construed
to require the Administrative Agent or any Lender to make available its tax returns (or any other
information relating to its taxes which it deems confidential) to the Borrower or any other Person.
SECTION 2.17.
Payments Generally; Pro Rata Treatment; Sharing of Set-offs
. (a) The
Borrower shall make each payment required to be made by it hereunder (whether of principal,
interest, fees or reimbursement of LC Disbursements, or of amounts payable under Section 2.14, 2.15
or 2.16, or otherwise) prior to 12:00 noon, New York City time, on the date when due, in
immediately available funds, without set-off or counterclaim. Any amounts received after such time
on any date may, in the discretion of the Administrative Agent, be deemed to have been received on
the next succeeding Business Day for purposes of calculating interest thereon. All such payments
shall be made to the Administrative Agent at its offices at 270 Park Avenue, New York, New York,
except payments to be made directly to the Issuing Bank or Swingline Lender as expressly provided
herein and except that
37
payments pursuant to Sections 2.14, 2.15, 2.16 and 9.03 shall be made directly to the Persons
entitled thereto. The Administrative Agent shall distribute any such payments received by it for
the account of any other Person to the appropriate recipient promptly following receipt thereof.
If any payment hereunder shall be due on a day that is not a Business Day, the date for payment
shall be extended to the next succeeding Business Day, and, in the case of any payment accruing
interest, interest thereon shall be payable for the period of such extension. All payments
hereunder shall be made in dollars.
(b) If at any time insufficient funds are received by and available to the Administrative
Agent to pay fully all amounts of principal, unreimbursed LC Disbursements, interest and fees then
due hereunder, such funds shall be applied (i) first, towards payment of interest and fees then due
hereunder, ratably among the parties entitled thereto in accordance with the amounts of interest
and fees then due to such parties, and (ii) second, towards payment of principal and unreimbursed
LC Disbursements then due hereunder, ratably among the parties entitled thereto in accordance with
the amounts of principal and unreimbursed LC Disbursements then due to such parties.
(c) If any Lender shall, by exercising any right of set-off or counterclaim or otherwise,
obtain payment in respect of any principal of or interest on any of its Loans or participations in
LC Disbursements or Swingline Loans resulting in such Lender receiving payment of a greater
proportion of the aggregate amount of its Loans and participations in LC Disbursements and
Swingline Loans and accrued interest thereon than the proportion received by any other Lender, then
the Lender receiving such greater proportion shall purchase (for cash at face value) participations
in the Loans and participations in LC Disbursements and Swingline Loans of other Lenders to the
extent necessary so that the benefit of all such payments shall be shared by the Lenders ratably in
accordance with the aggregate amount of principal of and accrued interest on their respective Loans
and participations in LC Disbursements and Swingline Loans;
provided
that (i) if any such
participations are purchased and all or any portion of the payment giving rise thereto is
recovered, such participations shall be rescinded and the purchase price restored to the extent of
such recovery, without interest, and (ii) the provisions of this paragraph shall not be construed
to apply to any payment made by the Borrower pursuant to and in accordance with the express terms
of this Agreement or any payment obtained by a Lender as consideration for the assignment of or
sale of a participation in any of its Loans or participations in LC Disbursements to any assignee
or participant, other than to the Borrower or any Subsidiary or Affiliate thereof (as to which the
provisions of this paragraph shall apply). The Borrower consents to the foregoing and agrees, to
the extent it may effectively do so under applicable law, that any Lender acquiring a participation
pursuant to the foregoing arrangements may exercise against the Borrower rights of set-off and
counterclaim with respect to such participation as fully as if such Lender were a direct creditor
of the Borrower in the amount of such participation.
(d) Unless the Administrative Agent shall have received notice from the Borrower prior to the
date on which any payment is due to the Administrative Agent for the account of the Lenders or the
Issuing Bank hereunder that the Borrower will not make such payment, the Administrative Agent may
assume that the Borrower has made such payment on such date in accordance herewith and may, in
reliance upon such assumption, distribute to the Lenders or the Issuing Bank, as the case may be,
the amount due. In such event, if the Borrower has not in fact made such payment, then each of the
Lenders or the Issuing Bank, as the case may be, severally agrees to repay to the Administrative
Agent forthwith on demand the amount so distributed to such Lender or Issuing Bank with interest
thereon, for each day from and including the date such amount is distributed to it to but excluding
the date of payment to the Administrative Agent, at the greater of the Federal Funds Effective Rate
and a rate determined by the Administrative Agent in accordance with banking industry rules on
interbank compensation.
(e) If any Lender shall fail to make any payment required to be made by it pursuant to Section
2.04(c), 2.05(d) or (e), 2.06(b), 2.17(d) or 9.03(c), then the Administrative Agent
38
may, in its discretion (notwithstanding any contrary provision hereof), apply any amounts
thereafter received by the Administrative Agent for the account of such Lender to satisfy such
Lenders obligations under such Sections until all such unsatisfied obligations are fully paid.
SECTION 2.18.
Mitigation Obligations; Replacement of Lenders
. (a) If any Lender
requests compensation under Section 2.14, or if the Borrower is required to pay any additional
amount to any Lender or any Governmental Authority for the account of any Lender pursuant to
Section 2.16, then such Lender shall use reasonable efforts to designate a different lending office
for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to
another of its offices, branches or affiliates, if, in the judgment of such Lender, such
designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 2.14 or
2.16, as the case may be, in the future and (ii) would not subject such Lender to any unreimbursed
cost or expense and would not otherwise be disadvantageous to such Lender. The Borrower hereby
agrees to pay all reasonable costs and expenses incurred by any Lender in connection with any such
designation or assignment.
(b) If (i) any Lender requests compensation under Section 2.14, (ii) the Borrower is required
to pay any additional amount to any Lender or any Governmental Authority for the account of any
Lender pursuant to Section 2.16, (iii) any Lender defaults in its obligation to fund Loans
hereunder or (iv) in connection with any proposed amendment, modification, waiver or termination
requiring the consent of all the Lenders or all affected Lenders, the consent of the Required
Lenders is obtained but the consent of any Lender whose consent is required is not obtained, then
the Borrower may, at its sole expense and effort, upon notice to such Lender and the Administrative
Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject
to the restrictions contained in Section 9.04), all its interests, rights and obligations under
this Agreement to an assignee that shall assume such obligations (which assignee may be another
Lender, if a Lender accepts such assignment);
provided
that (i) the Borrower shall have
received the prior written consent of the Administrative Agent (and if a Revolving Credit
Commitment is being assigned, the Issuing Bank), which consent shall not unreasonably be withheld,
(ii) such Lender shall have received payment of an amount equal to the outstanding principal of its
Loans and participations in LC Disbursements and Swingline Loans, accrued interest thereon, accrued
fees and all other amounts payable to it hereunder, from the assignee (to the extent of such
outstanding principal and accrued interest and fees) or the Borrower (in the case of all other
amounts) and (iii) in the case of any such assignment resulting from a claim for compensation under
Section 2.14 or payments required to be made pursuant to Section 2.16, such assignment will result
in a reduction in such compensation or payments. A Lender shall not be required to make any such
assignment and delegation if, prior thereto, as a result of a waiver by such Lender or otherwise,
the circumstances entitling the Borrower to require such assignment and delegation cease to apply.
ARTICLE III
Representations and Warranties
To induce the Lenders and the Administrative Agent to enter into this Agreement, (i) on and as
of the Effective Date, the Borrower makes each of the representations and warranties set forth in
Sections 3.01(a) and 3.02 below (but only with respect to the Borrower) and in Section 3.11 below,
(ii) on and as of the Initial Funding Date, the Borrower makes each of the representations and
warranties set forth in Sections 3.01, 3.02, 3.03, 3.04(a), 3.05, 3.06(a)(i), 3.07, 3.08, 3.09,
3.10, 3.11 and 3.12 below, (iii) on and as of the Transaction Closing Date, the Borrower makes each
of the representations and warranties set forth in Section 3.14 and, with respect to each of the
Guarantors becoming party to the Guaranty after the Initial Funding Date and on or prior to the
Transaction Closing Date, each of the representations and warranties set forth in Sections 3.01(a),
3.02, 3.03(a), 3.03(b) and 3.08 applicable to
39
such Guarantors and (iv) on and as of each date after the Transaction Closing Date as required
by Section 4.04, the Borrower makes each of the representations and warranties set forth below:
SECTION 3.01.
Organization; Powers
. (a) Each of the Loan Parties is duly organized,
validly existing and in good standing under the laws of the jurisdiction of its organization, and
has all requisite corporate power, limited liability company power or limited partnership power and
authority, as applicable, to carry on its business as now conducted and, except where the failure
to do so, individually or in the aggregate, could not reasonably be expected to have a Material
Adverse Effect, is qualified to do business in, and is in good standing in, every jurisdiction
where such qualification is required.
(b) Schedule 3.01(b) sets forth the name and jurisdiction of organization of each Material
Subsidiary that is expected to be a Material Subsidiary after the Transaction Closing Date,
pursuant to the Separation Documents as modified in accordance with Section 3.14(d). On the
Transaction Closing Date, each Material Subsidiary will be a wholly-owned Subsidiary of the
Borrower.
SECTION 3.02.
Authorization; Enforceability
. The Financing Transactions are within
each Loan Partys corporate powers and have been duly authorized by all necessary corporate and, if
required, stockholder action. Each of this Agreement and the other Loan Documents has been duly
executed and delivered by each Loan Party and constitutes a legal, valid and binding obligation of
such Loan Party, enforceable in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other laws affecting creditors rights generally and
subject to general principles of equity, regardless of whether considered in a proceeding in equity
or at law.
SECTION 3.03.
Governmental Approvals; No Conflicts
. (a) The Financing Transactions
(i) do not require any consent or approval of, registration or filing with, or any other action by,
any Governmental Authority, except such as have been obtained or made and are in full force and
effect, (ii) will not violate the charter, by-laws or other organizational documents of the
Borrower or any Loan Party, (iii) will not violate any applicable law (including ERISA and
Environmental Laws) or regulation or any order of any Governmental Authority, and (iv) will not
violate or result in a default under any indenture, agreement or other instrument binding upon the
Borrower or any Loan Party or its assets or give rise to a right thereunder to require any payment
to be made by the Borrower or any of its Subsidiaries, except in the case of clauses (i), (iii) and
(iv) above for any such violations or defaults that, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect.
(b) The Financing Transactions will not (i) violate the charter, by-laws or other
organizational documents of Cadbury or any subsidiary of Cadbury that owns or, immediately prior to
the Separation Transactions, has owned, the Borrower, (ii) violate or result in a default or a
right to require any payment under any material indenture or other material debt agreement binding
upon Cadbury or any subsidiary of Cadbury that owns or, immediately prior to the Separation
Transactions, has owned, the Borrower or any of their respective assets or give rise to a right
thereunder to require any payment to be made by such Person and (iii) violate or result in a
default under any agreement or other instrument (excluding those referred to in clause (ii) above)
binding upon Cadbury or any subsidiary of Cadbury that owns or, immediately prior to the Separation
Transactions, has owned, the Borrower or any of their respective assets or give rise to a right
thereunder to require any payment to be made by such Person, except in the case of this clause
(iii), for any such violations or defaults that, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect.
(c) The Separation Transactions (i) will not require any consent or approval of, registration
or filing with, or any other action by, any Governmental Authority, except such as have been (or
will be prior to consummation of the Separation Transactions) obtained or made and are (or will be
at
40
the time of the consummation of the Separation Transactions) in full force and effect, (ii)
will not violate the charter, by-laws or other organizational documents of Cadbury or any
subsidiary of Cadbury involved in the Separation Transactions or identified in Schedule 2.01(a) of
the Separation and Distribution Agreement, (iii) will not violate any applicable law (including
ERISA and Environmental Laws) or regulation or any order of any Governmental Authority and (iv)
will not violate in any material respect or result in a material default or a right to require a
material payment under any material indenture, any other agreement or other instrument binding upon
Cadbury or any subsidiary of Cadbury involved in the Separation Transactions or identified in
Schedule 2.01(a) of the Separation and Distribution Agreement, or any of their respective assets,
or give rise to a right thereunder to require any material payment to be made by any such Person,
except in the case of clauses (i), (iii) and (iv) above (other than, in the case of clause (iv),
with regards to any indentures and other material debt agreements) for any such violations or
defaults that, individually or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect or a Cadbury Material Adverse Effect.
SECTION 3.04.
Financial Condition; No Material Adverse Change
. (a) The Borrower has
heretofore furnished (or, with respect to the fiscal year ended December 31, 2007 and the Pro Forma
Financial Statements, will furnish prior to the Initial Funding Date) to the Lenders its (i)
Audited Financial Statements, all reported on by Deloitte & Touche LLP and (ii) the Pro Forma
Financial Statements. The Audited Financial Statements described in clause (i) above, present
fairly, in all material respects the combined financial position, results of operations and cash
flows of the Borrower as of such dates and for such periods in accordance with GAAP and have been
prepared in all material respects in accordance with Regulation S-X. The Pro Forma Financial
Statements have been prepared in all material respects in accordance with Regulation S-X and
related SEC and other applicable guidance and based on assumptions which are reasonable and set
forth therein.
(b) Since December 31, 2007, there has been no Material Adverse Change (other than the
Disclosed Matters set out on Part II of Schedule 3.06).
SECTION 3.05.
Properties.
(a) The Borrower and its Subsidiaries have good title to,
or valid leasehold interests in, all its real and personal property material to their business,
except for (i) minor defects in title that do not interfere with their ability to conduct their
business as currently conducted or to utilize such properties for their intended purposes and (ii)
except for other defects to title that, individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect.
(b) The Borrower and its Subsidiaries collectively own, or are licensed to use, all
trademarks, tradenames, copyrights, patents and other intellectual property used in their business,
and such use by the Borrower and its Subsidiaries, to the best of knowledge of the Borrower, does
not infringe upon the material rights of any other Person except as could not reasonably be
expected to have a Material Adverse Effect.
SECTION 3.06.
Litigation and Environmental Matters
. (a) There shall be no
investigation or review pending by any Governmental Authority with respect to, or actions, suits,
inquiries, investigations or proceedings pending (or, to the best of knowledge of the Borrower,
threatened) before, or orders, judgments or decrees of, any governmental entity, (i) that could
reasonably be expected to restrain, prevent or impose materially adverse conditions upon the
Transactions (which for the avoidance of doubt shall not be deemed to include the SEC review of the
Form 10 or similar regulatory review under United Kingdom securities law) or (ii) that could
reasonably be expected to have a Material Adverse Effect (other than the Disclosed Matters set out
in Part I of Schedule 3.06, to the extent that they do not result in aggregate payments, damages,
losses or liabilities of the Borrower and its Subsidiaries in excess of $50,000,000 in the
aggregate).
41
(b) Except for the Disclosed Matters and except with respect to any other matters that,
individually or in the aggregate, could not reasonably be expected to have a Material Adverse
Effect, the Borrower and its Subsidiaries (i) have not failed to comply with any Environmental Law
or to obtain, maintain or comply with any permit, license or other approval required under any
Environmental Law, (ii) have not become subject to any Environmental Liability, and (iii) have not
received notice of any claim with respect to any Environmental Liability.
SECTION 3.07.
Compliance with Laws and Agreements
. The Borrower and its Subsidiaries
are in compliance with (a) their charter, by-laws or other organizational documents, (b) all laws,
regulations and orders of any Governmental Authority applicable to them or their property and (c)
all indentures, agreements and other instruments binding upon them or their property, except, in
the case of clauses (b) and (c) of this Section, where the failure to do so, individually or in the
aggregate, could not reasonably be expected to have a Material Adverse Effect.
SECTION 3.08.
Investment Company Status
. No Loan Party is a registered investment
company or a company controlled by a registered investment company or a principal
underwriter of a registered investment company as such terms are defined in, or subject to
regulation under, the Investment Company Act of 1940.
SECTION 3.09.
Taxes
. The Borrower and its Subsidiaries have timely filed or caused to
be filed all Tax returns and reports required to have been filed and have paid or caused to be paid
all Taxes required to have been paid, except (a) Taxes that are being contested in good faith by
appropriate proceedings and for which the Borrower or such Subsidiary, as applicable, has set aside
on its books adequate reserves or (b) to the extent that the failure to do so could not reasonably
be expected to have a Material Adverse Effect.
SECTION 3.10.
ERISA
. No ERISA Event has occurred or is reasonably expected to occur
that, when taken together with all other such ERISA Events for which liability is reasonably
expected to occur, could reasonably be expected to have a Material Adverse Effect. The present
value of all accumulated benefit obligations under each Plan (based on the assumptions used for
purposes of Statement of Financial Accounting Standards No. 87) did not, as of the date of the most
recent financial statements reflecting such amounts, exceed the fair market value of the assets of
such Plan, and the present value of all accumulated benefit obligations of all underfunded Plans
(based on the assumptions used for purposes of Statement of Financial Accounting Standards No. 87)
did not, as of the date of the most recent financial statements reflecting such amounts, exceed the
fair market value of the assets of all such underfunded Plans, in each case by an amount that, if
required to be paid by the Borrower and its Subsidiaries, could reasonably be expected to have a
Material Adverse Effect.
SECTION 3.11.
Disclosure
. The written information (including, without limitation, the
Information Memorandum, the Registration Statement and of the other reports, financial statements,
certificates or other information) and oral information (with any such oral information being
limited to formal due diligence meetings and calls) furnished by or on behalf of the Borrower,
Cadbury, and their respective Affiliates to the Administrative Agent or any Lender in connection
with the Transactions (including the sale of the Business considered in 2007) or the negotiation of
this Agreement or delivered hereunder, taken as a whole (as modified or supplemented by other
information so furnished prior to the relevant measurement date for this representation and
warranty), does not contain any material misstatement of fact or omit to state any material fact
necessary to make the statements therein, in the light of the circumstances under which they were
made, not misleading;
provided
that, with respect to projected financial information, the
Borrower represents only that such information was prepared in good faith based upon assumptions
believed to be reasonable at the time; it being recognized by the Lenders that such projections are
as to future events and are not to be viewed as facts and that actual results during
42
the period or periods covered by any such projections may differ significantly from the
projected results and such differences may be material.
SECTION 3.12.
Margin Regulations
. No Loan Party is engaged principally, as one of its
important activities, in the business of extending credit for the purpose of carrying any margin
stock (as such term is defined in Regulation U of the Board as in effect from time to time). No
more than 25% of the value of the assets of either the Borrower or the Borrower and its
Subsidiaries on a Consolidated basis, respectively, is represented by margin stock.
SECTION 3.13.
Labor Matters
. (a) There are no strikes, work stoppages, slowdowns or
lockouts pending or threatened against or involving the Borrower or any of its Subsidiaries, other
than those that, in the aggregate, could not reasonably be expected to have a Material Adverse
Effect.
(b) There are no unfair labor practices, grievances, complaints or arbitrations pending, or,
to the best knowledge of the Borrower, threatened, against or involving the Borrower or any of its
Subsidiaries, nor are there any arbitrations or grievances threatened involving the Borrower or any
of the Material Subsidiaries, other than those that, in the aggregate, could not reasonably be
expected to have a Material Adverse Effect.
SECTION 3.14.
Separation Transactions
. As of the Transaction Closing Date:
(a) The Separation Transactions have been consummated in all material respects in accordance
with each of the Separation Documents and substantially in the manner described in the Registration
Statement.
(b) The Separation Transactions are within each Loan Partys corporate powers and have been
duly authorized by all necessary corporate and, if required, stockholder action. Each of the
Separation Documents has been duly executed and delivered by each Loan Party party thereto and
constitutes a legal, valid and binding obligation of such Loan Party, enforceable in accordance
with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other
laws affecting creditors rights generally and subject to general principles of equity, regardless
of whether considered in a proceeding in equity or at law.
(c) The Separation Transactions (i) do not require any consent or approval of, registration or
filing with, or any other action by, any Governmental Authority, except such as have been obtained
or made and are in full force and effect, (ii) will not violate the charter, by-laws or other
organizational documents of the Borrower or any other Loan Party, (iii) will not violate any
applicable law (including ERISA and Environmental Laws) or regulation or any order of any
Governmental Authority and (iv) will not violate in any material respect or result in a material
default or a right to require a material payment under any material indenture, any other agreement
or other instrument binding upon the Borrower or any other Loan Party, or any of their respective
assets, or give rise to a right thereunder to require any material payment to be made by any such
Person, except in the case of clauses (i), (iii) and (iv) above (other than, in the case of clause
(iv), with regards to any indentures and other material debt agreements) for any such violations or
defaults that, individually or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect.
(d) Each of the Separation Documents has been entered into and is effective in substantially
the same form as the draft agreements set forth in the definition thereof. None of the Separation
Documents has been amended or otherwise modified in any material respect and no material provision
therein has been waived, except as otherwise agreed to by the Bookrunners and except for such
waivers, amendments or modifications that do not materially adversely affect the interests of the
Lenders
43
(it being understood that, any change to the Separation Documents whereby an indemnification
obligation of Cadbury or any of its subsidiaries existing on the Effective Date for which the
Borrower or any of its Subsidiaries are indirectly liable is transferred to the Borrower or any of
its Subsidiaries so that the Borrower or such Subsidiary is directly liable to Cadburys (or its
subsidiarys) counterparty under the underlying contract pursuant to which such indemnification
obligation arose, shall not be considered to materially and adversely affect the interests of the
Lenders so long as the scope and terms of such indemnification obligation are not changed following
such transfer).
ARTICLE IV
Conditions
SECTION 4.01.
Effective Date
. This Agreement shall be effective on the date (the
Effective Date
) on which the Administrative Agent (or its counsel) shall have received
from each applicable party either (i) a counterpart of this Agreement, the Bridge Loan Agreement
and the Fee and Syndication Letter signed on behalf of such party or (ii) written evidence
satisfactory to the Administrative Agent (which may include telecopy transmission or electronic
.pdf of a signed signature page of this Agreement) that such party has signed a counterpart of
this Agreement, the Bridge Loan Agreement and the Fee and Syndication Letter.
SECTION 4.02.
Initial Funding Date
. The obligations of the Lenders to make the Term
Loan hereunder shall not become effective until the time and date (such time and date, the
Initial Funding Date
) on which each of the following conditions is satisfied (or waived
in accordance with Section 9.02);
provided
that the Initial Funding shall occur no earlier
than April 10, 2008 (it being understood and agreed that if on the Initial Funding Date the
Transaction Closing Date has not occurred, then the proceeds of the Term Loans shall be deposited
directly into the Collateral Account on such date):
(a) The Administrative Agent shall have received a copy of the articles or certificate of
incorporation (or equivalent organizational document) of the Borrower, certified as of a recent
date by the Secretary of State of the state of organization of the Borrower, together with
certificates of such official attesting to the good standing of the Borrower;
(b) The Administrative Agent shall have received a certificate, dated the Initial Funding
Date, of the Secretary or an Assistant Secretary of the Borrower certifying (A) the names and true
signatures of each officer of the Borrower that has been authorized to execute and deliver any Loan
Document or other document required hereunder to be executed and delivered by or on behalf of the
Borrower, (B) the by-laws (or equivalent organizational document) of the Borrower as in effect on
the date of such certification, (C) the resolutions of the Borrowers board of directors approving
and authorizing the execution, delivery and performance of the Loan Documents to which it is a
party, and (D) that there have been no changes in the certificate of incorporation (or equivalent
organizational document) of the Borrower from the certificate of incorporation (or equivalent
organizational document) delivered pursuant to paragraph (a) above;
(c) The Administrative Agent shall have received, for the account of each Lender requesting
the same at least two (2) Business Days prior to the Initial Funding Date, a Promissory Note (which
may for purposes of this Section 4.01(c) be a copy delivered by facsimile or electronic .pdf
transmission to be followed promptly with an original of such Promissory Note by overnight courier
or messenger) of the Borrower conforming to the requirements of Section 2.09(e) herein;
(d) The Borrower, Cadbury and their respective Affiliates shall have complied in all material
respects (and shall be deemed to have so complied if they have not received written notice of
44
any material non-compliance) with the Fee and Syndication Letter;
provided
,
however
, that if, on or prior to the Transaction Funding Date, (i) the Borrower, Cadbury or
any such Affiliate failed to comply with Section 3 thereof (other than the requirements set forth
in clauses (c) and (d) of the second paragraph and in the last paragraph thereunder) and (ii) the
Borrower, Cadbury and/or their respective Affiliates cured such non-compliance within two (2)
Business Days of receipt of such notice, then the Borrower shall be deemed to have complied with
the Fee and Syndication Letter for purposes of this clause (d);
(e) At least five (5) Business Days prior to the Initial Funding Date, the Lenders shall have
received all documentation and other information required by bank regulatory authorities under
applicable know-your-customer and anti-money laundering rules and regulations, including the
Patriot Act, to the extent requested by the Lenders at least ten (10) Business Days prior to the
Initial Funding Date;
(f) The Administrative Agent shall have received a favorable written opinion dated the Initial
Funding Date (addressed to the Administrative Agent and the Lenders and dated the Initial Funding
Date) of Shearman & Sterling LLP, counsel for the Loan Parties, substantially in the form of
Exhibit B. The Administrative Agent also shall have received a copy of a written opinion dated the
Initial Funding Date (addressed to Cadbury) of Shearman & Sterling LLP, counsel to Cadbury,
covering such matters as have been previously agreed between Shearman & Sterling LLP and each of
the Bookrunners, in form and substance satisfactory to the Administrative Agent. The Borrower
hereby requests such counsel to deliver such opinions;
(g) The Administrative Agent shall have received a certificate from a Financial Officer of the
Borrower dated the Initial Funding Date certifying that on such date, the Borrower and its
subsidiaries (on a consolidated basis) are Solvent, both before, and on a pro forma basis after
giving effect to, the Transactions;
(h) (A) The representations and warranties set forth in Sections 3.01(a), 3.02, 3.03, 3.04(a),
3.05, 3.06(a)(i), 3.07, 3.08, 3.09, 3.10, 3.11 and 3.12 shall be true and correct in all material
respects on and as of the Initial Funding Date; (B) at the time of and immediately after giving
effect to the Borrowing on the Initial Funding Date, (x) no Default as a result of the Borrowers
failure to observe or perform any covenant, condition or agreement contained in Sections 5.02,
5.03(a) (with respect to the Borrowers existence only), 5.03(b), 5.04, 5.05, 5.08 or in Article VI
(other than for avoidance of doubt, Section 6.04) shall have occurred and be continuing, (y) no
Event of Default under clause (c) of Article VII with respect to any representation and warranty
under Article III made by the Borrower on the Effective Date shall have occurred, and (z) no Event
of Default under clauses (h), (i) or (j) of Article VII shall have occurred and be continuing and
(C) the Administrative Agent shall have received a certificate, dated the Initial Funding Date and
signed by the president, a vice president or Financial Officer of the Borrower, confirming
compliance with the conditions contained in clauses (A) and (B) above.
(i) The Index Debt and the corporate ratings of the Borrower shall be rated at least BBB-,
which rating may be subject to a negative outlook from S&P but not subject to negative watch or
development and Baa3 from Moodys, which rating shall be stable and not subject to negative
watch, negative outlook or development;
(j) The Borrower has received (i) proceeds from the issuance of the Senior Notes or from
borrowings under the Bridge Loan Agreement of at least $2,000,000,000 (less transaction costs and
original issue discount incurred in connection therewith) or (ii) commitments to fund the Bridge
Loan from the Bookrunners subject only to the satisfaction of conditions substantially similar to
those set forth in Section 4.03 of this Agreement;
45
(k) Each of the Bookrunners shall have received and be satisfied with (i) the audited combined
financial statements of the Borrower for the fiscal year ending December 31, 2007, which such
audited financial statements may exclude (A) guarantor/non-guarantor financial information and (B)
quarterly financial information for completed fiscal periods (it being understood that the
financial information for the fiscal years ending December 31, 2006 and January 1, 2006 presented
with the financial information for the fiscal year ending December 31, 2007 will be the same in all
material respects as that contained in the Registration Statement) (the
Audited Financial
Statements
) and (ii) unaudited pro forma combined balance sheets of the Borrower and its
Subsidiaries as of December 31, 2007 and unaudited pro forma statement of operations for the fiscal
year ended December 31, 2007, adjusted to give effect to the consummation of the Transactions as if
such Transactions, with respect to the pro forma combined balance sheets had occurred on December
31, 2007 and with respect to the pro forma statement of operations had occurred on January 1, 2007,
to the extent permitted under Regulation S-X and related SEC and other applicable guidance
(together, the
Pro Forma Financial Statements
). The Audited Financial Statements shall
be prepared, in all material respects in accordance with GAAP and with Regulation S-X and the
Pro-Forma Financial Statements shall be prepared, in all material respects in accordance with
Regulation S-X and related SEC and other applicable guidance and based on assumptions which are
reasonably set forth therein. The Bookrunners shall be deemed to be satisfied with the Audited
Financial Statements if no Bookrunner shall have contacted the Borrower indicating such Bookrunner
is not satisfied with the Audited Financial Statements within three (3) Business Days following
delivery of the Audited Financial Statements. Following the delivery of the Audited Financial
Statements, the Borrower shall provide the Bookrunners with an opportunity, by telephone or
otherwise, to conduct customary auditor due diligence with representatives of the Borrower during
which representatives of Deloitte & Touche LLP will be present (in person or by telephone) and
participate in a customary manner, the result of which the Bookrunners shall be satisfied with.
Each of the Bookrunners agrees to have its representatives available for the auditor due diligence
promptly following the delivery of the Audited Financial Statements and each of the Bookrunners
agrees to not unreasonably delay the completion of the auditor due diligence. The Bookrunners
shall be deemed to be satisfied with the auditor due diligence if no Bookrunner shall have
contacted the Borrower indicating such Bookrunner is not satisfied with the results of the auditor
due diligence within two (2) Business Days following completion of the auditor due diligence; and
(l) The Administrative Agent shall have received all fees and other amounts due and payable on
or prior to the Initial Funding Date, including, to the extent invoiced, reimbursement or payment
of all out-of-pocket expenses (including reasonable fees and expenses of counsel) required to be
reimbursed or paid by the Borrower hereunder.
Notwithstanding the foregoing, the obligations of the Lenders to make the Term Loans shall not
become effective unless each of the foregoing conditions is satisfied (or waived pursuant to
Section 9.02) at or prior to 3:00 p.m., New York City time, on the Early Commitment Termination
Date (and, in the event such conditions are not so satisfied or waived, the Commitments shall
terminate at such time). Notwithstanding any other provision of this Agreement, the only condition
precedent to the making of the Loans on the Initial Funding Date are those set forth in this
Section 4.02. Notwithstanding any other provision of this Agreement, the only conditions precedent
to the depositing of the Term Loans into the Collateral Account on the Initial Funding Date are
those set forth in this Section 4.02 and, if such conditions are satisfied, no additional
conditions, including without limitation the absence of any other breaches or defaults under the
Loan Documents or the making of any other representations under the Loan Documents or the
Separation Documents, shall be a condition precedent to the depositing of the Term Loans into the
Collateral Account on the Initial Funding Date.
SECTION 4.03.
Conditions to Transaction Closing Date
. The obligation of the
Administrative Agent (i) to release the funds deposited into the Collateral Account pursuant to
Section
46
4.02 (if applicable) and (ii) to apply the proceeds of the Term Loans for the purposes
specified in Section 5.08(a) shall not become effective until the time and date (such time and
date, the
Transaction Closing Date
) on which each of the following conditions is
satisfied (or waived in accordance with Section 9.02):
(a) The Initial Funding Date shall have occurred or shall occur on the Transaction Closing
Date;
(b) (A) The representations and warranties set forth in Section 3.14 shall be true and correct
on and as of such date, and, with respect to each of the Guarantors becoming party to the Guaranty
after the Initial Funding Date and on or prior to the Transaction Closing Date, each of the
representations and warranties set forth in Sections 3.01(a), 3.02, 3.03(a), 303(b) and 3.08
applicable to such Guarantors shall be true and correct in all material respects on and as of the
Transaction Closing Date; (B) at the time of and immediately after giving effect to the
consummation of the Transactions on the Transaction Closing Date, no Default specified under clause
(h) (other than an Immaterial Insolvency Event) or clause (i) of Article VII shall have occurred
and be continuing with respect to the Borrower or a Guarantor and (C) the Administrative Agent
shall have received a certificate, dated the Transaction Closing Date and signed by the president,
a vice president or Financial Officer of the Borrower, confirming compliance with the conditions
contained in clauses (A) and (B) above;
(c) No orders, judgments or decrees of any governmental entity, enjoining or prohibiting the
consummation of the Financing Transactions shall have been issued and remain outstanding on the
Transaction Closing Date;
(d) The Index Debt and the corporate ratings of the Borrower are rated BBB- or higher from
S&P which rating may be subject to negative outlook but not subject to negative watch or
development and Baa3 or higher from Moodys, which rating shall be stable or stable subject to
development but not subject to negative watch or negative outlook from the Initial Funding
Date through April 30, 2008; and
(e) There shall have occurred a period of at least five (5) consecutive Business Days prior to
the Transaction Closing Date commencing on the later of (i) the date which the SEC confirms it is
prepared to declare the Registration Statement effective and (ii) the date the Borrower has
furnished to the Administrative Agent an Offering Memorandum.
(f) The Administrative Agent shall have received a Guaranty, duly executed by each Material
Subsidiary that is not an Excluded Subsidiary, together with (i) a copy of the articles or
certificate of incorporation (or equivalent organizational document) of such Material Subsidiaries,
certified as of a recent date by the Secretary of State of the state of organization of each such
Material Subsidiary, together with certificates of such official attesting to the good standing of
such Material Subsidiaries, (ii) a certificate of the Secretary or an Assistant Secretary of each
such Material Subsidiary certifying (A) the names and true signatures of each officer of such
Material Subsidiary that has been authorized to execute and deliver the Guaranty or other document
required hereunder to be executed and delivered by or on behalf of such Material Subsidiary, (B)
the by-laws (or equivalent organizational document) of such Material Subsidiary as in effect on the
date of such certification, (C) the resolutions of such Material Subsidiarys board of directors
approving and authorizing the execution, delivery and performance of the Guaranty, and (D) that
there have been no changes in the certificate of incorporation (or equivalent organizational
document) of such Material Subsidiary from the certificate of incorporation (or equivalent
organizational document) delivered pursuant to clause (i) above and (iii) a favorable written
opinion (addressed to the Administrative Agent and the Lenders and dated the Transaction Closing
Date) of Shearman & Sterling LLP, counsel for the such Material Subsidiaries, and/or local
47
counsel
in the jurisdiction of such Material Subsidiaries formations, collectively, covering such matters
with respect to each Guarantor as are contemplated in the form of opinion attached as Exhibit
B (with reasonable variation to account for local law and opinion practice).
Notwithstanding the foregoing, the obligations of the Administrative Agent to release proceeds of
the Term Loans deposited in the Collateral Account or, if the Initial Funding Date has not
occurred, to apply the proceeds of the Term Loans directly as contemplated in Section 5.08(a),
shall not become effective unless each of the foregoing conditions is satisfied (or waived pursuant
to Section 9.02) at or prior to 3:00 p.m., New York City time, on the Early Commitment Termination
Date (and, in the event such conditions are not so satisfied or waived, the funds on deposit in the
Collateral Account shall be applied towards the repayment of the Obligations in accordance with
Section 2.10(c) and all of the Commitments shall terminate at such time). Notwithstanding any
other provision of this Agreement, the only conditions precedent to the making of Loans or the
release of Loans from the Collateral Account on the Transaction Closing Date are those set forth in
this Section 4.03 and, if such conditions are satisfied, no additional conditions, including
without limitation the absence of any other breaches or defaults or the making of any other
representation under the Loan Documents or the Separation Documents, shall be a condition precedent
to the release of Loans from the Collateral Account on the Transaction Closing Date.
SECTION 4.04.
Conditions to Each Credit Event After the Transaction Closing Date
. The
several obligations of each Lender, including the Swingline Lender, to make a Loan on the occasion
of any Borrowing after the Transaction Closing Date and of the Issuing Bank to issue, amend, renew
or extend any Letter of Credit after the Transaction Closing Date (each a
Credit Event
),
is subject to the satisfaction of the following conditions:
(a) With respect to any Loan, the Administrative Agent shall have received a duly executed
Borrowing Request (or, in the case of Swing Loans, a duly executed notice in compliance with
Section 2.03(c)), and, with respect to any Letter of Credit, the Administrative Agent and the
Issuing Bank shall have received a duly executed Letter of Credit request in compliance with
Section 2.04(a) hereof or, in each case, such other notice or request satisfactory to the
Administrative Agent;
(b) The representations and warranties set forth in this Agreement (other than, in the case of
a Qualified CP Draw, those contained in Sections 3.04(b) and 3.06) and in the other Loan Documents
shall be true and correct in all material respects on and as of the date of such Borrowing or the
date of issuance, amendment, renewal or extension of such Letter of Credit, as applicable;
provided
,
however
, that, the representations and warranties contained in Sections
3.09, 3.10 and 3.13 shall only be made on the first Credit Event following the Transaction Closing
Date; and
(c) At the time of and immediately after giving effect to such Borrowing or the issuance,
amendment, renewal or extension of such Letter of Credit, as applicable, no Default shall have
occurred and be continuing.
After the Transaction Closing Date, each Borrowing and each issuance, amendment, renewal or
extension of a Letter of Credit shall be deemed to constitute a representation and warranty by the
Borrower on the date thereof as to the matters specified in paragraphs (b) and (c) of this Section
4.04.
ARTICLE V
Affirmative Covenants
48
Until the Commitments have expired or been terminated and the principal of and interest on
each Loan and all fees payable hereunder shall have been paid in full and all Letters of Credit
shall have expired or terminated and all LC Disbursements shall have been reimbursed, the Borrower
covenants and agrees with the Lenders that (it being understood that, for purposes of the covenants
made by the Borrower as set forth below, such covenants shall be construed as though the Separation
Transactions have been consummated):
SECTION 5.01.
Financial Statements; Ratings Change and Other Information
. The
Borrower will furnish to the Administrative Agent and each Lender:
(a) on or before the date on which such financial statements are required to be filed with the
SEC (after giving effect to any permitted extensions) or, if such financial statements are not
required to be filed with the SEC, on or before the date that is ninety (90) days after the end of
each such fiscal year, its audited consolidated balance sheet and related statements of operations,
stockholders equity and cash flows as of the end of and for such year, all certified by Deloitte &
Touche LLP or other independent public accountants of recognized national standing (without a
going concern or like qualification or exception and without any qualification or exception as to
the scope of such audit) to the effect that such consolidated financial statements present fairly
in all material respects the financial condition and results of operations of the Borrower and its
consolidated Subsidiaries on a consolidated basis in accordance with GAAP;
(b) on or before the date on which such financial statements are required to be filed with the
SEC (after giving effect to any permitted extensions) with respect to each of the first three
quarterly accounting periods in each fiscal year of the Borrower or, if such financial statements
are not required to be filed with the SEC, on or before the date that is forty-five (45) days after
the end of each such quarterly accounting period, its consolidated balance sheet and related
statements of operations, stockholders equity and cash flows as of the end of and for such fiscal
quarter and the elapsed portion of the fiscal year ended with the last day of such quarterly
period, setting forth in each case in comparative form the figures for the corresponding period or
periods of (or, in the case of the balance sheet, as of the end of) the previous fiscal year, all
certified by one of its Financial Officers as presenting fairly in all material respects the
financial condition and results of operations of the Borrower and its consolidated Subsidiaries on
a consolidated basis in accordance with GAAP, subject to normal year-end audit adjustments and the
absence of footnotes;
(c) concurrently with any delivery of financial statements under clause (a) or (b) above, a
certificate of a Financial Officer of the Borrower (i) certifying as to whether a Default has
occurred and, if a Default has occurred, specifying the details thereof and any action taken or
proposed to be taken with respect thereto, (ii) setting forth reasonably detailed calculations
demonstrating compliance with Section 6.05 and (iii) stating whether any change in GAAP or in the
application thereof has occurred since the date of the audited financial statements referred to in
Section 3.04 and, if any such change has occurred, specifying the effect of such change on the
financial statements accompanying such certificate;
(d) promptly after the same become publicly available, copies of all periodic and other
reports, proxy statements and other materials filed by the Borrower or any Material Subsidiary with
the SEC, or with any national securities exchange, or distributed by the Borrower to its
shareholders generally, as the case may be;
(e) promptly after Moodys or S&P shall have announced a change in the rating established or
deemed to have been established for the Index Debt or the corporate rating of the Borrower, written
notice of such rating change;
49
(f) promptly following any request therefor, such other information regarding the operations,
business affairs and financial condition of the Borrower or any Subsidiary, or compliance with the
terms of this Agreement, as the Administrative Agent or any Lender may reasonably request.
Information required to be delivered pursuant to subsections (a), (b) and (d) of this Section 5.01
shall be deemed to have been delivered if such information, or one or more annual or quarterly or
other reports or proxy statements containing such information shall have been posted and available
on the website of the SEC at
http://www.sec.gov
(and a confirming electronic correspondence
is delivered or caused to be delivered by the Borrower to the Administrative Agent providing notice
of such availability).
SECTION 5.02.
Notices of Material Events
. The Borrower will furnish to the
Administrative Agent and each Lender prompt written notice of the following:
(a) the Borrower having knowledge of any Default; and
(b) the Borrower having knowledge of the filing or commencement of any action, suit or
proceeding by or before any arbitrator or Governmental Authority against or affecting the Borrower
or any Subsidiary that, if adversely determined, could reasonably be expected to have a Material
Adverse Effect.
Each notice delivered under this Section shall be accompanied by a statement of a Financial Officer
or other executive officer of the Borrower setting forth the details of the event or development
requiring such notice and any action taken or proposed to be taken with respect thereto.
SECTION 5.03.
Existence; Conduct of Business
. The Borrower will, and will cause each
of its Material Subsidiaries and any Loan Party to, do or cause to be done all things necessary to
preserve, renew and keep in full force and effect (a) its legal existence and (b) the rights,
licenses, permits, privileges and franchises material to the conduct of its business; except in the
case of clause (b), to the extent that failure to do so, individually or in the aggregate, could
not reasonably be expected to have a Material Adverse Effect;
provided
that the foregoing
shall not prohibit any merger, consolidation, liquidation or dissolution permitted under Section
6.03 or any of the Separation Transactions.
SECTION 5.04.
Payment of Obligations
. The Borrower will, and will cause each of its
Material Subsidiaries and any Loan Party to pay its Tax liabilities, that, if not paid, could
reasonably be expected to have a Material Adverse Effect before the same shall become delinquent or
in default, except where (a) the validity or amount thereof is being contested in good faith by
appropriate proceedings and (b) the Borrower or such Subsidiary or such Loan Party has set aside on
its books adequate reserves with respect thereto in accordance with GAAP.
SECTION 5.05.
Maintenance of Properties; Insurance
. The Borrower will, and will cause
each of its Material Subsidiaries and any Loan Party to, (a) keep and maintain all property
material to the conduct of its business in good working order and condition, ordinary wear and tear
excepted, and (b) maintain, with financially sound and reputable insurance companies, insurance
(which may include self-insurance and co-insurance) in such amounts and against such risks as are
customarily maintained by companies engaged in the same or similar businesses operating in the same
or similar locations, except in the case of clauses (a) and (b), to the extent that the failure to
do so could not, based upon the facts and circumstances existing at the time, reasonably be
expected to have a Material Adverse Effect.
SECTION 5.06.
Books and Records; Inspection Rights
. The Borrower will, and will cause
each of its Subsidiaries to, keep proper books of record and account in which full, true and
correct (in all material respects) entries are made of all dealings and transactions in relation to
its business and
50
activities, to the extent required by GAAP. The Borrower will, and will cause each of its
Subsidiaries to, permit any representatives designated by the Administrative Agent or any Lender,
upon reasonable prior notice, to visit and inspect its properties, to examine and make extracts
from its books and records, and to discuss its affairs, finances and condition with its officers
and independent accountants, all at such reasonable times during normal business hours;
provided
that, unless an Event of Default shall have occurred and be continuing, only one
(1) visit shall be permitted during any calendar year. The Administrative Agent and the Lenders
shall give the Borrower the opportunity to participate in any discussions with the Borrowers
independent public accountants. Notwithstanding anything to the contrary in this Section 5.06,
none of the Borrower or any of its Subsidiaries will be required to disclose, permit the
inspection, examination or making copies or abstracts of, or discussion of, any document,
information or other matter that (i) constitutes non-financial trade secrets or non-financial
proprietary information, (ii) in respect of which disclosure to the Administrative Agent or any
Lender (or their respective representatives) is prohibited by Law or (iii) is subject to
attorney-client or similar privilege or constitutes attorney work product.
SECTION 5.07.
Compliance with Laws
. The Borrower will, and will cause each of its
Subsidiaries to, comply with all laws (including ERISA and Environmental Laws), rules, regulations
and orders of any Governmental Authority applicable to it or its property, except where the failure
to do so, individually or in the aggregate, could not reasonably be expected to have a Material
Adverse Effect.
SECTION 5.08.
Use of Proceeds
. The Borrower (and to the extent distributed to them
by the Borrower, each Loan Party) shall use the entire amount of the proceeds of the Loans (a) on
the Transaction Closing Date, solely to consummate the Transactions in a manner consistent with the
Registration Statement and in all material respects with the Separation Documents, including
retaining at least $100,000,000 in unrestricted cash on its consolidated balance sheet after giving
effect to the Transactions and (b) thereafter, for working capital and general corporate purposes.
No part of the proceeds of any Loan will be used, whether directly or indirectly, for any purpose
that entails a violation of any of the Regulations of the Board, including Regulations U and X.
SECTION 5.09.
Additional Guarantors
. To the extent not delivered to the
Administrative Agent on or before the Transaction Closing Date (including Persons that become
Material Subsidiaries of the Borrower after the Transaction Closing Date), the Borrower agrees
promptly to do, or cause each Material Subsidiary (other than any Excluded Subsidiary) of the
Borrower to, unless otherwise agreed by the Administrative Agent, deliver to the Administrative
Agent such duly executed supplements and amendments to the Guaranty, in each case in form and
substance reasonably satisfactory to the Administrative Agent and as the Administrative Agent deems
necessary or advisable in order to ensure that each Material Subsidiary (other than any Excluded
Subsidiary) of the Borrower guaranties, as primary obligor and not as surety, the full and punctual
payment when due of the Obligations or any part thereof and to take such other actions necessary or
advisable to ensure the validity or continuing validity of such guaranties as may be required by
law or as may be reasonably requested by the Administrative Agent and, if requested by the
Administrative Agent, deliver to the Administrative Agent legal opinions relating to such
guaranties, which opinions shall be in form and substance, and from counsel, reasonably
satisfactory to the Administrative Agent.
SECTION 5.10.
Ratings
. The Borrower will use commercially reasonably efforts to
maintain corporate ratings and ratings in respect of the Index Debt from both Moodys and S&P.
51
ARTICLE VI
Negative Covenants
Until the Commitments have expired or terminated and the principal of and interest on each
Loan and all fees payable hereunder have been paid in full and all Letters of Credit have expired
or terminated and all LC Disbursements shall have been reimbursed, the Borrower covenants and
agrees with the Lenders that (it being understood that, for purposes of the covenants made by the
Borrower as set forth below, such covenants shall be construed as though the Separation
Transactions have been consummated and shall not in any way prohibit the consummation of the
Separation Transactions):
SECTION 6.01.
Liens
. The Borrower will not, and will not permit any Subsidiary to,
create, incur, assume or permit to exist any Lien on any property or asset now owned or hereafter
acquired by it, or assign or sell any income or revenues (including accounts receivable) or rights
in respect of any thereof, except:
(a) Permitted Encumbrances;
(b) any Lien on any property or asset of the Borrower or any Subsidiary existing on the date
hereof (with all such Liens securing Indebtedness of any Loan Party for borrowed money being set
forth in Schedule 6.01);
provided
that (i) such Lien shall not apply to any other property
or asset of the Borrower or any Subsidiary (other than the proceeds or products of the property or
asset originally subject to such Lien) and (ii) such Lien shall secure only those obligations which
it secures on the date hereof and extensions, renewals and replacements thereof that do not
increase the outstanding principal amount thereof;
(c) Liens of any Subsidiary in favor of any Loan Party;
(d) Liens securing Indebtedness outstanding in a principal amount not in excess of
$100,000,000 consisting of capital leases or purchase money obligations provided that such Liens do
not encumber any property other than property financed by such Indebtedness or subject to such
capital lease;
(e) Liens on the assets of any Foreign Subsidiary;
provided
that to the extent such
Liens secure Indebtedness, such Indebtedness is permitted under Section 6.08; and
(f) Liens not otherwise permitted by clauses (a) through (d) above securing obligations, the
aggregate outstanding principal amount of which as of the date of any incurrence thereof shall not
exceed (together with all Indebtedness of Subsidiaries that are not Guarantors permitted pursuant
to Section 6.08) 10% of the Consolidated Net Tangible Assets of the Borrower as of such date;
provided
that no Lien permitted pursuant to this clause (e) shall encumber any Material
Intellectual Property.
SECTION 6.02.
Fundamental Changes
. (a) The Borrower will not, and will not permit any
Subsidiary to, merge into or consolidate with any other Person, or permit any other Person to merge
into or consolidate with it, or sell, transfer, lease or otherwise dispose of (in one transaction
or in a series of transactions) all or substantially all of the assets of the Loan Parties, taken
as a whole, or the Borrower and its Subsidiaries taken as a whole (in each case, whether now owned
or hereafter acquired), or liquidate or dissolve, except that, if at the time thereof and
immediately after giving effect thereto no Default shall have occurred and be continuing (i) any
Person may merge into the Borrower in a transaction in which the Borrower is the surviving
corporation, (ii) any Subsidiary may merge into any Subsidiary in a transaction in which the
surviving entity is a Subsidiary, (iii) any Subsidiary may sell, transfer, lease or otherwise
dispose of its assets to any Subsidiary;
provided
that any sale, transfer, lease
52
or other disposition to any Subsidiary that is not a Guarantor shall not be prohibited by
Section 6.03(c), (iv) any Subsidiary may liquidate or dissolve if the Borrower determines in good
faith that such liquidation or dissolution is in the best interests of the Borrower and is not
materially disadvantageous to the Lenders.
(b) The Borrower will not, and will not permit any of its Subsidiaries to, engage to any
material extent in any business other than businesses of the type conducted by the Borrower and its
Subsidiaries on the date of execution of this Agreement and businesses reasonably related thereto.
SECTION 6.03.
Investments, Loans, Advances, Guarantees and Acquisitions
. The Borrower
will not, and will not permit any of its Subsidiaries to, purchase, hold or acquire (including
pursuant to any merger with any Person that was not a wholly owned Subsidiary prior to such merger)
any capital stock, evidences of indebtedness or other securities (including any option, warrant or
other right to acquire any of the foregoing) of, make or permit to exist any loans or advances to,
Guarantee any obligations of, or make or permit to exist any investment or any other interest in,
any other Person, or purchase or otherwise acquire (in one transaction or a series of transactions)
any assets of any other Person constituting a business unit (
Investments
), except:
(a) cash and Permitted Investments;
(b) Investments existing on the date hereof and any modification, replacement, renewal,
reinvestment or extension thereof;
(c) loans or advances or other Investments made by (i) any Loan Party to any other Loan Party,
(ii) by any Subsidiary that is not a Loan Party to the Borrower or any other Subsidiary and (iii)
by any Loan Party to a Subsidiary that is not a Loan Party in an aggregate amount outstanding not
to exceed $100,000,000;
(d) Investments consisting of intercompany cash balances among the Borrower and its
Subsidiaries in connection with liquidity management in the ordinary course of business;
(e) loans or advances to officers, directors and employees of the Borrower or the Subsidiaries
(i) for reasonable and customary business-related travel, entertainment, relocation and analogous
ordinary business purposes, (ii) in connection with such Persons purchase of equity interests of
the Borrower and the Subsidiaries and (iii) for purposes not described in the foregoing clauses (i)
and (ii), to the extent permitted by law, in an aggregate principal amount outstanding not to
exceed $5,000,000;
(f) Investments in Swap Agreements;
(g) Investments held by a Subsidiary acquired after the date hereof or of a corporation merged
or consolidated with a Subsidiary in accordance with Section 6.02 after the date hereof to the
extent that such investments were not made in contemplation of or in connection with such
acquisition, merger or consolidation and were in existence on the date of such acquisition, merger
or consolidation;
(h) Permitted Acquisitions;
provided
that, any Permitted Acquisition by any Loan Party
of assets located outside of the United States (or any Investment by a Loan Party in a subsidiary
that is not a Guarantor for the purpose of consummating a Permitted Acquisition) shall only be
permitted if the Investment in such Permitted Acquisition is otherwise permitted pursuant to clause
(i) below; and
53
(i) Permitted Acquisitions not permitted pursuant to clause (g) above and other Investments in
an aggregate amount not exceed 15% of the Consolidated Net Tangible Assets of the Borrower as of
such date, net of any return representing return of capital or repayment of Indebtedness in respect
of any such investment made pursuant to this clause (h) and valued at the time of the making
thereof.
Notwithstanding anything to herein to the contrary, in the event that (i) Consolidated Total Debt
of the Borrower as of the last day of any fiscal quarter for which financial statements have been
delivered to the Administrative Agent pursuant to clause (a) or (b), as applicable, of Section 5.01
to (ii) Consolidated EBITDA of the Borrower for the last four fiscal quarters ending on the last
day of such fiscal quarter is less than 3.25:1, then the covenant set for in this Section 6.03
shall cease to be of any further force and effect.
SECTION 6.04.
Financial Covenants
.
(a)
Leverage
. The Borrower will not permit the ratio of (i) Consolidated Total Debt
of the Borrower as of the last day of any fiscal quarter ending during any period set forth below
to (ii) Consolidated EBITDA of the Borrower for the last four fiscal quarters ending on the last
day of such fiscal quarter to be greater than the ratio set forth below opposite such period:
|
|
|
|
|
PERIOD
|
|
MAXIMUM LEVERAGE RATIO
|
|
|
|
|
|
The Initial Funding date through
June 30, 2009
|
|
|
3.75 to 1
|
|
|
|
|
|
|
July 1, 2009 through December 31, 2009
|
|
|
3.50 to 1
|
|
|
|
|
|
|
January 1, 2010 through December 31, 2010
|
|
|
3.25 to 1
|
|
|
|
|
|
|
January 1, 2011 through the latest Maturity Date of
the Facilities
|
|
|
3.00 to 1
|
|
(b)
Interest Coverage
. The Borrower shall not permit the ratio of (i) Consolidated
EBITDA of the Borrower for any four fiscal quarter period ending on or after June 30, 2008 to (ii)
Consolidated Cash Interest Expense of the Borrower for such period to be less than 3.25 to 1.
SECTION 6.05.
Transactions with Affiliates
. The Borrower will not, and will not
permit any of its Subsidiaries to, sell, lease or otherwise transfer any property or assets to, or
purchase, lease or otherwise acquire any property or assets from, or otherwise engage in any other
transactions with, any of its Affiliates, except (a) in the ordinary course of business at prices
and on terms and conditions not less favorable to the Borrower or such Subsidiary than could be
obtained on an arms-length basis from unrelated third parties, (b) compensation to employees,
officers, directors or consultants in the ordinary course of business and reimbursement of
directors and officers expenses and payment of directors and officers indemnities, and (c)
transactions between or among the Borrower and any Subsidiary.
SECTION 6.06.
Restrictive Agreements
. The Borrower will not, and will not permit any
of its Subsidiaries to, directly or indirectly, enter into, incur or permit to exist any agreement
or other arrangement (other than the Bridge Loan Agreement) that prohibits, restricts or imposes
any condition
54
upon (a) the ability of the Borrower or any Subsidiary to create, incur or permit to exist any
Lien upon any of its property or assets, or (b) the ability of any Subsidiary to pay dividends or
other distributions with respect to any shares of its capital stock or to make or repay loans or
advances to the Borrower or any other Subsidiary or to guarantee Indebtedness of the Borrower or
any other Subsidiary;
provided
that (i) the foregoing shall not apply to restrictions and
conditions imposed by law or by this Agreement, (ii) the foregoing shall not apply to restrictions
and conditions existing on the Initial Funding Date identified on Schedule 6.06 delivered on or
prior to the Initial Funding Date (but shall apply to any extension or renewal of, or any amendment
or modification expanding the scope of, any such restriction or condition) or at the time any
Subsidiary becomes a Subsidiary of the Borrower, so long as such agreement was not entered into
solely in contemplation of such Person becoming a Subsidiary of the Borrower, (iii) the foregoing
shall not apply to customary restrictions and conditions contained in agreements relating to the
sale of a Subsidiary pending such sale, provided such restrictions and conditions apply only to the
Subsidiary that is to be sold, (iv) clause (a) of the foregoing shall not apply to restrictions or
conditions imposed by any agreement relating to secured Indebtedness permitted by this Agreement if
such restrictions or conditions apply only to the property or assets securing such Indebtedness or
to any agreement evidencing Indebtedness if such restriction is no more restrictive than the
provisions of Section 6.01 of this Agreement, (v) the foregoing shall not apply to customary
anti-assignment provisions in contracts restricting the assignment thereof (including customary
provisions in leases restricting assignability or subleasing), (vii) the foregoing shall not apply
to restrictions under any documents relating to the formation of any non-wholly-owned Subsidiary,
(viii) clause (a) of the foregoing shall not apply in the case of any Subsidiary of the Borrower
that is not a Guarantor, to restrictions or conditions imposed by any agreement evidencing
Indebtedness that is permitted by Section 6.07 of this Agreement and (ix) the foregoing shall not
apply to licenses or contracts which by the terms of such licenses and contracts prohibits the
granting of Liens on the rights contained therein.
SECTION 6.07.
Subsidiary Indebtedness
. The Borrower will not permit the aggregate
principal amount of Indebtedness of Subsidiaries that are not Guarantors (excluding any
Indebtedness of such Subsidiary owed to the Borrower or another Subsidiary, but including any
Guarantee by such Subsidiary of Indebtedness of the Borrower) at any time to exceed (together with
all secured obligations permitted pursuant to Section 6.01(f)) 10% of the Consolidated Net Tangible
Assets of the Borrower as of such date;
provided
however, that nothing in this Section 6.07
shall prohibit intercompany Indebtedness of Subsidiaries to the extent outstanding prior to the
Transaction Closing Date.
ARTICLE VII
Events of Default
If any of the following events (
Events of Default
) shall occur:
(a) the Borrower shall fail to pay any principal of any Loan or any reimbursement obligation
in respect of any LC Disbursement when and as the same shall become due and payable, whether at the
due date thereof or at a date fixed for prepayment thereof or otherwise;
(b) the Borrower shall fail to pay any interest on any Loan or any fee or any other amount
(other than an amount referred to in clause (a) of this Article) payable under this Agreement, when
and as the same shall become due and payable, and such failure shall continue unremedied for a
period of five (5) Business Days;
(c) any representation or warranty made or deemed made by or on behalf of the Borrower or any
Loan Party in or in connection with this Agreement or in any report, certificate, financial
55
statement or other document furnished pursuant to or in connection with this Agreement or any
amendment or modification hereof or waiver hereunder, shall prove to have been incorrect in any
material respect when made or deemed made;
(d) the Borrower shall fail to observe or perform any covenant, condition or agreement
contained in Sections 5.02(a), 5.03 (with respect to the Borrowers existence) or 5.08 or in
Article VI;
(e) the Borrower or any Loan Party shall fail to observe or perform any covenant, condition or
agreement contained in this Agreement (other than those specified in clause (a), (b) or (d) of this
Article) or the other Loan Documents, and such failure shall continue unremedied for a period of
thirty (30) days after the earlier of (i) the day a Financial Officer of the Borrower first has
knowledge of such failure and (ii) the Administrative Agent giving notice thereof to the Borrower
(which notice will be given at the request of any Lender);
(f) the Borrower or any Material Subsidiary shall fail to make any payment (whether of
principal or interest and regardless of amount) in respect of any Material Indebtedness, when and
as the same shall become due and payable, and such failure shall continue after any applicable
grace period;
(g) any event or condition occurs that results in any Material Indebtedness becoming due prior
to its scheduled maturity or that enables or permits (with or without the giving of notice, the
lapse of time or both) the holder or holders of any Material Indebtedness or any trustee or agent
on its or their behalf to cause any Material Indebtedness to become due, or to require the
prepayment, repurchase, redemption or defeasance thereof, prior to its scheduled maturity;
provided
that this clause (g) shall not apply to secured Indebtedness that becomes due as a
result of the voluntary sale or transfer of the property or assets securing such Indebtedness or
mandatory prepayments required by Section 2.10(d) of the Bridge Loan Agreement;
(h) an involuntary proceeding shall be commenced or an involuntary petition shall be filed
seeking (i) liquidation, reorganization or other relief in respect of the Borrower or any Material
Subsidiary or its debts, or of a substantial part of its assets, under any Federal, state or
foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (ii) the
appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for
the Borrower or any Material Subsidiary or for a substantial part of its assets, and, in any such
case, such proceeding or petition shall continue undismissed for sixty (60) days or an order or
decree approving or ordering any of the foregoing shall be entered;
(i) the Borrower or any Material Subsidiary shall (i) voluntarily commence any proceeding or
file any petition seeking liquidation, reorganization or other relief under any Federal, state or
foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, (ii)
consent to the institution of, or fail to contest in a timely and appropriate manner, any
proceeding or petition described in clause (h) of this Article, (iii) apply for or consent to the
appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for
the Borrower or any Material Subsidiary or for a substantial part of its assets, (iv) file an
answer admitting the material allegations of a petition filed against it in any such proceeding,
(v) make a general assignment for the benefit of creditors or (vi) take any action for the purpose
of effecting any of the foregoing;
(j) the Borrower or any Material Subsidiary shall become unable, admit in writing its
inability or fail generally to pay its debts as they become due;
56
(k) one or more judgments for the payment of money in an aggregate amount in excess of the
Minimum Threshold (to the extent not covered by independent third-party insurance as to which the
insurer has been notified of such judgment and has not denied coverage thereof) shall be entered
against the Borrower, any Loan Party or any Material Subsidiary and the same shall remain
undischarged for a period of forty-five (45) consecutive days during which execution shall not be
effectively stayed, or any action shall be legally taken by a judgment creditor to attach or levy
upon any assets of the Borrower, such Loan Party or such Material Subsidiary to enforce any such
judgment;
(l) an ERISA Event shall have occurred that results in liability of the Borrower, any Loan
Party or any Material Subsidiary in an aggregate amount which could reasonably be expected to have
a Material Adverse Effect;
(m) a Change in Control shall occur; or
(n) any Loan Document shall cease to be valid and enforceable against any Loan Party thereto,
or any Loan Party shall so assert in writing;
then, and during the continuance of any Event of Default (other than an event with respect to the
Borrower described in clauses (h) or (i) of this Article), and at any time thereafter during the
continuance of such event, the Administrative Agent may, and at the request of the Required Lenders
shall, by notice to the Borrower, take either or both of the following actions, at the same or
different times: (i) terminate the Commitments, and thereupon the Commitments shall terminate
immediately, and (ii) declare the Loans then outstanding to be due and payable in whole (or in
part, in which case any principal not so declared to be due and payable may thereafter be declared
to be due and payable), and thereupon the principal of the Loans so declared to be due and payable,
together with accrued interest thereon and all fees and other obligations of the Borrower accrued
hereunder, shall become due and payable immediately, without presentment, demand, protest or other
notice of any kind, all of which are hereby waived by the Borrower; and in case of any Event of
Default with respect to the Borrower described in clauses (h) or (i) of this Article, the
Commitments shall automatically terminate and the principal of the Loans then outstanding, together
with accrued interest thereon and all fees and other obligations of the Borrower accrued hereunder,
shall automatically become due and payable, without presentment, demand, protest or other notice of
any kind, all of which are hereby waived by the Borrower. Notwithstanding the foregoing, in the
event any Event of Default (other than an Event of Default described in clause (h) or (i) above
that is not an Immaterial Insolvency Event) occurs and is continuing during the period after the
Initial Funding Date and through the Transaction Closing Date, then the rights of the
Administrative Agent to take the actions described pursuant to clauses (i) and (ii) above shall be
suspended until after the Transaction Closing Date has occurred.
ARTICLE VIII
The Administrative Agent; the Agents and the Collateral Account
SECTION 8.01.
The Administrative Agent; the Agents
. (a) Each of the Lenders and the
Issuing Bank hereby irrevocably appoints the Administrative Agent as its agent and authorizes the
Administrative Agent to take such actions on its behalf and to exercise such powers as are
delegated to the Administrative Agent by the terms hereof, together with such actions and powers as
are reasonably incidental thereto.
(b) The bank serving as the Administrative Agent hereunder shall have the same rights and
powers in its capacity as a Lender as any other Lender and may exercise the same as though it were
not the Administrative Agent, and such bank and its Affiliates may accept deposits from, lend
57
money to and generally engage in any kind of business with the Borrower or any Subsidiary or
other Affiliate thereof as if it were not the Administrative Agent hereunder.
(c) The Administrative Agent shall not have any duties or obligations except those expressly
set forth herein. Without limiting the generality of the foregoing, (a) the Administrative Agent
shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has
occurred and is continuing, (b) the Administrative Agent shall not have any duty to take any
discretionary action or exercise any discretionary powers, except discretionary rights and powers
expressly contemplated hereby that the Administrative Agent is required to exercise in writing as
directed by the Required Lenders (or such other number or percentage of the Lenders as shall be
necessary under the circumstances as provided in Section 9.02), and (c) except as expressly set
forth herein, the Administrative Agent shall not have any duty to disclose, and shall not be liable
for the failure to disclose, any information relating to the Borrower or any of its Subsidiaries
that is communicated to or obtained by the bank serving as Administrative Agent or any of its
Affiliates in any capacity. The Administrative Agent shall not be liable for any action taken or
not taken by it with the consent or at the request of the Required Lenders (or such other number or
percentage of the Lenders as shall be necessary under the circumstances as provided in Section
9.02) or in the absence of its own gross negligence or willful misconduct. The Administrative
Agent shall be deemed not to have knowledge of any Default unless and until written notice thereof
is given to the Administrative Agent by the Borrower or a Lender, and the Administrative Agent
shall not be responsible for or have any duty to ascertain or inquire into (i) any statement,
warranty or representation made in or in connection with this Agreement, (ii) the contents of any
certificate, report or other document delivered hereunder or in connection herewith, (iii) the
performance or observance of any of the covenants, agreements or other terms or conditions set
forth herein, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement or
any other agreement, instrument or document, or (v) the satisfaction of any condition set forth in
Article IV or elsewhere herein, other than to confirm receipt of items expressly required to be
delivered to the Administrative Agent.
(d) The Administrative Agent shall be entitled to rely upon, and shall not incur any liability
for relying upon, any notice, request, certificate, consent, statement, instrument, document or
other writing believed by it to be genuine and to have been signed or sent by the proper Person.
The Administrative Agent also may rely upon any statement made to it orally or by telephone and
believed by it to be made by the proper Person, and shall not incur any liability for relying
thereon. The Administrative Agent may consult with legal counsel (who may be counsel for the
Borrower), independent accountants and other experts selected by it, and shall not be liable for
any action taken or not taken by it in accordance with the advice of any such counsel, accountants
or experts.
(e) The Administrative Agent may perform any and all its duties and exercise its rights and
powers by or through any one or more sub-agents appointed by the Administrative Agent. The
Administrative Agent and any such sub-agent may perform any and all its duties and exercise its
rights and powers through their respective Related Parties. The exculpatory provisions of the
preceding paragraphs shall apply to any such sub-agent and to the Related Parties of the
Administrative Agent and any such sub-agent, and shall apply to their respective activities in
connection with the syndication of the credit facilities provided for herein as well as activities
as Administrative Agent.
(f) Subject to the appointment and acceptance of a successor Administrative Agent as provided
in this paragraph, the Administrative Agent may resign at any time by notifying the Lenders, the
Issuing Bank and the Borrower. Upon any such resignation, the Required Lenders shall have the
right, subject to the consent of the Borrower (unless an Event of Default under clauses (a), (b),
(h) or (i) if Article VII has occurred and is continuing), to appoint a successor. If no successor
shall have been so appointed by the Required Lenders and shall have accepted such appointment
within sixty (60) days after the retiring Administrative Agent gives notice of its resignation,
then the retiring Administrative
58
Agent may, on behalf of the Lenders and the Issuing Bank, appoint a successor Administrative
Agent which shall be a bank with an office in New York, New York, or an Affiliate of any such bank.
Upon the acceptance of its appointment as Administrative Agent hereunder by a successor, such
successor shall succeed to and become vested with all the rights, powers, privileges and duties of
the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from
its duties and obligations hereunder. The fees payable by the Borrower to a successor
Administrative Agent shall be the same as those payable to its predecessor unless otherwise agreed
between the Borrower and such successor. After the Administrative Agents resignation hereunder,
the provisions of this Article and Section 9.03 shall continue in effect for the benefit of such
retiring Administrative Agent, its sub-agents and their respective Related Parties in respect of
any actions taken or omitted to be taken by any of them while it was acting as Administrative
Agent.
(g) Each Lender acknowledges that it has, independently and without reliance upon the
Administrative Agent or any other Lender and based on such documents and information as it has
deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each
Lender also acknowledges that it will, independently and without reliance upon the Administrative
Agent or any other Lender and based on such documents and information as it shall from time to time
deem appropriate, continue to make its own decisions in taking or not taking action under or based
upon this Agreement, any related agreement or any document furnished hereunder or thereunder.
(h) Anything herein to the contrary notwithstanding, none of the Agents, the Bookrunners or
the Arrangers listed on the cover page hereof shall have any powers, duties or responsibilities
under this Agreement or any of the other Loan Documents, except in their capacity, as applicable,
as Agent, the Swingline Lender, a Lender or any Issuing Bank hereunder.
SECTION 8.02.
Collateral Account
. (a) Each of the Lenders and the Issuing Bank hereby
irrevocably appoints the Administrative Agent as its collateral agent in respect of the Collateral
Account and authorizes the Administrative Agent to take such actions on its behalf and to exercise
such powers as are delegated to the Administrative Agent by the terms hereof, together with such
actions and powers as are reasonably incidental thereto.
(b) On or prior to the Initial Funding Date, the Administrative Agent shall establish the
Collateral Account. The Collateral Account and all funds and other property therein shall be held
in accordance with this Agreement by the Administrative Agent, until released or applied in
accordance with the terms hereof.
(c) The Borrower, as security for the full, prompt and complete payment and performance when
due (whether at stated maturity or otherwise by operation of Section 2.10 hereunder, by
acceleration or otherwise) of the Obligations, hereby mortgages, pledges and hypothecates to the
Administrative Agent for the benefit of the Lenders, and grants to the Administrative Agent for the
benefit of the Lenders a lien on and security interest in, all of its right, title and interest in,
to and under all funds, cash and any cash equivalents from time to time on deposit or held in the
Collateral Account and all proceeds thereof.
(d) The parties hereto and the Administrative Agent agree: (i) that all items of taxable
income or gain realized on the Collateral Account shall be reported as taxable income or gain of
the Borrower; (ii) that the Administrative Agent shall issue an IRS Form 1099 (or any successor
form) relating to such taxable income or gain to and in the name of the Borrower; and (iii) that
the Borrower shall promptly deliver such certificates and other documents as required by applicable
regulation and as the Administrative Agent may reasonably request in connection with the foregoing,
including, without limitation, a completed, executed Form W-9. The Borrower understands that the
failure to provide
59
properly completed applicable withholding tax forms may cause the Administrative Agent to
become obligated to withhold a portion of any distributions of the Collateral Account pursuant to
applicable provisions of the Code. The Administrative Agent shall be responsible only for income
reporting to the Internal Revenue Service with respect to income earned on the Collateral Account.
The Administrative Agent shall have no other duties or responsibilities with respect to
administering tax withholding, payments or reporting for persons receiving distributions pursuant
to this Agreement. Notwithstanding the foregoing, the Administrative Agent may report and withhold
any taxes as it determines may be required by any law or regulation in effect at the time of the
distribution.
(e) It is understood and agreed that the Administrative Agent shall have no obligation to
invest any of the funds in the Collateral Account,
provided
that all interest and other
amounts earned on the deposits shall be deposited in the Collateral Account and only be released
and applied in accordance with the terms hereof (including Sections 2.10(c) and 4.03).
(f) On the Transaction Closing Date, subject only to the satisfaction of the conditions
specified in Section 4.03 hereof, the Lenders hereby authorize Administrative Agent to release all
funds in the Collateral Account to the Borrower for uses specified in Section 5.08(a);
provided
however, if the Transaction Closing Date does not occur on or prior to the Early
Commitment Termination Date, the Borrower irrevocably instructs the Administrative Agent to apply
such funds in the Collateral Account for the prepayment of the Obligations in accordance with
Section 2.10(c).
ARTICLE IX
Miscellaneous
SECTION 9.01.
Notices
. (a) Except in the case of notices and other communications
expressly permitted to be given by telephone (and subject to paragraph (b) below), all notices and
other communications provided for herein shall be in writing and shall be delivered by hand or
overnight courier service, mailed by certified or registered mail or sent by telecopy or, to the
extent provided in paragraph (b) below, electronic mail, as follows:
(i) if to the Borrower, to it at Dr Pepper Snapple Group, Inc. 5301 Legacy
Drive, Plano, Texas 75024, Attention of John Stewart, Executive Vice President &
Chief Financial Officer (Telecopy No. (972) 673-7879);
(ii) if to the Administrative Agent, to JPMorgan Chase Bank, Loan and Agency
Services Group, 1111 Fannin, 10th Floor, Houston, Texas 77002, Attention of Cherry
Arnaez (Telecopy No. (713) 750-2782), with a copy to JPMorgan Chase Bank, 270 Park
Avenue, New York 10017, Attention of Barbara R. Marks (Telecopy No. (212) 270-3279);
(iii) if to the Issuing Bank, to JPMorgan Chase Bank, 270 Park Avenue, New York
10017, Attention of Barbara R. Marks (Telecopy No. (212) 270-3279);
(iv) if to the Swingline Lender, to JPMorgan Chase Bank, 270 Park Avenue, New
York 10017, Attention of Barbara R. Marks (Telecopy No. (212) 270-3279); and
(v) if to any other Lender, to it at its address (or telecopy number) set forth
in its Administrative Questionnaire.
60
(b) Notices and other communications to the Lenders hereunder may be delivered or furnished by
electronic communications pursuant to procedures approved by the Administrative Agent;
provided
that the foregoing shall not apply to notices pursuant to Article II unless
otherwise agreed by the Administrative Agent and the applicable Lender. The Administrative Agent
or the Borrower may, in its discretion, agree to accept notices and other communications to it
hereunder by electronic communications pursuant to procedures approved by it;
provided
that
approval of such procedures may be limited to particular notices or communications.
(c) Any party hereto may change its address or telecopy number for notices and other
communications hereunder by notice to the other parties hereto. All notices and other
communications given to any party hereto in accordance with the provisions of this Agreement shall
be deemed to have been given on the date of receipt.
(d) NONE OF THE ADMINISTRATIVE AGENT, THE BOOKRUNNERS, THE ISSUING BANKS, ANY OF THE LENDERS,
OR ANY RELATED PARTY OF ANY OF THE FOREGOING PERSONS OR ANY OF THEIR OFFICERS, DIRECTORS, PARTNERS,
EMPLOYEES, AGENTS, ADVISORS OR REPRESENTATIVES (COLLECTIVELY, THE
AGENT PARTIES
) SHALL BE
LIABLE FOR ANY DAMAGES ARISING FROM THE USE BY UNINTENDED RECIPIENTS OF ANY INFORMATION OR OTHER
MATERIALS DISTRIBUTED BY IT THROUGH TELECOMMUNICATIONS, ELECTRONIC OR OTHER INFORMATION
TRANSMISSION SYSTEMS IN CONNECTION WITH THIS AGREEMENT, THE OTHER LOAN DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED HEREBY, AND EACH SUCH PARTY EXPRESSLY DISCLAIMS LIABILITY FOR ERRORS OR
OMISSIONS IN SUCH TELECOMMUNICATIONS, ELECTRONIC OR OTHER INFORMATION TRANSMISSION SYSTEMS OR
THEREBY, EXCEPT TO THE EXTENT ARISING FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH PARTY
IN THE USE OF SUCH SYSTEMS, AS DETERMINED BY A FINAL, NON- APPEALABLE JUDGMENT OF A COURT OF
COMPETENT JURISDICTION. NO WARRANTY OF ANY KIND, EXPRESS, IMPLIED OR STATUTORY, INCLUDING WITHOUT
LIMITATION, ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT OF
THIRD-PARTY RIGHTS OR FREEDOM FROM VIRUSES OR CODE DEFECTS IS MADE BY THE AGENT PARTIES IN
CONNECTION WITH SUCH TELECOMMUNICATIONS, ELECTRONIC OR OTHER INFORMATION TRANSMISSION SYSTEMS.
SECTION 9.02.
Waivers; Amendments
. (a) No failure or delay by the Administrative
Agent, the Issuing Bank or any Lender in exercising any right or power hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such a right or power, preclude any other or
further exercise thereof or the exercise of any other right or power. The rights and remedies of
the Administrative Agent, the Issuing Bank and the Lenders hereunder are cumulative and are not
exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of
this Agreement or consent to any departure by the Borrower therefrom shall in any event be
effective unless the same shall be permitted by paragraph (b) of this Section, and then such waiver
or consent shall be effective only in the specific instance and for the purpose for which given.
Without limiting the generality of the foregoing, the making of a Loan or issuance of a Letter of
Credit shall not be construed as a waiver of any Default, regardless of whether the Administrative
Agent, any Lender or the Issuing Bank may have had notice or knowledge of such Default at the time.
(b) Neither this Agreement nor any provision hereof may be waived, amended or modified except
pursuant to an agreement or agreements in writing entered into by the Borrower and the Required
Lenders or by the Borrower and the Administrative Agent with the consent of the Required
61
Lenders;
provided
that no such agreement shall (i) increase the Commitment of any
Lender without the written consent of such Lender, (ii) reduce the principal amount of any Loan or
LC Disbursement or reduce the rate of interest thereon, or reduce any fees payable hereunder,
without the written consent of each Lender affected thereby, (iii) postpone the scheduled date of
payment of the principal amount of any Loan or LC Disbursement, or any interest thereon, or any
fees payable hereunder, or reduce the amount of, waive or excuse any such payment, or postpone the
scheduled date of expiration of any Commitment, without the written consent of each Lender affected
thereby, (iv) change Section 2.17(b) or (c) in a manner that would alter the pro rata sharing of
payments required thereby, without the written consent of each Lender, or (v) change any of the
provisions of this Section or the definition of Required Lenders or any other provision hereof
specifying the number or percentage of Lenders required to waive, amend or modify any rights
hereunder or make any determination or grant any consent hereunder, without the written consent of
each Lender;
provided
further
that no such agreement shall amend, modify or
otherwise affect the rights or duties of the Administrative Agent, the Issuing Bank or the
Swingline Lender hereunder without the prior written consent of the Administrative Agent, the
Issuing Bank or the Swingline Lender, as the case may be. Notwithstanding the foregoing or any
other provision in any Loan Document, the Borrower shall execute any amendment to this Agreement
and any other Loan Document to the extent required to comply with the terms of the Fee and
Syndication Letter.
SECTION 9.03.
Expenses; Indemnity; Damage Waiver
. (a) The Borrower shall pay (i) all
reasonable and documented out-of-pocket expenses (including due diligence expenses, syndication
expenses, consultants fees and expenses, travel expenses, and reasonable fees, charges and
disbursements of one counsel and if reasonably required by the Administrative Agent, local counsel
or specialist counsel, and, if counsel for the Administrative Agent determines in good faith that
there is a conflict of interest that requires separate representation for any Agent, any
Bookrunner, the Issuing Bank or any Lender, one additional counsel for each Person subject to such
conflict of interest) incurred by the Bookrunners, the Administrative Agent, and their respective
Affiliates, in connection with the syndication of the credit facilities provided for herein, the
preparation and administration of this Agreement or any amendments, modifications or waivers of the
provisions hereof (whether or not the transactions contemplated hereby or thereby shall be
consummated), (ii) all reasonable and documented out-of-pocket expenses incurred by the Issuing
Bank in connection with the issuance, amendment, renewal or extension of any Letter of Credit or
any demand for payment thereunder and (iii) all reasonable and documented out-of-pocket expenses
incurred by any Agent, the Bookrunners, the Issuing Bank or any Lender, including the fees, charges
and disbursements of any counsel for the Administrative Agent, the Bookrunners, the Issuing Bank or
any Lender in connection with the enforcement or protection of its rights in connection with this
Agreement, including its rights under this Section, or in connection with the Loans made or Letters
of Credit issued hereunder, including all such out-of-pocket expenses incurred during any workout,
restructuring or negotiations in respect of such Loans or Letters of Credit.
(b) The Borrower shall indemnify the Administrative Agent, the Bookrunners, the Issuing Bank
and each Lender, and each Related Party of any of the foregoing Persons (each such Person being
called an
Indemnitee
) against, and hold each Indemnitee harmless from, any and all
losses, claims, damages, liabilities and related expenses, including the fees, charges and
disbursements of any counsel for any Indemnitee, incurred by or asserted against any Indemnitee
arising out of, in connection with, or as a result of (i) the execution or delivery of this
Agreement or any agreement or instrument contemplated hereby, the performance by the parties hereto
of their respective obligations hereunder or the consummation of the Transactions or any other
transactions contemplated hereby, (ii) any Loan or Letter of Credit or the use of the proceeds
therefrom (including any refusal by the Issuing Bank to honor a demand for payment under a Letter
of Credit if the documents presented in connection with such demand do not strictly comply with the
terms of such Letter of Credit), (iii) any actual or alleged presence or release of Hazardous
Materials on or from any property owned or operated by the Borrower or any of its Subsidiaries, or
any Environmental Liability related in any way to the Borrower or any of its Subsidiaries,
62
or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to
any of the foregoing, whether based on contract, tort or any other theory and regardless of whether
any Indemnitee is a party thereto;
provided
that such indemnity shall not, as to any
Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related
expenses are determined by a court of competent jurisdiction by final and nonappealable judgment to
have resulted from the bad faith, gross negligence or willful misconduct of such Indemnitee. To
the extent that the undertakings to defend, indemnify, pay and hold harmless as set forth in this
Section 9.03(b) may be unenforceable in whole or in part because they are violative of any law or
public policy, the Borrower shall contribute the maximum portion that it is permitted to pay and
satisfy under applicable law to the payment and satisfaction of all such losses, claims, damages,
liabilities and related expenses incurred by the Indemnitees or any of them.
(c) To the extent that the Borrower fails to pay any amount required to be paid by it to the
Administrative Agent, the Bookrunners, the Issuing Bank or the Swingline Lender under paragraph (a)
or (b) of this Section, each Lender severally agrees to pay to the Administrative Agent, the
Bookrunners, the Issuing Bank or the Swingline Lender, as the case may be, such Lenders Applicable
Percentage with respect to Facilities (determined as of the time that the applicable unreimbursed
expense or indemnity payment is sought) of such unpaid amount;
provided
that the
unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case
may be, was incurred by or asserted against the Administrative Agent, the Bookrunners, the Issuing
Bank or the Swingline Lender in its capacity as such.
(d) To the extent permitted by applicable law, the Borrower shall not assert, and hereby
waives, any claim against any Indemnitee, on any theory of liability, for special, indirect,
consequential or punitive damages (as opposed to direct or actual damages) arising out of, in
connection with, or as a result of, this Agreement or any agreement or instrument contemplated
hereby, the Transactions, any Loan or Letter of Credit or the use of the proceeds thereof.
SECTION 9.04.
Successors and Assigns
. (a) The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective successors and
assigns permitted hereby (including any Affiliate of the Issuing Bank that issues any Letter of
Credit), except that (i) the Borrower may not assign or otherwise transfer any of its rights or
obligations hereunder without the prior written consent of each Lender (and any attempted
assignment or transfer by the Borrower without such consent shall be null and void) and (ii) no
Lender may assign or otherwise transfer its rights or obligations hereunder except in accordance
with this Section. Nothing in this Agreement, expressed or implied, shall be construed to confer
upon any Person (other than the parties hereto, their respective successors and assigns permitted
hereby (including any Affiliate of the Issuing Bank that issues any Letter of Credit), Participants
(to the extent provided in paragraph (c) of this Section) and, to the extent expressly contemplated
hereby, the Related Parties of each of the Administrative Agent, the Issuing Bank and the Lenders)
any legal or equitable right, remedy or claim under or by reason of this Agreement.
(b) (i) Subject to the conditions set forth in paragraph (b)(ii) below, any Lender may assign
to one or more assignees all or a portion of its rights and obligations under this Agreement
(including all or a portion of its Commitment and the Loans at the time owing to it) with the prior
written consent (such consent not to be unreasonably withheld) of:
(A) the Borrower;
provided
that no consent of the Borrower
shall be required for an assignment to (i) any Lender, any Affiliate of a
Lender, or any Approved Fund, (ii) any assignee at any time prior to the
completion of a Successful Syndication (as defined in the Fee and
Syndication Letter) except assignments of Revolving Credit Commitments on or
prior to the Initial Funding Date to a Person who is not a commercial or
investment bank, or (iii) any
63
assignee if an Event of Default under clauses (a), (b), (h) or (i) of
Article VII has occurred and is continuing;
(B) the Administrative Agent,
provided
that no consent of the
Administrative Agent shall be required for an assignment of any Commitment
to an assignee that is a Lender with a Commitment immediately prior to
giving effect to such assignment; and
(ii) Assignments shall be subject to the following additional conditions:
(A) except in the case of an assignment to a Lender or an Affiliate of
a Lender or an assignment of the entire remaining amount of the assigning
Lenders Commitment or Loans of any Class, the amount of the Commitment or
Loans of the assigning Lender subject to each such assignment (determined as
of the date the Assignment and Assumption with respect to such assignment is
delivered to the Administrative Agent) shall not be less than $5,000,000
unless each of the Borrower and the Administrative Agent otherwise consent,
provided
that no such consent of the Borrower shall be required if
an Event of Default under clauses (a), (b), (h) or (i) of Article VII has
occurred and is continuing;
(B) each partial assignment shall be made as an assignment of a
proportionate part of all the assigning Lenders rights and obligations
under this Agreement,
provided
that this clause shall not be
construed to prohibit the assignment of a proportionate part of all the
assigning Lenders rights and obligations in respect of one Class of
Commitments or Loans or to prohibit assignment of a proportionate part of
all the assigning Lenders rights and obligations in respect of one Class of
Commitments or Loans;
(C) the parties to each assignment shall execute and deliver to the
Administrative Agent an Assignment and Assumption, together with a
processing and recordation fee of $3,500; and
(D) the assignee, if it shall not be a Lender, shall deliver to the
Administrative Agent an Administrative Questionnaire in which the assignee
designates one or more Credit Contacts to whom all syndicate-level
information (which may contain material non-public information about the
Borrower and any of it Subsidiaries, and their related parties or their
respective securities) will be made available and who may receive such
information in accordance with the assignees compliance procedures and
applicable laws, including Federal and state securities laws.
For the purposes of this Section 9.04(b), the term
Approved Fund
has the following
meaning:
Approved Fund
means any Person (other than a natural person) that is engaged in
making, purchasing, holding or investing in bank loans and similar extensions of credit in
the ordinary course of its business and that is administered or managed by (a) a Lender,
(b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers
or manages a Lender.
(i) Subject to acceptance and recording thereof pursuant to paragraph (b)(iv)
of this Section, from and after the effective date specified in each Assignment and
64
Assumption the assignee thereunder shall be a party hereto and, to the extent
of the interest assigned by such Assignment and Assumption, have the rights and
obligations of a Lender under this Agreement, and the assigning Lender thereunder
shall, to the extent of the interest assigned by such Assignment and Assumption, be
released from its obligations under this Agreement (and, in the case of an
Assignment and Assumption covering all of the assigning Lenders rights and
obligations under this Agreement, such Lender shall cease to be a party hereto but
shall continue to be entitled to the benefits of Sections 2.14, 2.15, 2.16 and 9.03)
to the extent that any claim thereunder relates to an event arising prior to such
assignment. Any assignment or transfer by a Lender of rights or obligations under
this Agreement that does not comply with this Section 9.04 shall be treated for
purposes of this Agreement as a sale by such Lender of a participation in such
rights and obligations in accordance with paragraph (c) of this Section.
(ii) The Administrative Agent, acting for this purpose as an agent of the
Borrower, shall maintain at one of its offices a copy of each Assignment and
Assumption delivered to it and a register for the recordation of the names and
addresses of the Lenders, and the Commitment of, and principal amount of the Loans
and LC Disbursements and any interest thereon owing to, each Lender pursuant to the
terms hereof from time to time (the
Register
). The entries in the
Register shall be conclusive absent manifest error, and the Borrower, the
Administrative Agent, the Issuing Bank and the Lenders may treat each Person whose
name is recorded in the Register pursuant to the terms hereof as a Lender hereunder
for all purposes of this Agreement, notwithstanding notice to the contrary. The
Register shall be available for inspection by the Borrower, the Issuing Bank and any
Lender, at any reasonable time and from time to time upon reasonable prior notice.
(iii) Upon its receipt of a duly completed Assignment and Assumption executed
by an assigning Lender and an assignee, the assignees completed Administrative
Questionnaire (unless the assignee shall already be a Lender hereunder), the
processing and recordation fee referred to in paragraph (b) of this Section and any
written consent to such assignment required by paragraph (b) of this Section, the
Administrative Agent shall accept such Assignment and Assumption and record the
information contained therein in the Register;
provided
that if either the
assigning Lender or the assignee shall have failed to make any payment required to
be made by it pursuant to Sections 2.04(c), 2.05(d) or (e), 2.06(b), 2.17(d) or
9.03(c), the Administrative Agent shall have no obligation to accept such Assignment
and Assumption and record the information therein in the Register unless and until
such payment shall have been made in full, together with all accrued interest
thereon. No assignment shall be effective for purposes of this Agreement unless it
has been recorded in the Register as provided in this paragraph.
(c) (i) Any Lender may, without the consent of the Borrower, the Administrative Agent, the
Issuing Bank or the Swingline Lender, sell participations to one or more banks or other entities (a
Participant
) in all or a portion of such Lenders rights and obligations under this
Agreement (including all or a portion of its Commitment and the Loans owing to it);
provided
that (A) such Lenders obligations under this Agreement shall remain unchanged,
(B) such Lender shall remain solely responsible to the other parties hereto for the performance of
such obligations and (C) the Borrower, the Administrative Agent, the Issuing Bank and the other
Lenders shall continue to deal solely and directly with such Lender in connection with such
Lenders rights and obligations under this Agreement. Any agreement or instrument pursuant to
which a Lender sells such a participation shall provide that such Lender shall retain the sole
right to enforce this Agreement and to approve any
65
amendment, modification or waiver of any provision of this Agreement;
provided
that
such agreement or instrument may provide that such Lender will not, without the consent of the
Participant, agree to any amendment, modification or waiver described in the first proviso to
Section 9.02(b) that affects such Participant. Subject to paragraph (c)(ii) of this Section, the
Borrower agrees that each Participant shall be entitled to the benefits of Sections 2.14, 2.15 and
2.16 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant
to paragraph (b) of this Section.
(ii) A Participant shall not be entitled to receive any greater payment under
Section 2.14 or 2.16 than the applicable Lender would have been entitled to receive
with respect to the participation sold to such Participant, unless the sale of the
participation to such Participant is made with the Borrowers prior written consent.
A Participant that would be a Foreign Lender if it were a Lender shall not be
entitled to the benefits of Section 2.16 unless the Borrower is notified of the
participation sold to such Participant and such Participant agrees, for the benefit
of the Borrower, to comply with Section 2.16(e) as though it were a Lender and in
any event shall not be entitled to any greater payment than the applicable Lender
that sold such participation to such Participant would have been entitled to
receive.
(d) Any Lender may at any time pledge or assign a security interest in all or any portion of
its rights under this Agreement to secure obligations of such Lender, including without limitation
any pledge or assignment to secure obligations to a Federal Reserve Bank, and this Section shall
not apply to any such pledge or assignment of a security interest;
provided
that no such
pledge or assignment of a security interest shall release a Lender from any of its obligations
hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.
SECTION 9.05.
Survival
. All covenants, agreements, representations and warranties
made by the Borrower herein and in the certificates or other instruments delivered in connection
with or pursuant to this Agreement shall be considered to have been relied upon by the other
parties hereto and shall survive the execution and delivery of this Agreement and the making of any
Loans and issuance of any Letters of Credit, regardless of any investigation made by any such other
party or on its behalf and notwithstanding that the Administrative Agent, the Issuing Bank or any
Lender may have had notice or knowledge of any Default or incorrect representation or warranty at
the time any credit is extended hereunder, and shall continue in full force and effect as long as
the principal of or any accrued interest on any Loan or any fee or any other amount payable under
this Agreement is outstanding and unpaid or any Letter of Credit is outstanding and so long as the
Commitments have not expired or terminated. The provisions of Sections 2.14, 2.15, 2.16 and 9.03
and Article VIII shall survive and remain in full force and effect regardless of the consummation
of the transactions contemplated hereby, the repayment of the Loans, the expiration or termination
of the Letters of Credit and the Commitments or the termination of this Agreement of any provision
hereof.
SECTION 9.06.
Counterparts; Integration; Effectiveness
. This Agreement may be
executed in counterparts (and by different parties hereto on different counterparts), each of which
shall constitute an original, but all of which when taken together shall constitute a single
contract. This Agreement, the other Loan Documents and any separate letter agreements with respect
to fees payable to the Administrative Agent constitute the entire contract among the parties
relating to the subject matter hereof and supersede any and all previous agreements and
understandings, oral or written, relating to the subject matter hereof. Except as provided in
Section 4.01, this Agreement shall become effective when it shall have been executed by the
Administrative Agent and when the Administrative Agent shall have received counterparts hereof
which, when taken together, bear the signatures of each of the other parties hereto, and thereafter
shall be binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns. Delivery of an executed counterpart of a signature page of this
66
Agreement by telecopy or other electronic communication shall be effective as delivery of a
manually executed counterpart of this Agreement.
SECTION 9.07.
Severability
. Any provision of this Agreement held to be invalid,
illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the
extent of such invalidity, illegality or unenforceability without affecting the validity, legality
and enforceability of the remaining provisions hereof; and the invalidity of a particular provision
in a particular jurisdiction shall not invalidate such provision in any other jurisdiction.
SECTION 9.08.
Right of Setoff
. If an Event of Default shall have occurred and be
continuing, each Lender and each of its Affiliates is hereby authorized at any time and from time
to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general
or special, time or demand, provisional or final) at any time held and other obligations at any
time owing by such Lender or Affiliate to or for the credit or the account of the Borrower against
any of and all the obligations of the Borrower now or hereafter existing under this Agreement held
by such Lender to the extent then due and owing, irrespective of whether or not such Lender shall
have made any demand under this Agreement. Each Lender agrees to notify the Borrower promptly of
its exercise of any rights under this Section, but the failure to provide such notice shall not
otherwise limit its rights under this Section or result in any liability to such Lender. The
rights of each Lender under this Section are in addition to other rights and remedies (including
other rights of setoff) which such Lender may have.
SECTION 9.09.
Governing Law; Jurisdiction; Consent to Service of Process
. (a) This
Agreement shall be construed in accordance with and governed by the law of the State of New York.
(b) The Borrower hereby irrevocably and unconditionally submits, for itself and its property,
to the nonexclusive jurisdiction of the Supreme Court of the State of New York sitting in New York
County and of the United States District Court of the Southern District of New York, and any
appellate court from any thereof, in any action or proceeding arising out of or relating to this
Agreement, or for recognition or enforcement of any judgment, and each of the parties hereto hereby
irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding
may be heard and determined in such New York State or, to the extent permitted by law, in such
Federal court. Each of the parties hereto agrees that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment
or in any other manner provided by law. Nothing in this Agreement shall affect any right that the
Administrative Agent, the Issuing Bank or any Lender may otherwise have to bring any action or
proceeding relating to this Agreement against the Borrower or its properties in the courts of any
jurisdiction.
(c) The Borrower hereby irrevocably and unconditionally waives, to the fullest extent it may
legally and effectively do so, any objection which it may now or hereafter have to the laying of
venue of any suit, action or proceeding arising out of or relating to this Agreement in any court
referred to in paragraph (b) of this Section. Each of the parties hereto hereby irrevocably
waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the
maintenance of such action or proceeding in any such court.
(d) Each party to this Agreement irrevocably consents to service of process at the address
provided for Section 9.01. Nothing in this Agreement will affect the right of any party to this
Agreement to serve process in any other manner permitted by law.
SECTION 9.10.
WAIVER OF JURY TRIAL
. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL
PROCEEDING DIRECTLY OR INDIRECTLY
67
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER
BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT
SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND
(B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS
AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
SECTION 9.11.
Headings
. Article and Section headings and the Table of Contents used
herein are for convenience of reference only, are not part of this Agreement and shall not affect
the construction of, or be taken into consideration in interpreting, this Agreement.
SECTION 9.12.
Confidentiality
. (a) Each of the Administrative Agent, the Bookrunners,
the Issuing Bank and the Lenders agrees to maintain the confidentiality of the Information (as
defined below in accordance with such persons customary procedures for handling confidential
information of such nature), except that Information may be disclosed (i) to its and its
Affiliates partners, directors, officers, employees and agents, including accountants, legal
counsel and other advisors (it being understood that the Persons to whom such disclosure is made
will be informed of the confidential nature of such Information and instructed to keep such
Information confidential), (ii) to the extent requested by any regulatory authority, (iii) to the
extent required by applicable laws or regulations or by any subpoena or similar legal process
(
provided
that, unless prohibited by applicable law or court order, such disclosing party
shall use reasonable efforts to notify the Borrower prior to such disclosure), (iv) to any other
party to this Agreement, (v) to any rating agency when required by it,
provided
that, prior
to any disclosure, such rating agency shall undertake in writing to preserve the confidentiality of
any such information, (vi) in connection with the exercise of any remedies hereunder or any suit,
action or proceeding relating to this Agreement or the enforcement of rights hereunder, (vii)
subject to an agreement containing provisions no less restrictive than those of this Section, to
(1) any assignee of or Participant in, or any prospective assignee of or Participant in, any of its
rights or obligations under this Agreement or (2) any actual or prospective counterparty (or its
advisors) to any swap or derivative transaction relating to the Borrower and its obligations,
(viii) with the consent of the Borrower or (ix) to the extent such Information (1) becomes publicly
available other than as a result of a breach of this Section or (2) becomes available to the
Administrative Agent, any Bookrunner, the Issuing Bank or any Lender from a source other than the
Borrower not known by such person to be in breach of any legal or contractual obligation not to
disclose such information to the Administrative Agent, the Bookrunners, the Issuing Bank or such
Lender. In addition, the Administrative Agent, each Bookrunner, the Issuing Bank and each Lender
may disclose the existence of this Agreement and the information about this Agreement to market
data collectors, similar service providers to the lending industry, and service providers in
connection with the administration and management of this Agreement and the other Loan Documents;
provided
that, no such Person shall disclose the identity of the Borrower. For the
purposes of this Section,
Information
means all information received from the Borrower or
any of its Affiliates relating to the Borrower or its business, other than any such information
that is available to the Administrative Agent, any Bookrunner, the Issuing Bank or any Lender on a
nonconfidential basis prior to disclosure by the Borrower or any of its Affiliates unless the
Administrative Agent has actual knowledge that such information is being made available by a Person
in breach of any legal or contractual obligation not to disclose such information. Any Person
required to maintain the confidentiality of Information as provided in this Section shall be
considered to have complied with its obligation to do so if such Person has exercised the same
degree of care to maintain the confidentiality of such Information as such Person would accord to
its own confidential information.
68
(b) Notwithstanding the provisions of Section 9.12(a) or anything contrary set forth herein,
each party to this Agreement (and each of their respective employees, representatives or other
agents) may disclose to any and all persons, without limitation of any kind, the tax treatment and
tax structure of the facilities in relation to the Financing Transactions and all materials of any
kind (including opinions or other tax analyses) that are provided to the Borrower relating to such
tax treatment and tax structure. However, any information relating to the tax treatment or tax
structure will remain subject to the confidentiality provisions set forth above (and the foregoing
sentence will not apply) to the extent reasonably necessary to enable the parties hereto, their
respective affiliates, and their and their respective affiliates directors and employees to comply
with applicable securities laws. For this purpose, tax treatment means U.S. federal or state
income tax treatment, and tax structure is limited to any facts relevant to the U.S. federal
income tax treatment of the transactions contemplated by this Agreement but does not include
information relating to the identity of the parties hereto or any of their respective affiliates.
(c)
EACH LENDER ACKNOWLEDGES THAT INFORMATION AS DEFINED IN SECTION 9.12(a) FURNISHED TO IT
PURSUANT TO THIS AGREEMENT MAY INCLUDE MATERIAL NON-PUBLIC INFORMATION CONCERNING THE BORROWER AND
ITS RELATED PARTIES OR THEIR RESPECTIVE SECURITIES, AND CONFIRMS THAT IT HAS DEVELOPED COMPLIANCE
PROCEDURES REGARDING THE USE OF MATERIAL NON-PUBLIC INFORMATION AND THAT IT WILL HANDLE SUCH
MATERIAL NON-PUBLIC INFORMATION IN ACCORDANCE WITH THOSE PROCEDURES AND APPLICABLE LAW, INCLUDING
FEDERAL AND STATE SECURITIES LAWS.
(d)
ALL INFORMATION, INCLUDING REQUESTS FOR WAIVERS AND AMENDMENTS, FURNISHED BY THE BORROWER
OR THE ADMINISTRATIVE AGENT PURSUANT TO, OR IN THE COURSE OF ADMINISTERING, THIS AGREEMENT WILL BE
SYNDICATE-LEVEL INFORMATION, WHICH MAY CONTAIN MATERIAL NON-PUBLIC INFORMATION ABOUT THE BORROWER
AND ITS SUBSIDIARIES, AND THEIR RELATED PARTIES OR THEIR RESPECTIVE SECURITIES. ACCORDINGLY, EACH
LENDER REPRESENTS TO THE BORROWER AND THE ADMINISTRATIVE AGENT THAT IT HAS IDENTIFIED IN ITS
ADMINISTRATIVE QUESTIONNAIRE A CREDIT CONTACT WHO MAY RECEIVE INFORMATION THAT MAY CONTAIN MATERIAL
NON-PUBLIC INFORMATION IN ACCORDANCE WITH ITS COMPLIANCE PROCEDURES AND APPLICABLE LAW.
SECTION 9.13.
Interest Rate Limitation
. Notwithstanding anything herein to the
contrary, if at any time the interest rate applicable to any Loan, together with all fees, charges
and other amounts which are treated as interest on such Loan under applicable law (collectively the
Charges
), shall exceed the maximum lawful rate (the
Maximum Rate
) which may be
contracted for, charged, taken, received or reserved by the Lender holding such Loan in accordance
with applicable law, the rate of interest payable in respect of such Loan hereunder, together with
all Charges payable in respect thereof, shall be limited to the Maximum Rate and, to the extent
lawful, the interest and Charges that would have been payable in respect of such Loan but were not
payable as a result of the operation of this Section shall be cumulated and the interest and
Charges payable to such Lender in respect of other Loans or periods shall be increased (but not
above the Maximum Rate therefor) until such cumulated amount, together with interest thereon at the
Federal Funds Effective Rate to the date of repayment, shall have been received by such Lender.
SECTION 9.14.
Patriot Act
. Each Lender subject to the Patriot Act hereby notifies the
Borrower and each Guarantor that, pursuant to Section 326 of the Patriot Act, it is required to
obtain, verify and record information that identifies the Borrower and each Guarantor, including
the name and
69
address of the Borrower and each Guarantor and other information that will allow such Lender
to identify the Borrower and each Guarantor in accordance with the Patriot Act.
SECTION 9.15.
No Advisory or Fiduciary Responsibility
. In connection with all aspects
of each transaction contemplated hereby (including in connection with any amendment, waiver or
other modification hereof or of any other Loan Document), the Borrower acknowledges and agrees
that: (i) (A) the arranging and other services regarding this Agreement provided by the
Administrative Agent and the Bookrunners are arms-length commercial transactions between the
Borrower and its Affiliates, on the one hand, and the Administrative Agent and the Bookrunners, on
the other hand, (B) the Borrower has consulted its own legal, accounting, regulatory and tax
advisors to the extent it has deemed appropriate, and (C) the Borrower is capable of evaluating,
and understands and accepts, the terms, risks and conditions of the transactions contemplated
hereby and by the other Loan Documents; (ii) (A) each of the Administrative Agent, the Bookrunners
and the Lenders is and has been acting solely as a principal and, except as expressly agreed in
writing by the relevant parties, has not been, is not, and will not be acting as an advisor, agent
or fiduciary for the Borrower or any of its Affiliates, or any other Person, (B) irrespective of
whether any Lender, any Bookrunner, the Administrative Agent or any of their Affiliates has advised
or is advising the Borrower on other matters, the Borrower shall not claim any such fiduciary,
advisory or agency relationship or services and the Borrower acknowledges that none of the
Administrative Agent, any Lender, any Bookrunner or any of their Affiliates owes a fiduciary or
similar duty to Cadbury, Cadbury UK, the Borrower, or the Business in connection with the
Transactions or the process leading thereto and; and (iii) the Administrative Agent, the Lenders
and the Bookrunners and their respective Affiliates may be engaged in a broad range of transactions
that involve interests that differ from those of the Borrower and its Affiliates, and no Agent nor
any Bookrunner or Lender has any obligation to disclose any of such interests to the Borrower or
its Affiliates.
SECTION 9.16.
Release of Guarantors
. (a) Notwithstanding anything to the contrary
contained herein or in any other Loan Document, upon request of the Borrower in connection with (i)
any disposition of a Subsidiary that is a Guarantor as permitted by the Loan Documents and
immediately following such disposition such Subsidiary will no longer be a Subsidiary of the
Borrower or (ii) a Subsidiary becoming an Excluded Subsidiary (including by being designated in
writing by the Borrower as an Immaterial Subsidiary in accordance with the terms of this
Agreement) as permitted by the Loan Documents, the Administrative Agent shall (without notice to,
or vote or consent of, any Lender) take such actions as shall be required to release any guarantee
obligations under any Loan Document of any Guarantor being disposed of in such disposition, to the
extent necessary to permit consummation of such disposition in accordance with the Loan Documents,
or becoming an Excluded Subsidiary, in accordance with the Loan Documents.
(b) Notwithstanding anything to the contrary contained herein or any other Loan Document, when
the principal and interest with respect to all Loans and all other monetary payment Obligations
which are then due and payable have been paid in full and all Commitments have terminated or
expired, upon request of the Borrower, the Administrative Agent shall (without notice to, or vote
or consent of, any Lender) take such actions as shall be required to release all guarantee
obligations under any Loan Document of any Guarantor. Any such release of guarantee obligations
shall be deemed subject to the provision that such guarantee obligations shall be reinstated if
within 180 days after such release (or such longer period under any Federal, state or foreign
bankruptcy, insolvency, receivership or similar law now or hereafter in effect during which any
payment in respect of the Obligations guaranteed thereby can be annulled, avoided, set aside,
rescinded, invalidated, declared to be fraudulent or preferential or otherwise required to be
refunded or repaid) any portion of any payment in respect of the Obligations guaranteed thereby
shall be rescinded or must otherwise be restored or returned upon the insolvency, bankruptcy,
dissolution, liquidation or reorganization of the Borrower or any Guarantor, or upon or as a result
of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for,
the
70
Borrower or any Guarantor or any substantial part of its property, or otherwise, all as though
such payment had not been made;
provided
,
however
, that any such reinstated
guarantee shall be released immediately upon the Obligations being indefeasibly paid in full.
[SIGNATURE PAGES FOLLOW]
71
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their
respective authorized officers as of the day and year first above written.
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DR PEPPER SNAPPLE GROUP, INC.,
as Borrower
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By
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/s/
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Name:
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Title:
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[SIGNATURE PAGE TO CREDIT AGREEMENT]
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JPMORGAN CHASE BANK, N.A., individually and as
Administrative Agent, a Joint Lead Arranger and a
Lender, as an Issuing Bank and as Swingline Lender
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By
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/s/
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Name:
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Title:
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J.P. MORGAN SECURITIES INC., as Bookrunner
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By
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/s/
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Name:
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Title:
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[SIGNATURE PAGE TO CREDIT AGREEMENT]
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BANC OF AMERICA SECURITIES LLC, as a Joint
Lead
Arranger and a Bookrunner
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By
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/s/
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Name:
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Title:
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BANK OF AMERICA, N.A., as
Syndication Agent and as a
Lender
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By
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/s/
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Name:
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Title:
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[SIGNATURE PAGE TO CREDIT AGREEMENT]
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GOLDMAN SACHS CREDIT PARTNERS L.P., as a
Documentation Agent, a Bookrunner and a Lender
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By
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/s/
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Authorized Signatory
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[SIGNATURE PAGE TO CREDIT AGREEMENT]
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MORGAN STANLEY SENIOR FUNDING, INC., as a
Documentation Agent, a Bookrunner and a Lender
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By
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/s/
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Name:
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Title:
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[SIGNATURE PAGE TO CREDIT AGREEMENT]
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UBS SECURITIES LLC, as Bookrunner and
Documentation
Agent
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By
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/s/
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Name:
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Title:
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By
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/s/
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Name:
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Title:
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UBS LOAN FINANCE LLC, as a Lender
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By
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/s/
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Name:
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Title:
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By
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/s/
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Name:
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Title:
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[SIGNATURE PAGE TO CREDIT AGREEMENT]
Exhibit 10.23
364-DAY BRIDGE CREDIT AGREEMENT
dated as of
March 10, 2008
among
DR PEPPER SNAPPLE GROUP, INC.,
as Borrower
THE LENDERS PARTY HERETO
and
JPMORGAN CHASE BANK, N.A.
as Administrative Agent
BANK OF AMERICA, N.A.
as Syndication Agent
GOLDMAN SACHS CREDIT PARTNERS L.P.,
MORGAN STANLEY SENIOR FUNDING, INC.
and
UBS SECURITIES LLC
as Documentation Agents
J.P. MORGAN SECURITIES INC.
and
BANC OF AMERICA SECURITIES LLC
as Joint Lead Arrangers
J.P. MORGAN SECURITIES INC.,
BANC OF AMERICA SECURITIES LLC,
GOLDMAN SACHS CREDIT PARTNERS L.P.,
MORGAN STANLEY SENIOR FUNDING, INC.
and
UBS SECURITIES LLC
as Bookrunners
TABLE OF CONTENTS
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Page
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ARTICLE I Definitions
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1
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Section 1.01.
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Defined Terms
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1
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Section 1.02.
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Classification of Loans and Borrowings
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19
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Section 1.03.
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Terms Generally
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19
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Section 1.04.
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Accounting Terms; GAAP
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19
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ARTICLE II The Credits
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20
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Section 2.01.
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Commitments
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20
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Section 2.02.
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Loans and Borrowings
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20
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Section 2.03.
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Requests for Borrowings
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21
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Section 2.04.
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Reserved
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21
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Section 2.05.
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Reserved
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21
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Section 2.06.
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Funding of Borrowings
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21
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Section 2.07.
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Interest Elections
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22
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Section 2.08.
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Termination and Reduction of Commitments
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23
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Section 2.09.
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Repayment of Loans; Evidence of Debt
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23
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Section 2.10.
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Prepayment of Loans
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23
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Section 2.11.
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Fees
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24
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Section 2.12.
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Interest
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25
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Section 2.13.
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Alternate Rate of Interest
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25
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Section 2.14.
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Increased Costs
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26
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Section 2.15.
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Break Funding Payments
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26
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Section 2.16.
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Taxes
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27
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Section 2.17.
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Payments Generally; Pro Rata Treatment; Sharing of Set-offs
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29
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Section 2.18.
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Mitigation Obligations; Replacement of Lenders
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30
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ARTICLE III Representations and Warranties
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31
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Section 3.01.
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Organization; Powers
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31
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Section 3.02.
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Authorization; Enforceability
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31
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Section 3.03.
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Governmental Approvals; No Conflicts
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32
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Section 3.04.
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Financial Condition; No Material Adverse Change
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32
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Section 3.05.
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Properties
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33
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Section 3.06.
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Litigation and Environmental Matters
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33
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i
TABLE OF CONTENTS
(continued)
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Page
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Section 3.07.
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Compliance with Laws and Agreements
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33
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Section 3.08.
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Investment Company Status
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Section 3.09.
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Taxes
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Section 3.10.
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ERISA
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34
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Section 3.11.
|
|
Disclosure
|
|
|
34
|
|
Section 3.12.
|
|
Margin Regulations
|
|
|
34
|
|
Section 3.13.
|
|
Labor Matters
|
|
|
34
|
|
Section 3.14.
|
|
Separation Transactions
|
|
|
34
|
|
|
|
|
|
|
|
|
ARTICLE IV Conditions
|
|
|
35
|
|
Section 4.01.
|
|
Effective Date
|
|
|
35
|
|
Section 4.02.
|
|
Bridge Funding Date
|
|
|
36
|
|
Section 4.03.
|
|
Conditions to Transaction Closing Date
|
|
|
38
|
|
|
|
|
|
|
|
|
ARTICLE V Affirmative Covenants
|
|
|
40
|
|
Section 5.01.
|
|
Financial Statements; Ratings Change and Other Information
|
|
|
40
|
|
Section 5.02.
|
|
Notices of Material Events
|
|
|
41
|
|
Section 5.03.
|
|
Existence; Conduct of Business
|
|
|
41
|
|
Section 5.04.
|
|
Payment of Obligations
|
|
|
41
|
|
Section 5.05.
|
|
Maintenance of Properties; Insurance
|
|
|
41
|
|
Section 5.06.
|
|
Books and Records; Inspection Rights
|
|
|
42
|
|
Section 5.07.
|
|
Compliance with Laws
|
|
|
42
|
|
Section 5.08.
|
|
Use of Proceeds
|
|
|
42
|
|
Section 5.09.
|
|
Additional Guarantors
|
|
|
42
|
|
Section 5.10.
|
|
Ratings
|
|
|
42
|
|
|
|
|
|
|
|
|
ARTICLE VI Negative Covenants
|
|
|
43
|
|
Section 6.01.
|
|
Liens
|
|
|
43
|
|
Section 6.02.
|
|
Fundamental Changes
|
|
|
43
|
|
Section 6.03.
|
|
Investments, Loans, Advances, Guarantees and Acquisitions
|
|
|
44
|
|
Section 6.04.
|
|
Financial Covenants
|
|
|
45
|
|
Section 6.05.
|
|
Transactions with Affiliates
|
|
|
45
|
|
Section 6.06.
|
|
Restrictive Agreements
|
|
|
46
|
|
Section 6.07.
|
|
Subsidiary Indebtedness
|
|
|
46
|
|
ii
TABLE OF CONTENTS
(continued)
|
|
|
|
|
|
|
|
|
|
|
Page
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ARTICLE VII Events of Default
|
|
|
46
|
|
|
|
|
|
|
|
|
ARTICLE VIII The Administrative Agent; the Agents and the Collateral Account
|
|
|
48
|
|
Section 8.01.
|
|
The Administrative Agent; the Agents
|
|
|
48
|
|
Section 8.02.
|
|
Collateral Account
|
|
|
50
|
|
|
|
|
|
|
|
|
ARTICLE IX Miscellaneous
|
|
|
51
|
|
Section 9.01.
|
|
Notices
|
|
|
51
|
|
Section 9.02.
|
|
Waivers; Amendments
|
|
|
52
|
|
Section 9.03.
|
|
Expenses; Indemnity; Damage Waiver
|
|
|
53
|
|
Section 9.04.
|
|
Successors and Assigns
|
|
|
54
|
|
Section 9.05.
|
|
Survival
|
|
|
57
|
|
Section 9.06.
|
|
Counterparts; Integration; Effectiveness
|
|
|
57
|
|
Section 9.07.
|
|
Severability
|
|
|
57
|
|
Section 9.08.
|
|
Right of Setoff
|
|
|
57
|
|
Section 9.09.
|
|
Governing Law; Jurisdiction; Consent to Service of Process
|
|
|
57
|
|
Section 9.10.
|
|
WAIVER OF JURY TRIAL
|
|
|
58
|
|
Section 9.11.
|
|
Headings
|
|
|
58
|
|
Section 9.12.
|
|
Confidentiality
|
|
|
58
|
|
Section 9.13.
|
|
Interest Rate Limitation
|
|
|
60
|
|
Section 9.14.
|
|
Patriot Act
|
|
|
60
|
|
Section 9.15.
|
|
No Advisory or Fiduciary Responsibility
|
|
|
60
|
|
Section 9.16.
|
|
Release of Guarantors
|
|
|
61
|
|
iii
|
|
|
SCHEDULES
:
|
|
|
|
Schedule 2.01
|
|
Commitments
|
Schedule 3.01(b)
|
|
Subsidiaries
|
Schedule 3.06
|
|
Disclosed Matters
|
Schedule 6.01
|
|
Existing Indebtedness
|
Schedule 6.01
|
|
Existing Liens
|
Schedule 6.06
|
|
Existing Restrictions
|
EXHIBITS
:
Exhibit A Form of Assignment and Assumption
Exhibit B Form of Opinion of Borrowers Counsel
Exhibit C Form of Guaranty
ANNEXES
Annex I Information Memorandum
Annex II Separation Documents
iv
CREDIT AGREEMENT dated as of March 10, 2008, among DR PEPPER SNAPPLE GROUP, INC., as Borrower,
the LENDERS party hereto, JPMORGAN CHASE BANK, N.A., as Administrative Agent, BANK OF AMERICA,
N.A., as Syndication Agent, and GOLDMAN SACHS CREDIT PARTNERS L.P., MORGAN STANLEY SENIOR FUNDING,
INC. and UBS SECURITIES LLC, as Documentation Agents.
WITNESSETH:
WHEREAS, the Borrower has requested, and the Lenders are willing to make available to the
Borrower, the credit facility described in this Agreement upon and subject to the terms and
conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises, covenants and agreements set forth herein,
the parties hereto agree as follows:
ARTICLE I
Definitions
SECTION 1.01.
Defined Terms.
As used in this Agreement, the following terms have the
meanings specified below:
ABR
, when used in reference to any Loan or Borrowing, refers to whether such Loan,
or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to
the Alternate Base Rate.
Adjusted LIBO Rate
means, with respect to any Eurodollar Borrowing for any Interest
Period, an interest rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to
(a) the LIBO Rate for such Interest Period multiplied by (b) the Statutory Reserve Rate.
Administrative Agent
means JPMorgan Chase Bank, N.A., in its capacity as
administrative agent for the Lenders hereunder, and, as applicable, JPMorgan Chase Bank, N.A., in
its capacity as collateral agent for the Lenders hereunder.
Administrative Questionnaire
means an Administrative Questionnaire in a form
supplied by the Administrative Agent.
Affiliate
means, with respect to a specified Person, another Person that directly,
or indirectly through one or more intermediaries, Controls or is Controlled by or is under common
Control with the Person specified.
Agents
means, collectively, the Administrative Agent, Syndication Agent and
Documentation Agent.
Alternate Base Rate
means, for any day, a rate per annum equal to the greater of (a)
the Prime Rate in effect on such day and (b) the Federal Funds Effective Rate in effect on such day
plus
1
/
2
of 1%. Any change in the Alternate Base Rate due to a change in the Prime Rate or the
Federal Funds
Effective Rate shall be effective from and including the effective date of such change in the
Prime Rate or the Federal Funds Effective Rate, respectively.
Applicable Percentage
means with respect to any Lender, the percentage of the total
Commitments represented by such Lenders Commitments. If the applicable Commitments have
terminated or expired, the Applicable Percentages shall be determined based upon the applicable
Commitments most recently in effect, giving effect to any assignments.
Applicable Rate
means, for any day, with respect to any ABR Loan or Eurodollar Loan,
the applicable rate per annum set forth below under the caption ABR Spread or Eurodollar
Spread, as the case may be, based upon the ratings by Moodys and S&P, respectively, applicable on
such date to the Index Debt:
|
|
|
|
|
|
|
|
|
|
|
ABR
|
|
Eurodollar
|
Index Debt Ratings:
|
|
Spread
|
|
Spread
|
|
|
|
|
|
|
|
|
|
Category 1
|
|
|
|
|
|
|
|
|
Index Debt ratings of at least BBB+ by S&P
and/or Baa1 by Moodys
|
|
|
0.00
|
%
|
|
|
1.00
|
%
|
|
|
|
|
|
|
|
|
|
Category 2
|
|
|
|
|
|
|
|
|
Index Debt ratings less than Category 1, but at
least BBB by S&P and/or Baa2 by Moodys
|
|
|
0.50
|
%
|
|
|
1.50
|
%
|
|
|
|
|
|
|
|
|
|
Category 3
|
|
|
|
|
|
|
|
|
Index Debt ratings less than Category 2, but at
least BBB- by S&P and/or Baa3 by Moodys
|
|
|
1.00
|
%
|
|
|
2.00
|
%
|
|
|
|
|
|
|
|
|
|
Category 4
|
|
|
|
|
|
|
|
|
Index Debt ratings less than Category 3, but at
least BB+ by S&P and/or Ba1 by Moodys
|
|
|
1.25
|
%
|
|
|
2.25
|
%
|
|
|
|
|
|
|
|
|
|
Category 5
|
|
|
|
|
|
|
|
|
Index Debt ratings less than Category 4
|
|
|
1.50
|
%
|
|
|
2.50
|
%
|
For purposes of the foregoing, (i) if either Moodys or S&P shall not have in effect a rating for
the Index Debt (other than by reason of the circumstances referred to in the last sentence of this
definition), then such rating agency shall be deemed to have established a rating in Category 5;
(ii) if the ratings established or deemed to have been established by Moodys and S&P for the Index
Debt shall fall within different Categories, the Applicable Rate shall be based on the higher of
the two ratings unless one of the two ratings is two or more Categories lower than the other, in
which case the Applicable Rate shall be determined by reference to the Category next below that of
the higher of the two ratings; and (iii) if the ratings established or deemed to have been
established by Moodys and S&P for the Index Debt shall be changed (other than as a result of a
change in the rating system of Moodys or S&P), such change shall be effective as of the date on
which it is first announced by the applicable rating agency, irrespective of when notice of such
change shall have been furnished by the Borrower to the Agent and the Lenders pursuant to Section
5.01 or otherwise. Each change in the Applicable Rate shall apply during the period commencing on
the effective date of such change and ending on the date immediately preceding the effective date
of the next such change. If the rating system of Moodys or S&P shall change, or if either such
rating agency shall cease to be in the business of rating corporate debt obligations, the Borrower
and the Lenders shall negotiate in good faith to amend this definition to reflect such changed
rating system or
2
the unavailability of ratings from such rating agency and, pending the effectiveness of any such
amendment, the Applicable Rate shall be determined by reference to the rating most recently in
effect prior to such change or cessation.
Approved Fund
has the meaning assigned to such term in Section 9.04.
Asset Sale
: means, with respect to any asset, real property or other tangible or
intangible property of the Borrower or its Subsidiaries, or any interest therein, any sale,
assignment, conveyance, transfer, lease, or other disposition or series of related dispositions
thereof, outside the ordinary course of business and resulting in proceeds exceeding $10,000,000
but excluding sales, assignments, conveyances, transfers, leases or other dispositions among the
Borrower and its Subsidiaries or pursuant to the Separation Documents in connection with the
Transactions.
Assignment and Assumption
means an assignment and assumption entered into by a
Lender and an assignee (with the consent of any party whose consent is required by Section 9.04),
and accepted by the Administrative Agent, in the form of Exhibit A or any other form approved by
the Administrative Agent.
Audited Financial Statements
has the meaning assigned to such term in Section
4.02(k).
Board
means the Board of Governors of the Federal Reserve System of the United
States of America.
Bookrunners
means, collectively, J.P. Morgan Securities Inc., Banc of America
Securities LLC, Goldman Sachs Credit Partners L.P., Morgan Stanley Senior Funding, Inc. and UBS
Securities LLC, in their capacities as bookrunners.
Borrower
means Dr Pepper Snapple Group, Inc., a Delaware corporation.
Borrowing
means an advance of Loans of the same Type, made, converted or continued
on the same date and, in the case of Eurodollar Loans, as to which a single Interest Period is in
effect.
Borrowing Request
means a request by the Borrower for a Borrowing in accordance with
Section 2.03.
Bridge Funding Date
has the meaning assigned to such term in Section 4.02.
Business
means the beverage business in the United States, Canada, Mexico and the
Caribbean owned by Cadbury on the Effective Date and to be owned by the Borrower upon consummation
of the Separation Transactions.
Business Day
means any day that is not a Saturday, Sunday or other day on which
commercial banks in New York City are authorized or required by law to remain closed;
provided
that, when used in connection with a Eurodollar Loan, the term
Business
Day
shall also exclude any day on which banks are not open for dealings in dollar deposits in
the London interbank market.
Cadbury
means Cadbury Schweppes plc, a public limited company organized under the
laws of England and Wales with registered number 0052457.
3
Cadbury Material Adverse Effect
means a material adverse effect on the business,
operations, property or financial condition of Cadbury and its subsidiaries taken as a whole.
Cadbury UK
means Cadbury plc, a United Kingdom public limited company incorporated
in England and Wales with registered number 0649739.
Capital Lease Obligations
of any Person means the obligations of such Person to pay
rent or other amounts under any lease of (or other arrangement conveying the right to use) real or
personal property, or a combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such Person under GAAP, and the amount of
such obligations shall be the capitalized amount thereof determined in accordance with GAAP.
Change in Control
means (a) the acquisition of ownership, directly or indirectly,
beneficially or of record, by any Person or group (within the meaning of the Securities Exchange
Act of 1934 and the rules of the SEC thereunder as in effect on the date hereof), of Stock
representing more than 35% of the aggregate ordinary voting power represented by the issued and
outstanding Stock of the Borrower, (b) occupation of a majority of the seats (other than vacant
seats) on the board of directors of the Borrower by Persons who were neither (i) nominated by the
board of directors of the Borrower nor (ii) appointed by directors so nominated or (c) a
termination of Cadbury UKs and its subsidiaries indemnification obligations under the Tax Sharing
and Indemnification Agreement pursuant to the change of control provision therein.
Change in Law
means (a) the adoption of any law, rule or regulation after the date
of this Agreement, (b) any change in any law, rule or regulation or in the interpretation or
application thereof by any Governmental Authority after the date of this Agreement or (c) the
compliance by any Lender (or, for purposes of Section 2.14(b), by any lending office of such Lender
or by such Lenders holding company, if any) with any request, guideline or directive (whether or
not having the force of law) of any Governmental Authority made or issued after the date of this
Agreement.
Code
means the Internal Revenue Code of 1986, as amended from time to time.
Collateral Account
means a deposit account that is (a) established by and with the
Administrative Agent for the purpose of receiving the proceeds of the Loans on the Bridge Funding
Date (if the Bridge Funding Date occurs prior to the Transaction Closing Date), (b) in the name of
the Borrower and (c) over which the Administrative Agent has exclusive control and a perfected
first-priority Lien as security for the Obligations.
Commitment
means, as to each Lender, its obligation to make Loans to the Borrower
pursuant to Section 2.01 in an aggregate principal amount at any one time outstanding not to exceed
the amount set forth opposite such Lenders name on Schedule 2.01 under the caption Commitment or
opposite such caption in the Assignment and Assumption pursuant to which such Lender becomes a
party hereto, as applicable, as such amount may be adjusted from time to time in accordance with
this Agreement. The aggregate amount of the Commitments as of the Effective Date is
$2,000,000,000.
Consolidated
means, with respect to any Person, the consolidation of accounts of
such Person and its subsidiaries in accordance with GAAP.
Consolidated Cash Interest Expense
means, with respect to any Person, for any
period, the Consolidated Interest Expense of such Person and its subsidiaries for such period less
the Consolidated Non-Cash Interest Expense of such Person and its subsidiaries for such period.
4
Consolidated EBITDA
means, with respect to any Person, for any period, Consolidated
Net Income of such Person for such period
plus
(A) without duplication and to the extent deducted
in determining such Consolidated Net Income, the sum of (1) the aggregate amount of Consolidated
Interest Expense for such period, (2) the aggregate provision for federal, state, local or foreign
taxes based on income or profits or capital for such period, (3) all amounts attributable to
depreciation, amortization (including amortization of goodwill or other intangible assets) or
impairment of goodwill or other intangible assets for such period, (4) any extraordinary or
non-recurring non-cash charges for such period (provided,
however
, that cash expenditures
in respect of charges added back pursuant to this clause (4) shall be deducted in determining
Consolidated EBITDA for the period during which such expenditures are made), (5) the aggregate
amount of all non-cash compensation charges incurred during such period arising from the grant of
or the issuance of Stock or Stock Equivalents, (6) the aggregate amount of any extraordinary losses
plus
any loss realized by such Person or any of its subsidiaries in connection with any
dispositions that occur during such period, (7) the aggregate amount of any fees, expenses or
charges paid on or prior to the Transaction Closing Date related to the Separation Transactions and
the negotiation, execution and delivery of this Agreement, the Bridge Loan and the Senior Notes,
(8) the aggregate amount of any fees, expenses or charges paid after the Transaction Closing Date
related to a refinancing of the Bridge Loan, if any, and (9) for periods prior to the Transaction
Closing Date, the aggregate amount of corporate costs allocated to the Borrower in its combined
financial statements and
minus
(B) (1) for periods prior to the Transaction Closing Date,
the Borrowers good faith estimate of its costs of operating on a stand-alone basis as if the
Separation Transactions had occurred, which in no event shall be less than $11.25 million per
fiscal quarter (pro-rated in the case of a period comprising less than a full fiscal quarter), and
(2) without duplication and to the extent included in determining such Consolidated Net Income, the
sum of (i) any extraordinary gains and any non-recurring non-cash gains during such period, (ii)
any credit for federal, state, local or foreign taxes based on income or profits or capital during
such period, and (iii) any other gains realized by such Person or any of its subsidiaries in
connection with any dispositions that occur during such period. Notwithstanding the foregoing, the
following amounts (representing the aggregate effect of adjustments to (a) add back (I)
restructuring charges, reserves and integration costs, (II) anticipated benefits of organizational
restructuring, (III) losses associated with the launch of Accelerade and (b) subtract profits and
gains associated with Glaceau) shall be added-back without duplication in determining Consolidated
EBITDA during the following periods:
|
|
|
Four Fiscal Quarters Ending
|
|
Net Add Back Amount
|
June 30, 2008
|
|
$68 million
|
September 30, 2008
|
|
$51 million
|
December 31, 2008
|
|
$34 million
|
March 31, 2009
|
|
$17 million
|
Consolidated Interest Expense
means, with respect to any Person, for any period, the
amount of interest expense reflected on the consolidated statement of income of such Person and its
subsidiaries for such period in conformity with GAAP.
Consolidated Net Income
means, with respect to any Person, for any period, the
amount of net income reflected on the consolidated statement of income of such Person and its
subsidiaries for such period in conformity with GAAP.
5
Consolidated Net Tangible Assets
means, with respect to any Person, as of any date
of determination, the total assets less the sum of goodwill, net, and other intangible assets, net,
in each case reflected on the Consolidated balance sheet of such Person and its subsidiaries as of
the end of the most recently ended fiscal quarter of such Person for which financial statements
have been delivered to the Administrative Agent pursuant to clause (a) or (b), as applicable, of
Section 5.01, determined on a consolidated basis in accordance with GAAP.
Consolidated Non-Cash Interest Expense
means, with respect to any Person, for any
period, the sum of the following amounts to the extent included in the definition of Consolidated
Interest Expense of such Person: (a) the amount of debt discount and debt issuance costs amortized,
(b) charges relating to write-ups or write-downs in the book or carrying value of existing
Indebtedness, (c) interest payable in evidences of Indebtedness or by addition to the principal of
the related Indebtedness and (d) other non-cash interest.
Consolidated Total Debt
means, with respect to any Person, as of the date of
determination, the aggregate amount of Indebtedness reflected on the consolidated balance sheet of
such Person and its subsidiaries as of such date in conformity with GAAP,
plus
, without
duplication, synthetic leases, letters of credit (but only to the extent drawn and not reimbursed).
Control
means the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of a Person, whether through the ability to
exercise voting power, by contract or otherwise.
Controlling
and
Controlled
have meanings correlative thereto.
Debt Issuance
means, with respect to any Person, any incurrence or issuance of
Specified Indebtedness by such Person.
Default
means any event or condition which constitutes an Event of Default or which
upon notice, lapse of time or both would, unless cured or waived, become an Event of Default.
Disclosed Matters
means the events, actions, orders, decrees, judgments, inquiries,
investigations, reviews, suits and proceedings and the environmental matters disclosed in Schedule
3.06.
Documentation Agents
means Goldman Sachs Credit Partners L.P., Morgan Stanley Senior
Funding, Inc. and UBS Securities LLC.
dollars
or
$
refers to lawful money of the United States of America.
Early Commitment Termination Date
means the earlier of (i) April 18, 2008, if by
that date the shareholders of Cadbury have not duly approved the Separation Transaction at a court
meeting and a general meeting as contemplated in the Registration Statement, (ii) the time any
borrowings are made under the UK Facility and (iii) 3:00 p.m. New York City time on May 13, 2008.
Effective Date
has the meaning assigned to such term in Section 4.01.
Environmental Laws
means all laws, rules, regulations, codes, ordinances, orders,
decrees, judgments, injunctions or binding agreements issued, promulgated or entered into by any
Governmental Authority, relating to the protection of the environment, preservation or reclamation
of natural resources, the management, release or threatened release of any Hazardous Material or,
as such relate to exposure to Hazardous Materials, to health and safety matters.
6
Environmental Liability
means any liability, contingent or otherwise (including any
liability for damages, costs of environmental remediation, fines, penalties or indemnities), of the
Borrower or any Subsidiary directly or indirectly resulting from or based upon (a) violation of any
Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or
disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or
threatened release of any Hazardous Materials into the environment or (e) any contract, agreement
or other consensual arrangement pursuant to which liability is assumed or imposed with respect to
any of the foregoing.
Equity Issuance
means the issue or sale of any Stock by the Borrower or any of its
Subsidiaries (other than (i) any such issuance of common Stock of the Borrower occurring in the
ordinary course of business to any director, member of the management or employee of the Borrower
or its Subsidiaries or (ii) any such issuance of Stock of the Borrower or any of its Subsidiaries
(A) to the Borrower of any of its Subsidiaries or (B) pursuant to the Separation Documents in
connection with the Transactions.
ERISA
means the Employee Retirement Income Security Act of 1974, as amended from
time to time, and the regulations promulgated and rulings issued thereuder.
ERISA Affiliate
means any trade or business (whether or not incorporated) that,
together with the Borrower, is treated as a single employer under Section 414(b) or (c) of the Code
or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single
employer under Section 414 of the Code
ERISA Event
means (a) any reportable event, as defined in Section 4043 of ERISA or
the regulations issued thereunder with respect to a Plan (other than an event for which the 30-day
notice period is waived); (b) any failure to satisfy statutory minimum funding standards; (c) the
filing pursuant to Section 412(d) of the Code of an application for a waiver of the minimum funding
standard with respect to any Plan; (d) the incurrence by the Borrower or any of its ERISA
Affiliates of any liability under Title IV of ERISA with respect to the termination of any Plan;
(e) the receipt by the Borrower or any ERISA Affiliate from the PBGC or a plan administrator of any
notice relating to an intention to terminate any Plan or Plans or to appoint a trustee to
administer any Plan; (f) the incurrence by the Borrower or any of its ERISA Affiliates of any
liability with respect to the withdrawal or partial withdrawal from any Plan or Multiemployer Plan;
or (g) the receipt by the Borrower or any ERISA Affiliate of any notice, or the receipt by any
Multiemployer Plan from the Borrower or any ERISA Affiliate of any notice, concerning the
imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected
to be, insolvent or in reorganization, within the meaning of Title IV of ERISA.
Eurodollar
, when used in reference to any Loan or Borrowing, refers to whether such
Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by
reference to the Adjusted LIBO Rate.
Event of Default
has the meaning assigned to such term in Article VII.
Excluded Subsidiary
means (a) any Subsidiary that is not a wholly-owned Material
Subsidiary, (b) any Foreign Subsidiary, (c) any Subsidiary that is prohibited by applicable law
from guaranteeing the Obligations;
provided
that Excluded Subsidiary shall not include
any Subsidiary that guarantees, directly or indirectly, or otherwise provides a Guarantee for, any
Material Indebtedness of the Borrower or any other Loan Party or (d) Juice Guys Care, Inc. and
Cadbury Schweppes Americas Employee Relief Fund, so long as each remains qualified as a
not-for-profit corporation.
7
Excluded Taxes
means, with respect to the Administrative Agent, any Lender or any
other recipient of any payment to be made by or on account of any obligation of the Borrower
hereunder, (a) income or franchise Taxes imposed on (or measured by) its net income by the United
States of America, or by the jurisdiction under the laws of which such recipient is organized or in
which its principal office is located or, in the case of any Lender, in which its applicable
lending office is located, (b) any branch profits Taxes imposed by the United States of America (or
any political subdivision thereof) or any similar Tax imposed by any other jurisdiction in which
the Borrower is located and (c) in the case of a Foreign Lender (other than an assignee pursuant to
a request by the Borrower under Section 2.18(b)), any withholding tax that is imposed on amounts
payable to such Foreign Lender at the time such Foreign Lender becomes a party to this Agreement
(or designates a new lending office), except to the extent that such Foreign Lender (or its
assignor, if any) was entitled, at the time of designation of a new lending office (or assignment),
to receive additional amounts from the Borrower with respect to such withholding tax pursuant to
Section 2.16(a).
Facilities
means the Commitments and the provisions herein related to the Loans.
Federal Funds Effective Rate
means, for any day, the weighted average (rounded
upwards, if necessary, to the next 1/100 of 1%) of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal funds brokers, as
published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such
rate is not so published for any day that is a Business Day, the average (rounded upwards, if
necessary, to the next 1/100 of 1%) of the quotations for such day for such transactions received
by the Administrative Agent from three Federal funds brokers of recognized standing selected by it.
Fee and Syndication Letter
means that letter agreement dated March 10, 2008,
addressed to the Borrower and Cadbury from the Administrative Agent and the Bookrunners and
accepted by the Borrower and Cadbury on March 10, 2008.
Financial Officer
means the chief financial officer, principal accounting officer,
senior vice president corporate finance, treasurer or controller of the Borrower.
Financing Transactions
means the execution, delivery and performance of the Loan
Documents and the Revolver and Term Loan Documents by the Loan Parties party thereto, the borrowing
of Loans, the borrowing of the Revolver and Term Loan or the issuance of the Senior Notes, as
applicable, and the use of the proceeds thereof.
Foreign Lender
means any Lender that is organized under the laws of a jurisdiction
other than that in which the Borrower is located. For purposes of this definition, the United
States of America, each State thereof and the District of Columbia shall be deemed to constitute a
single jurisdiction.
Foreign Subsidiary
means any Subsidiary that is not organized under the laws of the
United States, any state thereof or the District of Columbia.
GAAP
means generally accepted accounting principles in the United States of America,
as in effect from time to time.
Governmental Authority
means the government of the United States of America, any
other nation or any political subdivision thereof, whether state or local, and any agency,
authority, instrumentality, regulatory body, court, central bank or other entity exercising
executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or
pertaining to government.
8
Guarantee
of or by any Person (the
guarantor
) means any obligation,
contingent or otherwise, of the guarantor guaranteeing or having the economic effect of
guaranteeing any Indebtedness or other payment obligation of any other Person (the
primary
obligor
) in any manner, whether directly or indirectly, and including any obligation of the
guarantor, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase
or payment of) such Indebtedness or other payment obligation or to purchase (or to advance or
supply funds for the purchase of) any security for the payment thereof, (b) to purchase or lease
property, securities or services for the purpose of assuring the owner of such Indebtedness or
other payment obligation of the payment thereof, (c) to maintain working capital, equity capital or
any other financial statement condition or liquidity of the primary obligor so as to enable the
primary obligor to pay such Indebtedness or other payment obligation or (d) as an account party in
respect of any letter of credit or letter of guaranty issued to support such Indebtedness or
payment obligation;
provided
, that the term Guarantee shall not include endorsements for
collection or deposit in the ordinary course of business, or customary and reasonable indemnity
obligations in effect on the Effective Date or entered into in connection with any acquisition or
disposition of assets.
Guarantor
means each Subsidiary party to or that becomes party to the Guaranty.
Guaranty
means the Guaranty, executed and delivered by each Guarantor, in
substantially the form of Exhibit C, as the same may be amended, supplemented or otherwise modified
from time to time.
Hazardous Materials
means all explosive or radioactive substances or wastes,
petroleum or petroleum distillates, asbestos or asbestos containing materials, polychlorinated
biphenyls, radon gas, infectious or medical wastes and all other substances, materials or wastes of
any nature regulated as hazardous or toxic, or a pollutant or contaminant, pursuant to any
Environmental Law.
Immaterial Insolvency Event
means, as of any date, any Default under clause (h) of
Article VII with respect to any Guarantor that is a Material Subsidiary or group of Guarantors that
are Material Subsidiaries in connection with which an executive officer of such Subsidiary and the
general counsel of the Borrower each have certified (in writing to the Administrative Agent) that
(a) they believe that the commencement of the involuntary proceeding or involuntary petition
causing such Default is without merit and not expected to be sustained in the applicable proceeding
and (b) the Borrower has in good faith undertaken commercially reasonable efforts to dismiss such
proceeding or petition or otherwise cure such Default;
provided
that, at no time shall any
such Material Subsidiary subject to such Default (i) have Consolidated Net Tangible Assets as of
December 31, 2007 in the aggregate with all other Guarantors that are Material Subsidiaries subject
to such Default and all other Subsidiaries subject to the events of the type described in clause
(h) of Article VII, equal to or exceeding 10% of the Consolidated Net Tangible Assets of the
Borrower at such date and (ii) have Consolidated gross revenues for the fiscal year ended December
31, 2007 in the aggregate with all other Guarantors that are Material Subsidiaries subject to such
Default and all other Subsidiaries subject to the events of the type described in clause (h) of
Article VII, equal to or exceeding 10% of the Consolidated gross revenues of the Borrower for such
period, in each case determined in accordance with GAAP.
Immaterial Subsidiary
means, any Subsidiary of the Borrower (including any Foreign
Subsidiary) that has been designated by the Borrower as an Immaterial Subsidiary for purposes of
this Agreement;
provided
that at no time shall (A) (i) the Consolidated Net Tangible Assets
of any Immaterial Subsidiary (as determined as of the last day of the most recently ended fiscal
quarter of the Borrower for which financial statements have been delivered pursuant to the clauses
(a) or (b), as applicable, of Section 5.01 (or prior to such delivery, as of December 31, 2007))
equal or exceed 5% or, together with all other Immaterial Subsidiaries and their subsidiaries, 10%,
of the Consolidated Net Tangible Assets of the Borrower at such date or (ii) the Consolidated gross
revenues of such Subsidiary for the four fiscal quarter
9
period ending on the last day of the most recently ended fiscal quarter of the Borrower for
which financial statements have been delivered pursuant to the clauses (a) or (b), as applicable,
of Section 5.01 (or prior to such delivery, as of December 31, 2007) equal or exceed 5% or,
together with all other Immaterial Subsidiaries and their subsidiaries, 10%, of the Consolidated
gross revenues of the Borrower for such period, in each case determined in accordance with GAAP, or
(B) any Immaterial Subsidiary own, or be licensed to use, any Material Intellectual Property.
Indebtedness
of any Person means, without duplication, (a) all obligations of such
Person for borrowed money, (b) all obligations of such Person evidenced by bonds, debentures, notes
or similar instruments, (c) all obligations of such Person under conditional sale or other title
retention agreements relating to property acquired by such Person, (d) all obligations of such
Person in respect of the deferred purchase price of property or services (excluding (i) accounts
payable incurred in the ordinary course of business and not overdue by more than 120 days and (ii)
any earn-out obligation until such earn-out obligation becomes a liability on the balance sheet of
such Person in accordance with GAAP and if not paid after becoming due and payable), (e) all
Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing
right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such
Person, whether or not the Indebtedness secured thereby has been assumed, (f) all Guarantees by
such Person of Indebtedness of others, (g) all Capital Lease Obligations of such Person, (h) all
obligations, contingent or otherwise, of such Person as an account party in respect of letters of
credit and letters of guaranty and (i) all obligations, contingent or otherwise, of such Person in
respect of bankers acceptances. The Indebtedness of any Person shall include the Indebtedness of
any other entity (including any partnership in which such Person is a general partner) to the
extent such Person is liable therefor as a result of such Persons ownership interest in or other
relationship with such entity, except to the extent the terms of such Indebtedness provide that
such Person is not liable therefor. The amount of Indebtedness of any Person for purposes of
clause (e) above shall be deemed to be the lesser of (i) the aggregate unpaid amount of such
Indebtedness and (ii) the fair market value of the property encumbered thereby as determined by
such Person in good faith.
Indemnified Taxes
means Taxes other than Excluded Taxes.
Indemnitee
has the meaning set forth in Section 9.03(b).
Index Debt
means senior, unsecured, long-term indebtedness for borrowed money of the
Borrower that is not guaranteed by any other Person or subject to any other credit enhancement.
Information Memorandum
means that certain Confidential Information Memorandum
relating to the Borrower, the Business and the Transactions to be used in connection with the
syndication of the Facilities.
Interest Election Request
means a request by the Borrower to convert or continue a
Borrowing in accordance with Section 2.07.
Interest Payment Date
means (a) with respect to any ABR Loan, the last day of each
March, June, September and December, and (b) with respect to any Eurodollar Loan, the last day of
the Interest Period applicable to the Borrowing of which such Loan is a part and, in the case of a
Eurodollar Borrowing with an Interest Period of more than three months duration, each day prior to
the last day of such Interest Period that occurs at intervals of three months duration after the
first day of such Interest Period.
Interest Period
means with respect to any Eurodollar Borrowing, the period
commencing on the date of such Borrowing and ending on the numerically corresponding day in the
10
calendar month that is one, two, three or six months (or, with the consent of each Lender,
nine or twelve months) thereafter, as the Borrower may elect;
provided
, that (i) if any
Interest Period would end on a day other than a Business Day, such Interest Period shall be
extended to the next succeeding Business Day unless, in the case of a Eurodollar Borrowing only,
such next succeeding Business Day would fall in the next calendar month, in which case such
Interest Period shall end on the next preceding Business Day and (ii) any Interest Period
pertaining to a Eurodollar Borrowing that commences on the last Business Day of a calendar month
(or on a day for which there is no numerically corresponding day in the last calendar month of such
Interest Period) shall end on the last Business Day of the last calendar month of such Interest
Period. For purposes hereof, the date of a Borrowing initially shall be the date on which such
Borrowing is made.
Investments
has the meaning assigned to such term in Section 6.03.
Lenders
means (a) ay any time prior to the Bridge Funding Date, any Lender that
holds a Commitment at such time and (b) at any time after the Bridge Funding Date any Lender that
holds Loans at such time.
LIBO Rate
means, with respect to any Eurodollar Borrowing for any Interest Period,
the rate appearing on Reuters Screen LIBOR01 Page (or otherwise on the Reuters screen) (or on any
successor or substitute page of such Service, or any successor to or substitute for such Service,
providing rate quotations comparable to those currently provided on such page of such Service, as
determined by the Administrative Agent from time to time for purposes of providing quotations of
interest rates applicable to dollar deposits in the London interbank market) at approximately 11:00
a.m., London time, two Business Days prior to the commencement of such Interest Period, as the rate
for dollar deposits with a maturity comparable to such Interest Period. In the event that such
rate is not available at such time for any reason, then the
LIBO Rate
with respect to
such Eurodollar Borrowing for such Interest Period shall be the rate at which dollar deposits with
a maturity comparable to such Interest Period are offered by the principal London office of the
Administrative Agent in immediately available funds in the London interbank market at approximately
11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period.
Lien
means, with respect to any asset, (a) any mortgage, deed of trust, lien,
pledge, hypothecation, encumbrance, charge or security interest in, on or of such asset and (b) the
interest of a vendor or a lessor under any conditional sale agreement, capital lease or title
retention agreement (or any financing lease having substantially the same economic effect as any of
the foregoing) relating to such asset.
Loan Documents
means, collectively, this Agreement, each Promissory Note, the Fee
and Syndication Letter, the Guaranty and, to the extent expressly designated as a Loan Document
by the Borrower and the Administrative Agent, each certificate, agreement or document executed by
the Borrower or any of its Subsidiaries and delivered to the Administrative Agent or any Lender in
connection with or pursuant to any of the foregoing.
Loan Parties
means, as of any date, the Borrower and each Subsidiary party to the
Guaranty on such date.
Loans
means the loans made by the Lenders to the Borrower pursuant to this
Agreement.
Material Adverse Change
means any material adverse change in the business,
operations, property or financial condition of the Borrower and its Subsidiaries taken as a whole.
11
Material Adverse Effect
means a material adverse effect on (a) the business,
operations, property or financial condition of the Borrower and its Subsidiaries taken as a whole,
(b) the ability of the Borrower and the Guarantors (taken as a whole) to perform their payment
obligations under this Agreement or (c) the rights and remedies of the Lenders under this
Agreement.
Material Indebtedness
means Indebtedness (other than the Loans and Letters of
Credit) of any Loan Party or Material Subsidiary, or payment obligations in respect of any Swap
Agreement, that is outstanding in an amount exceeding the Minimum Threshold. For purposes of
determining Material Indebtedness, the payment obligations of such Loan Party or Material
Subsidiary in respect of any Swap Agreement at any time shall be the maximum aggregate amount
(giving effect to any netting agreements) that such Loan Party or such Material Subsidiary would be
required to pay if such Swap Agreement were terminated at such time.
Material Intellectual Property
means any trademarks, tradenames, copyrights, patents
and other intellectual property owned or licensed by the Borrower or any of its Subsidiaries that
is material to the business of the Borrower and its Subsidiaries.
Material Subsidiary
means, at any date of determination, any Subsidiary (including
any Foreign Subsidiary) that is not an Immaterial Subsidiary.
Maturity Date
means the 364th day after the Bridge Funding Date.
Minimum Threshold
means $75,000,000.
Moodys
means Moodys Investors Service, Inc.
Multiemployer Plan
means a multiemployer plan as defined in Section 4001(a)(3) of
ERISA, to which the Borrower or any ERISA Affiliate has any obligation, contingent or otherwise.
Net Cash Proceeds
means proceeds received by the Borrower or any of its Subsidiaries
after the Bridge Funding Date in cash or cash equivalents from any (a) Asset Sale (including any
such proceeds received by way of deferred payment of principal pursuant to a note or installment
receivable or purchase price adjustment receivable or otherwise, but only as and when received) net
of (i) the reasonable cash costs of such sale, assignment or other disposition, (ii) taxes paid or
reasonably estimated to be payable as a result thereof, (iii) any amount required to be paid or
prepaid on Indebtedness secured by the assets subject to such Asset Sale and (iv) reasonable
reserves for purchase price adjustments and indemnification payments in connection therewith, (b)
Recovery Event or (c)(i) Equity Issuance, or (ii) Debt Issuance, in each case net of brokers and
advisors fees and other costs incurred in connection with such transaction;
provided
that,
(A) to the extent that the distribution to the Borrower or any Subsidiary of any Net Cash Proceeds
would (1) in the case of Net Cash Proceeds received by a Foreign Subsidiary, result in material
adverse tax consequences to the Borrower or its Subsidiaries, (2) result in a material breach of
any material agreement governing Indebtedness of such Subsidiary permitted to exist or to be
incurred by such Subsidiary under the terms of this Agreement or (3) in the case of Net Cash
Proceeds received by a Foreign Subsidiary, be limited or prohibited under applicable local law, the
application of such Net Cash Proceeds to the prepayments of the Loans pursuant to Section 2.10(d)
shall be deferred on terms to be agreed between the Borrower and the Administrative Agent and (B)
any Net Cash Proceeds pursuant to clause (a) or (b) above which are received on or after the Bridge
Funding Date and prior to the Transaction Closing Date, the application of such Net Cash Proceeds
to the prepayments of the Loans pursuant to Section 2.10(d) shall be deferred until the no later
than the 5th Business Day following the Transaction Closing Date.
12
Obligations
means the Loans and all other amounts owing by the Borrower to the
Administrative Agent, any Lender, any Affiliate of any of them or any Indemnitee, of every type and
description (whether by reason of an extension of credit, opening or amendment of a letter of
credit or payment of any draft drawn thereunder, loan, guarantee, indemnification or otherwise),
present or future, arising under this Agreement or any other Loan Document, whether direct or
indirect (including those acquired by assignment), absolute or contingent, due or to become due,
now existing or hereafter arising and however acquired and whether or not evidenced by any note,
guarantee or other instrument or for the payment of money, including all letter of credit and other
fees, interest, charges, expenses, attorneys fees and disbursements and other sums chargeable to
the Borrower under this Agreement or any other Loan Document.
Offering Memorandum
means a complete preliminary prospectus or preliminary offering
memorandum or preliminary private placement memorandum customary for Rule 144A offerings, which
shall in any event contain (a) the Audited Financial Statements and the Pro Forma Financial
Statements delivered to the Bookrunners pursuant to Section 4.02(k), (b) summary
guarantor/nonguarantor net sales, income from operations, EBITDA, assets and debt information for
the fiscal years ended December 31, 2007, December 31, 2006 and January 1, 2006 and (c) all other
information that would be necessary for the investment banks thereunder to receive a customary
comfort letter from independent accountants in connection with an offering of the Senior Notes.
Other Taxes
means any and all present or future stamp or documentary taxes or any
other excise or property taxes, or similar charges or levies arising from any payment made
hereunder or from the execution, delivery or enforcement of, or otherwise with respect to, this
Agreement.
Participant
has the meaning set forth in Section 9.04(c).
Patriot Act
means the USA Patriot Act of 2001 (31 U.S.C. 5318
et seq.
) as amended
from time to time.
PBGC
means the Pension Benefit Guaranty Corporation referred to and defined in ERISA
and any successor entity performing similar functions.
Permitted Acquisitions
means any acquisition by the Borrower or a Subsidiary
(including any investments by the Borrower or any Subsidiary in any other Subsidiary for purposes
of financing such acquisition) of all or substantially all of the outstanding Stock (other than
directors qualifying shares) in, or all or substantially all the assets of, or all or
substantially all the assets constituting a division or line of business of, a Person if:
(a) no Default would result therefrom and, at the time contractually binding obligations with
respect to such acquisition are incurred, no Event of Default described in clauses (a), (b) (solely
with respect to interest or commitment fees), (h) or (i) of Article VII has occurred and is
continuing; and
(b) the Borrower shall be in compliance, on a pro forma basis, with the covenants set forth in
Section 6.04 as if and for the last day of the most recently ended fiscal quarter of the Borrower
for which financial statements have been delivered pursuant to the clauses (a) or (b), as
applicable, of Section 5.01.
Permitted Encumbrances
means:
13
(a) Liens imposed by law for taxes, assessments or governmental charges that are not overdue
for a period of more than thirty (30) days or that are being contested in good faith in compliance
with Section 5.04;
(b) carriers, warehousemens, mechanics, materialmens, repairmens and other like Liens
imposed by law, arising in the ordinary course of business and securing obligations that are not
overdue by more than thirty (30) days (or if more than thirty (30) days overdue, are unfiled and no
other action has been taken to enforce such Liens) or are being contested in compliance with
Section 5.04;
(c) (i) pledges and deposits made in the ordinary course of business in compliance with
workers compensation, unemployment insurance and other social security laws or regulations and
(ii) pledges and deposits in the ordinary course of business securing liability for reimbursement
or indemnification obligations of (including obligations in respect of letters of credit or bank
guarantees for the benefit of) insurance carriers providing property, casualty or liability
insurance to the Borrower or any Subsidiary;
(d) deposits to secure the performance of bids, trade contracts (other than for the repayment
of borrowed money), leases, statutory obligations, surety and appeal bonds, performance bonds and
other obligations of a like nature (including those to secure health, safety and environmental
obligations), in each case in the ordinary course of business;
(e) judgment liens in respect of judgments that do not constitute an Event of Default under
clause (k) of Article VII;
(f) easements, restrictions, rights-of-way and similar encumbrances and minor title defects on
real property imposed by law or arising in the ordinary course of business that do not secure any
payment obligations and do not, in the aggregate, materially detract from the value of the affected
property or interfere with the ordinary conduct of business of the Borrower or any Subsidiary;
(g) leases, licenses, subleases or sublicenses granted to others in the ordinary course of
business which do not (i) interfere in any material respect with the business of the Borrower and
its Subsidiaries, taken as a whole, or (ii) secure any Indebtedness;
(h) Liens in favor of customs and revenue authorities arising as a matter of law to secure
payment of customs duties in connection with the importation of goods in the ordinary course of
business;
(i) Liens (i) of a collection bank on the items in the course of collection, (ii) attaching to
commodity trading accounts or other commodities brokerage accounts incurred in the ordinary course
of business and (iii) in favor of a banking or other financial institution arising as a matter of
law encumbering deposits or other funds maintained with a financial institution (including the
right of set off) and which are customary in the banking industry;
(j) any interest or title of a lessor under leases entered into by the Borrower or any
Subsidiaries in the ordinary course of business and financing statements with respect to a lessors
right in and to personal property leased to such Person in the ordinary course of such Persons
business other than through a capital lease;
(k) Liens arising out of conditional sale, title retention, consignment or similar
arrangements for sale of goods entered into by the Borrower or any Subsidiaries in the ordinary
course of business;
14
(l) Liens deemed to exist in connection with Permitted Investments and reasonable customary
initial deposits and margin deposits and similar Liens attaching to commodity trading accounts or
other brokerage accounts maintained in the ordinary course of business and not for speculative
purposes;
(m) Liens that are contractual rights of set-off (i) relating to the establishment of
depository relations with banks or other financial institutions not given in connection with the
issuance of Indebtedness, (ii) relating to pooled deposit or sweep accounts of the Borrower or any
Subsidiary to permit satisfaction of overdraft or similar obligations incurred in the ordinary
course of business of the Borrower and the Subsidiaries or (iii) relating to purchase orders and
other agreements entered into with customers of the Borrower or any Subsidiary in the ordinary
course of business;
(n) Liens solely on any cash earnest money deposits made by the Borrower or any Subsidiaries
in connection with any letter of intent or purchase agreement;
(o) ground leases in respect of real property on which facilities owned or leased by the
Borrower or any of its Subsidiaries are located;
(p) Liens on insurance policies and the proceeds thereof securing the financing of the
premiums with respect thereto;
(q) any zoning or similar law or right reserved to or vested in any Governmental Authority to
control or regulate the use of any real property that does not materially interfere with the
ordinary conduct of the business of the Borrower or any Subsidiary; and
(r) Liens on specific items of inventory or other goods and the proceeds thereof securing such
Persons obligations in respect of documentary letters of credit or bankers acceptances issued or
created for the account of such Person to facilitate the purchase, shipment or storage of such
inventory or goods.
Permitted Investments
means:
(a) direct obligations of, or obligations the principal of and interest on which are
unconditionally guaranteed by, the United States of America (or by any agency thereof to the extent
such obligations are backed by the full faith and credit of the United States of America), in each
case maturing within one year from the date of acquisition thereof;
(b) investments in commercial paper maturing within 270 days from the date of acquisition
thereof and having, at such date of acquisition, the highest credit rating obtainable from S&P or
from Moodys;
(c) investments in certificates of deposit, bankers acceptances and time deposits maturing
within 180 days from the date of acquisition thereof issued or guaranteed by or placed with, and
money market deposit accounts issued or offered by, any domestic office of any commercial bank
organized under the laws of the United States of America or any State thereof which has a combined
capital and surplus and undivided profits of not less than $500,000,000;
(d) fully collateralized repurchase agreements with a term of not more than 30 days for
securities described in clause (a) above and entered into with a financial institution satisfying
the criteria described in clause (c) above; and
15
(e) money market funds that (i) comply with the criteria set forth in SEC Rule 2a-7 under the
Investment Company Act of 1940, (ii) are rated AAA by S&P and Aaa by Moodys and (iii) have
portfolio assets of at least $5,000,000,000.
Person
means any natural person, corporation, limited liability company, trust,
joint venture, association, company, partnership, Governmental Authority or other entity.
Plan
means any employee pension benefit plan (other than a Multiemployer Plan)
subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA,
and in respect of which the Borrower or any ERISA Affiliate is (or, if such plan were terminated,
would under Section 4069 of ERISA be deemed to be) an employer as defined in Section 3(5) of
ERISA.
Prime Rate
means the rate of interest per annum publicly announced from time to time
by JPMorgan Chase Bank as its prime rate in effect at its office located at 270 Park Avenue, New
York, New York; each change in the Prime Rate shall be effective from and including the date such
change is publicly announced as being effective.
Pro Forma Financial Statements
has the meaning assigned to such term in Section
4.02(k).
Promissory Note
has the meaning assigned to such term in Section 2.09(e).
Recovery Event
any settlement of or payment in respect of any property or casualty
insurance claim or any condemnation proceeding (including taking of property) relating to any
asset, real property or other tangible or intangible property of the Borrower or its Subsidiaries,
in each case, resulting in proceeds exceeding $10,000,000.
Register
has the meaning set forth in Section 9.04(b)(iv).
Regulation S-X
means Regulation S-X of the Securities Act of 1933, as amended.
Registration Statement
means the Registration Statement on Form 10, under the
Securities Exchange Act of 1934, as amended, of the Borrower filed with the SEC on February 12,
2008, including the exhibits filed therewith, without giving effect to any subsequent amendments
filed thereto;
provided
,
however
, that Exhibits 99.1, 2.1, 10.1, 10.2 and 10.3
contained in the Registration Statement filed on February 12, 2008 shall, for the purposes of this
definition, mean Annex I (Information Memorandum) and Annex II (Separation Documents) hereof.
Related Parties
means, with respect to any specified Person, such Persons
Affiliates and the respective partners, directors, officers, employees, agents and advisors of such
Person and such Persons Affiliates.
Required Lenders
means, at any time, Lenders having more than 50% in total of the
principal amount of the Loans then outstanding.
Revolver and Term Loan
means those certain commitments and loans made pursuant to
the Revolver and Term Loan Agreement in an aggregate amount of up to $2,400,000,000.
Revolver and Term Loan Agreement
means that certain Credit Agreement dated as of the
date hereof, among the Borrower, the lenders party thereto and JPMorgan Chase Bank, N.A., as
administrative agent.
16
S&P
shall mean Standard & Poors Ratings Services, a Division of The McGraw-Hill
Companies, Inc.
SEC
means the Securities and Exchange Commission or any successor thereto.
Senior Notes
means an aggregate of up to $2,000,000,000 of the Borrowers senior
unsecured notes to be issued in an unregistered offering conducted pursuant to Rule 144A and
Regulation S under the U.S. Securities Act of 1933, as amended, the terms of which shall not
require scheduled principal payments to be made at any time prior to the later of the Revolving
Credit Facility Maturity Date (as defined in the Revolver and Term Loan Agreement) and the Term
Loan Facility Maturity Date (as defined in the Revolver and Term Loan Agreement).
Separation and Distribution Agreement
means the Separation and Distribution
Agreement among Cadbury and the Borrower and, solely for certain sections set forth therein,
Cadbury UK, substantially in the form of the most recent draft delivered to the Bookrunners on or
prior to the date hereof and contained in Annex II, as amended to the extent permitted under
Section 3.14(d).
Separation Documents
means (i) the Separation and Distribution Agreement, (ii) the
Transition Services Agreement between Cadbury and the Borrower substantially in the form of the
most recent draft delivered to the Bookrunners on or prior to the date hereof and contained in
Annex II, (iii) the Employee Matters Agreement among Cadbury, the Borrower and, solely for certain
sections set forth therein, Cadbury UK substantially in the form of the most recent draft delivered
to the Bookrunners on or prior to the date hereof and contained in Annex II, (iv) the Omnibus Stock
Incentive Plan of 2008 substantially in the form of the most recent draft delivered to the
Bookrunners on or prior to the date hereof and contained in Annex II, (v) the Annual Cash Incentive
Plan substantially in the form of the most recent draft delivered to the Bookrunners on or prior to
the date hereof and contained in Annex II, (vi) the Employee Stock Purchase Plan substantially in
the form of the most recent draft delivered to the Bookrunners on or prior to the date hereof and
contained in Annex II, (vii) the Tax Sharing and Indemnification Agreement, (vii) the Know-How
Agreement among Cadbury, the Borrower and its Subsidiaries substantially in the form of the most
recent draft delivered to the Bookrunners on or prior to the date hereof and contained in Annex II
and (viii) the Domain Names Agreement among Cadbury and the Borrower substantially in the form of
the most recent draft delivered to the Bookrunners on or prior to the date hereof and contained in
Annex II, in each case, as amended to the extent permitted under Section 3.14(d).
Separation Transactions
means the series of transactions pursuant to which Cadbury
intends to effect a separation of the Business from its global confectionary business and beverage
business through a distribution of the common stock of the Borrower to shareholders of Cadbury and
a transfer of the Business to the Borrower pursuant to the Separation and Distribution Agreement
and as contemplated and described in the Registration Statement.
Solvent
means, with respect to any Person as of any date of determination, that, as
of such date, (a) the value of the assets of such Person (both at fair value and present fair
saleable value) is greater than the total amount of liabilities (including contingent and
unliquidated liabilities) of such Person, (b) such Person is able to pay all liabilities of such
Person as such liabilities mature and (c) such Person does not have unreasonably small capital. In
computing the amount of contingent or unliquidated liabilities at any time, such liabilities shall
be computed at the amount that, in light of all the facts and circumstances existing at such time,
represents the amount that can reasonably be expected to become an actual or matured liability.
17
Specified Indebtedness
means, with respect to any Person, all Indebtedness of the
type specified in clause (a) or (b) of the definition of Indebtedness, other than (i)
Indebtedness consisting of capital leases or purchase money obligations, (ii) Indebtedness under
the Revolver and Term Loan Agreement, (iii) Indebtedness among the Borrower and its Subsidiaries,
(iv) Indebtedness arising pursuant to the Separation Documents (if any) and (v) Indebtedness
incurred by such Person in the ordinary course of business.
Statutory Reserve Rate
means a fraction (expressed as a decimal), the numerator of
which is the number one and the denominator of which is the number one minus the aggregate of the
maximum reserve percentage (including any marginal, special, emergency or supplemental reserves)
expressed as a decimal established by the Board to which the Administrative Agent is subject with
respect to the Adjusted LIBO Rate, for eurocurrency funding (currently referred to as Eurocurrency
Liabilities in Regulation D of the Board). Such reserve percentage shall include those imposed
pursuant to such Regulation D. Eurodollar Loans shall be deemed to constitute eurocurrency funding
and to be subject to such reserve requirements without benefit of or credit for proration,
exemptions or offsets that may be available from time to time to any Lender under such Regulation D
or any comparable regulation. The Statutory Reserve Rate shall be adjusted automatically on and as
of the effective date of any change in any reserve percentage.
Stock
means shares of capital stock (whether denominated as common stock or
preferred stock), beneficial, partnership or membership interests, participations or other
equivalents (regardless of how designated) of or in a corporation, partnership, limited liability
company or equivalent entity, whether voting or non-voting.
Stock Equivalents
means all securities convertible into or exchangeable for Stock
and all warrants, options or other rights to purchase or subscribe for any Stock, whether or not
presently convertible, exchangeable or exercisable.
subsidiary
means, with respect to any Person (the
parent
) at any date, any
corporation, limited liability company, partnership, association or other business entity of which
securities or other ownership interests representing more than 50% of the equity or more than 50%
of the ordinary voting power or, in the case of a partnership, more than 50% of the general
partnership interests are, as of such date, owned, controlled or held.
Subsidiary
means any subsidiary of the Borrower. Prior to the Bridge Funding Date,
all references to Subsidiaries shall refer to those subsidiaries of Cadbury constituting a part of
the Business and that will become Subsidiaries upon the consummation of the Separation
Transactions.
Swap Agreement
means any agreement with respect to any swap, forward, future or
derivative transaction or option or similar agreement involving, or settled by reference to, one or
more rates, currencies, commodities, equity or debt instruments or securities, or economic,
financial or pricing indices or measures of economic, financial or pricing risk or value or any
similar transaction or any combination of these transactions;
provided
that no phantom
stock or similar plan providing for payments only on account of services provided by current or
former directors, officers, employees or consultants of the Borrower or the Subsidiaries shall be a
Swap Agreement.
Syndication Agent
means Bank of America, N.A.
Taxes
means any and all present or future taxes, levies, imposts, duties or similar
charges imposed (including by deduction or withholding) by any Governmental Authority.
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Tax Sharing and Indemnification Agreement
means the Tax Sharing and Indemnification
Agreement among Cadbury, the Borrower and, solely for certain sections set forth therein, Cadbury
UK substantially in the form of the most recent draft delivered to the Bookrunners on or prior to
the date hereof and contained in Annex II.
Transaction Closing Date
has the meaning assigned to such term in Section 4.03.
Transactions
means, collectively, the Financing Transactions and the Separation
Transactions.
Type
, when used in reference to any Loan or Borrowing, refers to whether the rate of
interest on such Loan, or on the Loans comprising such Borrowing, is determined by reference to the
Adjusted LIBO Rate or the Alternate Base Rate.
UK Facility
means the £1,750,000,000 multi-currency revolving credit facility to be
made available to Cadbury pursuant to the terms of the facility agreement dated on or about the
date of this agreement and made between, amongst others, Cadbury UK as borrower, Cadbury as
guarantor and JP Morgan Chase Bank, N.A., Bank of America N.A., Goldman Sachs Credit Partners L.P.,
Morgan Stanley Senior Funding Inc. and UBS AG, London Branch as lenders.
Withdrawal Liability
means liability to a Multiemployer Plan as a result of a
complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of
Subtitle E of Title IV of ERISA.
SECTION 1.02.
Classification of Loans and Borrowings
. For purposes of this Agreement,
Loans may be classified and referred to by Type (
e.g.
, a Eurodollar Loan). Borrowings
also may be classified and referred to by Type (
e.g.
, a Eurodollar Borrowing).
SECTION 1.03.
Terms Generally
. The definitions of terms herein shall apply equally to
the singular and plural forms of the terms defined. Whenever the context may require, any pronoun
shall include the corresponding masculine, feminine and neuter forms. The words include,
includes and including shall be deemed to be followed by the phrase without limitation. The
word will shall be construed to have the same meaning and effect as the word shall. Unless the
context requires otherwise (a) any definition of or reference to any agreement, instrument or other
document herein shall be construed as referring to such agreement, instrument or other document as
from time to time amended, supplemented or otherwise modified (subject to any restrictions on such
amendments, supplements or modifications set forth herein), (b) any reference herein to any Person
shall be construed to include such Persons successors and assigns, (c) the words herein,
hereof and hereunder, and words of similar import, shall be construed to refer to this
Agreement in its entirety and not to any particular provision hereof, (d) all references herein to
Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of,
and Exhibits and Schedules to, this Agreement and (e) the words asset and property shall be
construed to have the same meaning and effect and to refer to any and all tangible and intangible
assets and properties, including cash, securities, accounts and contract rights.
SECTION 1.04.
Accounting Terms; GAAP
. (a) Except as otherwise expressly provided
herein, all terms of an accounting or financial nature shall be construed in accordance with GAAP,
as in effect from time to time;
provided
that, if the Borrower notifies the Administrative
Agent that the Borrower requests an amendment to any provision hereof to eliminate the effect of
any change occurring after the date hereof in GAAP or in the application thereof on the operation
of such provision (or if the Administrative Agent notifies the Borrower that the Required Lenders
request an amendment to
19
any provision hereof for such purpose), regardless of whether any such notice is given before
or after such change in GAAP or in the application thereof, then such provision shall be
interpreted on the basis of GAAP as in effect and applied immediately before such change shall have
become effective until such notice shall have been withdrawn or such provision amended in
accordance herewith.
(b) In calculating the ratios set forth in Section 6.04, (i) pro forma effect shall be given
to any Permitted Acquisitions or dispositions of all or substantially all the Stock or assets of
any Subsidiary or any division or line of business of the Borrower or any Subsidiary that occur
during the applicable reference period, or thereafter and on or prior to the reporting date with
respect thereto, as if they had occurred on the first day of the applicable reference period or as
of the last day of the applicable quarter, as the case may be and (ii) for any period prior to the
Transaction Closing Date, pro forma effect shall be given to the Transactions as if the
Indebtedness incurred in connection therewith had been incurred on the first date of the applicable
reference period.
ARTICLE II
The Credits
SECTION 2.01.
Commitments
. (a) Each Lender, subject to the terms and conditions set
forth herein, severally and not jointly with the other Lenders, agrees to make on the Bridge
Funding Date a single Loan to the Borrower in an aggregate principal amount not to exceed such
Lenders Commitment. Once prepaid or repaid, no Term Loan may be re-borrowed.
(b) Notwithstanding any other provision of this Agreement, each Lenders Commitment shall be
reduced, on a pro rata basis, by an amount equal to the aggregate Net Cash Proceeds received by the
Borrower or any of its Subsidiaries during the period commencing on the Effective Date and ending
on the Bridge Funding Date from any Debt Issuance or Equity Issuance.
SECTION 2.02.
Loans and Borrowings
. (a) Each Loan shall be made as part of a
Borrowing consisting of Loans made by the Lenders ratably in accordance with their respective
Commitments. The failure of any Lender to make any Loan required to be made by it shall not
relieve any other Lender of its obligations hereunder;
provided
that the Commitments of the
Lenders are several and no Lender shall be responsible for any other Lenders failure to make Loans
as required.
(b) Subject to Section 2.13, each Borrowing shall be ABR Loans or Eurodollar Loans as the
Borrower may request in accordance herewith. Each Lender at its option may make any Eurodollar
Loan by causing any domestic or foreign branch or Affiliate of such Lender to make such Loan;
provided
that any exercise of such option shall not affect the obligation of the Borrower
to repay such Loan in accordance with the terms of this Agreement; and
provided
further
that, as a result of the exercise of such option, such Lender, or such foreign
branch or Affiliate of such Lender shall not be entitled to receive any greater payment under
Section 2.14 or 2.16 than such Lender is entitled to prior to exercising such option.
(c) At the commencement of each Interest Period for any Eurodollar Borrowing, such Borrowing
shall be in an aggregate amount that is an integral multiple of $1,000,000 and not less than
$10,000,000. At the time that each ABR Borrowing is made, such Borrowing shall be in an aggregate
amount that is an integral multiple of $1,000,000 and not less than $10,000,000. Borrowings of
more than one Type may be outstanding at the same time;
provided
that there shall not at
any time be more than a total of ten (10) Eurodollar Term Borrowings outstanding.
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(d) Notwithstanding any other provision of this Agreement, the Borrower shall not be entitled
to request, or to elect to convert or continue, any Borrowing if the Interest Period requested with
respect thereto would end after the Maturity Date.
SECTION 2.03.
Requests for Borrowings
. To request a Borrowing, the Borrower shall
notify the Administrative Agent of such request by telephone (a) in the case of a Eurodollar
Borrowing, not later than 11:00 a.m., New York City time, three (3) Business Days before the date
of the proposed Borrowing or (b) in the case of an ABR Borrowing, not later than 12:00 noon, New
York City time, the same Business Day as the proposed Borrowing. Each such telephonic Borrowing
Request shall be irrevocable and shall be confirmed promptly by hand delivery or telecopy to the
Administrative Agent of a written Borrowing Request in a form approved by the Administrative Agent
and signed by the Borrower. Each such telephonic and written Borrowing Request shall specify the
following information in compliance with Section 2.02:
(i) the aggregate amount of the requested Borrowing;
(ii) the date of such Borrowing, which shall be a Business Day;
(iii) whether such Borrowing is to be an ABR Borrowing or a Eurodollar
Borrowing;
(iv) in the case of a Eurodollar Borrowing, the initial Interest Period to be
applicable thereto, which shall be a period contemplated by the definition of the
term Interest Period; and
(v) the location and number of the Borrowers account to which funds are to be
disbursed, which shall comply with the requirements of Section 2.06.
If no Interest Period is specified with respect to any requested Eurodollar Borrowing, then the
Borrower shall be deemed to have selected an Interest Period of one months duration. Promptly
following receipt of a Borrowing Request in accordance with this Section, the Administrative Agent
shall advise each Lender of the details thereof and of the amount of such Lenders Loan to be made
as part of the requested Borrowing.
SECTION 2.04.
Reserved
.
SECTION 2.05.
Reserved
.
SECTION 2.06.
Funding of Borrowings
. (a) Each Lender shall make each Loan to be made
by it hereunder on the proposed date thereof by wire transfer of immediately available funds by
12:00 noon, New York City time, to the account of the Administrative Agent most recently designated
by it for such purpose by notice to the Lenders. On the Bridge Funding Date, the Administrative
Agent will deposit the proceeds of the Loans into the Collateral Account (if the Transaction
Closing Date does not occur on the same date) and will release such funds (or make such funds
available) on the Transaction Closing Date to the Borrower for the purposes of funding the
Separation Transactions on such date as contemplated in Section 5.08(a).
(b) Unless the Administrative Agent shall have received notice from a Lender prior to the
proposed date of any Borrowing that such Lender will not make available to the Administrative Agent
such Lenders share of such Borrowing, the Administrative Agent may assume that such Lender has
made such share available on such date in accordance with paragraph (a) of this Section
21
and may, in reliance upon such assumption, make available to the Borrower a corresponding
amount. In such event, if a Lender has not in fact made its share of the applicable Borrowing
available to the Administrative Agent, then the applicable Lender and the Borrower severally agree
to pay to the Administrative Agent forthwith on demand such corresponding amount with interest
thereon, for each day from and including the date such amount is made available to the Borrower to
but excluding the date of payment to the Administrative Agent, at (i) in the case of such Lender,
the greater of the Federal Funds Effective Rate and a rate determined by the Administrative Agent
in accordance with banking industry rules on interbank compensation or (ii) in the case of the
Borrower, the interest rate applicable to ABR Loans. If such Lender pays such amount to the
Administrative Agent, then such amount shall constitute such Lenders Loan included in such
Borrowing.
SECTION 2.07.
Interest Elections
. (a) Each Borrowing initially shall be of the Type
specified in the applicable Borrowing Request and, in the case of a Eurodollar Borrowing, shall
have an initial Interest Period as specified in such Borrowing Request. Thereafter, the Borrower
may elect to convert such Borrowing to a different Type or to continue such Borrowing and, in the
case of a Eurodollar Borrowing, may elect Interest Periods therefor, all as provided in this
Section. The Borrower may elect different options with respect to different portions of the
affected Borrowing, in which case each such portion shall be allocated ratably among the Lenders
holding the Loans comprising such Borrowing, and the Loans comprising each such portion shall be
considered a separate Borrowing.
(b) To make an election pursuant to this Section, the Borrower shall notify the Administrative
Agent of such election by telephone by the time that a Borrowing Request would be required under
Section 2.03 if the Borrower were requesting a Borrowing of the Type resulting from such election
to be made on the effective date of such election. Each such telephonic Interest Election Request
shall be irrevocable and shall be confirmed promptly by hand delivery or telecopy to the
Administrative Agent of a written Interest Election Request in a form approved by the
Administrative Agent and signed by the Borrower.
(c) Each telephonic and written Interest Election Request shall specify the following
information in compliance with Section 2.03:
(i) the Borrowing to which such Interest Election Request applies and, if
different options are being elected with respect to different portions thereof, the
portions thereof to be allocated to each resulting Borrowing (in which case the
information to be specified pursuant to clauses (iii) and (iv) below shall be
specified for each resulting Borrowing);
(ii) the effective date of the election made pursuant to such Interest Election
Request, which shall be a Business Day;
(iii) whether the resulting Borrowing is to be an ABR Borrowing or a Eurodollar
Borrowing; and
(iv) if the resulting Borrowing is a Eurodollar Borrowing, the Interest Period
to be applicable thereto after giving effect to such election, which shall be a
period contemplated by the definition of the term Interest Period.
If any such Interest Election Request requests a Eurodollar Borrowing but does not specify an
Interest Period, then the Borrower shall be deemed to have selected an Interest Period of one
months duration.
22
(d) Promptly following receipt of an Interest Election Request, the Administrative Agent shall
advise each Lender of the details thereof and of such Lenders portion of each resulting Borrowing.
(e) If the Borrower fails to deliver a timely Interest Election Request with respect to a
Eurodollar Borrowing prior to the end of the Interest Period applicable thereto, then, unless such
Borrowing is repaid as provided herein, at the end of such Interest Period such Borrowing shall be
converted to an ABR Borrowing. Notwithstanding any contrary provision hereof, if an Event of
Default has occurred and is continuing and the Administrative Agent, at the request of the Required
Lenders, so notifies the Borrower, then, so long as an Event of Default is continuing (i) no
outstanding Borrowing may be converted to or continued as a Eurodollar Borrowing and (ii) unless
repaid, each Eurodollar Borrowing shall be converted to an ABR Borrowing at the end of the Interest
Period applicable thereto.
SECTION 2.08.
Termination and Reduction of Commitments
. Unless previously terminated,
the Commitments shall terminate on the Bridge Funding Date or the date on which the Commitments are
reduced to zero pursuant to Section 2.01(b);
provided
that, if both the Bridge Funding Date
and the Transaction Closing Date have not occurred prior to the Early Commitment Termination Date,
then the Commitments shall terminate on the Early Commitment Termination Date.
SECTION 2.09.
Repayment of Loans; Evidence of Debt
. (a) The Borrower hereby
unconditionally promises to pay to the Administrative Agent for the account of each Lender, the
then unpaid principal amount of each Loan on the Maturity Date (or if earlier, the date of the
termination of the Commitments in full).
(b) Each Lender shall maintain in accordance with its usual practice an account or accounts
evidencing the indebtedness of the Borrower to such Lender resulting from each Loan made by such
Lender, including the amounts of principal and interest payable and paid to such Lender from time
to time hereunder.
(c) The Administrative Agent shall maintain accounts in which it shall record (i) the amount
of each Loan made hereunder, the Type thereof and the Interest Period applicable thereto, (ii) the
amount of any principal or interest due and payable or to become due and payable from the Borrower
to each Lender hereunder and (iii) the amount of any sum received by the Administrative Agent
hereunder for the account of the Lenders and each Lenders share thereof.
(d) The entries made in the accounts maintained pursuant to paragraph (b) or (c) of this
Section shall be
prima facie
evidence of the existence and amounts of the obligations recorded
therein (absent manifest error);
provided
that the failure of any Lender or the
Administrative Agent to maintain such accounts or any error therein shall not in any manner affect
the obligation of the Borrower to repay the Loans in accordance with the terms of this Agreement.
(e) Any Lender may request that Loans made by it be evidenced by a promissory note (a
Promissory Note
). In such event, the Borrower shall prepare, execute and deliver to such
Lender a Promissory Note payable to the order of such Lender (or, if requested by such Lender, to
such Lender and its registered assigns) and in a form approved by the Administrative Agent.
SECTION 2.10.
Prepayment of Loans
. (a) The Borrower shall have the right at any time
and from time to time to prepay any Borrowing in whole or in part, subject to prior notice in
accordance with paragraph (b) of this Section.
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(b) The Borrower shall notify the Administrative Agent by telephone (confirmed by telecopy) of
any prepayment hereunder (i) in the case of prepayment of a Eurodollar Borrowing, not later than
12:00 noon, New York City time, three Business Days before the date of prepayment or (ii) in the
case of prepayment of an ABR Borrowing, not later than 12:00 noon, New York City time, one Business
Day before the date of prepayment. Each such notice shall be irrevocable and shall specify the
prepayment date and the principal amount of each Borrowing or portion thereof to be prepaid;
provided
that, a notice of prepayment delivered by the Borrower may state that such notice
is conditioned upon the occurrence of an event, in which case such notice may be revoked by the
Borrower (by notice to the Administrative Agent on or prior to the specified effective date) if
such condition is not satisfied. Promptly following receipt of any such notice of prepayment
relating to the Loans, the Administrative Agent shall advise the Lenders of the contents of such
notice.
(c) If the Transaction Closing Date has not occurred on or prior to the Early Commitment
Termination Date, the Borrower shall immediately prepay the entire principal amount of the Loans
then outstanding, together with all accrued but unpaid interest and fees thereon and all other
Obligations of the Borrower owing on such date (other than indemnities and contingent claims which
by their terms would survive the termination of this Agreement). The Borrower authorizes the
release of all funds on deposit in the Collateral Account on such date and hereby irrevocably
authorizes and directs the Administrative Agent to apply such funds to such Obligations in the
manner set forth in Section 2.17(b) without any further action or authorization by the Borrower.
In the event there are excess funds in the Collateral Account after all such Obligations have been
paid in full, such funds shall be made available to the Borrower.
(d) (i) At any time on or after the Bridge Funding Date, upon receipt by the Borrower or any
of its Subsidiaries of Net Cash Proceeds arising from any Asset Sale, Recovery Event (except to the
extent that Net Cash Proceeds received in connection with such Recovery Event are applied within
180 days of receipt thereof to the replacement or repair of the assets giving rise thereto), Debt
Issuance or Equity Issuance, the Borrower shall prepay the Loans in an amount equal to 100% of such
Net Cash Proceeds;
(ii) The Borrower shall notify the Administrative Agent not later than the date
of receipt by the Borrower or applicable Subsidiary of receipt of any Net Cash
Proceeds subject to this Section 2.10(d). Each such notice shall specify the
prepayment date and the principal amount of each Borrowing or portion thereof to be
prepaid;
(iii) Subject to the terms of the proviso in the definition of Net Cash
Proceeds, each prepayment of Loans under this Section 2.10 shall be accompanied by
accrued interest to the date of such prepayment on the amount prepaid and shall be
made no later than the fifth Business Days after following the date of such receipt.
(iv) Any prepayment of Net Cash Proceeds made pursuant to this Section 2.10 on
or after the Bridge Funding Date, but prior to the Transaction Closing Date, shall
be made by the Borrower providing notice to the Administrative Agent to release a
portion of the funds in the Collateral Account equal to the amount of such Net Cash
Proceeds and apply the funds so released to the prepayment of the Loans.
SECTION 2.11.
Fees
. (a) The Borrower agrees to pay to the Agents and the Bookrunners
the fees, the amount and dates of payment of which are embodied in the Fee and Syndication Letter.
24
(b) All fees payable hereunder (other than under the Fee and Syndication Letter) shall be paid
on the dates due, in immediately available funds, to the Administrative Agent for distribution, in
the case of facility fees and participation fees, to the Lenders and Bookrunners. Fees paid shall
not be refundable under any circumstances. All fees payable under the Fee and Syndication Letter
shall be paid in accordance with the terms thereof.
SECTION 2.12.
Interest
. (a) The Loans comprising each ABR Borrowing shall bear
interest at the Alternate Base Rate
plus
the Applicable Rate.
(b) The Loans comprising each Eurodollar Borrowing shall bear interest at the Adjusted LIBO
Rate for the Interest Period in effect for such Borrowing
plus
the Applicable Rate
(c) Notwithstanding the foregoing, if any principal of or interest on any Loan or any fee or
other amount payable by the Borrower hereunder is not paid when due (after giving effect to any
applicable grace periods), whether at stated maturity, upon acceleration or otherwise, such overdue
amount shall bear interest, after as well as before judgment, at a rate per annum equal to (i) in
the case of overdue principal of any Loan, 2%
plus
the rate otherwise applicable to such Loan as
provided in the preceding paragraphs of this Section or (ii) in the case of any other amount, 2%
plus
the rate applicable to ABR Loans as provided in paragraph (a) of this Section.
(d) Accrued interest on each Loan shall be payable in arrears on each Interest Payment Date
for such Loan;
provided
that (i) interest accrued pursuant to paragraph (c) of this Section
shall be payable on demand, (ii) in the event of any repayment or prepayment of any Loan, accrued
interest on the principal amount repaid or prepaid shall be payable on the date of such repayment
or prepayment and (iii) in the event of any conversion of any Eurodollar Loan prior to the end of
the current Interest Period therefor, accrued interest on such Loan shall be payable on the
effective date of such conversion.
(e) All interest hereunder shall be computed on the basis of a year of 360 days, except that
interest computed by reference to the Alternate Base Rate at times when the Alternate Base Rate is
based on the Prime Rate shall be computed on the basis of a year of 365 days (or 366 days in a leap
year), and in each case shall be payable for the actual number of days elapsed (including the first
day but excluding the last day). The applicable Alternate Base Rate, Adjusted LIBO Rate or LIBO
Rate shall be determined by the Administrative Agent, and such determination shall be conclusive
absent manifest error.
SECTION 2.13.
Alternate Rate of Interest
. If prior to the commencement of any
Interest Period for a Eurodollar Borrowing:
(a) the Administrative Agent determines (which determination shall be conclusive absent
manifest error) that adequate and reasonable means do not exist for ascertaining the Adjusted LIBO
Rate or the LIBO Rate, as applicable, for such Interest Period; or
(b) the Administrative Agent is advised by the Required Lenders that the Adjusted LIBO Rate or
the LIBO Rate, as applicable, for such Interest Period will not adequately and fairly reflect the
cost to such Lenders (or Lender) of making or maintaining their Loans (or its Loan) included in
such Borrowing for such Interest Period;
then the Administrative Agent shall give notice thereof to the Borrower and the Lenders by
telephone or telecopy as promptly as practicable thereafter and, until the Administrative Agent
notifies the Borrower and the Lenders that the circumstances giving rise to such notice no longer
exist, any Interest Election
25
Request that requests the conversion of any Borrowing to, or continuation of any Borrowing as, a
Eurodollar Borrowing shall be ineffective.
SECTION 2.14.
Increased Costs
. (a) If any Change in Law shall:
(i) impose, modify or deem applicable any reserve, special deposit or similar
requirement against assets of, deposits with or for the account of, or credit
extended by, any Lender (except any such reserve requirement reflected in the
Adjusted LIBO Rate); or
(ii) impose on any Lender or the London interbank market any other condition
affecting this Agreement or Eurodollar Loans made by such Lender or participation
therein;
and the result of any of the foregoing shall be to increase the cost to such Lender of making or
maintaining any Eurodollar Loan (or of maintaining its obligation to make any such Loan) or to
reduce the amount of any sum received or receivable by such Lender hereunder (whether of principal,
interest or otherwise), then the Borrower will pay to such Lender such additional amount or amounts
as will compensate such Lender for such additional costs incurred or reduction suffered.
(b) If any Lender determines that any Change in Law regarding capital requirements has or
would have the effect of reducing the rate of return on such Lenders capital or on the capital of
such Lenders holding company, if any, as a consequence of this Agreement or the Loans made by such
Lender to a level below that which such Lender or such Lenders holding company could have achieved
but for such Change in Law (taking into consideration such Lenders policies and the policies of
such Lenders holding company with respect to capital adequacy), then from time to time the
Borrower will pay to such Lender such additional amount or amounts as will compensate such Lender
or such Lenders holding company for any such reduction suffered.
(c) A certificate of a Lender setting forth the amount or amounts necessary to compensate such
Lender or its holding company as specified in paragraph (a) or (b) of this Section shall be
delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay
such Lender the amount shown as due on any such certificate within ten (10) days after receipt
thereof.
(d) Failure or delay on the part of any Lender to demand compensation pursuant to this Section
shall not constitute a waiver of such Lenders right to demand such compensation;
provided
that the Borrower shall not be required to compensate a Lender pursuant to this Section for any
increased costs or reductions incurred more than 180 days prior to the date that such Lender, as
the case may be, notifies the Borrower of the Change in Law giving rise to such increased costs or
reductions and of such Lenders intention to claim compensation therefor;
provided
further
that, if the Change in Law giving rise to such increased costs or reductions is
retroactive, then the 180-day period referred to above shall be extended to include the period of
retroactive effect thereof.
(e) Notwithstanding anything to the contrary herein, this Section 2.14 shall not apply to any
Taxes, which are governed exclusively by Section 2.16.
SECTION 2.15.
Break Funding Payments
. In the event of (a) the payment of any
principal of any Eurodollar Loan other than on the last day of an Interest Period applicable
thereto (including as a result of an Event of Default), (b) the conversion of any Eurodollar Loan
other than on the last day of the Interest Period applicable thereto, (c) the failure to borrow,
convert, continue or prepay any Eurodollar Loan on the date specified in any notice delivered
pursuant hereto (regardless of whether such
26
notice may be revoked under Section 2.10(b) and is revoked in accordance therewith), or (d)
the assignment of any Eurodollar Loan other than on the last day of the Interest Period applicable
thereto as a result of a request by the Borrower pursuant to Section 2.18, then, in any such event,
the Borrower shall compensate each Lender for the loss, cost and expense attributable to such
event. In the case of a Eurodollar Loan, such loss, cost or expense to any Lender shall be deemed
to include an amount determined by such Lender to be the excess, if any, of (i) the amount of
interest which would have accrued on the principal amount of such Loan had such event not occurred,
at the Adjusted LIBO Rate that would have been applicable to such Loan, for the period from the
date of such event to the last day of the then current Interest Period therefor (or, in the case of
a failure to borrow, convert or continue, for the period that would have been the Interest Period
for such Loan), over (ii) the amount of interest which would accrue on such principal amount for
such period at the interest rate which such Lender would bid were it to bid, at the commencement of
such period, for dollar deposits of a comparable amount and period from other banks in the
eurodollar market. A certificate of any Lender setting forth any amount or amounts that such
Lender is entitled to receive pursuant to this Section shall be delivered to the Borrower and shall
be conclusive absent manifest error. The Borrower shall pay such Lender the amount shown as due on
any such certificate within ten (10) days after receipt thereof.
SECTION 2.16.
Taxes
. (a) Any and all payments by or on account of any obligation of
the Borrower hereunder shall be made free and clear of and without deduction for any Indemnified
Taxes or Other Taxes;
provided
that if the Borrower shall be required to deduct any
Indemnified Taxes or Other Taxes from such payments, then (i) the sum payable shall be increased as
necessary so that after making all required deductions (including deductions applicable to
additional sums payable under this Section) the Administrative Agent or Lender (as the case may be)
receives an amount equal to the sum it would have received had no such deductions been made, (ii)
the Borrower shall make such deductions and (iii) the Borrower shall pay the full amount deducted
to the relevant Governmental Authority in accordance with applicable law.
(b) In addition, the Borrower shall pay any Other Taxes to the relevant Governmental Authority
in accordance with applicable law.
(c) The Borrower shall indemnify the Administrative Agent and each Lender, within twenty (20)
days after written demand therefor, for the full amount of any Indemnified Taxes or Other Taxes
paid by the Administrative Agent or such Lender, as the case may be, on or with respect to any
payment by or on account of any obligation of the Borrower hereunder (including Indemnified Taxes
or Other Taxes imposed or asserted on or attributable to amounts payable under this Section) and
any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether
or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the
relevant Governmental Authority (which demand shall be made within 180 days of the earlier of (x)
if the Administrative Agent, such Lender received written notice from a Governmental Authority
demanding payment of such Indemnified Taxes or Other Taxes, the date the Administrative Agent, such
Lender received such written notice or (y) the date the Administrative Agent, such Lender filed a
tax return on which such Indemnified Taxes or Other Taxes is reflected). A certificate as to the
amount of such payment or liability delivered to the Borrower by a Lender, or by the Administrative
Agent on its own behalf or on behalf of a Lender, shall be conclusive absent manifest error. If
the Borrower determines in good faith that a reasonable basis exists for contesting an Indemnified
Tax or Other Tax with respect to which it has made an indemnification payment under this subsection
(c), the relevant Administrative Agent or Lender shall cooperate with the Borrower in challenging
such Tax at the Borrowers expense and if requested by the Borrower in writing;
provided
,
however
, that no Administrative Agent or Lender shall be required to take any action
hereunder that, in the sole discretion of such Administrative Agent or Lender, would cause such
Administrative Agent or Lender to suffer any material economic, legal or regulatory disadvantage.
Additionally, nothing herein contained shall interfere with the right of an
27
Administrative Agent or Lender to arrange its tax affairs in whatever manner it thinks fit nor
oblige any Administrative Agent or Lender to make available its tax returns or disclose any
information relating to its tax affairs or any computations in respect thereof to the Borrower or
require any Administrative Agent or Lender to do anything that would materially prejudice its
ability to benefit from any other refunds, credits, reliefs, remissions or repayments to which it
may be entitled.
(d) As soon as practicable after any payment of Indemnified Taxes or Other Taxes by the
Borrower to a Governmental Authority, the Borrower shall deliver to the Administrative Agent the
original or a certified copy of a receipt issued by such Governmental Authority evidencing such
payment, a copy of the return reporting such payment or other evidence of such payment reasonably
satisfactory to the Administrative Agent.
(e) (i) Each Lender (other than a Lender described in Treasury Regulation Section
1.6049-4(c)(1)(ii)(A)(1) unless reasonably requested by the Borrower and the Administrative Agent
in writing) shall deliver documentation prescribed by applicable laws as will enable the Borrower
or the Administrative Agent to determine whether or not such Lender is subject to United States
federal backup withholding or information reporting requirements, but only if such Lender is
legally entitled to do so.
(ii) Any Foreign Lender that is entitled to an exemption from or reduction of withholding tax
under the law of the jurisdiction in which the Borrower is located, or any treaty to which such
jurisdiction is a party, with respect to payments under this Agreement shall deliver to the
Borrower (with a copy to the Administrative Agent), at the time or times prescribed by applicable
law, such properly completed and executed documentation prescribed by applicable law or reasonably
requested by the Borrower as will permit such payments to be made without withholding or at a
reduced rate. Without limiting the foregoing, each Foreign Lender shall deliver to the Borrower
and the Administrative Agent on or prior to the date on which such Foreign Lender becomes a Lender
under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower
or the Administrative Agent), but only if such Foreign Lender is legally entitled to do so,
whichever of the following is applicable:
(A) two (2) duly completed copies of Internal Revenue Service Form W-8BEN (or successor form)
claiming eligibility for benefits of an income tax treaty to which the United States is a party;
(B) two (2) duly completed copies of Internal Revenue Service Form W-8ECI (or successor
form);
(C) in the case of a Foreign Lender claiming the benefits of the exemption for portfolio
interest under section 881(c) of the Code, (x) a certificate to the effect that such Foreign Lender
is not (I) a bank within the meaning of section 881(c)(3)(A) of the Code, (II) a 10 percent
shareholder of the Borrower within the meaning of section 881(c)(3)(B) of the Code, or (III) a
controlled foreign corporation described in section 881(c)(3)(C) of the Code and (y) two duly
completed copies of Internal Revenue Service Form W-8BEN (or successor form); or
(D) any other form prescribed by applicable laws (including Internal Revenue Service Form
W-8IMY) as a basis for claiming exemption from or a reduction in United Stated federal withholding
tax duly completed together with such supplementary documentation as may be prescribed by
applicable law to permit the Borrower to determine the withholding or deduction required to be
made.
(iii) Each Lender, if reasonably requested by the Borrower or the Administrative Agent, shall
deliver to the Borrower and the Administrative Agent such additional duly
28
completed forms, certificates or documentation described in this subsection (e) that such
Lender is legally entitled to so deliver upon or prior to the expiration or obsolescence of any
such forms, certificates or documentation previously delivered by it pursuant to this subsection
(e). Additionally, each Lender shall deliver to the Borrower and the Administrative Agent such
additional duly completed forms, certificates or documentation described in this subsection (e)
that such Lender is legally entitled to so deliver after the occurrence of a change in the material
facts reflected on any such forms, certificates or documentation previously delivered by it
pursuant to this subsection (e) (or if, as a result of such change in material facts, such Lender
is no longer legally entitled to deliver any forms, certificates or documentation pursuant to this
subsection (e), such Lender shall so notify the Borrower and the Administrative Agent).
(f) For any period with respect to which a Lender has failed to provide the Borrower with the
appropriate form, certificate or other document described in subsection (e) above (other than if
such failure is due to a change in law, or in the interpretation or application thereof, occurring
after the date on which a form, certificate or other document originally was required to be
provided or if such form, certificate or other document otherwise is not required under subsection
(e) above, including because such Lender is not legally entitled to provide such form, certificate
or other document), such Lender shall not be entitled to indemnification under subsection (a) or
(c) of this Section 2.16 with respect to Indemnified Taxes imposed by the United States by reason
of such failure.
(g) If the Administrative Agent or a Lender determines, in its sole discretion, that it has
received a refund of any Taxes or Other Taxes as to which it has been indemnified by the Borrower
or with respect to which the Borrower has paid additional amounts pursuant to this Section 2.16, it
shall pay over such refund to the Borrower (but only to the extent of indemnity payments made, or
additional amounts paid, by the Borrower under this Section 2.16 with respect to the Taxes or Other
Taxes giving rise to such refund), net of all out-of-pocket expenses of the Administrative Agent or
such Lender and without interest (other than any interest paid by the relevant Governmental
Authority with respect to such refund);
provided
, that the Borrower, upon the request of
the Administrative Agent or such Lender, agrees to repay the amount paid over to the Borrower (
plus
any penalties, interest or other charges imposed by the relevant Governmental Authority) to the
Administrative Agent or such Lender in the event the Administrative Agent or such Lender is
required to repay such refund to such Governmental Authority. This Section shall not be construed
to require the Administrative Agent or any Lender to make available its tax returns (or any other
information relating to its taxes which it deems confidential) to the Borrower or any other Person.
SECTION 2.17.
Payments Generally; Pro Rata Treatment; Sharing of Set-offs
. (a) The
Borrower shall make each payment required to be made by it hereunder (whether of principal,
interest, fees or of amounts payable under Section 2.14, 2.15 or 2.16, or otherwise) prior to 12:00
noon, New York City time, on the date when due, in immediately available funds, without set-off or
counterclaim. Any amounts received after such time on any date may, in the discretion of the
Administrative Agent, be deemed to have been received on the next succeeding Business Day for
purposes of calculating interest thereon. All such payments shall be made to the Administrative
Agent at its offices at 270 Park Avenue, New York, New York, except that payments pursuant to
Sections 2.14, 2.15, 2.16 and 9.03 shall be made directly to the Persons entitled thereto. The
Administrative Agent shall distribute any such payments received by it for the account of any other
Person to the appropriate recipient promptly following receipt thereof. If any payment hereunder
shall be due on a day that is not a Business Day, the date for payment shall be extended to the
next succeeding Business Day, and, in the case of any payment accruing interest, interest thereon
shall be payable for the period of such extension. All payments hereunder shall be made in
dollars.
(b)
Reserved
.
29
(c) If any Lender shall, by exercising any right of set-off or counterclaim or otherwise,
obtain payment in respect of any principal of or interest on any of its Loans resulting in such
Lender receiving payment of a greater proportion of the aggregate amount of its Loans and accrued
interest thereon than the proportion received by any other Lender, then the Lender receiving such
greater proportion shall purchase (for cash at face value) participations in the Loans of other
Lenders to the extent necessary so that the benefit of all such payments shall be shared by the
Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on
their respective Loans;
provided
that (i) if any such participations are purchased and all
or any portion of the payment giving rise thereto is recovered, such participations shall be
rescinded and the purchase price restored to the extent of such recovery, without interest, and
(ii) the provisions of this paragraph shall not be construed to apply to any payment made by the
Borrower pursuant to and in accordance with the express terms of this Agreement or any payment
obtained by a Lender as consideration for the assignment of or sale of a participation in any of
its Loans to any assignee or participant, other than to the Borrower or any Subsidiary or Affiliate
thereof (as to which the provisions of this paragraph shall apply). The Borrower consents to the
foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender
acquiring a participation pursuant to the foregoing arrangements may exercise against the Borrower
rights of set-off and counterclaim with respect to such participation as fully as if such Lender
were a direct creditor of the Borrower in the amount of such participation.
(d) Unless the Administrative Agent shall have received notice from the Borrower prior to the
date on which any payment is due to the Administrative Agent for the account of the Lenders
hereunder that the Borrower will not make such payment, the Administrative Agent may assume that
the Borrower has made such payment on such date in accordance herewith and may, in reliance upon
such assumption, distribute to the Lenders the amount due. In such event, if the Borrower has not
in fact made such payment, then each of the Lenders severally agrees to repay to the Administrative
Agent forthwith on demand the amount so distributed to such Lender with interest thereon, for each
day from and including the date such amount is distributed to it to but excluding the date of
payment to the Administrative Agent, at the greater of the Federal Funds Effective Rate and a rate
determined by the Administrative Agent in accordance with banking industry rules on interbank
compensation.
(e) If any Lender shall fail to make any payment required to be made by it pursuant to Section
2.06(b), 2.17(d) or 9.03(c), then the Administrative Agent may, in its discretion (notwithstanding
any contrary provision hereof), apply any amounts thereafter received by the Administrative Agent
for the account of such Lender to satisfy such Lenders obligations under such Sections until all
such unsatisfied obligations are fully paid.
SECTION 2.18.
Mitigation Obligations; Replacement of Lenders
. (a) If any Lender
requests compensation under Section 2.14, or if the Borrower is required to pay any additional
amount to any Lender or any Governmental Authority for the account of any Lender pursuant to
Section 2.16, then such Lender shall use reasonable efforts to designate a different lending office
for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to
another of its offices, branches or affiliates, if, in the judgment of such Lender, such
designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 2.14 or
2.16, as the case may be, in the future and (ii) would not subject such Lender to any unreimbursed
cost or expense and would not otherwise be disadvantageous to such Lender. The Borrower hereby
agrees to pay all reasonable costs and expenses incurred by any Lender in connection with any such
designation or assignment.
(b) If (i) any Lender requests compensation under Section 2.14, (ii) the Borrower is required
to pay any additional amount to any Lender or any Governmental Authority for the account of any
Lender pursuant to Section 2.16, (iii) any Lender defaults in its obligation to fund Loans hereunder or (iv) in connection with any proposed amendment, modification, waiver or termination requiring the
30
consent of all the Lenders or all affected Lenders, the consent of the Required Lenders is
obtained but the consent of any Lender whose consent is required is not obtained, then the Borrower
may, at its sole expense and effort, upon notice to such Lender and the Administrative Agent,
require such Lender to assign and delegate, without recourse (in accordance with and subject to the
restrictions contained in Section 9.04), all its interests, rights and obligations under this
Agreement to an assignee that shall assume such obligations (which assignee may be another Lender,
if a Lender accepts such assignment);
provided
that (i) the Borrower shall have received
the prior written consent of the Administrative Agent, which consent shall not unreasonably be
withheld, (ii) such Lender shall have received payment of an amount equal to the outstanding
principal of its Loans, accrued interest thereon, accrued fees and all other amounts payable to it
hereunder, from the assignee (to the extent of such outstanding principal and accrued interest and
fees) or the Borrower (in the case of all other amounts) and (iii) in the case of any such
assignment resulting from a claim for compensation under Section 2.14 or payments required to be
made pursuant to Section 2.16, such assignment will result in a reduction in such compensation or
payments. A Lender shall not be required to make any such assignment and delegation if, prior
thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the
Borrower to require such assignment and delegation cease to apply.
ARTICLE III
Representations and Warranties
To induce the Lenders and the Administrative Agent to enter into this Agreement, (i) on and as
of the Effective Date, the Borrower makes each of the representations and warranties set forth in
Sections 3.01(a) and 3.02 below (but only with respect to the Borrower) and in Section 3.11 below,
(ii) on and as of the Bridge Funding Date, the Borrower makes each of the representations and
warranties set forth in Sections 3.01, 3.02, 3.03, 3.04(a), 3.05, 3.06(a)(i), 3.07, 3.08, 3.09,
3.10, 3.11 and 3.12 below and (iii) on and as of the Transaction Closing Date, the Borrower makes
each of the representations and warranties set forth in Section 3.14 and, with respect to each of
the Guarantors becoming party to the Guaranty after the Bridge Funding Date and on or prior to the
Transaction Closing Date, each of the representations and warranties set forth in Sections 3.01(a),
3.02, 3.03(a), 3.03(b) and 3.08 applicable to such Guarantors:
SECTION 3.01.
Organization; Powers
. (a) Each of the Loan Parties is duly organized,
validly existing and in good standing under the laws of the jurisdiction of its organization, and
has all requisite corporate power, limited liability company power or limited partnership power and
authority, as applicable, to carry on its business as now conducted and, except where the failure
to do so, individually or in the aggregate, could not reasonably be expected to have a Material
Adverse Effect, is qualified to do business in, and is in good standing in, every jurisdiction
where such qualification is required.
(b) Schedule 3.01(b) sets forth the name and jurisdiction of organization of each Material
Subsidiary that is expected to be a Material Subsidiary after the Transaction Closing Date,
pursuant to the Separation Documents as modified in accordance with Section 3.14(d). On the
Transaction Closing Date, each Material Subsidiary will be a wholly-owned Subsidiary of the
Borrower.
SECTION 3.02.
Authorization; Enforceability
. The Financing Transactions are within
each Loan Partys corporate powers and have been duly authorized by all necessary corporate and, if
required, stockholder action. Each of this Agreement and the other Loan Documents has been duly
executed and delivered by each Loan Party and constitutes a legal, valid and binding obligation of
such Loan Party, enforceable in accordance with its terms, subject to applicable bankruptcy,
insolvency,
31
reorganization, moratorium or other laws affecting creditors rights generally and subject to
general principles of equity, regardless of whether considered in a proceeding in equity or at law.
SECTION 3.03.
Governmental Approvals; No Conflicts
. (a) The Financing Transactions
(i) do not require any consent or approval of, registration or filing with, or any other action by,
any Governmental Authority, except such as have been obtained or made and are in full force and
effect, (ii) will not violate the charter, by-laws or other organizational documents of the
Borrower or any Loan Party, (iii) will not violate any applicable law (including ERISA and
Environmental Laws) or regulation or any order of any Governmental Authority, and (iv) will not
violate or result in a default under any indenture, agreement or other instrument binding upon the
Borrower or any Loan Party or its assets or give rise to a right thereunder to require any payment
to be made by the Borrower or any of its Subsidiaries, except in the case of clauses (i), (iii) and
(iv) above for any such violations or defaults that, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect.
(b) The Financing Transactions will not (i) violate the charter, by-laws or other
organizational documents of Cadbury or any subsidiary of Cadbury that owns or, immediately prior to
the Separation Transactions, has owned, the Borrower, (ii) violate or result in a default or a
right to require any payment under any material indenture or other material debt agreement binding
upon Cadbury or any subsidiary of Cadbury that owns or, immediately prior to the Separation
Transactions, has owned, the Borrower or any of their respective assets or give rise to a right
thereunder to require any payment to be made by such Person and (iii) violate or result in a
default under any agreement or other instrument (excluding those referred to in clause (ii) above)
binding upon Cadbury or any subsidiary of Cadbury that owns or, immediately prior to the Separation
Transactions, has owned, the Borrower or any of their respective assets or give rise to a right
thereunder to require any payment to be made by such Person, except in the case of this clause
(iii), for any such violations or defaults that, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect.
(c) The Separation Transactions (i) will not require any consent or approval of, registration
or filing with, or any other action by, any Governmental Authority, except such as have been (or
will be prior to consummation of the Separation Transactions) obtained or made and are (or will be
at the time of the consummation of the Separation Transactions) in full force and effect, (ii) will
not violate the charter, by-laws or other organizational documents of Cadbury or any subsidiary of
Cadbury involved in the Separation Transactions or identified in Schedule 2.01(a) of the Separation
and Distribution Agreement, (iii) will not violate any applicable law (including ERISA and
Environmental Laws) or regulation or any order of any Governmental Authority and (iv) will not
violate in any material respect or result in a material default or a right to require a material
payment under any material indenture, any other agreement or other instrument binding upon Cadbury
or any subsidiary of Cadbury involved in the Separation Transactions or identified in Schedule
2.01(a) of the Separation and Distribution Agreement, or any of their respective assets, or give
rise to a right thereunder to require any material payment to be made by any such Person, except in
the case of clauses (i), (iii) and (iv) above (other than, in the case of clause (iv), with regards
to any indentures and other material debt agreements) for any such violations or defaults that,
individually or in the aggregate, could not reasonably be expected to have a Material Adverse
Effect or a Cadbury Material Adverse Effect.
SECTION 3.04.
Financial Condition; No Material Adverse Change
. (a) The Borrower has
heretofore furnished (or, with respect to the fiscal year ended December 31, 2007 and the Pro Forma
Financial Statements, will furnish prior to the Bridge Funding Date) to the Lenders its (i) Audited
Financial Statements, all reported on by Deloitte & Touche LLP and (ii) the Pro Forma Financial
Statements. The Audited Financial Statements described in clause (i) above, present fairly, in all
material respects the combined financial position, results of operations and cash flows of the
Borrower as of such dates and for such periods in accordance with GAAP and have been prepared in
all material respects in
32
accordance with Regulation S-X. The Pro Forma Financial Statements have been prepared in all
material respects in accordance with Regulation S-X and related SEC and other applicable guidance
and based on assumptions which are reasonable and set forth therein.
(b) Since December 31, 2007, there has been no Material Adverse Change (other than the
Disclosed Matters set out on Part II of Schedule 3.06).
SECTION 3.05.
Properties.
(a) The Borrower and its Subsidiaries have good title to,
or valid leasehold interests in, all its real and personal property material to their business,
except for (i) minor defects in title that do not interfere with their ability to conduct their
business as currently conducted or to utilize such properties for their intended purposes and (ii)
except for other defects to title that, individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect.
(b) The Borrower and its Subsidiaries collectively own, or are licensed to use, all
trademarks, tradenames, copyrights, patents and other intellectual property used in their business,
and such use by the Borrower and its Subsidiaries, to the best of knowledge of the Borrower, does
not infringe upon the material rights of any other Person except as could not reasonably be
expected to have a Material Adverse Effect
SECTION 3.06.
Litigation and Environmental Matters
. (a) There shall be no
investigation or review pending by any Governmental Authority with respect to, or actions, suits,
inquiries, investigations or proceedings pending (or, to the best of knowledge of the Borrower,
threatened) before, or orders, judgments or decrees of, any governmental entity, (i) that could
reasonably be expected to restrain, prevent or impose materially adverse conditions upon the
Transactions (which for the avoidance of doubt shall not be deemed to include the SEC review of the
Form 10 or similar regulatory review under United Kingdom securities law) or (ii) that could
reasonably be expected to have a Material Adverse Effect (other than the Disclosed Matters set out
in Part I of Schedule 3.06, to the extent that they do not result in aggregate payments, damages,
losses or liabilities of the Borrower and its Subsidiaries in excess of $50,000,000 in the
aggregate).
(b) Except for the Disclosed Matters and except with respect to any other matters that,
individually or in the aggregate, could not reasonably be expected to have a Material Adverse
Effect, the Borrower and its Subsidiaries (i) have not failed to comply with any Environmental Law
or to obtain, maintain or comply with any permit, license or other approval required under any
Environmental Law, (ii) have not become subject to any Environmental Liability, and (iii) have not
received notice of any claim with respect to any Environmental Liability.
SECTION 3.07.
Compliance with Laws and Agreements
. The Borrower and its Subsidiaries
are in compliance with (a) their charter, by-laws or other organizational documents, (b) all laws,
regulations and orders of any Governmental Authority applicable to them or their property and (c)
all indentures, agreements and other instruments binding upon them or their property, except, in
the case of clauses (b) and (c) of this Section, where the failure to do so, individually or in the
aggregate, could not reasonably be expected to have a Material Adverse Effect.
SECTION 3.08.
Investment Company Status
. No Loan Party is a registered investment
company or a company controlled by a registered investment company or a principal
underwriter of a registered investment company as such terms are defined in, or subject to
regulation under, the Investment Company Act of 1940.
SECTION 3.09.
Taxes
. The Borrower and its Subsidiaries have timely filed or caused to
be filed all Tax returns and reports required to have been filed and have paid or caused to be
33
paid all Taxes required to have been paid, except (a) Taxes that are being contested in good
faith by appropriate proceedings and for which the Borrower or such Subsidiary, as applicable, has
set aside on its books adequate reserves or (b) to the extent that the failure to do so could not
reasonably be expected to have a Material Adverse Effect.
SECTION 3.10.
ERISA
. No ERISA Event has occurred or is reasonably expected to occur
that, when taken together with all other such ERISA Events for which liability is reasonably
expected to occur, could reasonably be expected to have a Material Adverse Effect. The present
value of all accumulated benefit obligations under each Plan (based on the assumptions used for
purposes of Statement of Financial Accounting Standards No. 87) did not, as of the date of the most
recent financial statements reflecting such amounts, exceed the fair market value of the assets of
such Plan, and the present value of all accumulated benefit obligations of all underfunded Plans
(based on the assumptions used for purposes of Statement of Financial Accounting Standards No. 87)
did not, as of the date of the most recent financial statements reflecting such amounts, exceed the
fair market value of the assets of all such underfunded Plans, in each case by an amount that, if
required to be paid by the Borrower and its Subsidiaries, could reasonably be expected to have a
Material Adverse Effect.
SECTION 3.11.
Disclosure
. The written information (including, without limitation, the
Information Memorandum, the Registration Statement and of the other reports, financial statements,
certificates or other information) and oral information (with any such oral information being
limited to formal due diligence meetings and calls) furnished by or on behalf of the Borrower,
Cadbury, and their respective Affiliates to the Administrative Agent or any Lender in connection
with the Transactions (including the sale of the Business considered in 2007) or the negotiation of
this Agreement or delivered hereunder, taken as a whole (as modified or supplemented by other
information so furnished prior to the relevant measurement date for this representation and
warranty), does not contain any material misstatement of fact or omit to state any material fact
necessary to make the statements therein, in the light of the circumstances under which they were
made, not misleading;
provided
that, with respect to projected financial information, the
Borrower represents only that such information was prepared in good faith based upon assumptions
believed to be reasonable at the time; it being recognized by the Lenders that such projections are
as to future events and are not to be viewed as facts and that actual results during the period or
periods covered by any such projections may differ significantly from the projected results and
such differences may be material.
SECTION 3.12.
Margin Regulations
. No Loan Party is engaged principally, as one of its
important activities, in the business of extending credit for the purpose of carrying any margin
stock (as such term is defined in Regulation U of the Board as in effect from time to time). No
more than 25% of the value of the assets of either the Borrower or the Borrower and its
Subsidiaries on a Consolidated basis, respectively, is represented by margin stock.
SECTION 3.13.
Labor Matters
. (a) There are no strikes, work stoppages, slowdowns or
lockouts pending or threatened against or involving the Borrower or any of its Subsidiaries, other
than those that, in the aggregate, could not reasonably be expected to have a Material Adverse
Effect.
(b) There are no unfair labor practices, grievances, complaints or arbitrations pending, or,
to the best knowledge of the Borrower, threatened, against or involving the Borrower or any of its
Subsidiaries, nor are there any arbitrations or grievances threatened involving the Borrower or any
of the Material Subsidiaries, other than those that, in the aggregate, could not reasonably be
expected to have a Material Adverse Effect.
SECTION 3.14.
Separation Transactions
. As of the Transaction Closing Date:
34
(a) The Separation Transactions have been consummated in all material respects in accordance
with each of the Separation Documents and substantially in the manner described in the Registration
Statement.
(b) The Separation Transactions are within each Loan Partys corporate powers and have been
duly authorized by all necessary corporate and, if required, stockholder action. Each of the
Separation Documents has been duly executed and delivered by each Loan Party party thereto and
constitutes a legal, valid and binding obligation of such Loan Party, enforceable in accordance
with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other
laws affecting creditors rights generally and subject to general principles of equity, regardless
of whether considered in a proceeding in equity or at law.
(c) The Separation Transactions (i) do not require any consent or approval of, registration or
filing with, or any other action by, any Governmental Authority, except such as have been obtained
or made and are in full force and effect, (ii) will not violate the charter, by-laws or other
organizational documents of the Borrower or any other Loan Party, (iii) will not violate any
applicable law (including ERISA and Environmental Laws) or regulation or any order of any
Governmental Authority and (iv) will not violate in any material respect or result in a material
default or a right to require a material payment under any material indenture, any other agreement
or other instrument binding upon the Borrower or any other Loan Party, or any of their respective
assets, or give rise to a right thereunder to require any material payment to be made by any such
Person, except in the case of clauses (i), (iii) and (iv) above (other than, in the case of clause
(iv), with regards to any indentures and other material debt agreements) for any such violations or
defaults that, individually or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect.
(d) Each of the Separation Documents has been entered into and is effective in substantially
the same form as the draft agreements set forth in the definition thereof. None of the Separation
Documents has been amended or otherwise modified in any material respect and no material provision
therein has been waived, except as otherwise agreed to by the Bookrunners and except for such
waivers, amendments or modifications that do not materially adversely affect the interests of the
Lenders (it being understood that, any change to the Separation Documents whereby an
indemnification obligation of Cadbury or any of its subsidiaries existing on the Effective Date for
which the Borrower or any of its Subsidiaries are indirectly liable is transferred to the Borrower
or any of its Subsidiaries so that the Borrower or such Subsidiary is directly liable to Cadburys
(or its subsidiarys) counterparty under the underlying contract pursuant to which such
indemnification obligation arose, shall not be considered to materially and adversely affect the
interests of the Lenders so long as the scope and terms of such indemnification obligation are not
changed following such transfer).
ARTICLE IV
Conditions
SECTION 4.01.
Effective Date
. This Agreement shall be effective on the date (the
Effective Date
) on which the Administrative Agent (or its counsel) shall have received
from each applicable party either (i) a counterpart of this Agreement, the Revolver and Term Loan
Agreement and the Fee and Syndication Letter signed on behalf of such party or (ii) written
evidence satisfactory to the Administrative Agent (which may include telecopy transmission or
electronic .pdf of a signed signature page of this Agreement) that such party has signed a
counterpart of this Agreement, the Revolver and Term Loan Agreement and the Fee and Syndication
Letter.
35
SECTION 4.02.
Bridge Funding Date
. The obligations of the Lenders to make the Loan
hereunder shall not become effective until the time and date (such time and date, the
Bridge
Funding Date
) on which each of the following conditions is satisfied (or waived in accordance
with Section 9.02);
provided
that the Bridge Funding shall occur no earlier than April 10,
2008 (it being understood and agreed that if on the Bridge Funding Date the Transaction Closing
Date has not occurred, then the proceeds of the Loans shall be deposited directly into the
Collateral Account on such date):
(a) The Administrative Agent shall have received a copy of the articles or certificate of
incorporation (or equivalent organizational document) of the Borrower, certified as of a recent
date by the Secretary of State of the state of organization of the Borrower, together with
certificates of such official attesting to the good standing of the Borrower;
(b) The Administrative Agent shall have received a certificate, dated the Bridge Funding Date,
of the Secretary or an Assistant Secretary of the Borrower certifying (A) the names and true
signatures of each officer of the Borrower that has been authorized to execute and deliver any Loan
Document or other document required hereunder to be executed and delivered by or on behalf of the
Borrower, (B) the by-laws (or equivalent organizational document) of the Borrower as in effect on
the date of such certification, (C) the resolutions of the Borrowers board of directors approving
and authorizing the execution, delivery and performance of the Loan Documents to which it is a
party, and (D) that there have been no changes in the certificate of incorporation (or equivalent
organizational document) of the Borrower from the certificate of incorporation (or equivalent
organizational document) delivered pursuant to paragraph (a) above;
(c) The Administrative Agent shall have received, for the account of each Lender requesting
the same at least two (2) Business Days prior to the Bridge Funding Date, a Promissory Note (which
may for purposes of this Section 4.01(c) be a copy delivered by facsimile or electronic .pdf
transmission to be followed promptly with an original of such Promissory Note by overnight courier
or messenger) of the Borrower conforming to the requirements of Section 2.09(e) herein;
(d) The Borrower, Cadbury and their respective Affiliates shall have complied in all material
respects (and shall be deemed to have so complied if they have not received written notice of any
material non-compliance) with the Fee and Syndication Letter;
provided
,
however
,
that if, on or prior to the Transaction Funding Date, (i) the Borrower, Cadbury or any such
Affiliate failed to comply with Section 3 thereof (other than the requirements set forth in clauses
(c) and (d) of the second paragraph and in the last paragraph thereunder) and (ii) the Borrower,
Cadbury and/or their respective Affiliates cured such non-compliance within two (2) Business Days
of receipt of such notice, then the Borrower shall be deemed to have complied with the Fee and
Syndication Letter for purposes of this clause (d);
(e) At least five (5) Business Days prior to the Bridge Funding Date, the Lenders shall have
received all documentation and other information required by bank regulatory authorities under
applicable know-your-customer and anti-money laundering rules and regulations, including the
Patriot Act, to the extent requested by the Lenders at least ten (10) Business Days prior to the
Bridge Funding Date;
(f) The Administrative Agent shall have received a favorable written opinion dated the Bridge
Funding Date (addressed to the Administrative Agent and the Lenders and dated the Bridge Funding
Date) of Shearman & Sterling LLP, counsel for the Loan Parties, substantially in the form of
Exhibit B. The Administrative Agent also shall have received a copy of a written opinion dated the
Bridge Funding Date (addressed to Cadbury) of Shearman & Sterling LLP, counsel to Cadbury, covering
such matters as have been previously agreed between Shearman & Sterling LLP and each of the
36
Bookrunners, in form and substance satisfactory to the Administrative Agent. The Borrower
hereby requests such counsel to deliver such opinions;
(g) The Administrative Agent shall have received a certificate from a Financial Officer of the
Borrower dated the Bridge Funding Date certifying that on such date, the Borrower and its
Subsidiaries (on a consolidated basis) are Solvent, both before, and on a pro forma basis after
giving effect to, the Transactions;
(h) (A) The representations and warranties set forth in Sections 3.01(a), 3.02, 3.03, 3.04(a),
3.05, 3.06(a)(i), 3.07, 3.08, 3.09, 3.10, 3.11 and 3.12 shall be true and correct in all material
respects on and as of the Bridge Funding Date; (B) at the time of and immediately after giving
effect to the Borrowing on the Bridge Funding Date, (x) no Default as a result of the Borrowers
failure to observe or perform any covenant, condition or agreement contained in Sections 5.02,
5.03(a) (with respect to the Borrowers existence only), 5.03(b), 5.04, 5.05, 5.08 or in Article VI
(other than for avoidance of doubt, Section 6.04) shall have occurred and be continuing, (y) no
Event of Default under clause (c) of Article VII with respect to any representation and warranty
under Article III made by the Borrower on the Effective Date shall have occurred, and (z) no Event
of Default under clauses (h), (i) or (j) of Article VII shall have occurred and be continuing and
(C) the Administrative Agent shall have received a certificate, dated the Bridge Funding Date and
signed by the president, a vice president or Financial Officer of the Borrower, confirming
compliance with the conditions contained in clauses (A) and (B) above.
(i) The Index Debt and the corporate ratings of the Borrower shall be rated at least BBB-,
which rating may be subject to a negative outlook from S&P but not subject to negative watch or
development and Baa3 from Moodys, which rating shall be stable and not subject to negative
watch, negative outlook or development;
(j) The Borrower has received proceeds from the term loan borrowings under the Revolver and
Term Loan Agreement of at least $1,900,000,000 (less transaction costs and original issue discount
incurred in connection therewith);
(k) Each of the Bookrunners shall have received and be satisfied with (i) the audited combined
financial statements of the Borrower for the fiscal year ending December 31, 2007, which such
audited financial statements may exclude (A) guarantor/non-guarantor financial information and (B)
quarterly financial information for completed fiscal periods (it being understood that the
financial information for the fiscal years ending December 31, 2006 and January 1, 2006 presented
with the financial information for the fiscal year ending December 31, 2007 will be the same in all
material respects as that contained in the Registration Statement) (the
Audited Financial
Statements
) and (ii) unaudited pro forma combined balance sheets of the Borrower and its
Subsidiaries as of December 31, 2007 and unaudited pro forma statement of operations for the fiscal
year ended December 31, 2007, adjusted to give effect to the consummation of the Transactions as if
such Transactions, with respect to the pro forma combined balance sheets had occurred on December
31, 2007 and with respect to the pro forma statement of operations had occurred on January 1, 2007,
to the extent permitted under Regulation S-X and related SEC and other applicable guidance
(together, the
Pro Forma Financial Statements
). The Audited Financial Statements shall
be prepared, in all material respects in accordance with GAAP and with Regulation S-X and the
Pro-Forma Financial Statements shall be prepared, in all material respects in accordance with
Regulation S-X and related SEC and other applicable guidance and based on assumptions which are
reasonably set forth therein. The Bookrunners shall be deemed to be satisfied with the Audited
Financial Statements if no Bookrunner shall have contacted the Borrower indicating such Bookrunner
is not satisfied with the Audited Financial Statements within three (3) Business Days following
delivery of the Audited Financial Statements. Following the delivery of the Audited Financial
Statements, the Borrower shall provide the Bookrunners with an opportunity, by telephone or
otherwise,
37
to conduct customary auditor due diligence with representatives of the Borrower during which
representatives of Deloitte & Touche LLP will be present (in person or by telephone) and
participate in a customary manner, the result of which the Bookrunners shall be satisfied with.
Each of the Bookrunners agrees to have its representatives available for the auditor due diligence
promptly following the delivery of the Audited Financial Statements and each of the Bookrunners
agrees to not unreasonably delay the completion of the auditor due diligence. The Bookrunners
shall be deemed to be satisfied with the auditor due diligence if no Bookrunner shall have
contacted the Borrower indicating such Bookrunner is not satisfied with the results of the auditor
due diligence within two (2) Business Days following completion of the auditor due diligence; and
(l) The Administrative Agent shall have received all fees and other amounts due and payable on
or prior to the Bridge Funding Date, including, to the extent invoiced, reimbursement or payment of
all out-of-pocket expenses (including reasonable fees and expenses of counsel) required to be
reimbursed or paid by the Borrower hereunder.
Notwithstanding the foregoing, the obligations of the Lenders to make the Loans shall not become
effective unless each of the foregoing conditions is satisfied (or waived pursuant to Section 9.02)
at or prior to 3:00 p.m., New York City time, on the Early Commitment Termination Date (and, in the
event such conditions are not so satisfied or waived, the Commitments shall terminate at such
time). Notwithstanding any other provision of this Agreement, the only condition precedent to the
making of the Loans on the Bridge Funding Date are those set forth in this Section 4.02.
Notwithstanding any other provision of this Agreement, the only conditions precedent to the
depositing of the Loans into the Collateral Account on the Bridge Funding Date are those set forth
in this Section 4.02 and, if such conditions are satisfied, no additional conditions, including
without limitation the absence of any other breaches or defaults under the Loan Documents or the
making of any other representations under the Loan Documents or the Separation Documents, shall be
a condition precedent to the depositing of the Loans into the Collateral Account on the Bridge
Funding Date.
SECTION 4.03.
Conditions to Transaction Closing Date
. The obligation of the
Administrative Agent (i) to release the funds deposited into the Collateral Account pursuant to
Section 4.02 (if applicable) and (ii) to apply the proceeds of the Loans for the purposes specified
in Section 5.08(a) shall not become effective until the time and date (such time and date, the
Transaction Closing Date
) on which each of the following conditions is satisfied (or
waived in accordance with Section 9.02):
(a) The Bridge Funding Date shall have occurred or shall occur on the Transaction Closing
Date;
(b) (A) The representations and warranties set forth in Section 3.14 shall be true and correct
on and as of such date, and, with respect to each of the Guarantors becoming party to the Guaranty
after the Bridge Funding Date and on or prior to the Transaction Closing Date, each of the
representations and warranties set forth in Sections 3.01(a), 3.02, 3.03(a), 3.03(b) and 3.08
applicable to such Guarantors shall be true and correct in all material respects on and as of the
Transaction Closing Date; (B) at the time of and immediately after giving effect to the
consummation of the Transactions on the Transaction Closing Date, no Default specified under clause
(h) (other than an Immaterial Insolvency Event) or clause (i) of Article VII shall have occurred
and be continuing with respect to the Borrower or a Guarantor and (C) the Administrative Agent
shall have received a certificate, dated the Transaction Closing Date and signed by the president,
a vice president or Financial Officer of the Borrower, confirming compliance with the conditions
contained in clauses (A) and (B) above;
38
(c) No orders, judgments or decrees of any governmental entity, enjoining or prohibiting the
consummation of the Financing Transactions shall have been issued and remain outstanding on the
Transaction Closing Date;
(d) The Index Debt and the corporate ratings of the Borrower are rated BBB- or higher from
S&P which rating may be subject to negative outlook but not subject to negative watch or
development and Baa3 or higher from Moodys, which rating shall be stable or stable subject to
development but not subject to negative watch or negative outlook from the Bridge Funding
Date through April 30, 2008; and
(e) There shall have occurred a period of at least five (5) consecutive Business Days prior to
the Transaction Closing Date commencing on or after the later of (i) the date which the SEC
confirms it is prepared to declare the Registration Statement effective and (ii) the date the
Borrower has furnished to the Administrative Agent an Offering Memorandum.
(f) The Administrative Agent shall have received a Guaranty, duly executed by each Material
Subsidiary that is not an Excluded Subsidiary, together with (i) a copy of the articles or
certificate of incorporation (or equivalent organizational document) of such Material Subsidiaries,
certified as of a recent date by the Secretary of State of the state of organization of each such
Material Subsidiary, together with certificates of such official attesting to the good standing of
such Material Subsidiaries, (ii) a certificate of the Secretary or an Assistant Secretary of each
such Material Subsidiary certifying (A) the names and true signatures of each officer of such
Material Subsidiary that has been authorized to execute and deliver the Guaranty or other document
required hereunder to be executed and delivered by or on behalf of such Material Subsidiary, (B)
the by-laws (or equivalent organizational document) of such Material Subsidiary as in effect on the
date of such certification, (C) the resolutions of such Material Subsidiarys board of directors
approving and authorizing the execution, delivery and performance of the Guaranty, and (D) that
there have been no changes in the certificate of incorporation (or equivalent organizational
document) of such Material Subsidiary from the certificate of incorporation (or equivalent
organizational document) delivered pursuant to clause (i) above and (iii) a favorable written
opinion (addressed to the Administrative Agent and the Lenders and dated the Transaction Closing
Date) of Shearman & Sterling LLP, counsel for the such Material Subsidiaries, and/or local counsel
in the jurisdiction of such Material Subsidiaries formations, collectively, covering such matters
with respect to each Guarantor as are contemplated in the form of opinion attached as Exhibit B
(with reasonable variation to account for local law and opinion practice).
Notwithstanding the foregoing, the obligations of the Administrative Agent to release proceeds of
the Loans deposited in the Collateral Account or, if the Bridge Funding Date has not occurred, to
apply the proceeds of the Loans directly as contemplated in Section 5.08(a), shall not become
effective unless each of the foregoing conditions is satisfied (or waived pursuant to Section 9.02)
at or prior to 3:00 p.m., New York City time, on the Early Commitment Termination Date (and, in the
event such conditions are not so satisfied or waived, the funds on deposit in the Collateral
Account shall be applied towards the repayment of the Obligations in accordance with Section
2.10(c) and all of the Commitments shall terminate at such time). Notwithstanding any other
provision of this Agreement, the only conditions precedent to the making of Loans or the release of
Loans from the Collateral Account on the Transaction Closing Date are those set forth in this
Section 4.03 and, if such conditions are satisfied, no additional conditions, including without
limitation the absence of any other breaches or defaults or the making of any other representation
under the Loan Documents or the Separation Documents, shall be a condition precedent to the release
of Loans from the Collateral Account on the Transaction Closing Date.
39
ARTICLE V
Affirmative Covenants
Until the Commitments have expired or been terminated and the principal of and interest on
each Loan and all fees payable hereunder shall have been paid in full, the Borrower covenants and
agrees with the Lenders that (it being understood that, for purposes of the covenants made by the
Borrower as set forth below, such covenants shall be construed as though the Separation
Transactions have been consummated):
SECTION 5.01.
Financial Statements; Ratings Change and Other Information
. The
Borrower will furnish to the Administrative Agent and each Lender:
(a) on or before the date on which such financial statements are required to be filed with the
SEC (after giving effect to any permitted extensions) or, if such financial statements are not
required to be filed with the SEC, on or before the date that is ninety (90) days after the end of
each such fiscal year, its audited consolidated balance sheet and related statements of operations,
stockholders equity and cash flows as of the end of and for such year, all certified by Deloitte &
Touche LLP or other independent public accountants of recognized national standing (without a
going concern or like qualification or exception and without any qualification or exception as to
the scope of such audit) to the effect that such consolidated financial statements present fairly
in all material respects the financial condition and results of operations of the Borrower and its
consolidated Subsidiaries on a consolidated basis in accordance with GAAP;
(b) on or before the date on which such financial statements are required to be filed with the
SEC (after giving effect to any permitted extensions) with respect to each of the first three
quarterly accounting periods in each fiscal year of the Borrower or, if such financial statements
are not required to be filed with the SEC, on or before the date that is forty-five (45) days after
the end of each such quarterly accounting period, its consolidated balance sheet and related
statements of operations, stockholders equity and cash flows as of the end of and for such fiscal
quarter and the elapsed portion of the fiscal year ended with the last day of such quarterly
period, setting forth in each case in comparative form the figures for the corresponding period or
periods of (or, in the case of the balance sheet, as of the end of) the previous fiscal year, all
certified by one of its Financial Officers as presenting fairly in all material respects the
financial condition and results of operations of the Borrower and its consolidated Subsidiaries on
a consolidated basis in accordance with GAAP, subject to normal year-end audit adjustments and the
absence of footnotes;
(c) concurrently with any delivery of financial statements under clause (a) or (b) above, a
certificate of a Financial Officer of the Borrower (i) certifying as to whether a Default has
occurred and, if a Default has occurred, specifying the details thereof and any action taken or
proposed to be taken with respect thereto, (ii) setting forth reasonably detailed calculations
demonstrating compliance with Section 6.04 and (iii) stating whether any change in GAAP or in the
application thereof has occurred since the date of the audited financial statements referred to in
Section 3.04 and, if any such change has occurred, specifying the effect of such change on the
financial statements accompanying such certificate;
(d) promptly after the same become publicly available, copies of all periodic and other
reports, proxy statements and other materials filed by the Borrower or any Material Subsidiary with
the SEC, or with any national securities exchange, or distributed by the Borrower to its
shareholders generally, as the case may be;
40
(e) promptly after Moodys or S&P shall have announced a change in the rating established or
deemed to have been established for the Index Debt or the corporate rating of the Borrower, written
notice of such rating change;
(f) promptly following any request therefor, such other information regarding the operations,
business affairs and financial condition of the Borrower or any Subsidiary, or compliance with the
terms of this Agreement, as the Administrative Agent or any Lender may reasonably request.
Information required to be delivered pursuant to subsections (a), (b) and (d) of this Section 5.01
shall be deemed to have been delivered if such information, or one or more annual or quarterly or
other reports or proxy statements containing such information shall have been posted and available
on the website of the SEC at
http://www.sec.gov
(and a confirming electronic correspondence
is delivered or caused to be delivered by the Borrower to the Administrative Agent providing notice
of such availability).
SECTION 5.02.
Notices of Material Events
. The Borrower will furnish to the
Administrative Agent and each Lender prompt written notice of the following:
(a) the Borrower having knowledge of any Default; and
(b) the Borrower having knowledge of the filing or commencement of any action, suit or
proceeding by or before any arbitrator or Governmental Authority against or affecting the Borrower
or any Subsidiary that, if adversely determined, could reasonably be expected to have a Material
Adverse Effect.
Each notice delivered under this Section shall be accompanied by a statement of a Financial Officer
or other executive officer of the Borrower setting forth the details of the event or development
requiring such notice and any action taken or proposed to be taken with respect thereto.
SECTION 5.03.
Existence; Conduct of Business
. The Borrower will, and will cause each
of its Material Subsidiaries and any Loan Party to, do or cause to be done all things necessary to
preserve, renew and keep in full force and effect (a) its legal existence and (b) the rights,
licenses, permits, privileges and franchises material to the conduct of its business; except in the
case of clause (b), to the extent that failure to do so, individually or in the aggregate, could
not reasonably be expected to have a Material Adverse Effect;
provided
that the foregoing
shall not prohibit any merger, consolidation, liquidation or dissolution permitted under Section
6.03 or any of the Separation Transactions.
SECTION 5.04.
Payment of Obligations
. The Borrower will, and will cause each of its
Material Subsidiaries and any Loan Party to pay its Tax liabilities, that, if not paid, could
reasonably be expected to have a Material Adverse Effect before the same shall become delinquent or
in default, except where (a) the validity or amount thereof is being contested in good faith by
appropriate proceedings and (b) the Borrower or such Subsidiary or such Loan Party has set aside on
its books adequate reserves with respect thereto in accordance with GAAP.
SECTION 5.05.
Maintenance of Properties; Insurance
. The Borrower will, and will cause
each of its Material Subsidiaries and any Loan Party to, (a) keep and maintain all property
material to the conduct of its business in good working order and condition, ordinary wear and tear
excepted, and (b) maintain, with financially sound and reputable insurance companies, insurance
(which may include self-insurance and co-insurance) in such amounts and against such risks as are
customarily maintained by companies engaged in the same or similar businesses operating in the same
or similar locations, except in the case of clauses (a) and (b), to the extent that the failure to
do so could not, based upon the facts and circumstances existing at the time, reasonably be
expected to have a Material Adverse Effect.
41
SECTION 5.06.
Books and Records; Inspection Rights
. The Borrower will, and will cause
each of its Subsidiaries to, keep proper books of record and account in which full, true and
correct (in all material respects) entries are made of all dealings and transactions in relation to
its business and activities, to the extent required by GAAP. The Borrower will, and will cause
each of its Subsidiaries to, permit any representatives designated by the Administrative Agent or
any Lender, upon reasonable prior notice, to visit and inspect its properties, to examine and make
extracts from its books and records, and to discuss its affairs, finances and condition with its
officers and independent accountants, all at such reasonable times during normal business hours;
provided
that, unless an Event of Default shall have occurred and be continuing, only one
(1) visit shall be permitted during any calendar year. The Administrative Agent and the Lenders
shall give the Borrower the opportunity to participate in any discussions with the Borrowers
independent public accountants. Notwithstanding anything to the contrary in this Section 5.06,
none of the Borrower or any of its Subsidiaries will be required to disclose, permit the
inspection, examination or making copies or abstracts of, or discussion of, any document,
information or other matter that (i) constitutes non-financial trade secrets or non-financial
proprietary information, (ii) in respect of which disclosure to the Administrative Agent or any
Lender (or their respective representatives) is prohibited by Law or (iii) is subject to
attorney-client or similar privilege or constitutes attorney work product.
SECTION 5.07.
Compliance with Laws
. The Borrower will, and will cause each of its
Subsidiaries to, comply with all laws (including ERISA and Environmental Laws), rules, regulations
and orders of any Governmental Authority applicable to it or its property, except where the failure
to do so, individually or in the aggregate, could not reasonably be expected to have a Material
Adverse Effect.
SECTION 5.08.
Use of Proceeds
. The Borrower (and to the extent distributed to them by
the Borrower, each Loan Party) shall use the entire amount of the proceeds of the Loans (a) on the
Transaction Closing Date, solely to consummate the Transactions in a manner consistent with the
Registration Statement and in all material respects with the Separation Documents, including
retaining at least $100,000,000 in unrestricted cash on its consolidated balance sheet after giving
effect to the Transactions and (b) thereafter, for working capital and general corporate purposes.
No part of the proceeds of any Loan will be used, whether directly or indirectly, for any purpose
that entails a violation of any of the Regulations of the Board, including Regulations U and X.
SECTION 5.09.
Additional Guarantors
. To the extent not delivered to the
Administrative Agent on or before the Transaction Closing Date (including Persons that become
Material Subsidiaries of the Borrower after the Transaction Closing Date), the Borrower agrees
promptly to do, or cause each Material Subsidiary (other than any Excluded Subsidiary) of the
Borrower to, unless otherwise agreed by the Administrative Agent, deliver to the Administrative
Agent such duly executed supplements and amendments to the Guaranty, in each case in form and
substance reasonably satisfactory to the Administrative Agent and as the Administrative Agent deems
necessary or advisable in order to ensure that each Material Subsidiary (other than any Excluded
Subsidiary) of the Borrower guaranties, as primary obligor and not as surety, the full and punctual
payment when due of the Obligations or any part thereof and to take such other actions necessary or
advisable to ensure the validity or continuing validity of such guaranties as may be required by
law or as may be reasonably requested by the Administrative Agent and, if requested by the
Administrative Agent, deliver to the Administrative Agent legal opinions relating to such
guaranties, which opinions shall be in form and substance, and from counsel, reasonably
satisfactory to the Administrative Agent.
SECTION 5.10.
Ratings
. The Borrower will use commercially reasonably efforts to
maintain corporate ratings and ratings in respect of the Index Debt from both Moodys and S&P.
42
ARTICLE VI
Negative Covenants
Until the Commitments have expired or terminated and the principal of and interest on each
Loan and all fees payable hereunder have been paid in full, the Borrower covenants and agrees with
the Lenders that (it being understood that, for purposes of the covenants made by the Borrower as
set forth below, such covenants shall be construed as though the Separation Transactions have been
consummated and shall not in any way prohibit the consummation of the Separation Transactions):
SECTION 6.01.
Liens
. The Borrower will not, and will not permit any Subsidiary to,
create, incur, assume or permit to exist any Lien on any property or asset now owned or hereafter
acquired by it, or assign or sell any income or revenues (including accounts receivable) or rights
in respect of any thereof, except:
(a) Permitted Encumbrances;
(b) any Lien on any property or asset of the Borrower or any Subsidiary existing on the date
hereof (with all such Liens securing Indebtedness of any Loan Party for borrowed money being set
forth in Schedule 6.01);
provided
that (i) such Lien shall not apply to any other property
or asset of the Borrower or any Subsidiary (other than the proceeds or products of the property or
asset originally subject to such Lien) and (ii) such Lien shall secure only those obligations which
it secures on the date hereof and extensions, renewals and replacements thereof that do not
increase the outstanding principal amount thereof;
(c) Liens of any Subsidiary in favor of any Loan Party;
(d) Liens securing Indebtedness outstanding in a principal amount not in excess of
$100,000,000 consisting of capital leases or purchase money obligations provided that such Liens do
not encumber any property other than property financed by such Indebtedness or subject to such
capital lease;
(e) Liens on the assets of any Foreign Subsidiary;
provided
that to the extent such
Liens secure Indebtedness, such Indebtedness is permitted under Section 6.08; and
(f) Liens not otherwise permitted by clauses (a) through (d) above securing obligations, the
aggregate outstanding principal amount of which as of the date of any incurrence thereof shall not
exceed (together with all Indebtedness of Subsidiaries that are not Guarantors permitted pursuant
to Section 6.08) 10% of the Consolidated Net Tangible Assets of the Borrower as of such date;
provided
that no Lien permitted pursuant to this clause (e) shall encumber any Material
Intellectual Property.
SECTION 6.02.
Fundamental Changes
. (a) The Borrower will not, and will not permit any
Subsidiary to, merge into or consolidate with any other Person, or permit any other Person to merge
into or consolidate with it, or sell, transfer, lease or otherwise dispose of (in one transaction
or in a series of transactions) all or substantially all of the assets of the Loan Parties, taken
as a whole, or the Borrower and its Subsidiaries taken as a whole (in each case, whether now owned
or hereafter acquired), or liquidate or dissolve, except that, if at the time thereof and
immediately after giving effect thereto no Default shall have occurred and be continuing (i) any
Person may merge into the Borrower in a transaction in which the Borrower is the surviving
corporation, (ii) any Subsidiary may merge into any Subsidiary in a transaction in which the
surviving entity is a Subsidiary, (iii) any Subsidiary may sell, transfer, lease or otherwise
dispose of its assets to any Subsidiary;
provided
that any sale, transfer, lease or other
disposition to any Subsidiary that is not a Guarantor shall not be prohibited by Section 6.03(c),
43
(iv) any Subsidiary may liquidate or dissolve if the Borrower determines in good faith that
such liquidation or dissolution is in the best interests of the Borrower and is not materially
disadvantageous to the Lenders.
(b) The Borrower will not, and will not permit any of its Subsidiaries to, engage to any
material extent in any business other than businesses of the type conducted by the Borrower and its
Subsidiaries on the date of execution of this Agreement and businesses reasonably related thereto.
SECTION 6.03.
Investments, Loans, Advances, Guarantees and Acquisitions
. The Borrower
will not, and will not permit any of its Subsidiaries to, purchase, hold or acquire (including
pursuant to any merger with any Person that was not a wholly owned Subsidiary prior to such merger)
any capital stock, evidences of indebtedness or other securities (including any option, warrant or
other right to acquire any of the foregoing) of, make or permit to exist any loans or advances to,
Guarantee any obligations of, or make or permit to exist any investment or any other interest in,
any other Person, or purchase or otherwise acquire (in one transaction or a series of transactions)
any assets of any other Person constituting a business unit (
Investments
), except:
(a) cash and Permitted Investments;
(b) Investments existing on the date hereof and any modification, replacement, renewal,
reinvestment or extension thereof;
(c) loans or advances or other Investments made by (i) any Loan Party to any other Loan Party,
(ii) by any Subsidiary that is not a Loan Party to the Borrower or any other Subsidiary and (iii)
by any Loan Party to a Subsidiary that is not a Loan Party in an aggregate amount outstanding not
to exceed $100,000,000;
(d) Investments consisting of intercompany cash balances among the Borrower and its
Subsidiaries in connection with liquidity management in the ordinary course of business;
(e) loans or advances to officers, directors and employees of the Borrower or the Subsidiaries
(i) for reasonable and customary business-related travel, entertainment, relocation and analogous
ordinary business purposes, (ii) in connection with such Persons purchase of equity interests of
the Borrower and the Subsidiaries and (iii) for purposes not described in the foregoing clauses (i)
and (ii), to the extent permitted by law, in an aggregate principal amount outstanding not to
exceed $5,000,000;
(f) Investments in Swap Agreements;
(g) Investments held by a Subsidiary acquired after the date hereof or of a corporation merged
or consolidated with a Subsidiary in accordance with Section 6.02 after the date hereof to the
extent that such investments were not made in contemplation of or in connection with such
acquisition, merger or consolidation and were in existence on the date of such acquisition, merger
or consolidation;
(h) Permitted Acquisitions;
provided
that, any Permitted Acquisition by any Loan Party
of assets located outside of the United States (or any Investment by a Loan Party in a subsidiary
that is not a Guarantor for the purpose of consummating a Permitted Acquisition) shall only be
permitted if the Investment in such Permitted Acquisition is otherwise permitted pursuant to clause
(i) below; and
44
(i) Permitted Acquisitions not permitted pursuant to clause (g) above and other Investments in
an aggregate amount not exceed 15% of the Consolidated Net Tangible Assets of the Borrower as of
such date, net of any return representing return of capital or repayment of Indebtedness in respect
of any such investment made pursuant to this clause (h) and valued at the time of the making
thereof.
Notwithstanding anything to herein to the contrary, in the event that (i) Consolidated Total Debt
of the Borrower as of the last day of any fiscal quarter for which financial statements have been
delivered to the Administrative Agent pursuant to clause (a) or (b), as applicable, of Section 5.01
to (ii) Consolidated EBITDA of the Borrower for the last four fiscal quarters ending on the last
day of such fiscal quarter is less than 3.25:1, then the covenant set for in this Section 6.03
shall cease to be of any further force and effect.
SECTION 6.04.
Financial Covenants
.
(a)
Leverage
. The Borrower will not permit the ratio of (i) Consolidated Total Debt
of the Borrower as of the last day of any fiscal quarter ending during any period set forth below
to (ii) Consolidated EBITDA of the Borrower for the last four fiscal quarters ending on the last
day of such fiscal quarter to be greater than the ratio set forth below opposite such period:
|
|
|
PERIOD
|
|
MAXIMUM LEVERAGE RATIO
|
|
|
|
The Initial Funding date through
June 30, 2009
|
|
3.75 to 1
|
|
|
|
July 1, 2009 through December 31, 2009
|
|
3.50 to 1
|
|
|
|
January 1, 2010 through December 31, 2010
|
|
3.25 to 1
|
|
|
|
January 1, 2011 through the Maturity Date
|
|
3.00 to 1
|
(b)
Interest Coverage
. The Borrower shall not permit the ratio of (i) Consolidated
EBITDA of the Borrower for any four fiscal quarter period ending on or after June 30, 2008 to (ii)
Consolidated Cash Interest Expense of the Borrower for such period to be less than 3.25 to 1.
SECTION 6.05.
Transactions with Affiliates
. The Borrower will not, and will not
permit any of its Subsidiaries to, sell, lease or otherwise transfer any property or assets to, or
purchase, lease or otherwise acquire any property or assets from, or otherwise engage in any other
transactions with, any of its Affiliates, except (a) in the ordinary course of business at prices
and on terms and conditions not less favorable to the Borrower or such Subsidiary than could be
obtained on an arms-length basis from unrelated third parties, (b) compensation to employees,
officers, directors or consultants in the ordinary course of business and reimbursement of
directors and officers expenses and payment of directors and officers indemnities, and (c)
transactions between or among the Borrower and any Subsidiary.
45
SECTION 6.06.
Restrictive Agreements
. The Borrower will not, and will not permit any
of its Subsidiaries to, directly or indirectly, enter into, incur or permit to exist any agreement
or other arrangement (other than the Revolver and Term Loan Agreement) that prohibits, restricts or
imposes any condition upon (a) the ability of the Borrower or any Subsidiary to create, incur or
permit to exist any Lien upon any of its property or assets, or (b) the ability of any Subsidiary
to pay dividends or other distributions with respect to any shares of its capital stock or to make
or repay loans or advances to the Borrower or any other Subsidiary or to guarantee Indebtedness of
the Borrower or any other Subsidiary;
provided
that (i) the foregoing shall not apply to
restrictions and conditions imposed by law or by this Agreement, (ii) the foregoing shall not apply
to restrictions and conditions existing on the Initial Funding Date (as defined in the Revolver and
Term Agreement) on Schedule 6.06 delivered on or prior to the Initial Funding Date (as defined in
the Revolver and Term Agreement) (but shall apply to any extension or renewal of, or any amendment
or modification expanding the scope of, any such restriction or condition) or at the time any
Subsidiary becomes a Subsidiary of the Borrower, so long as such agreement was not entered into
solely in contemplation of such Person becoming a Subsidiary of the Borrower, (iii) the foregoing
shall not apply to customary restrictions and conditions contained in agreements relating to the
sale of a Subsidiary pending such sale, provided such restrictions and conditions apply only to the
Subsidiary that is to be sold, (iv) clause (a) of the foregoing shall not apply to restrictions or
conditions imposed by any agreement relating to secured Indebtedness permitted by this Agreement if
such restrictions or conditions apply only to the property or assets securing such Indebtedness or
to any agreement evidencing Indebtedness if such restriction is no more restrictive than the
provisions of Section 6.01 of this Agreement, (v) the foregoing shall not apply to customary
anti-assignment provisions in contracts restricting the assignment thereof (including customary
provisions in leases restricting assignability or subleasing), (vii) the foregoing shall not apply
to restrictions under any documents relating to the formation of any non-wholly-owned Subsidiary,
(viii) clause (a) of the foregoing shall not apply in the case of any Subsidiary of the Borrower
that is not a Guarantor, to restrictions or conditions imposed by any agreement evidencing
Indebtedness that is permitted by Section 6.07 of this Agreement and (ix)the foregoing shall not
apply to licenses or contracts which by the terms of such licenses and contracts prohibits the
granting of Liens on the rights contained therein.
SECTION 6.07.
Subsidiary Indebtedness
. The Borrower will not permit the aggregate
principal amount of Indebtedness of Subsidiaries that are not Guarantors (excluding any
Indebtedness of such Subsidiary owed to the Borrower or another Subsidiary, but including any
Guarantee by such Subsidiary of Indebtedness of the Borrower) at any time to exceed (together with
all secured obligations permitted pursuant to Section 6.01(f)) 10% of the Consolidated Net Tangible
Assets of the Borrower as of such date;
provided
however, that nothing in this Section 6.07
shall prohibit intercompany Indebtedness of Subsidiaries to the extent outstanding prior to the
Transaction Closing Date.
ARTICLE VII
Events of Default
If any of the following events (
Events of Default
) shall occur:
(a) the Borrower shall fail to pay any principal of any Loan when and as the same shall become
due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or
otherwise;
(b) the Borrower shall fail to pay any interest on any Loan or any fee or any other amount
(other than an amount referred to in clause (a) of this Article) payable under this Agreement,
46
when and as the same shall become due and payable, and such failure shall continue unremedied
for a period of five (5) Business Days;
(c) any representation or warranty made or deemed made by or on behalf of the Borrower or any
Loan Party in or in connection with this Agreement or in any report, certificate, financial
statement or other document furnished pursuant to or in connection with this Agreement or any
amendment or modification hereof or waiver hereunder, shall prove to have been incorrect in any
material respect when made or deemed made;
(d) the Borrower shall fail to observe or perform any covenant, condition or agreement
contained in Sections 5.02(a), 5.03 (with respect to the Borrowers existence) or 5.08 or in
Article VI;
(e) the Borrower or any Loan Party shall fail to observe or perform any covenant, condition or
agreement contained in this Agreement (other than those specified in clause (a), (b) or (d) of this
Article) or the other Loan Documents, and such failure shall continue unremedied for a period of
thirty (30) days after the earlier of (i) the day a Financial Officer of the Borrower first has
knowledge of such failure and (ii) the Administrative Agent giving notice thereof to the Borrower
(which notice will be given at the request of any Lender);
(f) the Borrower or any Material Subsidiary shall fail to make any payment (whether of
principal or interest and regardless of amount) in respect of any Material Indebtedness, when and
as the same shall become due and payable, and such failure shall continue after any applicable
grace period;
(g) any event or condition occurs that results in any Material Indebtedness becoming due prior
to its scheduled maturity or that enables or permits (with or without the giving of notice, the
lapse of time or both) the holder or holders of any Material Indebtedness or any trustee or agent
on its or their behalf to cause any Material Indebtedness to become due, or to require the
prepayment, repurchase, redemption or defeasance thereof, prior to its scheduled maturity;
provided
that this clause (g) shall not apply to secured Indebtedness that becomes due as a
result of the voluntary sale or transfer of the property or assets securing such Indebtedness;
(h) an involuntary proceeding shall be commenced or an involuntary petition shall be filed
seeking (i) liquidation, reorganization or other relief in respect of the Borrower or any Material
Subsidiary or its debts, or of a substantial part of its assets, under any Federal, state or
foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (ii) the
appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for
the Borrower or any Material Subsidiary or for a substantial part of its assets, and, in any such
case, such proceeding or petition shall continue undismissed for sixty (60) days or an order or
decree approving or ordering any of the foregoing shall be entered;
(i) the Borrower or any Material Subsidiary shall (i) voluntarily commence any proceeding or
file any petition seeking liquidation, reorganization or other relief under any Federal, state or
foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, (ii)
consent to the institution of, or fail to contest in a timely and appropriate manner, any
proceeding or petition described in clause (h) of this Article, (iii) apply for or consent to the
appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for
the Borrower or any Material Subsidiary or for a substantial part of its assets, (iv) file an
answer admitting the material allegations of a petition filed against it in any such proceeding,
(v) make a general assignment for the benefit of creditors or (vi) take any action for the purpose
of effecting any of the foregoing;
47
(j) the Borrower or any Material Subsidiary shall become unable, admit in writing its
inability or fail generally to pay its debts as they become due;
(k) one or more judgments for the payment of money in an aggregate amount in excess of the
Minimum Threshold (to the extent not covered by independent third-party insurance as to which the
insurer has been notified of such judgment and has not denied coverage thereof) shall be entered
against the Borrower, any Loan Party or any Material Subsidiary and the same shall remain
undischarged for a period of forty-five (45) consecutive days during which execution shall not be
effectively stayed, or any action shall be legally taken by a judgment creditor to attach or levy
upon any assets of the Borrower, such Loan Party or such Material Subsidiary to enforce any such
judgment;
(l) an ERISA Event shall have occurred that results in liability of the Borrower, any Loan
Party or any Material Subsidiary in an aggregate amount which could reasonably be expected to have
a Material Adverse Effect;
(m) a Change in Control shall occur; or
(n) any Loan Document shall cease to be valid and enforceable against any Loan Party thereto,
or any Loan Party shall so assert in writing;
then, and during the continuance of any Event of Default (other than an event with respect to the
Borrower described in clauses (h) or (i) of this Article), and at any time thereafter during the
continuance of such event, the Administrative Agent may, and at the request of the Required Lenders
shall, by notice to the Borrower, take either or both of the following actions, at the same or
different times: (i) terminate the Commitments, and thereupon the Commitments shall terminate
immediately, and (ii) declare the Loans then outstanding to be due and payable in whole (or in
part, in which case any principal not so declared to be due and payable may thereafter be declared
to be due and payable), and thereupon the principal of the Loans so declared to be due and payable,
together with accrued interest thereon and all fees and other obligations of the Borrower accrued
hereunder, shall become due and payable immediately, without presentment, demand, protest or other
notice of any kind, all of which are hereby waived by the Borrower; and in case of any Event of
Default with respect to the Borrower described in clauses (h) or (i) of this Article, the
Commitments shall automatically terminate and the principal of the Loans then outstanding, together
with accrued interest thereon and all fees and other obligations of the Borrower accrued hereunder,
shall automatically become due and payable, without presentment, demand, protest or other notice of
any kind, all of which are hereby waived by the Borrower. Notwithstanding the foregoing, in the
event any Event of Default (other than an Event of Default described in clause (h) or (i) above
that is not an Immaterial Insolvency Event) occurs and is continuing during the period after the
Bridge Funding Date and through the Transaction Closing Date, then the rights of the Administrative
Agent to take the actions described pursuant to clauses (i) and (ii) above shall be suspended until
after the Transaction Closing Date has occurred.
ARTICLE VIII
The Administrative Agent; the Agents and the Collateral Account
SECTION 8.01.
The Administrative Agent; the Agents
. (a) Each of the Lenders hereby
irrevocably appoints the Administrative Agent as its agent and authorizes the Administrative Agent
to take such actions on its behalf and to exercise such powers as are delegated to the
Administrative Agent by the terms hereof, together with such actions and powers as are reasonably
incidental thereto.
48
(b) The bank serving as the Administrative Agent hereunder shall have the same rights and
powers in its capacity as a Lender as any other Lender and may exercise the same as though it were
not the Administrative Agent, and such bank and its Affiliates may accept deposits from, lend money
to and generally engage in any kind of business with the Borrower or any Subsidiary or other
Affiliate thereof as if it were not the Administrative Agent hereunder.
(c) The Administrative Agent shall not have any duties or obligations except those expressly
set forth herein. Without limiting the generality of the foregoing, (a) the Administrative Agent
shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has
occurred and is continuing, (b) the Administrative Agent shall not have any duty to take any
discretionary action or exercise any discretionary powers, except discretionary rights and powers
expressly contemplated hereby that the Administrative Agent is required to exercise in writing as
directed by the Required Lenders (or such other number or percentage of the Lenders as shall be
necessary under the circumstances as provided in Section 9.02), and (c) except as expressly set
forth herein, the Administrative Agent shall not have any duty to disclose, and shall not be liable
for the failure to disclose, any information relating to the Borrower or any of its Subsidiaries
that is communicated to or obtained by the bank serving as Administrative Agent or any of its
Affiliates in any capacity. The Administrative Agent shall not be liable for any action taken or
not taken by it with the consent or at the request of the Required Lenders (or such other number or
percentage of the Lenders as shall be necessary under the circumstances as provided in Section
9.02) or in the absence of its own gross negligence or willful misconduct. The Administrative
Agent shall be deemed not to have knowledge of any Default unless and until written notice thereof
is given to the Administrative Agent by the Borrower or a Lender, and the Administrative Agent
shall not be responsible for or have any duty to ascertain or inquire into (i) any statement,
warranty or representation made in or in connection with this Agreement, (ii) the contents of any
certificate, report or other document delivered hereunder or in connection herewith, (iii) the
performance or observance of any of the covenants, agreements or other terms or conditions set
forth herein, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement or
any other agreement, instrument or document, or (v) the satisfaction of any condition set forth in
Article IV or elsewhere herein, other than to confirm receipt of items expressly required to be
delivered to the Administrative Agent.
(d) The Administrative Agent shall be entitled to rely upon, and shall not incur any liability
for relying upon, any notice, request, certificate, consent, statement, instrument, document or
other writing believed by it to be genuine and to have been signed or sent by the proper Person.
The Administrative Agent also may rely upon any statement made to it orally or by telephone and
believed by it to be made by the proper Person, and shall not incur any liability for relying
thereon. The Administrative Agent may consult with legal counsel (who may be counsel for the
Borrower), independent accountants and other experts selected by it, and shall not be liable for
any action taken or not taken by it in accordance with the advice of any such counsel, accountants
or experts.
(e) The Administrative Agent may perform any and all its duties and exercise its rights and
powers by or through any one or more sub-agents appointed by the Administrative Agent. The
Administrative Agent and any such sub-agent may perform any and all its duties and exercise its
rights and powers through their respective Related Parties. The exculpatory provisions of the
preceding paragraphs shall apply to any such sub-agent and to the Related Parties of the
Administrative Agent and any such sub-agent, and shall apply to their respective activities in
connection with the syndication of the credit facilities provided for herein as well as activities
as Administrative Agent.
(f) Subject to the appointment and acceptance of a successor Administrative Agent as provided
in this paragraph, the Administrative Agent may resign at any time by notifying the Lenders and the
Borrower. Upon any such resignation, the Required Lenders shall have the right, subject to the
consent of the Borrower (unless an Event of Default under clauses (a), (b), (h) or (i) if Article
VII
49
has occurred and is continuing), to appoint a successor. If no successor shall have been so
appointed by the Required Lenders and shall have accepted such appointment within sixty (60) days
after the retiring Administrative Agent gives notice of its resignation, then the retiring
Administrative Agent may, on behalf of the Lenders, appoint a successor Administrative Agent which
shall be a bank with an office in New York, New York, or an Affiliate of any such bank. Upon the
acceptance of its appointment as Administrative Agent hereunder by a successor, such successor
shall succeed to and become vested with all the rights, powers, privileges and duties of the
retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its
duties and obligations hereunder. The fees payable by the Borrower to a successor Administrative
Agent shall be the same as those payable to its predecessor unless otherwise agreed between the
Borrower and such successor. After the Administrative Agents resignation hereunder, the
provisions of this Article and Section 9.03 shall continue in effect for the benefit of such
retiring Administrative Agent, its sub-agents and their respective Related Parties in respect of
any actions taken or omitted to be taken by any of them while it was acting as Administrative
Agent.
(g) Each Lender acknowledges that it has, independently and without reliance upon the
Administrative Agent or any other Lender and based on such documents and information as it has
deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each
Lender also acknowledges that it will, independently and without reliance upon the Administrative
Agent or any other Lender and based on such documents and information as it shall from time to time
deem appropriate, continue to make its own decisions in taking or not taking action under or based
upon this Agreement, any related agreement or any document furnished hereunder or thereunder.
(h) Anything herein to the contrary notwithstanding, none of the Agents, the Bookrunners or
the Arrangers listed on the cover page hereof shall have any powers, duties or responsibilities
under this Agreement or any of the other Loan Documents, except in their capacity, as applicable,
as Agent, or a Lender hereunder.
SECTION 8.02.
Collateral Account
. (a) Each of the Lenders hereby irrevocably appoints
the Administrative Agent as its collateral agent in respect of the Collateral Account and
authorizes the Administrative Agent to take such actions on its behalf and to exercise such powers
as are delegated to the Administrative Agent by the terms hereof, together with such actions and
powers as are reasonably incidental thereto.
(b) On or prior to the Bridge Funding Date, the Administrative Agent shall establish the
Collateral Account. The Collateral Account and all funds and other property therein shall be held
in accordance with this Agreement by the Administrative Agent, until released or applied in
accordance with the terms hereof.
(c) The Borrower, as security for the full, prompt and complete payment and performance when
due (whether at stated maturity or otherwise by operation of Section 2.10 hereunder, by
acceleration or otherwise) of the Obligations, hereby mortgages, pledges and hypothecates to the
Administrative Agent for the benefit of the Lenders, and grants to the Administrative Agent for the
benefit of the Lenders a lien on and security interest in, all of its right, title and interest in,
to and under all funds, cash and any cash equivalents from time to time on deposit or held in the
Collateral Account and all proceeds thereof.
(d) The parties hereto and the Administrative Agent agree: (i) that all items of taxable
income or gain realized on the Collateral Account shall be reported as taxable income or gain of
the Borrower; (ii) that the Administrative Agent shall issue an IRS Form 1099 (or any successor
form) relating to such taxable income or gain to and in the name of the Borrower; and (iii) that
the Borrower shall promptly deliver such certificates and other documents as required by applicable
regulation and as
50
the Administrative Agent may reasonably request in connection with the foregoing, including,
without limitation, a completed, executed Form W-9. The Borrower understands that the failure to
provide properly completed applicable withholding tax forms may cause the Administrative Agent to
become obligated to withhold a portion of any distributions of the Collateral Account pursuant to
applicable provisions of the Code. The Administrative Agent shall be responsible only for income
reporting to the Internal Revenue Service with respect to income earned on the Collateral Account.
The Administrative Agent shall have no other duties or responsibilities with respect to
administering tax withholding, payments or reporting for persons receiving distributions pursuant
to this Agreement. Notwithstanding the foregoing, the Administrative Agent may report and withhold
any taxes as it determines may be required by any law or regulation in effect at the time of the
distribution.
(e) It is understood and agreed that the Administrative Agent shall have no obligation to
invest any of the funds in the Collateral Account,
provided
that all interest and other
amounts earned on the deposits shall be deposited in the Collateral Account and only be released
and applied in accordance with the terms hereof (including Sections 2.10(c) and 4.03).
(f) On the Transaction Closing Date, subject only to the satisfaction of the conditions
specified in Section 4.03 hereof, the Lenders hereby authorize Administrative Agent to release all
funds in the Collateral Account to the Borrower for uses specified in Section 5.08(a);
provided
however, if the Transaction Closing Date does not occur on or prior to the Early
Commitment Termination Date, the Borrower irrevocably instructs the Administrative Agent to apply
such funds in the Collateral Account for the prepayment of the Obligations in accordance with
Section 2.10(c).
ARTICLE IX
Miscellaneous
SECTION 9.01.
Notices
. (a) Except in the case of notices and other communications
expressly permitted to be given by telephone (and subject to paragraph (b) below), all notices and
other communications provided for herein shall be in writing and shall be delivered by hand or
overnight courier service, mailed by certified or registered mail or sent by telecopy or, to the
extent provided in paragraph (b) below, electronic mail, as follows:
(i) if to the Borrower, to it at Dr Pepper Snapple Group, Inc. 5301 Legacy
Drive, Plano, Texas 75024, Attention of John Stewart, Executive Vice President &
Chief Financial Officer (Telecopy No. (972) 673-7879);
(ii) if to the Administrative Agent, to JPMorgan Chase Bank, Loan and Agency
Services Group, 1111 Fannin, 10th Floor, Houston, Texas 77002, Attention of Cherry
Arnaez (Telecopy No. (713) 750-2782), with a copy to JPMorgan Chase Bank, 270 Park
Avenue, New York 10017, Attention of Barbara R. Marks (Telecopy No. (212) 270-3279);
(iii) if to any other Lender, to it at its address (or telecopy number) set
forth in its Administrative Questionnaire.
(b) Notices and other communications to the Lenders hereunder may be delivered or furnished by
electronic communications pursuant to procedures approved by the Administrative Agent;
provided
that the foregoing shall not apply to notices pursuant to Article II unless
otherwise agreed by the Administrative Agent and the applicable Lender. The Administrative Agent
or the Borrower may, in its discretion, agree to accept notices and other communications to it
hereunder by electronic
51
communications pursuant to procedures approved by it;
provided
that approval of such
procedures may be limited to particular notices or communications.
(c) Any party hereto may change its address or telecopy number for notices and other
communications hereunder by notice to the other parties hereto. All notices and other
communications given to any party hereto in accordance with the provisions of this Agreement shall
be deemed to have been given on the date of receipt.
(d) NONE OF THE ADMINISTRATIVE AGENT, THE BOOKRUNNERS, ANY OF THE LENDERS, OR ANY RELATED
PARTY OF ANY OF THE FOREGOING PERSONS OR ANY OF THEIR OFFICERS, DIRECTORS, PARTNERS, EMPLOYEES,
AGENTS, ADVISORS OR REPRESENTATIVES (COLLECTIVELY, THE
AGENT PARTIES
) SHALL BE LIABLE FOR
ANY DAMAGES ARISING FROM THE USE BY UNINTENDED RECIPIENTS OF ANY INFORMATION OR OTHER MATERIALS
DISTRIBUTED BY IT THROUGH TELECOMMUNICATIONS, ELECTRONIC OR OTHER INFORMATION TRANSMISSION SYSTEMS
IN CONNECTION WITH THIS AGREEMENT, THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED
HEREBY, AND EACH SUCH PARTY EXPRESSLY DISCLAIMS LIABILITY FOR ERRORS OR OMISSIONS IN SUCH
TELECOMMUNICATIONS, ELECTRONIC OR OTHER INFORMATION TRANSMISSION SYSTEMS OR THEREBY, EXCEPT TO THE
EXTENT ARISING FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH PARTY IN THE USE OF SUCH
SYSTEMS, AS DETERMINED BY A FINAL, NON- APPEALABLE JUDGMENT OF A COURT OF COMPETENT JURISDICTION.
NO WARRANTY OF ANY KIND, EXPRESS, IMPLIED OR STATUTORY, INCLUDING WITHOUT LIMITATION, ANY WARRANTY
OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT OF THIRD-PARTY RIGHTS OR
FREEDOM FROM VIRUSES OR CODE DEFECTS IS MADE BY THE AGENT PARTIES IN CONNECTION WITH SUCH
TELECOMMUNICATIONS, ELECTRONIC OR OTHER INFORMATION TRANSMISSION SYSTEMS.
SECTION 9.02.
Waivers; Amendments
. (a) No failure or delay by the Administrative
Agent or any Lender in exercising any right or power hereunder shall operate as a waiver thereof,
nor shall any single or partial exercise of any such right or power, or any abandonment or
discontinuance of steps to enforce such a right or power, preclude any other or further exercise
thereof or the exercise of any other right or power. The rights and remedies of the Administrative
Agent and the Lenders hereunder are cumulative and are not exclusive of any rights or remedies that
they would otherwise have. No waiver of any provision of this Agreement or consent to any
departure by the Borrower therefrom shall in any event be effective unless the same shall be
permitted by paragraph (b) of this Section, and then such waiver or consent shall be effective only
in the specific instance and for the purpose for which given. Without limiting the generality of
the foregoing, the making of a Loan shall not be construed as a waiver of any Default, regardless
of whether the Administrative Agent, any Lender may have had notice or knowledge of such Default at
the time.
(b) Neither this Agreement nor any provision hereof may be waived, amended or modified except
pursuant to an agreement or agreements in writing entered into by the Borrower and the Required
Lenders or by the Borrower and the Administrative Agent with the consent of the Required Lenders;
provided
that no such agreement shall (i) increase the Commitment of any Lender without
the written consent of such Lender, (ii) reduce the principal amount of any Loan or reduce the rate
of interest thereon, or reduce any fees payable hereunder, without the written consent of each
Lender affected thereby, (iii) postpone the scheduled date of payment of the principal amount of
any Loan, or any interest thereon, or any fees payable hereunder, or reduce the amount of, waive or
excuse any such payment, or postpone the scheduled date of expiration of any Commitment, without
the written consent of each Lender affected thereby, (iv)change Section 2.17(b) or (c) in a manner
that would alter the pro rata
52
sharing of payments required thereby, without the written consent of each Lender, or (v)
change any of the provisions of this Section or the definition of Required Lenders or any other
provision hereof specifying the number or percentage of Lenders required to waive, amend or modify
any rights hereunder or make any determination or grant any consent hereunder, without the written
consent of each Lender;
provided
further
that no such agreement shall amend, modify
or otherwise affect the rights or duties of the Administrative Agent hereunder without the prior
written consent of the Administrative Agent. Notwithstanding the foregoing or any other provision
in any Loan Document, the Borrower shall execute any amendment to this Agreement and any other Loan
Document to the extent required to comply with the terms of the Fee and Syndication Letter.
SECTION 9.03.
Expenses; Indemnity; Damage Waiver
. (a) The Borrower shall pay (i) all
reasonable and documented out-of-pocket expenses (including due diligence expenses, syndication
expenses, consultants fees and expenses, travel expenses, and reasonable fees, charges and
disbursements of one counsel and if reasonably required by the Administrative Agent, local counsel
or specialist counsel, and, if counsel for the Administrative Agent determines in good faith that
there is a conflict of interest that requires separate representation for any Agent, any
Bookrunner, the Issuing Bank or any Lender, one additional counsel for each Person subject to such
conflict of interest) incurred by the Bookrunners, the Administrative Agent, and their respective
Affiliates, in connection with the syndication of the credit facilities provided for herein, the
preparation and administration of this Agreement or any amendments, modifications or waivers of the
provisions hereof (whether or not the transactions contemplated hereby or thereby shall be
consummated) and (ii) all reasonable and documented out-of-pocket expenses incurred by any Agent,
the Bookrunners or any Lender, including the fees, charges and disbursements of any counsel for the
Administrative Agent, the Bookrunners or any Lender in connection with the enforcement or
protection of its rights in connection with this Agreement, including its rights under this
Section, or in connection with the Loans made hereunder, including all such out-of-pocket expenses
incurred during any workout, restructuring or negotiations in respect of such Loans.
(b) The Borrower shall indemnify the Administrative Agent, the Bookrunners and each Lender,
and each Related Party of any of the foregoing Persons (each such Person being called an
Indemnitee
) against, and hold each Indemnitee harmless from, any and all losses, claims,
damages, liabilities and related expenses, including the fees, charges and disbursements of any
counsel for any Indemnitee, incurred by or asserted against any Indemnitee arising out of, in
connection with, or as a result of (i) the execution or delivery of this Agreement or any agreement
or instrument contemplated hereby, the performance by the parties hereto of their respective
obligations hereunder or the consummation of the Transactions or any other transactions
contemplated hereby, (ii) any Loan or the use of the proceeds therefrom, (iii) any actual or
alleged presence or release of Hazardous Materials on or from any property owned or operated by the
Borrower or any of its Subsidiaries, or any Environmental Liability related in any way to the
Borrower or any of its Subsidiaries, or (iv) any actual or prospective claim, litigation,
investigation or proceeding relating to any of the foregoing, whether based on contract, tort or
any other theory and regardless of whether any Indemnitee is a party thereto;
provided
that
such indemnity shall not, as to any Indemnitee, be available to the extent that such losses,
claims, damages, liabilities or related expenses are determined by a court of competent
jurisdiction by final and nonappealable judgment to have resulted from the bad faith, gross
negligence or willful misconduct of such Indemnitee. To the extent that the undertakings to
defend, indemnify, pay and hold harmless as set forth in this Section 9.03(b) may be unenforceable
in whole or in part because they are violative of any law or public policy, the Borrower shall
contribute the maximum portion that it is permitted to pay and satisfy under applicable law to the
payment and satisfaction of all such losses, claims, damages, liabilities and related expenses
incurred by the Indemnitees or any of them.
(c) To the extent that the Borrower fails to pay any amount required to be paid by it to the
Administrative Agent or the Bookrunners under paragraph (a) or (b) of this Section, each Lender
53
severally agrees to pay to the Administrative Agent or the Bookrunners, as the case may be,
such Lenders Applicable Percentage with respect to the Facilities (determined as of the time that
the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount;
provided
that the unreimbursed expense or indemnified loss, claim, damage, liability or
related expense, as the case may be, was incurred by or asserted against the Administrative Agent
or the Bookrunners in its capacity as such.
(d) To the extent permitted by applicable law, the Borrower shall not assert, and hereby
waives, any claim against any Indemnitee, on any theory of liability, for special, indirect,
consequential or punitive damages (as opposed to direct or actual damages) arising out of, in
connection with, or as a result of, this Agreement or any agreement or instrument contemplated
hereby, the Transactions or any Loan or the use of the proceeds thereof.
SECTION 9.04.
Successors and Assigns
. (a) The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective successors and
assigns permitted hereby, except that (i) the Borrower may not assign or otherwise transfer any of
its rights or obligations hereunder without the prior written consent of each Lender (and any
attempted assignment or transfer by the Borrower without such consent shall be null and void) and
(ii) no Lender may assign or otherwise transfer its rights or obligations hereunder except in
accordance with this Section. Nothing in this Agreement, expressed or implied, shall be construed
to confer upon any Person (other than the parties hereto, their respective successors and assigns
permitted hereby, Participants (to the extent provided in paragraph (c) of this Section) and, to
the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent
and the Lenders) any legal or equitable right, remedy or claim under or by reason of this
Agreement.
(b) (i) Subject to the conditions set forth in paragraph (b)(ii) below, any Lender may assign
to one or more assignees all or a portion of its rights and obligations under this Agreement
(including all or a portion of its Commitment and the Loans at the time owing to it) with the prior
written consent (such consent not to be unreasonably withheld) of:
(A) the Borrower,
provided
that no consent of the Borrower
shall be required for an assignment to (i) any Lender, an Affiliate of a
Lender, an Approved Fund, (ii) any assignee at any time prior to the
completion of a Successful Syndication (as defined in the Fee and
Syndication Letter) or (iii) if an Event of Default under clauses (a), (b),
(h) or (i) of Article VII has occurred and is continuing or at any time
prior to the completion of a Successful Syndication (as defined in the Fee
and Syndication Letter), any other assignee; and
(B) the Administrative Agent,
provided
that no consent of the
Administrative Agent shall be required for an assignment of any Commitment
to an assignee that is a Lender with a Commitment immediately prior to
giving effect to such assignment; and
(ii) Assignments shall be subject to the following additional conditions:
(A) except in the case of an assignment to a Lender or an Affiliate of
a Lender or an assignment of the entire remaining amount of the assigning
Lenders Commitment or Loans, the amount of the Commitment or Loans of the
assigning Lender subject to each such assignment (determined as of the date
the Assignment and Assumption with respect to such assignment is delivered
to the
54
Administrative Agent) shall not be less than $5,000,000 unless each of
the Borrower and the Administrative Agent otherwise consent,
provided
that no such consent of the Borrower shall be required if
an Event of Default under clauses (a), (b), (h) or (i) of Article VII has
occurred and is continuing;
(B) each partial assignment shall be made as an assignment of a
proportionate part of all the assigning Lenders rights and obligations
under this Agreement;
(C) the parties to each assignment shall execute and deliver to the
Administrative Agent an Assignment and Assumption, together with a
processing and recordation fee of $3,500; and
(D) the assignee, if it shall not be a Lender, shall deliver to the
Administrative Agent an Administrative Questionnaire in which the assignee
designates one or more Credit Contacts to whom all syndicate-level
information (which may contain material non-public information about the
Borrower and any of it Subsidiaries, and their related parties or their
respective securities) will be made available and who may receive such
information in accordance with the assignees compliance procedures and
applicable laws, including Federal and state securities laws.
For the purposes of this Section 9.04(b), the term
Approved Fund
has the following
meaning:
Approved Fund
means any Person (other than a natural person) that is engaged in
making, purchasing, holding or investing in bank loans and similar extensions of credit in
the ordinary course of its business and that is administered or managed by (a) a Lender,
(b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers
or manages a Lender.
(i) Subject to acceptance and recording thereof pursuant to paragraph (b)(iv)
of this Section, from and after the effective date specified in each Assignment and
Assumption the assignee thereunder shall be a party hereto and, to the extent of the
interest assigned by such Assignment and Assumption, have the rights and obligations
of a Lender under this Agreement, and the assigning Lender thereunder shall, to the
extent of the interest assigned by such Assignment and Assumption, be released from
its obligations under this Agreement (and, in the case of an Assignment and
Assumption covering all of the assigning Lenders rights and obligations under this
Agreement, such Lender shall cease to be a party hereto but shall continue to be
entitled to the benefits of Sections 2.14, 2.15, 2.16 and 9.03) to the extent that
any claim thereunder relates to an event arising prior to such assignment. Any
assignment or transfer by a Lender of rights or obligations under this Agreement
that does not comply with this Section 9.04 shall be treated for purposes of this
Agreement as a sale by such Lender of a participation in such rights and obligations
in accordance with paragraph (c) of this Section.
(ii) The Administrative Agent, acting for this purpose as an agent of the
Borrower, shall maintain at one of its offices a copy of each Assignment and
Assumption delivered to it and a register for the recordation of the names and
addresses of the Lenders, and the Commitment of, and principal amount of the Loans
and any interest thereon owing to, each Lender pursuant to the terms hereof from
time to time (the
Register
). The entries in the Register shall be
conclusive absent manifest error, and the
55
Borrower, the Administrative Agent and the Lenders may treat each Person whose
name is recorded in the Register pursuant to the terms hereof as a Lender hereunder
for all purposes of this Agreement, notwithstanding notice to the contrary. The
Register shall be available for inspection by the Borrower and any Lender, at any
reasonable time and from time to time upon reasonable prior notice.
(iii) Upon its receipt of a duly completed Assignment and Assumption executed
by an assigning Lender and an assignee, the assignees completed Administrative
Questionnaire (unless the assignee shall already be a Lender hereunder), the
processing and recordation fee referred to in paragraph (b) of this Section and any
written consent to such assignment required by paragraph (b) of this Section, the
Administrative Agent shall accept such Assignment and Assumption and record the
information contained therein in the Register;
provided
that if either the
assigning Lender or the assignee shall have failed to make any payment required to
be made by it pursuant to Sections 2.06(b), 2.17(d) or 9.03(c), the Administrative
Agent shall have no obligation to accept such Assignment and Assumption and record
the information therein in the Register unless and until such payment shall have
been made in full, together with all accrued interest thereon. No assignment shall
be effective for purposes of this Agreement unless it has been recorded in the
Register as provided in this paragraph.
(c) (i) Any Lender may, without the consent of the Borrower or the Administrative Agent sell
participations to one or more banks or other entities (a
Participant
) in all or a portion
of such Lenders rights and obligations under this Agreement (including all or a portion of its
Commitment and the Loans owing to it);
provided
that (A) such Lenders obligations under
this Agreement shall remain unchanged, (B) such Lender shall remain solely responsible to the other
parties hereto for the performance of such obligations and (C) the Borrower, the Administrative
Agent and the other Lenders shall continue to deal solely and directly with such Lender in
connection with such Lenders rights and obligations under this Agreement. Any agreement or
instrument pursuant to which a Lender sells such a participation shall provide that such Lender
shall retain the sole right to enforce this Agreement and to approve any amendment, modification or
waiver of any provision of this Agreement;
provided
that such agreement or instrument may
provide that such Lender will not, without the consent of the Participant, agree to any amendment,
modification or waiver described in the first proviso to Section 9.02(b) that affects such
Participant. Subject to paragraph (c)(ii) of this Section, the Borrower agrees that each
Participant shall be entitled to the benefits of Sections 2.14, 2.15 and 2.16 to the same extent as
if it were a Lender and had acquired its interest by assignment pursuant to paragraph (b) of this
Section.
(ii) A Participant shall not be entitled to receive any greater payment under
Section 2.14 or 2.16 than the applicable Lender would have been entitled to receive
with respect to the participation sold to such Participant, unless the sale of the
participation to such Participant is made with the Borrowers prior written consent.
A Participant that would be a Foreign Lender if it were a Lender shall not be
entitled to the benefits of Section 2.16 unless the Borrower is notified of the
participation sold to such Participant and such Participant agrees, for the benefit
of the Borrower, to comply with Section 2.16(e) as though it were a Lender and in
any event shall not be entitled to any greater payment than the applicable Lender
that sold such participation to such Participant would have been entitled to
receive.
(d) Any Lender may at any time pledge or assign a security interest in all or any portion of
its rights under this Agreement to secure obligations of such Lender, including without limitation
any pledge or assignment to secure obligations to a Federal Reserve Bank, and this Section shall
not apply to any such pledge or assignment of a security interest;
provided
that no such
pledge or
56
assignment of a security interest shall release a Lender from any of its obligations hereunder
or substitute any such pledgee or assignee for such Lender as a party hereto.
SECTION 9.05.
Survival
. All covenants, agreements, representations and warranties
made by the Borrower herein and in the certificates or other instruments delivered in connection
with or pursuant to this Agreement shall be considered to have been relied upon by the other
parties hereto and shall survive the execution and delivery of this Agreement and the making of any
Loans, regardless of any investigation made by any such other party or on its behalf and
notwithstanding that the Administrative Agent or any Lender may have had notice or knowledge of any
Default or incorrect representation or warranty at the time any credit is extended hereunder, and
shall continue in full force and effect as long as the principal of or any accrued interest on any
Loan or any fee or any other amount payable under this Agreement is outstanding and unpaid and so
long as the Commitments have not expired or terminated. The provisions of Sections 2.14, 2.15,
2.16 and 9.03 and Article VIII shall survive and remain in full force and effect regardless of the
consummation of the transactions contemplated hereby, the repayment of the Loans, the expiration or
termination of the Commitments or the termination of this Agreement of any provision hereof.
SECTION 9.06.
Counterparts; Integration; Effectiveness
. This Agreement may be
executed in counterparts (and by different parties hereto on different counterparts), each of which
shall constitute an original, but all of which when taken together shall constitute a single
contract. This Agreement, the other Loan Documents and any separate letter agreements with respect
to fees payable to the Administrative Agent constitute the entire contract among the parties
relating to the subject matter hereof and supersede any and all previous agreements and
understandings, oral or written, relating to the subject matter hereof. Except as provided in
Section 4.01, this Agreement shall become effective when it shall have been executed by the
Administrative Agent and when the Administrative Agent shall have received counterparts hereof
which, when taken together, bear the signatures of each of the other parties hereto, and thereafter
shall be binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns. Delivery of an executed counterpart of a signature page of this Agreement
by telecopy or other electronic communication shall be effective as delivery of a manually executed
counterpart of this Agreement.
SECTION 9.07.
Severability
. Any provision of this Agreement held to be invalid,
illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the
extent of such invalidity, illegality or unenforceability without affecting the validity, legality
and enforceability of the remaining provisions hereof; and the invalidity of a particular provision
in a particular jurisdiction shall not invalidate such provision in any other jurisdiction.
SECTION 9.08.
Right of Setoff
. If an Event of Default shall have occurred and be
continuing, each Lender and each of its Affiliates is hereby authorized at any time and from time
to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general
or special, time or demand, provisional or final) at any time held and other obligations at any
time owing by such Lender or Affiliate to or for the credit or the account of the Borrower against
any of and all the obligations of the Borrower now or hereafter existing under this Agreement held
by such Lender to the extent then due and owing, irrespective of whether or not such Lender shall
have made any demand under this Agreement. Each Lender agrees to notify the Borrower promptly of
its exercise of any rights under this Section, but the failure to provide such notice shall not
otherwise limit its rights under this Section or result in any liability to such Lender. The
rights of each Lender under this Section are in addition to other rights and remedies (including
other rights of setoff) which such Lender may have.
SECTION 9.09.
Governing Law; Jurisdiction; Consent to Service of Process
. (a) This
Agreement shall be construed in accordance with and governed by the law of the State of New York.
57
(b) The Borrower hereby irrevocably and unconditionally submits, for itself and its property,
to the nonexclusive jurisdiction of the Supreme Court of the State of New York sitting in New York
County and of the United States District Court of the Southern District of New York, and any
appellate court from any thereof, in any action or proceeding arising out of or relating to this
Agreement, or for recognition or enforcement of any judgment, and each of the parties hereto hereby
irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding
may be heard and determined in such New York State or, to the extent permitted by law, in such
Federal court. Each of the parties hereto agrees that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment
or in any other manner provided by law. Nothing in this Agreement shall affect any right that the
Administrative Agent or any Lender may otherwise have to bring any action or proceeding relating to
this Agreement against the Borrower or its properties in the courts of any jurisdiction.
(c) The Borrower hereby irrevocably and unconditionally waives, to the fullest extent it may
legally and effectively do so, any objection which it may now or hereafter have to the laying of
venue of any suit, action or proceeding arising out of or relating to this Agreement in any court
referred to in paragraph (b) of this Section. Each of the parties hereto hereby irrevocably
waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the
maintenance of such action or proceeding in any such court.
(d) Each party to this Agreement irrevocably consents to service of process at the address
provided for Section 9.01. Nothing in this Agreement will affect the right of any party to this
Agreement to serve process in any other manner permitted by law.
SECTION 9.10.
WAIVER OF JURY TRIAL
. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL
PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A)
CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE
FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO
ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS
SECTION.
SECTION 9.11.
Headings
. Article and Section headings and the Table of Contents used
herein are for convenience of reference only, are not part of this Agreement and shall not affect
the construction of, or be taken into consideration in interpreting, this Agreement.
SECTION 9.12.
Confidentiality
. (a) Each of the Administrative Agent, the Bookrunners
and the Lenders agrees to maintain the confidentiality of the Information (as defined below in
accordance with such persons customary procedures for handling confidential information of such
nature), except that Information may be disclosed (i) to its and its Affiliates partners,
directors, officers, employees and agents, including accountants, legal counsel and other advisors
(it being understood that the Persons to whom such disclosure is made will be informed of the
confidential nature of such Information and instructed to keep such Information confidential), (ii)
to the extent requested by any regulatory authority, (iii) to the extent required by applicable
laws or regulations or by any subpoena or similar legal process (
provided
that, unless
prohibited by applicable law or court order, such disclosing party shall use reasonable efforts to
notify the Borrower prior to such disclosure), (iv) to any other party to this Agreement, (v) to
any rating agency when required by it,
provided
that, prior to any disclosure,
58
such rating agency shall undertake in writing to preserve the confidentiality of any such
information, (vi) in connection with the exercise of any remedies hereunder or any suit, action or
proceeding relating to this Agreement or the enforcement of rights hereunder, (vii) subject to an
agreement containing provisions no less restrictive than those of this Section, to (1) any assignee
of or Participant in, or any prospective assignee of or Participant in, any of its rights or
obligations under this Agreement or (2) any actual or prospective counterparty (or its advisors) to
any swap or derivative transaction relating to the Borrower and its obligations, (viii) with the
consent of the Borrower or (ix) to the extent such Information (1) becomes publicly available other
than as a result of a breach of this Section or (2) becomes available to the Administrative Agent,
any Bookrunner or any Lender from a source other than the Borrower not known by such person to be
in breach of any legal or contractual obligation not to disclose such information to the
Administrative Agent, the Bookrunners or such Lender. In addition, the Administrative Agent, each
Bookrunner and each Lender may disclose the existence of this Agreement and the information about
this Agreement to market data collectors, similar service providers to the lending industry, and
service providers in connection with the administration and management of this Agreement and the
other Loan Documents;
provided
that, no such Person shall disclose the identity of the
Borrower. For the purposes of this Section,
Information
means all information received
from the Borrower or any of its Affiliates relating to the Borrower or its business, other than any
such information that is available to the Administrative Agent, any Bookrunner or any Lender on a
nonconfidential basis prior to disclosure by the Borrower or any of its Affiliates unless the
Administrative Agent has actual knowledge that such information is being made available by a Person
in breach of any legal or contractual obligation not to disclose such information. Any Person
required to maintain the confidentiality of Information as provided in this Section shall be
considered to have complied with its obligation to do so if such Person has exercised the same
degree of care to maintain the confidentiality of such Information as such Person would accord to
its own confidential information.
(b) Notwithstanding the provisions of Section 9.12(a) or anything contrary set forth herein,
each party to this Agreement (and each of their respective employees, representatives or other
agents) may disclose to any and all persons, without limitation of any kind, the tax treatment and
tax structure of the facilities in relation to the Financing Transactions and all materials of any
kind (including opinions or other tax analyses) that are provided to the Borrower relating to such
tax treatment and tax structure. However, any information relating to the tax treatment or tax
structure will remain subject to the confidentiality provisions set forth above (and the foregoing
sentence will not apply) to the extent reasonably necessary to enable the parties hereto, their
respective affiliates, and their and their respective affiliates directors and employees to comply
with applicable securities laws. For this purpose, tax treatment means U.S. federal or state
income tax treatment, and tax structure is limited to any facts relevant to the U.S. federal
income tax treatment of the transactions contemplated by this Agreement but does not include
information relating to the identity of the parties hereto or any of their respective affiliates.
(c)
EACH LENDER ACKNOWLEDGES THAT INFORMATION AS DEFINED IN SECTION 9.
12(a)
FURNISHED TO IT
PURSUANT TO THIS AGREEMENT MAY INCLUDE MATERIAL NON-PUBLIC INFORMATION CONCERNING THE BORROWER AND
ITS RELATED PARTIES OR THEIR RESPECTIVE SECURITIES, AND CONFIRMS THAT IT HAS DEVELOPED COMPLIANCE
PROCEDURES REGARDING THE USE OF MATERIAL NON-PUBLIC INFORMATION AND THAT IT WILL HANDLE SUCH
MATERIAL NON-PUBLIC INFORMATION IN ACCORDANCE WITH THOSE PROCEDURES AND APPLICABLE LAW, INCLUDING
FEDERAL AND STATE SECURITIES LAWS.
(d)
ALL INFORMATION, INCLUDING REQUESTS FOR WAIVERS AND AMENDMENTS, FURNISHED BY THE BORROWER
OR THE ADMINISTRATIVE AGENT PURSUANT TO, OR IN THE COURSE OF ADMINISTERING, THIS AGREEMENT WILL BE
59
SYNDICATE-LEVEL INFORMATION, WHICH MAY CONTAIN MATERIAL NON-PUBLIC INFORMATION ABOUT THE
BORROWER AND ITS SUBSIDIARIES, AND THEIR RELATED PARTIES OR THEIR RESPECTIVE SECURITIES.
ACCORDINGLY, EACH LENDER REPRESENTS TO THE BORROWER AND THE ADMINISTRATIVE AGENT THAT IT HAS
IDENTIFIED IN ITS ADMINISTRATIVE QUESTIONNAIRE A CREDIT CONTACT WHO MAY RECEIVE INFORMATION THAT
MAY CONTAIN MATERIAL NON-PUBLIC INFORMATION IN ACCORDANCE WITH ITS COMPLIANCE PROCEDURES AND
APPLICABLE LAW.
SECTION 9.13.
Interest Rate Limitation
. Notwithstanding anything herein to the
contrary, if at any time the interest rate applicable to any Loan, together with all fees, charges
and other amounts which are treated as interest on such Loan under applicable law (collectively the
Charges
), shall exceed the maximum lawful rate (the
Maximum Rate
) which may be
contracted for, charged, taken, received or reserved by the Lender holding such Loan in accordance
with applicable law, the rate of interest payable in respect of such Loan hereunder, together with
all Charges payable in respect thereof, shall be limited to the Maximum Rate and, to the extent
lawful, the interest and Charges that would have been payable in respect of such Loan but were not
payable as a result of the operation of this Section shall be cumulated and the interest and
Charges payable to such Lender in respect of other Loans or periods shall be increased (but not
above the Maximum Rate therefor) until such cumulated amount, together with interest thereon at the
Federal Funds Effective Rate to the date of repayment, shall have been received by such Lender.
SECTION 9.14.
Patriot Act
. Each Lender subject to the Patriot Act hereby notifies the
Borrower and each Guarantor that, pursuant to Section 326 of the Patriot Act, it is required to
obtain, verify and record information that identifies the Borrower and each Guarantor, including
the name and address of the Borrower and each Guarantor and other information that will allow such
Lender to identify the Borrower and each Guarantor in accordance with the Patriot Act.
SECTION 9.15.
No Advisory or Fiduciary Responsibility
. In connection with all aspects
of each transaction contemplated hereby (including in connection with any amendment, waiver or
other modification hereof or of any other Loan Document), the Borrower acknowledges and agrees
that: (i) (A) the arranging and other services regarding this Agreement provided by the
Administrative Agent and the Bookrunners are arms-length commercial transactions between the
Borrower and its Affiliates, on the one hand, and the Administrative Agent and the Bookrunners, on
the other hand, (B) the Borrower has consulted its own legal, accounting, regulatory and tax
advisors to the extent it has deemed appropriate, and (C) the Borrower is capable of evaluating,
and understands and accepts, the terms, risks and conditions of the transactions contemplated
hereby and by the other Loan Documents; (ii) (A) each of the Administrative Agent, the Bookrunners
and the Lenders is and has been acting solely as a principal and, except as expressly agreed in
writing by the relevant parties, has not been, is not, and will not be acting as an advisor, agent
or fiduciary for the Borrower or any of its Affiliates, or any other Person, (B) irrespective of
whether any Lender, any Bookrunner, the Administrative Agent or any of their Affiliates has advised
or is advising the Borrower on other matters, the Borrower shall not claim any such fiduciary,
advisory or agency relationship or services and the Borrower acknowledges that none of the
Administrative Agent, any Lender, any Bookrunner or any of their Affiliates owes a fiduciary or
similar duty to Cadbury, Cadbury UK, the Borrower, or the Business in connection with the
Transactions or the process leading thereto and; and (iii) the Administrative Agent, the Lenders
and the Bookrunners and their respective Affiliates may be engaged in a broad range of transactions
that involve interests that differ from those of the Borrower and its Affiliates, and no Agent nor
any Bookrunner or Lender has any obligation to disclose any of such interests to the Borrower or
its Affiliates.
60
SECTION 9.16.
Release of Guarantors
. (a) Notwithstanding anything to the contrary
contained herein or in any other Loan Document, upon request of the Borrower in connection with (i)
any disposition of a Subsidiary that is a Guarantor as permitted by the Loan Documents and
immediately following such disposition such Subsidiary will no longer be a Subsidiary of the
Borrower or (ii) a Subsidiary becoming an Excluded Subsidiary (including by being designated in
writing by the Borrower as an Immaterial Subsidiary in accordance with the terms of this
Agreement) as permitted by the Loan Documents, the Administrative Agent shall (without notice to,
or vote or consent of, any Lender) take such actions as shall be required to release any guarantee
obligations under any Loan Document of any Guarantor being disposed of in such disposition, to the
extent necessary to permit consummation of such disposition in accordance with the Loan Documents,
or becoming an Excluded Subsidiary, in accordance with the Loan Documents.
(b) Notwithstanding anything to the contrary contained herein or any other Loan Document, when
the principal and interest with respect to all Loans and all other monetary payment Obligations
which are then due and payable have been paid in full and all Commitments have terminated or
expired, upon request of the Borrower, the Administrative Agent shall (without notice to, or vote
or consent of, any Lender) take such actions as shall be required to release all guarantee
obligations under any Loan Document of any Guarantor. Any such release of guarantee obligations
shall be deemed subject to the provision that such guarantee obligations shall be reinstated if
within 180 days after such release (or such longer period under any Federal, state or foreign
bankruptcy, insolvency, receivership or similar law now or hereafter in effect during which any
payment in respect of the Obligations guaranteed thereby can be annulled, avoided, set aside,
rescinded, invalidated, declared to be fraudulent or preferential or otherwise required to be
refunded or repaid) any portion of any payment in respect of the Obligations guaranteed thereby
shall be rescinded or must otherwise be restored or returned upon the insolvency, bankruptcy,
dissolution, liquidation or reorganization of the Borrower or any Guarantor, or upon or as a result
of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for,
the Borrower or any Guarantor or any substantial part of its property, or otherwise, all as though
such payment had not been made;
provided
,
however
, that any such reinstated
guarantee shall be released immediately upon the Obligations being indefeasibly paid in full.
[SIGNATURE PAGES FOLLOW]
61
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their
respective authorized officers as of the day and year first above written.
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DR PEPPER SNAPPLE GROUP, INC.,
as Borrower
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By
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/s/
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Name:
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Title:
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[SIGNATURE PAGE TO CREDIT AGREEMENT]
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JPMORGAN CHASE BANK, N.A., individually and as
Administrative Agent, a Joint Lead Arranger and a
Lender
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By
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/s/
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Name:
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Title:
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J.P. MORGAN SECURITIES INC., as Bookrunner
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By
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Name:
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Title:
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[SIGNATURE PAGE TO CREDIT AGREEMENT]
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BANC OF AMERICA SECURITIES LLC, as a Joint
Lead Arranger and a Bookrunner
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By
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/s/
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Name:
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Title:
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BANK OF AMERICA, N.A., as Syndication Agent and
as a Lender
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By
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Name:
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Title:
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[SIGNATURE PAGE TO CREDIT AGREEMENT]
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GOLDMAN SACHS CREDIT PARTNERS L.P., as a
Documentation Agent, a Bookrunner and a Lender
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By
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/s/
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Authorized Signatory
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[SIGNATURE PAGE TO CREDIT AGREEMENT]
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MORGAN STANLEY SENIOR FUNDING, INC., as a
Documentation Agent, a Bookrunner and a Lender
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By
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/s/
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Name:
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Title:
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[SIGNATURE PAGE TO CREDIT AGREEMENT]
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UBS SECURITIES LLC, as Bookrunner and
Documentation Agent
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By
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/s/
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Name:
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Title:
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By
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/s/
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Name:
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Title:
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UBS LOAN FINANCE LLC, as a Lender
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By
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/s/
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Name:
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Title:
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By
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/s/
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Name:
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Title:
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[SIGNATURE PAGE TO CREDIT AGREEMENT]
Information
contained herein is subject to completion or amendment. A
Registration Statement on Form 10 relating to these
securities has been filed with the United States Securities and
Exchange Commission under the United States Securities Exchange
Act of 1934, as amended.
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Preliminary
and Subject to Completion, dated March 20, 2008
INFORMATION
STATEMENT
Dr Pepper Snapple Group,
Inc.
We are furnishing this information statement to the shareholders
of Cadbury Schweppes plc (Cadbury Schweppes) in
connection with the distribution of all of the outstanding
shares of common stock of Dr Pepper Snapple Group, Inc.
(DPS) to shareholders of Cadbury Schweppes. After
the distribution is completed, DPS will be a separate company
and will own and operate Cadbury Schweppes beverage
business in the United States, Canada, Mexico and the Caribbean
(the Americas Beverages business). Cadbury
Schweppes global confectionery business and its other
beverages business (located principally in Australia) will be
owned and operated by Cadbury plc, a U.K. company, which will be
the new publicly-traded parent company of Cadbury Schweppes.
On April 11, 2008, a shareholder vote to approve the
distribution is scheduled to be held in the United Kingdom. If
shareholders approve the separation and distribution, no further
action by Cadbury Schweppes shareholders will be necessary for
you to receive the shares of our common stock to which you are
entitled in the distribution. You do not need to pay any
consideration to DPS, Cadbury Schweppes or Cadbury plc. The
distribution remains contingent on, among other things, the
approval of Cadbury Schweppes shareholders and the court
approval of certain matters in the United Kingdom. The final
court approval is scheduled for May 6, 2008. Immediately
after the distribution is completed, we will be an independent
public company. We expect the distribution to occur on
May 7, 2008. For additional details regarding the
distribution, see The Distribution in this
information statement.
All of our common stock is currently owned by Cadbury Schweppes.
Accordingly, currently there is no public trading market for our
common stock. We intend to apply to have our common stock
authorized for listing on the New York Stock Exchange under the
symbol DPS.
As you review this information statement, you should
carefully consider the matters described in Risk
Factors beginning on page 14 of this information
statement.
Neither the United States Securities and Exchange Commission
nor any U.S. state securities commission has approved or
disapproved of these securities or determined if this
information statement is truthful or complete. Any
representation to the contrary is a criminal offense.
This information statement does not constitute an offer to sell
or the solicitation of an offer to buy any securities.
The date of this information statement
is ,
2008.
This information statement is expected to be mailed to
shareholders of Cadbury Schweppes on or
about ,
2008.
TABLE OF
CONTENTS
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1
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126
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F-1
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In this information statement, references to DPS,
our company, we, us and
our refer to Dr Pepper Snapple Group, Inc. and its
subsidiaries, references to Cadbury Schweppes refer
to Cadbury Schweppes plc and its subsidiaries and references to
Cadbury plc refer to Cadbury plc and its
subsidiaries, except in each case where otherwise indicated or
the context otherwise requires.
We were recently formed for the purpose of holding Cadbury
Schweppes Americas Beverages business in connection with
the separation and distribution described herein and had no
operations prior to the separation and distribution. Our company
was initially incorporated under the name CSAB Inc. The name of
our company was changed from CSAB Inc. to Dr Pepper Snapple
Group, Inc. on January 2, 2008.
The fiscal years presented in this information statement are the
52-week
periods ended December 31, 2007 and 2006, which we refer to
as 2007 and 2006, respectively,
the
52-week
period ended January 1, 2006, which we refer to as
2005, and
53-week
period ended January 2, 2005, which we refer to as
2004. Beginning in 2006, our fiscal year ends on
December 31 of each year. In 2005 and 2004, the year end
date represented the Sunday closest to December 31.
This information statement contains some of our owned or
licensed trademarks, trade names and service marks, which we
refer to as our brands. All of the product names and logos
included in the information statement are either our registered
trademarks or those of our licensors.
The market and industry data in this information statement is
from the following independent industry sources: ACNielsen of
the Nielsen Company (ACNielsen), Beverage Digest LLC
(Beverage Digest) and Canadean Limited
(Canadean). For a description of the different
methodologies used by these sources (including the sales
channels covered), see Industry Use of Market
Data in this Information Statement.
i
INFORMATION
STATEMENT SUMMARY
This summary highlights information contained elsewhere in
this information statement. It is not complete and may not
contain all the information that may be important to you. You
should read the entire information statement carefully,
especially the information presented under the heading
Risk Factors, our unaudited pro forma combined
financial statements and our audited combined financial
statements included elsewhere in this information statement.
Our historical combined financial information has been
prepared on a carve-out basis from Cadbury
Schweppes consolidated financial statements using the
historical results of operations, assets and liabilities,
attributable to Cadbury Schweppes Americas Beverages
business and including allocations of expenses from Cadbury
Schweppes. Our unaudited pro forma combined financial
information adjusts our historical combined financial
information to give effect to our separation from Cadbury
Schweppes, the distribution of our common stock and the related
financing, each as described herein.
Our
Company
We are a leading integrated brand owner, bottler and distributor
of non-alcoholic beverages in the United States, Canada and
Mexico with a diverse portfolio of flavored (non-cola)
carbonated soft drinks (CSDs) and non-carbonated
soft drinks (non-CSDs), including ready-to-drink
teas, juices, juice drinks and mixers. We have some of the most
recognized beverage brands in North America, with significant
consumer awareness levels and long histories that evoke strong
emotional connections with consumers.
The following table provides highlights about our company and
our key brands:
Our
Company
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#1 flavored CSD company in the United States
More than 75% of our volume from brands that are either #1 or #2 in their category
#3 North American liquid refreshment beverage business
$5.7 billion of net sales in 2007 from the United States (89%), Canada (4%) and Mexico and the Caribbean (7%)
$1.0 billion of income from operations in 2007
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Our
Key Brands
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#1 in its flavor category and #2 overall flavored CSD in the United States
Distinguished by its unique blend of 23 flavors and loyal consumer following
Flavors include regular, diet and Soda Fountain Classics line extensions
Oldest major soft drink in the United States, introduced in 1885
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A leading ready-to-drink tea in the United States
Teas include premium Snapple teas and super premium white, green, red and black teas
Brand also includes premium juices, juice drinks and recently launched enhanced waters
Founded in Brooklyn, New York in 1972
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#2 lemon-lime CSD in the United
States
Re-launched in 2006 as the only major
lemon-lime CSD with all-natural flavors and no artificial
preservatives
Flavors include regular, diet and
cherry
The original Un-Cola,
created in 1929
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#1 apple juice and #1 apple sauce brand
in the United States
Juice products include apple and other
fruit juices, Motts Plus and Motts for Tots
Apple sauce products include regular,
unsweetened, flavored and organic
Brand began as a line of apple cider and
vinegar offerings in 1876
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#1 orange CSD in the United States
Flavors include orange, diet and other
fruits
Licensed to us as a soft drink by the
Sunkist Growers Association since 1986
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#1 fruit punch brand in the United
States
Brand includes a variety of fruit
flavored and reduced calorie juice drinks
Developed originally as an ice cream
topping known as Leos Hawaiian Punch in 1934
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#1 root beer in the United States
Flavors include regular and diet root
beer and cream soda
A classic all-American soda first sold
at a veterans parade in 1919
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#1 ginger ale in the United States and
Canada
Brand includes club soda, tonic and
other mixers
Created in Toronto, Canada in 1904 and
introduced in the United States in 1919
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#2 ginger ale in the United States and
Canada
Brand includes club soda, tonic and
other mixers
First carbonated beverage in the world,
invented in 1783
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#1 grapefruit CSD in the United States
and #2 grapefruit CSD in Mexico
Flavors include regular, diet and ruby
red
Founded in 1938
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A leading spicy tomato juice brand in
the United States, Canada and Mexico
Key ingredient in Canadas popular
cocktail, the Bloody Caesar
Created in 1969
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#1 carbonated mineral water brand in
Mexico
Brand includes Flavors, Twist and
Naturel
Mexicos oldest mineral water,
founded in 1928
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#1 portfolio of mixer brands in the
United States
#1 mixer brand (Mr & Mrs T) in the
United States
Leading mixers (Margaritaville and
Roses) in their flavor categories
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Note:
All information regarding the beverage
market in the United States is from Beverage Digest, and, except
as otherwise indicated, is from 2006. Certain limited United
States beverage market information for 2007 is available from
Beverage Digest and is contained herein, but in most instances
2006 information is the most recent available from Beverage
Digest. All information regarding the beverage markets in Canada
and Mexico is from Canadean and is from 2006. All information
regarding our brand market positions in the United States is
from ACNielsen and is based on retail dollar sales in 2007. All
information regarding our brand market positions in Canada is
from ACNielsen and is based on volume in 2007. All information
regarding our brand market positions in Mexico is from Canadean
and is based on volume in 2006. When 2006 information is used,
it is the most recent information available from the applicable
source. For a description of the different methodologies used by
these sources (including sales channels covered), see
Industry Use of Market Data in this
Information Statement.
2
We have built our business over the last 25 years, through
a series of strategic acquisitions, into an integrated brand
owner, bottler and distributor that is now the third largest
liquid refreshment beverage company in North America (according
to Beverage Digest and Canadean). Most recently, we acquired
several bottling businesses in the United States, which provide
us with more control over the bottling, distribution and
route-to-market
for our products. In 2007, we bottled and/or distributed
approximately 45% of our total products sold in the United
States (as measured by volume).
Our business is currently part of Cadbury Schweppes. Following
our separation from Cadbury Schweppes, we will be an
independent, publicly-traded company, and Cadbury Schweppes will
not retain any ownership interest in us. In connection with the
separation, we will enter into a number of agreements with
Cadbury plc that will govern our relationship following the
separation. These include agreements to provide each other with
services during a transition period and indemnify each other
against certain liabilities arising from our respective
businesses and from the separation. For a more detailed
description of the separation, see The Distribution
and for a more detailed description of these agreements, see
Our Relationship with Cadbury plc After the
Distribution.
Our
Industry
Total retail sales (i.e., sales to end consumers) in 2006 in the
U.S. liquid refreshment beverage market were
$106 billion, with CSDs accounting for 66.1%,
non-CSDs
(including ready-to-drink teas, juices, juice drinks and sports
drinks) accounting for 19.7% and bottled water accounting for
14.2%. The U.S. liquid refreshment beverage market has
grown over the last five years, with average annual volume
growth of 3.9% between 2001 and 2006 and average annual retail
sales growth of 5.1% over the same period. In 2006, CSD retail
sales grew 2.9%, despite a 0.6% decline in volume. Within the
CSD market segment, flavored CSDs increased their share (as
measured by volume), from 40.1% in 2001 to 42.6% in 2006, and
colas lost share from 59.9% in 2001 to 57.4% in 2006. According
to the latest available information from Beverage Digest, in
2007 CSD retail sales increased 2.7% despite a 2.3% decline in
volume. Non-CSDs have experienced strong volume growth over the
last five years with their share of the U.S. liquid refreshment
beverage market increasing from 12.7% in 2001 to 16.3% in 2006.
Non-CSD volume and retail sales increased by 13.2% and 14.8%,
respectively, in 2006, with strong growth in
ready-to-drink
teas, sports drinks and juice drinks. The Canadian and Mexican
markets have exhibited broadly similar trends to those in the
United States, except that Mexican CSD volume grew 4.9% in 2006
according to Canadean. All U.S. market and industry data
set forth in this paragraph is from Beverage Digest. See
Industry Use of Market Data in this
Information Statement.
Our
Strengths
The key strengths of our business are:
Strong portfolio of leading, consumer-preferred
brands.
We own a diverse portfolio of well-known
CSD and
non-CSD
brands, which provides our bottlers, distributors and retailers
with a wide variety of products and provides us with a platform
for growth and profitability. We are the #1 flavored CSD
company in the United States. In addition, we are the only major
beverage concentrate manufacturer with year-over-year market
share growth in the CSD market segment in each of the last four
years. Our largest brand,
Dr Pepper,
is the #2 flavored CSD in the United States, according to
ACNielsen, and our Snapple brand is a leading ready-to-drink
tea. Overall, in 2007, more than 75% of our volume was generated
by brands that hold either the #1 or #2 position in
their category. The strength of our key brands has allowed us to
launch innovations and brand extensions such as Dr Pepper Soda
Fountain Classics, Motts for Tots and Snapple Antioxidant
Waters.
Integrated business model.
We believe our
brand ownership, bottling and distribution are more integrated
than the U.S. operations of our principal competitors and that
this differentiation provides us with a competitive advantage.
Our integrated business model strengthens our route-to-market
and enables us to improve focus on our brands. Our integrated
business model also provides opportunities for net sales and
profit growth through the alignment of the economic interests of
our brand ownership and our bottling and distribution businesses.
Strong customer relationships.
Our brands have
enjoyed long-standing relationships with many of our top
customers. We sell our products to a wide range of customers,
from bottlers and distributors to national retailers, large
foodservice and convenience store customers. We have strong
relationships with some of the largest bottlers
3
and distributors, including those affiliated with The Coca-Cola
Company (Coca-Cola) and PepsiCo, Inc.
(PepsiCo), some of the largest and most important
retailers, including
Wal-Mart,
Safeway, Kroger and Target, some of the largest foodservice
customers, including McDonalds, Yum! and Burger King, and
convenience store customers, including 7-Eleven.
Attractive positioning within a large, growing and profitable
market.
We hold the #3 position in each of
the United States, Canada and Mexico, three of the top ten
beverage markets by CSD volume, according to Beverage Digest and
Canadean. In addition, we participate in many of the growing
categories in the liquid refreshment beverage market, such as
ready-to-drink
teas. We do not participate significantly in colas, which have
declined in CSD volume share from 70.0% in 1991 to 57.4% in 2006
in the United States, according to Beverage Digest. We also do
not participate significantly in the bottled water market
segment, which we believe is a highly competitive and generally
low margin market segment.
Broad geographic manufacturing and distribution
coverage.
As of December 31, 2007, we had
21 manufacturing facilities and more than
250 distribution centers in the United States, as well as 4
manufacturing facilities and more than 25 distribution
centers in Mexico. These facilities use a variety of
manufacturing processes. Following our recent bottling
acquisitions and manufacturing investments, we now have greater
geographic coverage with strategically located manufacturing and
distribution capabilities, enabling us to better align our
operations with our customers, reduce transportation costs and
have greater control over the timing and coordination of new
product launches.
Strong operating margins and significant, stable cash
flows.
The breadth and strength of our brand
portfolio have enabled us to generate strong operating margins
which, combined with our relatively modest capital expenditures,
have delivered significant and stable cash flows. These cash
flows create stockholder value by enabling us to consider a
variety of alternatives, such as investing in our business,
reducing debt and returning capital to our stockholders.
Experienced executive management team.
Our
executive management team has an average of more than
20 years of experience in the food and beverage industry.
The team has broad experience in brand ownership, bottling and
distribution, and enjoys strong relationships both within the
industry and with major customers.
Our
Strategy
The key elements of our business strategy are to:
Build and enhance leading brands.
We have a
well-defined portfolio strategy to allocate our marketing and
sales resources. We use an on-going process of market and
consumer analysis to identify key brands that we believe have
the greatest potential for profitable sales growth. For example,
in 2006 and 2007, we continued to enhance the Snapple portfolio
by launching brand extensions with functional benefits, such as
super premium teas and juice drinks and Snapple Antioxidant
Waters. We intend to continue to invest most heavily in our key
brands to drive profitable and sustainable growth by
strengthening consumer awareness, developing innovative products
and brand extensions to take advantage of evolving consumer
trends, improving distribution and increasing promotional
effectiveness.
Focus on opportunities in high growth and high margin
categories.
We are focused on driving growth in
our business in selected profitable and emerging categories.
These categories include ready-to-drink teas, energy drinks and
other functional beverages. We also intend to capitalize on
opportunities in these categories through brand extensions, new
product launches and selective acquisitions of brand and
distribution rights.
Increase presence in high margin channels and
packages.
We are focused on improving our product
presence in high margin channels, such as convenience stores,
vending machines and small independent retail outlets, through
increased selling activity and significant investments in
coolers and other cold drink equipment. We also intend to
increase demand for high margin products like single-serve
packages for many of our key brands through increased
promotional activity and innovation.
Leverage our integrated business model.
We
believe our integrated brand ownership, bottling and
distribution business model provides us opportunities for net
sales and profit growth through the alignment of the economic
interests of our brand ownership and our bottling and
distribution businesses. We intend to leverage our integrated
business model to reduce costs by creating greater geographic
manufacturing and distribution
4
coverage and to be more flexible and responsive to the changing
needs of our large retail customers by coordinating sales,
service, distribution, promotions and product launches.
Strengthen our route-to-market through
acquisitions.
The acquisition and creation of our
Bottling Group is part of our longer-term initiative to
strengthen the route-to-market for our products. We believe
additional acquisitions of regional bottling companies will
broaden our geographic coverage in regions where we are
currently under-represented and enhance coordination with our
large retail customers.
Improve operating efficiency.
We believe our
recently announced restructuring will reduce our selling,
general and administrative expenses and improve our operating
efficiency. In addition, the integration of recent acquisitions
into our Bottling Group has created the opportunity to improve
our manufacturing, warehousing and distribution operations.
Background
and Reasons for the Distribution
On March 15, 2007, Cadbury Schweppes announced that it
intended to separate its Americas Beverages business from its
global confectionery business and its other beverages business
(located principally in Australia). The board of directors of
Cadbury Schweppes initially determined to simultaneously explore
the potential for both a sale of our company to a third party
and a distribution of our common stock to Cadbury Schweppes
shareholders as alternatives for the separation of the
businesses. After determining that difficult debt market
conditions would not facilitate an acceptable sale process for
the foreseeable future, Cadbury Schweppes announced on
October 10, 2007 that it intended to focus on the
separation of its Americas Beverages business through the
distribution of the common stock of DPS to Cadbury Schweppes
shareholders. On February 15, 2008, Cadbury Schweppes
board of directors approved the distribution of our common stock
to the shareholders of Cadbury Schweppes. Cadbury Schweppes
believes that the separation of its Americas Beverages business
from its global confectionery business and its other beverages
business (located principally in Australia) will enhance value
for stockholders of DPS and shareholders of Cadbury plc, the new
parent company of Cadbury Schweppes, by creating significant
opportunities and benefits, including:
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allowing the management of each company to focus its efforts on
its own business and strategic priorities;
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enabling each company to allocate its capital more efficiently;
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providing DPS with direct access to the debt and equity capital
markets;
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improving DPSs ability to pursue strategic transactions
through the use of shares of common stock as consideration;
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enhancing DPSs market recognition with investors; and
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increasing DPSs ability to attract and retain employees by
providing equity compensation tied directly to its business.
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For more information on the distribution, see The
Distribution.
Risk
Factors
Our new company faces both general and specific risks and
uncertainties relating to our business, our separation from
Cadbury Schweppes and our being a publicly-traded company
following the distribution, which are described in Risk
Factors, beginning on page 14.
Recent
Developments
New
Financing Arrangements
On March 10, 2008, we entered into arrangements with a
group of lenders to provide us with an aggregate of
$4.4 billion of financing. The new arrangements consist of
a $2.4 billion senior credit agreement that provides a
$1.9 billion term loan A facility and a
$500 million revolving credit facility and a 364-day bridge
credit agreement that provides a $2.0 billion bridge loan
facility. We currently expect to borrow an aggregate of
$3.9 billion under the term loan A facility and the
bridge loan facility in connection with the separation. We
currently intend, subject to
5
prevailing market conditions, to replace all or a portion of
the bridge loan facility with the proceeds from the issuance of
one or more series of notes
and/or
an
alternative term loan facility. See Description of
Indebtedness.
New
President and Chief Executive Officer
Larry Young was appointed President and Chief Executive Officer
of Cadbury Schweppes Americas Beverages business on
October 10, 2007. Mr. Young was previously our Chief
Operating Officer, as well as President, Bottling Group, and has
more than 30 years of experience in the bottling and
beverages industry.
Organizational
Restructuring
On October 10, 2007, we announced a restructuring of our
organization intended to create a more efficient organization.
This restructuring will result in a reduction of approximately
470 employees in our corporate, sales and supply chain
functions and will include approximately 100 employees in
Plano, Texas, 125 employees in Rye Brook, New York and 50
employees in Aspers, Pennsylvania. The remaining reductions will
occur at a number of sites located in the United States, Canada
and Mexico. The restructuring also includes the closure of two
manufacturing facilities in Denver, Colorado (closed in December
2007) and Waterloo, New York (closed in March 2008). The
employee reductions are expected to be completed by June 2008.
As a result of this restructuring, we recognized a charge of
approximately $32 million in 2007. We expect to recognize a
charge of approximately $21 million in 2008 related to this
restructuring. We expect this restructuring to generate annual
cost savings of approximately $68 million, most of which
are expected to be realized in 2008 with the full annual benefit
realized from 2009 onwards. Savings realized in 2007 were
immaterial. As part of this restructuring, our Bottling Group
segment has assumed management and operational control of our
Snapple Distributors segment.
In 2007, we incurred a total of $76 million of
restructuring costs, which included the $32 million related
to the restructuring announced on October 10, 2007.
Accelerade
Launch
We launched our new, ready-to-drink Accelerade sports drink in
the first half of 2007. The launch represented an introduction
of a new product into a new beverage category for us and was
supported by significant national product placement and
marketing investments. Net sales were below expectations despite
these investments. We incurred an operating loss of
approximately $55 million from the Accelerade launch in
2007, while marketing investments in other brands, predominantly
Beverage Concentrate brands, were reduced by approximately
$25 million. In addition, we incurred a $4 million
impairment charge related to the Accelerade brand which
represented the majority of the $6 million of impairment
charges we incurred in 2007. Going forward, we intend to focus
on marketing and selling Accelerade in a more targeted way to
informed athletes, trainers and exercisers, and retailers that
are frequented by these consumers, such as health and nutrition
outlets, where we expect the product to be financially viable.
Glacéau
Termination
Following its acquisition by Coca-Cola on August 30, 2007,
Energy Brands, Inc. notified us that it was terminating our
distribution agreements for glacéau products, including
vitaminwater, fruitwater and smartwater, effective
November 2, 2007. Pursuant to the terms of the agreements,
we received a payment of approximately $92 million from
Energy Brands, Inc. for this termination in December 2007, and
we recorded a $71 million gain in 2007 in respect of this
payment. Our 2007 glacéau net sales and contribution to
income from operations were approximately
$227 million and $40 million, respectively, and
were reflected in our Bottling Group segment.
6
Questions
and Answers About the Distribution
The information statement will not be distributed to
shareholders until such a vote has occurred. For a more detailed
description of the matters summarized below, see The
Distribution.
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What is the distribution?
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The distribution is part of the process by which Cadbury
Schweppes will separate its Americas Beverages business from its
global confectionery business and its other beverages business
(located principally in Australia). Although the separation and
distribution have several steps, ultimately, holders of Cadbury
Schweppes ordinary shares (and holders of American depositary
receipts (ADRs) representing Cadbury Schweppes
ordinary shares) will receive shares of common stock of
Dr Pepper Snapple Group, Inc., a new company which will own
Cadbury Schweppes Americas Beverages business, and shares
of Cadbury plc, a new company which will own Cadbury
Schweppes global confectionery business and its other
beverages business (or ADRs representing such shares). These two
companies will be independent from each other after the
separation. We intend that the shares of our common stock will
be listed on the New York Stock Exchange. It is also intended
that the ordinary shares of Cadbury plc will be listed on the
London Stock Exchange and ADRs representing its ordinary shares
will be listed on the New York Stock Exchange.
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How will the separation work?
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Cadbury Schweppes currently intends to effect the separation and
distribution through the following steps:
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Scheme of Arrangement
. Cadbury
Schweppes intends to implement a corporate reorganization
pursuant to which a new company, Cadbury plc, will become the
holding company of Cadbury Schweppes. This corporate
reorganization is known as a scheme of arrangement
under UK law. Pursuant to the scheme of arrangement, all
outstanding Cadbury Schweppes ordinary shares will be cancelled
and holders of Cadbury Schweppes ordinary shares will receive
Cadbury plc ordinary shares, which will represent the ongoing
ownership interest in the global confectionery business and its
other beverages business (located principally in Australia), and
Cadbury plc beverage shares, which, ultimately, will
entitle the holder to receive our common stock in connection
with the distribution which we expect to be completed on
May 7, 2008.
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Reduction of Capital and the Distribution of Our
Common Stock.
Shortly after the scheme of
arrangement becomes effective, Cadbury plc will cancel the
Cadbury plc beverage shares (pursuant to a
reduction of capital under UK law) and transfer its
Americas Beverages business to us. In return for the transfer of
the Americas Beverages business to us, we will distribute all of
the shares of our common stock to the holders of Cadbury plc
beverage shares.
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For additional information on the distribution, see The
Distribution Reorganization of Cadbury Schweppes and
Distribution of Shares of Our Common Stock and The
Distribution Manner of Effecting the
Distribution.
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What will the relationship of Dr Pepper Snapple
Group, Inc. and
Cadbury plc
be
after the
distribution?
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We and Cadbury plc will each be independent, publicly-traded
companies with separate management teams and boards of
directors. Pursuant to the scheme of arrangement, Cadbury
Schweppes will become a subsidiary of Cadbury plc.
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Prior to the distribution, we will enter into agreements with
Cadbury Schweppes to provide each other with services during a
transition period and indemnify each other against certain
liabilities arising from our respective businesses and from the
separation. For additional information on our relationship with
Cadbury plc after the distribution, see Our Relationship
with Cadbury plc After the Distribution.
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When will the distribution be
completed?
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We expect the distribution to be completed on May 7, 2008.
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What is the record date for the
distribution
of our
shares of common stock?
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The record date for the distribution of shares of our common
stock is expected to be May 1, 2008.
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What do Cadbury Schweppes shareholders and holders of
ADRs
have to do to
participate in
the
distribution?
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A shareholder vote to approve the separation and distribution is
scheduled to be held in the United Kingdom on April 11,
2008. If shareholders approve the separation and distribution,
no further action by Cadbury Schweppes shareholders or holders
of Cadbury Schweppes ADRs is necessary for you to receive the
shares of our common stock to which you are entitled in the
distribution. You do not need to pay any consideration to us,
Cadbury Schweppes or Cadbury plc. The distribution will remain
contingent on the approval of the High Court of Justice of
England and Wales, as well as certain other conditions described
in The Distribution and summarized below under
What are the conditions to the
distribution?
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How many shares of our common stock will
Cadbury Schweppes shareholders and holders of ADRs
receive?
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We will distribute 0.12 shares of our common stock for each
Cadbury Schweppes ordinary share held at the Scheme Record Time
or 0.48 shares of our common stock for each Cadbury
Schweppes ADR held at the Depositary Record Time (as defined
under The Distribution). Based on approximately
2.1 billion Cadbury Schweppes ordinary shares outstanding
as of March 13, 2008, a total of approximately
253.4 million shares of our common stock will be
distributed. For additional information on the distribution, see
The Distribution Results of the
Distribution.
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What are the tax consequences of the
receipt
of Cadbury plc ordinary shares or Cadbury plc ADRs and our
common
stock by
holders of
Cadbury
Schweppes ordinary
shares?
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The receipt of Cadbury plc ordinary shares and shares of our
common stock should not constitute a disposal by a holder of
Cadbury Schweppes ordinary shares for U.K. tax purposes, and so
no chargeable gain or allowable loss should arise for U.K. tax
purposes. Where the amount of cash received in lieu of a
fractional share of our common stock is small as
compared to the value of the holding, a U.K. Holder (as
defined under Material Tax Considerations U.K.
Holders) may treat the cash received as a deduction from
the base cost of the holding of common stock, rather than as a
partial disposal of the common stock.
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In the case of any U.K. Holder who, alone or together with
persons connected with him, holds more than 5% of, or any class
of, shares in or debentures of Cadbury Schweppes, it is a
condition for this treatment that the separation and
distribution are being effected for
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bona fide commercial reasons and do not form part of a scheme or
arrangement of which the main purpose, or one of the main
purposes, is an avoidance of liability to U.K. corporation tax
or capital gains tax.
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Cadbury Schweppes has requested a private letter ruling from the
U.S. Internal Revenue Service (the IRS) that subject
to the facts, representations and qualifications contained
therein, your receipt of Cadbury plc ordinary shares and our
common stock (along with certain related restructuring
transactions) will qualify for non-recognition treatment under
Sections 355 and 368(a)(1)(F) of the Internal Revenue Code
of 1986, as amended (the Internal Revenue Code).
Under such treatment, a holder of Cadbury Schweppes ordinary
shares or Cadbury Schweppes ADRs who is a U.S. person for U.S.
federal income tax purposes will not incur U.S. federal income
tax upon the receipt of Cadbury plc ordinary shares or Cadbury
plc ADRs and our common stock. Any cash received in lieu of a
fractional share of Cadbury plc ordinary shares or our common
stock will generally be treated as capital gain or loss.
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See Material Tax Considerations.
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What are the conditions to the distribution?
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The distribution is subject to a number of conditions,
including, among others, the approval of Cadbury Schweppes
shareholders and the High Court of Justice of England and Wales,
the Securities and Exchange Commission (the SEC)
declaring effective the registration statement of which this
information statement forms a part and the completion of the
financing related to the distribution. See The
Distribution.
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Does Dr Pepper Snapple Group, Inc. intend to pay
dividends on the common
stock?
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We currently intend to retain cash generated from our business
to repay our debt and for other corporate purposes and do not
currently anticipate paying any cash dividends in the short
term. In the long term, we intend to invest in our business and
return excess cash to our stockholders. See Dividend
Policy.
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Will Dr Pepper Snapple Group, Inc. incur any debt
prior to or at the time
of the
distribution?
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On March 10, 2008, we entered into arrangements with a
group of lenders to provide us with an aggregate of
$4.4 billion of financing. The new arrangements consist of
a $2.4 billion senior credit agreement that provides a
$1.9 billion term loan A facility and a $500 million
revolving credit facility and a
364-day
bridge credit agreement that provides a $2.0 billion bridge
loan facility. We currently expect to borrow an aggregate of
$3.9 billion under the term loan A facility and the bridge
loan facility in connection with the separation which, together
with our cash on hand, will be used to settle with Cadbury
Schweppes related party debt and other balances, reduce Cadbury
Schweppes net investment in us, purchase certain assets
from Cadbury Schweppes related to our business, pay
$100 million of fees and expenses related to the new credit
facilities and provide us with $100 million of cash on hand
immediately after the separation.
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We currently intend, subject to prevailing market conditions, to
replace all or a portion of the bridge loan facility with the
proceeds from the issuance of one or more series of notes
and/or
an
alternative term loan facility. See Description of
Indebtedness and Risk Factors Risks
Related to Our Business After our separation from
Cadbury Schweppes, we will have
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a significant amount of debt, which could adversely affect our
business and our ability to meet our obligations.
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Where will trading begin in the common stock?
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There is no current trading market for our common stock. We
intend to apply to have our common stock authorized for listing
on the New York Stock Exchange under the symbol
DPS. After this listing, shares of our common stock
will generally be freely-tradable. For additional information
regarding the trading of our common stock, see Risk
Factors Risks Related to Our Common Stock and
The Distribution Market for Our Common
Stock.
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What will happen to the listing of Cadbury
Schweppes ordinary
shares and ADRs?
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Once the scheme of arrangement becomes effective, Cadbury
Schweppes ordinary shares and Cadbury Schweppes ADRs will be
delisted from the London Stock Exchange and the New York Stock
Exchange, respectively. Ordinary shares of Cadbury plc, the new
parent company of Cadbury Schweppes, will be listed on the
London Stock Exchange under the symbol CBRY and the
Cadbury plc ADRs will be listed on the New York Stock Exchange
under the symbol CBY. See The
Distribution Reorganization of Cadbury Schweppes and
Distribution of Shares of Our Common Stock.
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Are there risks associated with owning
Dr Pepper Snapple Group, Inc. common stock?
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Our new company will face both general and specific risks and
uncertainties relating to our business, our separation from, and
ongoing relationship with, Cadbury plc and our being a
publicly-traded company following the distribution. You should
read carefully Risk Factors, beginning on
page 14.
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Who do I contact for information regarding
Dr Pepper Snapple Group, Inc. and the
distribution?
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You should direct inquiries relating to the distribution to:
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Dr Pepper Snapple Group,
Inc.
5301 Legacy Drive
Plano, TX 75024
Attention: Aly Noormohamed, SVP,
Investor Relations
Tel: (972) 673-6050
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After the distribution, the transfer agent and registrar for our
common stock will be:
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Computershare Trust Company,
N.A.
250 Royall Street
Canton, MA 02021
Attention: Jennifer LaGrow
Tel: (781) 575-2000
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Corporate
Information
We were incorporated in Delaware on October 24, 2007. The
address of our principal executive offices is 5301 Legacy Drive,
Plano, Texas 75024. Our telephone number is
(972) 673-7000.
We were formed for the purpose of holding Cadbury
Schweppes Americas Beverages business in connection with
the separation and distribution described herein and will have
no operations prior to the separation and distribution.
10
Summary
Historical and Unaudited Pro Forma Combined Financial
Data
The following table presents our summary historical and
unaudited pro forma combined financial data. Our summary
historical combined financial data presented below as of
December 31, 2007 and 2006 and January 1, 2006
(the last day of fiscal 2005) and for the three fiscal years
2007, 2006 and 2005 have been derived from our audited combined
financial statements, included elsewhere in this information
statement.
Our historical financial data have been prepared on a
carve-out basis from Cadbury Schweppes
consolidated financial statements using the historical results
of operations, assets and liabilities attributable to Cadbury
Schweppes Americas Beverages business and including
allocations of expenses from Cadbury Schweppes. This historical
Cadbury Schweppes Americas Beverages information is our
predecessor financial information. The results included below
and elsewhere in this information statement are not necessarily
indicative of our future performance and do not reflect our
financial performance had we been an independent,
publicly-traded company during the periods presented. You should
read this information along with the information included in
Unaudited Pro Forma Combined Financial Data,
Managements Discussion and Analysis of Financial
Condition and Results of Operations and our audited
combined financial statements and the related notes thereto
included elsewhere in this information statement.
On May 2, 2006, we acquired approximately 55% of the
outstanding shares of Dr Pepper/Seven Up Bottling Group, Inc.
(DPSUBG), which combined with our pre-existing 45%
ownership, resulted in our full ownership of DPSUBG.
DPSUBGs results have been included in the individual line
items within our combined financial statements beginning on
May 2, 2006. Prior to this date, the existing investment in
DPSUBG was accounted for under the equity method and reflected
in the line item captioned equity in earnings of
unconsolidated subsidiaries, net of tax. In addition, on
June 9, 2006 we acquired the assets of All American
Bottling Company, on August 7, 2006 we acquired
Seven Up Bottling Company of San Francisco and on
July 11, 2007 we acquired Southeast-Atlantic Beverage Corp.
(SeaBev). Each of these four acquisitions is
included in our combined financial statements beginning on its
date of acquisition. As a result, our financial data is not
necessarily comparable on a period-to-period basis.
The summary unaudited pro forma combined financial data has been
prepared to give effect to:
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the contribution by Cadbury Schweppes to us of its Americas
Beverages business;
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the distribution of our common stock to Cadbury Schweppes
shareholders;
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the purchase by us from Cadbury Schweppes of software and
intangible assets related to our foreign operations for an
aggregate of $317 million in cash;
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the borrowing by us of $3.9 billion under our new credit
facilities;
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the payment by us of $100 million of fees and expenses
related to our new credit facilities;
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the settlement with Cadbury Schweppes of related party debt and
other balances and the elimination of Cadbury Schweppes
net investment in us; and
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other adjustments as described in the notes to the unaudited pro
forma combined financial data.
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Due to the relatively small size of the 2007 SeaBev acquisition,
no adjustments have been reflected in this summary unaudited pro
forma combined financial data for this acquisition.
11
The unaudited pro forma combined balance sheet data as of
December 31, 2007 has been prepared as though the
separation, distribution and related financing transactions
occurred on December 31, 2007. The unaudited pro forma
combined statement of operations data for 2007 has been prepared
as though the separation, distribution and related financing
transactions occurred on January 1, 2007. The pro forma
adjustments are based upon available information and assumptions
that we believe are reasonable. The unaudited pro forma combined
financial statements are for informational purposes only and are
not necessarily indicative of what our financial performance
would have been had the transactions reflected therein been
completed on the dates assumed. They may not reflect the
financial performance that would have resulted had we been
operating as an independent, publicly-traded company during
those periods. In addition, they are not indicative of our
future financial performance. For further information regarding
the pro forma adjustments described above, see Unaudited
Pro Forma Combined Financial Data and our audited combined
financial statements and related notes thereto included
elsewhere in this information statement.
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Pro Forma
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Historical
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2007
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2007
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2006
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2005
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Statements of Operations Data:
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(In millions, except per share
data)
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Net sales
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$
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5,748
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$
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5,748
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$
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4,735
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$
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3,205
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Cost of sales
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2,617
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2,617
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1,994
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1,120
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Gross profit
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3,131
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3,131
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2,741
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2,085
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Selling, general and administrative expenses
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2,018
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2,018
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1,659
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1,179
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Depreciation and amortization
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100
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98
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69
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26
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Impairment of intangible assets
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6
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6
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Restructuring costs
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76
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76
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27
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10
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|
|
Gain on disposal of property and intangible assets
|
|
|
(71
|
)
|
|
|
(71
|
)
|
|
|
(32
|
)
|
|
|
(36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
1,002
|
|
|
|
1,004
|
|
|
|
1,018
|
|
|
|
906
|
|
|
|
|
|
Interest expense
|
|
|
363
|
|
|
|
253
|
|
|
|
257
|
|
|
|
210
|
|
|
|
|
|
Interest income
|
|
|
(4
|
)
|
|
|
(64
|
)
|
|
|
(46
|
)
|
|
|
(40
|
)
|
|
|
|
|
Other expense (income)
|
|
|
(13
|
)
|
|
|
(2
|
)
|
|
|
2
|
|
|
|
(51
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes, equity in earnings of
unconsolidated subsidiaries and cumulative effect of change in
accounting policy
|
|
|
656
|
|
|
|
817
|
|
|
|
805
|
|
|
|
787
|
|
|
|
|
|
Provision for income taxes
|
|
|
272
|
|
|
|
322
|
|
|
|
298
|
|
|
|
321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before equity in earnings of unconsolidated subsidiaries
and cumulative effect of change in accounting policy
|
|
|
384
|
|
|
|
495
|
|
|
|
507
|
|
|
|
466
|
|
|
|
|
|
Equity in earnings of unconsolidated subsidiaries
|
|
|
2
|
|
|
|
2
|
|
|
|
3
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of change in accounting policy
|
|
|
386
|
|
|
|
497
|
|
|
|
510
|
|
|
|
487
|
|
|
|
|
|
Cumulative effect of change in accounting policy, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
386
|
|
|
$
|
497
|
|
|
$
|
510
|
|
|
$
|
477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share basic(1)
|
|
$
|
1.52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share diluted(2)
|
|
$
|
1.52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheets Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
100
|
|
|
$
|
67
|
|
|
$
|
35
|
|
|
$
|
28
|
|
|
|
|
|
Total assets
|
|
|
9,505
|
|
|
|
10,528
|
|
|
|
9,346
|
|
|
|
7,433
|
|
|
|
|
|
Current portion of long-term debt
|
|
|
2,190
|
|
|
|
126
|
|
|
|
708
|
|
|
|
404
|
|
|
|
|
|
Long-term debt
|
|
|
1,729
|
|
|
|
2,912
|
|
|
|
3,084
|
|
|
|
2,858
|
|
|
|
|
|
Other non-current liabilities, including deferred tax liabilities
|
|
|
1,806
|
|
|
|
1,460
|
|
|
|
1,321
|
|
|
|
1,013
|
|
|
|
|
|
Total invested equity
|
|
|
2,936
|
|
|
|
5,021
|
|
|
|
3,250
|
|
|
|
2,426
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
Statements of Cash Flows Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
603
|
|
|
$
|
581
|
|
|
$
|
583
|
|
|
|
|
|
Investing activities
|
|
|
(1,087
|
)
|
|
|
(502
|
)
|
|
|
283
|
|
|
|
|
|
Financing activities
|
|
|
515
|
|
|
|
(72
|
)
|
|
|
(815
|
)
|
|
|
|
|
Depreciation expense(3)
|
|
|
120
|
|
|
|
94
|
|
|
|
48
|
|
|
|
|
|
Amortization expense(3)
|
|
|
49
|
|
|
|
45
|
|
|
|
31
|
|
|
|
|
|
Capital expenditures
|
|
|
(230
|
)
|
|
|
(158
|
)
|
|
|
(44
|
)
|
|
|
|
|
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA(4)
|
|
$
|
1,177
|
|
|
$
|
1,158
|
|
|
$
|
1,047
|
|
|
|
|
|
|
|
|
(1)
|
|
The number of shares used to compute pro forma earnings per
share basic is 253.4 million, which is the
number of shares of our common stock assumed to be outstanding
on the distribution date, based on a distribution ratio of
0.12 shares of our common stock for every Cadbury Schweppes
ordinary share as of March 13, 2008.
|
|
|
|
(2)
|
|
The number of shares used to compute pro forma earnings per
share diluted will be the number of basic
shares referenced in note (1) above plus any potential
dilution from issuances under stock-based awards granted under
our stock-based compensation plans. There will be no potentially
dilutive securities outstanding on separation. In the ordinary
course of business post separation, we expect to issue
stock-based awards under our stock-based compensation plans
which, when issued, will be dilutive in future periods.
|
|
|
|
(3)
|
|
The depreciation and amortization expenses reflected in this
section of the table represent our total depreciation and
amortization expenses as reflected on our combined statements of
cash flows. Depreciation and amortization expenses in our
combined statements of operations data are reflected in various
line items including depreciation and amortization,
cost of sales and selling, general and
administrative expenses.
|
|
(4)
|
|
EBITDA is defined as net income before interest expense,
interest income, provision for income taxes, depreciation and
amortization. EBITDA is a measure commonly used by financial
analysts in evaluating a companys liquidity. Accordingly,
we believe that EBITDA may be useful for investors in assessing
our ability to meet our debt service requirements. EBITDA is not
a recognized measurement under U.S. GAAP. When evaluating
liquidity, investors should not consider EBITDA in isolation of,
or as a substitute for, measures of liquidity as determined in
accordance with U.S. GAAP, such as net income or net cash
provided by operating activities. EBITDA may have material
limitations as a liquidity measure because it excludes interest
expense, interest income, taxes and depreciation and
amortization. Other companies may calculate EBITDA differently,
and therefore our EBITDA may not be comparable to similarly
titled measures reported by other companies. A reconciliation of
EBITDA to net income is provided below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
(In millions)
|
|
Net income
|
|
$
|
497
|
|
|
$
|
510
|
|
|
$
|
477
|
|
Interest expense
|
|
|
253
|
|
|
|
257
|
|
|
|
210
|
|
Interest income
|
|
|
(64
|
)
|
|
|
(46
|
)
|
|
|
(40
|
)
|
Income taxes
|
|
|
322
|
|
|
|
298
|
|
|
|
321
|
|
Depreciation expense
|
|
|
120
|
|
|
|
94
|
|
|
|
48
|
|
Amortization expense
|
|
|
49
|
|
|
|
45
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
1,177
|
|
|
$
|
1,158
|
|
|
$
|
1,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
RISK
FACTORS
Ownership of our common stock involves risk. You should
understand and carefully consider the risks below, as well as
all of the other information contained in this information
statement, including our financial statements and the related
notes. Some of the risks relate to our business while others
relate to our separation from Cadbury Schweppes and ownership of
our common stock. Our business may be adversely affected by
risks and uncertainties not currently known to us. If any of
these risks or uncertainties develop into actual events, our
business and financial performance (including our financial
condition, results of operations and cash flows) could be
materially and adversely affected, and the trading price of our
common stock could decline.
Risks
Related to Our Business
We
operate in highly competitive markets.
Our industry is highly competitive. We compete with
multinational corporations with significant financial resources,
including
Coca-Cola
and PepsiCo. These competitors can use their resources and scale
to rapidly respond to competitive pressures and changes in
consumer preferences by introducing new products, reducing
prices or increasing promotional activities. We also compete
against a variety of smaller, regional and private label
manufacturers. Smaller companies may be more innovative, better
able to bring new products to market and better able to quickly
exploit and serve niche markets. Our inability to compete
effectively could result in a decline in our sales. As a result,
we may have to reduce our prices or increase our spending on
marketing, advertising and product innovation. Any of these
could negatively affect our business and financial performance.
We may
not effectively respond to changing consumer preferences,
trends, health concerns and other factors.
Consumers preferences can change due to a variety of
factors, including aging of the population, social trends,
negative publicity, economic downturn or other factors. For
example, consumers are increasingly concerned about health and
wellness, and demand for regular CSDs has decreased as consumers
have shifted towards low or no calorie soft drinks and,
increasingly, to non-CSDs, such as water, ready-to-drink teas
and sports drinks. If we do not effectively anticipate these
trends and changing consumer preferences, then quickly develop
new products in response, our sales could suffer. Developing and
launching new products can be risky and expensive. We may not be
successful in responding to changing markets and consumer
preferences, and some of our competitors may be better able to
respond to these changes, either of which could negatively
affect our business and financial performance.
Costs
for our raw materials may increase substantially.
The principal raw materials we use in our business are aluminum
cans and ends, glass bottles, PET bottles and caps, paperboard
packaging, high fructose corn syrup (HFCS) and other
sweeteners, juice, fruit, electricity, fuel and water. The cost
of the raw materials can fluctuate substantially. For example,
aluminum, glass, PET and HFCS prices increased significantly in
recent periods. In addition, we are significantly impacted by
increases in fuel costs due to the large truck fleet we operate
in our distribution businesses. Under many of our supply
arrangements, the price we pay for raw materials fluctuates
along with certain changes in underlying commodities costs, such
as aluminum in the case of cans, natural gas in the case of
glass bottles, resin in the case of PET bottles and caps, corn
in the case of HFCS and pulp in the case of paperboard
packaging. We expect these increases to continue to exert
pressure on our costs and we may not be able to pass along any
such increases to our customers or consumers, which could
negatively affect our business and financial performance.
Certain
raw materials we use are available from a limited number of
suppliers and shortages could occur.
Some raw materials we use, such as aluminum cans and ends, glass
bottles, PET bottles, HFCS and other ingredients, are available
from only a few suppliers. If these suppliers are unable or
unwilling to meet our requirements, we could suffer shortages or
substantial cost increases. Changing suppliers can require long
lead times. The failure of our suppliers to meet our needs could
occur for many reasons, including fires, natural disasters,
weather, manufacturing problems, disease, crop failure, strikes,
transportation interruption, government regulation,
14
political instability and terrorism. A failure of supply could
also occur due to suppliers financial difficulties,
including bankruptcy. Some of these risks may be more acute
where the supplier or its plant is located in riskier or
less-developed countries or regions. Any significant
interruption to supply or cost increase could substantially harm
our business and financial performance.
Substantial
disruption to production at our beverage concentrates or other
manufacturing facilities could occur.
A disruption in production at our beverage concentrates
manufacturing facility, which manufactures almost all of our
concentrates, could have a material adverse effect on our
business. In addition, a disruption could occur at any of our
other facilities or those of our suppliers, bottlers or
distributors. The disruption could occur for many reasons,
including fire, natural disasters, weather, manufacturing
problems, disease, strikes, transportation interruption,
government regulation or terrorism. Alternative facilities with
sufficient capacity or capabilities may not be available, may
cost substantially more or may take a significant time to start
production, each of which could negatively affect our business
and financial performance.
Our
products may not meet health and safety standards or could
become contaminated.
We have adopted various quality, environmental, health and
safety standards. However, our products may still not meet these
standards or could otherwise become contaminated. A failure to
meet these standards or contamination could occur in our
operations or those of our bottlers, distributors or suppliers.
This could result in expensive production interruptions, recalls
and liability claims. Moreover, negative publicity could be
generated from false, unfounded or nominal liability claims or
limited recalls. Any of these failures or occurrences could
negatively affect our business and financial performance.
Our
facilities and operations may require substantial investment and
upgrading.
We are engaged in an ongoing program of investment and upgrading
in our manufacturing, distribution and other facilities. We
expect to incur substantial costs to upgrade or keep up-to-date
various facilities and equipment or restructure our operations,
including closing existing facilities or opening new ones. If
our investment and restructuring costs are higher than
anticipated or our business does not develop as anticipated to
appropriately utilize new or upgraded facilities, our costs and
financial performance could be negatively affected.
Weather
and climate changes could adversely affect our
business.
Unseasonable or unusual weather or long-term climate changes may
negatively impact the price or availability of raw materials,
energy and fuel, and demand for our products. Unusually cool
weather during the summer months may result in reduced demand
for our products and have a negative effect on our business and
financial performance.
We
depend on a small number of large retailers for a significant
portion of our sales.
Food and beverage retailers in the United States have been
consolidating. Consolidation has resulted in large,
sophisticated retailers with increased buying power. They are in
a better position to resist our price increases and demand lower
prices. They also have leverage to require us to provide larger,
more tailored promotional and product delivery programs. If we,
and our bottlers and distributors, do not successfully provide
appropriate marketing, product, packaging, pricing and service
to these retailers, our product availability, sales and margins
could suffer. Certain retailers make up a significant percentage
of our products retail volume, including volume sold by
our bottlers and distributors. For example, Wal-Mart Stores,
Inc., the largest retailer of our products, represented
approximately 10% of our net sales in 2007. Some retailers also
offer their own private label products that compete with some of
our brands. The loss of sales of any of our products in a major
retailer could have a material adverse effect on our business
and financial performance.
15
We
depend on third-party bottling and distribution companies for a
substantial portion of our business.
We generate a substantial portion of our net sales from sales of
beverage concentrates to third-party bottling companies. During
2007, approximately two-thirds of our beverage concentrates
volume was sold to bottlers that we do not own. Some of these
bottlers are partly owned by our competitors, and much of their
business comes from selling our competitors products. In
addition, some of the products we manufacture are distributed by
third parties. As independent companies, these bottlers and
distributors make their own business decisions. They may have
the right to determine whether, and to what extent, they produce
and distribute our products, our competitors products and
their own products. They may devote more resources to other
products or take other actions detrimental to our brands. In
most cases, they are able to terminate their bottling and
distribution arrangements with us without cause. We may need to
increase support for our brands in their territories and may not
be able to pass on price increases to them. Their financial
condition could also be adversely affected by conditions beyond
our control and our business could suffer. Any of these factors
could negatively affect our business and financial performance.
Our
intellectual property rights could be infringed or we could
infringe the intellectual property rights of others and adverse
events regarding licensed intellectual property, including
termination of distribution rights, could harm our
business.
We possess intellectual property that is important to our
business. This intellectual property includes ingredient
formulas, trademarks, copyrights, patents, business processes
and other trade secrets. See Business
Intellectual Property and Trademarks for more information.
We and third parties, including competitors, could come into
conflict over intellectual property rights. Litigation could
disrupt our business, divert management attention and cost a
substantial amount to protect our rights or defend ourselves
against claims. We cannot be certain that the steps we take to
protect our rights will be sufficient or that others will not
infringe or misappropriate our rights. If we are unable to
protect our intellectual property rights, our brands, products
and business could be harmed.
We also license various trademarks from third parties and
license our trademarks to third parties. In some countries,
other companies own a particular trademark which we own in the
United States, Canada or Mexico. For example, the Dr Pepper
trademark and formula is owned by
Coca-Cola
in
certain other countries. Adverse events affecting those third
parties or their products could affect our use of the trademark
and negatively impact our brands.
In some cases, we license products from third-parties which we
distribute. The licensor may be able to terminate the license
arrangement upon an agreed period of notice, in some cases
without payment to us of any termination fee. The termination of
any material license arrangement could adversely affect our
business and financial performance. For example, following its
acquisition by Coca-Cola on August 30, 2007, Energy Brands, Inc.
notified us that it was terminating our distribution agreement
for glacéau products.
Litigation
or legal proceedings could expose us to significant liabilities
and damage our reputation.
We are party to various litigation claims and legal proceedings.
We evaluate these claims and proceedings to assess the
likelihood of unfavorable outcomes and estimate, if possible,
the amount of potential losses. We may establish a reserve as
appropriate based upon assessments and estimates in accordance
with our accounting policies. We base our assessments, estimates
and disclosures on the information available to us at the time
and rely on legal and management judgment. Actual outcomes or
losses may differ materially from assessments and estimates.
Actual settlements, judgments or resolutions of these claims or
proceedings may negatively affect our business and financial
performance. For more information, see
Business Legal Matters.
We may
not comply with applicable government laws and regulations, and
they could change.
We are subject to a variety of federal, state and local laws and
regulations in the United States, Canada, Mexico and other
countries in which we do business. These laws and regulations
apply to many aspects of our business including the manufacture,
safety, labeling, transportation, advertising and sale of our
products. See Business Regulatory
Matters for more information regarding many of these laws
and regulations. Violations of these laws or regulations could
damage our reputation and/or result in regulatory actions with
substantial penalties. In addition, any significant change in
such laws or regulations or their interpretation, or the
introduction of higher standards or more stringent laws or
regulations,
16
could result in increased compliance costs or capital
expenditures. For example, changes in recycling and bottle
deposit laws or special taxes on soft drinks or ingredients
could increase our costs. Regulatory focus on the health, safety
and marketing of food products is increasing. Certain state
warning and labeling laws, such as Californias Prop
65, which requires warnings on any product with substances
that the state lists as potentially causing cancer or birth
defects, could become applicable to our products. Some local and
regional governments and school boards have enacted, or have
proposed to enact, regulations restricting the sale of certain
types of soft drinks in schools. Any violations or changes of
regulations could have a material adverse effect on our
profitability, or disrupt the production or distribution of our
products, and negatively affect our business and financial
performance.
We may
not be able to renew collective bargaining agreements on
satisfactory terms, or we could experience
strikes.
Approximately 5,000 of our employees, many of whom are at our
key manufacturing locations, are covered by collective
bargaining agreements. These agreements typically expire every
three to four years at various dates. We may not be able to
renew our collective bargaining agreements on satisfactory terms
or at all. This could result in strikes or work stoppages, which
could impair our ability to manufacture and distribute our
products and result in a substantial loss of sales. The terms of
existing or renewed agreements could also significantly increase
our costs or negatively affect our ability to increase
operational efficiency.
We
could lose key personnel or may be unable to recruit qualified
personnel.
Our performance significantly depends upon the continued
contributions of our executive officers and key employees, both
individually and as a group, and our ability to retain and
motivate them. Our officers and key personnel have many years of
experience with us and in our industry and it may be difficult
to replace them. If we lose key personnel or are unable to
recruit qualified personnel, our operations and ability to
manage our business may be adversely affected. We do not have
key person life insurance for any of our executive
officers or key employees.
Benefits
cost increases could reduce our profitability.
Our profitability is substantially affected by the costs of
pension, postretirement medical and employee medical and other
benefits. In recent years, these costs have increased
significantly due to factors such as increases in health care
costs, declines in investment returns on pension assets and
changes in discount rates used to calculate pension and related
liabilities. Although we actively seek to control increases,
there can be no assurance that we will succeed in limiting
future cost increases, and continued upward pressure in these
costs could have a material adverse affect on our business and
financial performance.
We
depend on key information systems and third-party service
providers.
We depend on key information systems to accurately and
efficiently transact our business, provide information to
management and prepare financial reports. We rely on third-party
providers for a number of key information systems and business
processing services, including hosting our primary data center
and processing various accounting, order entry and other
transactional services. These systems and services are
vulnerable to interruptions or other failures resulting from,
among other things, natural disasters, terrorist attacks,
software, equipment or telecommunications failures, processing
errors, computer viruses, hackers, other security issues or
supplier defaults. Security, backup and disaster recovery
measures may not be adequate or implemented properly to avoid
such disruptions or failures. Any disruption or failure of these
systems or services could cause substantial errors, processing
inefficiencies, security breaches, inability to use the systems
or process transactions, loss of customers or other business
disruptions, all of which could negatively affect our business
and financial performance.
We may
not realize benefits of acquisitions.
We have recently acquired various bottling and distribution
businesses and are integrating their operations into our
business. We may pursue further acquisitions of independent
bottlers and distributors to complement our
17
existing capabilities and further expand the distribution of our
brands. We may also pursue acquisition of brands and products to
expand our brand portfolio. The failure to successfully
identify, make and integrate acquisitions may impede the growth
of our business. The timing or success of any acquisition and
integration is uncertain, requires significant expenses, and
diverts financial and managerial resources away from our
existing businesses. We also may not be able to raise the
substantial capital required for acquisitions and integrations
on satisfactory terms, if at all. In addition, even after an
acquisition, we may not be able to successfully integrate an
acquired business or brand or realize the anticipated benefits
of an acquisition, all of which could have a negative effect on
our business and financial performance.
Determinations
in the future that a significant impairment of the value of our
goodwill and other indefinite lived intangible assets has
occurred could have a material adverse effect on our financial
performance.
As of December 31, 2007, we had approximately
$10.5 billion of total assets, of which approximately
$6.8 billion were intangible assets. Intangible assets
include goodwill, and other intangible assets in connection with
brands, bottler agreements, distribution rights and customer
relationships. We conduct impairment tests on goodwill and all
indefinite lived intangible assets annually, as of
December 31, or more frequently if circumstances indicate
that the carrying amount of an asset may not be recoverable. If
the carrying amount of an intangible asset exceeds its fair
value, an impairment loss is recognized in an amount equal to
that excess. Our annual impairment analysis, performed as of
December 31, 2007, resulted in impairment charges of
$6 million, of which approximately $4 million was
related to the Accelerade brand. For additional information
about these intangible assets, see Managements
Discussion and Analysis of Financial Condition and Results of
Operations Critical Accounting Policies
Goodwill and Other Indefinite Lived Intangible Assets and
our combined financial statements included elsewhere in this
information statement.
The impairment tests require us to make an estimate of the fair
value of intangible assets. Since a number of factors may
influence determinations of fair value of intangible assets,
including those set forth in this discussion of Risk
Factors and in Special Note Regarding
Forward-Looking Statements, we are unable to predict
whether impairments of goodwill or other indefinite lived
intangibles will occur in the future. Any such impairment would
result in us recognizing a charge to our operating results,
which may adversely affect our financial performance.
After
our separation from Cadbury Schweppes, we will have a
significant amount of debt, which could adversely affect our
business and our ability to meet our obligations.
As of December 31, 2007, on a pro forma basis after giving
effect to the new financing arrangements we entered into on
March 10, 2008 in connection with the separation and the
application of the net proceeds thereof as contemplated under
Unaudited Pro Forma Combined Financial Data and
Description of Indebtedness, our total indebtedness
would have been $3.9 billion.
This significant amount of debt could have important
consequences to us and our investors, including:
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requiring a substantial portion of our cash flow from operations
to make interest payments on this debt;
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making it more difficult to satisfy debt service and other
obligations;
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increasing the risk of a future credit ratings downgrade of our
debt, which could increase future debt costs;
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increasing our vulnerability to general adverse economic and
industry conditions;
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reducing the cash flow available to fund capital expenditures
and other corporate purposes and to grow our business;
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limiting our flexibility in planning for, or reacting to,
changes in our business and the industry;
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placing us at a competitive disadvantage to our competitors that
may not be as highly leveraged with debt as we are; and
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limiting our ability to borrow additional funds as needed or
take advantage of business opportunities as they arise, pay cash
dividends or repurchase common stock.
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18
To the extent we become more leveraged, the risks described
above would increase. In addition, our actual cash requirements
in the future may be greater than expected. Our cash flow from
operations may not be sufficient to repay at maturity all of the
outstanding debt as it becomes due, and we may not be able to
borrow money, sell assets or otherwise raise funds on acceptable
terms, or at all, to refinance our debt.
In addition, the agreements governing the debt that we will
incur in connection with the separation will contain covenants
that will, among other things, limit our ability to incur debt
at subsidiaries that are not guarantors, incur liens, merge or
sell, transfer or otherwise dispose of all or substantially all
of our assets, make investments, loans, advances, guarantees and
acquisitions, enter into transactions with affiliates and enter
into agreements restricting our ability to incur liens or the
ability of our subsidiaries to make distributions. These
agreements will also require us to comply with certain
affirmative and financial covenants. For additional information
about our debt agreements, see Description of
Indebtedness.
Risks
Related to Our Separation from and Relationship with Cadbury
Schweppes
We may
not realize the potential benefits from the
separation.
We may not realize the benefits that we anticipate from our
separation from Cadbury Schweppes. These benefits include the
following:
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allowing our management to focus its efforts on our business and
strategic priorities,
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enabling us to allocate our capital more efficiently,
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providing us with direct access to the debt and equity capital
markets,
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improving our ability to pursue acquisitions through the use of
shares of our common stock as consideration,
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enhancing our market recognition with investors, and
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increasing our ability to attract and retain employees by
providing equity compensation tied to our business.
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We may not achieve the anticipated benefits from our separation
for a variety of reasons. For example, the process of separating
our business from Cadbury Schweppes and operating as an
independent public company may distract our management from
focusing on our business and strategic priorities. Although as
an independent public company we will be able to control how we
allocate our capital, we may not succeed in allocating our
capital in ways that benefit our business. In addition, although
we will have direct access to the debt and equity capital
markets following the separation, we may not be able to issue
debt or equity on terms acceptable to us or at all. The
availability of shares of our common stock for use as
consideration for acquisitions also will not ensure that we will
be able to successfully pursue acquisitions or that the
acquisitions will be successful. Moreover, even with equity
compensation tied to our business we may not be able to attract
and retain employees as desired. We also may not realize the
anticipated benefits from our separation if any of the matters
identified as risks in this Risk Factors section were to occur.
If we do not realize the anticipated benefits from our
separation for any reason, our business may be adversely
affected.
Our
historical financial performance may not be representative of
our financial performance as a separate, stand-alone
company.
The historical financial information included in this
information statement has been derived from Cadbury
Schweppes consolidated financial statements and does not
reflect what our financial condition, results of operations or
cash flows would have been had we operated as a separate,
stand-alone company during the periods presented. Cadbury
Schweppes currently provides certain corporate functions to us
and costs associated with these functions have been allocated
to us. These functions include corporate communications,
regulatory, human resources and benefits management, treasury,
investor relations, corporate controller, internal audit,
Sarbanes-Oxley compliance, information technology, corporate
legal and compliance, and community affairs. The total amount of
these allocations from Cadbury Schweppes was approximately
$161 million in 2007. All of these allocations are based on
what we and Cadbury Schweppes considered to be reasonable
reflections of the historical levels of the services and support
provided to our business. The historical information does not
necessarily
19
indicate what our results of operations, financial condition,
cash flows or costs and expenses will be in the future as an
independent publicly-traded, stand-alone company.
Significant changes are expected to occur in our capital
structure in connection with our separation from Cadbury
Schweppes. We expect to borrow an aggregate of $3.9 billion
under the new credit facilities in connection with the
separation. As a result of these borrowings our interest expense
after the separation is expected to be significantly higher than
it was prior to the separation. For additional information, see
Unaudited Pro Forma Combined Financial Data,
Managements Discussion and Analysis of Financial
Condition and Results of Operations.
After
our separation from Cadbury Schweppes, we may experience
increased costs resulting from a decrease in the purchasing
power and other operational efficiencies we currently have due
to our association with Cadbury Schweppes.
We have been able to take advantage of Cadbury Schweppes
purchasing power in technology and services, including
information technology, media purchasing, insurance, treasury
services, property support and, to a lesser extent, the
procurement of goods. As a smaller separate, stand-alone
company, it may be more difficult for us to obtain goods,
technology and services at prices and on terms as favorable as
those available to us prior to the separation.
Prior to the distribution, we will enter into agreements with
Cadbury plc, the new holding company of Cadbury Schweppes, under
which Cadbury plc will provide some of these services to us on a
transitional basis, for which we will pay Cadbury plc. These
services may not be sufficient to meet our needs and, after
these agreements with Cadbury plc end, we may not be able to
replace these services at all or obtain these services at
acceptable prices and terms.
Our
ability to operate our business effectively may suffer if we do
not cost effectively establish our own financial, administrative
and other support functions to operate as a stand-alone
company.
Historically, we have relied on certain financial,
administrative and other support functions of Cadbury Schweppes
to operate our business. With our separation from Cadbury
Schweppes, we will need to enhance our own financial,
administrative and other support systems. We will also need to
rapidly establish our own accounting and auditing policies. Any
failure in our own financial or administrative policies and
systems could impact our financial performance and could
materially harm our business and financial performance.
The
obligations associated with being a public company will require
significant resources and management attention.
In connection with the separation from Cadbury Schweppes and the
distribution of our common stock, we will become subject to the
reporting requirements of the U.S. Securities Exchange Act
of 1934, as amended (the Exchange Act), and the
Sarbanes-Oxley Act of 2002 and we will be required to prepare
our financial statements according to accounting principles
generally accepted in the United States
(U.S. GAAP) which differs from our historical
method of preparing financials, which was generally pursuant to
International Financial Reporting Standard (IFRS).
In addition, the Exchange Act requires that we file annual,
quarterly and current reports. Our failure to prepare and
disclose this information in a timely manner could subject us to
penalties under federal securities laws, expose us to lawsuits
and restrict our ability to access financing. The Sarbanes-Oxley
Act requires that we, among other things, establish and maintain
effective internal controls and procedures for financial
reporting and we are presently evaluating our existing internal
controls in light of the standards adopted by the Public Company
Accounting Oversight Board. During the course of our evaluation,
we may identify areas requiring improvement and may be required
to design enhanced processes and controls to address issues
identified through this review. This could result in significant
cost to us and require us to divert substantial resources,
including management time, from other activities.
Section 404 of the Sarbanes-Oxley Act requires annual
management assessments of the effectiveness of our internal
control over financial reporting, starting with our 2009 annual
report that we will file with the SEC in 2010. In preparation
for this, we may identify deficiencies that we may not be able
to remediate in time to meet the deadline for compliance with
the requirements of Section 404. Our failure to satisfy the
requirements of Section 404
20
on a timely basis could result in the loss of investor
confidence in the reliability of our financial statements, which
in turn could have a material adverse effect on our business and
our common stock.
We and
Cadbury Schweppes could have significant indemnification
obligations to each other with respect to tax
liabilities.
We will enter into a tax-sharing and indemnification agreement
with Cadbury Schweppes that sets forth the rights and
obligations of Cadbury Schweppes and us (along with our
respective subsidiaries) with respect to taxes and, in general,
provides that we and Cadbury Schweppes each will be responsible
for taxes imposed on our respective businesses and subsidiaries
for all taxable periods, whether ending on, before or after the
date of the separation and distribution.
Cadbury Schweppes has, subject to certain conditions, agreed to
indemnify us for income taxes that are attributable to certain
restructuring transactions undertaken in connection with the
separation and distribution and various other transactions
between Cadbury Schweppes and us that were entered into in prior
taxable periods. Such potential tax liabilities could be for
significant amounts. Notwithstanding these tax indemnification
obligations of Cadbury Schweppes, if the treatment of these
transactions were successfully challenged by a taxing authority,
we generally would be required under applicable tax law to pay
the resulting tax liabilities in the event that either
(1) Cadbury Schweppes were to default on their obligations
to us, (2) we breached certain covenants or other
obligations or (3) we are involved in certain
change-in-control
transactions. Thus, since we have primary liability for income
taxes in respect of these transactions, if Cadbury Schweppes
fails to, is not required to or cannot indemnify or reimburse
us, our resulting tax liability could be significant and could
have a material adverse effect on our results of operations,
cash flows and financial condition.
In addition, we generally will be liable for any liabilities,
taxes or other charges that are imposed on Cadbury Schweppes,
including as a result of the separation and distribution failing
to qualify for non-recognition treatment for U.S. federal
income tax purposes, if such failure is the result of a breach
by us of certain of our representations or covenants, including,
for example, our failure to continue the active conduct of the
historic business relied upon for purposes of the private letter
ruling request submitted to the IRS and taking any action
inconsistent with the written statements and representations
furnished to the IRS in connection with the private letter
ruling request. The parties could have significant
indemnification obligations to each other with respect to tax
liabilities.
The
receipt of our common stock could be a taxable transaction for
U.S. persons.
The receipt of Cadbury plc ordinary shares or Cadbury plc ADRs
and our common stock by holders of Cadbury Schweppes ordinary
shares or Cadbury Schweppes ADRs (and certain related
restructuring transactions) is intended to qualify for
non-recognition treatment under Sections 355 and
368(a)(1)(F) of the Internal Revenue Code. Cadbury Schweppes has
requested a private letter ruling from the IRS that, subject to
the facts, representations and qualifications contained therein,
the receipt of Cadbury plc ordinary shares and our common stock
by Cadbury Schweppes stockholders (along with certain related
restructuring transactions) will qualify for non-recognition
treatment under Sections 355 and 368(a)(1)(F) of the
Internal Revenue Code. The IRS has not yet issued a private
letter ruling and the failure of the IRS to issue such a private
letter ruling would not prevent Cadbury Schweppes from
proceeding with the separation and distribution. Notwithstanding
any eventual private letter ruling, the IRS could determine on
audit that the receipt of Cadbury plc ordinary shares or Cadbury
plc ADRs and our common stock should not qualify for
nonrecognition treatment because, for example, one or more of
the controlling facts or representations set forth in the
private letter ruling request was not complete, or as a result
of certain actions taken after the separation. If, contrary to
any eventual private letter ruling, the receipt of our common
stock ultimately is determined not to qualify for nonrecognition
treatment under Section 355 of the Internal Revenue Code, a
holder of Cadbury Schweppes ordinary shares or Cadbury Schweppes
ADRs who is a U.S. person for U.S. federal income tax
purposes generally would be treated as receiving a taxable
distribution in an amount equal to the fair market value of our
common stock (at the time of distribution) that is received by
such stockholder and the amount of cash received in lieu of a
fractional share of our common stock (without reduction for any
portion of their tax basis in their Cadbury Schweppes ordinary
shares or Cadbury Schweppes ADRs), which amount would be taxable
as a dividend for U.S. federal income tax purposes
(provided, as is expected, Cadbury plc has sufficient current
and accumulated earnings and profits (including current and
accumulated earnings and profits of Cadbury
21
Schweppes) as determined for U.S. federal income purposes, or,
if not so determined, dividend treatment will be presumed).
Risks
Related to Our Common Stock
Our
common stock has no existing public market and the price of our
common stock may be subject to volatility.
Prior to the distribution, there will be no trading market for
our common stock and you will not be able to buy or sell our
common stock publicly. Although we intend to apply to have our
common stock authorized for listing on the New York Stock
Exchange, we cannot predict the extent to which an active
trading market for our common stock will develop or be sustained
after the distribution.
We have not and will not set the initial price of our common
stock. The initial price will be established by the public
markets. We cannot predict the price at which our common stock
will trade after the distribution. In fact, the combined trading
prices after the separation of the shares of our common stock
and the Cadbury plc ordinary shares that each Cadbury Schweppes
shareholder receives in connection with the separation may not
equal the trading price of a Cadbury Schweppes ordinary share
immediately prior to the separation. The price at which our
common stock trades is likely to fluctuate significantly,
particularly until an orderly public market develops. Even if an
orderly and active trading market for our common stock develops,
the market price of our common stock could be subject to
significant volatility due to factors such as:
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general economic trends and other external factors;
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changes in our earnings or operating results;
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success or failure of our business strategies;
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failure of our financial performance to meet securities
analysts expectations;
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our ability to obtain financing as needed;
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introduction of new products by us or our competitors;
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changes in conditions or trends in our industry, markets or
customers;
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changes in governmental regulation;
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depth and liquidity of the market for our common stock; and
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our operating performance and that of our competitors.
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In the past, the stock markets have experienced significant
price and volume fluctuations. Such fluctuations in the future
could result in volatility in the trading price of our common
stock.
Following
the distribution, substantial sales of our common stock could
cause our stock price to decline.
Sales of substantial amounts of our common stock (or shares
issuable upon exercise of options), or the perception that these
sales may occur, may cause the price of our common stock to
decline and impede our ability to raise capital through the
issuance of equity securities in the future. Based on the
distribution ratio and the number of shares of Cadbury Schweppes
common stock outstanding as of March 13, 2008, we expect
that immediately following the distribution, there will be
approximately 253.4 million shares of our common stock
outstanding. All of these shares will be freely transferable
without restriction or further registration under the Securities
Act of 1933, as amended (the Securities Act),
subject to restrictions that may be applicable to our
affiliates, as that term is defined in Rule 144
of the Securities Act.
22
Index funds that hold Cadbury Schweppes ordinary shares likely
will be required to sell their shares of our common stock
received in the distribution to the extent we are not included
in the relevant index. In addition, a significant percentage of
the shareholders of Cadbury Schweppes are not resident in the
United States. Many of these shareholders may sell their shares
immediately following the distribution. The sale of significant
amounts of our common stock for the above or other reasons, or
the perception that such sales will occur, may cause the price
of our common stock to decline.
Provisions
in Delaware law and our amended and restated certificate of
incorporation and by-laws could delay and discourage takeover
attempts that stockholders may consider favorable.
Certain provisions in Delaware law and our amended and restated
certificate of incorporation and by-laws may make it more
difficult for or prevent a third party from acquiring control of
us or changing our board of directors. Such provisions include,
among other things, a classified board of directors with
three-year staggered terms, the removal of directors by
stockholders only for cause and only by the affirmative vote of
the holders of at least
two-thirds
of the votes which all stockholders would be entitled to cast in
any annual election of directors at a meeting and the preclusion
of stockholders from calling special meetings. These provisions
could have the effect of depriving stockholders of an
opportunity to sell their shares at a premium over prevailing
market prices, or could deter potential acquirers or prevent the
completion of a transaction in which our stockholders could
receive a substantial premium over the then-current market price
for their shares.
23
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This information statement contains forward-looking statements
including, in particular, statements about future events, future
financial performance, plans, strategies, expectations,
prospects, competitive environment, regulation and availability
of raw materials. Forward-looking statements include all
statements that are not historical facts and can be identified
by the use of forward-looking terminology such as the words
may, will, expect,
anticipate, believe,
estimate, plan, intend or
the negative of these terms or similar expressions in this
information statement. We have based these forward-looking
statements on our current views with respect to future events
and financial performance. Our actual financial performance
could differ materially from those projected in the
forward-looking statements due to the inherent uncertainty of
estimates, forecasts and projections, and our financial
performance may be better or worse than anticipated. Given these
uncertainties, you should not put undue reliance on any
forward-looking statements.
Our forward-looking statements are subject to risks and
uncertainties, including:
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the highly competitive markets in which we operate and our
ability to compete with companies that have significant
financial resources;
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changes in consumer preferences, trends and health concerns;
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increases in cost of materials or supplies used in our business;
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shortages of materials used in our business;
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substantial disruption at our beverage concentrates
manufacturing facility or our other manufacturing facilities;
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our products meeting health and safety standards or
contamination of our products;
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need for substantial investment and restructuring at our
production, distribution and other facilities;
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weather and climate changes;
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maintaining our relationships with our large retail customers;
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dependence on third-party bottling and distribution companies;
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infringement of our intellectual property rights by third
parties, intellectual property claims against us or adverse
events regarding licensed intellectual property;
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litigation claims or legal proceedings against us;
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our ability to comply with, or changes in, governmental
regulations in the countries in which we operate;
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strikes or work stoppages;
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our ability to retain or recruit qualified personnel;
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increases in the cost of employee benefits;
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disruptions to our information systems and third-party service
providers;
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failure of our acquisition and integration strategies;
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future impairment of our goodwill and other intangible assets;
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need to service a significant amount of debt;
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completing our current organizational restructuring;
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risks relating to our separation from and relationship with
Cadbury Schweppes;
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risks relating to our agreement to indemnify, and be indemnified
by, Cadbury plc for certain taxes; and
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other factors discussed under Risk Factors and
elsewhere in this information statement.
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Forward-looking statements represent our estimates and
assumptions only as of the date that they were made. We do not
undertake any duty to update the forward-looking statements, and
the estimates and assumptions associated with them, after the
date of this information statement, except to the extent
required by applicable securities laws. All of the
forward-looking statements are qualified in their entirety by
reference to the factors discussed above and under Risk
Factors and elsewhere in this information statement. These
risk factors may not be exhaustive as we operate in a
continually changing business environment with new risks
emerging from time to time that we are unable to predict or that
we currently do not expect to have a material adverse effect on
our business. You should carefully read this information
statement in its entirety as it contains important information
about our business and the risks we face.
25
DIVIDEND
POLICY
We currently intend to retain cash generated from our business
to repay our debt and for other corporate purposes and do not
currently anticipate paying any cash dividends in the short
term. In the long term, we intend to invest in our business and
return excess cash to our stockholders. The declaration and
payment of dividends are subject to the discretion of our board
of directors. Any determination to pay dividends will depend on
our results of operations, financial condition, capital
requirements, credit ratings, contractual restrictions and other
factors deemed relevant at the time of such determination by our
board of directors.
26
CAPITALIZATION
The following table presents our capitalization and cash and
cash equivalents as of December 31, 2007:
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on a pro forma basis after giving effect to the adjustments
described in Unaudited Pro Forma Combined Financial
Data.
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The information below is not necessarily indicative of what our
capitalization and cash and cash equivalents would have been had
the separation, distribution and related financing transactions
been completed as of December 31, 2007. In addition, it is
not indicative of our future capitalization and cash and cash
equivalents, results of operations or financial condition. This
table should be read in conjunction with Unaudited Pro
Forma Combined Financial Data, Managements
Discussion and Analysis of Financial Condition and Results of
Operations, and our audited combined financial statements
and the related notes thereto included elsewhere in this
information statement.
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December 31, 2007
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Historical
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Pro Forma
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(In millions)
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Cash and cash equivalents
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$
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67
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$
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100
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Debt:
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Short-term debt:
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Debt payable to Cadbury
Schweppes
(d)
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$
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126
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$
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Other payables to Cadbury
Schweppes
(d)
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175
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Debt payable to third
parties
(a)
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2
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|
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|
2
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New credit
facilities
(b)
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2,190
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Long-term debt (excluding current maturities):
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Debt payable to Cadbury
Schweppes
(d)
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2,893
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Debt payable to third
parties
(a)
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|
19
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|
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19
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New credit
facilities
(b)
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1,710
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Total debt
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3,215
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|
|
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3,921
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Total invested
equity
(c)
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5,021
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|
|
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2,936
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|
|
|
|
|
Total capitalization
|
|
$
|
8,236
|
|
|
$
|
6,857
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Represents capital lease obligations. The short-term portion of
these obligations is included within accounts payable and
accrued expenses in our combined balance sheet.
|
|
|
(b)
|
Represents an aggregate of $3.9 billion of borrowings under
the senior credit facility and the bridge loan facility.
Borrowings of $2.0 billion under the bridge loan facility
(with a term of 364 days) and $190 million under the
term loan A facility of the senior credit facility (representing
current maturities of the term loan A) have been classified as
short-term debt. Borrowings of $1.7 billion, representing
the balance of the term loan A, have been classified as
long-term debt. We currently intend, subject to prevailing
market conditions, to replace all or a portion of the bridge
loan facility with the proceeds of the issuance of one or more
series of notes and/or an alternative term loan facility.
|
|
|
(c)
|
Represents the elimination of Cadbury Schweppes net
investment in us and the distribution of our common stock to
Cadbury Schweppes shareholders.
|
|
|
(d)
|
Represents the settlement with Cadbury Schweppes of related
party debt and other balances.
|
27
SELECTED
HISTORICAL COMBINED FINANCIAL DATA
The following table presents our selected historical combined
financial data. Our selected historical combined financial data
presented below as of December 31, 2007 and 2006 and
January 1, 2006 (the last day of fiscal 2005) and for the
three fiscal years 2007, 2006 and 2005 have been derived from
our audited combined financial statements, included elsewhere in
this information statement. Our selected historical combined
balance sheet data presented below as of January 2, 2005
(the last day of fiscal 2004) have been derived from our
historical accounting records, which are unaudited.
Our historical financial data have been prepared on a
carve-out basis from Cadbury Schweppes
consolidated financial statements using the historical results
of operations, assets and liabilities attributable to Cadbury
Schweppes Americas Beverages business and including
allocations of expenses from Cadbury Schweppes. This historical
Cadbury Schweppes Americas Beverages information is our
predecessor financial information. The results included below
and elsewhere in this document are not necessarily indicative of
our future performance and do not reflect our financial
performance had we been an independent, publicly-traded company
during the periods presented. You should read this information
along with the information included in Unaudited Pro Forma
Combined Financial Data, Managements
Discussion and Analysis of Financial Condition and Results of
Operations and our audited combined financial statements
and the related notes thereto included elsewhere in this
information statement.
On May 2, 2006, we acquired approximately 55% of the
outstanding shares of DPSUBG, which combined with our
pre-existing 45% ownership, resulted in our full ownership of
DPSUBG. DPSUBGs results have been included in the
individual line items within our combined financial statements
beginning on May 2, 2006. Prior to this date, the existing
investment in DPSUBG was accounted for under the equity method
and reflected in the line item captioned equity in
earnings of unconsolidated subsidiaries, net of tax. In
addition, on June 9, 2006 we acquired the assets of All
American Bottling Company, on August 7, 2006 we acquired
Seven Up Bottling Company of San Francisco and on
July 11, 2007 we acquired SeaBev. Each of these four
acquisitions is included in our combined financial statements
beginning on its date of acquisition. As a result, our financial
data is not necessarily comparable on a period-to-period basis.
Our financial data for 2003 has been omitted from this
information statement because it is not available without
unreasonable effort and expense. We believe the omission of the
financial data for the year ended December 31, 2003 does
not have a material impact on the understanding of our financial
performance and related trends.
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In millions)
|
|
|
Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
5,748
|
|
|
$
|
4,735
|
|
|
$
|
3,205
|
|
|
$
|
3,065
|
|
Cost of sales
|
|
|
2,617
|
|
|
|
1,994
|
|
|
|
1,120
|
|
|
|
1,051
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
3,131
|
|
|
|
2,741
|
|
|
|
2,085
|
|
|
|
2,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
2,018
|
|
|
|
1,659
|
|
|
|
1,179
|
|
|
|
1,135
|
|
Depreciation and amortization
|
|
|
98
|
|
|
|
69
|
|
|
|
26
|
|
|
|
10
|
|
Impairment of intangible assets
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring costs
|
|
|
76
|
|
|
|
27
|
|
|
|
10
|
|
|
|
36
|
|
Gain on disposal of property and intangible assets
|
|
|
(71
|
)
|
|
|
(32
|
)
|
|
|
(36
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
1,004
|
|
|
|
1,018
|
|
|
|
906
|
|
|
|
834
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
253
|
|
|
|
257
|
|
|
|
210
|
|
|
|
177
|
|
Interest income
|
|
|
(64
|
)
|
|
|
(46
|
)
|
|
|
(40
|
)
|
|
|
(48
|
)
|
Other expense (income)
|
|
|
(2
|
)
|
|
|
2
|
|
|
|
(51
|
)
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes, equity in earnings of
unconsolidated subsidiaries and cumulative effect of change in
accounting policy
|
|
|
817
|
|
|
|
805
|
|
|
|
787
|
|
|
|
703
|
|
Provision for income taxes
|
|
|
322
|
|
|
|
298
|
|
|
|
321
|
|
|
|
270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before equity in earnings of unconsolidated subsidiaries
and cumulative effect of change in accounting policy
|
|
|
495
|
|
|
|
507
|
|
|
|
466
|
|
|
|
433
|
|
Equity in earnings of unconsolidated subsidiaries
|
|
|
2
|
|
|
|
3
|
|
|
|
21
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of change in accounting policy
|
|
|
497
|
|
|
|
510
|
|
|
|
487
|
|
|
|
446
|
|
Cumulative effect of change in accounting policy, net of tax
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
497
|
|
|
$
|
510
|
|
|
$
|
477
|
|
|
$
|
446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheets Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
67
|
|
|
$
|
35
|
|
|
$
|
28
|
|
|
$
|
19
|
|
Total assets
|
|
|
10,528
|
|
|
|
9,346
|
|
|
|
7,433
|
|
|
|
7,625
|
|
Current portion of long-term debt
|
|
|
126
|
|
|
|
708
|
|
|
|
404
|
|
|
|
435
|
|
Long-term debt
|
|
|
2,912
|
|
|
|
3,084
|
|
|
|
2,858
|
|
|
|
3,468
|
|
Other non-current liabilities
|
|
|
1,460
|
|
|
|
1,321
|
|
|
|
1,013
|
|
|
|
943
|
|
Total invested equity
|
|
|
5,021
|
|
|
|
3,250
|
|
|
|
2,426
|
|
|
|
2,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statements of Cash Flows Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
603
|
|
|
$
|
581
|
|
|
$
|
583
|
|
|
$
|
610
|
|
Investing activities
|
|
|
(1,087
|
)
|
|
|
(502
|
)
|
|
|
283
|
|
|
|
184
|
|
Financing activities
|
|
|
515
|
|
|
|
(72
|
)
|
|
|
(815
|
)
|
|
|
(799
|
)
|
Depreciation expense(1)
|
|
|
120
|
|
|
|
94
|
|
|
|
48
|
|
|
|
53
|
|
Amortization expense(1)
|
|
|
49
|
|
|
|
45
|
|
|
|
31
|
|
|
|
31
|
|
Capital expenditures
|
|
|
(230
|
)
|
|
|
(158
|
)
|
|
|
(44
|
)
|
|
|
(71
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA(2)
|
|
$
|
1,177
|
|
|
$
|
1,158
|
|
|
$
|
1,047
|
|
|
$
|
929
|
|
|
|
|
(1)
|
|
The depreciation and amortization expenses reflected in this
section of the table represent our total depreciation and
amortization expenses as reflected on our combined statements of
cash flows. Depreciation and amortization expenses in our
combined statements of operations data are reflected in various
line items including depreciation and amortization,
cost of sales and selling, general and
administrative expenses.
|
|
(2)
|
|
EBITDA is defined as net income before interest expense,
interest income, provision for income taxes, depreciation and
amortization. EBITDA is a measure commonly used by financial
analysts in evaluating a companys liquidity. Accordingly,
we believe that EBITDA may be useful for investors in assessing
our ability
|
29
|
|
|
|
|
to meet our debt service requirements. EBITDA is not a
recognized measurement under U.S. GAAP. When evaluating
liquidity, investors should not consider EBITDA in isolation of,
or as a substitute for, measures of liquidity as determined in
accordance with U.S. GAAP, such as net income or net cash
provided by operating activities. EBITDA may have material
limitations as a liquidity measure because it excludes interest
expense, interest income, taxes and depreciation and
amortization. Other companies may calculate EBITDA differently,
and therefore our EBITDA may not be comparable to similarly
titled measures reported by other companies. A reconciliation of
EBITDA to net income is provided below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
|
(In millions)
|
|
Net income
|
|
$
|
497
|
|
|
$
|
510
|
|
|
$
|
477
|
|
|
$
|
446
|
|
Interest expense
|
|
|
253
|
|
|
|
257
|
|
|
|
210
|
|
|
|
177
|
|
Interest income
|
|
|
(64
|
)
|
|
|
(46
|
)
|
|
|
(40
|
)
|
|
|
(48
|
)
|
Income taxes
|
|
|
322
|
|
|
|
298
|
|
|
|
321
|
|
|
|
270
|
|
Depreciation expense
|
|
|
120
|
|
|
|
94
|
|
|
|
48
|
|
|
|
53
|
|
Amortization expense
|
|
|
49
|
|
|
|
45
|
|
|
|
31
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
1,177
|
|
|
$
|
1,158
|
|
|
$
|
1,047
|
|
|
$
|
929
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
UNAUDITED
PRO FORMA COMBINED FINANCIAL DATA
The following tables present our unaudited pro forma combined
financial data and reflects adjustments to our historical
combined financial statements to give effect to our separation
from Cadbury Schweppes, the distribution of our shares of common
stock and related financing transactions. The unaudited pro
forma combined balance sheet as of December 31, 2007 has
been prepared as though the separation, distribution and related
financing transactions occurred on December 31, 2007. The
unaudited pro forma combined statement of operations for the
year ended December 31, 2007 has been prepared as though
the separation, distribution and related financing transactions
occurred on January 1, 2007. The pro forma adjustments are
based upon available information and assumptions that we believe
are reasonable.
The unaudited pro forma combined financial data has been
prepared to give effect to:
|
|
|
|
|
the contribution by Cadbury Schweppes to us of its Americas
Beverages business;
|
|
|
|
|
|
the distribution of our common stock to Cadbury Schweppes
shareholders;
|
|
|
|
|
|
the purchase by us from Cadbury Schweppes of software and
intangible assets related to our foreign operations for an
aggregate of $317 million in cash;
|
|
|
|
|
|
the borrowing by us of $3.9 billion under our new credit
facilities;
|
|
|
|
|
|
the payment by us of $100 million of fees and expenses
related to our new credit facilities;
|
|
|
|
|
|
the settlement with Cadbury Schweppes of related party debt and
other balances and the elimination of Cadbury Schweppes
net investment in us; and
|
|
|
|
|
|
other adjustments as described in the notes to the unaudited pro
forma combined financial data.
|
Cadbury Schweppes currently allocates certain costs to us,
including costs in respect of certain corporate functions
provided for us by Cadbury Schweppes. These functions include
corporate communications, regulatory, human resources and
benefits management, treasury, investor relations, corporate
controller, internal audit, Sarbanes-Oxley compliance,
information technology, corporate legal and compliance and
community affairs. The total amount allocated by Cadbury
Schweppes to us in 2007 was $161 million, of which
$154 million ($145 million excluding restructuring
costs of $9 million) was in cash. As an independent
publicly-traded company, effective as of our separation from
Cadbury Schweppes, we will assume responsibility for these
costs. We believe that our total annual costs on a pro forma
basis for 2007, including the incremental costs of being an
independent publicly-traded company, would have been
approximately $174 million, of which $160 million
($151 million excluding restructuring costs of
$9 million) would have been in cash. As a result, our pro
forma 2007 costs for the foregoing would have been
$13 million higher ($6 million on a cash basis) than
the 2007 costs incurred by Cadbury Schweppes which were
allocated to us. These additional costs of $13 million are
not reflected in our pro forma combined financial data presented
below.
The unaudited pro forma combined statement of operations
includes a historical charge of $21 million (primarily
non-cash) related to historical Cadbury Schweppes stock
based compensation plans. We estimate we will incur
approximately $4 million in 2008 prior to the separation
related to these existing Cadbury Schweppes stock compensation
plans in which our employees are participants. Following the
separation, we will issue stock awards under our new Dr Pepper
Snapple Group, Inc. Omnibus Stock Incentive Plan of 2008. These
awards have been approved by Cadbury Schweppes in terms of the
dollar value of the grants but the number of shares underlying
the expected grant cannot be determined until the actual grant
date of such awards. No pro forma adjustment has been made to
reflect the impact of these anticipated new stock incentive
awards. In 2008, we currently expect to recognize charges
related to these new awards of approximately $8 million.
The unaudited pro forma combined statement of operations does
not reflect certain non-recurring charges associated with the
separation. These charges will include $5 million of bonus
payments to be paid to certain members of our management upon
our separation from Cadbury Schweppes and $2 million
(non-cash) related to the forfeiture and replacement of stock
incentive awards, which will be reflected as a charge at
separation.
31
On July 11, 2007 we acquired SeaBev and it is included in
our audited combined financial statements from that date. Due to
the relatively small size of the acquisition, no adjustments
have been reflected in this summary unaudited pro forma combined
financial data.
The unaudited pro forma combined financial data is for
informational purposes only and is not necessarily indicative of
what our financial performance would have been had the
transactions reflected therein been completed on the dates
assumed. It may not reflect the financial performance that would
have resulted had we been operating as an independent,
publicly-traded company during those periods. In addition, it is
not indicative of our future financial performance.
The following unaudited pro forma combined financial data should
be read in conjunction with Selected Historical Combined
Financial Data, Managements Discussion and
Analysis of Financial Condition and Results of Operations,
Business and our historical audited combined
financial statements and the related notes thereto included
elsewhere in this information statement.
32
Dr Pepper
Snapple Group, Inc.
Unaudited
Pro Forma Combined Statement of Operations
For the
Year Ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
Adjustments
|
|
|
Pro Forma
|
|
|
|
(In millions, except per share data)
|
|
|
Net sales
|
|
$
|
5,748
|
|
|
$
|
|
|
|
$
|
5,748
|
|
Cost of sales
|
|
|
2,617
|
|
|
|
|
|
|
|
2,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
3,131
|
|
|
|
|
|
|
|
3,131
|
|
Selling, general and administrative expenses
|
|
|
2,018
|
|
|
|
|
|
|
|
2,018
|
|
Depreciation and amortization
|
|
|
98
|
|
|
|
2
|
(c)
|
|
|
100
|
|
Impairment of intangible assets
|
|
|
6
|
|
|
|
|
|
|
|
6
|
|
Restructuring costs
|
|
|
76
|
|
|
|
|
|
|
|
76
|
|
Gain on disposal of property and intangible assets
|
|
|
(71
|
)
|
|
|
|
|
|
|
(71
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
1,004
|
|
|
|
(2
|
)
|
|
|
1,002
|
|
Interest expense
|
|
|
253
|
|
|
|
110
|
(b)
|
|
|
363
|
|
Interest income
|
|
|
(64
|
)
|
|
|
60
|
(a)
|
|
|
(4
|
)
|
Other income
|
|
|
(2
|
)
|
|
|
(11
|
)(d)
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes and equity
in earnings of unconsolidated subsidiaries
|
|
|
817
|
|
|
|
(161
|
)
|
|
|
656
|
|
Provision for income taxes
|
|
|
322
|
|
|
|
(67
|
)(e)
|
|
|
272
|
|
|
|
|
|
|
|
|
6
|
(e)
|
|
|
|
|
|
|
|
|
|
|
|
11
|
(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before equity in earnings of unconsolidated subsidiaries
|
|
|
495
|
|
|
|
(111
|
)
|
|
|
384
|
|
Equity in earnings of unconsolidated subsidiaries
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
497
|
|
|
$
|
(111
|
)
|
|
$
|
386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic(f)
|
|
|
|
|
|
|
|
|
|
$
|
1.52
|
|
Diluted(g)
|
|
|
|
|
|
|
|
|
|
$
|
1.52
|
|
Weighted average shares outstanding (in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic(f)
|
|
|
|
|
|
|
|
|
|
|
253.4
|
|
Diluted(g)
|
|
|
|
|
|
|
|
|
|
|
253.4
|
|
See Notes to Unaudited Pro Forma Combined Financial Data
33
Dr Pepper
Snapple Group, Inc.
Unaudited
Pro Forma Combined Balance Sheet
As of
December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
Adjustments
|
|
|
Pro Forma
|
|
|
|
(In millions, except share and
|
|
|
|
per share data)
|
|
|
Assets
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
67
|
|
|
$
|
3,800
|
(i)
|
|
$
|
100
|
|
|
|
|
|
|
|
|
(1,628
|
)(j)
|
|
|
|
|
|
|
|
|
|
|
|
(1,822
|
)(k)
|
|
|
|
|
|
|
|
|
|
|
|
(317
|
)(l)
|
|
|
|
|
Accounts receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade (net of allowances of $20)
|
|
|
538
|
|
|
|
|
|
|
|
538
|
|
Other
|
|
|
59
|
|
|
|
|
|
|
|
59
|
|
Related party receivable
|
|
|
66
|
|
|
|
(39
|
)(j)
|
|
|
|
|
|
|
|
|
|
|
|
(27
|
)(h)
|
|
|
|
|
Notes receivable from related parties
|
|
|
1,527
|
|
|
|
(1,527
|
)(j)
|
|
|
|
|
Inventories
|
|
|
325
|
|
|
|
|
|
|
|
325
|
|
Deferred tax assets
|
|
|
81
|
|
|
|
|
|
|
|
81
|
|
Prepaid and other current assets
|
|
|
76
|
|
|
|
|
|
|
|
76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
2,739
|
|
|
|
(1,560
|
)
|
|
|
1,179
|
|
Property, plant and equipment, net
|
|
|
868
|
|
|
|
7
|
(l)
|
|
|
875
|
|
Investment in unconsolidated subsidiaries
|
|
|
13
|
|
|
|
|
|
|
|
13
|
|
Goodwill
|
|
|
3,183
|
|
|
|
|
|
|
|
3,183
|
|
Other intangible assets, net
|
|
|
3,617
|
|
|
|
|
|
|
|
3,617
|
|
Other non-current assets
|
|
|
100
|
|
|
|
100
|
(i)
|
|
|
502
|
|
|
|
|
|
|
|
|
275
|
(d)
|
|
|
|
|
|
|
|
|
|
|
|
27
|
(h)
|
|
|
|
|
Non-current deferred tax assets
|
|
|
8
|
|
|
|
128
|
(n)
|
|
|
136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
10,528
|
|
|
$
|
(1,023
|
)
|
|
$
|
9,505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Invested Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
812
|
|
|
$
|
|
|
|
$
|
812
|
|
Related party payable
|
|
|
175
|
|
|
|
(175
|
)(j)
|
|
|
|
|
Current portion of long-term debt payable to third parties
|
|
|
|
|
|
|
2,190
|
(i)
|
|
|
2,190
|
|
Current portion of long-term debt payable to related parties
|
|
|
126
|
|
|
|
(126
|
)(j)
|
|
|
|
|
Income taxes payable
|
|
|
22
|
|
|
|
10
|
(o)
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,135
|
|
|
|
1,899
|
|
|
|
3,034
|
|
Long-term debt payable to third parties
|
|
|
19
|
|
|
|
1,710
|
(i)
|
|
|
1,729
|
|
Long-term debt payable to related parties
|
|
|
2,893
|
|
|
|
(2,893
|
)(j)
|
|
|
|
|
Deferred tax liabilities
|
|
|
1,324
|
|
|
|
|
|
|
|
1,324
|
|
Other non-current liabilities
|
|
|
136
|
|
|
|
71
|
(m)
|
|
|
482
|
|
|
|
|
|
|
|
|
275
|
(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
5,507
|
|
|
|
1,062
|
|
|
|
6,569
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares, $0.01 par value, 800,000,000 authorized;
253,400,000 outstanding on a pro forma basis
|
|
|
|
|
|
|
3
|
(p)
|
|
|
3
|
|
Contributed surplus
|
|
|
|
|
|
|
2,945
|
(p)
|
|
|
2,945
|
|
Parent Company Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Cadbury Schweppes net investment
|
|
|
5,001
|
|
|
|
(1,822
|
)(k)
|
|
|
|
|
|
|
|
|
|
|
|
(310
|
)(l)
|
|
|
|
|
|
|
|
|
|
|
|
(18
|
)(m)
|
|
|
|
|
|
|
|
|
|
|
|
107
|
(n)
|
|
|
|
|
|
|
|
|
|
|
|
(2,948
|
)(p)
|
|
|
|
|
|
|
|
|
|
|
|
(10
|
)(o)
|
|
|
|
|
Accumulated other comprehensive income (loss)
|
|
|
20
|
|
|
|
(53
|
)(m)
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
21
|
(n)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total invested equity
|
|
|
5,021
|
|
|
|
(2,085
|
)
|
|
|
2,936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and invested equity
|
|
$
|
10,528
|
|
|
$
|
(1,023
|
)
|
|
$
|
9,505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Unaudited Pro Forma Combined Financial Data
34
Dr Pepper
Snapple Group, Inc.
Notes to Unaudited Pro Forma Combined Financial Data
|
|
(a)
|
Represents the removal of $60 million of interest income on
related party receivable balances and from our participation in
the Cadbury Schweppes cash management programs. Following
the separation, we will not participate in Cadbury
Schweppes cash management program.
|
(b) Represents adjustments to reflect:
|
|
|
|
|
removal of interest expense attributable to related party debt
balances;
|
|
|
|
|
|
recognition of interest expense attributable to borrowings of
$3.9 billion under our new credit facilities;
|
|
|
|
|
|
amortization of fees and expenses attributable to our new credit
facilities; and
|
|
|
|
|
|
recognition of commitment fees on unused amounts attributable to
our new revolving credit facility.
|
The following table sets forth the assumed principal
outstanding, interest rate and maturity for each component of
our new credit facilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
|
|
|
|
|
|
|
|
Facility
|
|
Outstanding
|
|
|
Interest Rate
|
|
|
Maturity
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
Bridge loan facility
|
|
$
|
2,000
|
|
|
|
3-month LIBOR plus 2.00%
|
|
|
|
364 days
|
|
Senior credit facility:
Term loan A facility
|
|
|
1,900
|
|
|
|
3-month LIBOR plus 2.00%
|
|
|
|
5 years
|
|
Revolving credit facility
|
|
|
|
|
|
|
3-month LIBOR plus 2.00%
|
|
|
|
5 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We have the choice of either a floating rate of LIBOR plus an
applicable margin or a floating alternate base rate plus an
applicable margin. For the purposes of the unaudited pro forma
combined statement of operations, we have assumed that our
outstanding borrowings bear interest at three-month LIBOR plus
an applicable margin of 2.00%. The assumed applicable
margin is based upon our expected debt rating at the time of the
separation.
For the purposes of the unaudited pro forma combined statement
of operations, we have assumed that the commitment fee on our
revolving credit facility,which is payable quarterly in arrears,
is at a rate of 0.3% (based upon our expected debt rating at the
time of the separation) of the unused amounts.
The pro forma adjustment to interest expense consists of the
following (in millions):
|
|
|
|
|
Removal of interest on related party debt
|
|
$
|
(234
|
)
|
Interest on bridge loan facility
|
|
|
146
|
|
Interest on term loan A facility
|
|
|
139
|
|
Amortization of fees and expenses attributable to new credit
facilities
|
|
|
57
|
|
Commitment fees on unused revolving facility
|
|
|
2
|
|
|
|
|
|
|
Total
|
|
$
|
110
|
|
|
|
|
|
|
The 2007 average three-month LIBOR was 5.30%. Pro forma interest
charges on the term loan A and bridge loan facilities were
calculated at a rate of 7.30% reflecting the 2007 average
three-month LIBOR plus a margin of 2.00%. Fees and expenses
attributable to the new credit facilities are amortized on an
effective yield basis over the life of the related loan.
At March 17, 2008, three-month LIBOR was 2.58%. Using this
interest rate, borrowings under the term loan A and bridge
loan facilities would bear interest at a rate of 4.58%
(representing 2.58% plus 2.00%). Had this rate been applied in
the accompanying unaudited pro forma combined statement of
operations, pro forma interest expense on the term loan A and
bridge loan facilities for 2007 would have been approximately
$106 million lower.
35
Dr Pepper
Snapple Group, Inc.
Notes to
Unaudited Pro Forma Combined Financial Data
A change of
one-eighth
of 1.00% (12.5 basis points) in the interest rate associated
with the floating rate borrowings would result in an additional
annual interest expense of approximately $5 million (in the
case of an increase to the rate) or an annual reduction of
interest expense of approximately $5 million (in the case
of a decrease in the rate).
In 2007, $6 million of interest was capitalized with
respect to ongoing capital projects. We have assumed that
$6 million of the pro forma interest expense would also
have been capitalized.
For a description of the terms of the senior credit facility and
bridge loan facility, including the right of the bookrunners
under the facilities to modify certain of the terms under
certain circumstances, see Description of
Indebtedness.
|
|
(c)
|
Represents incremental depreciation from the purchase of certain
software from Cadbury Schweppes in connection with the
separation for $7 million. The estimated remaining useful
life of these assets is three years resulting in additional
annual depreciation expense of $2 million.
|
|
|
(d)
|
In accordance with Financial Accounting Standards Board
Interpretation No. 48,
Accounting for Uncertainty
in Income Taxes
(FIN 48), we will
record $275 million of unrecognized tax benefits
transferred to us at separation. Under the Tax-Sharing and
Indemnification Agreement, Cadbury Schweppes has agreed to
indemnify us for any liabilities that may arise from the
associated tax positions as more fully described in Our
Relationship with Cadbury plc After the Distribution
Description of Various Separation and Transition
Arrangements Tax-Sharing and Indemnification
Agreement, and, accordingly we have recognized a
corresponding and offsetting amount reflected under
non-current
assets. We have recorded on the pro forma combined
statement of operations $11 million of income tax expense
for the accrual of interest, net of tax benefits, associated
with these unrecognized tax benefits and a corresponding amount
as other income. The actual level of unrecognized tax benefits
ultimately realized, if any, and the corresponding amounts paid
to us under the tax-sharing and indemnification agreement may
not be known for several years.
|
|
|
(e)
|
Represents the adjustment to reflect the $67 million of
income tax effects of the pro forma adjustments referenced in
notes (a) through (c) above at our U.S. marginal tax
rate of 39% and $6 million to reflect the income tax
increase attributable to foreign tax credit limitations after
separation.
|
|
|
(f)
|
The number of shares used to compute pro forma earnings per
share basic is 253.4 million, which is the
number of shares of our common stock assumed to be outstanding
on the distribution date, based on a distribution ratio of
0.12 shares of our common stock for every Cadbury Schweppes
ordinary share outstanding as of March 13, 2008.
|
|
|
(g)
|
The number of shares used to compute pro forma earnings per
share diluted will be the number of basic
shares referenced in note (f) above plus any potential dilution
from stock-based awards granted under our stock-based
compensation plans. There will be no potentially dilutive
securities outstanding on separation. In the ordinary course of
business post separation, we expect to issue stock-based awards
under our stock-based compensation plans which, when issued,
will be dilutive in future periods.
|
|
|
(h)
|
Represents the reclassification of $27 million of other tax
indemnification receivables from Cadbury Schweppes that will not
be repaid at separation from related party
receivable to other
non-current
assets.
|
|
|
(i)
|
Represents an aggregate of $3.9 billion of borrowings under
the senior credit facility and the bridge loan facility, net of
$100 million of fees and expenses related to the facilities.
Borrowings of $2.0 billion under the bridge loan facility
(with a term of 364 days) and of $190 million under
the term loan A (representing the current maturities of the term
loan) have been classified as current liabilities. Borrowings of
$1.7 billion, representing the balance of the term loan A,
have been classified as long-term debt. The $100 million of fees
and expenses related to the new credit facilities are reflected
as other non-current assets.
|
36
Dr Pepper
Snapple Group, Inc.
Notes to
Unaudited Pro Forma Combined Financial Data
|
|
(j)
|
Represents the settlement with Cadbury Schweppes of related
party debt and other balances as follows (in millions):
|
|
|
|
|
|
Related party receivable
|
|
$
|
39
|
|
Notes receivable from related parties
|
|
|
1,527
|
|
Related party payable
|
|
|
(175
|
)
|
Current portion of long-term debt payable to related parties
|
|
|
(126
|
)
|
Long-term debt payable to related parties
|
|
|
(2,893
|
)
|
|
|
|
|
|
Net cash settlement of related party balances
|
|
$
|
1,628
|
|
|
|
|
|
|
|
|
(k)
|
Represents the $1,822 million repayment of debt for an
affiliated Cadbury Schweppes entity that is unrelated to our
business and is not included in our historical combined
financial statements. This repayment is reflected as an
adjustment to Parent Company Equity Cadbury
Schweppes net investment.
|
|
|
(l)
|
Represents our purchase for $317 million in cash of certain
assets from Cadbury Schweppes in connection with the separation.
The assets include software rights and intangible assets related
to our foreign operations. Of the $317 million,
$7 million is reflected in property, plant and equipment
and the difference of $310 million between the purchase
price and the historical book value of the amounts transferred
has been reflected as an adjustment to Parent Company
Equity Cadbury Schweppes net investment.
|
|
|
(m)
|
Represents the assumption of employee benefit liabilities for
pension and postretirement benefit plans previously sponsored by
Cadbury Schweppes. A pension liability of $71 million has
been reflected in the pro forma adjustment. In addition,
$53 million of unamortized losses related to the pension
plans that will be assumed has been reflected as an adjustment
to Accumulated other comprehensive income. The
difference of $18 million has been reflected as an
adjustment to Parent Company Equity Cadbury
Schweppes net investment. The actual pension
liability and associated unamortized losses will be finalized at
the separation date.
|
|
|
(n)
|
Represents net incremental deferred tax assets associated with
the $310 million purchase of intangible assets from Cadbury
Schweppes discussed in (l) above, the $71 million
assumption of pension liabilities and the related
$53 million of unamortized losses in Accumulated
other comprehensive income discussed in (m) above. The
deferred tax assets are reflected at a marginal tax rate of
25.5% for intangible assets related to our foreign operations
and the pension liabilities assumed and associated unamortized
losses are reflected at our U.S. marginal tax rate of 39%.
|
|
|
(o)
|
Reflects $10 million of income tax liabilities transferred
to us at separation and which have been reflected as an
adjustment to Parent Company Equity Cadbury
Schweppes net investment. These liabilities
represent income tax payable, based on our tax sharing
arrangement, associated with our historical income tax returns
that include both our business and other Cadbury Schweppes
businesses unrelated to our business that are not included in
our historical combined financial statements.
|
|
|
(p)
|
Represents the reclassification of the balance of the remaining
Parent Company Equity Cadbury Schweppes
net investment, after giving effect to all of the
foregoing pro-forma separation adjustments into common
shares of $3 million, to reflect the total par value
of our outstanding common stock and contributed
surplus of $2,945 million.
|
37
MANAGEMENTS
DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion in conjunction with
our audited combined financial statements and related notes and
our unaudited pro forma combined financial data included
elsewhere in this information statement. This discussion
contains forward-looking statements that are based on
managements current expectations, estimates and
projections about our business and operations. Our actual
results may differ materially from those currently anticipated
and expressed in such forward-looking statements as a result of
various factors including the factors we describe under
Risk Factors, Special Note Regarding
Forward-Looking Statements, and elsewhere in this
information statement.
The fiscal years presented in this section are the 52-week
periods ended December 31, 2007 and 2006, which we refer to
as 2007 and 2006, respectively, and the
52-week period ended January 1, 2006, which we refer to as
2005. Effective 2006, our fiscal year ends on
December 31 of each year. In 2005, the year end date
represented the Sunday closest to December 31. References
in the financial tables to percentage changes that are not
meaningful are denoted by NM.
Overview
We are a leading integrated brand owner, bottler and distributor
of non-alcoholic beverages in the United States, Canada and
Mexico with a diverse portfolio of flavored CSDs and non-CSDs,
including ready-to-drink teas, juices, juice drinks and mixers.
Our brand portfolio includes popular CSD brands such as Dr
Pepper, 7UP, Sunkist, A&W, Canada Dry, Schweppes, Squirt
and Peñafiel, and non-CSD brands such as Snapple,
Motts, Hawaiian Punch, Clamato,
Mr & Mrs T, Margaritaville and Roses.
Our largest brand, Dr Pepper, is the #2 selling flavored
CSD in the United States according to ACNielsen, which generated
approximately one-third of our volume in 2007. We have some of
the most recognized beverage brands in North America, with
significant consumer awareness levels and long histories that
evoke strong emotional connections with consumers.
We operate primarily in the United States, Mexico and Canada,
the first, second and tenth largest beverage markets,
respectively, by CSD volume, according to Beverage Digest and
Canadean. We also distribute our products in the Caribbean. In
2007, 89% of our net sales were generated in the United States,
4% in Canada and 7% in Mexico and the Caribbean.
Our
Business Model
We operate as a brand owner, a bottler and a distributor through
our four segments as follows:
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our Beverage Concentrates segment is a brand ownership business;
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our Finished Goods segment is a brand ownership and a bottling
business and, to a lesser extent, a distribution business;
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our Bottling Group segment is a bottling and distribution
business; and
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our Mexico and the Caribbean segment is a brand ownership and a
bottling and distribution business.
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Our Brand Ownership Businesses.
As a brand
owner, we build our brands by promoting brand awareness through
marketing, advertising and promotion, and by developing new and
innovative products and product line extensions that address
consumer preferences and needs. As the owner of the formulas and
proprietary know-how required for the preparation of beverages,
we manufacture, sell and distribute beverage concentrates and
syrups used primarily to produce CSDs and we manufacture,
bottle, sell and distribute primarily non-CSD finished
beverages. Most of our sales of beverage concentrates are to
bottlers who manufacture, bottle, sell and distribute our
branded products into retail channels. Approximately one-third
of our U.S. beverage concentrates by volume are sold to our
Bottling Group, with the balance being sold to third-party
bottlers affiliated with
Coca-Cola
or
PepsiCo, as well as independent bottlers. We also manufacture,
sell and distribute syrups for use in beverage fountain
dispensers to restaurants and retailers, as well as to fountain
wholesalers, who resell it to restaurants and retailers. In
addition, we distribute non-CSD finished beverages through
ourselves and through third-party distributors.
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Our beverage concentrates and syrup brand ownership businesses
are characterized by relatively low capital investment, raw
materials and employee costs. Although the cost of building or
acquiring an established brand can be significant, established
brands typically do not require significant ongoing
expenditures, other than marketing, and therefore generate
relatively high margins. Our finished beverages brand ownership
business has characteristics of both of our beverage
concentrates and syrup brand ownership businesses as well as our
bottling and distribution businesses discussed below.
Our Bottling and Distribution Businesses.
We
manufacture, bottle, sell and distribute CSD finished beverages
from concentrates and non-CSD finished beverages and products
mostly from ingredients other than concentrates. We sell and
distribute finished beverages and other products primarily into
retail channels either directly to retail shelves or to
warehouses through our large fleet of delivery trucks or through
third-party logistics providers.
Our bottling and distribution businesses are characterized by
relatively high capital investment, raw material, selling and
distribution costs, in each case compared to our beverage
concentrates and syrup brand ownership businesses. Our capital
costs include investing in, and maintaining, our manufacturing
and warehouse equipment and facilities. Our raw material costs
include purchasing concentrates, ingredients and packaging
materials (including cans and bottles) from a variety of
suppliers. Our selling and distribution costs include
significant costs related to operating our large fleet of
delivery trucks (including fuel) and employing a significant
number of employees to sell and deliver finished beverages and
other products to retailers. As a result of the high fixed costs
associated with these types of businesses, we are focused on
maintaining an adequate level of volumes as well as controlling
capital expenditures, raw material, selling and distribution
costs. In addition, geographic proximity to our customers is a
critical component of managing the high cost of transporting
finished beverages relative to their retail price. The
profitability of the bottling and distribution businesses is
also dependent upon our ability to sell our products into higher
margin channels. As a result of the foregoing, the margins of
our bottling and distribution businesses are significantly lower
than those of our brand ownership businesses. In light of the
largely fixed cost nature of the bottling and distribution
businesses, increases in costs, for example raw materials tied
to commodity prices, could have a significant negative impact on
the margins of our businesses.
Approximately three-fourths of our 2007 Bottling Group net sales
of branded products come from our own brands, with the remaining
from the distribution of third-party brands such as Monster
energy drink, FIJI mineral water and Big Red soda. In addition,
a small portion of our Bottling Group sales come from bottling
beverages and other products for private label owners or others
for a fee (which we refer to as co-packing).
Integrated Business Model.
We believe our
brand ownership, bottling and distribution are more integrated
than the U.S. operations of our principal competitors and that
this differentiation provides us with a competitive advantage.
We believe our integrated business model:
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Strengthens our route-to-market by creating a third consolidated
bottling system, our Bottling Group, in addition to the
Coca-Cola
affiliated and PepsiCo affiliated systems. In addition, by
owning a significant portion of our bottling and distribution
network we are able to improve focus on our brands, especially
certain of our brands such as 7UP, Sunkist, A&W and
Snapple, which do not have a large presence in the
Coca-Cola
affiliated and PepsiCo affiliated bottler systems. Our
strengthened route-to-market following our bottling acquisitions
has enabled us to increase the market share of our brands (as
measured by volume) in many of the markets served by the
bottlers we acquired.
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Provides opportunities for net sales and profit growth through
the alignment of the economic interests of our brand ownership
and our bottling and distribution businesses. For example, we
can focus on maximizing profitability for our company as a whole
rather than focusing on profitability generated from either the
sale of concentrates or the bottling and distribution of our
products.
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Enables us to be more flexible and responsive to the changing
needs of our large retail customers, including by coordinating
sales, service, distribution, promotions and product launches.
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Allows us to more fully leverage our scale and reduce costs by
creating greater geographic manufacturing and distribution
coverage.
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Trends
Affecting our Business
According to the latest available data from Beverage Digest, in
2007, the U.S. CSD market segment grew by 2.7% in retail sales,
despite a 2.3% decline in total CSD volume. The U.S. non-CSD
volume and retail sales increased by 13.2% and 14.8%,
respectively, in 2006. In addition, non-CSDs experienced strong
growth over the last five years with their volume share of the
overall U.S. liquid refreshment beverage market increasing from
12.7% in 2001 to 16.3% in 2006.
We believe the key trends influencing the North
American liquid refreshment beverage market include:
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Increased health consciousness.
We believe the
main beneficiaries of this trend include diet drinks,
ready-to-drink
teas, enhanced waters and bottled waters.
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Changes in lifestyle.
We believe changes in
lifestyle will continue to drive increased sales of single-serve
beverages, which typically have higher margins.
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Growing demographic segments in the United
States.
We believe marketing and product
innovations that target fast growing population segments, such
as the Hispanic community in the United States, will drive
further market growth.
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Product and packaging innovation.
We believe
brand owners and bottling companies will continue to create new
products and packages such as beverages with new ingredients and
new premium flavors, as well as innovative convenient packaging
that address changes in consumer tastes and preferences.
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Changing retailer landscape.
As retailers
continue to consolidate, we believe retailers will support
consumer product companies that can provide an attractive
portfolio of products, a strong value proposition and efficient
delivery.
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Recent increases in raw material costs.
The
costs of a substantial proportion of the raw materials used in
the beverage industry are dependent on commodity prices for
aluminum, natural gas, resins, corn, pulp and other commodities.
Recently, these costs on the whole have increased significantly
and this has exerted pressure on industry margins.
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Seasonality
The beverage market is subject to some seasonal variations. Our
beverage sales are generally higher during the warmer months and
also can be influenced by the timing of holidays and religious
festivals as well as weather fluctuations.
Recent
Developments
New
Financing Arrangements
On March 10, 2008, we entered into arrangements with a
group of lenders to provide us with an aggregate of
$4.4 billion of financing. The new arrangements consist of
a $2.4 billion senior credit agreement that provides a
$1.9 billion term loan A facility and a
$500 million revolving credit facility and a 364-day bridge
credit agreement that provides a $2.0 billion bridge loan
facility. We currently expect to borrow an aggregate of
$3.9 billion under the term loan A facility and the
bridge loan facility in connection with the separation. We
currently intend, subject to prevailing market conditions, to
replace all or a portion of the bridge loan facility with the
proceeds from the issuance of one or more series of notes
and/or
an
alternative term loan facility. See Description of
Indebtedness.
Organizational
Restructuring
On October 10, 2007, we announced a restructuring of our
organization intended to create a more efficient organization.
This restructuring will result in a reduction of approximately
470 employees in our corporate, sales and supply chain
functions and will include approximately 100 employees in Plano,
Texas, 125 employees in Rye Brook, New York, and 50 employees in
Aspers, Pennsylvania. The remaining reductions will occur at a
number of sites located in the United States, Canada and Mexico.
The restructuring also includes the closure of two
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manufacturing facilities in Denver, Colorado (closed in
December 2007) and Waterloo, New York (closed in March 2008).
The employee reductions are expected to be completed by June
2008.
As a result of this restructuring, we recognized a charge of
approximately $32 million in 2007. We expect to recognize a
charge of approximately $21 million in 2008 related to this
restructuring. We expect this restructuring to generate annual
cost savings of approximately $68 million, most of which
are expected to be realized in 2008 with the full annual benefit
realized from 2009 onwards. Savings realized in 2007 were
immaterial. As part of this restructuring, our Bottling Group
segment has assumed management and operational control of our
Snapple Distributors segment.
In 2007, we incurred a total of $76 million of
restructuring costs, which included $32 million related to
the restructuring announced on October 10, 2007.
Accelerade
Launch
We launched our new, ready-to-drink Accelerade sports drink in
the first half of 2007. The launch represented an introduction
of a new product into a new beverage category for us, and was
supported by significant national product placement and
marketing investments. Net sales were below expectations despite
these investments. We incurred an operating loss of
approximately $55 million from the Accelerade launch in
2007, while marketing investments in other brands, predominantly
Beverage Concentrate brands, were reduced by approximately
$25 million. In addition, we incurred a $4 million
impairment charge related to the Accelerade brand, which
represented the majority of the $6 million of impairment
charges we incurred in 2007. Going forward, we intend to focus
on marketing and selling Accelerade in a more targeted way to
informed athletes, trainers and exercisers, and retailers that
are frequented by these consumers, such as health and nutrition
outlets, where we expect the product to be financially viable.
Glacéau
Termination
Following its acquisition by Coca-Cola, on August 30, 2007,
Energy Brands, Inc. notified us that it was terminating our
distribution agreements for glacéau products, including
vitaminwater, fruitwater and smartwater, effective
November 2, 2007. Pursuant to the terms of the agreements,
we received a payment of approximately $92 million from
Energy Brands, Inc. for this termination in December 2007, and
we recorded a $71 million gain in 2007 in respect of this
payment. Our 2007 glacéau net sales and contribution to
income from operations were approximately $227 million and
$40 million, respectively, and were reflected in our
Bottling Group segment.
Significant
Acquisitions
Our Bottling Group was created through the acquisition of
several bottling businesses. On May 2, 2006, we acquired
approximately 55% of the outstanding shares of DPSUBG, which
combined with our pre-existing 45% ownership, resulted in our
full ownership of DPSUBG. The purchase price consisted of
$370 million in cash and we assumed debt of
$651 million in connection with this acquisition.
DPSUBGs results have been included in the individual line
items within our combined financial statements beginning on
May 2, 2006. Prior to this date, the existing investment in
DPSUBG was accounted for under the equity method and reflected
in the line item captioned equity in earnings of
unconsolidated subsidiaries, net of tax in our combined
statements of operations.
On June 9, 2006, we acquired the assets of All American
Bottling Company for $58 million, and on August 7,
2006, we acquired Seven Up Bottling Company of
San Francisco for $51 million. On July 11, 2007,
we acquired SeaBev for approximately $53 million. Each of
these acquisitions is included in our combined statements of
operations beginning on its date of acquisition.
We refer to the foregoing four acquisitions as our
bottling acquisitions, and they are reported in our
combined financial statements collectively as our Bottling Group
segment. We previously have referred to our Bottling Group
segment as the Cadbury Schweppes Bottling Group. These bottling
acquisitions have had an impact on our results of operations and
therefore impact the comparability of our pre- and
post-acquisition period results.
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Our
Separation from Cadbury Schweppes
On March 15, 2007, Cadbury Schweppes announced that its
board of directors had approved a plan to separate its Americas
Beverages business from its global confectionery business. The
Americas Beverages business consists of Cadbury Schweppes
beverage business in the United States, Canada, Mexico and the
Caribbean. Upon separation, DPS will own the Americas Beverages
business currently owned by Cadbury Schweppes and its
subsidiaries, and shares of our common stock will be distributed
to holders of Cadbury Schweppes ordinary shares and ADRs.
Our historical financial statements have been prepared on a
combined basis from Cadbury Schweppes consolidated
financial statements using the historical results of operations
and assets and liabilities attributed to Cadbury Schweppes
Americas Beverages business and including allocations of
expenses from Cadbury Schweppes. Our combined financial
statements are presented in U.S. dollars, and have been
prepared in accordance with U.S. GAAP. Our segment
information has been prepared and presented on the basis which
management uses to assess the performance of our segments, which
is principally in accordance with IFRS. Our consolidated and
segment results are not necessarily indicative of our future
performance and do not reflect what our financial performance
would have been had we been an independent publicly-traded
company during the periods presented.
As explained more fully in Unaudited Pro Forma Combined
Financial Data, the total amount of these allocations from
Cadbury Schweppes was approximately $161 million in 2007
and approximately $142 million in 2006. As an independent
publicly-traded company, effective as of our separation from
Cadbury Schweppes, we will assume responsibility for these
costs. We believe that our total annual costs on a pro forma
basis for 2007, including the incremental costs of being an
independent publicly-traded company, would have been
approximately $174 million. As a result, our 2007 pro forma
costs for the foregoing would have been $13 million higher
than the 2007 expenses incurred by Cadbury Schweppes which were
allocated to us.
Segments
We currently operate in four segments: Beverage Concentrates,
Finished Goods, Bottling Group and Mexico and the Caribbean.
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Our Beverage Concentrates segment reflects sales from the
manufacture of concentrates and syrups in the United States and
Canada. Most of the brands in this segment are CSD brands.
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Our Finished Goods segment reflects sales from the manufacture
and distribution of finished beverages and other products in the
United States and Canada. Most of the brands in this segment are
non-CSD brands.
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Our Bottling Group segment reflects sales from the manufacture,
bottling and/or distribution of finished beverages, including
sales of our own brands and third-party owned brands.
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Our Mexico and the Caribbean segment reflects sales from the
manufacture, bottling and/or distribution of both concentrates
and finished beverages in those geographies.
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Our current segment reporting structure is largely the result of
acquiring and combining various portions of our businesses over
the past several years. Although we continue to report our
segments separately, due to the integrated nature of our
business model, we manage our business to maximize profitability
for our company as a whole. As a result, profitability trends in
individual segments may not be consistent with the profitability
of our company or comparable to our competitors. For example,
following our bottling acquisitions in 2006, we changed certain
funding and manufacturing arrangements between our Beverage
Concentrates and Finished Goods segments and our newly acquired
bottling companies, which reduced the profitability of our
Bottling Group segment while benefiting our other segments.
We have significant intersegment transactions. For example, our
Bottling Group purchases concentrates at an arms length
price from our Beverage Concentrates segment. We expect these
purchases to account for approximately one-third of our Beverage
Concentrates segment annual net sales and therefore drive a
similar proportion of our Beverage Concentrates segment
profitability. In addition, our Bottling Group segment purchases
42
finished beverages from our Finished Goods segment. All
intersegment transactions are eliminated in preparing our
combined results of operations.
We incur selling, general and administrative expenses in each of
our segments. In our segment reporting, the selling, general and
administrative expenses of our Bottling Group and Mexico and the
Caribbean segments relate primarily to those segments. However,
as a result of our historical segment reporting policies,
certain combined selling activities that support our Beverage
Concentrates and Finished Goods segments have not been
proportionally allocated between those two segments. We also
incur certain centralized finance and corporate costs that
support our entire business, which have not been directly
allocated to our respective segments but rather have been
allocated primarily to our Beverage Concentrates segment.
The key financial measures management uses to assess the
performance of our segments are net sales and underlying
operating profit (UOP).
UOP represents a measure of income from operations. To reconcile
total UOP of our segments to our total company income from
operations on a U.S. GAAP basis, adjustments are primarily
required for: (1) restructuring costs, (2) non-cash
compensation charges on stock option awards,
(3) amortization and impairment of intangibles and
(4) incremental pension costs. In addition, adjustments are
required for total company corporate costs and other items,
which relate primarily to general and administrative expenses
not allocated to the segments and equity in earnings of
unconsolidated subsidiaries. To reconcile total company income
from operations to the line item income before provision
for income taxes, equity in earnings of unconsolidated
subsidiaries and cumulative effect of change in accounting
policy as reported on a U.S. GAAP basis, additional
adjustments are required for interest expense, interest income
and other expense (income).
Components
of Net Sales and Costs and Expenses
Net
Sales
We generate net sales primarily from:
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the sale and distribution of beverage concentrates and syrups;
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the sale and distribution of finished beverages; and
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the distribution of products of third parties.
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We offer a variety of incentives and discounts to bottlers,
customers and consumers through various programs to support in
the distribution and promotion of our products. These incentives
and discounts include cash discounts, price allowances, volume
based rebates, product placement fees and other financial
support for items such as trade promotions, displays, new
products, consumer incentives and advertising assistance. These
incentives and discounts, collectively referred to as trade
spend, are reflected as a reduction of gross sales to arrive at
net sales.
We expect our annual net sales growth rate over the next several
years to be in the range of 3%-5% (before giving effect to any
acquisitions we may make), driven by, among other things, the
execution of our strategy including our focus on higher margin
opportunities which arise from investing in coolers and other
cold drink equipment, expanding our product presence in
channels, such as convenience stores, as well as investing in
manufacturing facilities. We expect our 2008 net sales growth
rate to be in the same range (before giving effect to any
acquisitions we may make).
Cost of
Sales
Our cost of sales include costs associated with the operation of
our manufacturing and other related facilities, including
depreciation, as well as the following:
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Beverage concentrates cost of sales.
The major
components in our beverage concentrates cost of sales are
flavors and sweeteners for diet beverage concentrates.
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Bottler cost of sales.
The major components in
our bottler cost of sales are beverage concentrates, packaging
and ingredients. Packaging costs and ingredients costs
represented approximately 40% and 20%, respectively, of our cost
of sales in 2007. Packaging costs include aluminum, glass, PET
and paper
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packaging. Ingredients include HFCS and other sweeteners,
agricultural commodities (such as apples, citrus fruits and
tomatoes), teas and flavorings.
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Distributor cost of sales.
The major component
in our distributor cost of sales is purchased finished beverages.
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We anticipate our cost of sales to increase approximately 6% in
2008, principally driven by an increase in commodity costs,
including our cost of aluminum and, to a lesser extent, an
increase in the cost of PET, apple juice concentrate and HFCS.
Selling,
General and Administrative Expenses
Our selling, general and administrative expenses include:
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selling and marketing expenses;
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transportation and warehousing expenses related to customer
shipments, including fuel;
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general and administrative expenses such as management payroll,
benefits, travel and entertainment, accounting and legal
expenses and rent on leased office facilities; and
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corporate function expenses allocated from Cadbury Schweppes (as
described under Our Separation from Cadbury
Schweppes).
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We expect that our selling, general and administrative expenses
in 2008 and in future years to be positively impacted by the
cost savings we expect to realize from the organizational
restructuring we announced on October 10, 2007 as described
under Restructuring Costs below. As discussed
in Unaudited Pro Forma Combined Financial Data, the
$13 million of incremental corporate and other
publicly-traded company costs we expect to incur following our
separation from Cadbury Schweppes will negatively impact our
selling, general and administrative costs.
Depreciation
and Amortization
Our depreciation expense includes depreciation of buildings,
machinery and equipment relating to our manufacturing,
distribution and office facilities as well as coolers and other
cold drink equipment and computer software. Our amortization
expense includes amortization of
definite-lived
intangible assets including our brands, bottler agreements,
distribution rights, customer relationships and vending
contracts. Depreciation directly attributable to our
manufacturing and distribution operations is included in our
cost of sales. Amortization related to our long-term vending
contracts is recorded in selling, general and administrative
expenses. All other depreciation and amortization is included as
a separate line item.
Restructuring
Costs
We implement restructuring programs from time to time and incur
costs that are designed to improve operating effectiveness and
lower costs. These programs have included closure of
manufacturing plants, reductions in workforce, integrating back
office operations and outsourcing certain transactional
activities. When we implement these programs, we incur various
charges, including severance and other employment-related costs.
In 2007, we incurred $76 million of restructuring costs
primarily related to the organizational restructuring we
announced on October 10, 2007 and the ongoing integration
of our bottling acquisitions. In 2008, we expect to incur
approximately $42 million of additional restructuring
charges principally with respect to these programs. As discussed
in Information Statement Summary Recent
Developments, we expect the organizational restructuring
announced on October 10, 2007 to generate annual cost
savings of approximately $68 million, most of which are
expected to be realized in 2008 with the full annual benefit
realized from 2009 onwards.
Interest
Expense
Historically, we have borrowed funds from subsidiaries of
Cadbury Schweppes. We have also borrowed funds from third-party
banks and other lenders. The interest incurred with respect to
this debt is recorded as interest expense. We expect our
interest expense to increase significantly as the result of
borrowings under our new
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$4.4 billion credit facilities. We expect to borrow
$3.9 billion under these facilities upon separation, as
described in Unaudited Pro Forma Combined Financial
Data.
Interest
Income
Interest income is the return we earn on our cash and cash
equivalents held at third-party banks. Historically, we have
also generated interest income from our note receivable balances
with subsidiaries of Cadbury Schweppes, which are a result of
Cadbury Schweppes cash management practices. We expect our
interest income to decrease significantly as a result of the
repayment of intercompany receivables by Cadbury Schweppes as
part of the separation.
Other
Expense (Income)
Other expense (income) includes miscellaneous items not
reflected in our income from operations. This line item in
future periods will be impacted by the income we will record as
a result of Cadbury Schweppes agreement to indemnify us
for certain tax liabilities as described in Unaudited Pro
Forma Combined Financial Data.
Income
Taxes
Our effective income tax rate fluctuates from
period-to-period
and can be impacted by various items, including shifts in the
mix of our earnings from various jurisdictions, changes in
requirements for tax uncertainties, timing and results of any
reviews or audits of our income tax filing positions or returns,
and changes in tax legislation. Our effective tax rate in future
periods will be impacted by the accrual of interest we will
record as a result of the unrecognized tax benefits transferred
to us in connection with the separation. We expect any amount
recorded in respect of the indemnified unrecognized tax
benefits reflected in income taxes will have an offsetting
amount recorded in other expense (income), unless
Cadbury Schweppes fails to, is not required to or cannot
indemnify or reimburse us. See Unaudited Pro Forma
Combined Financial Data.
Volume
In evaluating our performance, we consider different volume
measures depending on whether we sell beverage concentrates and
syrups or finished beverages.
Beverage
Concentrates Sales Volume
In our beverage concentrates and syrup businesses, we measure
our sales volume in two ways: (1) concentrates case
sales and (2) bottler case sales. The
unit of measurement for both concentrates case sales and bottler
case sales equals 288 fluid ounces of finished beverage, or 24
twelve ounce servings.
Concentrates case sales represent units of measurement for
concentrates and syrups sold by us to our bottlers and
distributors. A concentrates case is the amount of concentrates
needed to make one case of 288 fluid ounces of finished
beverage. It does not include any other component of the
finished beverage other than concentrates. Our net sales in our
concentrates businesses are based on concentrates cases sold.
Bottler case sales represent the number of cases of our finished
beverages sold by us and our bottling partners. Bottler case
sales are calculated based upon volumes from both our Bottling
Group and volumes reported to us by our third-party bottlers.
Bottler case sales and concentrates case sales are not equal
during any given period due to changes in bottler concentrates
inventory levels, which can be affected by seasonality, bottler
inventory and manufacturing practices, and the timing of price
increases and new product introductions.
Although our net sales in our concentrates businesses are based
on concentrates case sales, we believe that bottler case sales
are also a significant measure of our performance because they
measure sales of our finished beverages into retail channels.
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Finished
Beverages Sales Volume
In our finished beverages businesses, we measure volume as case
sales to customers. A case sale represents a unit of measurement
equal to 288 fluid ounces of finished beverage sold by us. Case
sales include both our owned-brands and certain brands licensed
to,
and/or
distributed by, us.
Results
of Operations for 2007 Compared to 2006
Combined
Operations
The following table sets forth our combined results of operation
for 2007 and 2006.
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Dollar Amount
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Percentage
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2007
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2006
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Change
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Change
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(In millions, except% data)
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Net sales
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$
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5,748
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$
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4,735
|
|
|
$
|
1,013
|
|
|
|
21.4
|
%
|
Cost of sales
|
|
|
2,617
|
|
|
|
1,994
|
|
|
|
623
|
|
|
|
31.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
3,131
|
|
|
|
2,741
|
|
|
|
390
|
|
|
|
14.2
|
%
|
Selling, general and administrative expenses
|
|
|
2,018
|
|
|
|
1,659
|
|
|
|
359
|
|
|
|
21.6
|
%
|
Depreciation and amortization
|
|
|
98
|
|
|
|
69
|
|
|
|
29
|
|
|
|
42.0
|
%
|
Impairment of intangible assets
|
|
|
6
|
|
|
|
|
|
|
|
6
|
|
|
|
NM
|
|
Restructuring costs
|
|
|
76
|
|
|
|
27
|
|
|
|
49
|
|
|
|
NM
|
|
Gain on disposal of property and intangible assets
|
|
|
(71
|
)
|
|
|
(32
|
)
|
|
|
(39
|
)
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
1,004
|
|
|
|
1,018
|
|
|
|
(14
|
)
|
|
|
(1.4
|
)%
|
Interest expense
|
|
|
253
|
|
|
|
257
|
|
|
|
(4
|
)
|
|
|
(1.6
|
)%
|
Interest income
|
|
|
(64
|
)
|
|
|
(46
|
)
|
|
|
(18
|
)
|
|
|
39.1
|
%
|
Other expense (income)
|
|
|
(2
|
)
|
|
|
2
|
|
|
|
(4
|
)
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes and equity in earnings
of unconsolidated subsidiaries
|
|
|
817
|
|
|
|
805
|
|
|
|
12
|
|
|
|
1.5
|
%
|
Provision for income taxes
|
|
|
322
|
|
|
|
298
|
|
|
|
24
|
|
|
|
8.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before equity in earnings of unconsolidated subsidiaries
|
|
|
495
|
|
|
|
507
|
|
|
|
(12
|
)
|
|
|
(2.4
|
)%
|
Equity in earnings of unconsolidated subsidiaries
|
|
|
2
|
|
|
|
3
|
|
|
|
(1
|
)
|
|
|
(33.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
497
|
|
|
$
|
510
|
|
|
$
|
(13
|
)
|
|
|
(2.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales.
The $1,013 million increase
was primarily due to increases in our Bottling Group segment,
which contributed an additional $931 million mainly due to
the inclusion of our bottling acquisitions. Higher pricing and
improved sales mix in all remaining segments increased net sales
by 3% despite lower volumes. Excluding the impact of our
bottling acquisitions, volumes were down 1%, with declines in Dr
Pepper and Hawaiian Punch being partially offset by increases in
Snapple, Motts and Sunkist. The disposal of the
Grandmas Molasses brand in January 2006 and the Slush
Puppie business in May 2006 reduced net sales by less than
1%.
Gross Profit.
The $390 million increase
was primarily due to increases in our Bottling Group segment,
which contributed an additional $358 million mainly due to
the inclusion of our bottling acquisitions. The remaining
increase was primarily due to net sales growth, partially offset
by increases in commodity costs, including HFCS and apple juice
concentrate, as well as inventory write-offs related to
Accelerade.
Gross margin was 54% in 2007 and 58% in 2006. The decrease in
gross margin was due primarily to the inclusion of our bottling
acquisitions (which generally have lower margins than our other
businesses) for the full year 2007 as compared to partial
periods in 2006.
Selling, General and Administrative
Expenses.
The $359 million increase was
primarily due to increases in our Bottling Group segment, which
resulted in an additional $324 million of expenses mainly
due to the inclusion of our bottling acquisitions. The remaining
increase for all other segments was primarily due to the impact
of inflation (particularly in wages and benefits), higher
transportation costs as well as higher allocations from Cadbury
Schweppes, partially offset by a reduction in annual management
incentive plan accruals. Marketing was up slightly as increases
in the Finished Goods segment to support new product launches,
including Accelerade, Motts line extensions, and
Peñafiel in the United States, were mostly offset by a
reduction in the Beverage Concentrates segment.
46
Depreciation and Amortization.
The
$29 million increase was principally due to higher
depreciation on property, plant and equipment and amortization
of definite-lived intangible assets in connection with our
bottling acquisitions.
Impairment of Intangible Assets.
In 2007, we
recorded impairment charges of $6 million, of which
approximately $4 million was related to the Accelerade
brand.
Restructuring Costs.
The $76 million cost
in 2007 was primarily due to $32 million of costs
associated with the organizational restructuring announced on
October 10, 2007 and $21 million of costs associated
with the Bottling Group integration. The organizational
restructuring announced in October 2007 included employee
reductions and the closure of manufacturing facilities.
The $27 million cost in 2006 was primarily related to the
Bottling Group integration as well as various other cost
reduction and efficiency initiatives. The Bottling Group
integration and other cost reduction and efficiency initiatives
primarily related to the alignment of management information
systems, the consolidation of the back office operations from
the acquired businesses, the elimination of duplicate functions,
and employee relocations.
Gain on Disposal of Property and Intangible
Assets.
In 2007, we recognized a $71 million
gain due to a payment we received from Energy Brands, Inc. as a
result of its termination of our contractual rights to
distribute glacéau products. In 2006, we recognized a
$32 million gain on disposals of assets, attributable to
the Grandmas Molasses brand and the Slush Puppie business.
Income from Operations.
The $14 million
decrease was due to the $55 million operating loss from the
launch of Accelerade, increased selling, general and
administrative expenses and $49 million of higher
restructuring costs in 2007, partially offset by higher net
sales in 2007 and $39 million of higher gain on disposal of
property and intangible assets in 2007.
Interest Expense.
The $4 million decrease
in 2007 was primarily due to a reduction in the interest
component paid on a lawsuit settled in June 2007 and a decrease
in interest due to the settlement of third-party debt. These
decreases were partially offset by an increase in interest on
our related-party debt.
Interest Income.
The $18 million increase
was primarily due to higher related-party note receivable
balances with subsidiaries of Cadbury Schweppes.
Provision for Income Taxes.
The effective tax
rates for 2007 and 2006 were 39.3% and 36.9%, respectively. The
increase in the effective rate for 2007 was primarily due to a
lower benefit from foreign operations.
Results
of Operations by Segment for 2007 Compared to 2006
We operate our business in four segments: Beverage Concentrates,
Finished Goods, Bottling Group, and Mexico and the Caribbean.
The key financial measures management uses to assess the
performance of our segments are net sales and UOP.
47
The following tables set forth net sales and UOP for our
segments for 2007 and 2006, as well as the adjustments necessary
to reconcile our total segment results to our combined results
presented in accordance with U.S. GAAP and the elimination
of intersegment transactions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
Percentage
|
|
|
|
2007
|
|
|
2006
|
|
|
Change
|
|
|
Change
|
|
|
|
(In millions, except % data)
|
|
|
Operating Segment Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beverage Concentrates
|
|
$
|
1,342
|
|
|
$
|
1,330
|
|
|
$
|
12
|
|
|
|
0.9
|
%
|
Finished Goods
|
|
|
1,562
|
|
|
|
1,516
|
|
|
|
46
|
|
|
|
3.0
|
%
|
Bottling Group
|
|
|
3,143
|
|
|
|
2,001
|
|
|
|
1,142
|
|
|
|
57.1
|
%
|
Mexico and the Caribbean
|
|
|
418
|
|
|
|
408
|
|
|
|
10
|
|
|
|
2.5
|
%
|
Adjustments and eliminations(1)
|
|
|
(717
|
)
|
|
|
(520
|
)
|
|
|
(197
|
)
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales as reported
|
|
$
|
5,748
|
|
|
$
|
4,735
|
|
|
$
|
1,013
|
|
|
|
21.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Consists principally of eliminations of intersegment net sales.
The increase in these eliminations was due principally to the
inclusion of our 2006 bottling acquisitions for the full year
2007 as compared to the inclusion of our 2006 bottling
acquisitions for partial periods in 2006. Adjustments in these
periods were not material.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
Percentage
|
|
|
|
2007
|
|
|
2006
|
|
|
Change
|
|
|
Change
|
|
|
|
(In millions, except % data)
|
|
|
Underlying operating profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beverage Concentrates
|
|
$
|
731
|
|
|
$
|
710
|
|
|
$
|
21
|
|
|
|
3.0
|
%
|
Finished Goods
|
|
|
167
|
|
|
|
172
|
|
|
|
(5
|
)
|
|
|
(2.9
|
)%
|
Bottling Group
|
|
|
130
|
|
|
|
130
|
|
|
|
0
|
|
|
|
0
|
%
|
Mexico and the Caribbean
|
|
|
100
|
|
|
|
102
|
|
|
|
(2
|
)
|
|
|
(2.0
|
)%
|
Corporate and other(1)
|
|
|
(42
|
)
|
|
|
(14
|
)
|
|
|
(28
|
)
|
|
|
NM
|
|
Adjustments and eliminations(2)
|
|
|
(269
|
)
|
|
|
(295
|
)
|
|
|
26
|
|
|
|
8.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes and equity in earnings
of unconsolidated subsidiaries as reported
|
|
$
|
817
|
|
|
$
|
805
|
|
|
$
|
12
|
|
|
|
1.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Consists of equity in earnings of unconsolidated subsidiaries
and general and administrative expenses not allocated to the
segments. The change was primarily due to a decrease in our
equity in earnings of unconsolidated subsidiaries compared to
2006 as a result of our purchase of the remaining 55% of DPSUBG
in May 2006 and an increase in general and administrative
expenses related to our IT operations.
|
|
|
|
(2)
|
|
For 2007, adjustments consist principally of net interest
expense of $189 million, restructuring costs of
$76 million and depreciation and amortization of
$98 million. The 2007 adjustments were partially offset by
a portion ($58 million) of the $71 million gain on
termination of the glacéau distribution agreements. The
balance of the gain ($13 million) is reflected in the
Bottling Group UOP. For 2006, adjustments consist principally
of net interest expense of $211 million, restructuring
costs of $27 million and depreciation and amortization
costs of $69 million. These 2006 adjustments were partially
offset by the $32 million gain on disposal of the
Grandmas Molasses brand and Slush Puppie business.
Eliminations in these periods were not material. Information on
restructuring charges by segment is available in note 12 to
our audited combined financial statements.
|
48
Beverage
Concentrates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
Percentage
|
|
|
|
2007
|
|
|
2006
|
|
|
Change
|
|
|
Change
|
|
|
|
(In millions, except % data)
|
|
|
Net sales
|
|
$
|
1,342
|
|
|
$
|
1,330
|
|
|
$
|
12
|
|
|
|
0.9
|
%
|
Underlying operating profit
|
|
$
|
731
|
|
|
$
|
710
|
|
|
$
|
21
|
|
|
|
3.0
|
%
|
The $12 million net sales increase was due primarily to
price increases, which more than offset the impact of a 1.4%
volume decline. The volume decline was due primarily to a 3.3%
decline in Dr Pepper partially offset by single digit percentage
increases in Sunkist, Schweppes and A&W. The Dr Pepper
decline is primarily a result of comparisons to prior period
volumes that included the launch of Soda Fountain
Classics line extensions. Line extensions are usually
offered for a limited time period and their volumes typically
decline in the years subsequent to the year of launch, as was
the case with these line extensions in 2007. The total of all
other regular and Diet Dr Pepper volumes (base Dr
Pepper volumes) declined 0.4%. For 2006, net sales
included $8 million for the Slush Puppie business, which
was disposed in May 2006.
The $21 million UOP increase was due primarily to higher
net sales and lower marketing investments (particularly
advertising costs) partially offset by higher cost of sales from
increased sweetener and flavor costs and increased selling,
general and administrative expenses. The lower marketing
investments were primarily a result of a reduction in Beverage
Concentrates marketing investments to support new product
initiatives in our Finished Goods segment, including
$25 million for the launch of Accelerade. Selling, general
and administrative expenses were higher due primarily to
increased corporate costs following our bottler acquisitions, a
transfer of sales personnel from the Finished Goods segment to
this segment reflecting a sales reorganization, and general
inflationary increases, which were partially offset by lower
management annual incentive plan accruals.
Bottler case sales declined 1.5% in 2007 due primarily to a 2.5%
decline in Dr Pepper, and a single and double digit
percentage decline in 7UP and Diet Rite, respectively. The Dr
Pepper decline results from comparisons to strong volumes in
2006 driven by the Soda Fountain Classics line
extensions which were nationally introduced in 2005, while the
total of base Dr Pepper volumes increased 0.4% compared with the
prior year. The 7UP decline primarily reflects the
discontinuance of 7UP Plus, as well as the comparison to strong
volumes in 2006 driven by the third quarter launch of 7UP
with natural flavors and heavy promotional support
for 7UP and other brands. The Diet Rite decline was due to the
shift of marketing investment from Diet Rite to other diet
brands, such as Diet Sunkist, Diet A&W and Diet Canada Dry.
These declines were partially offset by single digit percentage
increases in Sunkist and Canada Dry, which are consistent with
the consumer shift from colas to flavored CSDs.
Finished
Goods
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar
|
|
|
|
|
|
|
|
|
Amount
|
|
Percentage
|
|
|
2007
|
|
2006
|
|
Change
|
|
Change
|
|
|
(In millions, except % data)
|
|
Net sales
|
|
$
|
1,562
|
|
|
$
|
1,516
|
|
|
$
|
46
|
|
|
|
3.0
|
%
|
Underlying operating profit
|
|
$
|
167
|
|
|
$
|
172
|
|
|
$
|
(5
|
)
|
|
|
(2.9
|
)%
|
The $46 million net sales increase was due to price
increases and a favorable shift towards higher priced products
such as Snapple and Motts. These increases were partially
offset by lower volumes and higher product placement costs
associated with new product launches. The volume decrease of
2.0% was primarily due to a price increase on Hawaiian Punch in
April 2007, which more than offset growth from Snapple and
Motts. Snapple volumes increased primarily due to the
launch of Antioxidant Waters and the continued growth from super
premium teas. Motts volumes increased due primarily to the
new product launches of Motts for Tots juice and
Motts Scooby Doo apple sauce and increased consumer demand
for apple juice.
The $5 million UOP decrease was due primarily to a
$55 million operating loss from Accelerade, partially
offset by the strong performance of Motts and Snapple
products. The $55 million operating loss attributable to
Accelerade was primarily due to new product launch expenses to
support our entry into the sports drink category. The launch had
been supported by significant product placement and marketing
investments. In 2007, we had no net
49
sales for this product as gross sales were more than offset by
product placement fees. UOP was also negatively impacted by
higher costs for glass, HFCS, apple juice concentrate, as well
as $8 million of costs for the launch of Motts line
extensions and the launch of Peñafiel in the United States,
partially offset by the elimination of co-packing fees
previously charged by the Bottling Group segment and lower
selling, general and administrative costs due to the transfer of
sales personnel from the Finished Goods segment to the Beverages
Concentrates segment in connection with a sales reorganization.
Bottling
Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar
|
|
|
|
|
|
|
|
|
Amount
|
|
Percentage
|
|
|
2007
|
|
2006
|
|
Change
|
|
Change
|
|
|
(In millions, except % data)
|
|
Net sales
|
|
$
|
3,143
|
|
|
$
|
2,001
|
|
|
$
|
1,142
|
|
|
|
57.1
|
%
|
Underlying operating profit
|
|
$
|
130
|
|
|
$
|
130
|
|
|
|
0
|
|
|
|
0
|
%
|
The results of operations for 2006 only include eight months of
results from DPSUBG (acquired in May 2006), approximately seven
months of results from All American Bottling Corp. (acquired in
June 2006), and approximately five months of results from Seven
Up Bottling Company of San Francisco (acquired in August
2006), as compared to 2007 which includes a full year of results
of operations for these businesses and approximately six months
of results from SeaBev (acquired in July 2007).
The $1,142 million net sales increase was primarily due to
the bottling acquisitions described above, price increases and a
favorable sales mix of higher priced non-CSDs. After elimination
of intersegment sales, the impact on our consolidated net sales
was an increase of $931 million.
UOP was flat in 2007 compared to 2006 to the prior year despite
the increased net sales. The associated profit from the
increased net sales were more than offset by an increase in
post-acquisition employee benefit costs, wage inflation costs,
higher HFCS costs, the elimination of co-packing fees in 2007
which were previously earned on manufacturing for the Finished
Goods segment, and an increase in investments in new markets.
Additionally, in 2007, UOP included a portion ($13 million)
of the $71 million gain due to the payment we received from
Energy Brands, Inc. as a result of their termination of our
contractual rights to distribute glacéau products.
Mexico
and the Caribbean
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
Percentage
|
|
|
|
2007
|
|
|
2006
|
|
|
Change
|
|
|
Change
|
|
|
|
(In millions, except % data)
|
|
|
Net sales
|
|
$
|
418
|
|
|
$
|
408
|
|
|
$
|
10
|
|
|
|
2.5
|
%
|
Underlying operating profit
|
|
$
|
100
|
|
|
$
|
102
|
|
|
$
|
(2
|
)
|
|
|
(2.0
|
)%
|
The $10 million net sales increase was due to volume growth
of 1.5% and increased pricing despite challenging market
conditions and adverse weather, partially offset by unfavorable
currency translation. The volume growth was due to the strong
performance of Aguafiel and Clamato brands, both of which had
double digit percentage increases. Foreign currency translation
negatively impacted net sales by $6 million.
The $2 million UOP decrease in 2007 despite the increase in
net sales was due primarily to an increase in raw material
costs, particularly HFCS, higher distribution costs and
unfavorable foreign currency translation. Foreign currency
translation of expenses negatively impacted UOP by
$2 million.
50
Results
of Operations for 2006 Compared to 2005
Combined
Operations
The following table sets forth our combined results of
operations for 2006 and 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
Percentage
|
|
|
|
2006
|
|
|
2005
|
|
|
Change
|
|
|
Change
|
|
|
|
(In millions, except % data)
|
|
|
Net sales
|
|
$
|
4,735
|
|
|
$
|
3,205
|
|
|
$
|
1,530
|
|
|
|
47.7
|
%
|
Cost of sales
|
|
|
1,994
|
|
|
|
1,120
|
|
|
|
874
|
|
|
|
78.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
2,741
|
|
|
|
2,085
|
|
|
|
656
|
|
|
|
31.5
|
%
|
Selling, general and administrative expenses
|
|
|
1,659
|
|
|
|
1,179
|
|
|
|
480
|
|
|
|
40.7
|
%
|
Depreciation and amortization
|
|
|
69
|
|
|
|
26
|
|
|
|
43
|
|
|
|
165.4
|
%
|
Restructuring costs
|
|
|
27
|
|
|
|
10
|
|
|
|
17
|
|
|
|
NM
|
|
Gain on disposal of property and intangible assets
|
|
|
(32
|
)
|
|
|
(36
|
)
|
|
|
4
|
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
1,018
|
|
|
|
906
|
|
|
|
112
|
|
|
|
12.4
|
%
|
Interest expense
|
|
|
257
|
|
|
|
210
|
|
|
|
47
|
|
|
|
22.4
|
%
|
Interest income
|
|
|
(46
|
)
|
|
|
(40
|
)
|
|
|
(6
|
)
|
|
|
(15.0
|
)%
|
Other expense (income)
|
|
|
2
|
|
|
|
(51
|
)
|
|
|
53
|
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes, equity in earnings of
unconsolidated subsidiaries and cumulative effect of change in
accounting policy
|
|
|
805
|
|
|
|
787
|
|
|
|
18
|
|
|
|
2.3
|
%
|
Provision for income taxes
|
|
|
298
|
|
|
|
321
|
|
|
|
(23
|
)
|
|
|
(7.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before equity in earnings of unconsolidated subsidiaries
and cumulative effect of change in accounting policy
|
|
|
507
|
|
|
|
466
|
|
|
|
41
|
|
|
|
8.8
|
%
|
Equity in earnings of unconsolidated subsidiaries
|
|
|
3
|
|
|
|
21
|
|
|
|
(18
|
)
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of change in accounting policy
|
|
|
510
|
|
|
|
487
|
|
|
|
23
|
|
|
|
4.7
|
%
|
Cumulative effect of change in accounting policy, net of tax
|
|
|
|
|
|
|
10
|
|
|
|
(10
|
)
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
510
|
|
|
$
|
477
|
|
|
$
|
33
|
|
|
|
6.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales.
The $1,530 million increase
was primarily due to increases in our Bottling Group segment,
which contributed an additional $1,462 million mainly due
to the inclusion of our bottling group acquisitions. The
remaining $68 million increase was due primarily to higher
pricing, improved sales mix and favorable foreign currency
translation. Volumes declined 1.4% primarily reflecting the
impact of higher pricing in the Finished Goods segment and lower
Beverage Concentrates volumes primarily due to 7UP and Diet
Rite, which were partially offset by growth in our Mexico and
the Caribbean segment. The disposal of a brand and a business
reduced net sales by less than 1%.
Gross Profit.
The $656 million increase
was primarily due to increases in our Bottling Group segment,
which contributed an additional $570 million mainly due to
the inclusion of our bottling group acquisitions. The remaining
$86 million increase was primarily due to net sales growth,
partially offset by higher raw material costs, including PET,
glass and sweeteners. As a result of the bottling acquisitions,
we were also able to reduce the use of external co-packing,
which lowered overall production costs.
Gross margin was 58% in 2006 and 65% in 2005. The decrease in
gross margin was due to the inclusion of our bottling
acquisitions, which generally have lower margins than our other
businesses.
Selling, General and Administrative
Expenses.
The $480 million increase was
primarily due to increases in our Bottling Group segment, which
contributed an additional $484 million of expenses mainly
due to the inclusion
51
of our bottling group acquisitions. The remaining
$4 million decrease was primarily due to lower marketing
investments as well as reduced stock option and pension
expenses, partially offset by higher transportation costs driven
by fuel and general inflation for wages and benefits.
Depreciation and Amortization.
The
$43 million increase was primarily due to higher
depreciation on property, plant and equipment and amortization
of definite lived intangible assets following our bottling
acquisitions.
Restructuring Costs.
In 2006, the
$27 million in expenses was primarily related to
integration costs associated with our bottling acquisitions, as
well as the outsourcing of certain back office functions, such
as accounts payable and travel and entertainment management, to
a third-party provider, and a reorganization of our information
technology functions. The integration costs associated with our
bottling acquisitions primarily related to the alignment of
management information systems, the consolidation of back office
operations from the acquired businesses, the elimination of
duplicate functions, and employee relocations. In 2005, the
$10 million in expenses was primarily related to costs from
the restructuring of our four North American businesses
(Motts, Snapple, Dr Pepper/Seven Up and Mexico) into
a combined management reporting unit, that occurred in 2004 and
the further consolidation of our back office operations that
began in 2004.
Gain on Disposal of Property and Intangible
Assets.
In 2006, we recognized a $32 million
gain on the disposals of assets attributable to the disposals of
the Grandmas Molasses brand and Slush Puppie business. In
2005, we recognized a $36 million gain on the disposal of
the Holland House brand.
Income from Operations.
The $112 million
increase was primarily due to the net impact of our bottling
acquisitions and strong performance from our Beverage
Concentrates segment, partially offset by higher restructuring
costs.
Interest Expense.
The $47 million
increase was primarily due to the increase in related party debt
as a result of the bottling acquisitions, which resulted in
higher interest expense of $67 million. There was a further
increase of $18 million due to higher interest rates on our
variable rate related party debt. These increases were partially
offset by a reduction of $43 million related to the
repayment of certain related party debt.
Interest Income.
The $6 million increase
is primarily due to fluctuations in related party note
receivable balances with subsidiaries of Cadbury Schweppes.
Other expense (income).
The $53 million
decrease was primarily due to the non-recurring foreign currency
translation gain generated in 2005 from the redenomination of a
related party debt payable by our Mexico and the Caribbean
segment.
Provision for Income Taxes.
The effective tax
rates for 2006 and 2005 were 36.9% and 39.7% respectively. The
lower effective rate in 2006 was due to an income tax benefit
related to the American Jobs Creation Act for domestic
manufacturing, a greater benefit from foreign operations,
changes in state, local and foreign income tax rates and shifts
in the relative jurisdictional mix of taxable profits.
Equity in Earnings of Unconsolidated
Subsidiaries.
The $18 million decrease was
due to the impact of our increased ownership of DPSUBG. Prior to
May 2, 2006, we owned approximately 45% of DPSUBG and
recorded our share of its earnings on an equity basis. On
May 2, 2006, we increased our ownership from 45% to 100%.
As a result, DPSUBGs results were reflected on a
consolidated basis after May 2, 2006.
Cumulative Effect of Change in Accounting Policy, Net of
Tax.
In 2005, we adopted Statement of Financial
Accounting Standards (SFAS) No. 123(R),
Share-Based Payment
and selected the prospective method
of transition. Accordingly, prior period results were not
restated and the cumulative impact for additional expense of
$10 million was reflected in 2005.
52
Results
of Operations by Segment for 2006 Compared to 2005
The following tables set forth net sales, and UOP for our
segments for 2006 and 2005, as well as adjustments necessary to
reconcile our total segment results to our combined results
presented in accordance with U.S. GAAP and the elimination of
intersegment transactions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
Percentage
|
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
Change
|
|
|
Change
|
|
|
|
(In millions, except % data)
|
|
|
Operating Segment Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beverage Concentrates
|
|
$
|
1,330
|
|
|
$
|
1,304
|
|
|
|
|
|
|
$
|
26
|
|
|
|
2.0
|
%
|
Finished Goods
|
|
|
1,516
|
|
|
|
1,516
|
|
|
|
|
|
|
|
0
|
|
|
|
0
|
%
|
Bottling Group
|
|
|
2,001
|
|
|
|
241
|
|
|
|
|
|
|
|
1,760
|
|
|
|
NM
|
|
Mexico and the Caribbean
|
|
|
408
|
|
|
|
354
|
|
|
|
|
|
|
|
54
|
|
|
|
15.3
|
%
|
Adjustments and eliminations(1)
|
|
|
(520
|
)
|
|
|
(210
|
)
|
|
|
|
|
|
|
(310
|
)
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales as reported
|
|
$
|
4,735
|
|
|
$
|
3,205
|
|
|
|
|
|
|
$
|
1,530
|
|
|
|
47.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Consists principally of eliminations of intersegment net sales.
The increase in these eliminations was due primarily to the
inclusion of our bottling acquisitions in 2006. Adjustments in
these periods were not material.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
Percentage
|
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
Change
|
|
|
Change
|
|
|
|
(In millions, except % data)
|
|
|
Underlying Operating Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beverage Concentrates
|
|
$
|
710
|
|
|
$
|
657
|
|
|
|
|
|
|
$
|
53
|
|
|
|
8.1
|
%
|
Finished Goods
|
|
|
172
|
|
|
|
165
|
|
|
|
|
|
|
|
7
|
|
|
|
4.2
|
%
|
Bottling Group
|
|
|
130
|
|
|
|
44
|
|
|
|
|
|
|
|
86
|
|
|
|
NM
|
|
Mexico and the Caribbean
|
|
|
102
|
|
|
|
96
|
|
|
|
|
|
|
|
6
|
|
|
|
6.3
|
%
|
Corporate and other(1)
|
|
|
(14
|
)
|
|
|
11
|
|
|
|
|
|
|
|
(25
|
)
|
|
|
NM
|
|
Adjustments and eliminations(2)
|
|
|
(295
|
)
|
|
|
(186
|
)
|
|
|
|
|
|
|
(109
|
)
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes, equity in earnings of
unconsolidated subsidiaries and cumulative effect of change in
accounting policy as reported
|
|
$
|
805
|
|
|
$
|
787
|
|
|
|
|
|
|
$
|
18
|
|
|
|
2.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Consists of equity in earnings of unconsolidated subsidiaries
and general and administrative expenses not allocated to the
segments. The change was primarily due to a decrease in our
equity in earnings of unconsolidated subsidiaries for 2006 as a
result of our purchase of the remaining 55% of DPSUBG in May
2006, and an increase in general and administrative expenses
related to our IT operations.
|
|
|
|
(2)
|
|
For 2006, adjustments consist principally of net interest
expense of $211 million, restructuring costs of
$27 million and depreciation and amortization of
$69 million. These adjustments were partially offset by the
$32 million gain on disposal of the Grandmas Molasses
brand and Slush Puppie business. For 2005, adjustments consist
principally of net interest expense of $170 million,
restructuring costs of $10 million and depreciation and
amortization of $26 million. These adjustments were
partially offset by the $36 million gain on the disposal of
the Holland House brand and foreign currency translation.
Eliminations in these periods were not material. Information on
restructuring charges by segment is available in note 12
and information on depreciation is provided in note 15, in
each case to our audited combined financial statements.
|
53
Beverage
Concentrates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar
|
|
|
|
|
|
|
|
|
Amount
|
|
Percentage
|
|
|
2006
|
|
2005
|
|
Change
|
|
Change
|
|
|
(In millions, except % data)
|
|
Net sales
|
|
$
|
1,330
|
|
|
$
|
1,304
|
|
|
$
|
26
|
|
|
|
2.0
|
%
|
Underlying operating profit
|
|
$
|
710
|
|
|
$
|
657
|
|
|
$
|
53
|
|
|
|
8.1
|
%
|
The $26 million net sales increase was due primarily to
price increases, offset by volume declines of 1.8%.
Dr Pepper volumes increased 0.6% as the result of
Soda Fountain Classics line extensions and Sunkist,
A&W and Canada Dry volumes increased by single digit
percentages, but were more than offset by 7UP and Diet Rite
volume declines.
The $53 million UOP increase was due primarily to higher
net sales and lower cost of sales and marketing expenses
(primarily advertising costs), which were partially offset by
higher selling, general and administrative expenses. The lower
cost of sales was driven by a favorable sales mix shift away
from higher cost beverage concentrates products, such as 7UP
Plus and Diet Rite, to non-diet products. The higher selling,
general and administrative expenses related mainly to an
increase in corporate costs following our bottling acquisitions.
Bottler case sales increased 0.9% primarily due to growth in Dr
Pepper following the launch of Dr Pepper Berries &
Cream, the second offering of the Soda Fountain
Classics line extensions, and single digit percentage
increases on Diet Dr Pepper as a result of the Diet Try
It promotion. Sunkist had a double digit volume percentage
increase due to a line extension, and A&W had a single
digit volume percentage increase due to new packaging. These
increases were partially offset by a decline in 7UP and Diet
Rite. The 7UP decline was primarily due to the discontinuation
of 7UP Plus which was partially offset by the volume gains in
the relaunch of 7UP with natural flavors in the
third quarter of 2006. The Diet Rite decline was due to a
reallocation of marketing investments from Diet Rite to Diet
7UP, Diet Sunkist, Diet A&W and Diet Canada Dry.
Finished
Goods
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar
|
|
|
|
|
|
|
|
|
Amount
|
|
Percentage
|
|
|
2006
|
|
2005
|
|
Change
|
|
Change
|
|
|
(In millions, except % data)
|
|
Net sales
|
|
$
|
1,516
|
|
|
$
|
1,516
|
|
|
$
|
0
|
|
|
|
0
|
%
|
Underlying operating profit
|
|
$
|
172
|
|
|
$
|
165
|
|
|
$
|
7
|
|
|
|
4.2
|
%
|
Net sales were equal to the prior year as volume declines of
3.0% and an unfavorable sales mix were offset by price
increases. Volume declines in Snapple and Yoo-Hoo more than
offset an increase in Hawaiian Punch.
The $7 million UOP increase was due to lower cost of sales,
partially offset by higher marketing expenses mainly associated
with the launch of Snapple super premium teas. The lower cost of
sales was due to supply chain initiatives, including lower
ingredient costs from product reformulation and lower production
costs as certain products, which were previously co-packed
externally, were manufactured in-house. These cost of sales
reductions were partially offset by an increase in our cost of
HFCS, PET and glass.
Bottling
Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar
|
|
|
|
|
|
|
|
|
Amount
|
|
Percentage
|
|
|
2006
|
|
2005
|
|
Change
|
|
Change
|
|
|
(In millions, except % data)
|
|
Net sales
|
|
$
|
2,001
|
|
|
$
|
241
|
|
|
$
|
1,760
|
|
|
|
NM
|
|
Underlying operating profit
|
|
$
|
130
|
|
|
$
|
44
|
|
|
$
|
86
|
|
|
|
NM
|
|
Bottling Group results in 2005 included only the results from
the former Snapple Distributors segment. Bottling Groups
2006 results include a full year of sales of $271 million
from the former Snapple Distributors segment, and partial year
results from our 2006 bottling acquisitions. After elimination
of intersegment sales, the
54
impact on our consolidated net sales was an increase of
$1,462 million. As a result, UOP was $130 million on
$2,001 million of net sales in 2006, compared to UOP of
$44 million on $241 million of net sales in 2005.
Mexico
and the Caribbean
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar
|
|
|
|
|
|
|
|
|
Amount
|
|
Percentage
|
|
|
2006
|
|
2005
|
|
Change
|
|
Change
|
|
|
(In millions, except % data)
|
|
Net sales
|
|
$
|
408
|
|
|
$
|
354
|
|
|
$
|
54
|
|
|
|
15.3
|
%
|
Underlying operating profit
|
|
$
|
102
|
|
|
$
|
96
|
|
|
$
|
6
|
|
|
|
6.3
|
%
|
The $54 million net sales increase was due to 3.4% volume
growth, increased pricing, improved sales mix and favorable
foreign currency translation. Volumes increased due to growth in
Aguafiel, Clamato and Squirt following our improved penetration
of large retail stores and growth in the third-party distributor
channel. Foreign currency translation favorably impacted net
sales by $15 million.
The $6 million UOP increase was due to the increased net
sales, partially offset by increases in HFCS and PET costs,
higher transportation and distribution costs, increased selling,
general and administrative expenses, and unfavorable foreign
currency translation. Foreign currency translation negatively
impacted cost of sales by $6 million.
Critical
Accounting Policies
The process of preparing our financial statements in conformity
with U.S. GAAP requires the use of estimates and judgments
that affect the reported amounts of assets, liabilities, revenue
and expenses. These estimates and judgments are based on
historical experience, future expectations and other factors and
assumptions we believe to be reasonable under the circumstances.
The most significant estimates and judgments are reviewed on an
ongoing basis and are revised when necessary. Actual amounts may
differ from these estimates and judgments. A summary of our
significant accounting policies is contained in note 2 to
our audited combined financial statements included elsewhere in
this information statement.
The most significant estimates and judgments relate to:
|
|
|
|
|
revenue recognition,
|
|
|
|
valuations of goodwill and other indefinite lived intangibles,
|
|
|
|
stock based compensation,
|
|
|
|
pension and postretirement benefits and
|
|
|
|
income taxes.
|
Revenue
Recognition
We recognize sales revenue when all of the following have
occurred: (1) delivery, (2) persuasive evidence of an
agreement exists, (3) pricing is fixed or determinable, and
(4) collection is reasonably assured. Delivery is not
considered to have occurred until the title and the risk of loss
passes to the customer according to the terms of the contract
between us and the customer. The timing of revenue recognition
is largely dependent on contract terms. For sales to other
customers that are designated in the contract as
free-on-board
destination, revenue is recognized when the product is delivered
to and accepted at the customers delivery site.
In addition, we offer a variety of incentives and discounts to
bottlers, customers and consumers through various programs to
support the distribution and promotion of our products. These
incentives and discounts include cash discounts, price
allowances, volume based rebates, product placement fees and
other financial support for items such as trade promotions,
displays, new products, consumer incentives and advertising
assistance. These incentives and discounts, which we
collectively refer to as trade spend, are reflected as a
reduction of gross sales to arrive at net sales. Trade spend for
2007 and 2006 includes the effect of our bottling
acquisitions where the amounts of such spend are larger
than those related to other parts of our business. The aggregate
deductions from gross sales
55
recorded by us in relation to these programs were approximately
$3,159 million, $2,440 million and $928 million
in 2007, 2006 and 2005, respectively. Net sales are also
reported net of sales taxes and other similar taxes.
Goodwill
and Other Indefinite Lived Intangible Assets
The majority of our intangible asset balances are made up of
goodwill and brands which we have determined to have indefinite
useful lives. In arriving at the conclusion that a brand has an
indefinite useful life, we review factors such as size,
diversification and market share of each brand. We expect to
acquire, hold and support brands for an indefinite period
through consumer marketing and promotional support. We also
consider factors such as our ability to continue to protect the
legal rights that arise from these brand names indefinitely or
the absence of any regulatory, economic or competitive factors
that could truncate the life of the brand name. If the criteria
are not met to assign an indefinite life, the brand is amortized
over its expected useful life.
We conduct impairment tests on goodwill and all indefinite lived
intangible assets annually, as of December 31, or more
frequently if circumstances indicate that the carrying amount of
an asset may not be recoverable. We use present value and other
valuation techniques to make this assessment. If the carrying
amount of an intangible asset exceeds its fair value, an
impairment loss is recognized in an amount equal to that excess.
Impairment tests for goodwill include comparing the fair value
of the respective reporting units, which are our segments, with
their carrying amount, including goodwill. Goodwill is evaluated
using a two-step impairment test at the reporting unit level.
The first step compares the carrying amount of a reporting unit,
including goodwill, with its fair value. If the carrying amount
of a reporting unit exceeds its fair value, a second step is
completed to determine the amount of goodwill impairment loss to
record. In the second step, an implied fair value of the
reporting units goodwill is determined by allocating the
fair value of the reporting unit to all of the assets and
liabilities other than goodwill. The amount of impairment loss
is equal to the excess of the carrying amount of the goodwill
over the implied fair value of that goodwill. See note 8 to
our audited combined financial statements included elsewhere in
this information statement.
The tests for impairment include significant judgment in
estimating fair value primarily by analyzing future revenues and
profit performance. Assumptions used on our impairment
calculations, such as our cost of capital and the appropriate
discount rates are based on the best available market
information and are consistent with our internal operating
forecasts. These assumptions could be negatively impacted by
various of the risks discussed in Risk Factors in
this information statement.
Stock-Based
Compensation
On January 3, 2005, we adopted Statement of Financial
Accounting Standards No. 123(R),
Share-Based Payment
(SFAS 123(R)). SFAS 123(R) requires
the recognition of compensation expense in our Combined
Statements of Operations related to the fair value of employee
share-based awards. Prior to the adoption of SFAS 123(R),
we applied Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees
(APB25) and related interpretations when accounting
for our stock-based compensation plans. We have selected the
modified prospective method of transition; accordingly, prior
periods have not been restated. Upon adoption of
SFAS 123(R), for awards which are classified as liabilities
we were required to reclassify the APB 25 historical
compensation cost from equity to liability and to recognize the
difference between this and the fair value liability through the
statement of operations.
We selected the Black-Scholes option pricing model as the most
appropriate method for determining the estimated fair value for
stock-based awards. The Black-Scholes option pricing model
requires the use of highly subjective and complex assumptions
which determine the fair value of stock-based awards, including
the options expected term, expected volatility of the
underlying stock, risk-free rate, and expected dividends. These
assumptions significantly affect the stock compensation charges
associated with each grant and in the case of liability plans,
the cost associated with remeasuring the liability at each
balance sheet date. Moreover, changes in forfeiture rates affect
the timing and amount of stock compensation expense recognized
over the requisite service period.
56
Under SFAS 123(R), we recognize the cost of all unvested
employee stock options on a straight-line attribution basis over
their respective vesting periods, net of estimated forfeitures.
In addition, we have certain employee share plans that contain
inflation indexed earnings growth performance conditions.
SFAS 123(R) requires plans with such performance criteria
to be accounted for under the liability method. The liability
method, as set out in SFAS 123(R), requires a liability be
recorded on the balance sheet until awards have vested. Also, in
calculating the income statement charge for share awards under
the liability method as set out in SFAS 123(R), the fair
value of each award must be remeasured at each reporting date
until vesting.
The compensation expense related to our stock-based compensation
plans is included within selling, general and
administrative expenses in our Combined Statements of
Operations. We recognized approximately $21 million
($13 million net of tax), $17 million
($10 million net of tax) and $22 million
($13 million net of tax) of expense in 2007, 2006 and 2005,
respectively. See note 14 to our audited combined financial
statements for a further description of the stock-based
compensation plans.
Pension
and Postretirement Benefits
We have several pension and postretirement plans covering our
employees who satisfy age and length of service requirements.
There are nine stand-alone and five multi-employer pension plans
and five stand-alone and one multi-employer postretirement
plans. Depending on the plan, pension and postretirement
benefits are based on a combination of factors, which may
include salary, age and years of service. One of the nine
stand-alone plans is an unfunded pension plan that provides
supplemental pension benefits to certain senior executives, and
is accounted for as a defined contribution plan.
Pension expense has been determined in accordance with the
principles of SFAS No. 87,
Employers
Accounting for Pensions
which requires use of the
projected unit credit method for financial
reporting. We adopted the provisions of SFAS No. 158
Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans An amendment of Financial
Accounting Standards Board Statements No. 87, 88, 106, and
132(R)
(SFAS 158) related to recognizing
the funded status of a benefit plan and the disclosure
requirements on December 31, 2006. We have elected to defer
the change of measurement date as permitted by SFAS 158
until December 31, 2008. Our policy is to fund pension
plans in accordance with the requirements of the Employee
Retirement Income Security Act. Employee benefit plan
obligations and expenses included in the combined financial
statements are determined from actuarial analyses based on plan
assumptions, employee demographic data, years of service,
compensation, benefits and claims paid and employer
contributions.
Cadbury Schweppes sponsors the five defined benefit plans and
one postretirement health care plan in which our employees
participate. Expenses related to these plans were determined by
specifically identifying the costs for our participants.
The expense related to the postretirement plans has been
determined in accordance with SFAS No. 106,
Employers Accounting for Postretirement Benefits Other
Than Pensions
(SFAS 106). As provided in
SFAS 106, we accrue the cost of these benefits during the
years that employees render service to us.
The calculation of pension and postretirement plan obligations
and related expenses is dependent on several assumptions used to
estimate the present value of the benefits earned while the
employee is eligible to participate in the plans. The key
assumptions we use in determining the plan obligations and
related expenses include: (1) the interest rate used to
calculate the present value of the plan liabilities,
(2) employee turnover, retirement age and mortality and
(3) the expected return on plan assets. Our assumptions
reflect our historical experience and our best judgment
regarding future performance. Due to the significant judgment
required, our assumptions could have a material impact on the
measurement of our pension and postretirement obligations and
expenses.
See note 13 to our audited combined financial statements
for more information about the specific assumptions used in
determining the plan obligations and expenses.
Income
Taxes
Our income taxes are computed and reported on a separate return
basis as if we were not a part of Cadbury Schweppes. Our tax
rate is based on our net income before tax, statutory tax rates
and tax planning benefits available
57
to us in the jurisdictions in which we operate. Significant
judgment is required in determining our annual tax rate and in
evaluating our tax positions. We establish reserves when we
believe certain positions may be subject to challenge. We adjust
these reserves as the facts and circumstances of each position
changes.
Deferred taxes are recognized for future tax effects of
temporary differences between financial and income tax reporting
using rates in effect for the years in which the differences are
expected to reverse. We establish valuation allowances for our
deferred tax assets when we believe expected future taxable
income is not likely to support the use of a deduction or credit
in that tax jurisdiction.
We have adopted the provisions of FIN 48,
Accounting for
Uncertainty in Income Taxes
(FIN 48)
effective January 1, 2007. FIN 48 clarifies the
accounting for uncertainty in income taxes recognized in an
enterprises financial statements in accordance with
SFAS No. 109,
Accounting for Income Taxes.
FIN 48 prescribes a recognition threshold and
measurement attribute for the financial statement recognition
and measurement of a tax position taken or expected to be taken
in a tax return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties,
accounting in interim periods, disclosure and transition.
The establishment of a liability for unrecognized tax benefits
requires us to identify whether a tax position is more likely
than not to be sustained upon examination by tax authorities and
also required us to estimate the largest amount of tax benefit
that is greater than 50% likely to be realized upon settlement.
Whether a tax position is more likely than not to be
sustainable, and determining the largest amount that is more
likely than not to be realizable upon settlement, are subject to
judgment. Changes in judgment can occur between initial
recognition through settlement or ultimate de-recognition based
upon changes in facts, circumstances and information available
at each reporting date. See note 9 to our audited combined
financial statements for additional information related to
FIN 48.
Our effective tax rate for 2007 was 39.3%. See note 9 to
our audited combined financial statements.
Liquidity
and Capital Resources
Trends
and Uncertainties Affecting Liquidity
Upon our separation from Cadbury Schweppes, our capital
structure, long-term commitments, and sources of liquidity will
change significantly from our historical capital structure,
long-term commitments and sources of liquidity. After the
separation, our primary source of liquidity will be cash
provided from operating activities. We believe that the
following will negatively impact liquidity:
|
|
|
|
|
We will incur significant third party debt in connection with
the separation;
|
|
|
|
We will continue to make capital expenditures to build new
manufacturing capacity, upgrade our existing plants and
distribution fleet of trucks, replace and expand our cold drink
equipment, make IT investments for IT systems, and from
time-to-time invest in restructuring programs in order to
improve operating efficiencies and lower costs;
|
|
|
|
We will assume significant pension obligations; and
|
|
|
|
We may make further acquisitions.
|
New
Financing Arrangements
On March 10, 2008, we entered into arrangements with a
group of lenders to provide us with an aggregate of
$4.4 billion of financing. The new arrangements consist of
a $2.4 billion senior credit agreement that provides a
$1.9 billion term loan A facility and a $500 million
revolving credit facility and a
364-day
bridge credit agreement that provides a $2.0 billion bridge
loan facility. We currently expect to borrow an aggregate of
$3.9 billion under the term loan A facility and the bridge
loan facility in connection with the separation which, together
with our cash on hand, will be used to settle with Cadbury
Schweppes related party debt and other balances, reduce Cadbury
Schweppes net investment in us, purchase certain assets
from Cadbury Schweppes related to our business, pay
$100 million of fees and expenses related to the new credit
facilities and provide us with $100 million of cash on hand
immediately after the separation.
58
We currently intend, subject to prevailing market conditions, to
replace all or a portion of the bridge loan facility with the
proceeds from the issuance of one or more series of notes
and/or
an
alternative term loan facility. See Description of
Indebtedness and Risk Factors Risks
Related to Our Business After our separation from
Cadbury Schweppes, we will have a significant amount of debt,
which could adversely affect our business and our ability to
meet our obligations.
We expect to use borrowings under the revolving credit facility
for working capital and general corporate purposes.
For a description of our new credit facilities, see
Description of Indebtedness.
Capital
Expenditures
Capital expenditures were $230 million in 2007 compared to
$158 million in 2006. Capital expenditures for both years
primarily consisted of manufacturing and distribution equipment,
cold drink equipment and IT investments for new systems. The
increase in 2007 was primarily due to the inclusion of our
bottling acquisitions. We plan to incur annual capital
expenditures over the next three years in an amount equal to
approximately 5% of our net sales. These expenditures are
expected to include investments in cold drink equipment,
construction of a multi-product manufacturing facility in
Southern California, expansion of our capabilities in existing
facilities and implementation of
route-to-market
efficiency initiatives.
Restructuring
We implement restructuring programs from time to time and incur
costs that are designed to improve operating effectiveness and
lower costs. These programs have included closure of
manufacturing plants, reductions in force, integration of back
office operations and outsourcing of certain transactional
activities. When we implement these programs, we incur various
charges, including severance and other employment-related costs.
The restructuring costs of $76 million in 2007 are
primarily related to the following:
|
|
|
|
|
Organizational restructuring announced on October 10,
2007, which will result in the reduction of approximately 470
employees and the closure of two manufacturing facilities in
Denver, Colorado (closed in December 2007) and Waterloo, New
York (closed in March 2008). The employee reductions are
expected to be completed by June 2008. As a result of this
restructuring, we recognized a charge of $32 million in
2007.
|
|
|
|
|
|
Continued integration of the Bottling Group, which was initiated
in 2006, resulted in charges of $21 million.
|
|
|
|
|
|
Integration of technology facilities initiated in 2007.
|
|
|
|
|
|
Closure of the St. Catharines facility initiated in 2007.
|
The restructuring costs of $27 million in 2006 are
primarily related to the following:
|
|
|
|
|
Integration of the Bottling Group initiated in 2006; and
|
|
|
|
|
|
Outsourcing initiatives of our back office operations service
center and a reorganization of our IT operations initiated in
2006.
|
We expect to incur an aggregate of approximately
$42 million of pre-tax, non-recurring charges in 2008 with
respect to the restructuring discussed above. For more
information, see note 12 to our audited combined financial
statements.
Pension
Obligations
We expect to assume unfunded employee benefit liabilities for
pension benefit and postretirement obligations from Cadbury
Schweppes for qualified and non-qualified plans. In January
2008, we began to separate commingled pension and postretirement
plans in which certain of our employees participate. As a
result, we remeasured the projected benefit obligation of the
separated plans, which we expect to result in an increase of
approximately
59
$71 million to our other non-current
liabilities and a decrease of approximately
$53 million to accumulated other comprehensive
income. See Unaudited Pro Forma Combined Financial
Data. The actual pension liability and associated
unamortized losses will be finalized at the separation date.
Acquisitions
We may make further acquisitions. For example, we may make
further acquisitions of regional bottling companies to further
extend our geographic coverage. Any acquisitions may require
future capital expenditures and restructuring expenses.
Liquidity
Based on our current and anticipated level of operations, we
believe that our proceeds from operating cash flows, together
with amounts we expect to be available under our new financing
arrangements, will be sufficient to meet our anticipated
liquidity needs over at least the next twelve months.
Net
Cash Provided by Operating Activities
Net cash provided by operating activities was $603 million
in 2007 compared to $581 million in 2006. This
$22 million increase was primarily due to changes in
non-cash
adjustments and working capital improvements. The increase in
working capital was primarily the result of a $99 million
increase in accounts payable and accrued expenses and a
$74 million decrease in trade accounts receivable. These
changes were partially offset by increases in related party
receivables of $55 million, other accounts receivable of
$84 million and inventories of $27 million.
Net cash from operating activities was $581 million in 2006
compared to $583 million in 2005. The $2 million
decrease was primarily due to a decrease in our cash flows from
working capital of $89 million partially offset by an
increase in net earnings of $33 million, an increase in
depreciation of $46 million and an increase in amortization
of $14 million. Changes in working capital were a decreased
source of cash flow from operations in 2006 compared to 2005,
primarily as a result of a $138 million decrease from
accounts payables and accrued expenses, partially offset by a
$20 million decrease from receivables.
Net
Cash Provided by Investing Activities
Net cash used in investing activities was $1,087 million in
2007 compared to $502 million in 2006. The increase of
$585 million was primarily attributable to the issuance of
notes receivable for $1,846 million, partially offset by
$842 million due to the repayment of notes receivable and a
decrease of $405 million for acquisitions, principally the
acquisition in 2006 of the remaining 55% interest in DPSUBG.
Net cash used in investing activities was $502 million in
2006 compared to $283 million provided by investing
activities in 2005. The $785 million increase in 2006 was
primarily due to the acquisition of the remaining
55% interest in DPSUBG, higher purchases of property,
plant, and equipment, and lower proceeds from asset sales.
Net
Cash Provided by Financing Activities
Net cash provided by financing activities was $515 million
in 2007 compared to $72 million used in financing
activities in 2006. The $587 million increase in 2007 was
due to higher levels of debt issuances and net investment
transactions with Cadbury Schweppes, partially offset by
increases in debt repayment.
Net cash used in financing activities was $72 million in
2006 compared to $815 million in 2005. The
$743 million decrease in 2006 was primarily due to
increases in net long-term debt and net investment transactions
with, and cash distributions to, Cadbury Schweppes.
Cash
and Cash Equivalents
Cash and cash equivalents were $67 million at
December 31, 2007 and increased $32 million in 2007
from $35 million at the prior year end. The increase was
primarily due to transactions with Cadbury Schweppes.
60
Contractual
Commitments and Obligations
We enter into various contractual obligations that impact, or
could impact, our liquidity. The following table summarizes our
contractual obligations and contingencies at December 31,
2007. See notes 10 and 13 to our audited combined financial
statements included elsewhere in this information statement for
additional information regarding the items described in this
table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due in Year
|
|
|
|
Total
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
After 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
Long-term debt obligations(1)
|
|
$
|
3,019
|
|
|
$
|
126
|
|
|
$
|
494
|
|
|
$
|
|
|
|
$
|
425
|
|
|
$
|
740
|
|
|
$
|
1,234
|
|
Capital leases(2)
|
|
|
21
|
|
|
|
2
|
|
|
|
3
|
|
|
|
3
|
|
|
|
3
|
|
|
|
3
|
|
|
|
7
|
|
Interest payments(3)
|
|
|
1,083
|
|
|
|
192
|
|
|
|
165
|
|
|
|
161
|
|
|
|
140
|
|
|
|
88
|
|
|
|
337
|
|
Operating leases(4)
|
|
|
281
|
|
|
|
72
|
|
|
|
53
|
|
|
|
45
|
|
|
|
36
|
|
|
|
29
|
|
|
|
46
|
|
Purchase obligations(5)
|
|
|
122
|
|
|
|
36
|
|
|
|
24
|
|
|
|
20
|
|
|
|
11
|
|
|
|
10
|
|
|
|
21
|
|
Other long-term liabilities(6)
|
|
|
44
|
|
|
|
4
|
|
|
|
4
|
|
|
|
4
|
|
|
|
4
|
|
|
|
4
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,570
|
|
|
$
|
432
|
|
|
$
|
743
|
|
|
$
|
233
|
|
|
$
|
619
|
|
|
$
|
874
|
|
|
$
|
1,669
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Amounts represent scheduled principal payments for long-term
debt. The amount and timing of payments related to our long-term
debt will be different from those set forth in this table as the
result of borrowings under our new credit facilities.
|
|
|
|
(2)
|
|
Amounts represent capitalized lease obligations, net of
interest. Interest in respect of capital leases is included
under the caption Interest payments on this table.
|
|
|
|
(3)
|
|
Amounts represent our estimated interest payments based on:
(a) projected interest rates for floating rate debt,
(b) specified interest rates for fixed rate debt,
(c) capital lease amortization schedules and (d) debt
amortization schedules. The amount and timing of interest
payments will be different from those set forth in this table as
the result of borrowings under our new credit facilities.
|
|
|
|
(4)
|
|
Amounts represent minimum rental commitment under
non-cancellable operating leases.
|
|
|
|
(5)
|
|
Amounts represent payments under agreements to purchase goods or
services that are legally binding and that specify all
significant terms, including long-term contractual obligations.
|
|
|
|
(6)
|
|
Amounts represent estimated pension and postretirement benefit
payments for U.S. and
non-U.S.
defined benefit plans. In addition, on January 1, 2007, we
adopted the provisions of FIN 48. As of December 31,
2007 the amount of unrecognized tax benefits was
$98 million. This table does not reflect any payments we
may be required to make in respect of tax matters for which we
have established reserves in accordance with FIN 48. Due to
uncertainty regarding the timing of payments associated with
these liabilities, we are unable to make a reasonable estimate
of the amount and period for which these liabilities might be
paid and therefore are not included in the above table.
|
Inflation
The principal effect of inflation on our operating results is to
increase our costs. Subject to normal competitive market
pressures, we seek to mitigate the impact of inflation by
raising prices.
Effect of
Recent Accounting Pronouncements
In December 2007, the FASB issued SFAS No. 141
(revised 2007),
Business Combinations
(SFAS 141(R)), which amends the principles and
requirements for how an acquirer recognizes and measures in its
financial statements the identifiable assets acquired, the
liabilities assumed, any noncontrolling interest in the acquiree
and the goodwill acquired. SFAS 141(R) also establishes
disclosure requirements to enable the evaluation of the nature
and financial effects of the business combination.
SFAS 141(R) is effective for us on January 1, 2009,
and we will apply SFAS 141(R) prospectively to all business
combinations subsequent to the effective date.
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In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements An amendment of Accounting Research
Bulletin No. 51
(SFAS 160).
SFAS 160 establishes accounting and reporting standards for
the noncontrolling interest in a subsidiary and the
deconsolidation of a subsidiary and also establishes disclosure
requirements that clearly identify and distinguish between the
controlling and noncontrolling interests and requires the
separate disclosure of income attributable to controlling and
noncontrolling interests. SFAS 160 is effective for fiscal
years beginning after December 15, 2008. We will apply
SFAS 160 prospectively to all applicable transactions
subsequent to the effective date.
In June 2007, the FASB ratified Emerging Issues Task Force
(EITF) Issue
No. 06-11
Accounting for Income Tax Benefits of Dividends on
Share-Based Payment Awards
(EITF 06-11),
which requires entities to record tax benefits on dividends or
dividend equivalents that are charged to retained earnings for
certain share-based awards to additional paid-in capital. In a
share-based payment arrangement, employees may receive dividends
or dividend equivalents on awards of nonvested equity shares,
nonvested equity share units during the vesting period, and
share options until the exercise date. Generally, the payment of
such dividends can be treated as deductible compensation for tax
purposes. The amount of tax benefits recognized in additional
paid-in capital should be included in the pool of excess tax
benefits available to absorb tax deficiencies on share-based
payment awards.
EITF 06-11
is effective for fiscal years beginning after December 15,
2007, and interim periods within those years. We believe the
adoption of
EITF 06-11
will not have a material impact on our combined financial
statements.
In February 2007, the FASB issued SFAS No. 159,
The
Fair Value Option for Financial Assets and Financial
Liabilities including an amendment of FASB Statement
No. 115
(SFAS 159). SFAS 159
permits entities to choose to measure many financial instruments
and certain other items at fair value. Unrealized gains and
losses on items for which the fair value option has been elected
will be recognized in earnings at each subsequent reporting
date. SFAS 159 is effective for us January 1, 2008.
We do not plan to apply SFAS 159 to any of our existing
financial assets or liabilities and believe that the adoption of
SFAS 159 would not have a material impact on our combined
financial statements.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements
(SFAS 157).
SFAS 157 defines fair value, establishes a framework for
measuring fair value and expands disclosure requirements about
fair value measurements. SFAS 157 is effective for us
January 1, 2008. A one-year deferral is in effect for non
financial assets and liabilities that are measured on a
nonrecurring basis. We believe that the adoption of
SFAS 157 will not have a material impact on our combined
financial statements.
Quantitative
and Qualitative Disclosures About Market Risk
We are exposed to market risks arising from changes in market
rates and prices, including movements in foreign currency
exchange rates, interest rates, and commodity prices.
Foreign
Exchange Risk
Historically, Cadbury Schweppes has managed foreign currency
risk on a centralized basis on our behalf. The majority of our
net sales, expenses, and capital purchases are transacted in
United States dollars. However, we do have some exposure
with respect to foreign exchange rate fluctuations. Our primary
exposure to foreign exchange rates is the Canadian dollar and
Mexican peso against the U.S. dollar. In order to manage
exposures and mitigate the impact of currency fluctuations on
the operations of our foreign subsidiaries, Cadbury Schweppes
historically has entered into foreign exchange forward contracts
for significant forecasted receipts and payments. All of these
hedged transactions are against firmly committed or forecasted
exposures. It is Cadbury Schweppes practice not to hedge
translation exposure.
Following the separation, we may continue to utilize foreign
exchange forward and option contracts to manage our exposure to
changes in foreign exchange rates.
Interest
Rate Risk
Historically, Cadbury Schweppes has managed interest rate risk
on a centralized basis on our behalf through the use of interest
rate swap agreements and other risk management instruments. The
objectives for the mix between fixed and floating rate
borrowings have been set to reduce the impact of an upward
change in interest rates while enabling benefits to be enjoyed
if interest rates fall.
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Our historic interest rate exposure relates primarily to
intercompany loans or other amounts due to, or from, Cadbury
Schweppes. Following completion of the separation and the
related financing transactions, we will be subject to interest
rate risk with respect to our long-term debt under the credit
facilities. The principal interest rate exposure relates to
amounts expected to be borrowed under our new term loan A
and bridge loan facilities. We will incur approximately
$3.9 billion of debt with floating interest rates under
these facilities. A change in the estimated interest rate on the
anticipated $3.9 billion of borrowings under the term loan
A and the bridge loan facilities up or down by 1% will increase
or decrease our earnings before provision for income taxes by
approximately $39 million, respectively, on an annual
basis. We will also have interest rate exposure for any amounts
we may borrow in the future under the revolving credit facility.
If we replace the bridge loan facility with one or more series
of notes bearing a fixed rate of interest, our exposure to
interest rate risk will be significantly reduced. If we replace
the bridge loan facility with an alternative term loan facility
bearing a floating rate of interest we will continue to have a
similar level of exposure to interest rate risk.
Following the separation, we may utilize interest rate swaps,
agreements or other risk management instruments to manage our
exposure to changes in interest rates.
Commodity
Risks
We are subject to market risks with respect to commodities
because our ability to recover increased costs through higher
pricing may be limited by the competitive environment in which
we operate. Our principal commodities risks relate to our
purchases of aluminum, corn (for HFCS), natural gas (for use in
processing and packaging), PET and fuel. Historically, Cadbury
Schweppes has managed hedging of certain commodity costs on a
centralized basis on our behalf through forward contracts for
commodities. The use of commodity forward contracts has enabled
Cadbury Schweppes to obtain the benefit of guaranteed contract
performance on firm priced contracts offered by banks, the
exchanges and their clearing houses.
Following the separation, we intend to utilize commodities
forward contracts and supplier pricing agreements to hedge the
risk of adverse movements in commodity prices for limited time
periods for certain commodities.
Following the separation, commodities forward contracts in
existence relating to our business will be transferred to us.
The fair market value of these contracts as of December 31,
2007 was a liability of $6 million.
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INDUSTRY
Overview
United
States
In the United States, we operate primarily within the
non-alcoholic liquid refreshment beverage market. This market
consists of CSDs, non-CSDs (including ready-to-drink teas,
juices, juice drinks and sports drinks) and bottled water. The
U.S. liquid refreshment beverage market has grown over the
last five years, with average annual volume growth of 3.9%
between 2001 and 2006 and average annual retail sales growth of
5.1% over the same period. In 2006, the market grew by 4.1% in
volume and 6.6% in retail sales. Total retail sales in 2006 in
the U.S. liquid refreshment beverage market were
$106 billion, with CSDs accounting for 66.1%, non-CSDs
accounting for 19.7% and bottled water accounting for 14.2%.
CSDs.
According to the latest available
information from Beverage Digest, in 2007, CSD retail sales
increased 2.7% despite a 2.3% decline in volume. In 2006, CSD
retail sales grew by 2.9% despite a 0.6% decline in volume. The
rise in retail sales in both years was primarily due to price
increases in CSDs combined with strong growth of premium-priced
energy drinks. The decline in volume in both years was primarily
attributable to a combination of increased pricing and consumers
switching to non-CSDs and bottled water. Diet CSDs volume
share of the overall CSD market segment increased from 25.1% in
2001 to 29.5% in 2006.
Colas and Flavored CSDs.
Flavored CSDs have
become increasingly popular and have gained volume share versus
cola CSDs. Within the CSD market segment, colas represented
57.4% of total CSD volume in 2006. Flavored CSDs have increased
their share of the overall CSD market segment (as measured by
volume) from 40.1% in 2001 to 42.6% in 2006, and colas have lost
volume share from 59.9% in 2001 to 57.4% in 2006.
Non-CSDs.
Non-CSDs have experienced strong
market share, volume and retail sales growth over the last five
years. Non-CSD retail sales experienced an average annual growth
rate of 8.9% from 2001 to 2006, and non-CSD volume share of the
overall U.S. liquid refreshment beverage market increased from
12.7% in 2001 to 16.3% in 2006. Non-CSD volume and retail sales
increased by 13.2% and 14.8%, respectively, in 2006, with strong
growth in ready-to-drink teas, sports drinks and juice drinks.
Bottled Water.
The bottled water market
segment consists of both spring waters and purified waters in
packages of 1.5 liters or less. Bottled water pricing declined
2% in 2006 as a result of competitive pressures. Volume and
retail sales increased by 16.5% and 14.5%, respectively, in
2006. Retail sales of bottled water increased by an average
annual growth rate of 14.9% from 2001 to 2006.
All U.S. market and industry data set forth above is from
Beverage Digest. See Use of Market Data in this
Information Statement.
Canada
and Mexico
In the Canadian and Mexican markets, we operate in market
segments similar to those in which we operate in the United
States. The Canadian and Mexican markets have exhibited broadly
similar trends to those in the United States, except that the
Mexican CSD volume grew 4.9% in 2006, according to Canadean.
Total Canadian soft drink retail sales in 2006, including CSDs,
non-CSDs and bottled water, were $16.1 billion. CSDs
accounted for 42.1% of total volume in the Canadian soft drink
market, or $4.4 billion in retail sales, followed by
non-CSDs and bottled water with 37.3% and 20.6% of total volume,
and $8.3 billion and $3.4 billion in retail sales,
respectively.
Total Mexican soft drink retail sales in 2006, including CSDs,
non-CSDs and bottled water, were $20.9 billion. CSDs
accounted for 70.1% of total volume in the Mexican soft drink
market in 2006 or $13.7 billion in retail sales,
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followed by non-CSDs and bottled water with 20.5% and 9.5% of
total volume, and $5.2 billion and $2.0 billion in
retail sales, respectively.
All Canadian and Mexican market and industry data set forth
above is from Canadean. See Use of Market Data in
this Information Statement.
Beverage
Market Trends
We believe the key trends influencing the North
American liquid refreshment beverage market include:
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Increased health consciousness.
Consumers have
become more health conscious in their food and beverage
consumption. This trend is a result of increased consumer
awareness of health issues, media attention regarding obesity,
focus on nutrition in schools and aging trends among consumers.
We believe the main beneficiaries of this trend include diet
drinks, ready-to-drink teas, enhanced waters and bottled waters.
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Changes in lifestyle.
Consumers are
increasingly looking for convenience due to hurried lifestyles,
an increasing number of women in the work force, the rise in
single-occupancy households, the increasing urbanization of
populations and the decline in formal family meals. We believe
changes in lifestyle will continue to drive increased sales of
single-serve beverages, which typically have higher margins.
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Growing demographic segments in the United
States.
The growth of various U.S. demographic
segments will be increasingly important to the growth of the
U.S. liquid refreshment beverage market. For example,
according to the U.S. Census Bureau, over the next
20 years, more than 40% of the U.S. population growth
is expected to come from the Hispanic population. We believe
marketing and product innovations that target fast growing
population segments, such as the Hispanic community in the
United States, will drive further market growth.
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Product and packaging innovation.
We believe
brand owners and bottling companies will continue to create new
products and packages such as beverages with new ingredients and
new premium flavors, as well as innovative convenient packaging
that address changes in consumer tastes and preferences.
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Changing retailer landscape.
As retailers
continue to consolidate, we believe partnering with key
retailers will be instrumental for future success in the
beverage industry. We believe retailers will support consumer
product companies that can provide an attractive portfolio of
products, a strong value proposition and efficient delivery.
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Recent increases in raw material costs.
The
costs of a substantial proportion of the raw materials used in
the beverage industry, such as aluminum cans and ends, glass
bottles, PET bottles and caps, paperboard packaging, HFCS and
other sweeteners, juices and fruits, are dependent on commodity
prices for aluminum, natural gas, resins, corn, pulp and other
commodities. Recently, these costs on the whole have increased
significantly and this has exerted pressure on industry margins.
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Industry
Manufacturing, Sales and Distribution
The U.S. beverage industry is comprised of many
participants including brand owners, bottling companies and
distributors. Market participants adopt different business
models, ranging from being exclusively a brand owner, bottler or
distributor, to an integrated brand owner, bottler and
distributor. Retailers also participate in the beverage industry
directly through their own private label products.
Traditionally, the CSD industry has employed a licensing model
comprised of brand owners who grant licenses to bottling
companies. This structure effectively separated the management
and marketing of brands, as well as the production of beverage
concentrates, from the more capital intensive manufacturing,
bottling and distribution of finished beverages. In contrast,
brand owners of non-CSDs traditionally have manufactured a
larger percentage of
65
finished beverages themselves, which are then sold primarily to
distributors and retailers. These manufacturing and distribution
models are summarized in the following charts:
The bottled water market segment includes spring water and
purified water. Purified water is typically filtered by the
bottler, who bottles the water and sells it to a distributor or
retailer. Spring water is typically bottled at the source by the
brand owner and is distributed by both the brand owner and by
bottlers and distributors.
Brand Owners.
Brand owners own beverage
brands, formulas and the proprietary know-how required for the
preparation of their beverages, either in concentrate form or as
a finished beverage. In a traditional CSD licensing model, brand
owners manufacture the beverage concentrates, which are highly
condensed liquids or powders that contain all of the proprietary
flavors and ingredients that make up the unique taste of the
beverage. The concentrates are sold to bottling companies
pursuant to a license from the brand owner. Brand owners may
also manufacture and package the finished beverages for some of
their brands and sell the finished beverages direct to
retailers, distributors and other third parties. Brand owners
maintain strong brands by promoting brand awareness through
marketing, advertising and promotion, and by developing new and
innovative products and product line extensions that address
changes in consumer tastes and preferences.
Bottlers and Distributors.
Bottlers are
manufacturers and distributors of branded canned or bottled
beverages that are ready to be sold to retailers as finished
beverages. For CSDs, bottlers purchase beverage concentrates
from brand owners and combine it with sweeteners, carbonation
and water to create the finished beverages. For non-CSDs,
bottlers purchase finished beverages from brand owners and may
also manufacture finished beverages. Distributors are
independent companies that solely distribute the finished
beverages. Bottlers and distributors sell and distribute
finished beverages in the territories where they hold brand
licenses. These territories may be exclusive or non-exclusive
depending on the license arrangements.
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Bottling Systems.
The U.S. bottling
industry consists of the following four systems:
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Coca-Cola
Affiliated System.
The
Coca-Cola
affiliated system includes
Coca-Cola
Enterprises and
Coca-Cola
Bottling Co. Consolidated, both of which are partially-owned by
Coca-Cola,
as well as smaller independent
Coca-Cola
affiliated bottlers. The
Coca-Cola
affiliated system primarily manufactures, markets and
distributes
Coca-Cola
branded products, but also manufactures and distributes other
brands. For example,
Coca-Cola
Enterprises is the second largest bottler of our products and
the largest Dr Pepper bottler.
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PepsiCo Affiliated System.
The PepsiCo
affiliated system includes Pepsi Bottling Group, PepsiAmericas
and Pepsi Bottling Ventures, which are partially-owned by
PepsiCo, as well as smaller independent PepsiCo affiliated
bottlers. The PepsiCo affiliated system primarily manufactures,
markets and distributes PepsiCo branded products. These bottlers
also manufacture and distribute other brands. For example, Pepsi
Bottling Group is the third largest bottler of our products and
the third largest Dr Pepper bottler.
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DPS System.
The DPS system consists of our
Bottling Group segment, which is the largest bottler of our
products and the second largest Dr Pepper bottler. Our Bottling
Group is further described in this information statement.
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Independent Bottler System.
The independent
bottler system includes smaller independent bottlers that are
not part of the other three systems. The independent system is
primarily involved with the bottling of our brands.
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As the CSD industry has matured, brand owners have begun
diversifying into higher growth non-CSDs. Today brand owners
manufacture a higher percentage of finished beverages than in
the past. This has led to an increased focus on alignment of
economic interests through the entire manufacturing and
distribution chain, which in some cases has resulted in more
vertical integration of brand owners, bottlers and distributors.
Sales Channels.
The primary retail sales
channels for liquid refreshment beverages in the United States
include supermarkets, fountains, mass merchandisers, club
stores, vending machines, convenience stores, gas stations,
small groceries, drug chains, dollar stores and small retail
stores. CSD sales are largely concentrated in the supermarkets,
fountain and mass merchandisers channels. The consolidation of
retailers and the growth of club stores over the last few years
has increased the power and influence of these retailers on
price, promotional and marketing programs and delivery
requirements. The fountain channel, which constituted 23% of the
U.S. CSD market segment in 2006 according to Beverage
Digest, represents beverages sold at retail that come in
disposable cups or glasses, such as CSDs at restaurants,
convenience stores or gas stations.
Distribution of Finished Beverages.
Finished
beverages are distributed to the retail sales channels through
four main methods:
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Direct store delivery.
Finished beverages are
delivered directly to the retail stores by bottlers or
distributors. In many cases, the bottler or distributor is
responsible for stocking and merchandising the product directly
on the retail shelf.
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Warehouse delivery.
Finished beverages are
shipped to retailer warehouses, and then delivered by the
retailer through its own delivery system to its stores.
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Fountain foodservice.
Fountain syrup is
delivered to fountain customers either through direct store
delivery or the customers warehouse.
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Vending operations.
Finished beverages are
delivered to vending machines and stocked and filled by vending
service operators or bottlers.
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Canada
The Canadian beverage industry is similar to the
U.S. industry. However, the Canadian industry consists
primarily of two CSD bottling systems (compared to four in the
United States): the
Coca-Cola
affiliated system and the PepsiCo affiliated system. The
Canadian beverage industry is also characterized by more
consolidated retail sales channels than in the United States.
Mexico
The Mexican beverage industry is similar to the
U.S. industry in its manufacturing, bottling and
distribution model. However, unlike the United States, the
Mexican retail channels are comprised largely of mom and
pop stores or traditional trade, accounting for
approximately 60% of total sales outlets in Mexico according to
Canadean. In the past few years, the traditional trade has faced
increasing competition from the expansion of the modern food
channel (including supermarkets and hypermarkets) and
convenience stores. The on-premise channel, which includes
restaurants, street stalls, kiosks, hotels and cinemas, is
another growing sales channel in Mexico.
Use of
Market Data in this Information Statement
The market and industry data in this information statement is
from independent industry sources, including ACNielsen, Beverage
Digest and Canadean. Although we believe that these independent
sources are reliable, we have not verified the accuracy or
completeness of this data or any assumptions underlying such
data.
ACNielsen, a business of The Nielsen Company, is a marketing
information provider, primarily serving consumer packaged goods
manufacturers and retailers. We use ACNielsen data as our
primary management tool to track market performance because it
has broad and deep data coverage, is based on consumer
transactions at retailers, and is reported to us monthly.
ACNielsen data provides measurement and analysis of marketplace
trends such as market share, retail pricing, promotional
activity and distribution across various channels, retailers and
geographies. Measured categories provided to us by ACNielsen
Scantrack include CSDs, energy drinks, single-serve bottled
water, non-alcoholic mixers and non-carbonated beverages,
including ready-to-drink teas, single-serve and multi-serve
juice and juice drinks, and sports drinks. ACNielsen also
provides data on other food items such as apple sauce. The
ACNielsen data we present in this information statement is from
ACNielsens Scantrack service, which compiles data based on
scanner transactions in certain sales channels, including
grocery stores, mass merchandisers, drug chains, convenience
stores and gas stations. However, this data does not include the
fountain or vending channels, Wal-Mart or small independent
retail outlets, which together represent a meaningful portion of
the U.S. liquid refreshment beverage market and of our net sales
and volume.
Beverage Digest is an independent beverage research company that
publishes an annual Beverage Digest Fact Book. We use Beverage
Digest primarily to track market share information and broad
beverage and channel trends. This annual publication provides a
compilation of data supplied by beverage companies. Beverage
Digest covers the following categories: CSDs, energy drinks,
bottled water and non-carbonated beverages (including
ready-to-drink teas, juice and juice drinks and sports drinks).
Beverage Digest data does not include multi-serve juice products
or bottled water in packages of 1.5 liters or more. Data is
reported for certain sales channels, including grocery stores,
mass merchandisers, club stores, drug chains, convenience
stores, gas stations, fountains, vending machines and the
up-and-down-the-street
channel consisting of small independent retail outlets.
We use both ACNielsen and Beverage Digest to assess both our own
and our competitors performance and market share in the
United States. Different market share rankings can result for a
specific beverage category depending on whether data from
ACNielsen or Beverage Digest is used, in part because of the
differences in the sales channels reported by each source. For
example, because the fountain channel (where we have a
relatively small business except for Dr Pepper) is not included
in ACNielsen data, our market share using the ACNielsen data is
generally higher for our CSD portfolio than the Beverage Digest
data, which does include the fountain channel.
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Canadean is a market research and data management company
focusing on the international beverage industry and its
suppliers. Beverage categories measured by Canadean include
packaged water, carbonates, juice, nectars, still drinks,
iced/ready-to-drink tea drinks, squash/syrups and fruit powders,
sports drinks and energy drinks. Canadean provides data for
certain sales channels, including off-premise distribution such
as supermarkets, hypermarkets, department stores, mom and
pop outlets, delicatessens, pharmacies/drugstores, street
stalls, specialist drink shops and on-premise distribution such
as vending machines, quick service restaurants, eating, drinking
and accommodation establishments and institutions. We use
Canadean data to assess both our own and our competitors
performance and market share in Canada and Mexico.
In this information statement, all information regarding the
beverage market in the United States is from Beverage Digest,
and, except as otherwise indicated, is from 2006. Certain
limited United States beverage market information for 2007 is
available from Beverage Digest and is contained herein, but in
most instances 2006 information is the most recent available
from Beverage Digest. All information regarding the beverage
market in Canada and Mexico is from Canadean and is from 2006.
All information regarding our brand market positions in the
United States is from ACNielsen and is based on retail dollar
sales in 2007. All information regarding our brand market
positions in Canada is from ACNielsen and is based on volume in
2007. All information regarding our brand market positions in
Mexico is from Canadean and is based on volume in 2006. When
2006 information is used, it is the most recent information
available from the applicable source.
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BUSINESS
Overview
We are a leading integrated brand owner, bottler and distributor
of non-alcoholic beverages in the United States, Canada and
Mexico with a diverse portfolio of flavored (non-cola) CSDs and
non-CSDs, including ready-to-drink teas, juices, juice drinks
and mixers. We have some of the most recognized beverage brands
in North America, with significant consumer awareness levels and
long histories that evoke strong emotional connections with
consumers.
The following table provides highlights about our company and
our key brands:
Our
Company
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#1 flavored CSD company in the United States
More than 75% of our volume from brands that are either #1 or #2 in their category
#3 North American liquid refreshment beverage business
$5.7 billion of net sales in 2007 from the United States (89%), Canada (4%) and Mexico and the Caribbean (7%)
$1.0 billion of income from operations in 2007
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Our
Key Brands
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#1 in its flavor category and #2 overall flavored CSD in the United States
Distinguished by its unique blend of 23 flavors and loyal consumer following
Flavors include regular, diet and Soda Fountain Classics line extensions
Oldest major soft drink in the United States, introduced in 1885
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A leading ready-to-drink tea in the United States
Teas include premium Snapple teas and super premium white, green, red and black teas
Brand also includes premium juices, juice drinks and recently launched enhanced waters
Founded in Brooklyn, New York in 1972
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#2 lemon-lime CSD in the United States
Re-launched in 2006 as the only major lemon-lime CSD with all-natural flavors and no artificial preservatives
Flavors include regular, diet and cherry
The original Un-Cola, created in 1929
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#1 apple juice and #1 apple sauce brand
in the United States
Juice products include apple and other
fruit juices, Motts Plus and Motts for Tots
Apple sauce products include regular,
unsweetened, flavored and organic
Brand began as a line of apple cider and
vinegar offerings in 1876
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#1 orange CSD in the United States
Flavors include orange, diet and other fruits
Licensed to us as a soft drink by the Sunkist Growers Association since 1986
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#1 fruit punch brand in the United States
Brand includes a variety of fruit flavored and reduced calorie juice drinks
Developed originally as an ice cream topping known as Leos Hawaiian Punch in 1934
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#1 root beer in the United States
Flavors include regular and diet root beer and cream soda
A classic all-American soda first sold at a veterans parade in 1919
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#1 ginger ale in the United States and Canada
Brand includes club soda, tonic and other mixers
Created in Toronto, Canada in 1904 and introduced in the United States in 1919
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#2 ginger ale in the United States and Canada
Brand includes club soda, tonic and other mixers
First carbonated beverage in the world, invented in 1783
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#1 grapefruit CSD in the United States and #2 grapefruit CSD in Mexico
Flavors include regular, diet and ruby red
Founded in 1938
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A leading spicy tomato juice brand in the United States, Canada and Mexico
Key ingredient in Canadas popular cocktail, the Bloody Caesar
Created in 1969
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#1 carbonated mineral water brand in Mexico
Brand includes Flavors, Twist and Naturel
Mexicos oldest mineral water, founded in 1928
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#1 portfolio of mixer brands in the United States
#1 mixer brand (Mr & Mrs T) in the United States
Leading mixers (Margaritaville and Roses) in their flavor categories
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Note:
All information regarding the beverage
market in the United States is from Beverage Digest, and, except
as otherwise indicated, is from 2006. Certain limited United
States beverage market information for 2007 is available from
Beverage Digest and is contained herein, but in most instances
2006 information is the most recent available from Beverage
Digest. All information regarding the beverage markets in Canada
and Mexico is from Canadean and is from 2006. All information
regarding our brand market positions in the United States is
from ACNielsen and is based on retail dollar sales in 2007. All
information regarding our brand market positions in Canada is
from ACNielsen and is based on volume in 2007. All information
regarding our brand market positions in Mexico is from Canadean
and is based on volume in 2006. When 2006 information is used,
it is the most recent
71
information available from the applicable source. For a
description of the different methodologies used by these sources
(including sales channels covered), see
Industry Use of Market Data in this
Information Statement.
The Sunkist, Roses and Margaritaville logos are registered
trademarks of Sunkist Growers, Inc., Cadbury Ireland Limited and
Margaritaville Enterprises, LLC, respectively, in each case used
by us under license. All other logos in the table above are
registered trademarks of DPS or its subsidiaries.
Creation
of Our Business
We have built our business over the last 25 years, through
a series of strategic acquisitions, into an integrated brand
owner, bottler and distributor that is now the third largest
liquid refreshment beverage company in North America, according
to Beverage Digest and Canadean. These acquisitions include:
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1980s-mid-1990s We began building on our
then existing Schweppes business by adding brands such as
Motts, Canada Dry, Sunkist and A&W. We also acquired
the Peñafiel business in Mexico.
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1995 We acquired Dr Pepper/Seven Up, Inc. (having
previously made minority investments in the company), increasing
our share of the U.S. CSD market segment from under 5% to
approximately 15%, as measured by volume, according to Beverage
Digest.
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1999 We acquired a 40% (increased to 45% in 2005)
interest in DPSUBG, which was then our largest independent
bottler.
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2000 We acquired Snapple and other brands,
significantly increasing our share of the U.S. non-CSD market
segment.
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2003 We created Cadbury Schweppes Americas Beverages
by integrating the way we manage our four North American
businesses (Motts, Snapple, Dr Pepper/Seven Up and Mexico).
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2006/2007 We acquired the remaining 55% of DPSUBG
and several smaller bottlers and integrated them into our
Bottling Group operations, thereby expanding our geographic
coverage.
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Our
Business Today
Today, we are a leading integrated brand owner, bottler and
distributor of non-alcoholic beverages in the United States,
Mexico and Canada, the first, second and tenth, largest beverage
markets by CSD volume, respectively, according to Beverage
Digest and Canadean. We also distribute our products in the
Caribbean. In 2007, 89% of our net sales were generated in the
United States, 4% in Canada and 7% in Mexico and the Caribbean.
We sold 1.6 billion equivalent 288 ounce cases in 2007.
In the CSD market segment in the United States and Canada, we
participate primarily in the flavored CSD category. Our key
brands are Dr Pepper, 7UP, Sunkist, A&W and Canada Dry, and
we also sell regional and smaller niche brands. In the CSD
market segment we are primarily a manufacturer of beverage
concentrates and fountain syrups. Beverage concentrates are
highly concentrated proprietary flavors used to make syrup or
finished beverages. We manufacture beverage concentrates that
are used by our own bottling operations as well as sold to
third-party bottling companies. According to ACNielsen, we had
an 18.8% share of the U.S. CSD market segment in 2007 (measured
by retail sales), which increased from 18.5% in 2006. We also
manufacture fountain syrup that we sell to the foodservice
industry directly, through bottlers or through third parties.
In the non-CSD market segment in the United States, we
participate primarily in the ready-to-drink tea, juice, juice
drinks and mixer categories. Our key non-CSD brands are Snapple,
Motts, Hawaiian Punch and Clamato, and we also sell
regional and smaller niche brands. We manufacture most of our
non-CSDs as ready-to-drink beverages
72
and distribute them through our own distribution network and
through third parties or direct to our customers
warehouses. In addition to non-CSD beverages, we also
manufacture Motts apple sauce as a finished product.
In Mexico and the Caribbean, we participate primarily in the
carbonated mineral water, flavored CSD, bottled water and
vegetable juice categories. Our key brands in Mexico include
Peñafiel, Squirt, Clamato and Aguafiel. In Mexico, we
manufacture and sell our brands through both our own bottling
operations and third-party bottlers, as we do in our
U.S. CSD business. In the Caribbean, we distribute our
products solely through third-party distributors and bottlers.
According to Canadean, we are the #3 CSD company in Mexico (as
measured by volume in 2006) and had a 15.6% share of the Mexican
flavored CSD category.
In 2007, we bottled and/or distributed approximately 45% of our
total products sold in the United States (as measured by
volume). In addition, our bottling and distribution businesses
distribute a variety of brands owned by third parties in
specified licensed geographic territories.
We believe our brand ownership, bottling and distribution are
more integrated than the U.S. operations of our principal
competitors and that this differentiation provides us with a
competitive advantage. We believe our integrated business model:
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Strengthens our
route-to-market
by creating a third consolidated bottling system, our Bottling
Group, in addition to the Coca-Cola affiliated and PepsiCo
affiliated systems. In addition, by owning a significant portion
of our bottling and distribution network we are able to improve
focus on our brands, especially certain of our brands such as
7UP, Sunkist, A&W and Snapple, which do not have a large
presence in the
Coca-Cola
affiliated and PepsiCo affiliated bottler systems.
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Provides opportunities for net sales and profit growth through
the alignment of the economic interests of our brand ownership
and our bottling and distribution businesses. For example, we
can focus on maximizing profitability for our company as a whole
rather than focusing on profitability generated from either the
sale of concentrates or the bottling and distribution of our
products.
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Enables us to be more flexible and responsive to the changing
needs of our large retail customers including by coordinating
sales, service, distribution, promotions and product launches.
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Allows us to more fully leverage our scale and reduce costs by
creating greater geographic manufacturing and distribution
coverage.
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Recent
Developments
New
Financing Arrangements
On March 10, 2008, we entered into arrangements with a
group of lenders to provide us with an aggregate of
$4.4 billion of financing. The new arrangements consist of
a $2.4 billion senior credit agreement that provides a
$1.9 billion term loan A facility and a
$500 million revolving credit facility and a 364-day bridge
credit agreement that provides a $2.0 billion bridge loan
facility. We currently expect to borrow an aggregate of
$3.9 billion under the term loan A facility and the
bridge loan facility in connection with the separation. We
currently intend, subject to prevailing market conditions, to
replace all or a portion of the bridge loan facility with the
proceeds from the issuance of one or more series of notes
and/or
an
alternative term loan facility. See Description of
Indebtedness.
New
President and Chief Executive Officer
Larry Young was appointed President and Chief Executive Officer
of Cadbury Schweppes Americas Beverages business on
October 10, 2007. Mr. Young was previously our Chief
Operating Officer, as well as President, Bottling Group, and has
more than 30 years of experience in the bottling and
beverages industry.
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Organizational
Restructuring
On October 10, 2007, we announced a restructuring of our
organization intended to create a more efficient organization.
This restructuring will result in a reduction of approximately
470 employees in our corporate, sales and supply chain
functions and will include approximately 100 employees in
Plano, Texas, 125 employees in Rye Brook, New York and 50
employees in Aspers, Pennsylvania. The remaining reductions will
occur at a number of sites located in the United States, Canada
and Mexico. The restructuring also includes the closure of two
manufacturing facilities in Denver, Colorado (closed in December
2007) and Waterloo, New York (closed in March 2008). The
employee reductions are expected to be completed by June 2008.
As a result of this restructuring, we recognized a charge of
approximately $32 million in 2007. We expect to recognize a
charge of approximately $21 million in 2008 related to this
restructuring. We expect this restructuring to generate annual
cost savings of approximately $68 million, most of which
are expected to be realized in 2008 with the full annual benefit
realized from 2009 onwards. Savings realized in 2007 were
immaterial. As part of this restructuring, our Bottling Group
segment has assumed management and operational control of our
Snapple Distributors segment.
In 2007, we incurred a total of $76 million of
restructuring costs, which included $32 million related to
the restructuring announced on October 10, 2007.
Accelerade
Launch
We launched our new, ready-to-drink Accelerade sports drink in
the first half of 2007. The launch represented an introduction
of a new product into a new beverage category for us and was
supported by significant national product placement and
marketing investments. Net sales were below expectations despite
these investments. We incurred an operating loss of
approximately $55 million from the Accelerade launch in
2007, while marketing investments in other brands, predominantly
Beverage Concentrate brands, were reduced by approximately
$25 million. In addition, we incurred a $4 million
impairment charge related to the Accelerade launch, which
represented the majority of the $6 million of impairment
charges we incurred in 2007. Going forward, we intend to focus
on marketing and selling Accelerade in a more targeted way to
informed athletes, trainers and exercisers, and retailers that
are frequented by these consumers, such as health and nutrition
outlets, where we expect the product to be financially viable.
Glacéau
Termination
Following its acquisition by Coca-Cola on August 30, 2007,
Energy Brands, Inc. notified us that it was terminating our
distribution agreements for glacéau products, including
vitaminwater, fruitwater and smartwater, effective
November 2, 2007. Pursuant to the terms of the agreements,
we received a payment of approximately $92 million from
Energy Brands, Inc. for this termination in December 2007, and
we recorded a $71 million gain in 2007 in respect of this
payment. Our 2007 glacéau net sales and contribution to
income from operations were approximately $227 million and
$40 million, respectively, and were reflected in our
Bottling Group segment.
Our
Strengths
The key strengths of our business are:
Strong portfolio of leading, consumer-preferred
brands.
We own a diverse portfolio of well-known
CSD and non-CSD brands. Many of our brands enjoy high levels of
consumer awareness, preference and loyalty rooted in their rich
heritage, which drive their market positions. Our diverse
portfolio provides our bottlers, distributors and retailers with
a wide variety of products and provides us with a platform for
growth and profitability. We are the #1 flavored CSD
company in the United States. In addition, we are the only major
beverage concentrate manufacturer with
year-over-year
market share growth in the CSD market segment in each of the
last four years. Our largest brand, Dr Pepper, is the #2
flavored CSD in the United States, according to ACNielsen, and
our Snapple brand is a leading ready-to-drink tea. Overall, in
2007, more than 75% of our volume was generated by brands that
hold either
74
the #1 or #2 position in their category. The strength
of our key brands has allowed us to launch innovations and brand
extensions such as Dr Pepper Soda Fountain Classics,
Motts for Tots and Snapple Antioxidant Waters.
Integrated business model.
We believe our
brand ownership, bottling and distribution are more integrated
than the U.S. operations of our principal competitors and that
this differentiation provides us with a competitive advantage.
Our integrated business model strengthens our route-to-market
and enables us to improve focus on our brands, especially
certain of our brands such as 7UP, Sunkist, A&W and
Snapple, which do not have a large presence in the
Coca-Cola
affiliated and PepsiCo affiliated bottler systems. Our
integrated business model also provides opportunities for net
sales and profit growth through the alignment of the economic
interests of our brand ownership and our bottling and
distribution businesses. For example, we can focus on maximizing
profitability for our company as a whole rather than focusing on
profitability generated from either the sale of concentrates or
the bottling and distribution of our products.
Strong customer relationships.
Our brands have
enjoyed long-standing relationships with many of our top
customers. We sell our products to a wide range of customers,
from bottlers and distributors to national retailers, large
foodservice and convenience store customers. We have strong
relationships with some of the largest bottlers and
distributors, including those affiliated with Coca-Cola and
PepsiCo, some of the largest and most important retailers,
including Wal-Mart, Safeway, Kroger and Target, some of the
largest food service customers, including McDonalds, Yum!
and Burger King, and convenience store customers, including
7-Eleven. Our portfolio of strong brands, operational scale and
experience across beverage segments have enabled us to maintain
strong relationships with our customers.
Attractive positioning within a large, growing and profitable
market.
We hold the #3 position in each of
the United States, Canada and Mexico, three of the top ten
beverage markets by CSD volume, according to Beverage Digest and
Canadean. We believe that these markets are well-positioned to
benefit from emerging consumer trends such as the need for
convenience and the demand for products with health and wellness
benefits. In addition, we participate in many of the growing
categories in the liquid refreshment beverage market, such as
ready-to-drink teas. We do not participate significantly in
colas, which have declined in CSD volume share from 70.0% in
1991 to 57.4% in 2006 in the United States, according to
Beverage Digest. We also do not participate significantly in the
bottled water market segment, which we believe is a highly
competitive and generally low margin market segment.
Broad geographic manufacturing and distribution
coverage.
As of December 31, 2007, we had 21
manufacturing facilities and more than 250 distribution centers
in the United States, as well as 4 manufacturing facilities
and more than 25 distribution centers in Mexico. These
facilities use a variety of manufacturing processes. In
addition, our warehouses are generally located at or near
bottling plants and geographically dispersed across the region
to ensure our product is available to meet consumer demand. We
actively manage transportation of our products using our own
fleet of more than 5,000 delivery trucks, as well as third-party
logistics providers on a selected basis. Following our recent
bottling acquisitions and manufacturing investments, we now have
greater geographic coverage with strategically located
manufacturing and distribution capabilities, enabling us to
better align our operations with our customers, reduce
transportation costs and have greater control over the timing
and coordination of new product launches.
Strong operating margins and significant, stable cash flows.
The breadth and strength of our brand portfolio
have enabled us to generate strong operating margins which,
combined with our relatively modest capital expenditures, have
delivered significant and stable cash flows. These cash flows
create stockholder value by enabling us to consider a variety of
alternatives, such as investing in our business, reducing debt
and returning capital to our stockholders.
Experienced executive management team
. Our
executive management team has an average of more than
20 years of experience in the food and beverage industry.
The team has broad experience in brand ownership, bottling and
distribution, and enjoys strong relationships both within the
industry and with major customers. In addition, our management
team has diverse skills that support our operating strategies,
including driving organic growth through targeted and efficient
marketing, reducing operating costs, enhancing distribution
efficiencies, aligning manufacturing and bottling and
distribution interests and executing strategic acquisitions.
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Our
Strategy
The key elements of our business strategy are to:
Build and enhance leading brands.
We have a
well-defined portfolio strategy to allocate our marketing and
sales resources. We use an on-going process of market and
consumer analysis to identify key brands that we believe have
the greatest potential for profitable sales growth. For example,
in 2006 and 2007, we continued to enhance the Snapple portfolio
by launching brand extensions with functional benefits, such as
super premium teas and juice drinks and Snapple Antioxidant
Waters. Also, in 2006, we relaunched 7UP with 100% natural
flavors and no artificial preservatives, thereby differentiating
the 7UP brand from other major lemon-lime CSDs. We intend to
continue to invest most heavily in our key brands to drive
profitable and sustainable growth by strengthening consumer
awareness, developing innovative products and brand extensions
to take advantage of evolving consumer trends, improving
distribution and increasing promotional effectiveness.
Focus on opportunities in high growth and high margin
categories.
We are focused on driving growth in
our business in selected profitable and emerging categories.
These categories include ready-to-drink teas, energy drinks and
other functional beverages. For example, we recently launched
Snapple super premium teas and juices and Snapple enhanced
waters. We also intend to capitalize on opportunities in these
categories through brand extensions, new product launches and
selective acquisitions of brands and distribution rights. For
example, we believe we are well-positioned to enter into new
distribution agreements for emerging, high-growth third party
brands in new categories that can use our bottling and
distribution network. We can provide these new brands with
distribution capability and resources to grow, and they provide
us with exposure to growing segments of the market with
relatively low risk and capital investment.
Increase presence in high margin channels and
packages.
We are focused on improving our product
presence in high margin channels, such as convenience stores,
vending machines and small independent retail outlets, through
increased selling activity and significant investments in
coolers and other cold drink equipment. We intend to
significantly increase the number of our branded coolers and
other cold drink equipment over the next few years, which we
believe will provide an attractive return on investment. We also
intend to increase demand for high margin products like
single-serve packages for many of our key brands through
increased promotional activity and innovation such as the
successful introduction of our A&W vintage 20
ounce bottle.
Leverage our integrated business model.
We
believe our integrated brand ownership, bottling and
distribution business model provides us opportunities for net
sales and profit growth through the alignment of the economic
interests of our brand ownership and our bottling and
distribution businesses. We intend to leverage our integrated
business model to reduce costs by creating greater geographic
manufacturing and distribution coverage and to be more flexible
and responsive to the changing needs of our large retail
customers by coordinating sales, service, distribution,
promotions and product launches. For example, we intend to
concentrate more of our manufacturing in multi-product, regional
manufacturing facilities, including by opening a new plant in
Southern California and investing in expanded capabilities in
several of our existing facilities within the next several years.
Strengthen our route-to-market through
acquisitions.
The acquisition and creation of our
Bottling Group is part of our longer-term initiative to
strengthen the route-to-market for our products. We believe
additional acquisitions of regional bottling companies will
broaden our geographic coverage in regions where we are
currently under-represented, enhance coordination with our large
retail customers, more quickly address changing customer
demands, accelerate the introduction of new products, improve
collaboration around new product innovations and expand our
coverage of high margin channels.
Improve operating efficiency.
We believe our
recently announced restructuring will reduce our selling,
general and administrative expenses and improve our operating
efficiency. In addition, the integration of recent acquisitions
into our Bottling Group has created the opportunity to improve
our manufacturing, warehousing and distribution operations. For
example, we have been able to create multi-product manufacturing
facilities (such as our Irving, Texas facility) which provide a
region with a wide variety of our products at reduced
transportation and
co-packing
costs.
76
Our
Business
We operate our business in four segments: Beverage Concentrates,
Finished Goods, Bottling Group and Mexico and the Caribbean.
Beverage
Concentrates
Our Beverage Concentrates segment is a brand ownership business.
In this segment we manufacture beverage concentrates and syrups
in the United States and Canada. Most of the brands in this
segment are CSD brands. In 2007, our Beverage Concentrates
segment had net sales of $1.3 billion (before elimination
of intersegment transactions).
In 2007, Dr Pepper, our largest CSD brand, represented
approximately one-half of our Beverage Concentrates segment net
sales and volume of over half a billion case sales, with each
case representing 288 fluid ounces of finished beverage. 7UP,
Sunkist, A&W and Canada Dry together represented
approximately 30% of our Beverage Concentrates net sales. Other
brands in our Beverage Concentrates segment include: Schweppes,
RC, Diet Rite, Vernors, Squirt, Sundrop, Welchs and
Country Time and the concentrate forms of Hawaiian Punch and
Snapple.
We are the industry leader in flavored CSDs with a 36.5% market
share in the United States for 2007, as measured by retail sales
according to ACNielsen. We are also the third largest CSD brand
owner as measured by 2007 retail sales in the United States and
Canada and we own a leading brand in most of the CSD categories
in which we compete.
Almost all of our beverage concentrates are manufactured at our
plant in St. Louis, Missouri. The beverage concentrates are
shipped to third-party bottlers, as well as to our own Bottling
Group, who combine the beverage concentrates with carbonation,
water and sweeteners, package it in PET and glass bottles and
aluminum cans, and sell it as a finished CSD to retailers.
Concentrate prices historically have been reviewed and adjusted
on an annual basis.
Syrup is shipped to fountain customers, such as fast food
restaurants, who mix the syrup with water and carbonation to
create a finished beverage at the point of sale to consumers. Dr
Pepper represents most of our fountain channel net sales. In
2007, net sales to the fountain channel constituted
approximately 37% of our Dr Pepper beverage concentrates
and syrup net sales and approximately 18% of our total CSD
concentrates and syrup net sales were to the fountain channel.
Our Beverage Concentrates brands are sold by our bottlers,
including our own Bottling Group, through all major retail
channels including supermarkets, fountains, mass merchandisers,
club stores, vending machines, convenience stores, gas stations,
small groceries, drug chains and dollar stores. Unlike the
majority of our other CSD brands, approximately three-fourths of
Dr Pepper volumes are distributed through the
Coca-Cola
affiliated and PepsiCo affiliated bottler systems.
Coca-Cola
Enterprises and Pepsi Bottling Group each constitute between 10%
to 15% of the volume of our Beverage Concentrates segment.
We expect that our CSD brands will continue to play a central
role in our brand portfolio. We intend to continue to invest in
our CSD brands and focus on expanding distribution, increasing
our offerings of CSDs packaged for immediate consumption,
concentrating on growing demographics such as the Hispanic
population and broadening our brands consumer base to
geographic regions of the United States where we are
under-represented. For example, we plan to capitalize on the
opportunities that we believe exist for the Dr Pepper brand
on the east and west coasts and elsewhere in the Northeast,
while continuing to develop increased consumption in the
heartland markets (including Texas, Oklahoma, Louisiana and
Arkansas) where the brand historically has enjoyed strong
consumer appeal. In addition, we plan to continue to grow Diet
Dr Pepper through increased fountain availability, consumer
trial and selective product innovation.
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Finished
Goods
Our Finished Goods segment is a brand ownership and a bottling
business and, to a lesser extent, a distribution business. In
this segment, we primarily manufacture and distribute finished
beverages and other products in the United States and Canada.
Most of the beverages in this segment are non-CSDs (such as
ready-to-drink teas, juice and juice drinks). Although there are
sales of Snapple in all of our segments, most of our sales of
Snapple are included in the Finished Goods segment. In 2007, our
Finished Goods segment had net sales of $1.6 billion
(before elimination of intersegment transactions).
In 2007, Snapple, our largest brand in our Finished Goods
segment, represented approximately 25% of our Finished Goods
segment net sales. Motts, Hawaiian Punch and Clamato
together represented more than 40% of our Finished Goods segment
net sales. The other brands in our Finished Goods segment
include: Nantucket Nectars, Yoo-Hoo, Orangina, Mistic, Mr and
Mrs T, Roses, Margaritaville, Stewarts, Crush and
IBC.
We are the third largest manufacturer of non-CSDs by retail
sales in the U.S. behind
Coca-Cola
and PepsiCo., according to ACNielsen.
Our Finished Goods products are manufactured in several
facilities across the United States and are distributed to
retailers and their warehouses by our own distribution network
or third-party distributors. The raw materials used to
manufacture our finished beverages include aluminum cans and
ends, glass bottles, PET bottles and caps, HFCS and juices.
We sell our Finished Goods brands through all major retail
channels, including supermarkets, fountains, mass merchandisers,
club stores, vending machines, convenience stores, gas stations,
small groceries, drug chains and dollar stores. In 2007,
Wal-Mart Stores, Inc., the largest customer of our Finished
Goods segment, accounted for approximately 16% of our net sales
in this segment.
We plan to continue to invest in our non-CSD brands and focus on
enhancing our leading non-CSD brands and capitalizing on
opportunities in high growth products and high margin product
categories. For example, we plan to continue to revitalize the
Snapple brand as a complete line of ready-to-drink teas, juices
and waters by building on the momentum from the recent launches
of super premium teas and investing in a new Snapple functional
water offering while continuing to develop our existing premium
tea and juice businesses.
Bottling
Group
Our Bottling Group segment is a bottling and distribution
business. In this segment, we manufacture and distribute
finished beverages, including our brands, third-party owned
brands and certain private label beverages in the United States.
The Bottling Groups primary business is manufacturing,
bottling, selling and distributing finished beverages using both
beverage concentrates purchased from brand owners (including our
Beverage Concentrates segment) and finished beverages purchased
from brand owners and bottlers (primarily our Finished Goods
segment). In addition, a small portion of our Bottling Group net
sales come from bottling beverages and other products for
private label owners or others for a fee (which we refer to as
co-packing). In 2007, our Bottling Group segment had net sales
of $3.1 billion (before elimination of intersegment
transactions).
We are the fourth largest bottler in the United States by net
sales.
Approximately three-fourths of our 2007 Bottling Group net sales
of branded products come from our own brands, such as Snapple,
Mistic, Stewarts, Nantucket Nectars and Yoo-Hoo, with the
remaining from the distribution of third-party brands such as
Monster energy drink, FIJI mineral water and Big Red soda.
Although the majority of our Bottling Groups net sales
relate to our brands, we also provide a route-to-market for many
third-party brand owners seeking effective distribution for
their new and emerging brands. These brands give us exposure in
certain markets to fast growing segments of the beverage
industry with minimal capital investment.
78
The majority of the Bottling Groups sales are through
direct store delivery supported by a fleet of more than 5,000
trucks and 9,000 employees, including sales
representatives, merchandisers, drivers and warehouse workers.
Our Bottling Groups product portfolio is sold within the
United States through approximately 200,000 retailer accounts
across all major retail channels. In 2007, Wal-Mart Stores, Inc.
accounted for approximately 10% of our Bottling Groups net
sales.
Our integrated business model provides opportunities for net
sales and profit growth through the alignment of the economic
interests of our brand ownership and our bottling and
distribution businesses. Our strengthened
route-to-market
following our bottling acquisitions has enabled us to increase
the market share of our brands (as measured by volume) in many
of those markets served by the bottlers we acquired. We plan to
continue to invest in our Bottling Group and focus on
strengthening our route-to-market and by creating greater
geographic manufacturing and distribution coverage.
Mexico
and the Caribbean
Our Mexico and the Caribbean segment is a brand ownership and a
bottling and distribution business. This segment participates
mainly in the carbonated mineral water, flavored CSD, bottled
water and vegetable juice categories, with particular strength
in carbonated mineral water and grapefruit flavored CSDs. In
2007, our Mexico and the Caribbean segment had net sales of
$418 million. In 2007, our operations in Mexico represented
approximately 90% of the net sales of this segment.
We are the #3 CSD company in Mexico (as measured by volume in
2006) behind
Coca-Cola
and PepsiCo, with a 5.2% market share according to Canadean.
In 2007, Peñafiel, Squirt, Clamato and Aguafiel together
represented more than 80% of our Mexico and the Caribbean
segments net sales.
In Mexico, we manufacture and distribute our products through
our bottling operations and third-party bottlers and
distributors. In the Caribbean, we distribute our products
through third-party bottlers and distributors. In Mexico, we
also participate in a joint venture to manufacture Aguafiel
brand water with Acqua Minerale San Benedetto. We provide
expertise in the Mexican beverage market and Acqua Minerale San
Benedetto provides expertise in water production and new
packaging technologies.
We sell our finished beverages through all major Mexican retail
channels, including the mom and pop stores,
supermarkets, hypermarkets, and on premise channels.
Marketing
Our marketing strategy is to grow our brands through
continuously providing new solutions to meet consumers
changing preferences and needs. We identify those preferences
and needs and develop innovative solutions to address those
opportunities. These solutions include new and reformulated
products, improved packaging design, pricing and enhanced
availability. We use advertising, media, merchandising, public
relations and promotion to provide maximum impact for our brands
and messages.
Research
and Development
Our research and development team is focused on developing high
quality products and packaging which have broad consumer appeal,
can be sold at competitive prices and can be safely and
consistently produced across a diverse manufacturing network.
Our research and development team engages in activities relating
to: product development, microbiology, analytical chemistry,
structural packaging design, process engineering, sensory
science, nutrition, clinical research and regulatory compliance.
We have particular expertise in flavors and sweeteners.
Our research and development team is composed of scientists and
engineers in the United States and Mexico. We are in the
process of relocating our research and development center to our
headquarters in Plano, Texas, which
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we expect to be completed in the second quarter of 2008. By
having the core research and development capability at our
headquarters, we expect to be able to move more rapidly and
reliably from prototype to full commercialization.
Customers
We primarily serve two groups of customers: bottlers and
distributors, and retailers.
Bottlers buy beverage concentrates from us and, in turn, they
manufacture, bottle, sell and distribute finished beverages.
Bottlers also manufacture and distribute syrup for the fountain
foodservice channel. In addition, bottlers and distributors
purchase finished beverages from us and sell them to retail and
other customers. We have strong relationships with bottlers
affiliated with
Coca-Cola
and PepsiCo primarily because of the strength and market
position of our key Dr Pepper brand.
Retailers also buy finished beverages directly from us. Our
portfolio of strong brands, operational scale and experience in
the beverage industry has enabled us to maintain strong
relationships with major retailers in the United States, Canada
and Mexico. In 2007, our largest retailer was Wal-Mart Stores,
Inc., representing approximately 10% of our net sales.
Competition
The liquid refreshment beverage industry is highly competitive
and continues to evolve in response to changing consumer
preferences. Competition is generally based upon brand
recognition, taste, quality, price, availability, selection and
convenience. We compete with multinational corporations with
significant financial resources. Our two largest competitors in
the liquid refreshment beverage market are
Coca-Cola
and PepsiCo, each representing more than 30% of the U.S. liquid
refreshment beverage market by volume, according to Beverage
Digest. We also compete against other large companies, including
Nestlé, S.A. and Kraft Foods, Inc. As a bottler, we compete
with bottlers such as
Coca-Cola
Enterprises, Pepsi Bottling Group and PepsiAmericas and a number
of smaller bottlers and distributors. We also compete with a
variety of smaller, regional and private label manufacturers,
such as Cott Corp. We have lower exposure to some of the faster
growing non-carbonated and bottled water segments in the overall
liquid refreshment beverage market. As a result, although we
have increased our market share in the overall U.S. CSD market,
we have lost share in the overall U.S. liquid refreshment
beverage market over the past several years. In Canada and
Mexico, we compete with many of these same international
companies as well as a number of regional competitors.
Manufacturing
As of December 31, 2007, we operated 25 manufacturing
facilities across the United States and Mexico. Almost all of
our CSD beverage concentrates are manufactured at a single plant
in St. Louis, Missouri. All of our manufacturing facilities
are either regional manufacturing facilities, with the capacity
and capabilities to manufacture many brands and packages,
facilities with particular capabilities that are dedicated to
certain brands or products, or smaller bottling plants with a
more limited range of packaging capabilities. We intend to build
and open a new, multi-product, manufacturing facility in
Southern California within the next several years.
We employ approximately 5,000 full-time manufacturing
employees in our facilities. We have a variety of production
capabilities, including hot fill, cold-fill and aseptic bottling
processes, and we manufacture beverages in a variety of
packaging materials, including aluminum, glass and PET cans and
bottles and a variety of package formats, including
single-serve and multi-serve packages and
bag-in-box
fountain syrup packaging.
In 2007, 88% of our manufactured volumes were related to our
brands and 12% to third-party and private-label products. We
also use third-party manufacturers to co-pack for us on a
limited basis.
We own property, plant and equipment, net of accumulated
depreciation, totaling $796 million and $681 million
in the United States and $72 million and $74 million
in international locations as of December 31, 2007 and
2006, respectively.
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Raw
Materials
The principal raw materials we use in our business are aluminum
cans and ends, glass bottles, PET bottles and caps, paperboard
packaging, HFCS and other sweeteners, juice, fruit, electricity,
fuel and water. The cost of the raw materials can fluctuate
substantially. For example, aluminum, glass, PET and HFCS prices
increased significantly in 2007 and 2006. In addition, we are
significantly impacted by increases in fuel costs due to the
large truck fleet we operate in our distribution businesses.
Under many of our supply arrangements for these raw materials,
the price we pay fluctuates along with certain changes in
underlying commodities costs, such as aluminum in the case of
cans, natural gas in the case of glass bottles, resin in the
case of PET bottles and caps, corn in the case of HFCS and pulp
in the case of paperboard packaging. Manufacturing costs for our
Finished Goods segment, where we manufacture and bottle finished
beverages, are higher (as a percentage of our net sales) than
our Beverage Concentrates segment, as the Finished Goods segment
requires the purchase of a much larger portion of the packaging
and ingredients.
Warehousing
and Distribution
As of December 31, 2007, our warehouse and distribution
network consisted of 21 manufacturing facilities and more than
250 distribution centers in the United States, as well as 4
manufacturing facilities and more than 25 distribution centers
in Mexico. Our warehousing is generally located at or near
bottling plants and is geographically dispersed across the
region to ensure product is available to meet consumer demand.
We actively manage transportation of our products using our own
fleet of more than 5,000 delivery trucks, as well as
third-party logistics providers on a selected basis.
Information
Technology and Transaction Processing Services
We use a variety of information technology (IT)
systems and networks configured to meet our business needs.
Historically, IT support has been provided as a corporate
service by the Cadbury Schweppes IT team and external
suppliers. We are forming our own standalone, dedicated IT
function to support our business separate from Cadbury Schweppes
and are in the process of separating our systems, services and
contracts. Our primary IT data center will be hosted in Toronto,
Canada by a third-party provider. We also use two primary
vendors for application support and maintenance, both of which
are based in India and provide resources offshore and onshore.
We also use a business process outsourcing provider located in
India to provide certain back office transactional processing
services, including accounting, order entry and other
transactional services.
Intellectual
Property and Trademarks
Our Intellectual Property.
We possess a
variety of intellectual property rights that are important to
our business. We rely on a combination of trademarks,
copyrights, patents and trade secrets to safeguard our
proprietary rights, including our brands and ingredient and
production formulas for our products.
Our Trademarks.
Our trademark portfolio
includes more than 2,000 registrations and applications in the
United States, Canada, Mexico and other countries. Brands we own
through various subsidiaries in various jurisdictions include:
Dr Pepper, 7UP, A&W, Canada Dry, RC, Schweppes, Squirt,
Crush, Peñafiel, Aguafiel, Snapple, Motts, Hawaiian
Punch, Clamato, Mistic, Nantucket Nectars, Mr & Mrs T,
ReaLemon, Accelerade and Deja Blue. We own trademark
registrations for all of these brands in the United States, and
we own trademark registrations for some but not all of these
brands in Canada and Mexico. We also own a number of smaller
regional brands. Some of our other trademark registrations are
in countries where we do not currently have any significant
level of business. In addition, in many countries outside the
United States, Canada and Mexico, our rights in many of our
brands, including our Dr Pepper trademark and formula, have been
sold to third parties including, in certain cases, to
competitors such as
Coca-Cola.
Trademarks Licensed from Others.
We license
various trademarks from third parties, which licenses generally
allow us to manufacture and distribute on a country-wide basis.
For example, we license from third parties
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the Sunkist, Welchs, Country Time, Orangina,
Stewarts, Holland House and Margaritaville trademarks, and
we license from Cadbury Schweppes the Roses trademark.
Although these licenses vary in length and other terms, they
generally are long-term, cover the entire United States and
include a royalty payment to the licensor.
Licensed Distribution Rights.
We have rights
in certain territories to bottle
and/or
distribute various brands we do not own, such as Monster energy
drink, FIJI mineral water and Big Red soda. Some of these
arrangements are relatively shorter in term, are limited in
geographic scope and the licensor may be able to terminate the
agreement upon an agreed period of notice, in some cases without
payment to us.
Intellectual Property We License to Others.
We
license some of our intellectual property, including trademarks,
to others. For example, we license the Dr Pepper trademark to
certain companies for use in connection with food, confectionery
and other products. We also license certain brands, such as Dr
Pepper and Snapple, to third parties for use in beverages in
certain countries where we own the brand but do not otherwise
operate our business.
Cadbury Schweppes Name.
We have agreed to
remove Cadbury from the names of our companies after
our separation from Cadbury Schweppes. Cadbury Schweppes can
continue to use the Schweppes name as part of its
companies names outside of the United States, Canada and
Mexico (and for a transitional period, inside of the United
States, Canada and Mexico).
Bottler
and Distributor Agreements
In the United States and Canada, we generally grant perpetual,
exclusive license agreements for CSD brands and packages to
bottlers for specific geographic areas. These agreements
prohibit bottlers from selling the licensed products outside
their exclusive territory and selling any imitative products in
that territory. Generally, we may terminate bottling agreements
only for cause and the bottler may terminate without cause upon
giving certain specified notice and complying with other
applicable conditions. Fountain agreements for bottlers
generally are not exclusive for a territory, but do restrict
bottlers from carrying imitative product in the territory. Many
of our brands such as Snapple, Mistic, Stewarts, Nantucket
Nectars, Yoo-Hoo and Orangina, are licensed for distribution in
various territories to bottlers and a number of smaller
distributors such as beer wholesalers, wine and spirit
distributors, independent distributors and retail brokers. We
may terminate some of these distribution agreements only for
cause and the distributor may terminate without cause upon
certain notice and other conditions. Either party may terminate
some of the other distribution agreements without cause upon
giving certain specified notice and complying with other
applicable conditions.
Real
Property
United States.
Our United States principal
offices are located in Plano, Texas, in a facility that we own.
We also have a leased office in Rye Brook, New York. Our
research and development center is currently located in a leased
facility in Trumbull, Connecticut, but we are relocating it to
Plano in 2008. As of December 31, 2007, we owned or leased
21 manufacturing facilities across the United States (we closed
our Waterloo, New York facility in March 2008). Our largest
manufacturing facilities are in St. Louis, Missouri; Northlake,
Illinois; Irving, Texas; Ottumwa, Iowa; Houston, Texas;
Williamson, New York; Carteret, New Jersey; Carlstadt, New
Jersey and Aspers, Pennsylvania. We also operate more than 250
distribution centers across the United States.
Canada.
Our last plant in Canada, St.
Catharines, was closed in 2007. Beverage concentrates sold to
bottlers and finished beverages sold to retailers and
distributors are supplied principally from our
U.S. locations.
Mexico.
Our Mexico and Caribbean
operations principal office is leased in Mexico City. In
Mexico, as of December 31, 2007, we owned three
manufacturing facilities, one joint venture manufacturing
facility and 27 direct distribution centers, 6 of which are
owned and 21 of which are leased.
We believe our facilities in the United States and Mexico are
well-maintained and adequate for our present operations. We
periodically review our space requirements, and we believe we
will be able to acquire new space and
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facilities as and when needed on reasonable terms. We also look
to consolidate and dispose or sublet facilities we no longer
need, as and when appropriate.
Employees
At December 31, 2007, we employed approximately
20,000 full-time employees, including seasonal workers.
In the United States, we have approximately
17,000 full-time employees. We have many union collective
bargaining agreements covering approximately
5,000 full-time employees. Several agreements cover
multiple locations. These agreements often address working
conditions as well as wage rates and benefits. In Mexico and the
Caribbean, we employ approximately 3,000 full-time
employees and are also party to collective bargaining
agreements. We do not have a significant number of employees in
Canada.
We believe we have good relations with our employees.
Regulatory
Matters
We are subject to a variety of federal, state and local laws and
regulations in the countries in which we do business.
Regulations apply to many aspects of our business including our
products and their ingredients, manufacturing, safety, labeling,
transportation, recycling, advertising and sale. For example,
our products, and their manufacturing, labeling, marketing and
sale in the United States are subject to various aspects of the
Federal Food, Drug, and Cosmetic Act, the Federal Trade
Commission Act, the Lanham Act, state consumer protection laws
and state warning and labeling laws. In Canada and Mexico, the
manufacture, distribution, marketing and sale of our many
products are also subject to similar statutes and regulations.
We and our bottlers use various refillable and non-refillable,
recyclable bottles and cans in the United States and other
countries. Various states and other authorities require
deposits, eco-taxes or fees on certain containers. Similar
legislation or regulations may be proposed in the future at
local, state and federal levels, both in the United States and
elsewhere. In Mexico, the government has encouraged the soft
drinks industry to comply voluntarily with collection and
recycling programs of plastic material, and we have taken steps
to comply with these programs.
Environmental,
Health and Safety Matters
We operate many manufacturing, bottling and distribution
facilities. In these and other aspects of our business, we are
subject to a variety of federal, state and local environment,
health and safety laws and regulations. We maintain
environmental, health and safety policies and a quality,
environmental, health and safety program designed to ensure
compliance with applicable laws and regulations.
Legal
Matters
We are occasionally subject to litigation or other legal
proceedings relating to our business. Set forth below is a
description of our significant pending legal matters. Although
the estimated range of loss, if any, for the pending legal
matters described below cannot be estimated at this time, we do
not believe that the outcome of any of these, or any other,
pending legal matters, individually or collectively, will have a
material adverse effect on our business or financial condition
although such matters may have a material adverse effect on our
results of operations in a particular period.
Snapple
Distributor Litigation
In 2004, one of our subsidiaries, Snapple Beverage Corp. and
several affiliated entities of Snapple Beverage Corp., including
Snapple Distributors, Inc., were sued in United States District
Court, Southern District of New York, by 57 area route
distributors for alleged price discrimination, breach of
contract, retaliation, tortious interference and breach of the
implied duty of good faith and fair dealing arising out of their
respective area route distributor agreements. Each plaintiff
sought damages in excess of $225 million. The plaintiffs
initially filed the case as a class action but withdrew their
class certification motion. They are proceeding as individual
plaintiffs
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but the cases have been consolidated for discovery and
procedural purposes. On September 14, 2007, the court
granted our motion for summary judgment, dismissing the
plaintiffs federal claims of price discrimination and
dismissing, without prejudice, the plaintiffs remaining
claims under state law. The plaintiffs have filed an appeal of
the decision and may decide to re-file the state law claims in
state court. We believe we have meritorious defenses with
respect to the appeal and will defend ourselves vigorously.
However, there is no assurance that the outcome of the appeal,
or any trial, if claims are refiled, will be in our favor.
Holk &
Weiner Snapple Litigation
In 2007, Snapple Beverage Corp. was sued by Stacy Holk, in New
Jersey Superior Court, Monmouth County, and by Hernant Mehta in
the U.S. District Court, Southern District of New York. The
plaintiffs filed these cases as class actions. The plaintiffs
allege that Snapples labeling of certain of its drinks is
misleading
and/or
deceptive. The plaintiffs seek unspecified damages on behalf of
the class, including enjoining Snapple from various labeling
practices, disgorging profits, reimbursing of monies paid for
product and treble damages. The Mehta case in New York has since
been dropped by the plaintiff. However, the attorneys in the
Holk, New Jersey case and a new plaintiff, Evan Weiner, have
since filed a new action in New York substantially similar to
the New Jersey action. In each case, we have filed motions to
dismiss the plaintiffs claims on a variety of grounds. We
believe we have meritorious defenses to the claims asserted and
will defend ourselves vigorously. However, there is no assurance
that the outcome of our motions or at trial will be in our favor.
Nicolas
Steele v. Seven
Up/RC
Bottling Company Inc.
Robert Jones v. Seven Up/RC Bottling Company of Southern
California, Inc.
California Wage Audit
In 2007, one of our subsidiaries, Seven
Up/RC
Bottling Company Inc., was sued by Nicolas Steele, and in a
separate action, by Robert Jones, in each case in Superior Court
in the State of California (Orange County), alleging that our
subsidiary failed to provide meal and rest periods and itemized
wage statements in accordance with applicable California wage
and hour law. The cases have been filed as class actions. The
classes, which have not yet been certified, consist of all
employees of one of our subsidiaries who have held a
merchandiser or delivery driver position in southern California
in the past three years. On behalf of the classes, the
plaintiffs claim lost wages, waiting time penalties and other
penalties for each violation of the statute. We believe we have
meritorious defenses to the claims asserted and will defend
ourselves vigorously. However, there is no assurance that the
outcome of this matter will be in our favor.
We have been requested to conduct an audit of our meal and rest
periods for all non-exempt employees in California at the
direction of the California Department of Labor. At this time,
we have declined to conduct such an audit until there is
judicial clarification of the intent of the statute. We cannot
predict the outcome of such an audit.
Corporate
Information
We were incorporated in Delaware on October 24, 2007. The
address of our principal executive offices is 5301 Legacy Drive,
Plano, Texas 75024. Our telephone number is
(972) 673-7000.
We were formed for the purpose of holding Cadbury
Schweppes Americas Beverages business in connection with
the separation and distribution described herein and will have
no operations prior to the separation and distribution.
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OUR
RELATIONSHIP WITH CADBURY PLC AFTER THE DISTRIBUTION
Description
of Various Separation and Transition Arrangements
Separation
Agreement
We intend to enter into a separation and distribution agreement
(the separation agreement) with Cadbury Schweppes
before the distribution of our shares of common stock to Cadbury
Schweppes shareholders. The separation agreement will set forth
our agreements with Cadbury Schweppes regarding the principal
transactions necessary to effect the separation and
distribution. It will also set forth other agreements (the
ancillary agreements) that govern certain aspects of
our relationship with Cadbury plc after completion of the
separation.
Transfer of Assets and Assumption of
Liabilities.
The separation agreement will
identify assets to be retained, transferred, liabilities to be
assumed and contracts to be assigned to each of us and Cadbury
Schweppes as part of our separation and will describe when and
how these transfers, assumptions and assignments will occur. In
particular, the separation agreement will provide that, subject
to the terms and conditions contained in the separation
agreement:
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all assets to the extent related to our business (including the
stock of subsidiaries, real property and intellectual property)
will be retained by or transferred to us, subject to any
licenses between the parties;
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all assets to the extent related to Cadbury Schweppes
global confectionery business and its other beverages business
(located principally in Australia) (including stock of
subsidiaries, real property and intellectual property) will be
retained by or transferred to Cadbury Schweppes, subject to any
licenses between the parties;
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liabilities will be allocated to, and assumed by, us to the
extent they are related to our business;
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liabilities will be allocated to, and assumed by, Cadbury
Schweppes to the extent they are related to its global
confectionery business and its other beverages business (located
principally in Australia);
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each party or one of its subsidiaries will assume or retain any
liabilities relating to any of its or its subsidiaries or
controlled affiliates debt, regardless of the issuer of
such debt, to the extent relating to its business or secured
exclusively by its assets;
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except as may be set forth in or contemplated by the separation
agreement or any ancillary agreement, the one-time transaction
costs and expenses incurred on or prior to the separation will
be borne by Cadbury Schweppes and after the separation will be
borne by the party incurring such costs; and
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other liabilities will be allocated to either Cadbury Schweppes
or us as set forth in the separation agreement.
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Except as may expressly be set forth in the separation agreement
or any ancillary agreement, all assets will be transferred on an
as is, where is basis and the respective
transferees will bear the economic and legal risks associated
with the use of such respective assets both prior to and
following the separation.
Certain of the liabilities and obligations to be assumed by one
party or for which one party will have an indemnification
obligation under the separation agreement and the other
agreements relating to the separation are, and following the
separation may continue to be, the legal or contractual
liabilities or obligations of another party. Each such party
that continues to be subject to such legal or contractual
liability or obligation will rely on the applicable party that
assumed the liability or obligation or the applicable party that
undertook an indemnification obligation with respect to the
liability or obligation, as applicable, under the separation
agreement, to satisfy the performance and payment obligations or
indemnification obligations with respect to such legal or
contractual liability or obligation.
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To the extent that any transfers contemplated by the separation
agreement have not been consummated on or prior to the
distribution date, the parties will agree to cooperate to effect
such transfers as promptly as practicable. In addition, each of
the parties will agree to cooperate with each other and use
commercially reasonable efforts to take or to cause to be taken
all actions, and to do, or to cause to be done, all things
reasonably necessary under applicable law or contractual
obligations to consummate and make effective the transactions
contemplated by the separation agreement and the ancillary
agreements.
Related Party Balances.
The separation
agreement provides for the settlement and capitalization of our
related party debt and other balances. We currently expect to
borrow an aggregate of $3.9 billion under the new credit
facilities in connection with the separation. These borrowings,
together with cash on hand, will be used to settle the foregoing
related party debt and other balances, reduce Cadbury
Schweppes net investment in us, purchase certain assets
from Cadbury Schweppes related to our business, pay
$100 million of fees and expenses related to the new credit
facilities and provide us with $100 million of cash on hand
immediately after the separation. Any related party debt and
other balances that are not settled with the proceeds from our
new credit facilities and our cash on hand will be capitalized
by Cadbury Schweppes.
Releases and Indemnification.
Except as
otherwise provided in the separation agreement or any ancillary
agreement, each party will release and forever discharge each
other party and its affiliates and any person who was at any
time prior to the distribution date a shareholder, director,
officer, agent or employee of a member of the other party or one
of its affiliates from all obligations and liabilities existing
or arising from any acts or events occurring or failing to occur
or alleged to have occurred or to have failed to occur or any
conditions existing or alleged to have existed on or before the
separation. The releases will not extend to, among other things,
obligations or liabilities under any agreements between the
parties that remain in effect following the separation pursuant
to the separation agreement or any ancillary agreement,
liabilities specifically retained or assumed by or transferred
to a party pursuant to the separation agreement or any ancillary
agreement or to ordinary course trade payables and receivables.
In addition, the separation agreement will provide for
cross-indemnities principally designed to place financial
responsibility for the obligations and liabilities of our
business with us and financial responsibility for the
obligations and liabilities of the global confectionery business
and its other beverages business (located principally in
Australia) with Cadbury Schweppes. Specifically, each party
will, and will cause its affiliates to, indemnify, defend and
hold harmless the other party and its affiliates and each of
their respective officers, directors, employees and agents for
any losses arising out of or otherwise in connection with:
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the liabilities each such party assumed or retained pursuant to
the separation agreement;
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any breach by such party of any shared contract between the
companies;
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any liability for a misstatement or omission or alleged
misstatement or omission of a material fact made after the
distribution date contained in a document filed with the SEC or
the U.K. Financial Services Authority by the other party after
the distribution date based upon information that is furnished
in writing by such party for inclusion in a filing by the other
party; and
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any breach by such party of the separation agreement, the
ancillary agreements or any agreements between the parties
specifically contemplated by the separation agreement or any
ancillary agreement to remain in effect following the separation.
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Legal Matters.
In general, each party to the
separation agreement will assume liability for all pending and
threatened legal matters related to its own business or assumed
or retained liabilities and will indemnify the other parties for
any liability to the extent arising out of or resulting from
such assumed legal matters. Each party will cooperate in
defending any claims against the other for events that took
place prior to, on or after the date of the separation of us
from Cadbury plc.
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Non-Solicitation of Employees.
During the
18-month period following the distribution date, neither party
will solicit for employment any of the employees of the other
party, provided that this provision shall not prevent either
party from advertising in publications of general circulation or
soliciting or hiring any employees who were terminated by the
other party.
Intellectual Property Licenses.
We currently
use the Cadbury trademark, including variations and acronyms
thereof (the Cadbury Marks). In addition, Cadbury
Schweppes and its affiliates currently use various marks that we
own or hold for use or will own or hold for use following the
separation (the DPS Marks). Under the separation
agreement, we and Cadbury Schweppes and its affiliates will,
among other things, have a royalty-free license of limited scope
to continue to use the Cadbury Marks or the DPS Marks, as
applicable, for up to fifteen (15) months in connection with its
ongoing business. The separation agreement also will include
licenses of certain copyrights and design rights from us to
Cadbury Schweppes and its affiliates, and from Cadbury Schweppes
to us.
Insurance.
The separation agreement will
provide for the rights of the parties to report claims under
existing insurance policies for occurrences prior to the
separation and set forth procedures for the administration of
insured claims. In addition, the separation agreement will
allocate among the parties the right to insurance policy
proceeds based on reported claims and the obligations to incur
deductibles under certain insurance policies.
Other Matters.
Other matters governed by the
separation agreement include, among others, access to financial
and other records and information, intellectual property, legal
privilege, confidentiality and resolution of disputes between
the parties relating to the separation agreement and the
ancillary agreements and the agreements and transactions
contemplated thereby.
Transition
Services Agreement
We will enter into a transition services agreement with Cadbury
Schweppes pursuant to which each party will provide certain
specified services to the other on an interim basis for terms
ranging generally from one month to one year following the
separation. The specified services include services in the
following: human resources, finance and accounting, intellectual
property, information technology and certain other services
consistent with past practices. The services will be paid for by
the receiving party at a charge equal to the cost of the
providing party as calculated in the transition services
agreement.
Tax-Sharing
and Indemnification Agreement
We will enter into a tax-sharing and indemnification agreement
with Cadbury Schweppes that sets forth the rights and
obligations of Cadbury Schweppes and us (along with our
respective subsidiaries) with respect to taxes, including the
computation and apportionment of tax liabilities relating to
taxable periods before and after the separation and distribution
and the responsibility for payment of those tax liabilities
(including any subsequent adjustments to such tax liabilities).
In general, under the terms of the tax-sharing and
indemnification agreement, we and Cadbury Schweppes will each be
responsible for taxes imposed on our respective businesses and
subsidiaries for all taxable periods, whether ending on, before
or after the date of separation and distribution. However, we
will be responsible for taxes attributable to certain assets of
the Cadbury Schweppes global confectionery business while owned
by us and Cadbury Schweppes will be responsible for taxes
attributable to certain assets of the Americas Beverages
business while owned by Cadbury Schweppes.
In addition, we and Cadbury Schweppes have undertaken certain
restructuring transactions in anticipation of the separation and
distribution (including transfers of confectionery business
assets by us to Cadbury Schweppes) and we have participated in
various other transactions with Cadbury Schweppes in taxable
periods prior to the separation and distribution. Cadbury
Schweppes will, subject to certain conditions, and absent a
change-in-control
of us as described below, pay or indemnify us for taxes imposed
on us in respect of these transactions including taxes resulting
from either (i) a change in applicable tax law after the
separation and distribution and prior to the filing of the
relevant tax return, or (ii) a subsequent adjustment by a
taxing authority. These potential tax indemnification
obligations of Cadbury Schweppes could be for significant
amounts.
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Notwithstanding these tax indemnification obligations of Cadbury
Schweppes, if the treatment of these transactions as reported
were successfully challenged by a taxing authority, we generally
would be required under applicable tax law to pay the resulting
tax liabilities in the event that either (i) Cadbury
Schweppes were to default on their obligations to us, or
(ii) we breached a covenant or we failed to file tax
returns, cooperate or contest tax matters as required by the
tax-sharing and indemnification agreement, which breach or
failure caused such tax liabilities. In addition, if we are
involved in certain
change-in-control
transactions, the obligations of Cadbury Schweppes to indemnify
us for additional taxes in respect of the restructuring and
other transactions will terminate and Cadbury Schweppes will
have no further obligations to indemnify us on account of such
transactions. Thus, since we have primary liability for income
taxes in respect of these transactions, if a taxing authority
successfully challenges the treatment of one or more of these
transactions, and Cadbury Schweppes fails to, is not required to
or cannot indemnify or reimburse us, our resulting tax liability
could be for significant amounts and could have a material
adverse effect on our results of operations, cash flows and
financial condition.
We generally will be required to indemnify Cadbury Schweppes for
any liabilities, taxes and other charges that are imposed on
Cadbury Schweppes, including as a result of the separation and
distribution failing to qualify for non-recognition treatment
for U.S. federal income tax purposes, if such liabilities,
taxes or other charges are attributable to a breach by us of our
representations or covenants. The covenants contained in the
tax-sharing and indemnification agreement, for example,
generally contain restrictions on our ability to
(a) discontinue the active conduct of the historic business
relied upon for purposes of the private letter ruling request
submitted to the IRS, or liquidate, merge or consolidate the
company conducting such active business, (b) undertake
certain transactions pursuant to which our stockholders would
dispose of a substantial amount of our common stock, or
(c) take any action inconsistent with the written
statements and representations furnished to the IRS in
connection with the private letter ruling request.
Notwithstanding the foregoing, we will be permitted to take
actions restricted by such covenants if Cadbury Schweppes
provides us with prior written consent, or we provide Cadbury
Schweppes with a private letter ruling or rulings from the IRS,
or an unqualified opinion of counsel that is satisfactory to
Cadbury Schweppes, to the effect that such action will not
affect the tax-free nature of the separation and distribution or
certain restructuring transactions, but we will remain liable
for any liabilities, taxes and other charges imposed on Cadbury
Schweppes as a result of the separation and distribution or such
restructuring transactions failing to qualify as tax-free
transactions as a result of such action. Our potential tax
indemnification obligations could be for significant amounts.
Furthermore, the tax-sharing and indemnification agreement will
set forth the rights of the parties in respect of the
preparation and filing of tax returns, the control of audits or
other tax proceedings and assistance and cooperation in respect
of tax matters, in each case, for taxable periods ending on or
before or that otherwise include the date of separation and
distribution. In addition, with respect to taxable periods
before or that include the separation and distribution, Cadbury
Schweppes will have significant control over the reporting of
various restructuring transactions on our tax returns and over
proceedings where Cadbury Schweppes is indemnifying us for taxes
that are involved in such proceedings.
Employee
Matters Agreement
We will enter into an employee matters agreement with Cadbury
Schweppes providing for our respective obligations to our
employees and former employees and for other employment and
employee benefits matters. Under the terms of the employee
matters agreement, we will generally assume all liabilities and
assets relating to employee benefits for our current and former
employees, and Cadbury Schweppes will generally retain all
liabilities and assets relating to employee benefits for current
and former Cadbury Schweppes employees other than current or
former beverages employees.
On or prior to the date of separation, sponsorship of the
Cadbury Schweppes benefit plans that solely cover our current
and former employees will be transferred to us, and the Cadbury
Schweppes benefit plans that cover our current and former
employees and also cover current and former Cadbury Schweppes
employees will be split into two separate plans, one covering
Cadbury Schweppes employees and one covering our employees.
Sponsorship of the plans covering our employees will be
transferred to us.
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For transferred plans that are funded, assets allocable to the
liabilities of such plans also will be transferred to related
trusts established by us. As of the date of separation, current
and former employees of us and Cadbury Schweppes will receive
credit for service for all periods of employment prior to the
date of separation for purposes of vesting, eligibility and
benefit levels under any pension or welfare plan in which they
participate following the separation. The employee matters
agreement also provides for sharing of certain employee and
former employee information to enable us and Cadbury Schweppes
to comply with our respective obligations.
In addition, the employee matters agreement provides for the
treatment of holders of awards granted under the Cadbury
Schweppes employee share schemes who are current and former
employees of our company at the time of separation.
Share Options.
Outstanding share options held
by our employees under the Cadbury Schweppes share option
schemes will, if not exercised at or before the time that the
Cadbury Schweppes scheme of arrangement is sanctioned by the
United Kingdom regulatory authorities, be converted into options
over Cadbury plc ordinary shares with an equivalent value and
the replacement options will be subject to the same terms and
conditions as the existing options under the applicable Cadbury
Schweppes share option scheme. Depending on the applicable
Cadbury Schweppes share option scheme, the options over Cadbury
plc ordinary shares must be exercised either within
12 months of the separation (or, if later, the third
anniversary of the original grant of the options) or
3 months after the separation in the case of the Cadbury
Schweppes employee share purchase plan (to the extent of the
accumulated savings) or the replacement option will be cancelled
without payment.
Restricted Stock.
Restricted stock granted to
our employees under the Cadbury Schweppes international share
award plan will be converted into Cadbury plc ordinary shares
and shares of our common stock (in the same manner as other
Cadbury Schweppes shareholders) and will be released in full as
soon as practicable after the separation.
Restricted Stock Units.
Performance awards
granted to our employees under the Cadbury Schweppes long term
incentive plan, the Cadbury Schweppes bonus share retention plan
and the Cadbury Schweppes international share award plan will
have their performance measures tested at the time of
separation, time pro-rated (based on service through the date of
separation) and converted into an award over shares of our
common stock with an equivalent value. The converted performance
awards will be subject to the same terms and conditions as the
existing awards and will be paid out at the end of the
applicable normal performance period or at the normal vesting
date.
Awards to our employees under the Cadbury Schweppes bonus share
retention plan that are not subject to performance vesting but
are subject to time vesting will be time pro-rated (based on
service through the date of separation) and converted into an
award over shares of our common stock with an equivalent value.
The converted performance awards will be subject to the same
terms and conditions as the existing awards and will be paid out
at the normal vesting date. Awards under the Cadbury Schweppes
bonus share retention plan and the Cadbury Schweppes
international share award plan that are neither performance
related nor subject to time vesting will be converted into
awards over shares of our common stock with an equivalent value.
The converted awards will be subject to the same terms and
conditions as the existing awards and will be paid out at the
normal vesting date.
Awards granted to our employees under the Cadbury Schweppes long
term incentive plan which are not performance related will be
converted into awards over Cadbury plc ordinary shares of an
equivalent value and subject to the same terms and conditions as
the existing awards. The shares will be released in full as soon
as practicable after the separation.
Intellectual
Property Agreements
Various agreements are in effect between us and Cadbury
Schweppes relating to the use of certain trademarks, patents and
other intellectual property. These include agreements relating
to the use and protection of intellectual property where the
intellectual property is separately owned by us, Cadbury
Schweppes and certain third parties in different countries, as
is the case with Dr Pepper and certain other brands. These also
include licenses from Cadbury Schweppes to us for the use of the
Roses trademark and certain technology in our business,
and licenses from us to
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Cadbury Schweppes for the use of the Canada Dry trademark with
Cadbury Schweppes Halls product in the U.S. and the
Snapple, Motts, Clamato and Holland House trademarks in
Cadbury Schweppes beverage business located principally in
Australia.
Debt
and Payables
The following are descriptions of current related party debt
arrangements. All of the following debt will be settled in
connection with the separation.
Cadbury Ireland Limited.
The total principal
we owed to Cadbury Ireland Limited was $40 million at
December 31, 2007 and 2006, respectively. The debt bears
interest at a floating rate based on
3-month
LIBOR. The interest rates were 5.31% and 5.36% at
December 31, 2007 and 2006, respectively. The outstanding
principal balance is payable on demand and is included in the
current portion of long-term debt. We recorded $2 million,
$2 million and $1 million of interest expense related
to the debt for 2007, 2006 and 2005, respectively.
Cadbury Schweppes Finance plc.
We have a
variety of debt agreements with Cadbury Schweppes Finance plc
with maturity dates ranging from May 2008 to May 2011. These
agreements had a combined outstanding principal balance of
$511 million and $2,937 million at December 31,
2007 and 2006, respectively. At December 31, 2007 and 2006,
$511 million and $2,387 million of the debt was based
upon a floating rate ranging between LIBOR plus 1.5% to LIBOR
plus 2.5%. The remaining principal balance of $550 million
at December 31, 2006 had stated fixed interest rates
ranging from 5.76% to 5.95%. We recorded $65 million,
$175 million and $99 million of interest expense
related to these notes for 2007, 2006 and 2005, respectively.
Cadbury Schweppes Overseas Limited.
The total
principal we owed to Cadbury Schweppes Overseas Limited was
$0 million and $22 million at December 31, 2007
and 2006, respectively. We settled the note in November 2007.
The debt bore interest at a floating rate based on Mexican LIBOR
plus 1.5%. The actual interest rate was 9.89% at
December 31, 2006. We recorded $2 million,
$15 million and $40 million of interest expense
related to the note for 2007, 2006 and 2005, respectively.
Cadbury Adams Canada, Inc.
The total principal
we owed to Cadbury Adams Canada, Inc. was $0 million and
$15 million at December 31, 2007 and 2006,
respectively and is payable on demand. The debt bore interest at
a floating rate based on 1 month Canadian LIBOR. The
interest rate was 4.26% at December 31, 2006. We recorded
$2 million of interest expense related to the debt for 2007
and less than $1 million for both 2006 and 2005.
Cadbury Schweppes Americas Holding BV.
We have
a variety of debt agreements with Cadbury Schweppes Americas
Holding BV with maturity dates ranging from 2009 to 2017. These
agreements had a combined outstanding principal balance of
$2,468 million at December 31, 2007 and bear interest
at a floating interest rate ranging between
6-month
USD
LIBOR plus 0.75% and
6-month
USD
LIBOR plus 1.75%. We recorded $149 million of interest
expense related to this debt for 2007.
Cadbury Schweppes Treasury America.
The total
principal we owed to Cadbury Schweppes Treasury America was
$0 million and $235 million at December 31, 2007
and 2006, respectively. The debt bore interest at a rate of
7.25% per annum. We repurchased the debt on May 23, 2007.
We recorded $7 million and $11 million of interest
expense related to this debt for 2007 and 2006, respectively.
The related party payable balances of $175 million and
$183 million at December 31, 2007 and 2006,
respectively, represent non-interest bearing payable balances
with companies owned by Cadbury Schweppes and related party
accrued interest payable balances associated with interest
bearing notes described in note 10 to our combined
financial statements. The non-interest bearing payable balance
was $75 million and $158 million at December 31,
2007 and 2006, respectively, and the payables are due within one
year. The accrued interest payable balance was $11 million
and $25 million at December 31, 2007 and 2006,
respectively. The intercompany current payable was
$89 million as of December 31, 2007. All of the
related party payable will be settled in connection with the
separation.
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Notes
Receivable
We had a notes receivable balance from wholly owned subsidiaries
of Cadbury Schweppes with outstanding principal balances of
$1,527 million and $579 million at December 31,
2007 and 2006, respectively. We recorded $57 million,
$25 million and $36 million of interest income related
to these notes for 2007, 2006 and 2005, respectively.
Allocated
Expenses
Cadbury Schweppes has allocated certain costs to us, including
costs in respect of certain corporate functions provided for us
by Cadbury Schweppes. These allocations have been based on the
most relevant allocation method for the service provided. To the
extent expenses have been paid by Cadbury Schweppes on our
behalf, they have been allocated based upon the direct costs
incurred. Where specific identification of expenses has not been
practicable, the costs of such services has been allocated based
upon the most relevant allocation method that management
believes is reasonable, which is primarily either as a
percentage of net sales or headcount. We were allocated
$161 million, $142 million and $115 million of
costs in 2007, 2006 and 2005, respectively.
Cash
Management
Cadbury Schweppes historically has used a centralized approach
to cash management and financing of operations. As part of this
approach, our cash is available for use by, and is regularly
swept by, Cadbury Schweppes operations in the United
States at its discretion. Cadbury Schweppes also funds our
operating and investing activities as needed. Transfers of cash,
both to and from Cadbury Schweppes cash management system,
are reflected as a component of Cadbury Schweppes
net investment in our combined balance sheets.
Royalties
We earn royalties from other Cadbury Schweppes-owned companies
for the use of certain brands owned by us. The total royalties
we recorded were $1 million, $1 million and
$9 million for 2007, 2006 and 2005, respectively.
91
MANAGEMENT
Executive
Officers and Directors
Set forth below is information concerning the individuals we
currently expect will serve as our executive officers and
directors upon the separation.
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Name
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Age*
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Position
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Wayne R. Sanders
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60
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Chairman
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Larry D. Young
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53
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President, Chief Executive Officer and Director
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John O. Stewart
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49
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Executive Vice President, Chief Financial Officer and Director
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James L. Baldwin, Jr.
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46
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Executive Vice President and General Counsel
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Rodger L. Collins
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49
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President Bottling Group Sales
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Randall E. Gier
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46
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Executive Vice President Marketing and R&D
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Pedro Herrán Gacha
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46
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President Mexico and the Caribbean
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Derry L. Hobson
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57
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Executive Vice President Supply Chain
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James J. Johnston, Jr.
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51
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President Finished Goods and Concentrate Sales
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Lawrence N. Solomon
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52
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Executive Vice President Human Resources
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Terence D. Martin
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64
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Director
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Pamela H. Patsley
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50
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Director
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Jack L. Stahl
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54
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Director
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M. Anne Szostak
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57
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Director
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*
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As of December 31, 2007
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Wayne R. Sanders, Chairman.
Mr. Sanders
will serve as Chairman of the Board of Directors and chairman of
the nominating and corporate governance committee upon the
separation. Mr. Sanders served as the Chairman and the
Chief Executive Officer of Kimberly-Clark Corporation from 1992
until his retirement in 2003. Mr. Sanders currently serves
on the boards of directors of Texas Instruments Incorporated and
Belo Corp. He previously served on the board of directors of
Adolph Coors Company. Mr. Sanders is also a National
Trustee and Governor of the Boys & Girls Club of
America and was a member of the Marquette University Board of
Trustees from 1992 to 2007, serving as Chairman from 2001 to
2003.
Larry D. Young, President, Chief Executive Officer and
Director.
Mr. Young has served as President
and Chief Executive Officer of Cadbury Schweppes Americas
Beverages business since October 2007. Mr. Young joined
Cadbury Schweppes Americas Beverages as President and
Chief Operating Officer of the Bottling Group segment and Head
of Supply Chain in 2006 after our acquisition of DPSUBG, where
he had been President and Chief Executive Officer since May
2005. From 1997 to 2005, Mr. Young served as President and
Chief Operating Officer of Pepsi-Cola General Bottlers, Inc. and
Executive Vice President of Corporate Affairs at PepsiAmericas,
Inc.
John O. Stewart, Executive Vice President, Chief Financial
Officer and Director.
Mr. Stewart has served
as Executive Vice President and Chief Financial Officer of
Cadbury Schweppes Americas Beverages business since
November 2006. From 1990 to 2004, Mr. Stewart worked for
Diageo PLC and its subsidiaries, serving as Senior Vice
President and Chief Financial Officer of Diageo North America
from 2001 to 2004. From 2004 to 2005, Mr. Stewart was an
independent consultant, providing mergers and acquisitions
advice to Diageo PLC.
James L. Baldwin, Jr., Executive Vice President and General
Counsel.
Mr. Baldwin has served as Executive
Vice President and General Counsel of Cadbury Schweppes
Americas Beverages business since July 2003. From
92
June 2002 to July 2003, he served as Senior Vice President and
General Counsel of Dr Pepper/Seven Up, Inc., and from August
1998 to June 2002 as General Counsel of Motts LLP.
Rodger L. Collins, President Bottling Group
Sales.
Mr. Collins has served as President
of Sales for the Bottling Group segment of Cadbury
Schweppes Americas Beverages business since October 2007.
He had previously served as Midwest Division President for
the Bottling Group since January 2005. He also was Regional Vice
President (North/East) at DPSUBG from October 2001 to December
2004.
Randall E. Gier, Executive Vice President
Marketing and R&D.
Mr. Gier has served
as Executive Vice President of Marketing and R&D of Cadbury
Schweppes Americas Beverages business since February 2004.
From 2002 to 2004, he was the Chief Marketing Officer for Yum!
Brands International. From 1997 to 2002, Mr. Gier was Chief
Marketing Officer for Pizza Hut Inc., and from 1996 to 1997 was
Chief Marketing Officer for KFC.
Pedro Herrán Gacha, President Mexico and the
Caribbean.
Mr. Herrán has served as
President of the Mexico and the Caribbean segment of Cadbury
Schweppes Americas Beverages business since March 2004.
Prior to that, he was President of Cadbury Schweppes Beverages
Mexico, a position he had held since January 2000.
Derry L. Hobson, Executive Vice President Supply
Chain.
Mr. Hobson has served as Executive
Vice President of Supply Chain for Cadbury Schweppes
Americas Beverages business since October 2007. Mr. Hobson
joined the business as Senior Vice President of Manufacturing in
2006 through our acquisition of DPSUBG where he had been
Executive Vice President since 1999. Prior to joining our
Bottling Group, Mr. Hobson was President and Chief
Executive Officer of Sequoia Pacific Systems from 1993 to 1999.
From 1988 to 1993, Mr Hobson was Senior Vice President of
Operations at Perrier Group.
James J. Johnston, Jr., President Finished
Goods and Concentrate
Sales.
Mr. Johnston has served as President
of Finished Goods and Concentrate Sales for Cadbury
Schweppes Americas Beverages business since October 2007.
Prior to that, he was Executive Vice President of Sales, a
position he had held since January 2005. From December 2003 to
January 2005, he was first Senior Vice President, then Executive
Vice President of Strategy. From October 1997 to December 2003,
Mr. Johnston served as Senior Vice President of Licensing.
From November 1993 to October 1997, Mr. Johnston served as
Senior Vice President of System Marketing.
Lawrence N. Solomon, Executive Vice President
Human Resources.
Mr. Solomon has served as
Executive Vice President of Human Resources of Cadbury
Schweppes Americas Beverages business since March 2004.
From May 1999 to March 2004, he served as Senior Vice President
of Human Resources for
Dr Pepper/Seven
Up, prior to which he served on Cadbury Schweppes global
human resources team.
Terence D. Martin, Director.
Mr. Martin
will serve as a director and chairman of the audit committee
upon the separation. Mr. Martin served as Senior Vice
President and Chief Financial Officer of Quaker Oats Company
from 1998 until his retirement in 2001. From 1995 to 1998, he
was Executive Vice President and Chief Financial Officer of
General Signal Corporation. Mr. Martin was Chief Financial
Officer and Member of the Executive Committee of American
Cyanamid Company from 1991 to 1995 and served as Treasurer from
1988 to 1991. Since 2002, Mr. Martin has served on the
board of directors of Del Monte (USA) and currently serves as
the chairman of its audit committee.
Pamela H. Patsley, Director.
Ms. Patsley
will serve as a director upon the separation. Ms. Patsley
served as Senior Executive Vice President of First Data
Corporation from March 2000 to October 2007 and President of
First Data International from May 2002 to October 2007. She
retired from those positions in October 2007. From 1991 to 2000,
she served as President and Chief Executive Officer of
Paymentech, Inc., prior to its acquisition by First Data.
Ms. Patsley also previously served as Chief Financial
Officer of First USA, Inc. Ms. Patsley currently serves on
the boards of directors of Molson Coors Brewing Company and
Texas Instruments Incorporated, and she is the chair of the
audit committee of Texas Instruments Incorporated.
Jack L. Stahl, Director.
Mr. Stahl will
serve as a director and chairman of the compensation committee
upon the separation. Mr. Stahl served as Chief Executive
Officer and President of Revlon, Inc. from February 2002 until
93
his retirement in September 2006. From February 2000 to March
2001, he served as President and Chief Operating Officer of The
Coca-Cola
Company and previously served as Chief Financial Officer and
Senior Vice President of The
Coca-Cola
Companys North America Group and Senior Vice President of
The
Coca-Cola
Companys Americas Group. Mr. Stahl currently serves
on the board of directors of Schering-Plough Corporation.
M. Anne Szostak, Director.
Ms. Szostak will serve as
a director upon the separation. Since June 2004,
Ms. Szostak has served as President and Chief Executive
Officer of Szostak Partners LLC, a consulting firm that advises
executive officers on strategic and human resource issues. From
1998 until her retirement in 2004, she served as Executive Vice
President and Corporate Director Human Resources and
Diversity of FleetBoston Financial Corporation. She also served
as Chairman and Chief Executive Officer of Fleet
Bank Rhode Island from 2001 to 2003.
Ms. Szostak currently is a director of Belo Corp.,
ChoicePoint, Inc., Tupperware Brands Corporation and Spherion
Corporation, where she serves as chair of the compensation
committee.
Board of
Directors
At the time of the distribution, we expect that our board of
directors will consist of at least seven directors. The New
York Stock Exchange requires that a majority of our board of
directors qualify as independent according to the
rules and regulations of the SEC and the New York Stock Exchange
by no later than the first anniversary of the separation. We
intend to comply with these requirements.
Our amended and restated certificate of incorporation and
by-laws will provide that the directors will be classified with
respect to the time for which they hold office, into three
classes. Class I directors will have an initial term
expiring in 2009, Class II directors will have an initial
term expiring in 2010 and Class III directors will have an
initial term expiring in 2011. We expect that Class I will
consist
of ,
Class II will consist
of
and Class III will consist
of .
For more information, see Description of Capital
Stock Anti-Takeover Effects of Various Provisions of
Delaware Law and Our Certificate of Incorporation and
By-laws Composition of the Board.
Committees
of Our Board of Directors
Upon completion of the separation, the committees of our board
of directors will consist of an audit committee, nominating and
corporate governance committee and a compensation committee.
Each of these committees will be required to comply with the
requirements of the SEC and the New York Stock Exchange
applicable to companies engaging in their initial listing,
including for the audit committee the independence requirements
and the designation of an audit committee financial
expert. We expect that our board of directors will adopt a
written charter for each of these committees, which will each be
posted on our website prior to our separation from Cadbury
Schweppes.
In addition, we may establish special committees under the
direction of the board of directors when necessary to address
specific issues.
Audit
Committee
Our audit committee will be responsible for, among other things,
making recommendations concerning the engagement of our
independent registered public accounting firm, reviewing with
the independent registered public accounting firm the plans and
results of the audit engagement, approving professional services
provided by the independent registered public accounting firm,
reviewing the independence of the independent registered public
accounting firm, considering the range of audit and non-audit
fees and oversight of managements review of the adequacy
of our internal accounting controls. Our audit committee
currently consists
of , and ,
with Mr. Martin serving as chair. We expect that, upon
completion of the separation from Cadbury
Schweppes, will
qualify as the audit committee financial expert.
94
Nominating
and Corporate Governance Committee
Our nominating and corporate governance committee will be
responsible for recommending persons to be selected by the board
as nominees for election as directors, recommending persons to
be elected to fill any vacancies on the board, considering and
recommending to the board qualifications for the office of
director and policies concerning the term of office of directors
and the composition of the board and considering and
recommending to the board other actions relating to corporate
governance. We expect that, upon completion of the separation,
our nominating and corporate governance committee will consist
of , and , with
Mr. Sanders serving as chair.
Compensation
Committee
Our compensation committee will be charged with the
responsibilities, subject to full board approval, of
establishing, periodically re-evaluating and, where appropriate,
adjusting and administering policies concerning compensation
structure and benefit plans for our employees, including the
Chief Executive Officer and all of our other executive officers.
We expect that upon completion of the separation our
compensation committee will consist
of , and , with
Mr. Stahl serving as chair.
Code
of Ethics
Prior to the completion of the separation, we expect that our
board of directors will adopt a written code of ethics that is
designed to deter wrongdoing and to promote:
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honest and ethical conduct;
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full, fair, accurate, timely and understandable disclosure in
reports and documents that we file with the SEC and in our other
public communications;
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compliance with applicable laws, rules and regulations,
including insider trading compliance; and
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accountability for adherence to the code and prompt internal
reporting of violations of the code, including illegal or
unethical behavior regarding accounting or auditing practices.
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A copy of our code of ethics will be posted on our website
immediately prior to our separation from Cadbury Schweppes.
Procedures
for Approval of Related Persons Transactions
Prior to the completion of the separation, we expect that our
board of directors will adopt a written policy to be followed in
connection with certain related persons transactions involving
our company. Under this policy, we expect our board of directors
will delegate to our audit committee the responsibility for
reviewing and approving transactions with related persons (as
defined in the policy) in which we were or are to be a
participant, including, but not limited to, any financial
transaction, arrangement or indebtedness, guarantee of
indebtedness, or any series of similar transactions in which the
amount involved exceeds $120,000. In addition, we expect our
board to empower our General Counsel to initially review all
such transactions and refer to the audit committee for approval
those transactions which our General Counsel determines that the
related person may have a direct or indirect material interest.
In approving related persons transactions, we expect our audit
committee to determine, among other things, whether each related
persons transaction referred to the audit committee was the
product of fair dealing and whether it was fair to our company.
Under this policy, we intend to remind our directors and
executive officers of their obligation to inform us of any
related persons transaction and any proposed related persons
transaction. In addition, from time to time, we intend to review
our records and inquire of our directors and executive officers
to identify any person who may be considered a related person.
Using this information, we intend to search our books and
records for any related persons transactions in which our
company was or is to be a participant.
95
Director
Compensation
Non-executive directors will receive compensation from us for
their services on the board of directors or committees.
Executive directors will not receive compensation for their
services as a director. We expect to compensate our
non-executive directors as follows: an annual fee of $100,000,
which the director may elect to receive in cash or defer and
receive shares of our common stock pursuant to a deferred
compensation plan to be adopted by us in connection with the
separation, and an annual equity grant of restricted stock units
of $100,000. In addition, the chairperson of the audit committee
and the compensation committee will receive an annual equity
grant of restricted stock units of $30,000 and $25,000,
respectively. We also expect to adopt expense reimbursement and
related policies for all directors customary for similar public
companies. No director compensation was paid in 2007.
Mr. Sanders, as Chairman, is entitled to an annual retainer of
$100,000, which he may elect to receive in cash or to defer and
receive shares of our common stock pursuant to a deferred
compensation plan to be adopted by us in connection with the
separation. Mr. Sanders will also receive an annual equity grant
of our common stock equal to $200,000. Shares acquired through
the deferral of his annual retainer and through the annual
equity grant will vest on the third anniversary of the date of
grant. In addition, in recognition of Mr. Sanders services
to us in connection with the separation, he will receive a
one-time founders equity grant upon the separation of our
common stock equal to $900,000 that will vest in equal amounts
on each of the first, second and third anniversary of the date
of grant.
Compensation
Discussion and Analysis
Introduction
In 2007, our named executive officers (the NEOs)
were Larry Young, John Stewart, Randall Gier, James Johnston,
Pedro Herrán, Gilbert Cassagne and John Belsito.
Historically, each NEO has been covered by the Cadbury Schweppes
executive compensation program. This Compensation Discussion and
Analysis describes the historical compensation arrangements for
our NEOs. The remuneration committee of the board of directors
of Cadbury Schweppes is currently in the process of establishing
the compensation arrangements for our current NEOs for 2008 as
we transition to being an independent public company and to the
extent they are now established, they are described in this
information statement. Following our separation from Cadbury
Schweppes, our board of directors and its compensation committee
will establish the future compensation arrangements for our
company. As a result, we are not currently able to describe the
post separation compensation arrangements that will be
established by our board of directors and its compensation
committee.
We are also in the process of determining how existing awards
granted to our employees under Cadbury Schweppes plans
will be treated following the separation, and will describe how
they will be treated in this information statement prior to the
distribution.
During the last half of 2007, there were a number of changes
with regard to our NEOs. On October 12, 2007,
Mr. Cassagne, our former President and Chief Executive
Officer, left the company and Mr. Young, our Chief
Operating Officer and President, Bottling Group, was appointed
President and Chief Executive Officer. In addition, on
December 19, 2007, Mr. Belsito, the former President,
Snapple Distributors, left the company. As a result of the
changes in certain of our NEOs duties and
responsibilities, certain elements of their compensation were
adjusted, as further described below.
Objectives
of the Executive Compensation Program
Historically, as administered by the remuneration committee of
the board of directors of Cadbury Schweppes, the Cadbury
Schweppes executive compensation program was designed to achieve
the following core objectives:
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Total compensation was designed to be competitive in the
relevant market, thereby enabling Cadbury Schweppes to attract,
retain, motivate and reward high caliber executives;
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Total compensation awarded to executives was designed to reflect
and reinforce Cadbury Schweppes focus on financial
management and bottom-line performance;
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The achievement of short and long-term business objectives was
recognized through a combination of incentives and rewards with
a significant weighting on performance-based compensation versus
fixed pay; and
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Equity incentive awards were designed to align the interests of
management with those of shareholders of Cadbury Schweppes.
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Material
Elements of the Executive Compensation Program
Historically, Cadbury Schweppes executive compensation
program for the NEOs in 2007 consisted of the following three
major elements:
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Base Salary
base salary provided NEOs with a
fixed level of cash compensation intended to aid in the
attraction and retention of talent in a competitive market. Base
salary is reflected in the Salary column in the
Summary Compensation Table.
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Annual Cash Incentive Compensation
annual
cash incentive compensation encouraged NEOs to focus on our
annual financial plan and motivated the performance of the NEOs
in alignment with the short-term interests of shareholders of
Cadbury Schweppes. Annual cash incentive compensation is
reflected in the Non-Equity Incentive Plan
Compensation column in the Summary Compensation Table.
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Long-Term Share-Based Incentive Compensation
long-term share-based incentive compensation rewarded NEOs for
achieving quantitative goals that are key drivers of long-term
performance. Long-term share-based incentives aligned the
interests of executives with those of shareholders of Cadbury
Schweppes and provided strong retention and motivational
incentives. Long-term share-based incentive compensation is
reflected in the Stock Awards and Option
Awards columns in the Summary Compensation Table.
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Other forms of compensation were also provided to NEOs in 2007
under the Cadbury Schweppes executive compensation program, and
included grants under an additional share plan, participation in
health plans, retirement plans, perquisites and severance
arrangements.
Setting
Executive Compensation
Historically, the compensation of Mr. Cassagne was based on
recommendations by Todd Stitzer, the Chief Executive Officer of
Cadbury Schweppes, related to Mr. Cassagnes
performance during the year, and approved by the remuneration
committee of the board of directors of Cadbury Schweppes. The
compensation of the other NEOs was based on recommendations by
Mr. Cassagne and approved by Mr. Stitzer. Among the
factors considered in setting compensation were individual
performance, skill and experience, the NEOs success in
achieving targets set by Cadbury Schweppes, compensation
previously granted to the NEO, planned changes in
responsibilities and competitive practices.
Benchmarking
of Compensation
In 2007, the remuneration committee of the board of directors of
Cadbury Schweppes reviewed compensation awarded to Mr. Cassagne
against compensation awarded to executives in similar positions
in the Towers Perrin 2007 U.S. CDB General Industry Executive
Database Survey (the Towers Perrin Survey), a
proprietary survey of approximately 45 multinational companies
and global consumer goods companies with whom Cadbury Schweppes
believes it competes for executive talent. In making
assessments, the potential value of the total compensation
package, which included base salary, annual cash incentives and
long-term share-based incentives, was considered. A similar
process was followed by Mr. Stitzer and Mr. Cassagne
for purposes of benchmarking the compensation of other NEOs. In
addition to the Towers Perrin Survey, Mr. Stitzer and
Mr. Cassagne also considered the Hay Group
97
2007 Executive Compensation Report: Fast-Moving Consumer Goods
Industry, a proprietary survey of approximately 50 multinational
consumer goods companies.
In October 2007, Cadbury Schweppes also reviewed the base
salaries awarded to Mr. Young, in connection with his
promotion to President and Chief Executive Officer of our
company, and to Mr. Stewart, whose role was expanded to
include information technology and shared business services
along with additional duties that he will undertake as the Chief
Financial Officer of a public company, against similar executive
officers in 16 multinational consumer goods companies of similar
market capitalization to our business (the DPS Comparator
Group). The DPS Comparator Group consisted of the
following companies:
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Anheuser-Busch
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ConAgra
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Hershey
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PepsiAmericas
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Brown-Forman
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Constellation Brands
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Smucker
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Pepsi Bottling Group
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Campbell Soup
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General Mills
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Kellogg
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Sara Lee
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Coca-Cola
Enterprises
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Heinz
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Molson Coors
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Wrigley
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The
Executive Compensation Program
Overview
Historically, Cadbury Schweppes generally targeted a competitive
level of total compensation, including base salary, annual cash
incentive compensation, and long-term share-based incentive
compensation, based on the attainment of certain pre-established
performance measures.
Base
Salary
Cadbury Schweppes provided a base salary to each NEO, which was
reviewed on an annual basis. NEOs were eligible for merit-based
increases based on their prior year performance, market
competitiveness of their salary and peer group data.
In setting the base salary of Mr. Cassagne in 2007, the
remuneration committee of the board of directors of Cadbury
Schweppes considered Mr. Cassagnes performance and
benchmark information from the Towers Perrin Survey. In setting
the base salary of the other NEOs in 2007, Mr. Stitzer and
Mr. Cassagne considered each individuals performance
and the market competitiveness of their salary as described
above.
In October 2007, Mr. Youngs base salary was increased
from $647,000 to $800,000 and Mr. Stewarts base
salary was increased from $420,000 to $500,000.
Mr. Youngs increase was attributable to his promotion
to President and Chief Executive Officer of our company and
Mr. Stewarts increase was attributable to his
expanded role to include information technology and shared
business services along with additional duties he will undertake
as the Chief Financial Officer of a public company. The
increases for Mr. Young and Mr. Stewart were
established taking into account median base salaries of similar
executive officers in the DPS Comparator Group.
Annual
Cash Incentive Compensation
NEOs participated in the Cadbury Schweppes annual incentive
plan, a short-term cash incentive plan based on the attainment
of overall short-term business results. Each NEO was assigned an
annual incentive target between 65% and 100% of each NEOs
annual base salary (the Target Award). In the event
performance targets were met for each fiscal year, the NEOs were
eligible to receive a cash payment equal to their Target Award.
Performance measures were determined by the remuneration
committee of the board of directors of Cadbury Schweppes to take
account of current business plans and conditions and to provide
incentives to NEOs to achieve key short-term performance targets.
In 2007, Target Awards were based on the achievement of
financial performance targets for underlying economic profit
(defined as underlying operating profit from operations less a
charge for the weighted average cost
98
of capital) and growth in revenue. The remuneration committee of
the board of directors of Cadbury Schweppes believed that these
performance targets were key drivers of our business in the
short-term.
In 2007, Mr. Herrán, who has primary responsibility
for our Mexico and the Caribbean segment, was eligible for a
Target Award based 50% on the performance targets achieved by
our Mexico and the Caribbean segment and 50% on the performance
targets achieved by our business. Each of the other NEOs,
including Mr. Young, was eligible for Target Awards based
only upon the performance targets achieved by our business. In
each case, the weighting of the performance targets was based
60% on underlying economic profit and 40% on growth in revenue.
In 2007, each NEO was provided the opportunity to voluntarily
defer all or part of his 2006 annual incentive plan award (which
otherwise would have been paid in cash in March 2007) and invest
such award in Cadbury Schweppes ordinary shares pursuant to the
Cadbury Schweppes bonus share retention plan, which is further
described below under the section Long-Term
Share-Based Incentives Bonus Share Retention
Plan.
Annual incentive amounts for 2007 were determined in February
2008 and are set forth in the Non Equity Incentive Plan
Compensation column of the Summary Compensation Table.
Based on a review of the financial performance targets achieved
for 2007, cash payments were below each NEOs Target Award.
Long-Term
Share-Based Incentives
Bonus Share Retention Plan.
The Cadbury
Schweppes bonus share retention plan enabled participants to
elect to defer all or part of their annual incentive plan awards
in the form of an investment in Cadbury Schweppes ordinary
shares. Senior executives, including the NEOs, were eligible to
participate in the bonus share retention plan. To the extent
that participants elected to invest in shares, the plan enabled
them to earn an additional matching grant of Cadbury Schweppes
ordinary shares (up to 100% of their investment), provided that
Cadbury Schweppes attained certain performance targets over a
three-year performance period and the participant was
continuously employed by Cadbury Schweppes through the date that
the award is settled. All of our current NEOs participated in
the bonus share retention plan, with a deferral ranging from 25%
to 100% of their annual incentive plan award.
The determination of matching shares awarded for 2007 was
determined in February 2008 and is set forth in the Stock
Awards column of the Option Exercises and Stock Vested
Table. Based on a review of the financial performance targets
achieved for the
2005-2007
performance period, the number of shares vested was below the
median of the number of matching shares that each NEO was
eligible to receive for the performance period.
Long Term Incentive Plan.
Under Cadbury
Schweppes long term incentive plan, NEOs and other senior
executives were eligible, at the discretion of the remuneration
committee of the board of directors of Cadbury Schweppes, to
receive a designated number of Cadbury Schweppes ordinary shares
conditional on the achievement of certain performance targets.
The vesting of the shares awarded under Cadbury Schweppes
long term incentive plan in 2007 was based 50% on underlying
earnings per share growth and 50% on total shareholder return
growth relative to an international group of peer companies
equally weighted over a performance period beginning on
January 1, 2007 and ending on December 31, 2009. Total
shareholder return is defined as share price growth assuming
reinvested dividends. At the end of the three-year performance
period, the remuneration committee of the board of directors of
Cadbury Schweppes will determine how much of the award has been
earned. These shares accrue dividend equivalents through the
end of the performance period (which will only be paid to the
extent the performance targets are achieved). The vesting of
these shares is dependent on the executive being continuously
employed with Cadbury Schweppes through the date the award was
settled.
In 2007, the remuneration committee of the board of directors of
Cadbury Schweppes granted shares under the long term incentive
plan to NEOs. Mr. Cassagne was entitled to shares with a
value ranging up to 120% of his base salary and the other NEOs
were entitled to shares with a value ranging up to 100% of their
base salaries based on the performance targets achieved during
the performance period.
99
The determination of the number of shares awarded for 2007 was
determined in February 2008 and is set forth in the Stock
Awards column of the Option Exercises and Stock Vested
Table. Based on a review of the financial performance targets
achieved for the
2005-2007
performance period, the number of shares vested was 55% of the
maximum number of shares that each NEO was eligible to receive
for the performance period.
Other
Equity Plans
Historically, up to and including 2005, annual awards of share
options were granted to the NEOs under the Cadbury Schweppes
share option plan. In addition, restricted share awards were
granted to certain NEOs under the Cadbury Schweppes
international share award plan.
Other
Compensation Benefits Plans and Programs
Historically, Cadbury Schweppes provided the following employee
benefit plans and programs to NEOs consistent with local
practices and those of comparable companies.
Employee Stock Purchase Plan.
Cadbury
Schweppes sponsored the employee stock purchase plan that
provided employees with an option to purchase Cadbury Schweppes
ADRs at a 15% discount over a two-year period from the date of
grant. The discount price, which was fixed each September, was
based on the closing price of Cadbury Schweppes ADRs on the day
before enrollment for the plan began.
Retirement Benefits.
Cadbury Schweppes
sponsored a qualified defined benefit plan (the personal pension
account plan) and two non-qualified defined benefit plans (the
pension equalization plan and the supplemental executive
retirement plan). In 2007, the personal pension account plan and
the pension equalization plan were closed to new participants.
In addition, Cadbury Schweppes sponsored a qualified defined
contribution plan, and a non-qualified defined contribution
plan. The defined benefit plans and defined contribution plans
are discussed below in further detail in the narrative following
the Pension Benefits Table and the Non-Qualified Deferred
Compensation Table, respectively.
Perquisites.
Cadbury Schweppes provided some
or all of the NEOs with the following additional benefits and
perquisites, which are more fully described under the Summary
Compensation Table:
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An automobile allowance;
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A service allowance to offset the costs of items such as
financial, estate and tax planning; and
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Annual physicals and disability income premiums.
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In addition, our expatriate NEO, Mr. Herrán, was provided
with an expatriate package, including tax equalization and other
payments. Certain club membership dues and expenses were also
paid on behalf of Mr. Young.
Executive
Employment Agreements
Consistent with our past practices, we have entered into
executive employment agreements with our NEOs at the time they
became an executive officer. These executive employment
agreements are updated from time-to-time, including most
recently to principally address changes in tax laws. We believe
that it is appropriate for our senior executives to have
employment agreements because they provide us with certain
contractual protections, including provisions relating to
non-competition, non-solicitation of our employees and
confidentiality of proprietary information. We also believe that
executive employment agreements are useful in recruiting and
retaining senior employees. For information regarding the
executive employment agreements, see Historical Executive
Compensation Information Executive Employment
Agreements.
100
Pursuant to their executive employment agreements, we provided
Mr. Cassagne and Mr. Belsito with certain benefits
when they left the company. For information regarding these
benefits, see Historical Executive Compensation
Information Separation Arrangements Related to
Mr. Cassagne and Mr. Belsito.
Historical
Executive Compensation Information
The executive compensation disclosure contained in this section
reflects compensation information for 2007.
The following disclosure tables provide compensation information
for (1) Mr. Young and Mr. Cassagne, each of whom
served as our President and Chief Executive Officer during 2007;
(2) Mr. Stewart, our Executive Vice President and
Chief Financial Officer; (3) Mr. Gier,
Mr. Johnston and Mr. Herrán, the three other
executive officers who were our most highly compensated
executive officers; and (4) Mr. Belsito, who would
have been one of our three most highly compensated officers if
he was serving as an executive officer as of December 31,
2007 (collectively, the named executive officers, or
NEOs). All references to stock options and
stock-based awards, other than the employee stock purchase plan,
relate to equity awards granted by Cadbury Schweppes to acquire
Cadbury Schweppes ordinary shares.
Summary
Compensation Table
The following table sets forth information regarding the
compensation earned by NEOs in 2007.
Summary
Compensation Table
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Change in
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Pension
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Value and
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Non-
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Qualified
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Non-Equity
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Deferred
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Stock
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Option
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Incentive Plan
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Compensation
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All Other
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Salary
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Awards
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Awards
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Compensation
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Earnings
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Compensation
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Total
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Name & Principal Position
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Year
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($)(4)
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($)(5)
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($)(6)
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($)(7)
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($)(8)
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($)(9)
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($)
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Larry D. Young,
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2007
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672,266
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514,402
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112,168
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510,400
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35,000
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197,411
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2,041,647
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President and Chief Executive Officer(1)
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John O. Stewart,
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2007
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425,654
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407,965
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218,266
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5,000
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78,288
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1,135,173
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Executive Vice President and Chief Financial Officer
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Randall E. Gier,
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2007
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456,577
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335,509
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329,539
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190,378
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55,000
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57,208
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1,424,211
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Executive Vice President, Marketing and R&D
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James J. Johnston, Jr.,
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2007
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435,962
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241,532
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98,678
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182,497
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75,000
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54,461
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1,088,130
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President, Finished Goods and Concentrate Sales
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Pedro Herrán Gacha,
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2007
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431,427
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370,375
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89,966
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89,998
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50,000
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619,936
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1,651,702
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President, Mexico and the Caribbean
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Gilbert M. Cassagne,
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2007
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714,808
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448,019
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322,341
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448,406
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910,000
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2,257,202
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5,100,776
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Former President and Chief Executive Officer(2)
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John L. Belsito,
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2007
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474,000
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193,466
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77,652
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241,414
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120,000
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80,280
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1,186,812
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Former President, Snapple Distributors(3)
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(1)
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Mr. Young was appointed President and Chief Executive
Officer on October 10, 2007.
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(2)
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Mr. Cassagne, formerly President and Chief Executive
Officer, left the company effective October 12, 2007.
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(3)
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Mr. Belsito, formerly President, Snapple Distributors, left
the company effective December 19, 2007.
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(4)
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The amounts shown in this column represent the base salary
reported on each
Form W-2
for each of our NEOs for 2007. Due to our payroll practices, the
amounts shown reflect base salary earned between
December 21, 2006 and December 22, 2007. Base salary
earned between December 23, 2007 and December 31, 2007
will be reported on the 2008
Form W-2
and reflected in the Summary Compensation Table in our 2009
proxy statement.
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(5)
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The amounts shown in this column represent the dollar amount of
the accounting expense recognized for financial statement
reporting purposes for 2007 for all outstanding stock awards
granted to the NEOs pursuant to the international share award
plan, the bonus share retention plan and the long-term incentive
plan, in accordance with the rules of SFAS 123(R). For
Mr. Cassagne and Mr. Belsito, these amounts also
include the dollar amount of the accounting expense recognized
for outstanding stock awards granted pursuant to the integration
share success plan. The amounts disregard adjustment for
forfeiture assumptions and do not reflect amounts realized or
paid to the NEOs in 2007 or prior years. Assumptions used to
calculate these amounts (disregarding forfeiture assumptions)
are included in note 14 to our audited combined financial
statements. For further information on the stock awards granted
in 2007, see the Grants of Plan-Based Awards Table.
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(6)
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The amounts shown in this column represent the dollar amount of
the accounting expense recognized for financial statement
reporting purposes for 2007 for all outstanding option awards
granted to the NEOs pursuant to the Cadbury Schweppes share
option plan in accordance with SFAS 123(R). The amounts
disregard adjustment for forfeiture assumptions and do not
reflect amounts realized or paid to the NEOs in 2007 or prior
years. Assumptions used to calculate these amounts (disregarding
forfeiture assumptions) are included in note 14 to our
audited combined financial statements. No option awards were
granted to the NEOs in 2007.
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(7)
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The amounts shown in this column represent the annual incentive
awards for 2007 that were paid to our NEOs in March 2008
pursuant to the annual incentive plan.
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(8)
|
|
The amounts shown in this column represent an estimate of the
aggregate change during 2007 in the actuarial present value of
accumulated benefits under the personal pension account plan,
the pension equalization plan and the supplemental executive
retirement plan (as applicable), as described in more detail
below in the Pension Benefits Table. The change in the actuarial
present value of the accumulated benefits under the plans was
determined in accordance with SFAS 87. Assumptions used to
calculate these amounts are included in note 13 to our
audited combined financial statements and include amounts that
the NEOs may not be currently entitled to receive because such
amounts are not vested.
|
|
|
|
(9)
|
|
The amounts shown in this column represent the following
components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Perquisites ($)
|
|
|
|
|
|
|
|
|
|
|
|
|
Disability
|
|
Company
|
|
|
|
|
|
|
Automobile
|
|
Service
|
|
Income
|
|
Contributions
|
|
Other
|
|
|
|
|
Allowance
|
|
Allowance
|
|
Premiums
|
|
($)(a)
|
|
($)(b)
|
|
Total ($)
|
|
Mr. Young
|
|
|
30,010
|
|
|
|
19,000
|
|
|
|
4,214
|
|
|
|
27,002
|
|
|
|
117,185
|
|
|
|
197,411
|
|
Mr. Stewart
|
|
|
21,544
|
|
|
|
14,000
|
|
|
|
1,986
|
|
|
|
16,883
|
|
|
|
23,875
|
|
|
|
78,288
|
|
Mr. Gier
|
|
|
19,966
|
|
|
|
14,000
|
|
|
|
3,314
|
|
|
|
18,120
|
|
|
|
1,808
|
|
|
|
57,208
|
|
Mr. Johnston
|
|
|
15,980
|
|
|
|
14,000
|
|
|
|
2,965
|
|
|
|
17,549
|
|
|
|
3,967
|
|
|
|
54,461
|
|
Mr. Herrán
|
|
|
65,413
|
|
|
|
14,000
|
|
|
|
3,307
|
|
|
|
17,114
|
|
|
|
520,102
|
|
|
|
619,936
|
|
Mr. Cassagne
|
|
|
25,627
|
|
|
|
24,000
|
|
|
|
2,531
|
|
|
|
28,703
|
|
|
|
2,176,341
|
|
|
|
2,257,202
|
|
Mr. Belsito
|
|
|
23,515
|
|
|
|
21,000
|
|
|
|
|
|
|
|
18,688
|
|
|
|
17,077
|
|
|
|
80,280
|
|
|
|
|
|
(a)
|
The amounts shown represent Cadbury
Schweppes matching contributions to the tax-qualified
defined contribution plan and non-tax qualified defined
contribution plan. The contributions to the tax-qualified
defined contribution plan are as follows: for Mr. Young,
$9,111; for Mr. Stewart, $8,857; for Mr. Gier, $8,857;
for Mr. Johnston, $9,111; for Mr. Herrán, $8,857;
for Mr. Cassagne, $9,111; and for Mr. Belsito, $8,857.
The contributions to the non-tax qualified plan are as follows:
for Mr. Young, $17,891; for Mr. Stewart, $8,026; for
Mr. Gier, $9,263; for Mr. Johnston, $8,438; for
Mr. Herrán, $8,257; for Mr. Cassagne, $19,592;
and for Mr. Belsito, $9,831.
|
|
|
|
|
(b)
|
The amounts shown reflect the
following costs: for Mr. Young, $117,185 for club
membership dues and expenses; for Mr. Stewart, $1,875 for
executive physical and $22,000 for home sale bonus; for
Mr. Gier, $1,808 for executive physical; for
Mr. Johnston, $3,967 for sporting events; for
Mr. Herrán, $23,450 for education expenses, $84,155
for security expenses, $206,228 for tax equalization expenses,
$43,156 for location allowance, $53,954 for foreign service
premium, $101,789 for housing allowance, $2,300 for tax
preparation expenses, $1,078 for cost of living adjustments,
$3,296 for
10-year
service award and $696 for club membership dues and expenses;
for Mr. Cassagne, $2,171,154 for separation payments and
$5,187 for
25-year
service award; and for Mr. Belsito, $2,075 for
|
102
|
|
|
|
|
executive physical and $15,002 for
merit bonus. For additional information about further amounts
payable to Mr. Cassagne and Mr. Belsito, see
Separation Arrangements Related to Mr.
Cassagne and Mr. Belsito.
|
Grants of
Plan-Based Awards
The following table sets forth information regarding equity plan
awards and non-equity incentive plan awards by Cadbury Schweppes
to our NEOs for 2007.
Grants of
Plan-Based Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant Date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of
|
|
|
|
|
|
|
|
|
Estimated Future Payouts Under
|
|
Estimated Future Payouts Under
|
|
Equity
|
|
|
|
|
|
|
|
|
Non-Equity Incentive Plan Awards(1)
|
|
Equity Incentive Plan Awards(2)
|
|
Incentive
|
|
|
|
|
|
|
Grant
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
Plan Awards
|
|
|
|
|
Name
|
|
Date
|
|
($)
|
|
($)
|
|
($)
|
|
(#)
|
|
(#)
|
|
(#)
|
|
(3)($)
|
|
|
|
|
|
Larry D. Young
|
|
|
2/15/07
|
|
|
|
200,000
|
|
|
|
800,000
|
|
|
|
1,200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/29/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,968
|
|
|
|
|
|
|
|
63,230
|
|
|
|
477,041
|
|
|
|
|
|
|
|
|
|
|
|
|
3/4/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,745
|
|
|
|
|
|
|
|
59,363
|
|
|
|
375,000
|
|
|
|
|
|
|
|
|
|
John O. Stewart
|
|
|
2/15/07
|
|
|
|
85,514
|
|
|
|
342,055
|
|
|
|
513,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/29/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,616
|
|
|
|
|
|
|
|
32,054
|
|
|
|
241,833
|
|
|
|
|
|
|
|
|
|
|
|
|
3/4/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,354
|
|
|
|
|
|
|
|
3,385
|
|
|
|
20,792
|
|
|
|
|
|
|
|
|
|
Randall E. Gier
|
|
|
2/15/07
|
|
|
|
74,588
|
|
|
|
298,350
|
|
|
|
447,525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/29/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,764
|
|
|
|
|
|
|
|
35,886
|
|
|
|
270,743
|
|
|
|
|
|
|
|
|
|
|
|
|
3/4/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,470
|
|
|
|
|
|
|
|
18,675
|
|
|
|
121,500
|
|
|
|
|
|
|
|
|
|
James J. Johnston, Jr.
|
|
|
2/15/07
|
|
|
|
71,500
|
|
|
|
286,000
|
|
|
|
429,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/29/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,320
|
|
|
|
|
|
|
|
34,400
|
|
|
|
259,532
|
|
|
|
|
|
|
|
|
|
|
|
|
3/4/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,351
|
|
|
|
|
|
|
|
5,878
|
|
|
|
38,250
|
|
|
|
|
|
|
|
|
|
Pedro Herrán Gacha
|
|
|
2/15/07
|
|
|
|
70,525
|
|
|
|
282,100
|
|
|
|
423,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/29/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,178
|
|
|
|
|
|
|
|
33,930
|
|
|
|
255,986
|
|
|
|
|
|
|
|
|
|
|
|
|
3/4/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,886
|
|
|
|
|
|
|
|
12,215
|
|
|
|
75,000
|
|
|
|
|
|
|
|
|
|
Gilbert M. Cassagne
|
|
|
2/15/07
|
|
|
|
175,073
|
|
|
|
700,290
|
|
|
|
1,050,435
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/29/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,322
|
|
|
|
|
|
|
|
27,740
|
|
|
|
209,285
|
|
|
|
|
|
|
|
|
|
John L. Belsito
|
|
|
2/15/07
|
|
|
|
94,319
|
|
|
|
377,275
|
|
|
|
565,912
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/29/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,632
|
|
|
|
|
|
|
|
15,440
|
|
|
|
116,488
|
|
|
|
|
|
|
|
|
|
|
|
|
3/4/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
878
|
|
|
|
|
|
|
|
2,196
|
|
|
|
49,770
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The amounts shown in the first row of these columns for each NEO
represent the potential payouts of annual cash incentive
compensation granted to our NEOs in 2007 under the annual
incentive plan subject to the achievement of certain performance
measures. The actual amount of the awards made to the NEOs and
paid in cash will be set forth in the Non-Equity Incentive
Plan Compensation column of the Summary Compensation Table
after payment is made.
|
|
(2)
|
|
The amounts shown in the second row of these columns for each
NEO represent the threshold and maximum payouts of conditional
shares granted to our NEOs pursuant to the long term incentive
plan, subject to the achievement of certain performance
measures. The performance measures are applied over a three-year
performance period beginning on January 1, 2007 and ending
on December 31, 2009. For more information regarding the
terms of the conditional share awards, see the section entitled
Long-Term Share-Based
Incentives Long Term Incentive Plan.
|
|
|
|
The amounts shown in the third row of these columns for each NEO
represent matched shares granted by Cadbury Schweppes on the
portion of the annual incentive award that each NEO earned in
2006 and elected to defer under the bonus share retention plan
on March 4, 2007 in the form of Cadbury Schweppes ordinary
shares (basic shares). In accordance with the terms
of the bonus share retention plan, each NEO is eligible for
(i) an award equal to 40% of the number of his basic shares
if he remains employed through the date the award is paid in the
first quarter of 2010 (as shown in the column
Threshold Estimated Future Payouts Under
Equity Incentive Plan Awards) and (ii) an award equal
to 60% of the number of his basic shares if certain performance
measures are achieved during the three-year period beginning on
January 1, 2007 and ending on December 31, 2009 and
the NEO remains employed through the date the award is paid in
the first quarter of 2010. The amounts shown in the column
Maximum Estimated Future Payouts Under Equity
Incentive Plan Awards represent the total maximum number
of matched shares that the NEO is eligible to receive.
|
103
|
|
|
(3)
|
|
The amounts shown in this column represent the grant date fair
value of various awards in accordance with SFAS 123(R)
based on a potential payout of maximum award. The grant date
fair value generally reflects the amount we would expense in our
financial statements over the awards vesting schedule, and
does not correspond to the actual value that may be realized by
or paid to the NEOs.
|
104
Outstanding
Equity Awards
The following table sets forth information regarding exercisable
and unexercisable stock options and vested and unvested equity
awards held by each NEO as of December 31, 2007. All such
awards relate to Cadbury Schweppes ordinary shares.
Outstanding
Equity Awards at Year-End
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
Stock Awards
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
Equity Incentive
|
|
|
|
|
|
|
|
|
Incentive
|
|
|
|
|
|
|
|
Market
|
|
Equity Incentive
|
|
Plan Awards:
|
|
|
|
|
|
|
|
|
Plan Awards:
|
|
|
|
|
|
Number
|
|
Value of
|
|
Plan Awards:
|
|
Market or Payout
|
|
|
|
|
Number of
|
|
Number of
|
|
Number of
|
|
|
|
|
|
of Shares
|
|
Shares
|
|
Number of
|
|
Value of
|
|
|
|
|
Securities
|
|
Securities
|
|
Securities
|
|
|
|
|
|
or Units
|
|
or Units
|
|
Unearned Shares,
|
|
Unearned
|
|
|
|
|
Underlying
|
|
Underlying
|
|
Underlying
|
|
Option
|
|
|
|
of Stock
|
|
of Stock
|
|
Units, or Other
|
|
Shares, Units, or
|
|
|
|
|
Unexercised
|
|
Unexercised
|
|
Unexercised
|
|
Exercise
|
|
Option
|
|
That Have
|
|
That Have
|
|
Rights That Have
|
|
Other Rights
|
|
|
|
|
Options
|
|
Options
|
|
Unearned
|
|
Price
|
|
Expiration
|
|
Not Vested
|
|
Not Vested
|
|
Not Vested
|
|
That Have Not
|
|
|
Name
|
|
Exercisable (#)
|
|
Unexercisable (#)
|
|
Options (#)
|
|
($)(1)
|
|
Date
|
|
(#)
|
|
($)(2)
|
|
(#)
|
|
Vested($)(2)
|
|
Grant Date
|
|
Larry D. Young
|
|
|
|
|
|
|
96,000
|
|
|
|
|
|
|
|
10.98
|
|
|
|
4/1/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4/1/05
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,745
|
|
|
|
294,515
|
|
|
|
35,618
|
|
|
|
441,778
|
|
|
|
3/4/07
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61,666
|
|
|
|
764,858
|
|
|
|
4/7/06
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63,230
|
|
|
|
784,256
|
|
|
|
3/29/07
|
(5)
|
John O. Stewart
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000
|
|
|
|
248,065
|
|
|
|
|
|
|
|
|
|
|
|
11/30/06
|
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,354
|
|
|
|
16,794
|
|
|
|
2,031
|
|
|
|
25,191
|
|
|
|
3/4/07
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,668
|
|
|
|
281,156
|
|
|
|
11/6/06
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,054
|
|
|
|
397,573
|
|
|
|
3/29/07
|
(5)
|
Randall E. Gier
|
|
|
150,000
|
|
|
|
|
|
|
|
|
|
|
|
8.48
|
|
|
|
3/26/14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/26/04
|
(3)
|
|
|
|
59,000
|
|
|
|
|
|
|
|
|
|
|
|
8.78
|
|
|
|
8/27/14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/27/04
|
(3)
|
|
|
|
|
|
|
|
41,000
|
|
|
|
|
|
|
|
10.50
|
|
|
|
4/1/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4/1/05
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000
|
|
|
|
248,065
|
|
|
|
|
|
|
|
|
|
|
|
8/29/06
|
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,973
|
|
|
|
24,472
|
|
|
|
2,960
|
|
|
|
36,714
|
|
|
|
3/4/06
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,470
|
|
|
|
92,652
|
|
|
|
11,205
|
|
|
|
138,978
|
|
|
|
3/4/07
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,546
|
|
|
|
416,079
|
|
|
|
4/7/06
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,886
|
|
|
|
445,102
|
|
|
|
3/29/07
|
(5)
|
James J. Johnston, Jr.
|
|
|
32,000
|
|
|
|
|
|
|
|
|
|
|
|
8.86
|
|
|
|
9/11/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9/11/98
|
(3)
|
|
|
|
40,000
|
|
|
|
|
|
|
|
|
|
|
|
8.15
|
|
|
|
9/3/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9/3/99
|
(3)
|
|
|
|
60,000
|
|
|
|
|
|
|
|
|
|
|
|
8.17
|
|
|
|
9/1/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9/1/00
|
(3)
|
|
|
|
65,000
|
|
|
|
|
|
|
|
|
|
|
|
9.53
|
|
|
|
8/31/11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/31/01
|
(3)
|
|
|
|
70,000
|
|
|
|
|
|
|
|
|
|
|
|
9.64
|
|
|
|
8/23/12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/23/02
|
(3)
|
|
|
|
90,000
|
|
|
|
|
|
|
|
|
|
|
|
7.02
|
|
|
|
5/9/13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5/9/03
|
(3)
|
|
|
|
64,000
|
|
|
|
|
|
|
|
|
|
|
|
8.78
|
|
|
|
8/27/14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/27/04
|
(3)
|
|
|
|
|
|
|
|
41,000
|
|
|
|
|
|
|
|
10.50
|
|
|
|
4/1/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4/1/05
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,565
|
|
|
|
31,814
|
|
|
|
3,848
|
|
|
|
47,728
|
|
|
|
3/4/06
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,351
|
|
|
|
29,160
|
|
|
|
3,527
|
|
|
|
43,746
|
|
|
|
3/4/07
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,546
|
|
|
|
416,079
|
|
|
|
4/7/06
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,400
|
|
|
|
426,671
|
|
|
|
3/29/07
|
(5)
|
Pedro Herrán Gacha
|
|
|
30,000
|
|
|
|
|
|
|
|
|
|
|
|
8.86
|
|
|
|
9/11/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9/11/98
|
(3)
|
|
|
|
40,000
|
|
|
|
|
|
|
|
|
|
|
|
8.15
|
|
|
|
9/3/09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9/3/99
|
(3)
|
|
|
|
60,000
|
|
|
|
|
|
|
|
|
|
|
|
8.17
|
|
|
|
9/1/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9/1/00
|
(3)
|
|
|
|
55,000
|
|
|
|
|
|
|
|
|
|
|
|
9.53
|
|
|
|
8/31/11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/31/01
|
(3)
|
|
|
|
55,000
|
|
|
|
|
|
|
|
|
|
|
|
9.64
|
|
|
|
8/23/12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/23/02
|
(3)
|
|
|
|
12,500
|
|
|
|
|
|
|
|
|
|
|
|
6.62
|
|
|
|
3/14/13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/14/03
|
(3)
|
|
|
|
75,000
|
|
|
|
|
|
|
|
|
|
|
|
7.02
|
|
|
|
5/9/13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5/9/03
|
(3)
|
|
|
|
43,000
|
|
|
|
|
|
|
|
|
|
|
|
8.78
|
|
|
|
8/27/14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/27/04
|
(3)
|
|
|
|
|
|
|
|
41,000
|
|
|
|
|
|
|
|
10.50
|
|
|
|
4/1/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4/1/05
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000
|
|
|
|
248,065
|
|
|
|
|
|
|
|
|
|
|
|
8/29/06
|
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,000
|
|
|
|
148,839
|
|
|
|
|
|
|
|
|
|
|
|
2/16/06
|
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,995
|
|
|
|
49,551
|
|
|
|
5,993
|
|
|
|
74,333
|
|
|
|
3/4/06
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,886
|
|
|
|
60,602
|
|
|
|
7,329
|
|
|
|
90,903
|
|
|
|
3/4/07
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,626
|
|
|
|
342,652
|
|
|
|
4/7/06
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,930
|
|
|
|
420,842
|
|
|
|
3/29/07
|
(5)
|
Gilbert M. Cassagne
|
|
|
150,000
|
|
|
|
|
|
|
|
|
|
|
|
8.17
|
|
|
|
9/1/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9/1/00
|
(3)
|
|
|
|
160,000
|
|
|
|
|
|
|
|
|
|
|
|
9.53
|
|
|
|
8/31/11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/31/01
|
(3)
|
|
|
|
175,000
|
|
|
|
|
|
|
|
|
|
|
|
9.64
|
|
|
|
8/23/12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/23/02
|
(3)
|
|
|
|
250,000
|
|
|
|
|
|
|
|
|
|
|
|
7.02
|
|
|
|
5/9/13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5/9/03
|
(3)
|
|
|
|
160,000
|
|
|
|
|
|
|
|
|
|
|
|
8.78
|
|
|
|
8/27/14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/27/04
|
(3)
|
|
|
|
|
|
|
|
145,500
|
|
|
|
|
|
|
|
10.50
|
|
|
|
4/1/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4/1/05
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,830
|
|
|
|
345,182
|
|
|
|
3/13/03
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60,351
|
|
|
|
748,548
|
|
|
|
4/7/06
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,740
|
|
|
|
344,066
|
|
|
|
3/29/07
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
|
|
|
620,162
|
|
|
|
6/30/06
|
(7)
|
105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
Stock Awards
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
Equity Incentive
|
|
|
|
|
|
|
|
|
Incentive
|
|
|
|
|
|
|
|
Market
|
|
Equity Incentive
|
|
Plan Awards:
|
|
|
|
|
|
|
|
|
Plan Awards:
|
|
|
|
|
|
Number
|
|
Value of
|
|
Plan Awards:
|
|
Market or Payout
|
|
|
|
|
Number of
|
|
Number of
|
|
Number of
|
|
|
|
|
|
of Shares
|
|
Shares
|
|
Number of
|
|
Value of
|
|
|
|
|
Securities
|
|
Securities
|
|
Securities
|
|
|
|
|
|
or Units
|
|
or Units
|
|
Unearned Shares,
|
|
Unearned
|
|
|
|
|
Underlying
|
|
Underlying
|
|
Underlying
|
|
Option
|
|
|
|
of Stock
|
|
of Stock
|
|
Units, or Other
|
|
Shares, Units, or
|
|
|
|
|
Unexercised
|
|
Unexercised
|
|
Unexercised
|
|
Exercise
|
|
Option
|
|
That Have
|
|
That Have
|
|
Rights That Have
|
|
Other Rights
|
|
|
|
|
Options
|
|
Options
|
|
Unearned
|
|
Price
|
|
Expiration
|
|
Not Vested
|
|
Not Vested
|
|
Not Vested
|
|
That Have Not
|
|
|
Name
|
|
Exercisable (#)
|
|
Unexercisable (#)
|
|
Options (#)
|
|
($)(1)
|
|
Date
|
|
(#)
|
|
($)(2)
|
|
(#)
|
|
Vested($)(2)
|
|
Grant Date
|
|
John L. Belsito
|
|
|
75,000
|
|
|
|
|
|
|
|
|
|
|
|
8.93
|
|
|
|
3/16/11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/16/01
|
(3)
|
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
9.53
|
|
|
|
8/31/11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/31/01
|
(3)
|
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
9.64
|
|
|
|
8/23/12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/23/02
|
(3)
|
|
|
|
150,000
|
|
|
|
|
|
|
|
|
|
|
|
7.02
|
|
|
|
5/9/13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5/9/03
|
(3)
|
|
|
|
43,000
|
|
|
|
|
|
|
|
|
|
|
|
8.78
|
|
|
|
8/27/14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8/27/04
|
(3)
|
|
|
|
|
|
|
|
34,000
|
|
|
|
|
|
|
|
10.50
|
|
|
|
4/1/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4/1/05
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,103
|
|
|
|
26,084
|
|
|
|
3,155
|
|
|
|
39,132
|
|
|
|
3/4/06
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
878
|
|
|
|
10,890
|
|
|
|
1,318
|
|
|
|
16,347
|
|
|
|
3/4/07
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,688
|
|
|
|
182,179
|
|
|
|
3/13/03
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,178
|
|
|
|
386,708
|
|
|
|
4/7/06
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,440
|
|
|
|
191,506
|
|
|
|
3/29/07
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000
|
|
|
|
124,032
|
|
|
|
6/30/06
|
(7)
|
|
|
|
(1)
|
|
The option exercise prices were converted from pounds sterling
to U.S. dollars based on a December 31, 2007 currency
exchange rate of 1 pound sterling to 1.9973 U.S. dollars.
|
|
(2)
|
|
The amount for each row represents the total number of shares or
other rights awarded under an equity incentive plan that have
not vested multiplied by the closing price of a Cadbury
Schweppes ordinary share on the London Stock Exchange on
December 31, 2007. The price of an ordinary share was
converted from pounds sterling to U.S. dollars based on a
December 31, 2007 currency exchange rate of 1 pound
sterling to 1.9973 U.S. dollars.
|
|
(3)
|
|
Share Option Plan.
An option grant does not become
exercisable until performance vesting criteria have been
satisfied. No portion of the option may be exercised unless the
performance measure is satisfied on the third anniversary of the
grant date.
|
|
(4)
|
|
Bonus Share Retention Plan.
The amounts in the
Number of Shares or Units of Stock That Have Not
Vested column will vest on the third anniversary of the
applicable grant date if the NEO is employed with Cadbury
Schweppes on such date. The amounts in Equity Incentive
Plan Awards: Number of Unearned Shares, Units or Other Rights
That Have Not Vested column will vest based on Cadbury
Schweppes achieving the maximum compound annual growth in
aggregate underlying economic profit target over a three-year
performance period. Payout could range up to 100% of the
conditional shares disclosed. Pursuant to these terms:
|
|
|
|
|
|
Mr. Gier, Mr. Johnston, Mr. Herrán and Mr. Belsito
were each granted an award subject to a performance period from
January 1, 2006 to December 31, 2008 and a vesting
date of March 2009; and
|
|
|
|
|
|
Mr. Young, Mr. Stewart, Mr. Gier, Mr. Johnston, Mr.
Herrán and Mr. Belsito were each granted an award subject
to a performance period from January 1, 2007 to
December 31, 2009 and a vesting date of March 2010.
|
106
In addition, the amounts shown in the following table represent
the number of Cadbury Schweppes ordinary shares (the basic
shares) that each NEO received on the applicable grant
date upon his election to defer all or a portion of their prior
year annual incentive plan awards into the bonus share retention
plan.
|
|
|
|
|
|
|
|
|
|
|
Grant Date
|
|
Number of Basic Shares
|
|
Mr. Young
|
|
|
3/4/07
|
|
|
|
59,363
|
|
Mr. Stewart
|
|
|
3/4/07
|
|
|
|
3,385
|
|
Mr. Gier
|
|
|
3/4/06
|
|
|
|
4,933
|
|
|
|
|
3/4/07
|
|
|
|
18,675
|
|
Mr. Johnston
|
|
|
3/4/06
|
|
|
|
6,413
|
|
|
|
|
3/4/07
|
|
|
|
5,878
|
|
Mr. Herrán
|
|
|
3/4/06
|
|
|
|
9,988
|
|
|
|
|
3/4/07
|
|
|
|
12,215
|
|
Mr. Cassagne
|
|
|
|
|
|
|
|
|
Mr. Belsito
|
|
|
3/4/06
|
|
|
|
8,765
|
|
|
|
|
3/4/07
|
|
|
|
8,240
|
|
|
|
|
(5)
|
|
Long Term Incentive Plan.
Share grants will vest on the
third anniversary of the applicable grant date if the NEO is
employed with Cadbury Schweppes on such date and based on the
achievement of compound annual growth in the aggregate
underlying earnings per share target of Cadbury Schweppes and
total shareholder return relative to an index of peer companies
of Cadbury Schweppes over the applicable performance period.
Vesting could range up to 100% of the conditional shares
disclosed. Pursuant to these terms:
|
|
|
|
|
|
Mr. Cassagne and Mr. Belsito were granted an award
subject to a retest for the performance period from
January 1, 2003 to December 31, 2008 and a vesting
date of March 2009;
|
|
|
|
|
|
all of the NEOs were granted an award subject to a three-year
performance period from January 1, 2006 to
December 31, 2008 and a vesting date of March 2009; and
|
|
|
|
|
|
all the NEOs were granted an award subject to a three-year
performance period from January 1, 2007 to
December 31, 2009 and a vesting date of March 2010.
|
|
|
|
(6)
|
|
International Share Award Plan
. For Mr. Gier and
Mr. Herrán, the share awards will vest on the third
anniversary of the grant date. For Mr. Stewart, the share
award will vest in equal installments on the second and third
anniversary of the grant date.
|
|
|
|
(7)
|
|
Integration Success Share Plan
. Awards under the
integration success share plan are payable in the first quarter
of 2008, subject to compliance with restrictive covenants in the
individuals employment agreement. For further information,
see Separation Arrangements Related to Mr. Cassagne
and Mr. Belsito.
|
Option
Exercises and Stock Vested
The following table sets forth information regarding Cadbury
Schweppes ordinary shares acquired in 2007 by each NEO upon the
exercise of stock options and vesting of stock awards during
2007.
Option
Exercises and Stock Vested
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
Stock Awards
|
|
|
Number of
|
|
|
|
Number of Shares
|
|
|
|
|
Shares Acquired
|
|
Value Realized on
|
|
Acquired on
|
|
Value on
|
|
|
on Exercise
|
|
Exercise
|
|
Vesting
|
|
Vesting
|
Name
|
|
(#)(1)
|
|
($)(2)
|
|
(#)
|
|
($)(3)
|
|
Larry D. Young
|
|
|
|
|
|
|
|
|
|
|
21,051
|
(5)
|
|
|
229,870
|
|
John O. Stewart
|
|
|
|
|
|
|
|
|
|
|
20,000
|
(4)
|
|
|
258,780
|
|
Randall E. Gier
|
|
|
|
|
|
|
|
|
|
|
13,270
|
(5)
|
|
|
144,904
|
|
|
|
|
|
|
|
|
|
|
|
|
6,531
|
(6)
|
|
|
71,316
|
|
James J. Johnston, Jr.
|
|
|
|
|
|
|
|
|
|
|
12,563
|
(5)
|
|
|
137,184
|
|
|
|
|
|
|
|
|
|
|
|
|
2,028
|
(6)
|
|
|
22,145
|
|
Pedro Herrán Gacha
|
|
|
30,000
|
|
|
|
200,931
|
|
|
|
10,811
|
(5)
|
|
|
118,053
|
|
Gilbert M. Cassagne
|
|
|
|
|
|
|
|
|
|
|
40,857
|
(5)
|
|
|
446,145
|
|
John L. Belsito
|
|
|
20,000
|
|
|
|
28,440
|
|
|
|
23,732
|
(5)
|
|
|
259,146
|
|
|
|
|
(1)
|
|
The amounts shown in this column reflect the aggregate number of
Cadbury Schweppes ordinary shares underlying the options that
were exercised in 2007.
|
|
(2)
|
|
The amounts shown in this column are calculated by multiplying
(x) the difference between the closing price on the London
Stock Exchange of a Cadbury Schweppes ordinary share on the date
of exercise and the exercise price of the options by
(y) the number of Cadbury Schweppes ordinary shares
acquired upon exercise. The amounts shown in this column were
converted from pounds sterling to U.S. dollars based on the
currency exchange rate on the date of exercise.
|
|
(3)
|
|
The amounts shown in this column are calculated by multiplying
(x) the closing price of a Cadbury Schweppes ordinary share
on the London Stock Exchange on the date of vesting by
(y) the number of Cadbury Schweppes ordinary shares
acquired upon vesting. The amounts shown in this column were
converted from pounds sterling to U.S. dollars based on the
currency exchange rate on the date of vesting.
|
|
(4)
|
|
The amount shown reflects the number of awards under the
international share award plan that vested in 2007.
|
|
|
|
(5)
|
|
The amounts shown reflect the number of Cadbury Schweppes
ordinary shares awarded for the 2005-2007 performance period
under the long term incentive plan.
|
|
|
|
(6)
|
|
The amount shown reflects the number of Cadbury Schweppes
ordinary shares awarded for the 2005-2007 performance period
under the bonus share retention plan.
|
108
Pension
Benefits Table
The following table sets forth information regarding pension
benefits accrued by each NEO under our defined benefit plans and
supplemental contractual arrangements for 2007.
Pension
Benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
Years
|
|
Present Value of
|
|
Payments
|
|
|
|
|
Credited
|
|
Accumulated
|
|
During Last
|
|
|
|
|
Service
|
|
Benefit
|
|
Fiscal Year
|
Name
|
|
Plan Name
|
|
(#)
|
|
($)(1)
|
|
($)
|
|
Larry D. Young
|
|
|
Personal Pension Account Plan
|
|
|
|
1.67
|
|
|
|
15,000
|
|
|
|
|
|
|
|
|
Pension Equalization Plan
|
|
|
|
1.67
|
|
|
|
20,000
|
|
|
|
|
|
John O. Stewart
|
|
|
Personal Pension Account Plan
|
|
|
|
1.15
|
|
|
|
5,000
|
|
|
|
|
|
|
|
|
Pension Equalization Plan
|
|
|
|
1.15
|
|
|
|
0
|
|
|
|
|
|
Randall E. Gier
|
|
|
Personal Pension Account Plan
|
|
|
|
3.78
|
|
|
|
45,000
|
|
|
|
|
|
|
|
|
Pension Equalization Plan
|
|
|
|
3.78
|
|
|
|
100,000
|
|
|
|
|
|
James J. Johnston, Jr.
|
|
|
Personal Pension Account Plan
|
|
|
|
15.08
|
|
|
|
245,000
|
|
|
|
|
|
|
|
|
Pension Equalization Plan
|
|
|
|
15.08
|
|
|
|
235,000
|
|
|
|
|
|
Pedro Herrán Gacha
|
|
|
Personal Pension Account Plan
|
|
|
|
10.39
|
|
|
|
135,000
|
|
|
|
|
|
|
|
|
Pension Equalization Plan
|
|
|
|
10.39
|
|
|
|
225,000
|
|
|
|
|
|
Gilbert M. Cassagne
|
|
|
Personal Pension Account Plan
|
|
|
|
25.74
|
|
|
|
685,000
|
|
|
|
|
|
|
|
|
Pension Equalization Plan
|
|
|
|
25.74
|
|
|
|
3,450,000
|
|
|
|
|
|
|
|
|
Supplemental Executive Retirement Plan
|
|
|
|
25.74
|
|
|
|
455,000
|
|
|
|
|
|
John L. Belsito
|
|
|
Personal Pension Account Plan
|
|
|
|
20.20
|
|
|
|
330,000
|
|
|
|
|
|
|
|
|
Pension Equalization Plan
|
|
|
|
20.20
|
|
|
|
600,000
|
|
|
|
|
|
|
|
|
(1)
|
|
The amounts shown reflect the actuarial present value of
benefits accumulated under the respective plans in accordance
with the assumptions included in note 13 to our audited
combined financial statements. These amounts assume that each
NEO retires at age 65. The discount rate used to determine
the present value of accumulated benefits is 6.20%. The present
values assume no pre-retirement mortality and utilize the RP
2000 healthy white collar male and female mortality tables
projected to calendar year 2015.
|
Personal
Pension Account Plan
NEOs are provided with retirement benefits under the Cadbury
Schweppes personal pension account plan (the PPA
Plan), a tax-qualified defined benefit pension plan
covering full-time and part-time employees with at least one
year of service who were actively employed as of
December 31, 2006. The PPA Plan was closed to employees who
were hired after December 31, 2006.
109
The PPA Plan provides a retirement benefit to participants based
on a percentage of the participants annual compensation
(which includes base salary and annual incentive award). The
percentage, which is based on age and years of service, varies
as follows:
|
|
|
|
|
|
|
|
|
|
|
Age/Service Credit Percentage
|
|
|
Compensation up to
|
|
Compensation over
|
Age Plus Years of Service
|
|
Taxable Wage Base
|
|
Taxable Wage Base
|
|
Less than 35
|
|
|
2
|
3
/
4
%
|
|
|
5
|
1
/
2
%
|
35 but less than 45
|
|
|
3
|
3
/
4
%
|
|
|
7
|
1
/
2
%
|
45 but less than 55
|
|
|
4
|
1
/
2
%
|
|
|
9
|
%
|
55 but less than 65
|
|
|
6
|
%
|
|
|
11
|
%
|
65 but less than 75
|
|
|
8
|
%
|
|
|
13
|
%
|
75 or more
|
|
|
10
|
%
|
|
|
15
|
%
|
Participants fully vest in their retirement benefits after five
years of service or upon attaining age 65. Participants are
also eligible for early retirement benefits if they separate
from service on or after attaining age 55 with
10 years of service. Participants who leave Cadbury
Schweppes before they are fully vested in their retirement
benefits forfeit their accrued benefit under the PPA Plan.
The Internal Revenue Code places limitations on compensation and
pension benefits for tax-qualified defined benefit plans such as
the PPA Plan. We have established two non-qualified supplemental
defined benefit pension programs (the Cadbury Schweppes pension
equalization plan and the Cadbury Schweppes supplemental
executive retirement plan), as discussed below, to restore some
of the pension benefits limited by the Internal Revenue Code.
Pension
Equalization Plan
Cadbury Schweppes sponsors a pension equalization plan (the
PEP), an unfunded, non-tax qualified excess defined
benefit plan covering key employees who were actively employed
as of December 31, 2006 and whose base salary exceeded
certain statutory limits imposed by the Internal Revenue Code.
As with the PPA Plan, the PEP was closed to employees who were
hired after December 31, 2006.
The purpose of the PEP is to restore to PEP participants any PPA
Plan benefits that are limited by statutory restrictions imposed
by the Internal Revenue Code that are taken into consideration
when determining their PPA Plan benefits. Participants fully
vest in their benefits under the PEP after five years of
service. Participants who voluntarily resign from service before
they are vested in their benefits under the PEP forfeit their
unvested accrued benefit. Participants who are terminated
without cause or resign for good reason
are entitled to have their unvested accrued benefits under the
PEP automatically vested.
In addition, pursuant to the terms of the executive employment
agreements, if a NEO is terminated without cause or
resigns for good reason and is not vested in his
accrued benefit under the PPA Plan, such NEO will be entitled to
have his accrued and unvested benefits under the PPA Plan paid
under the PEP. As of December 31, 2007, Mr. Young,
Mr. Stewart and Mr. Gier have not vested in their
accrued benefits under the PPA Plan.
Supplemental
Executive Retirement Plan
Cadbury Schweppes sponsored a supplemental executive retirement
plan (the SERP), a non-tax qualified defined benefit
plan covering certain senior executives. The SERP was designed
to ensure that the total pension benefits due to participants,
including benefits under the PPA Plan and PEP, provided a
certain level of income at retirement. Combined benefits range
from 50% of a participants final average compensation
after 15 years of service to 60% of final average
compensation after 25 years of service. Benefits under the
SERP vest after 10 years of service. In 2007, only
Mr. Cassagne and Mr. Belsito participated in the SERP.
Only Mr. Cassagnes SERP benefit is fully vested.
Mr. Belsito did not satisfy the vesting conditions under
the SERP as of the date he left the company
110
and forfeited the amount accrued under the SERP. No current or
future employees are eligible to participate in the SERP.
Deferred
Compensation
Savings
Incentive Plan
Cadbury Schweppes sponsors a savings incentive plan (the
SIP), a tax-qualified 401(k) defined contribution
plan. The plan permits participants to contribute up to 75% of
their base salary in the SIP within certain statutory
limitations under the Internal Revenue Code and Cadbury
Schweppes matches 100% of the first 4% of base salary that is
deferred to the SIP by a participant. Employees participating in
the SIP are always fully vested in their, as well as the
employers, contributions to the plan.
Supplemental
Savings Plan
The only nonqualified deferred compensation plan sponsored by
Cadbury Schweppes for NEOs is the supplemental savings plan (the
SSP), a non-tax qualified defined contribution plan.
The SSP is for employees who are actively enrolled in the SIP
and whose deferrals under the SIP are limited by Internal
Revenue Code compensation limitations. Employees may elect to
defer up to 75% of their base salary over the Internal Revenue
Code compensation limit to the SSP, and Cadbury Schweppes
matches 100% of the first 4% of base salary that is contributed
by these employees. Employees participating in the SSP are
always fully vested in their, as well as the employers,
contributions to the plan. Participants self-direct the
investment of their account balances among various mutual funds.
The following table sets forth information regarding the
nonqualified deferred compensation under the SSP for each NEO
for 2007.
Nonqualified
Deferred Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive
|
|
Registrant
|
|
|
|
Aggregate
|
|
|
|
|
Contributions in
|
|
Contributions in
|
|
Aggregate Earnings
|
|
Withdrawals/
|
|
Aggregate Balance
|
|
|
Last Year
|
|
Last Year
|
|
in Last Year
|
|
Distributions
|
|
at Last Year-End
|
Name
|
|
($)(1)
|
|
($)(2)
|
|
($)(3)
|
|
($)
|
|
($)
|
|
Larry D. Young
|
|
|
53,672
|
|
|
|
17,891
|
|
|
|
267
|
|
|
|
|
|
|
|
71,829
|
|
John O. Stewart
|
|
|
150,491
|
|
|
|
8,026
|
|
|
|
510
|
|
|
|
|
|
|
|
159,327
|
|
Randall E. Gier
|
|
|
34,737
|
|
|
|
9,263
|
|
|
|
7,500
|
|
|
|
|
|
|
|
156,323
|
|
James J. Johnston, Jr.
|
|
|
18,987
|
|
|
|
8,438
|
|
|
|
3,706
|
|
|
|
|
|
|
|
73,105
|
|
Pedro Herrán Gacha
|
|
|
14,450
|
|
|
|
8,257
|
|
|
|
(182
|
)
|
|
|
|
|
|
|
51,154
|
|
Gilbert M. Cassagne
|
|
|
146,942
|
|
|
|
19,592
|
|
|
|
58,338
|
|
|
|
|
|
|
|
1,556,013
|
|
John L. Belsito
|
|
|
14,746
|
|
|
|
9,831
|
|
|
|
12,872
|
|
|
|
|
|
|
|
229,612
|
|
|
|
|
(1)
|
|
The amounts shown in this column represent the aggregate amount
of contributions made by our NEOs to the SSP in 2007. These
amounts are included in the Salary column of the
Summary Compensation Table.
|
|
(2)
|
|
The amounts shown in this column represent the aggregate amount
of employer contributions to the NEOs accounts under the
SSP in 2007. These amounts are also included in the All
Other Compensation column of the Summary Compensation
Table.
|
|
(3)
|
|
The amounts shown in this column represent the aggregate amount
of interest or other earnings credited to the NEOs
accounts under the SSP in 2007.
|
111
Executive
Employment Agreements
Consistent with our past practices, we have entered into
executive employment agreements with each of our NEOs at the
time they became an executive officer. Each agreement is between
the NEO and our subsidiary, CBI Holdings, Inc., CBI Holdings,
Inc. will be our wholly-owned subsidiary upon separation and is
the United States legal entity in which U.S. corporate functions
for Cadbury Schweppes Americas Beverages business were
historically included. The current executive employment
agreements each have a term of 10 years. In addition to
setting forth their basic duties, the executive employment
agreements provide the NEOs with a base salary and entitle them
to participate in the annual incentive plan and all other
applicable employee compensation and benefit plans and programs.
In the event we terminate Mr. Young or Mr. Stewart
without cause or they resign for good
reason during the employment term, they are entitled to
(1) a lump sum severance payment equal to 12 months of
their annual base salary and their Target Award under the annual
incentive plan; (2) a lump sum cash payment equal to their
annual incentive plan payment, pro-rated through the employment
termination date and based on the actual performance targets
achieved for the year in which such termination of employment
occurred; (3) salary continuation for up to 12 months
equal to their annual base salary and their Target Award under
the annual incentive plan (subject to mitigation for new
employment); and (4) medical, dental and vision benefits
for the salary continuation period. In the event we terminate
Mr. Gier, Mr. Johnston or Mr. Herrán
without cause or they resign for good
reason during the employment term, they are entitled to
(1) a lump sum severance payment equal to nine months of
their annual base salary and 75% of their Target Award under the
annual incentive plan; (2) a lump sum cash payment equal to
their annual incentive plan payment, pro-rated through the
employment termination date and based on the actual performance
targets achieved for the year in which such termination of
employment occurred; (3) salary continuation for up to nine
months equal to their annual base salary and Target Award under
the annual incentive plan (subject to mitigation for new
employment); and (4) medical, dental and vision benefits
for the salary continuation period. The NEOs are also entitled
to outplacement services for their salary continuation period
and certain payments under the qualified and non-qualified
pension plans. In the event a NEO is terminated without
cause or resigns for good reason, he is
entitled to have his unvested accrued benefits under the PEP
automatically vested. Such NEO will also be entitled to have his
accrued and unvested benefits under the PPA Plan paid under the
PEP. In addition, in the event the NEO is terminated due to
death or disability, he is entitled to his Target Award, pro
rated through the date on which his death or disability occurs.
Generally, cause is defined as termination of the
NEOs employment for his: (1) willful failure to
substantially perform his duties; (2) breach of a duty of
loyalty toward the company; (3) commission of an act of
dishonesty toward the company, theft of our corporate property,
or usurpation of our corporate opportunities; (4) unethical
business conduct including any violation of law connected with
the NEOs employment; or (5) conviction of any felony
involving dishonest or immoral conduct. Generally, good
reason is defined as a resignation by the NEO for any of
the following reasons: (1) our failure to perform any of
our material obligations under the employment agreement;
(2) a relocation by us of the NEOs principal place of
employment to a site outside a 50 mile radius of the
current site of the principal place of employment; or
(3) the failure by a successor to assume the employment
agreement.
The employment agreements include non-competition and
non-solicitation provisions. These provisions state that the NEO
will not, for a period of one year after termination of
employment, become engaged with companies that are in
competition with us, including but not limited to a
predetermined list of companies. Also, the NEO agrees for a
period of one year after termination of employment not to
solicit or attempt to entice away any of our employees or
directors.
Potential
Payments upon Certain Terminations of Employment
The following tables below outline the potential payments to
Mr. Young, Mr. Stewart, Mr. Gier,
Mr. Johnston and Mr. Herrán upon the occurrence
of various termination events, including termination for
cause or not for
112
good reason, termination without cause or
for good reason or termination due to death or
disability. The following assumptions apply with respect to the
tables below and any termination of employment of a NEO:
|
|
|
|
|
The tables include estimates of amounts that would have been
paid to Mr. Young, Mr. Stewart, Mr. Gier,
Mr. Herrán and Mr. Johnston assuming a
termination event occurred on December 31, 2007. The
employment of these NEOs did not actually terminate on
December 31, 2007, and as a result, these NEOs did not
receive any of the amounts shown in the tables below. The actual
amounts to be paid to a NEO in connection with a termination
event can only be determined at the time of such termination
event.
|
|
|
|
The tables assume that the price of Cadbury Schweppes ordinary
shares is $12.40 per share, the closing market price per share
on December 31, 2007. The price of an ordinary share was
converted from pounds sterling to U.S. dollars based on a
December 31, 2007 currency exchange rate of £1 to
$1.9973.
|
|
|
|
Each NEO is entitled to receive amounts earned during the term
of his employment regardless of the manner of termination. These
amounts include accrued base salary, accrued vacation time and
other employee benefits to which the NEO was entitled on the
date of termination, and are not shown in the tables below.
|
|
|
|
For purposes of the tables below, the specific definitions of
cause and good reason are defined in the
employment agreements of each NEO and are described below in the
section entitled Employment Agreements.
|
|
|
|
To receive the benefits under the employment agreements, each of
the NEOs is required to provide a general release of claims
against us and our affiliates and subject to mitigation for new
employment. In addition, if NEOs receive severance payments
under the employment agreements, they will not be entitled to
receive any severance benefits under the Cadbury Schweppes
general severance pay plan.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination
|
|
|
|
Termination
|
|
|
|
|
for Cause
|
|
|
|
Without Cause
|
|
|
|
|
or Resignation
|
|
|
|
or Resignation
|
|
|
|
|
without
|
|
|
|
for
|
Name
|
|
Compensation Element
|
|
Good Reason
|
|
Death/Disability
|
|
Good Reason
|
|
Larry D. Young
|
|
Salary Continuation Payments(1)
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
1,600,000
|
|
|
|
Lump Sum Cash Payments(2)
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
800,000
|
|
|
|
Lump Sum Target Award Annual Incentive Plan Payment(3)
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
800,000
|
|
|
|
Lump Sum 2007 Annual Incentive Plan Payment(4)
|
|
$
|
0
|
|
|
$
|
800,000
|
|
|
$
|
510,400
|
|
|
|
Accelerated Equity Vesting
Stock Options(5)
|
|
$
|
0
|
|
|
$
|
183,112
|
|
|
$
|
183,112
|
|
|
|
Bonus Share Retention Plan(6)
|
|
$
|
0
|
|
|
$
|
940,190
|
|
|
$
|
940,190
|
|
|
|
Long Term Incentive Plan(7)
|
|
$
|
0
|
|
|
$
|
1,032,408
|
|
|
$
|
1,032,408
|
|
|
|
Other(9)
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
125,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
0
|
|
|
$
|
2,955,710
|
|
|
$
|
5,991,866
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination
|
|
|
|
Termination
|
|
|
|
|
for Cause
|
|
|
|
Without Cause
|
|
|
|
|
or Resignation
|
|
|
|
or Resignation
|
|
|
|
|
without
|
|
|
|
for
|
Name
|
|
Compensation Element
|
|
Good Reason
|
|
Death/Disability
|
|
Good Reason
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John O. Stewart
|
|
Salary Continuation Payments(1)
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
900,000
|
|
|
|
Lump Sum Cash Payments(2)
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
500,000
|
|
|
|
Lump Sum Target Award Annual Incentive Plan Payment(3)
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
400,000
|
|
|
|
Lump Sum 2007 Annual Incentive Plan Payment(4)
|
|
$
|
0
|
|
|
$
|
400,000
|
|
|
$
|
218,266
|
|
|
|
Accelerated Equity Vesting
Bonus Share Retention Plan(6)
|
|
$
|
0
|
|
|
$
|
53,607
|
|
|
$
|
53,607
|
|
|
|
Long Term Incentive Plan(7)
|
|
$
|
0
|
|
|
$
|
283,116
|
|
|
$
|
283,116
|
|
|
|
International Share Award
Plan(8)
|
|
$
|
0
|
|
|
$
|
115,995
|
|
|
$
|
115,995
|
|
|
|
Other(9)
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
28,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
0
|
|
|
$
|
852,718
|
|
|
$
|
2,498,990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Randall E. Gier
|
|
Salary Continuation Payments(1)
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
568,013
|
|
|
|
Lump Sum Cash Payments(2)
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
344,250
|
|
|
|
Lump Sum Target Award Annual Incentive Plan Payment(3)
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
223,763
|
|
|
|
Lump Sum 2007 Annual Incentive Plan Payment(4)
|
|
$
|
0
|
|
|
$
|
298,350
|
|
|
$
|
190,378
|
|
|
|
Accelerated Equity Vesting
Stock Options(5)
|
|
$
|
0
|
|
|
$
|
78,204
|
|
|
$
|
78,204
|
|
|
|
Bonus Share Retention Plan(6)
|
|
$
|
0
|
|
|
$
|
656,838
|
|
|
$
|
656,838
|
|
|
|
Long Term Incentive Plan(7)
|
|
$
|
0
|
|
|
$
|
709,391
|
|
|
$
|
709,391
|
|
|
|
International Share Award
Plan(8)
|
|
$
|
0
|
|
|
$
|
114,246
|
|
|
$
|
114,246
|
|
|
|
Other(9)
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
164,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
0
|
|
|
$
|
1,857,029
|
|
|
$
|
3,049,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination
|
|
|
|
Termination
|
|
|
|
|
for Cause
|
|
|
|
Without Cause
|
|
|
|
|
or Resignation
|
|
|
|
or Resignation
|
|
|
|
|
without
|
|
|
|
for
|
Name
|
|
Compensation Element
|
|
Good Reason
|
|
Death/Disability
|
|
Good Reason
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James J.
Johnston, Jr.
|
|
Salary Continuation Payments(1)
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
544,500
|
|
|
|
Lump Sum Cash Payments(2)
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
330,000
|
|
|
|
Lump Sum Target Award Annual Incentive Plan Payment(3)
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
214,500
|
|
|
|
Lump Sum 2007 Annual Incentive Plan Payment(4)
|
|
$
|
0
|
|
|
$
|
286,000
|
|
|
$
|
182,497
|
|
|
|
Accelerated Equity Vesting
Stock Options(5)
|
|
$
|
0
|
|
|
$
|
78,204
|
|
|
$
|
78,204
|
|
|
|
Bonus Share Retention Plan(6)
|
|
$
|
0
|
|
|
$
|
302,713
|
|
|
$
|
302,713
|
|
|
|
Long Term Incentive Plan(7)
|
|
$
|
0
|
|
|
$
|
690,823
|
|
|
$
|
690,823
|
|
|
|
Other(9)
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
19,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
0
|
|
|
$
|
1,357,740
|
|
|
$
|
2,362,304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pedro Herrán Gacha
|
|
Salary Continuation Payments(1)
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
537,075
|
|
|
|
Lump Sum Cash Payments(2)
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
325,500
|
|
|
|
Lump Sum Target Award Annual Incentive Plan Payment(3)
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
211,575
|
|
|
|
Lump Sum 2007 Annual Incentive Plan Payment(4)
|
|
$
|
0
|
|
|
$
|
282,100
|
|
|
$
|
89,998
|
|
|
|
Accelerated Equity Vesting
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options(5)
|
|
$
|
0
|
|
|
$
|
78,204
|
|
|
$
|
78,204
|
|
|
|
Bonus Share Retention Plan(6)
|
|
$
|
0
|
|
|
$
|
392,947
|
|
|
$
|
392,947
|
|
|
|
Long Term Incentive Plan(7)
|
|
$
|
0
|
|
|
$
|
600,292
|
|
|
$
|
600,292
|
|
|
|
International Share Award
Plan(8)
|
|
$
|
0
|
|
|
$
|
266,856
|
|
|
$
|
266,856
|
|
|
|
Other(9)
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
19,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
0
|
|
|
$
|
1,620,399
|
|
|
$
|
2,521,514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The amount shown represents salary continuation in an amount
equal to (x) annual base salary and (y) Target Award.
The amount shown represents 100% for Mr. Young and
Mr. Stewart and 75% for Mr. Gier, Mr. Johnston
and Mr. Herrán, in each case, according to the terms
of their respective executive employment agreements.
|
|
(2)
|
|
The amount shown represents a lump sum cash payment equal to the
annual base salary for Mr. Young and Mr. Stewart and
75% of the annual base salary for Mr. Gier,
Mr. Johnston and Mr. Herrán.
|
|
|
|
(3)
|
|
The amount shown represents a lump sum payment under the annual
incentive plan equal to the Target Award for Mr. Young and
Mr. Stewart and equal to 75% of the Target Award for
Mr. Gier, Mr. Johnston and Mr. Herrán.
|
|
|
|
(4)
|
|
The amount shown under the Death/Disability column
represents each NEOs Target Award, pro-rated through the
assumed employment termination date. The amount shown under the
Termination Without
|
115
|
|
|
|
|
Cause or Resignation for Good Reason column represents a
lump sum cash payment equal to each NEOs 2007 annual
incentive plan payment, pro-rated through the assumed employment
termination date and based on the actual performance targets
achieved for the year in which such assumed termination of
employment occurred.
|
|
|
|
(5)
|
|
The amount shown represents the value of the unvested stock
options as of December 31, 2007 assuming the performance
targets have been achieved. These stock options remain
exercisable for 12 months from the employment termination
date.
|
|
(6)
|
|
The amount shown represents the combined value of
(i) Cadbury Schweppes ordinary shares that each NEO elected
to defer under the bonus share retention plan (the basic
shares), (ii) a matched share award equal to 40% of
the number of his basic shares, pro-rated through the assumed
employment termination date and (iii) a matched share award
equal to 60% of the number of his basic shares, pro-rated
through the employment termination date and assuming that the
maximum performance targets were achieved.
|
|
(7)
|
|
The amount shown represents the value of unvested equity awards
under the long term incentive plan as of December 31, 2007,
assuming the achievement of performance targets and pro-rated
through the employment termination date.
|
|
(8)
|
|
The amount shown represents the value of unvested share awards
under the international share award plan, pro-rated through the
employment termination date.
|
|
(9)
|
|
The amounts shown in the Termination Without Cause or
Resignation for Good Reason column reflect the following
elements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested
|
|
|
|
|
|
|
|
|
Accrued
|
|
|
|
|
Medical, Dental
|
|
Outplacement
|
|
Pension
|
|
|
|
|
and Vision Benefits
|
|
Services
|
|
Benefit
|
|
|
|
|
($)(a)
|
|
($)
|
|
($)(b)
|
|
Total
|
|
Mr. Young
|
|
|
12,156
|
|
|
|
78,600
|
|
|
|
35,000
|
|
|
|
125,756
|
|
Mr. Stewart
|
|
|
12,156
|
|
|
|
10,850
|
|
|
|
5,000
|
|
|
|
28,006
|
|
Mr. Gier
|
|
|
9,117
|
|
|
|
9,950
|
|
|
|
145,000
|
|
|
|
164,067
|
|
Mr. Johnston
|
|
|
9,117
|
|
|
|
9,950
|
|
|
|
|
|
|
|
19,067
|
|
Mr. Herrán
|
|
|
9,117
|
|
|
|
9,950
|
|
|
|
|
|
|
|
19,067
|
|
|
|
|
|
(a)
|
Estimated combined cash value over
the salary continuation period.
|
|
|
(b)
|
Unvested accrued benefits under the
Cadbury Schweppes PPA Plan and PEP to be paid to the NEO under
the PEP.
|
Separation
Arrangements Related to Mr. Cassagne and
Mr. Belsito
Mr. Cassagnes Separation.
Pursuant
to the terms of his executive employment agreement,
Mr. Cassagne is entitled to (1) a lump sum payment of
$1,800,000, which is equal to the sum of his annual base salary
and his full Target Award under the annual incentive plan;
(2) a lump sum payment equal to his annual incentive plan
payment, pro-rated through his employment termination date and
based on the actual performance targets achieved for the year in
which such termination of employment occurred; (3) salary
continuation for up to 12 months equal to a total of
$1,800,000 (subject to mitigation for new employment);
(4) medical, dental and vision benefits continuation for
the salary continuation period; (5) his accrued vested
awards under the bonus share retention plan and long term
incentive plan; (6) an award under the integration success
share plan of 50,000 Cadbury Schweppes ordinary shares in the
first quarter of 2008; and (7) transitional employment
services for 12 months. Pursuant to the terms of the
Cadbury Schweppes share option plan, Mr. Cassagne will be
able to exercise all of his vested stock options, as of his
departure date, until October 11, 2008. In addition,
Mr. Cassagne will be able to exercise all of his unvested
performance options for 12 months following the third
anniversary of the date of grant, to the extent the performance
targets are met at the end of the three-year performance period.
To the extent the performance targets are not met at the end of
the third anniversary of the date of grant, the performance
targets will be reviewed again at the fifth anniversary of the
date of grant. If the performance targets are met,
Mr. Cassagne will be entitled to
116
exercise the options for 12 months following the
satisfaction of the performance period. If the performance
targets are not met, all of his unvested options will be
forfeited.
Mr. Belsitos Separation.
Pursuant
to the terms of his executive employment agreement,
Mr. Belsito is entitled to (1) a lump sum payment of
$853,200, which is equal to the sum of his annual base salary
and his full Target Award under the annual incentive plan;
(2) a lump sum payment equal to his annual incentive plan
payment, pro-rated through his employment termination date and
based on the actual performance targets achieved for the year in
which such termination of employment occurred; (3) salary
continuation for up to 12 months equal to a total of
$853,200 (subject to mitigation for new employment);
(4) medical, dental and vision benefits continuation for
the salary continuation period; (5) his accrued vested
award under the bonus share retention plan and long term
incentive plan; (6) an award under the integration success
share plan of 10,000 Cadbury Schweppes ordinary shares in the
first quarter of 2008; and (7) transitional employment
services for 12 months. Pursuant to the terms of the
Cadbury Schweppes share option plan, Mr. Belsito will be
able to exercise all of his vested stock options, as of his
departure date, until December 18, 2008. In addition,
Mr. Belsito will be able to exercise 100% of his unvested
performance options for 12 months following the third
anniversary of the date of grant, to the extent the performance
targets are met at the end of the three-year performance period.
To the extent the performance targets are not met at the end of
the third anniversary, the performance targets will be reviewed
again at the fifth anniversary of the date of grant. If the
performance targets are met, Mr. Belsito will be entitled
to exercise the options for 12 months following the
satisfaction of the performance period. If the performance
targets are not met, all of his unvested options will be
forfeited.
The tables below include the actual termination payments accrued
by Mr. Cassagne and Mr. Belsito as of their date of
separation on October 12, 2007 and December 19, 2007,
respectively.
117
|
|
|
|
|
|
|
|
|
|
|
Separation from
|
Name
|
|
Compensation Element
|
|
Service Payment
|
|
Gilbert M. Cassagne
|
|
Salary Continuation Payments(1)
|
|
$
|
1,800,000
|
|
|
|
Lump Sum Cash Payments(2)
|
|
$
|
900,000
|
|
|
|
Lump Sum Annual Incentive Plan Payment(3)
|
|
$
|
900,000
|
|
|
|
Lump Sum 2007 Annual Incentive Plan Payment(4)
|
|
$
|
448,406
|
|
|
|
Accelerated Equity Vesting
|
|
|
|
|
|
|
Stock Options(5)
|
|
$
|
227,868
|
|
|
|
Long Term Incentive Plan(6)
|
|
$
|
2,281,155
|
|
|
|
Integration Success Share
Plan(7)
|
|
$
|
612,712
|
|
|
|
Other(9)
|
|
$
|
90,756
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,260,897
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John L. Belsito
|
|
Salary Continuation Payments(1)
|
|
$
|
853,200
|
|
|
|
Lump Sum Cash Payments(2)
|
|
$
|
474,000
|
|
|
|
Lump Sum Annual Incentive Plan Payment(3)
|
|
$
|
379,200
|
|
|
|
Lump Sum 2007 Annual Incentive Plan Payment(4)
|
|
$
|
241,414
|
|
|
|
Accelerated Equity Vesting
|
|
|
|
|
|
|
Stock Options(5)
|
|
$
|
67,437
|
|
|
|
Long Term Incentive Plan(6)
|
|
$
|
1,280,622
|
|
|
|
Integration Success Share
Plan(7)
|
|
$
|
124,588
|
|
|
|
Bonus Share Retention Plan(8)
|
|
$
|
304,729
|
|
|
|
Other(9)
|
|
$
|
23,006
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,748,196
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The amount shown represents salary continuation in an amount
equal to (x) the annual base salary and (y) Target
Award.
|
|
(2)
|
|
The amount shown represents a lump sum cash payment equal to the
annual base salary.
|
|
(3)
|
|
The amount shown represents a lump sum payment under the annual
incentive plan equal to the Target Award.
|
|
(4)
|
|
The amount shown represents a lump sum cash payment equal to
each NEOs 2007 annual incentive plan payment, pro-rated
through the employment termination date and based on the actual
performance targets achieved for 2007.
|
|
(5)
|
|
The amount shown represents the value of the unvested stock
options through the employment termination date for
Mr. Cassagne and Mr. Belsito, October 17, 2007
and December 19, 2007, respectively assuming the
performance targets were achieved. To the extent the performance
targets are not met at the end of the third anniversary of the
date of grant, the performance targets will be reviewed again at
the fifth anniversary of the date of grant. If the performance
targets are met, each NEO will be entitled to exercise the
options for 12 months following the satisfaction of the
performance period. If the performance targets are not met, all
of their unvested options will be forfeited.
|
|
(6)
|
|
The amount shown represents the value of the unvested equity
awards under the long term incentive plan through the employment
termination date.
|
118
|
|
|
(7)
|
|
The amount shown represents the value of the unvested award
under the integration success share plan pro-rated through the
employment termination date.
|
|
(8)
|
|
The amount shown represents the combined value of
(i) Cadbury Schweppes ordinary shares that Mr. Belsito
elected to defer under the bonus share retention plan (the
basic shares), (ii) a matched share award equal
to 40% of the number of his basic shares, pro-rated through the
employment termination date and (iii) a matched share award
equal to 60% of the number of his basic shares, pro-rated
through the employment termination date and assuming that the
maximum performance targets were achieved.
|
|
(9)
|
|
This amount represents the estimated combined cash value over
the salary continuation period of the continuation of medical,
dental and vision benefits for Mr. Cassagne ($12,156) and
Mr. Belsito ($12,156) and transitional employment services
for Mr. Cassagne ($78,600) and for Mr. Belsito
($10,850).
|
New
Plans
Prior to the separation, we intend to adopt the following plans:
the Dr Pepper Snapple Group, Inc. Omnibus Stock Incentive Plan
of 2008 (the stock incentive plan), the Dr Pepper
Snapple Group, Inc. Annual Cash Incentive Plan (the cash
incentive plan) and the Dr Pepper Snapple Group, Inc.
employee stock purchase plan (the ESPP).
Omnibus Stock Incentive Plan of 2008
Prior to the separation, we intend to adopt the Dr Pepper
Snapple Group, Inc. Omnibus Stock Incentive Plan of 2008, which
will allow us to reward employees, non-employee directors and
consultants by enabling them to acquire shares of common stock
of Dr Pepper Snapple Group, Inc. The following is a summary of
the expected terms of the stock incentive plan, which is
qualified in its entirety to the provisions of the stock
incentive plan that may be approved by the Cadbury Schweppes
share incentive committee.
Common Stock Available for Awards.
The maximum
number of shares of common stock available for issuance under
the stock incentive plan will be 9,000,000 shares. In the
discretion of our compensation committee, 2,000,000 of these
shares of common stock may be granted in the form of incentive
stock options. If any shares covered by an award are cancelled,
forfeited, terminated, expire unexercised or are settled through
issuance of consideration other than shares of our common stock
(including, without limitation, cash), these shares will again
become available for award under the stock incentive plan.
Eligibility.
Awards may be made under the
stock incentive plan to any employee of the company or its
subsidiaries, or any of our non-employee directors or
consultants. Because participation and the types of awards under
the stock incentive plan are subject to the discretion of our
compensation committee, the number of participants in the plan
and the benefits or amounts that will be received by any
participant or groups of participants, if the stock incentive
plan is approved, are not currently determinable.
Administration.
Prior to the separation, the
remuneration committee of the board of directors of Cadbury
Schweppes will administer the stock incentive plan. After the
separation, our compensation committee will administer the stock
incentive plan. Subject to the terms of the stock incentive
plan, the administrator of the plan may select participants to
receive awards, determine the types of awards and the terms and
conditions of awards, interpret provisions of the plan and make
all factual and legal determinations regarding the plan and any
award agreements.
Types of Awards.
The stock incentive plan
provides for grants of stock options (which may consist of
incentive stock options or nonqualified stock options), stock
appreciation rights, stock awards (which may consist of
restricted stock and restricted stock unit awards) or
performance awards. The terms of the awards will be embodied in
an award agreement and awards may be granted singly, in
combination or in tandem. All or part of an award may be subject
to such terms and conditions established by our compensation
committee, including, but not limited to, continuous service
with the company and its subsidiaries, achievement of specific
business objectives and attainment of performance goals. No
award may be repriced without shareholder approval.
119
|
|
|
|
|
Stock Options and Stock Appreciation
Rights.
The stock incentive plan permits the
granting of stock options to purchase shares of common stock and
stock appreciation rights. The exercise price of each stock
option and stock appreciation right may not be less than the
fair market value of our common stock on the date of grant. The
term of each stock option or stock appreciation right will be
set by our compensation committee and may not exceed ten years
from the date of grant. Our compensation committee will
determine the date each stock option or stock appreciation right
may be exercised and the period of time, if any, after
retirement, death, disability or other termination of employment
during which stock options or stock appreciation rights may be
exercised. In general, a grantee may pay the exercise price of
an option in cash or shares of common stock. Our compensation
committee may allow the grantee to exercise an option by means
of a cashless exercise.
|
|
|
|
Stock Awards.
The stock incentive plan permits
the granting of stock awards. Stock awards that are not
performance awards will be restricted for a minimum period of
three years from the date of grant; provided, however, that our
compensation committee may provide for earlier vesting following
an employees termination of employment for death,
disability or retirement or upon a change of control or other
specified events. The three-year restricted period does not
apply to stock awards that are granted in lieu of salary or
bonus or to replace awards forfeited in connection with the
separation. Vesting of the stock awards may occur incrementally
over the three-year restricted period.
|
|
|
|
Performance Awards.
The stock incentive plan
permits the granting of performance awards. Performance awards
will be restricted for a minimum period of one year from the
date of grant; provided, however, our compensation committee may
provide for earlier vesting following an employees
termination of employment for death, disability or retirement or
upon a change of control or other specified events. Our
compensation committee will determine the terms, conditions and
limitations applicable to the performance awards and set the
performance goals in its discretion. The performance goals will
determine the value and amount of performance awards that will
be paid to participants and the portion of an award that may be
exercised to the extent such performance goals are met.
Performance awards may be designed by our compensation committee
to qualify as performance-based compensation under
Section 162(m) of the Internal Revenue Code
(Section 162(m)) but are not required to
qualify under Section 162(m). For purposes of
Section 162(m), performance goals will be designated by our
compensation committee and will be based upon one or more of the
following performance goal measures:
|
|
|
|
|
|
revenue and income measures (including those relating to
revenue, gross margin, income from operations, net income, net
sales and earnings per share);
|
|
|
|
|
|
expense measures (including those relating to costs of goods
sold, selling, general and administrative expenses and overhead
costs);
|
|
|
|
operating measures (including those relating to volume, margin,
productivity and market share);
|
|
|
|
cash flow measures (including those relating to net cash flow
from operating activities and working capital);
|
|
|
|
liquidity measures (including those relating to earnings before
or after the effect of certain items such as interest, taxes,
depreciation and amortization, and free cash flow);
|
|
|
|
leverage measures (including those relating to debt-to-equity
ratio and net debt);
|
|
|
|
market measures (including those relating to stock price, total
shareholder return and market capitalization measures);
|
|
|
|
return measures (including those relating to return on equity,
return on assets and return on invested capital);
|
120
|
|
|
|
|
corporate value measures (including those relating to
compliance, safety, environmental and personnel
matters); and
|
|
|
|
other measures such as those relating to acquisitions,
dispositions or customer satisfaction.
|
Any performance criteria selected by our compensation committee
may be used to measure our performance as a whole or the
performance of any of our segments, and may be measured for the
company alone or relative to a peer group or index.
Awards to Non-Employee Directors.
Our
compensation committee may grant non-employee directors one or
more awards and establish the terms of the award in the
applicable award agreement. No award will confer upon any
director any right to serve as a director for any period of time
or to continue at any rate of compensation.
Award Payments.
Awards may be paid in cash,
common stock or a combination of cash and common stock. At the
discretion of our compensation committee, the payment of awards
may also be deferred, subject to compliance with
Section 409A of the Internal Revenue Code. In addition, in
the discretion of our compensation committee, rights to
dividends or dividend equivalents may be extended to any shares
of common stock or units denominated in shares of common stock.
Under the plan, during any one-year period, participants may not
be granted options or stock appreciation rights exercisable for
more than 500,000 shares of common stock or stock awards
exercisable for more than 250,000 shares of common stock.
Adjustments.
If any changes in shares of
common stock resulting from stock splits, stock dividends,
reorganizations, recapitalizations, any merger or consolidation
of the company, or any other event that affects our
capitalization occurs, the terms of any outstanding awards and
the number of shares of common stock issuable under the stock
incentive plan may be adjusted in order to prevent enlargement
or dilution of the benefits or potential benefits intended to be
made available under the stock incentive plan.
Section 162(m) of the Internal Revenue
Code.
Section 162(m) limits us to an annual
deduction for federal income tax purposes of $1,000,000 for
compensation paid to covered employees. Performance-based
compensation is excluded from this limitation. The stock
incentive plan is designed to permit our compensation committee
to grant awards that qualify as performance-based for purposes
of satisfying the conditions of Section 162(m).
Assignability.
No award under the stock
incentive plan is assignable or otherwise transferable, unless
otherwise determined by our compensation committee.
Amendment, Modification and Termination.
The
stock incentive plan will terminate automatically ten years
after its effective date, which will be the date of the
separation. Our board or our compensation committee may amend,
modify, suspend or terminate the stock incentive plan, to the
extent that no such action will materially adversely affect the
rights of a participant holding an outstanding award under the
stock incentive plan without such participants consent,
and no such action will be taken without shareholder approval,
to the extent shareholder approval is legally required.
Federal Income Tax Consequences of Awards
.
|
|
|
|
|
Incentive Stock Options.
The grant of an
incentive stock option under the stock incentive plan will not
be a taxable event for the grantee or the company. A grantee
will not recognize taxable income upon exercise of an incentive
stock option, except that the alternative minimum tax may apply,
and any gain realized upon a disposition of shares of common
stock received pursuant to the exercise of an incentive stock
option will be taxed as long-term capital gain if the grantee
holds the shares for at least two years after the date of grant
and for one year after the date of exercise, or the applicable
capital gains holding period requirement. We will not be
entitled to any tax deduction with respect to the exercise of an
incentive stock option, except as discussed below.
|
121
|
|
|
|
|
For the exercise of a stock option to qualify for the foregoing
tax treatment, the grantee generally must be an employee of the
company from the date the stock option is granted through a date
within three months before the date of exercise of the stock
option.
|
|
|
|
If all of the foregoing requirements are met, except the
applicable capital gains holding period requirement discussed
above, the grantee will recognize ordinary income upon the
disposition of the shares in an amount generally equal to the
excess of the fair market value of the shares at the time the
stock option was exercised over the stock option exercise price,
but not in excess of the gain realized on the sale. The balance
of the realized gain, if any, will be short-term or long-term
capital gain. We will be allowed a tax deduction to the extent
the grantee recognizes ordinary income, subject to our
compliance with Section 162(m) and to certain tax reporting
requirements.
|
|
|
|
|
|
Nonqualified Stock Options.
The grant of a
nonqualified stock option under the stock incentive plan will
not be a taxable event for the grantee or the company. Upon
exercising a nonqualified stock option, a grantee will recognize
ordinary income in an amount equal to the difference between the
exercise price and the fair market value of the shares on the
date of exercise. Upon a subsequent sale or exchange of shares
acquired pursuant to the exercise of a non-qualified stock
option, the grantee will have taxable capital gain or loss,
measured by the difference between the amount realized on the
disposition and the tax basis of the shares, generally, the
amount paid for the shares plus the amount treated as ordinary
income at the time the stock option was exercised. If we comply
with applicable reporting requirements and with the restrictions
of Section 162(m), we will be entitled to a tax deduction
in the same amount and generally at the same time as the grantee
recognizes ordinary income.
|
|
|
|
Stock Appreciation Rights.
There are no
immediate tax consequences of receiving an award of stock
appreciation rights under the stock incentive plan. Upon
exercising a stock appreciation right, a grantee will recognize
ordinary income in an amount equal to the difference between the
exercise price and the fair market value of the shares on the
date of exercise. If we comply with applicable reporting
requirements and with the restrictions of Section 162(m),
we will be entitled to a tax deduction in the same amount and
generally at the same time as the grantee recognizes ordinary
income.
|
|
|
|
Restricted Stock.
A grantee who is awarded
restricted stock under the stock incentive plan will not
recognize any taxable income for federal income tax purposes in
the year of the award, provided that the shares are
nontransferable and subject to a substantial risk of forfeiture.
However, the grantee may elect under Section 83(b) of the
Internal Revenue Code to recognize ordinary income in the year
of the award in an amount equal to the fair market value of the
shares on the date of the award, less the purchase price, if
any, determined without regard to the restrictions. If the
grantee does not make such a Section 83(b) election, the
fair market value of the shares on the date the restrictions
lapse, less the purchase price, if any, will be treated as
ordinary income to the grantee and will be taxable in the year
the restrictions lapse. We will be entitled to a tax deduction
in the same amount and generally at the same time as the grantee
recognizes ordinary income.
|
|
|
|
Restricted Stock Units.
A grantee who is
awarded a restricted stock unit under the stock incentive plan
will not recognize any taxable income for federal income tax
purposes and the company will not be entitled to a tax
deduction, in each case at that time. When the restricted stock
unit award vests and shares are transferred to the grantee, the
grantee will recognize ordinary income in an amount equal to the
fair market value of the transferred shares at such time less
any cash consideration which the grantee paid for the shares,
and the company will be entitled to a corresponding deduction.
Any gain or loss realized upon the grantees sale or
exchange of the shares will be treated as long-term or
short-term capital gain or loss. The grantees basis for
the shares will be the amount recognized as taxable compensation
plus any cash consideration which the grantee paid for the
shares. The grantees holding period for the shares will
begin on the day after the date the shares are transferred to
the grantee.
|
|
|
|
Performance Awards.
The grant of a performance
award under the stock incentive plan will not be a taxable event
for the company. The payment of the award is taxable to a
grantee as ordinary income. If we comply with applicable
reporting requirements and with the restrictions of
Section 162(m), we will be
|
122
|
|
|
|
|
entitled to a tax deduction in the same amount and generally at
the same time as the grantee recognizes ordinary income.
|
Cash
Incentive Plan
Prior to the separation, we intend to adopt the Dr Pepper
Snapple Group, Inc. Annual Cash Incentive Plan, which will allow
us to reward employees by enabling them to receive
performance-based cash compensation. The following is a summary
of the expected terms of the cash incentive plan, which is
qualified in its entirety to the provisions of the cash
incentive plan that may be approved by Cadbury Schweppes.
Eligibility.
Awards may be made under the cash
incentive plan to any employee of the company or its
subsidiaries, in the discretion of our compensation committee.
Because participation and the types of awards under the cash
incentive plan are subject to the discretion of our compensation
committee, the number of participants in the plan and the
benefits or amounts that will be received by any participant, or
groups of participants, if the plan is approved, are not
currently determinable.
Administration.
Prior to the separation, the
remuneration committee of the board of directors of Cadbury
Schweppes will administer the cash incentive plan. After the
separation, our compensation committee will administer the cash
incentive plan. Subject to the terms of the cash incentive plan,
the administrator of the plan may select participants to receive
awards, determine the terms and conditions of awards, interpret
provisions of the plan and make factual and legal determinations
regarding the plan and any award agreements.
Awards.
The terms of the cash awards will be
embodied in an award agreement. All or part of an award may be
subject to such terms and conditions established by our
compensation committee, including, but not limited to,
continuous service with the company and its subsidiaries and the
attainment of performance goals. For purposes of
Section 162(m), performance goals for the performance-based
awards will be designated by our compensation committee and will
be based upon one or more of the performance goals set forth
under Omnibus Stock Incentive Plan of
2008 Types of
Awards Performance Awards.
Our compensation committee will review and determine the terms,
conditions and limitations applicable to the awards. For
individuals participating in the cash incentive plan for 2008,
the weighting of the performance goals currently will be based
60% on our underlying operating profit and 40% on our net sales
in 2008. The maximum annual award that may be made to any
participant under the cash incentive plan may not exceed
$5,000,000.
Award Payments.
Awards will be paid in cash.
At the discretion of our compensation committee, the payment of
awards may also be deferred, subject to compliance with
Section 409A of the Internal Revenue Code.
Adjustments.
If, during a performance period,
any merger, consolidation, acquisition, separation,
reorganization, liquidation or any other event occurs which has
the effect of distorting the applicable performance measures,
the performance goals may be adjusted or modified to the extent
permitted by Section 162(m) in order to prevent enlargement
or dilution of the benefits or potential benefits intended to be
made available under the cash incentive plan.
Section 162(m) of the Internal Revenue
Code.
The incentive plan is designed to permit
our compensation committee to grant awards that qualify as
performance-based for purposes of satisfying the conditions of
Section 162(m).
Assignability.
No award under the cash
incentive plan is assignable or otherwise transferable, unless
otherwise determined by our compensation committee.
Amendment, Modification and Termination.
The
cash incentive plan will terminate automatically ten years after
its effective date, which will be the date of the separation.
Our board or our compensation committee may amend, modify,
suspend or terminate the cash incentive plan, to the extent that
no such action will materially adversely affect the rights of a
participant entitled to an award under the incentive plan
without such participants
123
consent, and no such action will be taken without shareholder
approval, to the extent shareholder approval is legally required.
Employee
Stock Purchase Plan
Prior to the separation, we intend to adopt the Dr Pepper
Snapple Group, Inc. Employee Stock Purchase Plan that provides
for the purchase of shares of our common stock by eligible
employees. The following is a summary of the expected terms of
the ESPP, which is qualified in its entirety to the provisions
of the ESPP that may be approved by the Cadbury Schweppes share
incentive committee.
Reserved Shares Available for
Purchase.
Subject to adjustment, the maximum
number of shares available for purchase under the ESPP is
2,250,000 shares.
Eligibility.
Eligible employees may include
certain employees of the company or its subsidiaries that meet
certain requirements defined by our compensation committee
(excluding otherwise eligible employees whose participation in
the ESPP would cause them to own common stock equaling 5% or
more of the combined voting power or value of all classes of our
stock).
Participation.
Participation in the ESPP will
be voluntary and dependent upon each eligible employees
election to contribute a portion of his or her compensation to
an ESPP account, subject to limits set forth in the Internal
Revenue Code.
Administration.
Our compensation committee
will administer the ESPP. Subject to the terms of the ESPP, our
compensation committee will have the authority to interpret
provisions of the plan and make all factual and legal
determinations regarding the plan.
Stock Purchases.
At the determination of our
compensation committee, subject to limits set forth in the
Internal Revenue Code, shares of our common stock may be
purchased on the last business day of the purchase period at
between 85% to 100% of the fair market value of the common stock
on any of (1) the first business day of the purchase
period, (2) the last business day of the purchase period or
(3) the lower of the first or last business day of the
purchase period, as determined by our compensation committee.
Our compensation committee may specify the maximum number of
shares of common stock that each participant may purchase during
any purchase period. A purchase period shall be the
12-month
period commencing on each January 1, or such other period
as may be determined by our compensation committee not to exceed
27 months.
Withdrawal of Participation / Termination of
Employment.
A participant may elect to cease
participation in the ESPP at any time and withdraw all
contributions credited to his or her ESPP account. If a
participants employment with us terminates for any reason,
the participant will automatically cease to participate in the
ESPP and we will refund all contributions credited to his or her
ESPP account without interest.
Adjustments.
If, during a purchase period, any
changes in shares of common stock resulting from stock splits,
stock dividends, reorganizations, recapitalizations, any merger
or consolidation of the company, or any other event that affects
our capitalization occurs, the right to purchase shares during
any purchase period, the maximum number and price of the shares
of common stock that may be purchased and the number of shares
authorized under the ESPP may be adjusted in order to prevent
enlargement or dilution of the benefits or potential benefits
intended to be made available under the ESPP.
Amendment and Termination.
Our board or our
compensation committee may amend, modify, suspend or terminate
the ESPP; provided, however, that no such action will be taken
without shareholder approval, to the extent shareholder approval
is legally required.
Federal Income Tax Consequences of Awards.
The
ESPP is intended to qualify as an Employee Stock Purchase
Plan under Section 423 of the Internal Revenue Code
(Section 423). Under Section 423, a
participant who purchases common stock through the ESPP will not
recognize any income at the time of the purchase for the
124
difference between the fair market value of the common stock at
the time of purchase and the purchase price. If a participant
disposes of common stock purchased through the ESPP two or more
years after the first day of the purchase period or one year or
more after the date the purchase right is exercised, whichever
is later, the participant will recognize ordinary income equal
to the lesser of (1) the amount by which the fair market
value of the common stock when purchased exceeds the purchase
price, and (2) the amount, if any, by which the common
stocks fair market value at the time of disposition
exceeds the purchase price. The participants tax basis in
the common stock will be increased by the amount recognized as
ordinary income and any further gain recognized on the
disposition will be treated as long- term capital gain or loss.
In general, we will not be entitled to a tax deduction with
respect to the disposition of common stock described in this
paragraph.
If the participant disposes of shares of common stock acquired
under the ESPP within two years after the first day of the
purchase right period or within one year after the date the
purchase right is exercised, whichever is later, the participant
will recognize ordinary income, and we will be entitled to a tax
deduction in an amount equal to the excess of the fair market
value of the common stock on the last day of the purchase right
period over the purchase price of the common stock under the
ESPP. The participants tax basis in the common stock will
be increased by the amount recognized as ordinary income. In
addition, upon disposition of the common stock, the participant
will recognize ordinary income or loss equal to the difference
between the price at which the common stock is disposed of and
the cost basis of the common stock, as so increased. We will be
entitled to any tax deduction with respect to the amount
recognized by the participant as ordinary income.
125
OWNERSHIP
OF OUR COMMON STOCK
The following table sets forth the expected beneficial ownership
of our common stock calculated as of March 19, 2008, based
upon the distribution of 0.12 shares of our common stock
for every Cadbury Schweppes ordinary share by:
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each stockholder who is expected following the distribution to
beneficially own more than 5% of our common stock;
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each executive officer;
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each of our directors; and
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all of our executive officers and directors as a group.
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To the extent our directors and executive officers own ordinary
shares of Cadbury Schweppes at the time of the distribution,
they will participate in the distribution on the same terms as
other holders of ordinary shares of Cadbury Schweppes.
Following the distribution, we will have an aggregate of
approximately 253.4 million shares of common stock
outstanding, based on approximately 2.1 billion ordinary
shares of Cadbury Schweppes outstanding on March 13, 2008.
Following the distribution, we will have approximately
55,000 holders of our common stock, based upon such number
of Cadbury Schweppes shareholders as of March 13, 2008. The
percentage ownership of each beneficial owner of Cadbury
Schweppes will be the same in DPS after the distribution.
The number of shares beneficially owned by each stockholder,
director or officer is determined according to the rules of the
SEC and the information is not necessarily indicative of
beneficial ownership for any other purpose. The mailing address
for each of the directors and executive officers listed below is
c/o Dr
Pepper Snapple Group, Inc., 5301 Legacy Drive, Plano, Texas
75024.
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Shares of Common Stock
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Beneficially Owned
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Name of Beneficial Owner
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Number
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Percent
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Wayne R. Sanders
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0
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*
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Larry D. Young
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1,617
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*
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John O. Stewart
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1,764
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*
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James L. Baldwin, Jr.
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2,008
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*
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Rodger L. Collins
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0
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*
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Randall E. Gier
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8,356
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*
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Pedro Herrán Gacha
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2,132
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*
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Derry L. Hobson
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0
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*
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James J. Johnston, Jr.
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7,810
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*
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Lawrence N. Solomon
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6,069
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*
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Terence D. Martin
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0
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*
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Pamela H. Patsley
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0
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*
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Jack L. Stahl
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0
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*
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M. Anne Szostak
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0
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*
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All executive officers and directors as a group (14 persons)
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29,756
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*
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126
DESCRIPTION
OF INDEBTEDNESS
Overview
On March 10, 2008, we entered into arrangements with a
group of lenders to provide us with an aggregate of
$4.4 billion of financing. The new arrangements consist of
a $2.4 billion senior credit agreement that provides a
$1.9 billion term loan A facility and a $500 million
revolving credit facility (collectively, the senior credit
facility) and a
364-day
bridge credit agreement that provides a $2.0 billion bridge
loan facility.
We currently expect to borrow an aggregate of $3.9 billion
under the term loan A facility and the bridge loan facility
prior to the completion of the separation (assuming the
conditions to such borrowing have been satisfied or waived) and
proceeds will be held in escrow pending completion of the
separation. The principal conditions to the release of the
escrow funds are:
(i) the accuracy of representations and warranties with
respect to the separation;
(ii) the accuracy of representations and warranties
relating to the subsidiary guarantees to be delivered at the
time of separation and the absence of specified defaults
relating to insolvency of our company or any of our guarantors;
(iii) the execution and delivery of the subsidiary
guarantees, along with the delivery of customary corporate
certificates, resolutions, opinions and other information
relating to the guarantors;
(iv) the absence of governmental orders, judgments or
decrees enjoining or prohibiting the financing transactions;
(v) the maintenance by us of specified investment grade
corporate and debt ratings from the funding date through
April 30, 2008; and
(vi) the occurrence of an agreed upon marketing period
prior to the release from escrow in which to market notes to be
issued by us to refinance any borrowings under the bridge loan
facility.
The commitments of the lenders to lend under the senior credit
facility and bridge loan facility will terminate on
April 18, 2008 if the shareholders have not approved the
separation by that date and otherwise on May 13, 2008 if
all the conditions have not been satisfied or waived by that
date.
The funds released from escrow will, be used to settle
related-party debt and other balances with Cadbury Schweppes,
eliminate Cadbury Schweppes net investment in us and pay
$100 million of fees and expenses related to the new credit
facilities.
We do not expect to make any borrowings under the revolving
credit facility at the time of the separation (except to the
extent replacing certain existing letters of credit).
We currently intend, subject to prevailing market conditions, to
replace all or a portion of the bridge loan facility with the
proceeds of the issuance of one or more series of notes
and/or
an
alternative term loan facility. These notes
and/or
the
alternative term loan facility would have terms that would
differ from those contemplated for the bridge loan, including
longer maturities, non-call periods and higher interest rates.
We cannot assure you that we will be able to replace all or a
portion of the bridge loan facility with notes or an alternate
term loan facility or what the terms of any such notes or
facility would be.
The documentation relating to the senior credit facility and
bridge loan facility contains certain provisions that allow the
bookrunners to increase the interest rates or yield of the
loans, add collateral, reallocate up to $500 million
between the term loan A facility and the bridge loan facility
(and vice versa) and modify other terms and aspects of the
facilities, in each case within a limit agreed upon by us.
127
The following is a description of the material terms of the
senior credit facility and the bridge loan facility. The
summaries of the facilities are qualified in their entirety by
the specific terms and provisions of the senior credit agreement
and the bridge loan agreement, respectively, copies of which are
included as exhibits to the registration statement of which this
information statement is a part. You should read these documents
carefully.
Senior
Credit Facility
On March 10, 2008, we entered into a senior credit
agreement with J.P. Morgan Securities Inc. and Banc of
America Securities LLC, as joint lead arrangers,
J.P. Morgan Securities Inc., Banc of America Securities
LLC, Goldman Sachs Credit Partners L.P., Morgan Stanley Senior
Funding, Inc. and UBS Securities LLC, as joint bookrunners, Bank
of America, N.A., as syndication agent, JPMorgan Chase Bank,
N.A., as administrative agent, Goldman Sachs Credit Partners
L.P., Morgan Stanley Senior Funding, Inc. and UBS Securities
LLC, as documentation agents and the lenders parties thereto.
Our new senior credit agreement provides senior unsecured
financing of up to $2.4 billion, consisting of:
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a senior unsecured term loan A facility in an aggregate
principal amount of $1.9 billion with a term of five years,
all of which is expected to be drawn prior to the separation.
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a revolving credit facility in an aggregate principal amount of
$500 million with a term of five years, none of which is
expected to be drawn at the time of the separation (except to
the extent replacing certain existing letters of credit) and all
of which is expected to be available for working capital and
general corporate purposes. Up to $75 million of the
revolving credit facility is available for the issuance of
letters of credit.
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Interest
Rates and Fees
Borrowings under the senior credit facility will bear interest
at a floating rate per annum based upon the London interbank
offered rate for dollars (LIBOR) or the alternate
base rate (ABR), in each case plus an applicable
margin which varies based upon our debt ratings, from 1.00% to
2.50%, in the case of LIBOR loans and 0.00% to 1.50% in the case
of ABR loans. The alternate base rate means the greater of
(a) JPMorgan Chase Banks prime rate and (b) the
federal funds effective rate plus
1
/
2
of 1%. We anticipate, based on our expected debt ratings, that
at the time of the separation the applicable margin for LIBOR
loans will be 2.00% and for ABR loans will be 1.00%.
Interest is payable on the last day of the interest period, but
not less than quarterly, in the case of any LIBOR loan and on
the last day of March, June, September and December of each year
in the case of any ABR loan.
An unused commitment fee is payable quarterly to the lenders on
the unused portion of the commitments in respect of the
revolving credit facility equal to .15% to .50% (depending upon
our debt ratings and expected to be .30% at the time of the
separation) per annum.
Prepayments
We may voluntarily prepay outstanding loans under the senior
credit facility at any time, in whole or in part, plus accrued
and unpaid interest and certain breakage costs, subject to prior
notice.
Maturity
and Amortization
We are required to pay annual amortization (payable in equal
quarterly installments) on the aggregate principal amount of the
term loan A equal to: (i) 10% per year for installments due
in the first and second years following the initial date of
funding, (ii) 15% per year for installments due in the
third and fourth years following the initial date of funding,
and (iii) 50% for installments due in the fifth year
following the initial date of funding.
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Principal amounts outstanding under the revolving credit
facility are due and payable in full at maturity.
Guarantees
All obligations under the senior credit facility will be
guaranteed by each of our existing and future direct and
indirect domestic material subsidiaries, subject to certain
exceptions.
Certain
Covenants and Events of Default
The senior credit facility contains customary negative covenants
that, among other things, restrict our ability to:
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incur debt at subsidiaries that are not guarantors;
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merge or sell, transfer, lease or otherwise dispose of all or
substantially all assets;
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make investments, loans, advances, guarantees and acquisitions;
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enter into transactions with affiliates; and
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enter into agreements restricting our ability to incur liens or
the ability of subsidiaries to make distributions.
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These covenants are subject to certain exceptions described in
the senior credit agreement.
In addition, the senior credit facility will require us to
comply with the following financial covenants:
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a maximum total leverage ratio covenant; and
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a minimum interest coverage ratio covenant.
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The senior credit facility will also contain certain usual and
customary representations and warranties, affirmative covenants
and events of default.
Bridge
Loan Facility
On March 10, 2008, we entered into a 364-day bridge credit
agreement with J.P. Morgan Securities Inc. and Banc of
America Securities LLC, as joint lead arrangers,
J.P. Morgan Securities Inc., Banc of America Securities
LLC, Goldman Sachs Credit Partners L.P., Morgan Stanley Senior
Funding, Inc. and UBS Securities LLC, as joint bookrunners, Bank
of America, N.A., as syndication agent, JPMorgan Chase Bank,
N.A., as administrative agent, Goldman Sachs Credit Partners
L.P., Morgan Stanley Senior Funding, Inc. and UBS Securities
LLC, as documentation agents and the lenders parties thereto.
Our new bridge credit agreement provides a senior unsecured
bridge loan facility in an aggregate principal amount of
$2.0 billion with a term of 364 days from the date we
fund the bridge loan facility.
Interest
Rates and Fees
Borrowings under the bridge loan facility will bear interest at
a floating rate per annum based upon LIBOR or ABR, in each case
plus an applicable margin which varies based upon our debt
ratings, from 1.00% to 2.50%, in the case of LIBOR loans and
0.00% to 1.50% in the case of ABR loans. We anticipate, based on
our expected debt ratings, that at the time of the separation
the applicable margin for LIBOR loans will be 2.00% and for ABR
loans will be 1.00%.
129
Interest is payable on the last day of the interest period, but
not less than quarterly, in the case of any LIBOR loan and on
the last day of March, June, September and December of each year
in the case of any ABR loan.
Prepayments
We may voluntarily prepay outstanding loans under the bridge
loan facility at any time, in whole or in part, plus accrued and
unpaid interest and certain breakage costs, subject to prior
notice.
Under the bridge loan facility, we will be required to prepay
outstanding bridge loans, subject to certain exceptions, with
net proceeds from any:
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asset sales, insurance claims and condemnation
proceedings; and
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debt and equity issuances.
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Prior to the funding of the bridge loan facility, the
commitments thereunder will be subject to reduction to the
extent we receive net proceeds from certain debt and equity
issuances.
Guarantees
All obligations under the bridge loan facility will be
guaranteed by each of our existing and future direct and
indirect domestic material subsidiaries, subject to certain
exceptions.
Certain
Covenants and Events of Default
The bridge loan facility contains covenants and events of
default substantially similar to those contained in the senior
credit facility, subject in each case to such variations as are
customary for a bridge loan facility.
130
DESCRIPTION
OF CAPITAL STOCK
Our certificate of incorporation and by-laws will be amended
and restated prior to the separation. The following description
of the material terms of our capital stock contained in the
amended and restated certificate of incorporation and by-laws is
only a summary. You should refer to our forms of amended and
restated certificate of incorporation and by-laws, which are
included as exhibits to the registration statement of which this
information statement is a part, along with the applicable
provisions of Delaware law.
General
Our authorized capital stock consists of 800,000,000 shares
of common stock, par value $0.01 per share, and
15,000,000 shares of preferred stock, all of which shares
of preferred stock are undesignated. Our board of directors may
establish the rights and preferences of the preferred stock from
time to time. After the distribution, there will be
approximately 253.4 million shares of our common stock
issued and outstanding and no shares of preferred stock issued
and outstanding.
Common
Stock
Each holder of our common stock will be entitled to one vote for
each share on all matters to be voted upon by the common
stockholders and there will be no cumulative voting rights.
Subject to any preferential rights of any outstanding preferred
stock, holders of our common stock will be entitled to receive
ratably the dividends, if any, as may be declared from time to
time by the board of directors out of funds legally available.
If there is a liquidation, dissolution or winding up of our
company, holders of our common stock will be entitled to share
in our assets remaining after the payment of liabilities and any
preferential rights of any outstanding preferred stock.
Holders of our common stock will have no preemptive or
conversion rights or other subscription rights and there will
not be any redemption or sinking fund provisions applicable to
the common stock. After the distribution, all outstanding shares
of our common stock will be fully paid and non-assessable. The
rights, preferences and privileges of the holders of our common
stock will be subject to, and may be adversely affected by, the
rights of the holders of shares of any series of preferred stock
which we may designate and issue in the future.
Preferred
Stock
Under the terms of our amended and restated certificate of
incorporation, our board of directors will be authorized,
subject to limitations prescribed by the Delaware General
Corporation Law (DGCL), and by our amended and
restated certificate of incorporation, to issue preferred stock
in one or more series without stockholder approval. Our board of
directors will have the discretion, subject to limitations
prescribed by the DGCL and by our amended and restated
certificate of incorporation, to determine the rights,
preferences, privileges and restrictions, including voting
rights, dividend rights, conversion rights, redemption
privileges and liquidation preferences, of each series of
preferred stock.
Anti-Takeover
Effects of Various Provisions of Delaware Law and Our
Certificate of Incorporation and By-laws
Provisions of the DGCL and our amended and restated certificate
of incorporation and by-laws could make it more difficult to
acquire us by means of a tender offer, a proxy contest or
otherwise, or to remove incumbent officers and directors. These
provisions, summarized below, would be expected to discourage
certain types of coercive takeover practices and takeover bids
our board of directors may consider inadequate and to encourage
persons seeking to acquire control of us to first negotiate with
us. We believe that the benefits of increased protection of our
ability to negotiate with the proponent of an unfriendly or
unsolicited proposal to acquire or restructure us will outweigh
the disadvantages of discouraging takeover or acquisition
proposals because, among other things, negotiation of these
proposals could result in an improvement of their terms.
Composition of the Board.
Our amended and
restated certificate of incorporation and by-laws will provide
that the directors will be classified with respect to the time
for which they hold office, into three classes. One class of
131
directors will be originally elected for a term expiring at the
annual meeting of stockholders to be held in 2009, another class
will be originally elected for a term expiring at the annual
meeting of stockholders to be held in 2010 and a third class
will be originally elected for a term expiring at the annual
meeting of stockholders to be held in 2011, with each director
to hold office until his or her successor is duly elected and
qualified. Commencing with the 2009 annual meeting of
stockholders, directors elected to succeed directors whose terms
then expire will be elected for a term of office to expire at
the third succeeding annual meeting of stockholders after their
election, with each director to hold office until such
persons successor is duly elected and qualified.
Board Vacancies to be Filled by Remaining Directors and Not
Stockholders.
Our amended and restated certificate of
incorporation and by-laws will provide that any vacancies,
including any newly created directorships, on the board of
directors, will be filled by the affirmative vote of the
majority of the remaining directors then in office, even if such
directors constitute less than a quorum, or by a sole remaining
director.
Removal of Directors by Stockholders.
Our
amended and restated certificate of incorporation and by-laws
will provide that directors may be removed by stockholders only
for cause and only by the affirmative vote of the holders of at
least two-thirds of the votes which all stockholders would be
entitled to cast in any annual election of directors.
Stockholder Action.
Our amended and restated
certificate of incorporation and by-laws will preclude
stockholders from calling special meetings and taking action or
passing resolutions by written consent.
Advance Notice of Director Nominations and Stockholder
Proposals.
Our amended and restated by-laws will establish
advance notice procedures for stockholders to make nominations
of candidates for election as directors or to bring other
business before the annual meeting of stockholders. As will be
specified in our amended and restated by-laws, director
nominations and the proposal of business to be considered by
stockholders may be made only pursuant to a notice of meeting,
at the direction of the board of directors, or by a stockholder
who is entitled to vote at the meeting and who has complied with
the advance notice procedures that will be provided for in our
amended and restated by-laws.
To be timely, a nomination of a director by a stockholder or
notice for business to be brought before an annual meeting by a
stockholder must be delivered to the secretary at our principal
executive offices not less than 90 days nor more than
120 days prior to the first anniversary of the preceding
years annual meeting; provided, however, that in the event
that the date of an annual meeting is advanced by more than
30 days or delayed by more than 60 days from such
anniversary date, for notice by the stockholder to be timely, it
must be delivered not earlier than the 120th day prior to such
annual meeting and not later than the close of business on the
later of the 90th day prior to such annual meeting or the 10th
day following the day on which notice of such annual meeting was
mailed or public announcement of the date of such meeting is
first made, whichever first occurs. For purposes of the annual
meeting of stockholders held following the end of 2008, the date
of the preceding years annual meeting will be deemed to be
April 23, 2008.
In the event a special meeting of stockholders is called for the
purpose of electing one or more directors, any stockholder
entitled to vote may nominate a person or persons as specified
in our amended and restated by-laws, but only if the stockholder
notice is delivered to the secretary at our principal executive
offices not earlier than the 120th day prior to such special
meeting and not later than the close of business on the later of
(x) the 90th day prior to such special meeting and
(y) the 10th day following the day on which notice of the
date of such special meeting was mailed or public disclosure of
the date of such special meeting was made, whichever first
occurs.
Amendments to the Certificate of Incorporation and By-laws.
Our amended and restated certificate of incorporation and
by-laws will require an affirmative vote of two-thirds of the
voting power of the outstanding shares to amend certain
provisions of our amended and restated certificate of
incorporation or by-laws, including the ability of stockholders
to call special meetings or act by written consent, the size of
the board, the director removal provisions, filling vacancies on
the board, indemnification of directors and officers, advance
notice provisions, and supermajority voting requirements.
Delaware Anti-Takeover Statute.
We will be
subject to Section 203 of the DGCL, an anti-takeover
statute. In general, Section 203 of the DGCL prohibits a
publicly-held Delaware corporation from engaging in a
business
132
combination with an interested stockholder for
a period of three years following the time the person became an
interested stockholder, unless (with certain exceptions) the
business combination or the transaction in which the person
became an interested stockholder is approved in a prescribed
manner. Generally, a business combination includes a
merger, asset or stock sale, or other transaction resulting in a
financial benefit to the interested stockholder. Generally, an
interested stockholder is a person who, together
with affiliates and associates, owns (or within three years
prior to the determination of interested stockholder status did
own) 15% or more of a corporations voting stock. The
existence of this provision would be expected to have an
anti-takeover effect with respect to transactions not approved
in advance by the board of directors, including discouraging
attempts that might result in a premium over the market price
for the shares of common stock held by stockholders.
No Cumulative Voting.
The DGCL provides that
stockholders are denied the right to cumulate votes in the
election of directors unless our certificate of incorporation
provides otherwise. Our certificate of incorporation will not
provide for cumulative voting.
Limitations on Liability and Indemnification of Officers and
Directors.
The DGCL authorizes corporations to
limit or eliminate the personal liability of directors to
corporations and their stockholders for monetary damages for
breaches of directors fiduciary duties as directors. Our
certificate of incorporation will include provisions that
indemnify, to the fullest extent allowable under the DGCL, the
personal liability of directors or officers for monetary damages
for actions taken as a director or officer of our company, or
for serving at our request as a director or officer or another
position at another corporation or enterprise, as the case may
be. Our certificate of incorporation will also provide that we
must indemnify and advance reasonable expenses to our directors
and officers, subject to our receipt of an undertaking from the
indemnified party as may be required under the DGCL. We will
also be expressly authorized to carry directors and
officers insurance to protect our company, our directors,
officers and certain employees for some liabilities.
The limitation of liability and indemnification provisions in
our certificate of incorporation may discourage stockholders
from bringing a lawsuit against directors for breach of their
fiduciary duty. These provisions may also have the effect of
reducing the likelihood of derivative litigation against
directors and officers, even though such an action, if
successful, might otherwise benefit us and our stockholders.
However, this provision will not limit or eliminate our rights,
or those of any stockholder, to seek non-monetary relief such as
injunction or rescission in the event of a breach of a
directors duty of care. The provisions will not alter the
liability of directors under the federal securities laws. In
addition, your investment may be adversely affected to the
extent that, in a class action or direct suit, we pay the costs
of settlement and damage awards against directors and officers
pursuant to these indemnification provisions.
There is currently no pending material litigation or proceeding
against any of our directors, officers or employees for which
indemnification is sought.
Authorized but Unissued Shares.
Our authorized
but unissued shares of common stock and preferred stock will be
available for future issuance without your approval. We may use
additional shares for a variety of purposes, including future
public offerings to raise additional capital, to fund
acquisitions and as employee compensation. The existence of
authorized but unissued shares of common stock and preferred
stock could render more difficult or discourage an attempt to
obtain control of us by means of a proxy contest, tender offer,
merger or otherwise.
Listing
We intend to apply to have our common stock authorized for
listing on the New York Stock Exchange under the symbol
DPS.
Transfer
Agent and Registrar
After the distribution, the transfer agent and registrar for our
common stock will be Computershare Trust Company, N.A.
133
THE
DISTRIBUTION
Background
and Reasons for the Distribution
On March 15, 2007, Cadbury Schweppes announced that it
intended to separate its Americas Beverages business from its
global confectionery business and its other beverages business
(located principally in Australia). The board of directors of
Cadbury Schweppes initially determined to simultaneously explore
the potential for both a sale of our company to a third party
and a distribution of our common stock to Cadbury Schweppes
shareholders as alternatives for the separation of the
businesses. After determining that difficult debt market
conditions would not facilitate an acceptable sale process for
the foreseeable future, Cadbury Schweppes announced on
October 10, 2007 that it intended to focus on the
separation of its Americas Beverages business through the
distribution of the common stock of Dr Pepper Snapple Group,
Inc. to Cadbury Schweppes shareholders. On February 15,
2008, Cadbury Schweppes board of directors approved the
distribution of our common stock to the shareholders of Cadbury
Schweppes. Cadbury Schweppes believes that the separation of its
Americas Beverages business from its global confectionery
business will enhance value for stockholders of Dr Pepper
Snapple Group, Inc. and shareholders of Cadbury plc, the new
parent company of Cadbury Schweppes, by creating significant
opportunities and benefits, including:
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Enhancing focus.
The management of each
company will be allowed to focus on its own business and
strategic priorities. We will be able to continue building our
beverage brands by adding scale through new products and
strengthening its route-to-market. Cadbury plc will be able to
focus on priorities in its global confectionery business and its
other beverages business (located principally in Australia).
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Enabling more efficient capital
allocation.
The separation will enable each
company to allocate its capital more efficiently.
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Providing direct access to capital.
The
separation will provide us with direct access to the debt and
equity capital markets to finance expansion and growth
opportunities.
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Improving ability to pursue strategic
transactions.
Our ability to use our shares as
consideration will improve our ability to pursue our own
strategic initiatives, including acquisitions, joint ventures
and investments.
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Enhancing market recognition with
investors.
Following the separation, investors
will be able to better assess our strengths and more accurately
evaluate our performance compared to companies in the same or
similar industry.
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Increasing ability to attract and retain
employees.
The separation will enable us to offer
key employees equity-based compensation tied directly to the
performance of our business. Incentive compensation arrangements
for key employees tied directly to the market performance of our
common stock will enhance our ability to attract and retain
qualified personnel.
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Neither we nor Cadbury plc can assure you that any of these
benefits will be realized to the extent anticipated, or at all.
We do not anticipate any material changes to our operations as a
result of the distribution. The Americas Beverages operations
conducted by Cadbury Schweppes immediately before the
distribution will be the same as the operations conducted by us
immediately after the distribution. However, our capital
structure and expenses will be different after the distribution.
See Capitalization, Unaudited Pro Forma
Combined Financial Data and Managements
Discussion and Analysis of Financial Condition and Results of
Operations.
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Reorganization
of Cadbury Schweppes and Distribution of Shares of Our Common
Stock
On March 15, 2007, Cadbury Schweppes announced its
intention to separate its Americas Beverages business from its
global confectionery business. On October 10, 2007, Cadbury
Schweppes further announced that it was focusing on a
distribution of the common stock of the Americas Beverages
business to the shareholders of Cadbury Schweppes as the method
by which it would separate the Americas Beverages business from
its global confectionery business. The distribution will be
effected through a series of steps, which ultimately will result
in shareholders of Cadbury Schweppes owning:
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shares of common stock in Dr Pepper Snapple Group, Inc., which
will be listed on the New York Stock Exchange; and
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shares in Cadbury plc, which will be listed on the London Stock
Exchange, with American depositary receipts representing Cadbury
plc ordinary shares listed on the New York Stock Exchange.
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Cadbury Schweppes has scheduled an extraordinary general meeting
of shareholders for April 11, 2008 to consider
proposals related to the reorganization, separation and the
distribution. Approval by 75% of votes cast at the shareholder
meeting is necessary. Immediately before the extraordinary
general meeting, there will be a shareholder meeting convened by
the High Court of Justice of England and Wales (the U.K.
Court), at which meeting the minimum vote required for the
approval of the proposals is not less than 75% of votes (by
value) cast at such meeting.
Following these shareholder meetings if shareholder approval is
obtained, Cadbury Schweppes currently intends to effect the
separation and the distribution through the following steps:
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Scheme of Arrangement.
Cadbury Schweppes
intends to implement a corporate reorganization pursuant to
which a new company, Cadbury plc, will become the parent company
of Cadbury Schweppes. This corporate reorganization is known as
a scheme of arrangement under U.K. law. Pursuant to
the scheme of arrangement, all outstanding Cadbury Schweppes
ordinary shares will be cancelled and holders will receive
(1) Cadbury plc ordinary shares, which will be the ongoing
ownership interest in the global confectionery business and its
other beverages business and (2) Cadbury plc beverage
shares, which, ultimately, will entitle the holders, if
the Cadbury plc reduction of capital becomes effective, to
receive shares of our common stock in connection with the
distribution.
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Reduction of Capital and the Distribution of Our Common
Stock
. Shortly after the scheme of arrangement
becomes effective, Cadbury plc will cancel the Cadbury plc
beverage shares (known as a reduction of
capital) and transfer its Americas Beverages business to
us. In return for the transfer of the Americas Beverages
business to us, we will distribute shares of our common stock to
holders of Cadbury plc beverage shares.
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The scheme of arrangement, the reduction of capital, the
distribution and the other conditions to the completion of the
distribution are explained in more detail below.
Scheme
of Arrangement and the Issue of Cadbury plc Shares
Cadbury Schweppes intends to implement a corporate
reorganization pursuant to which Cadbury plc, a new company
incorporated under the laws of England and Wales, will become
the holding company of Cadbury Schweppes. This corporate
reorganization will be effected by way of a formal procedure
under the United Kingdom Companies Act of 1985 known as a
scheme of arrangement under U.K. law.
If the scheme of arrangement becomes effective, the following
will occur:
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Cadbury Schweppes will become a wholly owned subsidiary of
Cadbury plc.
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Cadbury Schweppes ordinary shares will be cancelled and each
holder of Cadbury Schweppes ordinary shares will be entitled to
receive:
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0.64 Cadbury plc ordinary shares for every Cadbury Schweppes
ordinary share that they hold at the Scheme Record Time (as
defined below); and
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0.36 Cadbury plc beverage shares for every Cadbury
Schweppes ordinary share that they hold at the Scheme Record
Time. The Cadbury plc beverage shares will be
non-transferable and each 0.36 of a beverage share will
represent the right to receive 0.12 shares of our common stock
if the Cadbury plc reduction of capital is approved by the
U.K. Court.
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The number of Cadbury plc ordinary shares and Cadbury plc
beverage shares to be received may change. The
Scheme Record Time will be 6:00 p.m. on the business day
immediately preceding the date on which the scheme of
arrangement becomes effective. The Scheme Record Time is
expected to be 6:00 p.m. (United Kingdom time) on
May 1, 2008.
The scheme of arrangement is subject to various conditions,
including, among others, the approval by Cadbury Schweppes
shareholders at an extraordinary general meeting and at the U.K.
Court convened shareholder meeting, approval by the U.K. Listing
Authority and London Stock Exchange to admit the Cadbury plc
ordinary shares to trading on the London Stock Exchange, the
approval of the U.K. Court and approval by the NYSE to list the
Cadbury plc ADRs.
The U.K. Court hearing for the scheme of arrangement is
scheduled for April 29, 2008.
Cadbury
plc Reduction of Capital and the Issue of Shares of Our Common
Stock
Shortly after the scheme of arrangement becomes effective,
Cadbury plc intends to implement a reduction of capital,
pursuant to which, ultimately, the shares of our common stock
will be distributed.
If the capital reduction is implemented, the following will
occur:
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the share capital of Cadbury plc will be reduced by decreasing
the nominal value of each Cadbury plc ordinary share in order to
create distributable reserves in Cadbury plc;
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the Cadbury plc beverage shares will be
cancelled; and
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the holders of the Cadbury plc beverage shares will
receive 0.12 shares of our common stock for every
0.36 Cadbury plc beverage share that they hold at the
Cadbury plc Reduction of Capital Record Time. The shares of our
common stock will be distributed by us in consideration of the
transfer by Cadbury plc of its Americas Beverages business to us.
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The record date for the cancellation of the Cadbury plc
beverage shares and the distribution of shares of
our common stock will be at 6:00 p.m. (United Kingdom time)
on the business day immediately preceding the date on which the
order of the U.K. Court confirming the Cadbury plc reduction of
capital is registered by the U.K. Registrar of Companies, which
is expected to be on May 6, 2008. This date is referred to
as the Cadbury plc Reduction of Capital Record Time.
The reduction of capital is subject to various conditions,
including, among others, the scheme of arrangement having become
effective and the approval of the U.K. Court.
The U.K. Court hearing for the Cadbury plc reduction of capital
is scheduled for May 1, 2008.
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Conditions
to the Distribution
We expect that the distribution will be completed on May 7,
2008;
provided
that, among other things, the following
conditions have been satisfied or, to the extent possible,
waived by Cadbury Schweppes:
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shareholder approval at the extraordinary general meeting to be
held on April 11, 2008
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the SEC has declared effective our registration statement on
Form 10 under the Exchange Act, of which this information
statement forms a part, and no stop orders relating to this
registration statement are in effect;
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Cadbury Schweppes, Cadbury plc and we have received all permits,
registrations and consents required under the securities or blue
sky laws of states or other political subdivisions of the United
States or of foreign jurisdictions in connection with the
distribution;
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Cadbury Schweppes, Cadbury plc and we have received all material
permits, registrations, clearances and consents from
governmental authorities and third persons necessary to permit
the operation of our businesses thereafter;
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the New York Stock Exchange has approved our common stock for
listing, subject to official notice of issuance;
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Cadbury plc has completed the contribution to us of the assets
and operations of its Americas Beverages business described in
this information statement;
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no order, injunction or decree issued by any court of competent
jurisdiction or other legal restraint or prohibition preventing
consummation of the distribution or any of the transactions
related thereto, including the transfers of assets and
liabilities contemplated by the separation and distribution
agreement, is in effect;
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the scheme of arrangement having become effective;
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the Cadbury plc reduction of capital having become effective;
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we have completed the financing described in Description
of Indebtedness; and
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no other events or developments shall have occurred that, in the
judgment of the board of directors of Cadbury Schweppes, in its
sole and absolute discretion, would result in the distribution
having a material adverse effect on Cadbury Schweppes or its
shareholders.
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After shareholder approval for the separation and distribution
has been received, you will not be required to take any further
action in order to receive our common stock, nor will you be
required to make any payment for the shares of our common stock
you receive.
Manner of
Effecting the Distribution
The general terms and conditions of the distribution will be set
forth in the separation agreement to be entered into by Cadbury
Schweppes and us. For a description of the expected terms of
that agreement, see Our Relationship with Cadbury plc
After the Distribution Description of Various
Separation and Transition Arrangements Separation
Agreement.
Cadbury Schweppes will contribute the subsidiaries that operate
its Americas Beverages business to us, and we will issue our
common stock to holders of the Cadbury plc beverage
shares. The distribution will be made in book-entry form
on the basis of 0.12 shares of our common stock for every
0.36 Cadbury plc beverage shares held at the Cadbury
plc Reduction of Capital Record Time. Fractional shares of our
common stock will not be delivered. Instead, the distribution
agent will, as soon as is practicable on or after the
distribution date, aggregate into whole shares of common stock
all the fractional shares of our common stock that otherwise
would have been distributed
137
and sell them in the open market at the prevailing market
prices. The distribution agent, in its sole discretion, without
any influence by Cadbury plc or us, will determine when, through
which broker-dealer and at what price to sell these whole
shares. Any broker-dealer used by the distribution agent will
not be an affiliate of either Cadbury plc or us. Following the
sale, the distribution agent will distribute the aggregate sale
proceeds ratably to holders who were entitled to a fractional
interest in our common stock. The amount of this payment will
depend on the prices at which the aggregated fractional shares
of our common stock are sold by the distribution agent in the
open market. We will be responsible for any payment of brokerage
fees. For a description of our common stock that you will
receive in the distribution, see Description of Capital
Stock.
A book-entry account statement reflecting your ownership of
shares of our common stock will be mailed to you, or your
brokerage account will be credited for the shares of our common
stock, on or about May 16, 2008. We will not issue actual
stock certificates, except upon request.
Results
of the Distribution
Following the distribution, we will be an independent,
publicly-traded company owning and operating what had previously
been Cadbury Schweppes Americas Beverages business. We
expect that approximately 253.4 million shares of our
common stock will be issued and outstanding immediately
following the distribution, based upon the distribution of
0.12 shares of our common stock for each Cadbury Schweppes
ordinary share, and the approximate number of outstanding
Cadbury Schweppes ordinary shares on March 13, 2008. The
actual number of shares to be distributed will be determined
based on the number of Cadbury plc beverage shares outstanding
at the Cadbury plc Reduction of Capital Record Time.
On April 11, 2008, a vote of Cadbury Schweppes shareholders
to approve the distribution is scheduled to be held. After
shareholder approval for the separation and distribution has
been received, you will not be required to take any further
action in order to receive shares of our common stock in the
distribution, nor will you be required to make any payment for
the shares of our common stock you receive. The distribution
remains contingent on the approval of the scheme of arrangement
by the U.K. Court and the subsequent confirmation by the U.K.
Court of the Cadbury plc reduction of capital.
Cadbury
Schweppes American Depositary Receipts
Certain holders beneficially own their ordinary shares of
Cadbury Schweppes through Cadbury Schweppes ADRs. Pursuant to
the scheme of arrangement, the holders of Cadbury Schweppes ADRs
will receive new Cadbury plc ADRs. Holders of Cadbury Schweppes
ADRs at the Depositary Record Time will be entitled to the
Cadbury plc ordinary shares and the Cadbury plc beverage
shares to which the Cadbury Schweppes ordinary shares
underlying their ADRs are entitled. These Cadbury plc ordinary
shares and Cadbury plc beverage shares will be held
on their behalf by JPMorgan Chase Bank, N.A., the ADR
Depositary. Pursuant to the Cadbury plc capital reduction, the
Cadbury plc beverage shares will be cancelled as
described above, and the Depositary will be entitled to receive
the shares of our common stock. In lieu of distributing our
shares to the Depositary, the Depositary will provide our
transfer agent with records to enable such transfer agent to
distribute the shares of our common stock to the former holders
of Cadbury Schweppes ADRs entitled thereto. The Depositary will
not be responsible for the distribution of any of our shares.
Pursuant to the separation and distribution, holders of Cadbury
Schweppes ADRs will:
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receive 0.64 ADRs of Cadbury plc, which will be listed on
the New York Stock Exchange, for each Cadbury Schweppes ADR that
they hold at the Depositary Record Time (expected to be 5:00 pm
(New York time) on May 1, 2008); and
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be entitled to receive 0.48 shares of our common stock,
which will be listed on the New York Stock Exchange, for each
Cadbury Schweppes ADR that they hold at the Depositary Record
Time.
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138
Market
for Our Common Stock
There is currently no trading market for our common stock. We
intend to apply to have our common stock authorized for listing
on the New York Stock Exchange under the symbol DPS.
We have not and will not set the initial price of our common
stock. The initial price will be established by the public
markets.
We cannot predict the price at which our common stock will trade
after the distribution. In fact, the combined trading prices
after the separation of the shares of our common stock and the
Cadbury plc ordinary shares that each Cadbury Schweppes
shareholder will receive in the separation may not equal the
trading price of a Cadbury Schweppes ordinary share immediately
prior to the separation. The price at which our common stock
trades is likely to fluctuate significantly, particularly until
an orderly public market develops. Trading prices for our common
stock will be determined in the public markets and may be
influenced by many factors. See Risk Factors
Risks Related to Our Common Stock Our common stock
has no existing public market and the price of our common stock
may be subject to volatility.
Shares of our common stock distributed to holders in connection
with the distribution will be transferable without registration
under the Securities Act except for shares received by persons
who may be deemed to be our affiliates. Persons who may be
deemed to be our affiliates after the distribution generally
include individuals or entities that control, are controlled by
or are under common control with us, which may include certain
of our executive officers, directors or principal stockholders.
Securities held by our affiliates will be subject to resale
restrictions under the Securities Act. Our affiliates will be
permitted to sell shares of our common stock only pursuant to an
effective registration statement or an exemption from the
registration requirements of the Securities Act, such as the
exemption afforded by Rule 144 under the
Securities Act.
Reason
for Furnishing this Information Statement
This information statement is being furnished solely to provide
information to shareholders of Cadbury Schweppes who will
receive shares of our common stock in connection with the
distribution. It is not provided as an inducement or
encouragement to buy or sell any of our securities. You should
not assume that the information contained in this information
statement is accurate as of any date other than the date set
forth on the cover. Changes to the information contained in this
information statement may occur after that date, and we
undertake no obligation to update the information.
139
MATERIAL
TAX CONSIDERATIONS
The following is a discussion, subject to the limitations and
qualifications set forth therein, of the material U.K. and
material U.S. federal tax consequences of the receipt of
Cadbury plc beverage shares and Cadbury plc ordinary
shares or Cadbury plc ADRs and the receipt, ownership and
disposition of our common stock and is for general information
only and is subject to the qualifications and limitations set
forth herein. This discussion is based upon current U.K. and
U.S. federal tax law, regulations, administrative practice,
rulings and court decisions, the current
U.S.-U.K.
income tax treaty and the current
U.S.-U.K.
estate tax treaty and interpretations thereof, all as they exist
as of the date of this information statement. All of the
foregoing may be repealed, revoked or modified at any time,
possibly with retroactive effect, so as to result in U.K. and
U.S. federal tax consequences different from those
discussed below. This discussion assumes that the transaction
will be consummated in accordance with the separation and
distribution agreement, this information statement and the
private letter ruling request submitted to the IRS.
U.K.
Holders
The following is a discussion for U.K. Holders, as defined
below, of the material U.K. and U.S. federal tax
consequences of the receipt of Cadbury plc beverage
shares and Cadbury plc ordinary shares and their receipt,
ownership and disposition of our common stock. A U.K. Holder for
this purpose is a beneficial owner of Cadbury Schweppes ordinary
shares that is, for U.K. tax purposes, resident or, in the case
of individuals, domiciled and resident or ordinarily resident in
(and only in) the United Kingdom for tax purposes and who holds
our common stock and Cadbury plc ordinary shares as an
investment (and not as securities to be realized in the course
of a trade). This discussion is for general information only and
does not purport to be a complete description of the
consequences of the receipt of Cadbury plc beverage
shares and Cadbury plc ordinary shares and the receipt,
ownership and disposition of our common stock nor does it
address the effects of any non-U.K. and
non-U.S. tax
laws. The tax treatment of a U.K. Holder may vary depending upon
such U.K. Holders particular situation, and certain U.K.
Holders (including, but not limited to, dealers in securities,
broker-dealers, insurance companies, collective investment
schemes and persons who have acquired (or are deemed for U.K.
tax purposes to have acquired) our common stock and Cadbury plc
ordinary shares by reason of an office or employment) may be
subject to special rules not discussed below.
U.K.
Holders are urged to consult their own tax advisors as to the
specific tax consequences to them of the receipt of Cadbury plc
beverage shares and Cadbury plc ordinary shares and
the receipt, ownership and disposition of our common stock,
including the effect of any non-U.K. and
non-U.S.
tax
laws.
Receipt
of Cadbury plc Beverage Shares, Cadbury plc Ordinary
Shares and Our Common Stock
U.K. Tax Consequences.
U.K. Holders should not
be treated as making a disposal or part disposal of their
Cadbury Schweppes ordinary shares as a result of receiving
Cadbury plc beverage shares and Cadbury plc ordinary
shares in exchange for Cadbury Schweppes ordinary shares
pursuant to the scheme of arrangement, and so no chargeable gain
or allowable loss should arise for U.K. tax purposes. Cadbury
plc beverage shares and Cadbury plc ordinary shares
should be treated as the same asset, and having been acquired at
the same time and for the same consideration, as those Cadbury
Schweppes ordinary shares from which they are derived.
Furthermore, U.K. Holders should not be treated as making a
disposal or part disposal of their beverage shares
as a result of receiving our common stock in exchange for
beverage shares pursuant to the Cadbury plc
reduction of capital, and so no chargeable gain or allowable
loss should arise for U.K. tax purposes. Our common stock should
be treated as the same asset, and having been acquired at the
same time and for the same consideration, as those Cadbury plc
beverage shares from which they are derived.
In summary, our common stock and Cadbury plc ordinary shares
that will be held by a U.K. Holder following the separation
should be treated as the same asset, and having been acquired at
the same time and for the same consideration, as Cadbury
Schweppes ordinary shares.
Accordingly, following the separation, a U.K. Holders
original base cost in their Cadbury Schweppes ordinary shares
should be apportioned between our common stock and their Cadbury
plc ordinary shares by reference to the market quotations of our
common stock and the Cadbury plc ordinary shares on the first
day of dealings in our common stock.
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For a U.K. Holder who, alone or together with persons connected
with him, holds more than 5% of, or any class of, shares in or
debentures of Cadbury Schweppes, it is a condition for the
treatment described in each of the first two paragraphs above
that the transactions are being effected for bona fide
commercial reasons and do not form part of a scheme or
arrangement of which the main purpose, or one of the main
purposes, is an avoidance of liability to U.K. corporation tax
or capital gains tax. U.K. Holders are advised that clearance
under section 138 of the Taxation of Chargeable Gains Act
1992 has been obtained from U.K. H.M. Revenue and Customs
(HMRC) that it is satisfied that this condition has
been met.
A U.K. Holder who receives cash in lieu of a fractional share of
our common stock or Cadbury plc ordinary shares will normally be
treated as having (i) received that fractional share and
then (ii) sold the fractional share for cash, thereby
making a part disposal of his holding of common stock or Cadbury
plc ordinary shares, as the case may be. This may, depending on
individual circumstances (including the availability of
exemptions and reliefs), give rise to a chargeable gain or
allowable loss for the purposes of U.K. taxation on chargeable
gains. However, as the amount of cash received should be
small as compared to the value of his holding of our
common stock or Cadbury plc ordinary shares, as the case
may be, a U.K. Holder may, under current practice of HMRC, treat
the cash received as a deduction from the base cost of the U.K.
Holders holding of our common stock or Cadbury plc
ordinary shares, as the case may be, rather than as a part
disposal of such holding. HMRC considers the amount of cash
received to be small when such amount is 5% or less
of the value of such holding or is less than £3,000.
U.S. Federal Income Tax Consequences.
A
U.K. Holder generally will not be subject to U.S. federal
income tax with respect to the receipt of Cadbury plc
beverage shares, Cadbury plc ordinary shares or our
common stock including, any cash received in lieu of a
fractional share of Cadbury plc ordinary shares or our common
stock. See U.K. Holders Taxation of
Dispositions of Our Common Stock for a discussion of the
circumstances under which a U.K. Holder would be subject to
U.S. federal income tax with respect to cash received in
lieu of a fractional share of our common stock.
Taxation
of Dividends on Our Common Stock
U.K. Tax Consequences.
No amounts in respect
of U.K. tax will be withheld at source from any dividend
payments on our common stock made to U.K. Holders.
U.K. Holders of our common stock who are resident for tax
purposes in the U.K. will, in general, be subject to U.K. income
tax or corporation tax on the gross amount of dividends paid on
our common stock, rather than on the amount actually received
net of any U.S. withholding tax. Dividends received by such
U.K. holders who are within the charge to U.K. corporation tax
will be taxed at the prevailing U.K. corporation tax rate. An
individual will generally be chargeable to U.K. income tax on
dividends paid on our common stock at the dividend ordinary rate
(currently 10%) or, to the extent that the amount of the gross
dividend when treated as the top slice of his or her income
exceeds the threshold for higher rate tax, at the dividend upper
rate (currently 32.5%).
Credit will generally be available for U.S. tax required to
be deducted or withheld from the dividends paid on our common
stock against U.K. income tax or U.K. corporation tax to which
the holder of our common stock is liable, broadly limited to the
amount of such tax attributable to the dividends. As a result,
individual U.K. Holders who are chargeable to U.K. income tax at
the dividend ordinary rate on the whole of such dividends and
who claim such credit through their tax return should have no
further U.K. tax to pay in respect of those dividends.
Individual U.K. Holders who are chargeable to U.K. income tax on
all or any portion of the dividends at the dividend upper rate
and who claim that credit through their tax return should be
able to offset the amount of the available credit against their
U.K. income tax liability. U.K. Holders who are chargeable to
U.K. corporation tax on the dividends and who claim that credit
should generally be able to offset the amount of the available
credit against their U.K. corporation tax liability.
U.K. Holders should be aware that the U.K. Government has
announced that the taxation of U.K. resident individuals owning
shares in non-U.K. resident companies will change from
April 6, 2008. In particular, the non-repayable one-ninth
dividend tax credit that is currently available in respect of
U.K. dividends will be extended to dividends from non-U.K.
resident companies, subject to certain conditions which have yet
to be finalized.
U.K. Holders who are companies should be aware that the U.K.
Government is presently consulting on changes to the tax regime
for foreign dividends.
141
U.S. Federal Income Tax Consequences.
If
we make distributions on our common stock, such distributions
will constitute dividends for U.S. federal income tax
purposes to the extent paid from our current or accumulated
earnings and profits, as determined under U.S. federal
income tax principles. To the extent not paid from our current
or accumulated earnings and profits, distributions on our common
stock will constitute a tax-free return of capital and will
first be applied against and reduce a U.K. Holders
adjusted basis in our common stock, but not below zero, and then
the excess, if any, will be treated as gain from the sale of
common stock. Dividends paid on our common stock to a U.K.
Holder (who is not otherwise subject to U.S. federal income tax)
generally will be subject to withholding of U.S. federal
income tax at a 30% rate. However, assuming such a U.K. Holder
satisfies the requirements of the
U.S.-U.K.
income tax treaty, the rate of withholding on dividends
generally is 15%. In order for a U.K. Holder to claim benefits
under the
U.S.-U.K.
income tax treaty in respect of dividends paid by us, the U.K.
Holder generally will be required to complete IRS
Form W-8BEN
and certify under penalties of perjury that it is not a
U.S. person for U.S. federal income tax purposes.
Special certification and other requirements apply to certain
U.K. Holders that are
pass-through
entities and to U.K. Holders whose stock is held through certain
non-U.S. intermediaries.
A U.K. Holder that is eligible for the reduced rate of
U.S. withholding tax pursuant to the U.S.-U.K. income tax
treaty generally may obtain a refund of any excess amounts
withheld by timely filing an appropriate claim with the IRS.
Taxation
of Dispositions of Our Common Stock
U.K. Tax Consequences.
A subsequent disposal
or deemed disposal of our common stock by a stockholder who is
resident or, in the case of individuals, ordinarily resident in
the U.K. for tax purposes may, depending on individual
circumstances (including the availability of exemptions and
reliefs), give rise to a chargeable gain or allowable loss for
the purposes of U.K. taxation on chargeable gains.
U.S. Federal Income Tax Consequences.
A
U.K. Holder generally will not be subject to U.S. federal
income tax with respect to any gain realized on the sale or
other disposition of our common stock unless: (i) the gain
is effectively connected with the conduct of a trade or business
in the United States and, if the
U.S.-U.K.
income tax treaty applies, is attributable to a
U.S. permanent establishment of the U.K. Holder (in this
case, the U.K. Holder will be subject to U.S. federal
income tax on the net gain derived from the disposition in the
same manner as if the U.K. Holder was U.S. person for
U.S. federal income tax purposes, and if the U.K. Holder is
a corporation, it may be subject to the additional branch
profits tax at a 30% rate or a lower rate specified by
U.S.-U.K.
income tax treaty, if applicable); (ii) the U.K. Holder is
an individual present in the United States for 183 days or
more in the taxable year in which the disposition occurs and
certain other conditions are met (in this case, the individual
U.K. Holder will be subject to a flat 30% U.S. federal
income tax on the gain derived from the disposition, which tax
may be offset by U.S. source capital losses); or
(iii) we are or have been a United States real
property holding corporation for U.S. federal income
tax purposes at any time during the shorter of the U.K.
Holders holding period for our common stock and the
five-year period ending on the date of disposition and one or
more other conditions are satisfied. We are not and do not
anticipate becoming a United States real property holding
corporation.
U.S.
Federal Estate Tax Considerations
An individual who is domiciled in the U.K. for purposes of the
U.S.-U.K.
estate tax treaty and who is not a national of or domiciled in
the United States for purposes of the
U.S.-U.K.
estate tax treaty generally will not be subject to
U.S. federal estate tax with respect to our common stock on
the individuals death provided that any applicable U.K.
inheritance tax liability is paid unless the common stock is
part of the business property of a permanent establishment of
the individual in the United States or pertains to a fixed base
of the individual in the United States used for the performance
of independent personal services. In the case where the common
stock is subject to both U.S. federal estate tax and U.K.
inheritance tax, the
U.S.-U.K.
estate tax treaty generally provides for the U.S. federal
estate tax paid to be credited against tax payable in the U.K.
or for the tax paid in the U.K. to be credited against the
U.S. federal estate tax payable based on priority rules set
out in the
U.S.-U.K.
estate tax treaty.
U.S.
Information Reporting and Backup Withholding
Dividends paid to a U.K. Holder may be subject to information
reporting and backup withholding of U.S. federal income
tax. A U.K. Holder will be exempt from backup withholding if
such U.K. Holder properly provides IRS
Form W-8BEN
certifying that such U.K. Holder is a
non-U.S. person
or otherwise meets documentary
142
evidence requirements for establishing that such U.K. Holder is
a
non-U.S. person
or otherwise qualifies for an exemption.
The gross proceeds from the disposition of our common stock may
be subject to information reporting and backup withholding. If a
U.K. Holder sells its common stock outside the United States
through a
non-U.S. office
of a
non-U.S. broker
and the sales proceeds are paid to such U.K. Holder outside the
United States, then backup withholding and information reporting
requirements generally will not apply to that payment. However,
information reporting but not backup withholding generally will
apply to a payment of sale proceeds, even if that payment is
made outside the United States, if a U.K. Holder sells our
common stock through a
non-U.S. office
of a broker that: (i) is a U.S. person for
U.S. federal income tax purposes; (ii) derives 50% or
more of its gross income in specific periods from the conduct of
a trade or business in the United States; (iii) is a
controlled foreign corporation for U.S. federal
income tax purposes; or (iv) is a
non-U.S. partnership,
if at any time during its tax year (A) one or more of its
partners are U.S. persons who in the aggregate hold more
than 50% of the income or capital interests in the partnership;
or (B) the
non-U.S. partnership
is engaged in a U.S. trade or business, unless, in each
case, the broker has documentary evidence in its files that the
non-U.S. holder
is a
non-U.S. person
and certain other conditions are met, or the
non-U.S. holder
otherwise establishes an exemption.
If a U.K. Holder receives payments of the proceeds of a sale of
our common stock to or through a U.S. office of a broker,
the payment is subject to both information reporting and backup
withholding unless such U.K. Holder properly provides IRS
Form W-8BEN
certifying that such U.K. Holder is a
non-U.S. person
or otherwise establishes an exemption. A U.K. Holder generally
may obtain a refund of any amounts withheld under the backup
withholding rules that exceed such U.K. Holders
U.S. federal income tax liability by timely filing an
appropriate claim with the IRS.
U.K.
Stamp Duty and Stamp Duty Reserve Tax
No U.K. stamp duty or stamp duty reserve tax should be payable
by a U.K. Holder as a result of the cancellation of Cadbury
Schweppes ordinary shares and the issue of Cadbury plc
beverage shares and Cadbury plc ordinary shares
under the scheme of arrangement or as a result of the issue of
our common stock under the Cadbury plc reduction of capital.
No U.K. stamp duty will be payable by a U.K. Holder on the
transfer of our common stock, provided that any instrument of
transfer is not executed in the United Kingdom and does not
relate to any property situated, or to any matter or thing done
or to be done, in the United Kingdom.
No U.K. stamp duty reserve tax will be payable by a
U.K. Holder in respect of any agreement to transfer our
common stock unless they are registered in a register kept in
the United Kingdom by or on our behalf. It is not intended that
such a register will be kept in the United Kingdom.
Where Cadbury plc ordinary shares are issued or transferred:
(i) to, or to a nominee for, a person whose business is or
includes the provision of clearance services; or (ii) to,
or to a nominee or agent for, a person whose business is or
includes issuing depositary receipts, stamp duty (in the case of
a transfer to such persons) or stamp duty reserve tax may be
payable at the higher rate of 1.5% of the amount or value of the
consideration payable or, in certain circumstances, the value of
the Cadbury plc ordinary shares or, in the case of an issue to
such persons, the issue price of the Cadbury plc ordinary shares
(rounded up to the nearest £5 in the case of stamp duty).
This liability for stamp duty or stamp duty reserve tax will
strictly be accountable by the depositary or clearance service
operator or their nominee, as the case may be, but will in
practice generally be reimbursed by participants in the
clearance service or depositary receipt scheme. Clearance
services may opt, under certain circumstances, for the normal
rate of stamp duty or stamp duty reserve tax (0.5% of the
consideration paid) to apply to issues or transfers of Cadbury
plc ordinary shares into, and to transactions within, such
services instead of the higher rate of 1.5% generally applying
to an issue or transfer of Cadbury plc ordinary shares into the
clearance service and the exemption from stamp duty and stamp
duty reserve tax on transfer of Cadbury plc ordinary shares
while in the service. However, U.K. Holders who hold their
Cadbury Schweppes ordinary shares in the form of Cadbury
Schweppes ADRs should not suffer a 1.5% charge on the issue of
Cadbury plc ordinary shares to the Cadbury plc depository and
the receipt of Cadbury plc ADRs.
143
U.S.
Holders
The following is a discussion of the material U.S. federal
and U.K. tax consequences of the receipt of Cadbury plc
beverage shares, Cadbury plc ordinary shares or
Cadbury plc ADRs and the receipt, ownership and disposition of
our common stock to U.S. Holders that is for general
information only and is subject to the qualifications and
limitations set forth herein. A U.S. Holder for
this purpose is a beneficial owner of Cadbury Schweppes ordinary
shares or Cadbury Schweppes ADRs that is, for U.S. federal
income tax purposes (i) a citizen or resident of the United
States, (ii) a corporation (or an entity treated for
U.S. federal tax purposes as a corporation) created or
organized under the laws of the United States or of any state
thereof or the District of Columbia, (iii) an estate the
income of which is subject to U.S. federal income tax
regardless of its source, or (iv) a trust if (a) (I) a
court within the United States is able to exercise primary
supervision over the trust, and (II) one or more
U.S. persons have authority to control all substantial
decisions of the trust, or (b) the trust has made an
election under applicable Treasury regulations to be treated as
a U.S. person.
This discussion is for general information only and does not
purport to be a complete description of the consequences of the
receipt of Cadbury plc beverage shares and Cadbury
plc ordinary shares or Cadbury plc ADRs and the receipt,
ownership and disposition of our common stock nor does it
address the effects of any state, local or, except as set forth
herein,
non-U.S. tax
laws. This discussion does not address the tax consequences to a
U.S. Holder (i) that is a resident in, or in the case
of individuals, ordinarily resident in the United Kingdom for
U.K. tax purposes, (ii) where the holding of our common
stock is effectively connected with the conduct of a trade or
business in the U.K., and, if the
U.S.-U.K.
income tax treaty applies, is attributable to a U.K. permanent
establishment of the U.S. Holder, or (iii) that owns
or controls, directly or indirectly (including by attribution
from or through related parties), at least 10% of the voting
stock of Cadbury Schweppes or Cadbury plc. The tax treatment of
a U.S. Holder may vary depending upon such
U.S. Holders particular situation, and certain
U.S. Holders (including, but not limited to, insurance
companies, tax-exempt organizations, financial institutions,
broker-dealers, partners in partnerships that hold Cadbury
Schweppes ordinary shares or ADRs, pass-through entities,
traders in securities who elect to apply a mark-to-market method
of accounting, U.S. Holders who hold their Cadbury
Schweppes ordinary shares or ADRs as part of a
hedge, straddle, conversion,
or constructive sale transaction, individuals who
received Cadbury Schweppes ordinary shares upon the exercise of
employee stock options or otherwise as compensation) may be
subject to special rules not discussed below. The discussion
assumes that U.S. Holders hold their Cadbury Schweppes
ordinary shares or Cadbury Schweppes ADRs and our common stock
as capital assets within the meaning of Section 1221 of the
Internal Revenue Code.
Under general U.S. federal income tax principles, a
U.S. Holder of Cadbury Schweppes ADRs or Cadbury plc ADRs
should be treated as the beneficial owner of the corresponding
number of Cadbury Schweppes ordinary shares or Cadbury plc
ordinary shares held by the ADR depositary and this summary is
based on such treatment.
U.S.
Holders are urged to consult their own tax advisors as to the
specific tax consequences to them of the receipt of Cadbury plc
beverage shares, Cadbury plc ordinary shares or
Cadbury plc ADRs and the receipt, ownership and disposition of
our common stock, including the effect of any state, local or
non-U.S.
tax
laws.
Receipt
of Cadbury plc beverage shares, Cadbury plc Ordinary
Shares or Cadbury plc ADRs and Our Common Stock
U.S. Federal Income Tax
Consequences.
Cadbury Schweppes has requested a
private letter ruling from the IRS that, subject to the facts,
representations and qualifications contained therein, the
receipt of Cadbury plc ordinary shares and our common stock by
Cadbury Schweppes stockholders (along with certain related
restructuring transactions) will qualify for non-recognition
treatment under Sections 355 and 368(a)(1)(F) of the
Internal Revenue Code, except for cash received in exchange for
fractional shares of Cadbury plc ordinary shares or our common
stock, which cash generally will be treated as capital gain or
loss. The IRS has not yet issued a private letter ruling and the
failure of the IRS to issue such a private letter ruling would
not prevent Cadbury Schweppes from proceeding with the
separation and distribution. Any eventual private letter ruling
will be based on various facts and representations, including
that certain conditions necessary to obtain favorable tax
treatment under the Internal Revenue Code have been satisfied,
but the private letter ruling will not represent an independent
144
determination by the IRS that these conditions have in fact been
satisfied. However, as a matter of practice, the IRS generally
will revoke a private letter ruling only in situations involving
an omission or material misstatement of a controlling fact or a
change of law. Thus, if one or more of the controlling facts or
representations contained in any eventual private letter ruling
is incorrect in any material respect, our ability to rely on the
private letter ruling would be jeopardized and the private
letter ruling could be revoked or modified retroactively by the
IRS and the receipt of our common stock found taxable. Cadbury
Schweppes is not aware of any facts or circumstances that would
cause the facts or representations set forth in the request for
the private letter ruling to be untrue or incomplete in any
material respect. In addition, we have covenanted to refrain
from taking certain actions following the distribution that
would cause the distribution to fail to qualify for
non-recognition treatment under Section 355 of the Internal
Revenue Code; however, if one or more of these covenants are
breached, the distribution of our common stock could be taxable
to U.S. Holders.
The general approach in the private letter ruling request
submitted to the IRS is to disregard the issuance and subsequent
cancellation of the Cadbury plc beverage shares as
transitory and without effect for U.S. federal income tax
purposes. More particularly, the submission for a private letter
ruling requests that the IRS disregard the form of the
separation and distribution for U.S. federal income tax purposes
and, instead, treat the separation and distribution for such
purposes as (i) an exchange by Cadbury Schweppes stockholders of
Cadbury Schweppes ordinary shares for Cadbury plc ordinary
shares in a transaction qualifying for non-recognition treatment
under Section 368(a)(1)(F) of the Internal Revenue Code, (ii) a
distribution of the common stock of Cadbury Schweppes Americas
Inc., the parent corporation of the Americas Beverages business,
to holders of Cadbury plc ordinary shares in a transaction
qualifying for non-recognition treatment under Section 355 of
the Internal Revenue Code, and (iii) an exchange of Cadbury
Schweppes Americas Inc. common stock for our common stock in a
transaction qualifying for non-recognition treatment under
Section 368(a)(1)(F) of the Internal Revenue Code.
Following such approach and assuming that the receipt of Cadbury
plc ordinary shares or Cadbury plc ADRs and our common stock by
holders of Cadbury Schweppes ordinary shares or Cadbury
Schweppes ADRs (and certain related restructuring transactions)
qualifies for non-recognition treatment under Sections 355
and 368(a)(1)(F) of the Internal Revenue Code, the following
will result for U.S. federal income tax purposes:
(1) No gain or loss will be recognized by (and no amount
will be included in the income of) a U.S. Holder upon the
receipt of Cadbury plc ordinary shares or Cadbury plc ADRs and
our common stock;
(2) Subject to clause (3) below, the aggregate tax
basis of the Cadbury plc ordinary shares or Cadbury plc ADRs in
the hands of a U.S. Holder immediately after the receipt of
the Cadbury plc ordinary shares will be the same as the tax
basis at which the U.S. Holder held its Cadbury Schweppes
ordinary shares or Cadbury Schweppes ADRs immediately before the
receipt of the Cadbury plc ordinary shares or Cadbury plc ADRs;
(3) The aggregate tax basis of the Cadbury plc ordinary
shares or Cadbury plc ADRs (as determined pursuant to
clause (2) above) and our common stock in the hands of a
U.S. Holder immediately after the receipt of our common
stock, including any fractional share interest for which cash is
received, will be the same as the tax basis at which the
U.S. Holder held its Cadbury plc ordinary shares or Cadbury
plc ADRs immediately before the receipt of our common stock, and
such aggregate tax basis will be allocated between the Cadbury
plc ordinary shares or Cadbury plc ADRs and our common stock
based upon their respective fair market values immediately after
the receipt of our common stock;
(4) The holding period for each of the Cadbury plc ordinary
shares or Cadbury plc ADRs and our common stock received by a
U.S. Holder will include the period during which the
U.S. Holder held its Cadbury Schweppes ordinary shares or
Cadbury Schweppes ADRs; and
(5) A U.S. Holder who receives cash in lieu of a
fractional share of Cadbury plc ordinary shares or our common
stock will be treated as having sold such fractional share for
cash and generally will recognize capital gain or loss for
U.S. federal income tax purposes in an amount equal to the
difference between the amount of cash received and the
U.S. Holders tax basis in the fractional share. That
capital gain or loss generally will be U.S. source
long-term capital gain or loss if the U.S. Holders
holding period for its Cadbury Schweppes ordinary shares or
Cadbury Schweppes ADRs exceeds one year. The deductibility of
capital losses is subject to limitations under the Internal
Revenue Code. Any cash received from sales of fractional shares
of Cadbury plc
145
ordinary shares in pounds sterling will be included in income in
a U.S. dollar amount calculated by reference to the
exchange rate in effect on the day the disposition proceeds are
received by a U.S. Holder, regardless of whether the pounds
sterling are converted into U.S. dollars at that time. Gain
or loss, if any, recognized on the sale or disposition of pounds
sterling generally will be ordinary U.S. source income or
loss. However, if cash received in pounds sterling is converted
into U.S. dollars on the day received, a U.S. Holder
generally will not be required to recognize foreign currency
gain or loss in respect of such cash; and
(6) Neither we nor Cadbury plc will recognize gain or loss
in respect of the issuance and distribution of our common stock.
Treasury regulations governing Sections 355 and
368(a)(1)(F) of the Internal Revenue Code require that certain
U.S. Holders with significant ownership in Cadbury
Schweppes that receive Cadbury plc ordinary shares and our
common stock attach a statement to their U.S. federal
income tax return for the taxable year in which such receipt
occurs, providing certain information with respect to the
receipt of Cadbury plc ordinary shares and our common stock. To
the extent required by Treasury regulations, U.S. Holders
will be provided with the information necessary to comply with
this requirement. U.S. Holders should consult their tax
advisors in respect to the foregoing requirement.
If, in contrast to the statement above, the receipt of our
common stock by holders of Cadbury plc ordinary shares or
Cadbury plc ADRs did not qualify for non-recognition treatment
under Section 355 of the Internal Revenue Code, then
contrary to such statements, each U.S. Holder that receives
our common stock will have: (1) a taxable dividend
(provided, as is expected, Cadbury plc has sufficient current
and accumulated earnings and profits (including the current and
accumulated earnings and profits of Cadbury Schweppes) as
determined for U.S. federal income purposes, or, if not so
determined, dividend treatment will be presumed) in an amount
equal to the fair market value of our common stock that was
distributed to such U.S. Holder and the amount of cash
received in lieu of a fractional share of our common stock
(without reduction for any portion of such
U.S. Holders tax basis in its Cadbury plc ordinary
shares or Cadbury plc ADRs); and (2) a tax basis in
our common stock received equal to the fair market value of such
common stock on the date of receipt, and the holding period for
that stock would begin the day after the date of receipt.
Further, there would be no adjustment in tax basis for a
U.S. Holders Cadbury plc ordinary shares or Cadbury
plc ADRs and the tax basis of the Cadbury plc ordinary shares or
Cadbury plc ADRs would equal the U.S. Holders tax
basis in its Cadbury Schweppes ordinary shares or Cadbury
Schweppes ADRs.
Under current law, assuming certain holding period and other
requirements are met, U.S. Holders that are individual
citizens or residents of the United States are subject to
preferential U.S. federal income tax rates on dividends.
U.K. Tax Consequences.
A U.S. Holder will
incur no U.K. tax upon the receipt of Cadbury plc beverage
shares, Cadbury plc ordinary shares, Cadbury plc ADRs or
our common stock (including cash received in lieu of a
fractional share of Cadbury plc ordinary shares or our common
stock, if such U.S. Holder is neither resident nor, in the
case of individuals, ordinarily resident for tax purposes in the
U.K. and does not carry on a trade, profession or vocation in
the U.K. through a branch or agency or, in the case of a
company, a permanent establishment where such shares have been
used, held or acquired for the purpose of such branch, agency or
permanent establishment).
Taxation
of Dividends on Our Common Stock
U.S. Federal Income Tax Consequences.
If
we make distributions on our common stock, such distributions
will constitute dividends for U.S. federal income tax
purposes to the extent paid from our current or accumulated
earnings and profits, as determined under U.S. federal
income tax principles. To the extent not paid from our current
or accumulated earnings and profits, distributions on our common
stock will constitute a tax-free return of capital and will
first be applied against and reduce a U.S. Holders
adjusted basis in our common stock, but not below zero, and then
the excess, if any, will be treated as gain from the sale of
common stock. Dividends received by a corporate U.S. Holder
will be eligible for the dividends received deduction if the
U.S. Holder meets certain holding period and other
applicable requirements. Dividends received by a non-corporate
U.S. Holder will qualify for reduced rates of taxation if
the U.S. Holder meets certain holding period and other
applicable requirements.
146
Taxation
of Dispositions of Our Common Stock
U.S. Federal Income Tax Consequences.
A
U.S. Holder generally will recognize capital gain or loss
on the sale or other taxable disposition of our common stock
equal to the difference between (i) the sum of any cash
received and the fair market value of any other property
received, and (ii) the U.S. Holders adjusted tax
basis in the common stock. Any capital gain or loss that a U.S.
Holder recognizes will be long-term capital gain or loss if the
U.S. Holder has held the stock for more than one year.
Long-term capital gain of a non-corporate U.S. Holder is
eligible for a reduced rate of taxation. The deductibility of
capital losses is subject to limitations under the Internal
Revenue Code.
U.K. Tax Consequences.
A U.S. Holder who
is neither resident nor, in the case of individuals, ordinarily
resident for tax purposes in the U.K. will not be liable for
U.K. tax on chargeable gains on the subsequent disposal or
deemed disposal of our common stock unless the U.S. Holder
carries on a trade, profession or vocation in the U.K. through a
branch or agency or, in the case of a company, a permanent
establishment and our common stock has been used, held or
acquired for the purpose of such branch, agency or permanent
establishment.
U.K.
Stamp Duty and Stamp Duty Reserve Tax
No U.K. stamp duty or stamp duty reserve tax should be payable
by a U.S. Holder as a result of the cancellation of Cadbury
Schweppes ordinary shares and the issue of Cadbury plc
beverage shares and Cadbury plc ordinary shares
under the scheme of arrangement or as a result of the issue of
our common stock under the Cadbury plc reduction of capital.
No U.K. stamp duty will be payable by a U.S. Holder on the
transfer of our common stock, provided that any instrument of
transfer is not executed in the United Kingdom and does not
relate to any property situated, or to any matter or thing done
or to be done, in the United Kingdom.
No U.K. stamp duty reserve tax will be payable by a
U.S. Holder in respect of any agreement to transfer our
common stock unless they are registered in a register kept in
the United Kingdom by or on our behalf. It is not intended that
such a register will be kept in the United Kingdom.
Where Cadbury plc ordinary shares are issued or transferred:
(i) to, or to a nominee for, a person whose business is or
includes the provision of clearance services; or (ii) to,
or to a nominee or agent for, a person whose business is or
includes issuing depositary receipts, stamp duty (in the case of
a transfer to such persons) or stamp duty reserve tax may be
payable at the higher rate of 1.5% of the amount or value of the
consideration payable or, in certain circumstances, the value of
the Cadbury plc ordinary shares or, in the case of an issue to
such persons, the issue price of the Cadbury plc ordinary shares
(rounded up to the next £5 in the case of stamp duty). This
liability for stamp duty or stamp duty reserve tax will strictly
be accountable by the depositary or clearance service operator
or their nominee, as the case may be, but will in practice
generally be reimbursed by participants in the clearance service
or depositary receipt scheme. Clearance services may opt, under
certain circumstances, for the normal rate of stamp duty or
stamp duty reserve tax (0.5% of the consideration paid) to apply
to issues or transfers of Cadbury plc ordinary shares into, and
to transactions within, such services instead of the higher rate
of 1.5% generally applying to an issue or transfer of Cadbury
plc ordinary shares into the clearance service and the exemption
from stamp duty and stamp duty reserve tax on transfer of
Cadbury plc ordinary shares while in the service. However,
U.S. Holders who hold their Cadbury Schweppes ordinary
shares in the form of Cadbury Schweppes ADRs should not suffer a
1.5% charge on the issue of Cadbury plc ordinary shares to the
Cadbury plc depository and the receipt of Cadbury plc ADRs.
U.S.
Information Reporting and Backup Withholding
Information reporting requirements will generally apply to
U.S. Holders in respect of distributions on our common
stock and the proceeds from a sale of our common stock, unless a
U.S. Holder is a corporation or other person that is exempt
from information reporting requirements. In addition, backup
withholding of U.S. federal income tax will apply to those
payments if a U.S. Holder fails to provide a taxpayer
identification number and certain other information, or a
certification of exempt status, or if the U.S. Holder fails
to report in full interest and dividend income. Any amounts
withheld under the backup withholding rules will be allowed as a
refund or credit
147
against a U.S. Holders U.S. federal income tax
liability provided the required information is timely furnished
to the IRS.
The foregoing discussion of the material U.K. and
U.S. federal tax consequences of the receipt of Cadbury plc
beverage shares, Cadbury plc ordinary shares or
Cadbury plc ADRs and the receipt, ownership and disposition of
our common stock under current U.K. and U.S. federal tax
law is for general information only and is subject to the
qualifications and limitations set forth above. The foregoing
does not purport to address all U.K. and U.S. federal tax
consequences or tax consequences that may arise under the tax
laws of other jurisdictions or that may apply to particular
categories of holders of Cadbury Schweppes ordinary shares or
Cadbury Schweppes ADRs. Holders are urged to consult their own
tax advisors as to the particular tax consequences of the
receipt of Cadbury plc beverage shares, Cadbury plc
ordinary shares or Cadbury plc ADRs and the receipt, ownership
and disposition of our common stock to them, including the
effect of any non-UK and
non-U.S. tax
laws, and the effect of any repeals, revocations or
modifications in tax laws that may affect the tax consequences
described above.
148
WHERE YOU
CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on
Form 10 under the Exchange Act, of which this information
statement forms a part, with respect to our shares of common
stock that holders of ordinary shares and ADRs of Cadbury
Schweppes will receive in the distribution. This information
statement does not contain all of the information contained in
the registration statement and the exhibits to the registration
statement. Some items are omitted in accordance with the rules
and regulations of the SEC. For additional information relating
to us, reference is made to the registration statement and the
exhibits to the registration statement, which are on file with
the SEC.
You may inspect and copy the registration statement and the
exhibits to the registration statement that we have filed with
the SEC at the SECs Public Reference Room at
100 F Street, N.E., Washington, D.C. 20549.
Please call the SEC at
1-800-SEC-0330
for further information on the Public Reference Room. In
addition, the SEC maintains an Internet site at www.sec.gov,
from which you can electronically access the registration
statement, including the exhibits and schedules to the
registration statement.
Statements contained in this information statement as to the
contents of any contract or other document referred to are not
necessarily complete and in each instance, if the contract or
document is filed as an exhibit, reference is made to the copy
of the contract or other documents filed as an exhibit to the
registration statement. Each statement is qualified in all
respects by the relevant reference.
As a result of the distribution, we will be required to comply
with the full informational and reporting requirements of the
Exchange Act. We will fulfill our obligations with respect to
these requirements by filing Annual Reports on
Form 10-K,
Quarterly Reports on
Form 10-Q,
Proxy Statements and Current Reports on
Form 8-K
and other information with the SEC.
After separation, we plan to make available, on our
website ,
our Annual Reports on
Form 10-K,
Quarterly Reports on
Form 10-Q,
Proxy Statements, Current Reports on
Form 8-K,
reports filed pursuant to Section 16 and amendments to
those reports as soon as reasonably practicable after we
electronically file or furnish such materials with the SEC. In
addition, we will post the charters of our Audit Committee,
Compensation Committee and Nominating and Corporate Governance
Committee and our Code of Ethics on our website. These charters
and Code of Ethics are not incorporated by reference in this
information statement. We also will provide a copy of these
documents free of charge to stockholders upon request by
contacting Investor Relations at the address or telephone set
forth in Information Statement Summary
Questions and Answers About the Distribution Who do
I contact for information regarding Dr Pepper Snapple
Group, Inc. and the distribution?
149
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors of Cadbury Schweppes plc and the Board
of Directors of Dr Pepper Snapple Group, Inc.:
We have audited the accompanying combined balance sheets of Dr
Pepper Snapple Group, Inc., formerly CSAB Inc., (the
Company) as of December 31, 2007 and 2006, and
the related combined statements of operations, cash flows and
changes in invested equity for the fiscal years ended
December 31, 2007, December 31, 2006 and
January 1, 2006. These combined financial statements are
the responsibility of the Companys 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 as established by the Auditing Standards
Board (United States) and in accordance with the auditing
standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform,
an audit of its internal control over financial reporting. Our
audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Companys
internal control over financial reporting. Accordingly, we
express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements, 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, such combined financial statements present
fairly, in all material respects, the financial position of the
Company as of December 31, 2007 and 2006, and the results
of its operations and its cash flows for the fiscal years ended
December 31, 2007, December 31, 2006 and
January 1, 2006 in conformity with accounting principles
generally accepted in the United States of America.
As discussed in Note 1, the combined financial statements
of the Company include allocation of certain general corporate
overhead costs from Cadbury Schweppes plc. These costs may not
be reflective of the actual level of costs which would have been
incurred had the Company operated as a separate entity apart
from Cadbury Schweppes plc.
As discussed in Note 2 and Note 9 to the combined
financial statements, the Company changed its method of
accounting for stock based employee compensation as of
January 3, 2005 and the Company changed its method of
accounting for uncertainty in income taxes as of January 1,
2007, respectively.
Dallas, Texas
March 20, 2008
F-2
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
Assets
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents (Note 2)
|
|
$
|
67
|
|
|
$
|
35
|
|
Accounts receivable (Note 2):
|
|
|
|
|
|
|
|
|
Trade (net of allowances of $20 and $14, respectively)
|
|
|
538
|
|
|
|
562
|
|
Other
|
|
|
59
|
|
|
|
18
|
|
Related party receivable (Note 16)
|
|
|
66
|
|
|
|
5
|
|
Note receivable from related parties (Note 16)
|
|
|
1,527
|
|
|
|
579
|
|
Inventories (Notes 2 and 4)
|
|
|
325
|
|
|
|
300
|
|
Deferred tax assets (Notes 2 and 9)
|
|
|
81
|
|
|
|
61
|
|
Prepaid and other current assets (Note 2)
|
|
|
76
|
|
|
|
72
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
2,739
|
|
|
|
1,632
|
|
Property, plant and equipment, net (Notes 2 and 6)
|
|
|
868
|
|
|
|
755
|
|
Investments in unconsolidated subsidiaries (Note 7)
|
|
|
13
|
|
|
|
12
|
|
Goodwill (Notes 2 and 8)
|
|
|
3,183
|
|
|
|
3,180
|
|
Other intangible assets, net (Notes 2 and 8)
|
|
|
3,617
|
|
|
|
3,651
|
|
Other non-current assets (Note 2)
|
|
|
100
|
|
|
|
107
|
|
Non-current deferred tax assets (Notes 2 and 9)
|
|
|
8
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
10,528
|
|
|
$
|
9,346
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Invested Equity
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses (Note 5)
|
|
$
|
812
|
|
|
$
|
788
|
|
Related party payable (Note 16)
|
|
|
175
|
|
|
|
183
|
|
Current portion of long-term debt payable to related parties
(Note 10)
|
|
|
126
|
|
|
|
708
|
|
Income taxes payable (Notes 2 and 9)
|
|
|
22
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,135
|
|
|
|
1,691
|
|
Long-term debt payable to third parties (Note 10)
|
|
|
19
|
|
|
|
543
|
|
Long-term debt payable to related parties (Note 10)
|
|
|
2,893
|
|
|
|
2,541
|
|
Deferred tax liabilities (Notes 2 and 9)
|
|
|
1,324
|
|
|
|
1,292
|
|
Other non-current liabilities
|
|
|
136
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
5,507
|
|
|
|
6,096
|
|
Commitments and contingencies (Note 11)
|
|
|
|
|
|
|
|
|
Cadbury Schweppes net investment
|
|
|
5,001
|
|
|
|
3,249
|
|
Accumulated other comprehensive income
|
|
|
20
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
Total invested equity
|
|
|
5,021
|
|
|
|
3,250
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and invested equity
|
|
$
|
10,528
|
|
|
$
|
9,346
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these combined
financial statements.
F-3
DR PEPPER
SNAPPLE GROUP, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
January 1,
|
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
Net sales
|
|
$
|
5,748
|
|
|
$
|
4,735
|
|
|
$
|
3,205
|
|
Cost of sales
|
|
|
2,617
|
|
|
|
1,994
|
|
|
|
1,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
3,131
|
|
|
|
2,741
|
|
|
|
2,085
|
|
Selling, general and administrative expenses
|
|
|
2,018
|
|
|
|
1,659
|
|
|
|
1,179
|
|
Depreciation and amortization
|
|
|
98
|
|
|
|
69
|
|
|
|
26
|
|
Impairment of intangible assets (Note 8)
|
|
|
6
|
|
|
|
|
|
|
|
|
|
Restructuring costs (Notes 2 and 12)
|
|
|
76
|
|
|
|
27
|
|
|
|
10
|
|
Gain on disposal of property and intangible assets
|
|
|
(71
|
)
|
|
|
(32
|
)
|
|
|
(36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
1,004
|
|
|
|
1,018
|
|
|
|
906
|
|
Interest expense
|
|
|
253
|
|
|
|
257
|
|
|
|
210
|
|
Interest income
|
|
|
(64
|
)
|
|
|
(46
|
)
|
|
|
(40
|
)
|
Other expense (income)
|
|
|
(2
|
)
|
|
|
2
|
|
|
|
(51
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes, equity in earnings of
unconsolidated subsidiaries and cumulative effect of change in
accounting policy
|
|
|
817
|
|
|
|
805
|
|
|
|
787
|
|
Provision for income taxes (Notes 2 and 9)
|
|
|
322
|
|
|
|
298
|
|
|
|
321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before equity in earnings of unconsolidated subsidiaries
and cumulative effect of change in accounting policy
|
|
|
495
|
|
|
|
507
|
|
|
|
466
|
|
Equity in earnings of unconsolidated subsidiaries
|
|
|
2
|
|
|
|
3
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of change in accounting policy
|
|
|
497
|
|
|
|
510
|
|
|
|
487
|
|
Cumulative effect of change in accounting policy, net of tax
(Note 14)
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
497
|
|
|
$
|
510
|
|
|
$
|
477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these combined
financial statements.
F-4
DR PEPPER
SNAPPLE GROUP, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years End
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
January 1,
|
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
497
|
|
|
$
|
510
|
|
|
$
|
477
|
|
Adjustments to reconcile net income to net cash provided by
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense
|
|
|
120
|
|
|
|
94
|
|
|
|
48
|
|
Amortization expense
|
|
|
49
|
|
|
|
45
|
|
|
|
31
|
|
Impairment of assets
|
|
|
6
|
|
|
|
|
|
|
|
|
|
Provision for doubtful accounts
|
|
|
11
|
|
|
|
4
|
|
|
|
1
|
|
Employee stock-based compensation expense
|
|
|
21
|
|
|
|
17
|
|
|
|
22
|
|
Excess tax benefit on stock-based compensation
|
|
|
(4
|
)
|
|
|
(1
|
)
|
|
|
(3
|
)
|
Deferred income taxes
|
|
|
55
|
|
|
|
14
|
|
|
|
56
|
|
Gain on disposal of property and intangible assets
|
|
|
(71
|
)
|
|
|
(32
|
)
|
|
|
(36
|
)
|
Equity in earnings of unconsolidated subsidiaries, net of tax
|
|
|
(2
|
)
|
|
|
(3
|
)
|
|
|
(21
|
)
|
Cumulative effect of change in accounting policy, net of tax
|
|
|
|
|
|
|
|
|
|
|
10
|
|
Other, net
|
|
|
|
|
|
|
(6
|
)
|
|
|
8
|
|
Changes in operating assets and liabilities, net of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease (increase) in trade accounts receivable
|
|
|
32
|
|
|
|
(42
|
)
|
|
|
8
|
|
(Increase) decrease in related party receivables
|
|
|
(57
|
)
|
|
|
(2
|
)
|
|
|
14
|
|
(Increase) decrease in other accounts receivable
|
|
|
(38
|
)
|
|
|
46
|
|
|
|
(40
|
)
|
(Increase) decrease in inventories
|
|
|
(14
|
)
|
|
|
13
|
|
|
|
18
|
|
(Increase) decrease in prepaid expenses other current assets
|
|
|
(1
|
)
|
|
|
8
|
|
|
|
(29
|
)
|
Increase in other non-current assets
|
|
|
(8
|
)
|
|
|
(3
|
)
|
|
|
(19
|
)
|
(Decrease) increase in accounts payable and accrued expenses
|
|
|
(5
|
)
|
|
|
(104
|
)
|
|
|
34
|
|
Increase in related party payables
|
|
|
12
|
|
|
|
13
|
|
|
|
17
|
|
Increase in income taxes payable
|
|
|
10
|
|
|
|
2
|
|
|
|
1
|
|
(Decrease) increase in other non-current liabilities
|
|
|
(10
|
)
|
|
|
8
|
|
|
|
(14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
603
|
|
|
|
581
|
|
|
|
583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of subsidiaries, net of cash
|
|
|
(30
|
)
|
|
|
(435
|
)
|
|
|
|
|
Purchases of investments and intangible assets
|
|
|
(2
|
)
|
|
|
(53
|
)
|
|
|
(35
|
)
|
Proceeds from disposals of investments and other assets
|
|
|
98
|
|
|
|
53
|
|
|
|
36
|
|
Purchases of property, plant and equipment
|
|
|
(230
|
)
|
|
|
(158
|
)
|
|
|
(44
|
)
|
Proceeds from disposals of property, plant and equipment
|
|
|
6
|
|
|
|
16
|
|
|
|
5
|
|
Payments on notes receivables
|
|
|
1,008
|
|
|
|
166
|
|
|
|
680
|
|
Issuances of notes receivables
|
|
|
(1,937
|
)
|
|
|
(91
|
)
|
|
|
(359
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
(1,087
|
)
|
|
|
(502
|
)
|
|
|
283
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt
|
|
|
2,845
|
|
|
|
2,086
|
|
|
|
124
|
|
Repayment of long-term debt
|
|
|
(3,455
|
)
|
|
|
(2,056
|
)
|
|
|
(279
|
)
|
Excess tax benefit on stock-based compensation
|
|
|
4
|
|
|
|
1
|
|
|
|
3
|
|
Cash distributions to Cadbury Schweppes
|
|
|
(213
|
)
|
|
|
(80
|
)
|
|
|
(381
|
)
|
Change in Cadbury Schweppes net investment
|
|
|
1,334
|
|
|
|
(23
|
)
|
|
|
(282
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
515
|
|
|
|
(72
|
)
|
|
|
(815
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents net change from:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating, investing and financing activities
|
|
|
31
|
|
|
|
7
|
|
|
|
51
|
|
Currency translation
|
|
|
1
|
|
|
|
|
|
|
|
(42
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
35
|
|
|
|
28
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
67
|
|
|
$
|
35
|
|
|
$
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow disclosures of non-cash investing and
financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash transfers of property, plant and equipment to other
Cadbury Schweppes companies
|
|
$
|
15
|
|
|
$
|
15
|
|
|
$
|
14
|
|
Non-cash transfers of operating assets and liabilities to other
Cadbury Schweppes companies
|
|
|
22
|
|
|
|
16
|
|
|
|
22
|
|
Non-cash conversion of debt to equity contribution
|
|
|
|
|
|
|
|
|
|
|
300
|
|
Non-cash reduction in long term debt from Cadbury Schweppes net
investment
|
|
|
263
|
|
|
|
383
|
|
|
|
|
|
Cadbury Schweppes or related entities acquisition payments
reflected through Cadbury Schweppes net investment
|
|
|
17
|
|
|
|
23
|
|
|
|
27
|
|
Non-cash issuance of note payable related to acquisition
|
|
|
35
|
|
|
|
|
|
|
|
|
|
Non-cash assumption of debt related to acquisition payments by
Cadbury Schweppes
|
|
|
35
|
|
|
|
|
|
|
|
|
|
Non-cash transfer of related party receivable to Cadbury
Schweppes company
|
|
|
16
|
|
|
|
|
|
|
|
|
|
Operating liabilities expected to be reimbursed by Cadbury
Schweppes
|
|
|
27
|
|
|
|
|
|
|
|
|
|
Non-cash reclassifications upon FIN 48 adoption
|
|
|
90
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow disclosures:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
257
|
|
|
$
|
204
|
|
|
$
|
165
|
|
Income taxes paid
|
|
|
34
|
|
|
|
14
|
|
|
|
14
|
|
The accompanying notes are an integral part of these combined
financial statements.
F-5
DR PEPPER
SNAPPLE GROUP, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cadbury
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Schweppes
|
|
|
Other
|
|
|
Total
|
|
|
|
|
|
|
Net
|
|
|
Comprehensive
|
|
|
Invested
|
|
|
Comprehensive
|
|
|
|
Investment
|
|
|
Income (Loss)
|
|
|
Equity
|
|
|
Income
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
Balance as of January 2, 2005
|
|
$
|
2,116
|
|
|
$
|
(9
|
)
|
|
$
|
2,107
|
|
|
|
|
|
Net income
|
|
|
477
|
|
|
|
|
|
|
|
477
|
|
|
$
|
477
|
|
Distributions
|
|
|
(381
|
)
|
|
|
|
|
|
|
(381
|
)
|
|
|
|
|
Movement in Cadbury Schweppes investment, net
|
|
|
204
|
|
|
|
|
|
|
|
204
|
|
|
|
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in pension liability
|
|
|
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
20
|
|
|
|
20
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of January 1, 2006
|
|
|
2,416
|
|
|
|
10
|
|
|
|
2,426
|
|
|
|
|
|
Net income
|
|
|
510
|
|
|
|
|
|
|
|
510
|
|
|
$
|
510
|
|
Distributions
|
|
|
(80
|
)
|
|
|
|
|
|
|
(80
|
)
|
|
|
|
|
Movement in Cadbury Schweppes investment, net
|
|
|
403
|
|
|
|
|
|
|
|
403
|
|
|
|
|
|
Adoption of FAS 158 (Note 13)
|
|
|
|
|
|
|
(4
|
)
|
|
|
(4
|
)
|
|
|
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in pension liability
|
|
|
|
|
|
|
3
|
|
|
|
3
|
|
|
|
3
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
(8
|
)
|
|
|
(8
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2006
|
|
|
3,249
|
|
|
|
1
|
|
|
|
3,250
|
|
|
|
|
|
Net income
|
|
|
497
|
|
|
|
|
|
|
|
497
|
|
|
$
|
497
|
|
Movement in Cadbury Schweppes investment, net
|
|
|
1,484
|
|
|
|
|
|
|
|
1,484
|
|
|
|
|
|
Distributions
|
|
|
(213
|
)
|
|
|
|
|
|
|
(213
|
)
|
|
|
|
|
Adoption of FIN 48 (Note 9)
|
|
|
(16
|
)
|
|
|
|
|
|
|
(16
|
)
|
|
|
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in pension liability
|
|
|
|
|
|
|
3
|
|
|
|
3
|
|
|
|
3
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
16
|
|
|
|
16
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2007
|
|
$
|
5,001
|
|
|
$
|
20
|
|
|
$
|
5,021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these combined
financial statements.
F-6
DR PEPPER
SNAPPLE GROUP, INC.
As of December 31, 2007 and December 31, 2006
and for the fiscal years
ended December 31, 2007, December 31, 2006 and
January 1, 2006
(Amounts in millions, except per share amounts)
|
|
1.
|
Background
and Basis of Presentation
|
Background
Dr Pepper Snapple Group, Inc. (formerly known as CSAB, Inc.)
(the Company) is a wholly-owned subsidiary of
Cadbury Schweppes plc (Cadbury Schweppes) that was
incorporated as a Delaware corporation on October 24, 2007
to own Cadbury Schweppes Americas Beverages business. This
business will be transferred to the Company in connection with
the separation of the Company from Cadbury Schweppes through the
distribution of all its outstanding common shares to Cadbury
Schweppes shareholders. The initial capitalization was two
dollars. Prior to its ownership of Cadbury Schweppes
Americas Beverages business, the Company did not have any
operations. The Company conducts operations in the United
States, Canada, Mexico and parts of the Caribbean.
The Companys key brands include Dr Pepper, Snapple, 7UP,
Motts, Sunkist, Hawaiian Punch, A&W, Canada Dry,
Schweppes, Squirt, Clamato, Peñafiel, Mr & Mrs T,
and Margaritaville.
Basis
of Presentation
The accompanying combined financial statements have been
prepared in accordance with accounting principles generally
accepted in the United States of America
(U.S. GAAP).
The combined financial statements have been prepared on a
carve-out basis from Cadbury Schweppes
consolidated financial statements using the historical results
of operations, assets and liabilities attributable to Cadbury
Schweppes Americas Beverages business and include
allocations of expenses from Cadbury Schweppes. This historical
Cadbury Schweppes Americas Beverage information is our
predecessor financial information. The Company eliminates from
its financial results all intercompany transactions between
entities included in the combination and the intercompany
transactions with its equity method investees.
The combined financial statements may not be indicative of the
Companys future performance and do not necessarily reflect
what its combined results of operations, financial position and
cash flows would have been had the Company operated as an
independent company during the periods presented. To the extent
that an asset, liability, revenue or expense is directly
associated with the Company, it is reflected in the accompanying
combined financial statements.
Cadbury Schweppes currently provides certain corporate functions
to the Company and costs associated with these functions have
been allocated to the Company. These functions include corporate
communications, regulatory, human resources and benefit
management, treasury, investor relations, corporate controller,
internal audit, Sarbanes Oxley compliance, information
technology, corporate and legal compliance, and community
affairs. The costs of such services have been allocated to the
Company based on the most relevant allocation method to the
service provided, primarily based on relative percentage of
revenue or headcount. Management believes such allocations are
reasonable; however, they may not be indicative of the actual
expense that would have been incurred had the Company been
operating as an independent company for the periods presented.
The charges for these functions are included primarily in
selling, general and administrative expenses in the
Combined Statements of Operations.
The total invested equity represents Cadbury Schweppes
interest in the recorded net assets of the Company. The net
investment balance represents the cumulative net investment by
Cadbury Schweppes in the Company through that date, including
any prior net income or loss or other comprehensive income or
loss attributed to the Company. Certain transactions between the
Company and other related parties within the Cadbury Schweppes
group, including allocated expenses, are also included in
Cadbury Schweppes net investment.
F-7
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
The fiscal years presented are the year ended December 31,
2007, which is referred to as 2007, the year ended
December 31, 2006, which is referred to as
2006, and the 52-week period ended January 1,
2006, which is referred to as 2005. Effective 2006,
the Companys fiscal year ends on December 31 of each year.
Prior to 2006, the Companys fiscal year end date
represented the Sunday closest to December 31 of each year.
|
|
2.
|
Significant
Accounting Policies
|
Use of
Estimates
The process of preparing financial statements in conformity with
U.S. GAAP requires the use of estimates and judgments that
affect the reported amount of assets, liabilities, revenue and
expenses. These estimates and judgments are based on historical
experience, future expectations and other factors and
assumptions the Company believes to be reasonable under the
circumstances. These estimates and judgments are reviewed on an
ongoing basis and are revised when necessary. Actual amounts may
differ from these estimates. The Companys most significant
estimates and judgments include those relating to: revenue
recognition, income taxes, pension and postretirement benefit
obligations, stock based compensation and valuations of goodwill
and other intangibles. Changes in estimates are recorded in the
period of change.
Revenue
Recognition
The Company recognizes sales revenue when all of the following
have occurred: (1) delivery, (2) persuasive evidence
of an agreement exists, (3) pricing is fixed or
determinable and (4) collection is reasonably assured.
Delivery is not considered to have occurred until the title and
the risk of loss passes to the customer according to the terms
of the contract between the Company and the customer. The timing
of revenue recognition is largely dependent on contract terms.
For sales to other customers that are designated in the contract
as
free-on-board
destination, revenue is recognized when the product is delivered
to and accepted at the customers delivery site.
In addition, the Company offers a variety of incentives and
discounts to bottlers, customers and consumers through various
programs to support the distribution of its products. These
incentives and discounts include cash discounts, price
allowances, volume based rebates, product placement fees and
other financial support for items such as trade promotions,
displays, new products, consumer incentives and advertising
assistance. These incentives and discounts, collectively
referred to as trade spend, are reflected as a reduction of
gross sales to arrive at net sales. Trade spend for 2007 and
2006 includes the effect of the Companys bottling
acquisitions (see Note 3) where the amounts of such
spend are larger than those related to other parts of its
business. The aggregate deductions from gross sales recorded by
the Company in relation to these programs were approximately
$3,159 million, $2,440 million, and $928 million
in 2007, 2006 and 2005, respectively. Net sales are also
reported net of sales taxes and other similar taxes.
Transportation
and Warehousing Costs
The Company incurred $736 million, $582 million and
$292 million of transportation and warehousing costs in
2007, 2006 and 2005, respectively. These amounts, which
primarily relate to shipping and handling costs, are included in
selling, general and administrative expenses.
Cash
and Cash Equivalents
Cash and cash equivalents include cash and investments in
short-term, highly liquid securities, with original maturities
of three months or less.
Concentration
of Credit Risk
Financial instruments which subject the Company to potential
credit risk consist of its cash and cash equivalents and
accounts receivable. The Company places its cash and cash
equivalents with high credit
F-8
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
quality financial institutions. Deposits with these financial
institutions may exceed the amount of insurance provided;
however, these deposits typically are redeemable upon demand
and, therefore, the Company believes the financial risks
associated with these financial instruments are minimal.
The Company performs ongoing credit evaluations of its
customers, and generally does not require collateral on its
accounts receivable. The Company estimates the need for
allowances for potential credit losses based on historical
collection activity and the facts and circumstances relevant to
specific customers and records a provision for uncollectible
accounts when collection is uncertain. The Company has not
experienced significant credit related losses to date.
No single customer accounted for 10% or more of the
Companys trade accounts receivable for any period
presented.
The principal raw materials the Company uses in the business are
aluminum cans and ends, glass bottles, PET bottles and caps,
paperboard packaging, high fructose corn syrup and other
sweeteners, juice, fruit, electricity, fuel and water. Some raw
materials the Company uses are available from only a few
suppliers. If these suppliers are unable or unwilling to meet
requirements, the Company could suffer shortages or substantial
cost increases.
Accounts
Receivable and Allowance for Doubtful Accounts
Trade accounts receivable are recorded at the invoiced amount
and do not bear interest. Past-due status is based on
contractual terms on a
customer-by-customer
basis. The Company determines the required allowance using
information such as its customer credit history, industry and
market segment information, economic trends and conditions,
credit reports and customer financial condition. The estimates
can be affected by changes in the industry, customer credit
issues or customer bankruptcies. Account balances are charged
off against the allowance when it is determined that the
receivable will not be recovered.
Activity in the allowance for doubtful accounts was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Balance, beginning of the year
|
|
$
|
14
|
|
|
$
|
10
|
|
|
$
|
12
|
|
Net charge to costs and expenses
|
|
|
11
|
|
|
|
4
|
|
|
|
1
|
|
Acquisition of subsidiaries
|
|
|
|
|
|
|
3
|
|
|
|
|
|
Write-offs
|
|
|
(5
|
)
|
|
|
(3
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of the year
|
|
$
|
20
|
|
|
$
|
14
|
|
|
$
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories
Inventories are stated at the lower of cost or market value.
Cost is determined for U.S. inventories substantially by
the
last-in,
first-out (LIFO) valuation method and for
non-U.S. inventories
by the
first-in,
first-out (FIFO) valuation method. Inventories
include raw materials,
work-in-process,
finished goods, packing materials, advertising materials, spare
parts and other supplies. The costs of finished goods
inventories include raw materials, direct labor and indirect
production and overhead costs. Reserves for excess and obsolete
inventories are based on an assessment of slow-moving and
obsolete inventories, determined by historical usage and demand.
Excess and obsolete inventory reserves were $17 million and
$7 million as of December 31, 2007 and 2006,
respectively.
Income
Taxes
Income taxes are computed and reported on a separate return
basis and accounted for using the asset and liability approach
under Statement of Financial Accounting Standards
(SFAS) No. 109,
Accounting for Income Taxes
(SFAS 109). This method involves
determining the temporary differences between combined assets
and
F-9
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
liabilities recognized for financial reporting and the
corresponding combined amounts recognized for tax purposes and
computing the tax-related carryforwards at the enacted tax rates
expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled.
The resulting amounts are deferred tax assets or liabilities and
the net changes represent the deferred tax expense or benefit
for the year. The total of taxes currently payable per the tax
return and the deferred tax expense or benefit represents the
income tax expense or benefit for the year for financial
reporting purposes.
The Company periodically assesses the likelihood of realizing
its deferred tax assets based on the amount of deferred tax
assets that the Company believes is more likely than not to be
realized. The Company bases its judgment of the recoverability
of its deferred tax asset, which includes U.S. federal and,
to a lesser degree, state and foreign net operating loss, or
NOL, carryforwards, primarily on historical earnings, its
estimate of current and expected future earnings, prudent and
feasible tax planning strategies, and current and future
ownership changes.
Property,
Plant and Equipment
Property, plant and equipment are stated at cost, net of
accumulated depreciation and amortization, plus capitalized
interest on borrowings during the actual construction period of
major capital projects. Significant improvements which
substantially extend the useful lives of assets are capitalized.
The costs of major rebuilds and replacements of plant and
equipment are capitalized, and expenditures for repairs and
maintenance which do not improve or extend the life of the
assets are expensed as incurred. When property, plant and
equipment is sold or retired, the costs and the related
accumulated depreciation are removed from the accounts, and the
net gains or losses are recorded in gain on disposal of
property and intangible assets. Leasehold improvements are
amortized over the shorter of the estimated useful life of the
assets or the lease term.
For financial reporting purposes, depreciation is computed on
the straight-line method over the estimated useful asset lives
as follows:
|
|
|
|
|
Asset
|
|
Useful Life
|
|
|
Buildings and improvements
|
|
|
25 to 40 years
|
|
Machinery and equipment
|
|
|
5 to 14 years
|
|
Vehicles
|
|
|
5 to 8 years
|
|
Vending machines
|
|
|
5 to 7 years
|
|
Computer software
|
|
|
3 to 8 years
|
|
Estimated useful lives are periodically reviewed and, when
warranted, are updated. Long-lived assets are reviewed for
impairment whenever events or changes in circumstances indicate
that their carrying amount may not be recoverable. An impairment
loss would be determined when estimated undiscounted future
pre-tax cash flows from the use of the asset or group of assets,
as defined, are less than its carrying amount. Measurement of an
impairment loss is based on the excess of the carrying amount of
the asset or group of assets over the long-live asset fair
value. Fair value is generally measured using discounted cash
flows.
Goodwill
and Other Indefinite Lived Intangible Assets
The majority of the Companys intangible asset balances are
made up of goodwill and brands which the Company has determined
to have indefinite useful lives. In arriving at the conclusion
that a brand has an indefinite useful life, management reviews
factors such as size, diversification and market share of each
brand. Management expects to acquire, hold and support brands
for an indefinite period through consumer marketing and
promotional support. The Company also considers factors such as
our ability to continue to protect the legal rights that arise
from these brand names indefinitely or the absence of any
regulatory, economic or competitive factors that could truncate
the life of the brand name. If the criteria are not met to
assign an indefinite life, the brand is amortized over its
expected useful life.
F-10
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
The Company conducts impairment tests on goodwill and all
indefinite lived intangible assets annually, as of
December 31, or more frequently if circumstances indicate
that the carrying amount of an asset may not be recoverable. The
Company uses present value and other valuation techniques to
make this assessment. If the carrying amount of an intangible
asset exceeds its fair value, an impairment loss is recognized
in an amount equal to that excess.
Impairment tests for goodwill include comparing the fair value
of the respective reporting units, which are the Companys
segments, with their carrying amount, including goodwill.
Goodwill is evaluated using a two-step impairment test at the
reporting unit level. The first step compares the carrying
amount of a reporting unit, including goodwill, with its fair
value. If the carrying amount of a reporting unit exceeds its
fair value, a second step is completed to determine the amount
of goodwill impairment loss to record. In the second step, an
implied fair value of the reporting units goodwill is
determined by allocating the fair value of the reporting unit to
all of the assets and liabilities other than goodwill. The
amount of impairment loss is equal to the excess of the carrying
amount of the goodwill over the implied fair value of that
goodwill.
Definite
Lived Intangible Assets
Definite lived intangible assets are those assets deemed by the
Company to have determinable finite useful lives. Identifiable
intangible assets with finite lives are amortized on a
straight-line basis over their estimated useful lives as follows:
|
|
|
|
|
Intangible Assets
|
|
Useful Life
|
|
|
Brands
|
|
|
5 to 15 years
|
|
Bottler agreements and distribution rights
|
|
|
2 to 16 years
|
|
Customer relationships and contracts
|
|
|
5 to 10 years
|
|
Other
Assets
The Company provides support to certain customers to cover
various programs and initiatives to increase net sales. Costs of
these programs and initiatives are recorded in prepaid
expenses and other current assets and other
non-current assets. These costs include contributions to
customers or vendors for cold drink equipment used to market and
sell the Companys products.
The long-term portion of the costs for these programs is
recorded in other non-current assets and subsequently amortized
over the period to be directly benefited. These costs amounted
to $86 million and $100 million, net of accumulated
amortization, for 2007 and 2006, respectively. The amounts of
these incentives are amortized based upon a methodology
consistent with the Companys contractual rights under
these arrangements. The amortization charge for the cost of
contributions to customers or vendors for cold drink equipment
was $9 million, $16 million and $17 million for
2007, 2006 and 2005, respectively, and was recorded in
selling, general and administrative expenses in the
Combined Statements of Operations. The amortization charge for
the cost of other programs and incentives was $10 million,
$10 million and $11 million for 2007, 2006 and 2005,
respectively, and was recorded as a deduction from gross sales.
Research
and Development
Research and development costs are expensed when incurred and
amounted to $24 million, $24 million and
$21 million for 2007, 2006 and 2005, respectively. These
expenses are recorded in selling, general and
administrative expenses in the Combined Statements of
Operations.
F-11
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
Advertising
Expense
Advertising costs are expensed when incurred and amounted to
approximately $387 million, $374 million and
$377 million for 2007, 2006 and 2005, respectively. These
expenses are recorded in selling, general and
administrative expenses in the Combined Statements of
Operations.
Restructuring
Costs
The Company periodically records facility closing and
reorganization charges when a facility for closure or other
reorganization opportunity has been identified, a closure plan
has been developed and the affected employees notified, all in
accordance with SFAS No. 146,
Accounting for Costs
Associated with Exit or Disposal Activities
(SFAS 146).
Foreign
Currency Translation
The functional currency of the Companys operations outside
the U.S. is the local currency of the country where the
operations are located. The balance sheets of operations outside
the U.S. are translated into U.S. Dollars at the end
of year rates. The results of operations for the fiscal year are
translated into U.S. Dollars at an annual average rate,
calculated using month end exchange rates.
The following table sets forth exchange rate information for the
periods and currencies indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yearly
|
|
Mexican Peso to U.S. Dollar Exchange Rate
|
|
Year End
|
|
|
Average
|
|
|
2007
|
|
|
10.91
|
|
|
|
10.91
|
|
2006
|
|
|
10.79
|
|
|
|
10.86
|
|
2005
|
|
|
10.64
|
|
|
|
10.88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yearly
|
|
Canadian Dollar to U.S. Dollar Exchange Rate
|
|
Year End
|
|
|
Average
|
|
|
2007
|
|
|
1.00
|
|
|
|
1.07
|
|
2006
|
|
|
1.17
|
|
|
|
1.13
|
|
2005
|
|
|
1.17
|
|
|
|
1.21
|
|
Differences on exchange arising from the translation of opening
balances sheets of these entities to the rate ruling at the end
of the financial year are recognized in accumulated other
comprehensive income. The exchange differences arising
from the translation of foreign results from the average rate to
the closing rate are also recognized in accumulated other
comprehensive income. Such translation differences are
recognized as income or expense in the period in which the
Company disposes of the operations.
Transactions in foreign currencies are recorded at the
approximate rate of exchange at the transaction date. Assets and
liabilities resulting from these transactions are translated at
the rate of exchange in effect at the balance sheet date. All
such differences are recorded in results of operations and
amounted to less than $1 million, $5 million and
$2 million in 2007, 2006 and 2005, respectively.
Fair
Value of Financial Instruments
Pursuant to SFAS No. 107,
Disclosure about Fair
Value of Financial Instruments
(SFAS 107),
the Company is required to disclose an estimate of the fair
value of its financial instruments as of December 31, 2007
and 2006. SFAS 107 defines the fair value of financial
instruments as the amount at which the instrument could be
exchanged in a current transaction between willing parties.
F-12
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
The carrying amounts reflected in the Combined Balance Sheets
for cash and cash equivalents, accounts receivable, accounts
payable and short-term debt approximate fair value due to the
short-term nature of their maturities.
The Companys long-term debt was subject to variable and
fixed interest rates that approximated market rates in 2007,
2006 and 2005. As a result, the Company believes the carrying
value of long-term debt approximates fair value for these
periods.
The carrying amount of the Companys outstanding
foreign-currency swaps is equivalent to fair value as of the
respective dates in the Combined Balance Sheets.
Stock-Based
Compensation
On January 3, 2005, the Company adopted Statement of
Financial Accounting Standards No. 123(R),
Share-Based
Payment
(SFAS 123(R)). SFAS 123(R)
requires the recognition of compensation expense in the Combined
Statement of Operations related to the fair value of employee
share-based awards. The Company selected the modified
prospective method of transition; accordingly, prior periods
have not been restated. Upon adoption of SFAS 123(R), for
awards which are classified as liabilities, the Company was
required to reclassify the Accounting Principles Board Opinion
No. 25,
Accounting for Stock Issued to
Employees,
(APB 25) historical compensation cost from equity to
liability and to recognize the difference between this and the
fair value liability through the statement of operations.
Under SFAS 123(R), the Company recognizes the cost of all
unvested employee stock options on a straight-line attribution
basis over their respective vesting periods, net of estimated
forfeitures. In addition, the Company has certain employee share
plans that contain inflation indexed earnings growth performance
conditions. SFAS 123(R) requires plans with such
performance criteria to be accounted for under the liability
method. The liability method, as set out in SFAS 123(R),
requires a liability be recorded on the balance sheet until
awards have vested. Also, in calculating the income statement
charge for share awards under the liability method as set out in
SFAS 123(R), the fair value of each award must be
remeasured at each reporting date until vesting.
The stock-based compensation plans in which the Companys
employees participate are described further in Note 14.
Pension
and Postretirement Benefits
The Company has several pension and postretirement plans
covering employees who satisfy age and length of service
requirements. There are nine stand-alone and five multi-employer
pension plans and five stand-alone and one multi-employer
postretirement plans. Depending on the plan, pension and
postretirement benefits are based on a combination of factors,
which may include salary, age and years of service. One of the
nine stand-alone plans is an unfunded pension plan that provides
supplemental pension benefits to certain senior executives, and
is accounted for as a defined contribution plan.
Pension expense has been determined in accordance with the
principles of SFAS No. 87,
Employers
Accounting for Pensions
which requires use of the
projected unit credit method for financial
reporting. The Company adopted the provisions of
SFAS No. 158,
Employers Accounting for
Defined Benefit Pension and Other Postretirement
Plans An amendment of Financial Accounting Standards
Board Statements No. 87, 88, 106, and 132(R)
(SFAS 158) related to recognizing the
funded status of a benefit plan and the disclosure requirements
on December 31, 2006. The Company has elected to defer the
change of measurement date as permitted by SFAS 158 until
December 31, 2008. The Companys policy is to fund
pension plans in accordance with the requirements of the
Employee Retirement Income Security Act. Employee benefit plan
obligations and expenses included in the Combined Financial
Statements are determined from actuarial analyses based on plan
assumptions, employee demographic data, years of service,
compensation, benefits and claims paid and employer
contributions.
F-13
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
Cadbury Schweppes sponsors the five multi-employer pension plans
in which the Companys employees participate, and therefore
the Company accounts for these as defined contribution plans.
The expense related to the postretirement plans has been
determined in accordance with SFAS No. 106,
Employers Accounting for Postretirement Benefits Other
Than Pensions
(SFAS 106). As stated in
SFAS 106, the Company accrues the cost of these benefits
during the years that employees render service to us.
New
Accounting Standards
In December 2007, the FASB issued SFAS No. 141
(revised 2007),
Business Combinations
(SFAS 141(R)), which amends the principles and
requirements for how an acquirer recognizes and measures in its
financial statements the identifiable assets acquired, the
liabilities assumed, any noncontrolling interest in the acquiree
and the goodwill acquired. SFAS 141(R) also establishes
disclosure requirements to enable the evaluation of the nature
and financial effects of the business combination.
SFAS 141(R) is effective for its Company on January 1,
2009, and the Company will apply SFAS 141(R) prospectively
to all business combinations subsequent to the effective date.
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements an amendment of Accounting Research
Bulletin No. 51
(SFAS 160).
SFAS 160 establishes accounting and reporting standards for
the noncontrolling interest in a subsidiary and the
deconsolidation of a subsidiary and also establishes disclosure
requirements that clearly identify and distinguish between the
controlling and noncontrolling interests and requires the
separate disclosure of income attributable to controlling and
noncontrolling interests. SFAS 160 is effective for fiscal
years beginning after December 15, 2008. The Company will
apply SFAS 160 prospectively to all applicable transactions
subsequent to the effective date.
In June 2007, the FASB ratified Emerging Issues Task Force
(EITF) Issue
No. 06-11
Accounting for Income Tax Benefits of Dividends on
Share-Based Payment Awards
(EITF 06-11),
which requires entities to record tax benefits on dividends or
dividend equivalents that are charged to retained earnings for
certain share-based awards to additional paid-in capital. In a
share-based payment arrangement, employees may receive dividends
or dividend equivalents on awards of nonvested equity shares,
nonvested equity share units during the vesting period, and
share options until the exercise date. Generally, the payment of
such dividends can be treated as deductible compensation for tax
purposes. The amount of tax benefits recognized in additional
paid-in capital should be included in the pool of excess tax
benefits available to absorb tax deficiencies on share-based
payment awards.
EITF 06-11
is effective for fiscal years beginning after December 15,
2007, and interim periods within those years. The Company
believes the adoption of
EITF 06-11
will not have a material impact on its combined financial
statements.
In February 2007, the FASB issued SFAS No. 159,
The
Fair Value Option for Financial Assets and Financial Liabilities
including an amendment to FASB Statement No. 115
(SFAS 159). SFAS 159 permits entities
to choose to measure many financial instruments and certain
other items at fair value. Unrealized gains and losses on items
for which the fair value option has been elected will be
recognized in earnings at each subsequent reporting date.
SFAS 159 is effective for the Company January 1, 2008.
The Company does not plan to apply SFAS 159 to any of its
existing financial assets or liabilities and believes that the
adoption of SFAS 159 would not have a material impact on
its financial statements.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements
(SFAS 157).
SFAS 157 defines fair value, establishes a framework for
measuring fair value and expands disclosure requirements about
fair value measurements. SFAS 157 is effective for the
Company January 1, 2008. A one-year deferral is in effect
for nonfinancial assets and nonfinancial liabilities that are
measured on a nonrecurring basis. The Company believes that the
adoption of SFAS 157 will not have a material impact on its
financial statements.
F-14
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
On May 2, 2006, the Company acquired approximately 55% of
the outstanding shares of Dr Pepper/Seven Up Bottling Group,
Inc. (DPSUBG), which, combined with the
Companys pre-existing 45% ownership, resulted in the
Companys full ownership of DPSUBG. DPSUBGs principal
operations are the bottling and distribution of beverages
produced by the Companys Beverage Concentrates and
Finished Goods segments, and certain beverages produced by third
parties, all in North America. The Company acquired DPSUBG to
strengthen the
route-to-market
of its North American beverage business.
The purchase price for the approximately 55% of DPSUBG the
Company did not previously own was approximately
$370 million, which consisted of $347 million cash
paid by the Company and $23 million in related expenses
paid by Cadbury Schweppes. The full purchase price was funded
through related party debt with the subsidiaries of Cadbury
Schweppes.
The acquisition was accounted for as a purchase under
SFAS No. 141
Business Combinations
. The
following table summarizes the allocation of the purchase price
to approximately 55% of DPSUBGs assets and liabilities:
|
|
|
|
|
|
|
At
|
|
|
|
May 2,
|
|
|
|
2006
|
|
|
Current assets
|
|
$
|
182
|
|
Investments
|
|
|
1
|
|
Property, plant and equipment
|
|
|
190
|
|
Intangible assets
|
|
|
410
|
|
|
|
|
|
|
Total assets acquired
|
|
|
783
|
|
Current liabilities
|
|
|
184
|
|
Long-term debt
|
|
|
358
|
|
Deferred tax liabilities
|
|
|
146
|
|
Other liabilities
|
|
|
131
|
|
|
|
|
|
|
Total liabilities assumed
|
|
|
819
|
|
Net liabilities assumed
|
|
|
(36
|
)
|
Cash acquired
|
|
|
10
|
|
Goodwill
|
|
|
396
|
|
|
|
|
|
|
Total purchase price
|
|
$
|
370
|
|
|
|
|
|
|
Included within the allocation of the purchase price in the
table above are $410 million of intangible assets which
includes indefinite lived Company-related bottler agreements of
$282 million, $70 million of customer relationships
and contracts and $48 million of non-Company-related
bottler agreements being amortized over five to 10 years;
and other intangible assets of $10 million being amortized
over 10 years.
The results of DPSUBG have been included in the individual line
items within the Combined Statement of Operations from
May 2, 2006. Prior to this date, the existing investment in
DPSUBG was accounted for by the equity method. Refer to
Note 7.
The following unaudited pro forma summary presents the results
of operations as if the acquisition of DPSUBG had occurred at
the beginning of each fiscal year. The pro forma information may
not be indicative of future performance.
F-15
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Net sales
|
|
$
|
5,443
|
|
|
$
|
5,019
|
|
|
|
|
|
|
|
|
|
|
Net income before cumulative effect of change in accounting
principle
|
|
$
|
500
|
|
|
$
|
457
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
500
|
|
|
$
|
447
|
|
|
|
|
|
|
|
|
|
|
The Company also acquired All American Bottling Company
(AABC) for $58 million on June 9, 2006,
Seven Up Bottling Company of San Francisco
(Easley) for $51 million on August 7, 2006
and Southeast-Atlantic Beverage Corporation (SeaBev)
for $53 million on July 11, 2007. Goodwill of
$20 million and identifiable intangible assets of
$63 million were recorded. These acquisitions further
strengthen the
route-to-market
of the Companys North American beverage business.
The goodwill associated with these transactions has been
assigned to the Bottling Group, Beverage Concentrates and
Finished Goods segments. The amounts assigned to these segments
were $195 million, $322 million and $233 million,
respectively. The goodwill represents benefits of the
acquisitions that are in addition to the fair value of the net
assets acquired and the anticipated increased profitability
arising from the future revenue and cost synergies arising from
the combination. None of the goodwill is deductible for tax
purposes.
Supplemental
schedule of noncash investing activities:
In conjunction with the acquisitions of SeaBev, DPSUBG, AABC and
Easley, the following liabilities were assumed:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
SeaBev
|
|
|
DPSUBG
|
|
|
AABC
|
|
|
Easley
|
|
|
Fair value of assets acquired
|
|
$
|
76
|
(1)
|
|
$
|
1,189
|
|
|
$
|
64
|
|
|
$
|
99
|
|
Cash consideration paid by the Company
|
|
|
|
|
|
|
(347
|
)
|
|
|
(58
|
)
|
|
|
(51
|
)
|
Cash expenses paid by Cadbury Schweppes
|
|
|
|
|
|
|
(23
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities assumed
|
|
|
76
|
|
|
|
819
|
|
|
|
6
|
|
|
|
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Cash purchase price was paid by Cadbury Schweppes and increased
related party debt balance accordingly.
|
Inventories consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Raw materials
|
|
$
|
110
|
|
|
$
|
105
|
|
Work in process
|
|
|
|
|
|
|
5
|
|
Finished goods
|
|
|
245
|
|
|
|
214
|
|
|
|
|
|
|
|
|
|
|
Inventories at FIFO cost
|
|
|
355
|
|
|
|
324
|
|
Reduction to LIFO cost
|
|
|
(30
|
)
|
|
|
(24
|
)
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
$
|
325
|
|
|
$
|
300
|
|
|
|
|
|
|
|
|
|
|
Percent of inventory accounted for by:
|
|
|
|
|
|
|
|
|
LIFO
|
|
|
92
|
%
|
|
|
91
|
%
|
FIFO
|
|
|
8
|
%
|
|
|
9
|
%
|
F-16
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
5.
|
Accounts
Payable and Accrued Expenses
|
Accounts payable and accrued expenses consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Trade accounts payable
|
|
$
|
257
|
|
|
$
|
256
|
|
Customer rebates
|
|
|
200
|
|
|
|
184
|
|
Accrued compensation
|
|
|
127
|
|
|
|
96
|
|
Other current liabilities
|
|
|
228
|
|
|
|
252
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
812
|
|
|
$
|
788
|
|
|
|
|
|
|
|
|
|
|
|
|
6.
|
Property,
Plant and Equipment
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Land
|
|
$
|
90
|
|
|
$
|
79
|
|
Buildings and improvements
|
|
|
284
|
|
|
|
265
|
|
Machinery and equipment
|
|
|
570
|
|
|
|
472
|
|
Vending machines
|
|
|
282
|
|
|
|
258
|
|
Software
|
|
|
125
|
|
|
|
105
|
|
Construction-in-progress
|
|
|
120
|
|
|
|
75
|
|
|
|
|
|
|
|
|
|
|
Gross property, plant and equipment
|
|
|
1,471
|
|
|
|
1,254
|
|
Less: accumulated depreciation and amortization
|
|
|
(603
|
)
|
|
|
(499
|
)
|
|
|
|
|
|
|
|
|
|
Net property, plant and equipment
|
|
$
|
868
|
|
|
$
|
755
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2007 and 2006, the amount reflected in
building and improvements and machinery and
equipment at cost included $23 million and
$1 million of assets under capital lease, respectively. As
of December 31, 2007 and 2006, the net book value of assets
under capital lease was $22 million and $23 million,
respectively.
Depreciation expense amounted to $120 million,
$94 million and $48 million in 2007, 2006 and 2005,
respectively.
Capitalized interest was $6 million, $3 million and
$1 million during 2007, 2006 and 2005, respectively.
|
|
7.
|
Investments
in Unconsolidated Subsidiaries
|
The Company has investments in 50% owned Mexican joint ventures
accounted for under the equity method of accounting. The
carrying value of the investments was $13 million and
$12 million as of December 31, 2007 and 2006,
respectively.
Dr
Pepper/Seven Up Bottling Group
In 2005, Cadbury Schweppes purchased approximately 5% of DPSUBG,
increasing its investment to approximately 45%. On May 2,
2006, the Company purchased the remaining 55% of DPSUBG. As a
result DPSUBG became a fully-owned subsidiary and its results
were combined from that date forward. Refer to Note 3. As
of May 1, 2006 and as of January 1, 2006, the Company
owned approximately 45% of DPSUBG. As of January 2,
F-17
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
2005, the investment in DPSUBG was approximately 40%. The
following schedules summarize DPSUBGs reported financial
information:
|
|
|
|
|
|
|
As of
|
|
|
|
December 31,
|
|
|
|
2005
|
|
|
Current assets
|
|
$
|
418
|
|
Noncurrent assets
|
|
|
1,557
|
|
|
|
|
|
|
Total assets
|
|
|
1,975
|
|
Current liabilities
|
|
|
368
|
|
Noncurrent liabilities
|
|
|
1,081
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,449
|
|
Shareowners equity
|
|
|
526
|
|
|
|
|
|
|
Total liabilities and shareowners equity
|
|
$
|
1,975
|
|
|
|
|
|
|
Company equity investment
|
|
$
|
235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1,
|
|
|
For The
|
|
|
|
2006
|
|
|
Year Ended
|
|
|
|
to May 1,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
Net sales
|
|
$
|
708
|
|
|
$
|
2,042
|
|
Cost of goods sold
|
|
|
469
|
|
|
|
1,298
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
$
|
239
|
|
|
$
|
744
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
32
|
|
|
$
|
134
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2
|
|
|
$
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
8.
|
Goodwill
and Other Intangible Assets
|
Changes in the carrying amount of the goodwill for the fiscal
years ended December 31, 2007 and 2006 by reporting unit
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beverage
|
|
|
Finished
|
|
|
Bottling
|
|
|
Mexico and
|
|
|
|
|
|
|
Concentrates
|
|
|
Goods
|
|
|
Group
|
|
|
the Caribbean
|
|
|
Total
|
|
|
Balance as of January 1, 2006
|
|
$
|
1,415
|
|
|
$
|
989
|
|
|
$
|
2
|
|
|
$
|
38
|
|
|
$
|
2,444
|
|
Acquisitions
|
|
|
322
|
|
|
|
233
|
|
|
|
186
|
|
|
|
|
|
|
|
741
|
|
Changes due to currency and other
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2006
|
|
$
|
1,733
|
|
|
$
|
1,222
|
|
|
$
|
188
|
|
|
$
|
37
|
|
|
$
|
3,180
|
|
Acquisitions
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
7
|
|
Changes due to currency and other
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2007
|
|
$
|
1,731
|
|
|
$
|
1,220
|
|
|
$
|
195
|
|
|
$
|
37
|
|
|
$
|
3,183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The gross carrying amount and accumulated amortization of the
Companys intangible assets other than goodwill as of
December 31, 2007 and December 31, 2006 are as follows:
F-18
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Beginning
|
|
|
Acquisitions,
|
|
|
|
|
|
Ending
|
|
|
|
|
|
Net
|
|
|
|
Useful Life
|
|
|
Gross
|
|
|
(Disposals) &
|
|
|
Changes Due
|
|
|
Gross
|
|
|
Accumulated
|
|
|
Carrying
|
|
As of December 31, 2007
|
|
(years)
|
|
|
Amount
|
|
|
(Write-offs)
|
|
|
to Currency
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Intangible assets with indefinite lives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brands
|
|
|
|
|
|
$
|
3,096
|
|
|
$
|
(10
|
)
|
|
$
|
1
|
|
|
$
|
3,087
|
|
|
$
|
|
|
|
$
|
3,087
|
|
Bottler agreements
|
|
|
|
|
|
|
392
|
|
|
|
6
|
|
|
|
|
|
|
|
398
|
|
|
|
|
|
|
|
398
|
|
Distributor rights
|
|
|
|
|
|
|
24
|
|
|
|
1
|
|
|
|
|
|
|
|
25
|
|
|
|
|
|
|
|
25
|
|
Intangible assets with finite lives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brands
|
|
|
9
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
29
|
|
|
|
(17
|
)
|
|
|
12
|
|
Customer relationships
|
|
|
7
|
|
|
|
73
|
|
|
|
3
|
|
|
|
|
|
|
|
76
|
|
|
|
(20
|
)
|
|
|
56
|
|
Bottler agreements
|
|
|
7
|
|
|
|
64
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
57
|
|
|
|
(19
|
)
|
|
|
38
|
|
Distributor rights
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
|
|
(1
|
)
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
3,678
|
|
|
$
|
(5
|
)
|
|
$
|
1
|
|
|
$
|
3,674
|
|
|
$
|
(57
|
)
|
|
$
|
3,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Beginning
|
|
|
Acquisitions,
|
|
|
|
|
|
Ending
|
|
|
|
|
|
Net
|
|
|
|
Useful Life
|
|
|
Gross
|
|
|
(Disposals) &
|
|
|
Changes Due
|
|
|
Gross
|
|
|
Accumulated
|
|
|
Carrying
|
|
As of December 31, 2006
|
|
(years)
|
|
|
Amount
|
|
|
(Write-offs)
|
|
|
to Currency
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Intangible assets with indefinite lives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brands
|
|
|
|
|
|
$
|
2,929
|
|
|
$
|
168
|
|
|
$
|
(1
|
)
|
|
$
|
3,096
|
|
|
$
|
|
|
|
$
|
3,096
|
|
Bottler agreements
|
|
|
|
|
|
|
|
|
|
|
392
|
|
|
|
|
|
|
|
392
|
|
|
|
|
|
|
|
392
|
|
Distributor rights
|
|
|
|
|
|
|
7
|
|
|
|
17
|
|
|
|
|
|
|
|
24
|
|
|
|
|
|
|
|
24
|
|
Intangible assets with finite lives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brands
|
|
|
8
|
|
|
|
19
|
|
|
|
10
|
|
|
|
|
|
|
|
29
|
|
|
|
(12
|
)
|
|
|
17
|
|
Customer relationships
|
|
|
7
|
|
|
|
|
|
|
|
73
|
|
|
|
|
|
|
|
73
|
|
|
|
(8
|
)
|
|
|
65
|
|
Bottler agreements
|
|
|
7
|
|
|
|
|
|
|
|
64
|
|
|
|
|
|
|
|
64
|
|
|
|
(7
|
)
|
|
|
57
|
|
Distributor rights
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension asset
|
|
|
|
|
|
|
2
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
2,957
|
|
|
$
|
722
|
|
|
$
|
(1
|
)
|
|
$
|
3,678
|
|
|
$
|
(27
|
)
|
|
$
|
3,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense on intangible assets was $30 million,
$19 million and $3 million in 2007, 2006 and 2005,
respectively. No impairment expense was recognized in 2006 and
2005. Amortization expense of these intangible assets over the
next five years is expected to be the following:
|
|
|
|
|
|
|
Aggregate
|
|
|
|
Amortization
|
|
Year
|
|
Expense
|
|
|
2008
|
|
|
28
|
|
2009
|
|
|
24
|
|
2010
|
|
|
24
|
|
2011
|
|
|
12
|
|
2012
|
|
|
6
|
|
F-19
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
In 2007, the Company recorded impairment charges of
approximately $6 million, primarily related to the
Accelerade brand. The Accelerade brand is a component of the
Companys Finished Goods operating segment. The fair values
were determined using discounted cash flow analyses. Because the
fair values were less than the carrying values of the assets,
the Company recorded impairment charges to reduce the carrying
values of the assets to their respective fair values. These
impairment charges were recorded in impairment of
intangible assets in the Combined Statement of Operations.
In 2007, following the termination of the Companys
distribution agreements for glacéau products, it received a
payment of approximately $92 million. The Company
recognized a net gain of $71 million after the write-off of
associated assets.
In 2006, the Company sold the Slush Puppie business and certain
related assets, which included certain brands with net book
value of $14 million, to the ICEE Company for
$23 million. The Company also sold the Grandmas
Molasses brand and certain related assets, which had a net book
value of $0 million to B&G Foods for $30 million.
In 2005, the Company sold the Holland House brand, which had a
net book value of $0 million, for $36 million to
Mizkan Americas, Inc.
These financial statements reflect a tax provision as if the
Company filed its own separate tax return. The Company, however,
is included in the consolidated federal income tax return of
Cadbury Schweppes Americas, Inc. and subsidiaries.
Income before income taxes and cumulative effect of change in
accounting policy was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
U.S.
|
|
$
|
650
|
|
|
$
|
698
|
|
|
$
|
706
|
|
Non-U.S.
|
|
|
169
|
|
|
|
110
|
|
|
|
102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
819
|
|
|
$
|
808
|
|
|
$
|
808
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The provision for income taxes attributable to continuing
operations has the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
199
|
|
|
$
|
220
|
|
|
$
|
176
|
|
State
|
|
|
33
|
|
|
|
40
|
|
|
|
32
|
|
Non-U.S.
|
|
|
41
|
|
|
|
23
|
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current provision
|
|
|
273
|
|
|
|
283
|
|
|
|
259
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
29
|
|
|
|
10
|
|
|
|
44
|
|
State
|
|
|
4
|
|
|
|
7
|
|
|
|
26
|
|
Non-U.S.
|
|
|
16
|
|
|
|
(2
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred provision
|
|
|
49
|
|
|
|
15
|
|
|
|
62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision for income taxes
|
|
$
|
322
|
|
|
$
|
298
|
|
|
$
|
321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In 2007, 2006 and 2005, the reported amount of income tax
expense is different from the amount of income tax expense that
would result from applying the federal statutory rate due
principally to state taxes, tax reserves and the deduction for
domestic production activity.
F-20
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
The following is a reconciliation of income taxes computed at
the U.S. federal statutory tax rate to the income taxes
reported in the Combined Statements of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Statutory federal income tax at 35%
|
|
$
|
287
|
|
|
$
|
283
|
|
|
$
|
283
|
|
State income taxes, net
|
|
|
26
|
|
|
|
28
|
|
|
|
30
|
|
Impact of
non-U.S.
operations
|
|
|
(2
|
)
|
|
|
(18
|
)
|
|
|
7
|
|
Other
|
|
|
11
|
|
|
|
5
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision for income taxes
|
|
$
|
322
|
|
|
$
|
298
|
|
|
$
|
321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
39.3
|
%
|
|
|
36.9
|
%
|
|
|
39.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The tax effects of temporary differences giving rise to deferred
income tax assets and liabilities were:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Deferred income tax assets:
|
|
|
|
|
|
|
|
|
Pension and postretirement benefits
|
|
$
|
6
|
|
|
$
|
10
|
|
Compensation accruals
|
|
|
25
|
|
|
|
26
|
|
Inventory
|
|
|
19
|
|
|
|
10
|
|
Net operating loss and credit carryforwards
|
|
|
5
|
|
|
|
9
|
|
Accrued liabilities
|
|
|
47
|
|
|
|
40
|
|
Other
|
|
|
69
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
171
|
|
|
|
118
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax liabilities:
|
|
|
|
|
|
|
|
|
Fixed assets
|
|
|
(124
|
)
|
|
|
(104
|
)
|
Intangible assets
|
|
|
(1,269
|
)
|
|
|
(1,234
|
)
|
Other
|
|
|
(13
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,406
|
)
|
|
|
(1,340
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred income tax liability
|
|
$
|
(1,235
|
)
|
|
$
|
(1,222
|
)
|
|
|
|
|
|
|
|
|
|
The major temporary differences that give rise to the net
deferred tax liabilities are intangible assets and fixed asset
depreciation. The Company has approximately $56 million of
U.S. state and foreign net operating loss carryforwards as
of December 31, 2007. Of this total, $52 million are
state net operating losses. Net operating losses generated in
the U.S. state jurisdictions, if unused, will expire from
2008 to 2027. The
non-U.S. net
operating loss carryforwards of $4 million will expire from
2008 to 2016. No valuation allowance has been provided on
deferred tax assets as management believes it is more likely
than not that the deferred income tax assets will be fully
recoverable.
The Company files income tax returns in various
U.S. federal, state and local jurisdictions. The Company
also files income tax returns in various foreign jurisdictions,
principally in Canada, Mexico and the United Kingdom. The
U.S. and most state and local income tax returns for years
prior to 2003 are considered closed to examination by applicable
tax authorities. Federal income tax returns for 2004 and 2005
are currently under examination by the Internal Revenue Service.
Certain Canadian tax returns remain open for audit from 2001 and
forward, while the Mexican returns are open for tax years 2002
and forward.
In July 2006, the FASB issued FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes
(FIN 48), which is an interpretation of
SFAS 109. The Company has adopted the provisions of
FIN 48 effective
F-21
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
January 1, 2007, as required. FIN 48 prescribes a
recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return.
FIN 48 also provides guidance on derecognition,
classification, interest and penalties, accounting in interim
periods, disclosure and transition.
Under FIN 48, the Company is required to determine whether
a tax position is more likely than not to be sustained upon
examination by tax authorities assuming that the relevant taxing
authorities have full knowledge of all relevant information. The
tax benefits related to uncertain tax positions to be recorded
in the financial statements should represent the maximum benefit
that has a greater than fifty percent likelihood of being
realized. Changes in judgment can occur between initial
recognition through settlement or ultimate de-recognition based
upon changes in facts, circumstances and information available
at each reporting date.
The cumulative effect of adopting FIN 48 was a
$16 million increase in tax reserves and a corresponding
decrease to opening retained earnings at January 1, 2007.
Upon adoption, the Companys amount of gross unrecognized
tax benefit at January 1, 2007 was $70 million.
A reconciliation of the beginning and ending amount of
unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
Amount
|
|
|
Unrecognized tax benefits:
|
|
|
|
|
Amount at adoption of FIN 48
|
|
$
|
70
|
|
Tax positions taken in prior periods:
|
|
|
|
|
Gross increases
|
|
|
11
|
|
Gross decreases
|
|
|
(9
|
)
|
Tax positions taken in current period:
|
|
|
|
|
Gross increases
|
|
|
30
|
|
Gross decreases
|
|
|
|
|
Settlements with taxing authorities cash paid
|
|
|
(4
|
)
|
Lapse of applicable statute of limitations
|
|
|
|
|
|
|
|
|
|
Amount as of December 31, 2007
|
|
$
|
98
|
|
|
|
|
|
|
The gross balance of unrecognized tax benefits of
$98 million excluded $23 million of offsetting tax
benefits. The net unrecognized tax benefits of $75 million
includes $60 million that, if recognized, would benefit the
effective income tax rate. It is reasonably possible that the
effective tax rate will be impacted by the resolution of some
matters audited by various taxing authorities within the next
twelve months, but a reasonable estimate of such impact cannot
be made at this time.
The Company accrues interest and penalties on its uncertain tax
positions as a component of its provision for income taxes. The
amount of interest the Company accrued for uncertain tax
positions during 2007 was $3 million. There was also a
reduction of interest and penalties of $5 million related
to changes in estimates and payments during 2007. At
December 31, 2007, the Company had a total of
$14 million accrued for interest and penalties for its
uncertain tax positions.
F-22
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
10.
|
Long-term
Obligations
|
Debt
Payable to Related Parties
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Loans payable to related parties, with various fixed and
floating interest rates(a)
|
|
$
|
3,019
|
|
|
$
|
3,249
|
|
Less Current portion
|
|
|
(126
|
)
|
|
|
(708
|
)
|
|
|
|
|
|
|
|
|
|
Long-term debt payable to related parties
|
|
$
|
2,893
|
|
|
$
|
2,541
|
|
|
|
|
|
|
|
|
|
|
(a) Debt agreements with related parties are as follows:
Cadbury
Ireland Limited (CIL)
Total principal owed to CIL was $40 million for both 2007
and 2006, respectively. The debt bears interest at a floating
rate based on
3-month
LIBOR. Actual rates were 5.31% and 5.36% at December 31,
2007 and 2006, respectively. The outstanding principal balance
is payable on demand and is included in current portion of
long-term debt. The Company recorded $2 million,
$2 million and $1 million of interest expense related
to the debt for 2007, 2006 and 2005, respectively.
Cadbury
Schweppes Finance plc, (CSFPLC)
The Company has a variety of debt agreements with CSFPLC with
maturity dates ranging from May 2008 to May 2011. These
agreements had a combined outstanding principal balance of
$511 million and $2,937 million as of
December 31, 2007 and 2006, respectively. As of
December 31, 2007 and 2006, $511 million and
$2,387 million of the debt was based upon a floating rate
ranging between LIBOR plus 1.5% to LIBOR plus 2.5%. The
remaining principal balance of $550 million as of
December 31, 2006 had a stated fixed rate ranging from
5.76% to 5.95%. The Company recorded $65 million,
$175 million and $99 million of interest expense
related to these notes for 2007, 2006 and 2005, respectively.
Cadbury
Schweppes Overseas Limited (CSOL)
Total principal owed to CSOL was $0 million and
$22 million as of December 31, 2007 and 2006,
respectively. The Company settled the note in November 2007. The
debt bore interest at a floating rate based on Mexican LIBOR
plus 1.5%. The actual interest rate was 9.89% at
December 31, 2006. The Company recorded $2 million,
$15 million and $40 million of interest expense
related to the note for 2007, 2006 and 2005, respectively.
Cadbury
Adams Canada, Inc. (CACI)
Total principal owed to CACI was $0 million and
$15 million as of December 31, 2007 and 2006,
respectively and is payable on demand. The debt bore interest at
a floating rate based on 1 month Canadian LIBOR. The actual
rate was 4.26% at December 31, 2006. The Company recorded
$2 million of interest expense related to the debt for 2007
and less than $1 million for both 2006 and 2005.
Cadbury
Schweppes Americas Holding BV (CSAHBV)
The Company has a variety of debt agreements with CSAHBV with
maturity dates ranging from 2009 to 2017. These agreements had a
combined outstanding principal balance of $2,468 million as
of December 31, 2007 and bear interest at a floating rate
ranging between
6-month
USD
LIBOR plus 0.75% to
6-month
USD
LIBOR plus 1.75%. The Company recorded $149 million of
interest expense related to these notes for 2007.
F-23
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
Cadbury
Schweppes Treasury America (CSTA)
Total principal owed to CSTA was $0 million and
$235 million as of December 31, 2007 and 2006,
respectively. The note carried a stated rate of 7.25% per annum.
The note was purchased by an entity within the Company on
May 23, 2007. The Company recorded $7 million and
$11 million of interest expense related to these notes for
2007 and 2006, respectively.
Debt
Payable to Third Parties
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Note payable to a bank. Interest payments due quarterly
(interest at CDOR(1) + .325%, due April 2008, payable in
Canadian Dollars)(2)
|
|
$
|
|
|
|
$
|
114
|
|
Note payable to a bank. Interest payments due quarterly
(interest at CDOR(1) + .45%, due April 2010, payable in Canadian
Dollars)(2)
|
|
|
|
|
|
|
129
|
|
Bonds payable, 4.90% fixed interest rate. Interest payments due
semiannually. Principal due December 2008. Payable in Canadian
Dollars(3)
|
|
|
|
|
|
|
278
|
|
Capital leases
|
|
|
21
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
21
|
|
|
|
545
|
|
Less current installments
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
Long-term debt payable to third parties
|
|
$
|
19
|
|
|
$
|
543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
CDOR is the average of the annual rates for Canadian Dollar
bankers acceptances having the specified term and face
amount of the banks named in Schedule 1 of the Canadian
Bank Act
|
|
|
|
(2)
|
|
On August 29, 2007, the Company transferred the notes
payable to bank obligations of $281 million to a subsidiary
of Cadbury Schweppes, with no potential for future recourse
against the Company.
|
|
|
|
(3)
|
|
On August 31, 2007, the Company paid off the outstanding
balance of bonds payable.
|
Long-Term
Debt Maturities
Long-term debt maturities, excluding capital leases, for the
next five years are as follows:
|
|
|
|
|
2008
|
|
$
|
126
|
|
2009
|
|
|
494
|
|
2010
|
|
|
|
|
2011
|
|
|
425
|
|
2012
|
|
|
740
|
|
Thereafter
|
|
|
1,234
|
|
|
|
|
|
|
|
|
$
|
3,019
|
|
|
|
|
|
|
Lines
of Credit
As of December 31, 2007, the Company had available credit
lines totaling $45 million. The Company had letters of
credit totaling $9 million outstanding under its existing
credit line facilities. Accordingly, the Companys maximum
borrowing base under these facilities was $36 million. The
Company also had additional unused letters of credit totaling
$23 million for its Bottling Group operations that were not
related to any existing credit facilities.
F-24
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
Lease
Commitments
The Company has leases for certain facilities and equipment
which expire at various dates through 2020. Operating lease
expense was $46 million, $39 million and
$21 million in 2007, 2006 and 2005, respectively, and was
not offset by any sublease rental income. Future minimum lease
payments under capital and operating leases with initial or
remaining noncancellable lease terms in excess of one year as of
December 31, 2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
|
Capital
|
|
|
|
Leases
|
|
|
Leases
|
|
|
2008
|
|
$
|
72
|
|
|
$
|
5
|
|
2009
|
|
|
53
|
|
|
|
5
|
|
2010
|
|
|
45
|
|
|
|
5
|
|
2011
|
|
|
36
|
|
|
|
4
|
|
2012
|
|
|
29
|
|
|
|
4
|
|
Thereafter
|
|
|
46
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
281
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
Less imputed interest at rates ranging from 6.5% to 12.6%
|
|
|
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
Present value of minimum lease payments
|
|
|
|
|
|
$
|
21
|
|
|
|
|
|
|
|
|
|
|
The future minimum lease commitments for leases that have been
expensed as part of restructuring provisions in earlier years
are not included in the above table. Of the $21 million
above, $19 million is included in long-term capital
lease obligations, and $2 million is included in
accounts payable and accrued expenses.
|
|
11.
|
Commitments
and Contingencies
|
Legal
Matters
The Company is occasionally subject to litigation or other legal
proceedings. Set forth below is a description of the
Companys significant pending legal matters and one
recently settled legal matter. Although the estimated range of
loss, if any, for the pending legal matters described below
cannot be estimated at this time, the Company does not believe
that the outcome of these, or any other, pending legal matters,
individually or collectively, will have a material adverse
effect on the business or financial condition of the Company
although such matters may have a materially adverse effect on
the Companys results of operations in a particular period.
Snapple
Distributor Litigation
In 2004, one of the Companys subsidiaries, Snapple
Beverage Corp., and several affiliated entities of Snapple
Beverage Corp., including Snapple Distributors, Inc., were sued
in United States District Court, Southern District of New York,
by 57 area route distributors for alleged price discrimination,
breach of contract, retaliation, tortious interference and
breach of the implied duty of good faith and fair dealing
arising out of their respective area route distributor
agreements. Each plaintiff sought damages in excess of
$225 million. The plaintiffs initially filed the case as a
class action but withdrew their class certification motion. They
are proceeding as individual plaintiffs but the cases have been
consolidated for discovery and procedural purposes. On
September 14, 2007, the court granted the Companys
motion for summary judgment, dismissing the plaintiffs
federal claims of price discrimination and dismissing, without
prejudice, the plaintiffs remaining claims under state
law. The plaintiffs have filed an appeal of the decision and may
decide to re-file the state law claims in state court. The
Company believes it has meritorious defenses with respect to the
appeal and will defend itself vigorously. However, there is no
assurance that the outcome of the appeal, or any trial, if
claims are refiled, will be in the Companys favor.
F-25
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
Holk &
Weiner Snapple Litigation
In 2007, Snapple Beverage Corp. was sued by Stacy Holk, in New
Jersey Superior Court, Monmouth County, and by Hernant Mehta in
the U.S. District Court, Southern District of New York. The
plaintiffs filed the case as a class action. The plaintiffs
allege that Snapples labeling of certain of its drinks is
misleading
and/or
deceptive. The plaintiffs seek unspecified damages on behalf of
the class, including enjoining Snapple from various labeling
practices, disgorging profits, reimbursing of monies paid for
product and treble damages. The Mehta case in New York has since
been dropped by the plaintiff. However, the attorneys in the
Holk, New Jersey case and a new plaintiff, Evan Weiner, have
since filed a new action in New York substantially similar to
the New Jersey action. In each case, the Company has filed
motions to dismiss the plaintiffs claims on a variety of
grounds. The Company believes it has meritorious defenses to the
claims asserted and will defend itself vigorously. However,
there is no assurance that the outcome of the Companys
motions or at trial will be in its favor.
Nicolas
Steele v. Seven Up/RC Bottling Company Inc.
Robert Jones v. Seven Up/RC Bottling Company of
Southern California, Inc.
California Wage Audit
In 2007, one of the Companys subsidiaries, Seven Up/RC
Bottling Company Inc., was sued by Nicolas Steele, and in a
separate action by Robert Jones, in each case in Superior Court
in the State of California (Orange County), alleging that its
subsidiary failed to provide meal and rest periods and itemized
wage statements in accordance with applicable California wage
and hour law. The cases have been filed as class actions. The
classes, which have not yet been certified, consist of all
employees of one of the Companys subsidiaries who have
held a merchandiser or delivery driver position in southern
California in the past three years. The potential class size
could be substantially higher, due to the number of individuals
who have held these positions over the three year period. On
behalf of the classes, the plaintiffs claim lost wages, waiting
time penalties and other penalties for each violation of the
statute. The Company believes it has meritorious defenses to the
claims asserted and will defend itself vigorously. However,
there is no assurance that the outcome of this matter will be in
its favor.
The Company has been requested to conduct an audit of its meal
and rest periods for all non-exempt employees in California at
the direction of the California Department of Labor. At this
time, the Company has declined to conduct such an audit until
there is judicial clarification of the intent of the statute.
The Company cannot predict the outcome of such an audit.
Dr
Pepper Bottling Company of Texas, Inc. Shareholder
Litigation
On June 1, 2007, the Company settled a lawsuit brought in
1999 by certain stockholders of Dr Pepper Bottling Company of
Texas, Inc. for $47 million, which included
$15 million of interest. The lawsuit was assumed as part of
the DPSUBG acquisition (see Note 3) and was fully
reserved as of December 31, 2006.
Environmental,
Health and Safety Matters
The Company operates many manufacturing, bottling and
distribution facilities. In these and other aspects of the
Companys business, it is subject to a variety of federal,
state and local environment, health and safety laws and
regulations. The Company maintains environmental, health and
safety policies and a quality, environmental, health and safety
program designed to ensure compliance with applicable laws and
regulations. However, the nature of the Companys business
exposes it to the risk of claims with respect to environmental,
health and safety matters, and there can be no assurance that
material costs or liabilities will not be incurred in connection
with such claims. However, the Company is not currently named as
a party in any judicial or administrative proceeding relating to
environmental, health and safety matters which would materially
affect its operations.
F-26
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
Restructuring charges during 2007, 2006 and 2005 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Segment
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Beverage Concentrates
|
|
$
|
24
|
|
|
$
|
5
|
|
|
$
|
1
|
|
Finished Goods
|
|
|
20
|
|
|
|
3
|
|
|
|
3
|
|
Bottling Group
|
|
|
16
|
|
|
|
8
|
|
|
|
|
|
Mexico and Caribbean
|
|
|
7
|
|
|
|
3
|
|
|
|
1
|
|
Corporate
|
|
|
9
|
|
|
|
8
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Restructuring Costs
|
|
$
|
76
|
|
|
$
|
27
|
|
|
$
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company implements restructuring programs from time to time
and incurs costs that are designed to improve operating
effectiveness and lower costs. These programs have included
closure of manufacturing plants, reductions in force,
integration of back office operations and outsourcing of certain
transactional activities. When the Company implements these
programs, it incurs various charges, including severance and
other employment-related costs.
The charges recorded during 2007 are primarily related to the
following:
|
|
|
|
|
Organizational restructuring announced on October 10, 2007.
As of December 31, 2007, this restructuring, which was
intended to create a more efficient organization, resulted in
the reduction of approximately 450 employees in the
Companys corporate, sales and supply chain functions and
included approximately 98 employees in Plano, Texas,
131 employees in Rye Brook, New York and 54 employees
in Aspers, Pennsylvania, with the balance occurring at a number
of sites located in the United States, Canada and Mexico. The
restructuring also includes the closure of two manufacturing
facilities in Denver, Colorado (closed in December 2007) and
Waterloo, New York (due to close in March 2008). The employee
reductions and facilities closures are expected to be completed
by June 2008. As a result of this restructuring, the
Company recognized a charge of $32 million in 2007.
|
|
|
|
|
|
Continued integration of the Bottling Group, which was initiated
in 2006, resulted in charges of $21 million.
|
|
|
|
Integration of technology facilities initiated in 2007.
|
|
|
|
|
|
Closure of the St. Catharines facility initiated in 2007.
|
The charges recorded during 2006 are primarily related to the
following:
|
|
|
|
|
Integration of the Bottling Group initiated in 2006; and
|
|
|
|
|
|
Outsourcing initiatives of the Companys back office
operations service center and a reorganization of the
Companys IT operations initiated in 2006.
|
The charges recorded during 2005 are primarily related to the
following:
|
|
|
|
|
Implementation of additional phases of the Companys back
office operations service center initiated in 2004; and
|
|
|
|
|
|
Closure of the North Brunswick plant initiated in 2004.
|
The Company expects to incur approximately $42 million of
total pre-tax, non-recurring charges in 2008 with respect to the
restructuring items discussed above.
F-27
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
Restructuring liabilities along with charges to expense, cash
payment and non-cash charges were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Workforce
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reduction
|
|
|
Asset
|
|
|
External
|
|
|
Closure
|
|
|
|
|
|
|
|
|
|
Costs
|
|
|
Write-off
|
|
|
Consulting
|
|
|
Costs
|
|
|
Other
|
|
|
Total
|
|
|
Balance at January 2, 2005
|
|
$
|
5
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2
|
|
|
$
|
7
|
|
2005 Charges
|
|
|
2
|
|
|
|
|
|
|
|
5
|
|
|
|
1
|
|
|
|
2
|
|
|
|
10
|
|
2005 Cash payments
|
|
|
(7
|
)
|
|
|
|
|
|
|
(10
|
)
|
|
|
(1
|
)
|
|
|
(3
|
)
|
|
|
(21
|
)
|
Due to/from Cadbury Schweppes
|
|
|
1
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2006
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
2
|
|
2006 Charges
|
|
|
9
|
|
|
|
3
|
|
|
|
9
|
|
|
|
1
|
|
|
|
5
|
|
|
|
27
|
|
2006 Cash payments
|
|
|
(7
|
)
|
|
|
|
|
|
|
(12
|
)
|
|
|
(1
|
)
|
|
|
(6
|
)
|
|
|
(26
|
)
|
Due to/from Cadbury Schweppes
|
|
|
(1
|
)
|
|
|
(3
|
)
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
2007 Charges
|
|
|
47
|
|
|
|
3
|
|
|
|
10
|
|
|
|
5
|
|
|
|
11
|
|
|
|
76
|
|
2007 Cash payments
|
|
|
(22
|
)
|
|
|
|
|
|
|
(13
|
)
|
|
|
(5
|
)
|
|
|
(12
|
)
|
|
|
(52
|
)
|
Due to/from Cadbury Schweppes
|
|
|
2
|
|
|
|
(3
|
)
|
|
|
4
|
|
|
|
|
|
|
|
1
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
$
|
29
|
|
|
$
|
|
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring liabilities are included in accounts payable
and accrued expenses.
Restructuring charges recorded by each operating segment were as
follows:
Beverage
Concentrates
Beverage Concentrates recorded restructuring costs of
$24 million, $5 million and $1 million in 2007,
2006 and 2005, respectively. During 2007, the costs primarily
related to the organizational restructuring. There were also
additional costs related to various other cost reduction and
efficiency initiatives. The cost reduction and efficiency
initiatives primarily related to the alignment of management
information systems, the consolidation of the back office
operations from the acquired businesses, the elimination of
duplicate employees, and employee relocations. The Beverage
Concentrates segment expects to incur additional charges related
to these restructuring plans of approximately $15 million
over the next year.
During 2006 and 2005, the charges mainly related to the
integration of the Bottling Group with existing businesses of
American Beverages.
Finished
Goods
Finished Goods recorded restructuring costs of $20 million,
$3 million and $3 million in 2007, 2006 and 2005,
respectively. During 2007, the costs primarily related to the
organizational restructuring in a number of sites located in the
United States and Canada. The Finished Goods segment expects to
incur additional charges related to this restructuring plan of
approximately $11 million over the next year.
During 2006, the costs primarily related to the integration of
the Bottling Group. During 2005, the charges mainly related to
the integration of Finished Goods into the existing business of
Americas Beverages. These respective activities were completed
in 2007.
F-28
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
Bottling
Group
Bottling Group recorded restructuring costs of $16 million
and $8 million in 2007 and 2006, respectively, primarily
related to the integration of the Bottling Group as discussed
above. Bottling Group expects to incur additional costs related
to their restructuring plan of approximately $13 million
over the next year.
Mexico
and the Caribbean
Mexico and the Caribbean recorded restructuring costs of
$7 million, $3 million and $1 million in 2007,
2006 and 2005, respectively. The costs primarily related to
restructuring actions initiated in 2003 to outsource the
activities of Mexico and the Caribbeans warehousing and
distribution processes. During 2007, there were also costs
related to the organizational restructuring in a number of sites
located in Mexico. The cumulative amount related to the
reduction in force incurred to date is $1 million. The
Company expects to incur additional costs related to this
restructuring plan of approximately $2 million over the
next year.
Corporate
The Company recorded corporate restructuring costs of
$9 million, $8 million and $5 million in 2007,
2006 and 2005, respectively. During 2007, the costs primarily
related to the organizational restructuring. The Company has
incurred cumulative costs of $3 million to date and expects
to incur additional costs related to this restructuring plan of
approximately $1 million over the next year.
During 2006, the costs primarily related to restructuring
actions initiated in 2006, and the human resource outsourcing
program that was initiated in 2005. No further costs are
expected to be incurred by the Company in respect of these
programs. During 2005, the charges mainly related to the
outsourcing of human resources activities in Latin America and
the global outsourcing of shared business services that were
both initiated in 2005. The human resource outsourcing program
was complete in 2005.
|
|
13.
|
Employee
Benefit Plans
|
Pension
and Postretirement Plans
The Company has nine stand-alone non-contributory defined
benefit plans each with a measurement date of September 30.
To participate in the defined benefit plans, employees must have
been employed by the Company for at least one year.
The Company has five stand-alone postretirement health care
plans, which provide benefits to a defined group of employees at
the discretion of the Company. These postretirement benefits are
limited to eligible expenses and are subject to deductibles,
co-payment provisions, and lifetime maximum amounts on coverage.
Employee benefit plan obligations and expenses included in the
combined financial statements are determined from actuarial
analyses based on plan assumptions; employee demographic data,
including years of service and compensation; benefits and claims
paid; and employer contributions. These funds are funded as
benefits are paid, and therefore do not have an investment
strategy or targeted allocations for plan assets.
Cadbury Schweppes sponsors five defined benefit plans and one
postretirement health care plan in which employees of the
Company participate. Expenses related to these plans were
determined by specifically identifying the costs for the
Companys participants.
SFAS 158 requires that beginning in 2008, assumptions used
to measure the Companys annual pension and postretirement
medical expenses be determined as of the balance sheet date and
all plan assets and liabilities be reported as of that date. For
fiscal years ending December 31, 2007 and prior, the
majority of the Companys pension and other postretirement
plans used a September 30 measurement date and all plan assets
and obligations were generally reported as of that date.
F-29
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
U.S.
Plans
The following table summarizes the components of net periodic
benefit cost for the U.S. defined benefit plans recognized
in the Combined Statements of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Service cost
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
1
|
|
Interest cost
|
|
|
3
|
|
|
|
2
|
|
|
|
1
|
|
Expected return on assets
|
|
|
(4
|
)
|
|
|
(2
|
)
|
|
|
(1
|
)
|
Curtailments/settlements
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit costs
|
|
$
|
(1
|
)
|
|
$
|
1
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net periodic benefit cost for the U.S. postretirement
plans was less than $0.5 million for 2007, 2006 and 2005.
The estimated prior service cost and estimated net loss for the
U.S. plans that will be amortized from accumulated other
comprehensive loss into periodic benefit cost in 2008 is each
less than $0.5 million.
The following table summarizes the projected benefit obligation
for U.S. plans as of December 31, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post-
|
|
|
|
|
|
|
retirement
|
|
|
|
Pension Plans
|
|
|
Benefit Plans
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
As of beginning of year
|
|
$
|
58
|
|
|
$
|
21
|
|
|
$
|
6
|
|
|
$
|
4
|
|
Service cost
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
Interest cost
|
|
|
3
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
Acquired in business combinations
|
|
|
|
|
|
|
35
|
|
|
|
|
|
|
|
2
|
|
Actuarial gain/(loss)
|
|
|
(4
|
)
|
|
|
|
|
|
|
1
|
|
|
|
|
|
Benefits paid
|
|
|
(3
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
|
|
Curtailments/settlements
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of end of year
|
|
$
|
46
|
|
|
$
|
58
|
|
|
$
|
6
|
|
|
$
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated benefit obligations
|
|
$
|
46
|
|
|
$
|
57
|
|
|
$
|
5
|
|
|
$
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The principal assumptions related to the U.S. defined
benefit plans and postretirement benefit plans are shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans
|
|
|
Postretirement Benefit Plan
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Weighted-average discount rate
|
|
|
5.90
|
%
|
|
|
5.72
|
%
|
|
|
5.50
|
%
|
|
|
5.90
|
%
|
|
|
5.90
|
%
|
|
|
5.50
|
%
|
Expected long-term rate of return on assets
|
|
|
7.30
|
%
|
|
|
7.53
|
%
|
|
|
7.30
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Rate of increase in compensation levels
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
4.00
|
%
|
|
|
4.00
|
%
|
F-30
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
The following table is a reconciliation of the U.S. defined
benefit pension plans assets:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Fair value of plan assets
|
|
|
|
|
|
|
|
|
As of beginning of year
|
|
$
|
56
|
|
|
$
|
19
|
|
Actual return of plan assets
|
|
|
7
|
|
|
|
2
|
|
Employer contribution
|
|
|
2
|
|
|
|
2
|
|
Acquired in business combinations
|
|
|
|
|
|
|
34
|
|
Actuarial gain/loss
|
|
|
|
|
|
|
1
|
|
Benefits paid
|
|
|
(3
|
)
|
|
|
(2
|
)
|
Special termination benefits
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of end of year
|
|
$
|
53
|
|
|
$
|
56
|
|
|
|
|
|
|
|
|
|
|
Benefits paid from the U.S. post-retirement plans were
$1 million in 2007 and less than $0.5 million in 2006.
The expected long-term rate of return on U.S. pension fund
assets held by the Companys pension trusts was determined
based on several factors, including input from pension
investment consultants and projected long-term returns of broad
equity and bond indices. The plans historical returns were
also considered. The expected long-term rate of return on the
assets in the plans was based on an asset allocation assumption
of about 60% with equity managers, with expected long-term rates
of return of approximately 8.5%, and 40% with fixed income
managers, with an expected long-term rate of return of about
5.5%. The actual asset allocation is regularly reviewed and
periodically rebalanced to the targeted allocation when
considered appropriate.
The asset allocation for the U.S. defined benefit pension
plans for December 31, 2007 and 2006 are as follows:
|
|
|
|
|
|
|
|
|
|
|
Percentage of Plan Assets
|
|
|
|
December 31,
|
|
|
December 31,
|
|
Asset Category
|
|
2007
|
|
|
2006
|
|
|
Equity securities
|
|
|
60
|
%
|
|
|
60
|
%
|
Fixed income
|
|
|
40
|
%
|
|
|
40
|
%
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
The following table summarizes the Companys funded status
for the U.S. plans as of December 31, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans
|
|
|
Postretirement Benefit Plans
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Projected benefit obligation
|
|
$
|
(46
|
)
|
|
$
|
(58
|
)
|
|
$
|
(5
|
)
|
|
$
|
(6
|
)
|
Plan assets at fair value
|
|
|
53
|
|
|
|
56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status of plan
|
|
$
|
7
|
|
|
$
|
(2
|
)
|
|
$
|
(5
|
)
|
|
$
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status overfunded
|
|
$
|
8
|
|
|
$
|
2
|
|
|
$
|
|
|
|
$
|
|
|
Funded status underfunded
|
|
|
(1
|
)
|
|
|
(4
|
)
|
|
|
(5
|
)
|
|
|
(6
|
)
|
F-31
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
The following table summarizes amounts recognized in the balance
sheets related to the U.S. plans as of December 31,
2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement
|
|
|
|
Pension Plans
|
|
|
Benefit Plans
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Other assets
|
|
$
|
8
|
|
|
$
|
2
|
|
|
$
|
|
|
|
$
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
Non-current liabilities
|
|
|
(1
|
)
|
|
|
(4
|
)
|
|
|
(4
|
)
|
|
|
(5
|
)
|
Accumulated other comprehensive income
|
|
|
|
|
|
|
6
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
7
|
|
|
$
|
4
|
|
|
$
|
(4
|
)
|
|
$
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes amounts included in
accumulated other comprehensive income for the
U.S. plans as of December 31, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement
|
|
|
|
Pension Plans
|
|
|
Benefit Plans
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Prior service cost
|
|
$
|
2
|
|
|
$
|
2
|
|
|
$
|
|
|
|
$
|
|
|
Net (gains) losses
|
|
|
(2
|
)
|
|
|
4
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts in accumulated other comprehensive (income) loss
|
|
$
|
|
|
|
$
|
6
|
|
|
$
|
1
|
|
|
$
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes key pension plan information
regarding plans whose accumulated benefit obligations exceed the
fair value of their respective plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement
|
|
|
Pension Plans
|
|
Benefit Plans
|
|
|
December 31,
|
|
December 31,
|
|
December 31,
|
|
December 31,
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
Projected benefit obligation
|
|
$
|
10
|
|
|
$
|
22
|
|
|
$
|
5
|
|
|
$
|
6
|
|
Accumulated benefit obligation
|
|
|
10
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets
|
|
|
9
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
The following table summarizes the expected cash activity for
the U.S. defined benefit plans and postretirement benefit
plans in the future:
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement
|
Year
|
|
Pension Plans
|
|
Benefit Plans
|
|
Company contributions 2008
|
|
$
|
|
|
|
$
|
|
|
Benefit payments
|
|
|
|
|
|
|
|
|
2008
|
|
|
2
|
|
|
|
1
|
|
2009
|
|
|
2
|
|
|
|
1
|
|
2010
|
|
|
2
|
|
|
|
1
|
|
2011
|
|
|
2
|
|
|
|
1
|
|
2012
|
|
|
2
|
|
|
|
1
|
|
2013 - 2017
|
|
|
15
|
|
|
|
2
|
|
F-32
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
For measuring the expected postretirement benefit obligation for
the U.S. plans, the following health care cost trend rate
assumptions were used:
|
|
|
Years
|
|
Rate
|
|
2007
|
|
9%
|
2008 - 2015
|
|
0.5% reduction each year
to an ultimate rate of 5%
in 2015
|
The effect of a 1% increase or decrease in health care trend
rates on the U.S. postretirement benefit plans would change
the benefit obligation at the end of the year and the service
cost plus interest cost by less than $0.5 million.
Foreign
Plans
The following table summarizes the components of net periodic
benefit cost related to foreign defined benefit plans recognized
in the Combined Statements of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Service cost
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
1
|
|
Interest cost
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
Expected return on assets
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit costs
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net periodic benefit cost for the foreign postretirement
plans was less than $0.5 million for 2007, 2006 and 2005.
The estimated prior service cost and estimated net loss for the
foreign plans that will be amortized from accumulated other
comprehensive loss into net periodic benefit cost in 2008 are
each less than $0.5 million.
The following table summarizes the projected benefit obligation
for foreign plans as of December 31, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement
|
|
|
|
Pension Plans
|
|
|
Benefit Plans
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
As of beginning of year
|
|
$
|
18
|
|
|
$
|
18
|
|
|
$
|
2
|
|
|
$
|
4
|
|
Service cost
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
Interest cost
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
Exchange Adjustments
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial (gain)/loss
|
|
|
(2
|
)
|
|
|
|
|
|
|
1
|
|
|
|
(2
|
)
|
Benefits paid
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
Curtailments/settlements
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of end of year
|
|
$
|
20
|
|
|
$
|
18
|
|
|
$
|
3
|
|
|
$
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated benefit obligations
|
|
$
|
19
|
|
|
$
|
17
|
|
|
$
|
3
|
|
|
$
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-33
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
The principal assumptions related to the foreign defined benefit
plans and postretirement benefit plans are shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement
|
|
|
Pension Plans
|
|
Benefit Plans
|
|
|
2007
|
|
2006
|
|
2005
|
|
2007
|
|
2006
|
|
2005
|
|
Weighted-average discount rate
|
|
|
6.06
|
%
|
|
|
5.98
|
%
|
|
|
6.09
|
%
|
|
|
5.25
|
%
|
|
|
5.98
|
%
|
|
|
6.09
|
%
|
Expected long-term rate of return on assets
|
|
|
7.56
|
%
|
|
|
7.61
|
%
|
|
|
7.74
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Rate of increase in compensation levels
|
|
|
3.81
|
%
|
|
|
4.13
|
%
|
|
|
4.27
|
%
|
|
|
3.50
|
%
|
|
|
4.50
|
%
|
|
|
5.00
|
%
|
The following table is a reconciliation of the foreign defined
benefit pension plans assets:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Fair value of plan assets
|
|
|
|
|
|
|
|
|
As of beginning of year
|
|
$
|
16
|
|
|
$
|
14
|
|
Actual return of plan assets
|
|
|
|
|
|
|
2
|
|
Employer contribution
|
|
|
1
|
|
|
|
1
|
|
Exchange adjustments
|
|
|
1
|
|
|
|
|
|
Benefits paid
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
As of end of year
|
|
$
|
17
|
|
|
$
|
16
|
|
|
|
|
|
|
|
|
|
|
Benefits paid from the foreign postretirement plans were less
than $0.5 million for 2007 and 2006.
The expected long-term rate of return on foreign pension fund
assets held by the Companys pension trusts was determined
based on several factors, including input from pension
investment consultants and projected long-term returns of broad
equity and bond indices. The plans historical returns were
also considered. The expected long-term rate of return on the
assets in the plans was based on an asset allocation assumption
of about 44% with equity managers, with expected long-term rates
of return of approximately 8.5%, and 56% with fixed income
managers, with an expected long-term rate of return of about
5.9%. The actual asset allocation is regularly reviewed and
periodically rebalanced to the targeted allocation when
considered appropriate.
The asset allocation for the foreign defined benefit pension
plans as of December 31, 2007 and 2006 are as follows:
|
|
|
|
|
|
|
|
|
|
|
Percentage of Plan Assets
|
|
|
|
December 31,
|
|
|
December 31,
|
|
Asset Category
|
|
2007
|
|
|
2006
|
|
|
Equity securities
|
|
|
44
|
%
|
|
|
43
|
%
|
Fixed income
|
|
|
56
|
%
|
|
|
57
|
%
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
F-34
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
The following table summarizes the Companys funded status
for the foreign plans as of December 31, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans
|
|
|
Postretirement Benefit Plans
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Projected benefit obligation
|
|
$
|
(20
|
)
|
|
$
|
(18
|
)
|
|
$
|
(3
|
)
|
|
$
|
(2
|
)
|
Plan assets at fair value
|
|
|
17
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status of plan
|
|
$
|
(3
|
)
|
|
$
|
(2
|
)
|
|
$
|
(3
|
)
|
|
$
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status overfunded
|
|
$
|
2
|
|
|
$
|
2
|
|
|
$
|
|
|
|
$
|
|
|
Funded status underfunded
|
|
|
(5
|
)
|
|
|
(4
|
)
|
|
|
(3
|
)
|
|
|
(2
|
)
|
The following table summarizes amounts recognized in the
Combined Balance Sheets related to the foreign plans as of
December 31, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans
|
|
|
Postretirement Benefit Plans
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Other assets
|
|
$
|
2
|
|
|
$
|
2
|
|
|
$
|
|
|
|
$
|
|
|
Non-current liabilities
|
|
|
(5
|
)
|
|
|
(4
|
)
|
|
|
(3
|
)
|
|
|
(3
|
)
|
Accumulated other comprehensive (income) loss
|
|
|
5
|
|
|
|
6
|
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
2
|
|
|
$
|
4
|
|
|
$
|
(5
|
)
|
|
$
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes amounts included in accumulated
other comprehensive (income) loss for the foreign defined
benefit plans as of December 31, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans
|
|
|
Postretirement Benefit Plans
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
Prior service cost
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(1
|
)
|
|
$
|
(1
|
)
|
Net (gains) losses
|
|
|
5
|
|
|
|
6
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts in accumulated other comprehensive (income) loss
|
|
$
|
5
|
|
|
$
|
6
|
|
|
$
|
(2
|
)
|
|
$
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes key pension plan information
regarding plans whose accumulated benefit obligations exceed the
fair value of their respective plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plans
|
|
Postretirement Benefit Plans
|
|
|
December 31,
|
|
December 31,
|
|
December 31,
|
|
December 31,
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
Projected benefit obligation
|
|
$
|
17
|
|
|
$
|
15
|
|
|
$
|
3
|
|
|
$
|
2
|
|
Accumulated benefit obligation
|
|
|
17
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets
|
|
|
13
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
F-35
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
The following table summarizes the expected cash activity for
the foreign defined benefit plans and postretirement benefit
plans in the future:
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement
|
Year
|
|
Pension Plans
|
|
Benefit Plans
|
|
Company contributions 2008
|
|
$
|
1
|
|
|
$
|
|
|
Benefit payments
|
|
|
|
|
|
|
|
|
2008
|
|
|
1
|
|
|
|
|
|
2009
|
|
|
1
|
|
|
|
|
|
2010
|
|
|
1
|
|
|
|
|
|
2011
|
|
|
1
|
|
|
|
|
|
2012
|
|
|
1
|
|
|
|
|
|
2013 - 2017
|
|
|
6
|
|
|
|
1
|
|
For measuring the expected postretirement benefit obligation for
the foreign plans, the following health care cost trend rate
assumptions were used:
|
|
|
Years
|
|
Rate
|
|
2007
|
|
9%
|
2008 - 2015
|
|
0.5% reduction each year
to an ultimate rate of 5%
in 2015
|
The effect of a 1% increase or decrease in health care trend
rates on the foreign postretirement benefit plans would change
the benefit obligation at the end of the year and the service
cost plus interest cost by less than $0.5 million.
Multi-employer
Plans
The following table summarizes the components of net periodic
benefit cost related to the U.S. multi-employer plans
recognized in the Combined Statements of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement
|
|
|
|
Pension Plans
|
|
|
Benefit Plans
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Service cost
|
|
$
|
13
|
|
|
$
|
12
|
|
|
$
|
15
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
1
|
|
Interest cost
|
|
|
17
|
|
|
|
15
|
|
|
|
14
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
Expected return on assets
|
|
|
(13
|
)
|
|
|
(10
|
)
|
|
|
(10
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
Recognition of actuarial gain
|
|
|
5
|
|
|
|
5
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Curtailments/settlements
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit costs
|
|
$
|
22
|
|
|
$
|
24
|
|
|
$
|
24
|
|
|
$
|
1
|
|
|
$
|
2
|
|
|
$
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Each individual component and total periodic benefit cost for
the foreign multi-employer plans were less than
$0.5 million for all periods presented in the Combined
Statement of Operations.
The contributions paid into the U.S. and foreign multi-employer
plans on the Companys behalf by Cadbury Schweppes were
$30 million, $30 million and $34 million for
2007, 2006 and 2005, respectively.
Savings
Incentive Plan
The Company sponsors a 401(k) Retirement Plan that covers
substantially all employees who meet certain eligibility
requirements. This plan permits both pretax and after-tax
contributions, which are subject to limitations
F-36
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
imposed by Internal Revenue Service regulations. The Company
matches employees contributions up to specified levels.
The Companys contributions to this plan were approximately
$12 million in 2007 and $6 million in 2006 and 2005.
The Companys contributions for 2008 are estimated to be
approximately $14 million.
|
|
14.
|
Stock-Based
Compensation Plan
|
Certain of the Companys employees participate in
stock-based compensation plans sponsored by Cadbury Schweppes.
These plans provide employees with stock or options to purchase
stock in Cadbury Schweppes. Given that the Companys
employees directly benefit from participation in these plans,
the expense incurred by Cadbury Schweppes for options granted to
its employees has been reflected in the Companys Combined
Statements of Operations in selling, general, and
administrative expenses. Stock-based compensation expense
was $21 million ($13 million net of tax),
$17 million ($10 million net of tax) and
$22 million ($13 million net of tax) in 2007, 2006 and
2005, respectively.
Prior to January 2, 2005, the Company applied APB 25
and related interpretations when accounting for its stock-based
compensation plan. Under APB 25, compensation expense was
determined as the difference between the market price and
exercise price of the share-based award. For fixed plans,
compensation expense was determined on the date of grant. For
variable plans, compensation expense was measured at each
balance sheet date until the award became vested. Stock-based
compensation expense for 2007, 2006 and 2005 has been determined
based on SFAS 123(R), which the Company adopted effective,
January 3, 2005. SFAS 123(R) requires the recognition
of compensation expense in the Combined Statements of Operations
related to the fair value of employee share-based awards.
SFAS 123(R) revised SFAS 123 and supersedes
APB 25. The Company selected the modified prospective
method of transition; accordingly, prior periods have not been
restated. Upon adoption of SFAS 123(R), for awards which
were classified as liabilities, the Company was required to
reclassify the APB 25 historical compensation cost from
equity to liability and to recognize the difference between this
and the fair value liability through the current year statement
of operations. The cumulative effect of the change in accounting
policy for 2005 is recognized as a decrease in net income of
$10 million net of tax ($16 million gross) in the
Companys Combined Statements of Operations, as a separate
line item cumulative effect of change in accounting
policy.
Since January 2, 2005, the Company has recognized the cost
of all unvested employee stock-based compensation plans on a
straight-line attribution basis over their respective vesting
periods, net of estimated forfeitures. Certain of the
Companys employee share plans contain inflation indexed
earnings growth performance conditions. SFAS 123(R)
requires plans with such performance criteria to be accounted
for under the liability method. The liability method, as set out
in SFAS 123(R), requires a liability be recorded on the
balance sheet whereas no liability is required for employee
share awards accounted for under the equity method. In addition,
in calculating the income statement charge for share awards
under the liability method, the fair value of each award must be
re-measured at each reporting date until vesting whereas the
equity method requires the charge be calculated with reference
to the grant date fair value. This charge is calculated by
estimating the number of awards expected to vest for each plan
which is adjusted over the vesting period. This charge includes
an allocation of stock-based compensation costs incurred by
Cadbury Schweppes but which related to employees of the Company.
The outstanding value of options recognized by the equity method
has been reflected in Cadbury Schweppes net
investment in total invested equity, while the
options utilizing the liability method are reflected in
accounts payable and accrued expenses for the
current portion and other non-current liabilities
for the non-current portion. The Company did not receive cash in
any year, as a result of option exercises under share-based
payment arrangements. Actual tax benefits realized for the tax
deductions from option exercises were $10 million,
$5 million and $7 million for 2007, 2006 and 2005,
respectively. As of December 31, 2007, there was
$6 million of total unrecognized before-tax compensation
cost related to nonvested stock-based compensation arrangements.
That cost is expected to be recognized over a weighted-average
period of 1.7 years. The total intrinsic value of options
exercised during the year was $24 million, $13 million
and $17 million for 2007, 2006 and 2005, respectively. An
F-37
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
expense is recognized for the fair value at the date of grant of
the estimated number of shares that will be awarded to settle
the awards over the vesting period of each scheme.
The Company presents the tax benefits of deductions from the
exercise of stock options as financing cash inflows in the
Combined Statements of Cash Flows.
Awards under the plans are settled by Cadbury Schweppes, through
either repurchases of publicly available shares, or awards under
the Bonus Share Retention Plan (BSRP) and the Long
Term Incentive Plan (LTIP) will normally be
satisfied by the transfer of shares to participants by the
trustees of the Cadbury Schweppes Employee Trust (the
Employee Trust). The Employee Trust is a general
discretionary trust whose beneficiaries include employees and
former employees of Cadbury Schweppes and their dependents.
The Company has a number of share option plans that are
available to certain senior executives, including the LTIP and
BSRP, and the Discretionary Share Option Plans
(DSOP), full details of which are included below.
Long
Term Incentive Plan
Approximately 15 senior executives of the Company have been
granted a conditional award of shares under the LTIP. This award
recognizes the significant contribution they make to shareowner
value and is designed to incentivize them to strive for
sustainable long-term performance. In 2007, awards for the
2007-2009 performance cycles were made to senior executives.
Participants accumulate dividend equivalent payments both on the
conditional share awards (which will only be paid to the extent
that the performance targets are achieved) and during the
deferral period. This part of the award is calculated as
follows: number of shares vested multiplied by aggregate of
dividends paid in the performance period divided by the share
price on the vesting date. The current LTIP has been in place
since 1997. In 2004, the Compensation Committee of Cadbury
Schweppes (the Committee) made a number of changes
to the LTIP, and the table below sets forth its key features. As
explained below, from 2006, performance ranges for the growth in
Underlying Earnings per Share (UEPS) are expressed
in absolute rather than post-inflation terms.
|
|
|
|
|
|
|
Awards Made Prior
|
|
Awards Made for
|
|
|
to 2004
|
|
2004 Forward
|
|
Face value of conditional share award made
|
|
50%-80% of base salary
|
|
50%-120% of base salary (2004 and 2005). 80%-160% of base salary
(2006 forward).
|
Performance conditions
|
|
Award is based on Total Stockholder Return (TSR)
relative to the Comparator Group with a UEPS hurdle.
|
|
Half of the award is based on growth in UEPS over the three year
performance period. The other half of the award is based on TSR
relative to the Comparator Group.
|
UEPS vesting
requirement
1
|
|
For the award to vest at all, UEPS must have grown by at least
the rate of inflation as measured by the Retail Price Index plus
2% per annum (over three years).
|
|
The extent to which some, all or none of the award vest depends
upon annual compound growth in aggregate UEPS over the
performance period:
|
|
|
|
|
30% of this half of the award will vest if the
absolute compound annual growth rate achieved is 6% or more.
|
|
|
|
|
100% of this half of the award will vest if the
absolute compound
|
|
|
|
|
|
F-38
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
Awards Made Prior
|
|
Awards Made for
|
|
|
to 2004
|
|
2004 Forward
|
|
|
|
|
|
annual growth rate achieved is 10% or more.
|
|
|
|
|
Between 6% and 10%, the award will vest
proportionately.
|
TSR vesting
requirement
1
|
|
The extent to which some, all or none of the award vests depends
on our TSR relative to the Comparator Group:
|
|
The extent to which some, all or none of the award vests depends
upon our TSR relative to the Comparator Group:
|
|
|
The minimum award of 50% of the shares
conditionally granted will vest at the 50th percentile
ranking.
|
|
30% of this half of the award will vest at the
50th percentile ranking from 2006.
|
|
|
100% of the award will vest at the
80th percentile ranking or above.
|
|
100% of this half of the award will vest at the
80th percentile ranking or above.
|
|
|
Between the 50th and 80th percentiles, the
award will vest proportionately.
|
|
Between the 50th and 80th percentiles, the
award will vest proportionately.
|
Re-tests
|
|
If the TSR performance criteria is not satisfied in the initial
three year performance period, the award will be deferred on an
annual basis for up to three years until the performance is
achieved over the extended period (i.e., either four, five or
six years). If the award does not vest after six years, then it
will lapse.
|
|
There are no re-tests and the award will lapse if the minimum
requirements are not met in the initial three year performance
period.
|
Comparator Group
|
|
A weighting of 75% is applied to the UKT companies in the
Comparator Group, and 25% to the non-UK based companies.
|
|
The Comparator Group has been simplified and amended to include
companies more relevant to the Company, and there will be no
weighting as between UK and non-UK companies.
|
|
|
|
1
|
|
For cycles beginning in 2004 and 2005, threshold vesting was 40%
of the award, and performance ranges for the growth in UEPS was
expressed in post-inflation terms.
|
The TSR measure is a widely accepted and understood benchmark of
a companys performance. It is measured according to the
return index calculated by Thomson Financial on the basis that a
companys dividends are invested in the shares of that
company. The return is the percentage increase in each
companys index over the performance period. UEPS is a key
indicator of corporate performance. It is measured on an
absolute basis (real prior to 2006 after allowing for
inflation). Sustained performance is therefore required over the
performance cycle as each year counts in the calculation.
F-39
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
The following companies were selected as comparator companies
(the Comparator Group) to reflect the global nature
of Cadbury Schweppes business:
|
|
|
|
|
|
|
Non-UK-based
|
|
Head Office
|
UK-based Companies
|
|
Companies
|
|
Location
|
|
Allied Domecq #
|
|
Campbell Soup
|
|
US
|
Associated British Foods
|
|
Coca-Cola
|
|
US
|
Diageo
|
|
Coca-Cola Enterprises
|
|
US
|
Northern Foods
|
|
Colgate-Palmolive
|
|
US
|
Reckitt Benckiser
|
|
ConAgra
|
|
US
|
Scottish & Newcastle
|
|
CSM
|
|
Netherlands
|
Tate & Lyle
|
|
Danone
|
|
France
|
Unilever
|
|
General Mills
|
|
US
|
|
|
Heinz
|
|
US
|
|
|
Hershey
|
|
US
|
|
|
Kellogg
|
|
US
|
|
|
Kraft Foods
|
|
US
|
|
|
Lindt & Sprungli
|
|
Switzerland
|
|
|
Nestlé
|
|
Switzerland
|
|
|
Pepsi Bottling Group
|
|
US
|
|
|
PepsiCo
|
|
US
|
|
|
Pernod Ricard
|
|
France
|
|
|
Procter & Gamble
|
|
US
|
|
|
Sara Lee
|
|
US
|
|
|
Wrigley
|
|
US
|
|
|
|
#
|
|
indicates a company dropped from the Comparator Group in 2005
due to it no longer being a publicly quoted company
|
Awards under the LTIP (both before and after 2004) will
vest in full following a change in control in Cadbury Schweppes,
but only to the extent that performance targets have been met at
the time of the change in control unless Cadbury Schweppes
decides that the awards would have vested to a greater or lesser
extent had the performance targets been measured over the normal
period.
The maximum number of shares issued under this plan, to all
Cadbury Schweppes employees, was 3 million in each of 2007,
2006 and 2005. Awards made under this plan are classified as
either equity, for those with TSR vesting conditions, or
liabilities, for those with UEPS vesting conditions. The expense
recognized by the Company in respect of these awards was
$1 million, $1 million and $2 million in 2007,
2006 and 2005, respectively.
Bonus
Share Retention Plan
The BSRP enables participants to invest all or part of their
Annual Incentive Plan (AIP) award in Cadbury
Schweppes shares (Deferred Shares) and earn a
Cadbury Schweppes match of additional shares after three years.
During the three year period, the shares are held in trust. If a
participant leaves Cadbury Schweppes during the three-year
period, they forfeit some of the additional shares, and in
certain cases, it is possible that all of the Deferred Shares
and the additional shares may be forfeited.
F-40
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
The number of matching shares that will be provided for grants
from 2006 is as follows:
|
|
|
Absolute Compound Annual Growth
|
|
|
in Aggregate Underlying Economic
|
|
|
Profit (UEP) Over the Three Year
|
|
Percentage of Matching Shares
|
Deferral Period Equivalent to:
|
|
Awarded at the End of the Period
|
|
Below 4%
|
|
40% (Threshold)
|
4%
|
|
40%
|
8%
|
|
70%
|
12% or more
|
|
100% (Maximum)
|
There is a straight line sliding scale between those
percentages. UEP is measured on an aggregate absolute growth
basis, the levels of growth required to achieve the highest
levels of share match being demanding. For awards made before
2006, UEP performance was measured on a real basis, with a
stepped vesting scale between the threshold and maximum. Awards
under the BSRP will vest in full following a change in control
in Cadbury Schweppes but only to the extent that performance
targets have been met at the time of the change in control
unless Cadbury Schweppes decides that the awards would have
vested to a greater or lesser extent had the performance targets
been measured over the normal period. The
2005-2007
and
2006-2008
cycles are currently expected to result in around two-thirds of
the matching shares available being awarded. Actual vesting will
depend upon performance over the full vesting period.
The BSRP is available to a group of senior executives of the
Company. The maximum number of shares issued to employees under
this plan was 3 million in each of 2007, 2006 and 2005. The
fair value of the shares under the plan is based on the market
price of the Cadbury Schweppes ordinary shares on the date of
the award. Where the awards do not attract dividends during the
vesting period, the market price is reduced by the present value
of the dividends expected to be paid during the expected life of
the awards. Awards under this plan in 2005 are classified as
liabilities. Awards made in 2006 are classified as equity due to
changes in the nature of the plan. The expense recognized by the
Company in respect of these awards was $3 million,
$3 million and $2 million in 2007, 2006 and 2005,
respectively.
Discretionary
Share Option Plans (DSOP)
No option grants were made to Executive Directors in 2007 or
2006 as discretionary share options were removed as part of the
Cadbury Schweppes remuneration program. No rights to
subscribe for shares or debentures of any Cadbury Schweppes
company were granted to or exercised by any member of any of the
Directors
F-41
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
immediate families during 2007. All existing discretionary share
option plans which apply to Executive Directors use the
following criteria:
|
|
|
|
|
|
|
Annual Grants Made
|
|
Annual Grants Made
|
|
|
Prior to May 21, 2004
|
|
After May 21, 2004
|
|
Market value of option grant made to Executive Directors
|
|
Customary grant was 300% of base salary and the maximum was 400%
of base salary.
|
|
Maximum of 200% of base salary. From 2006 onwards, no such
grants are made other than in exceptional circumstances.
|
Performance condition
|
|
Exercise is subject to UEPS growth of at least the rate of
inflation plus 2% per annum over three years.
|
|
Exercise is subject to real compound annual growth in UEPS of 4%
for half the award to vest and 6% real growth for the entire
award to vest over three years, measured by comparison to the
UEPS in the year immediately preceding grant.
|
Re-tests
|
|
If required, re-testing has been on an annual basis on a rolling
three-year base for the life of the option.
|
|
If the performance condition is not met within the first three
years, the option will be retested in year five with actual UEPS
growth in year five measured in relation to the original base
year.
|
DSOP resulted in expense recognized by the Company of
$8 million, $10 million and $17 million in 2007,
2006 and 2005, respectively. The DSOP consisted of the following
three plans:
(i) A Share Option Plan for directors, senior
executives and senior managers was approved by stockholders in
May 1994. Options were granted prior to July 15, 2004 and
are normally exercisable within a period of seven years
commencing three years from the date of grant, subject to the
satisfaction of certain performance criteria.
(ii) A Share Option Plan for eligible executives
(previously called the Cadbury Schweppes Share Option Plan 1994,
as amended at the 2004 Annual General Meeting (AGM)
held on May 21, 2004). Options were granted after
July 15, 2004, and are normally exercisable up to the
10th anniversary of grant, subject to the satisfaction of
certain performance criteria.
(iii) The Cadbury Schweppes (New Issue) Share Option Plan
2004 was established by the Directors, under the authority given
by stockholders in May 2004. Eligible executives are granted
options to subscribe for new shares only. Subject to the
satisfaction of certain performance criteria, options are
normally exercisable up to the 10th anniversary of grant.
There are performance requirements for the exercising of
options. The plans are accounted for as liabilities until
vested, then as equity until exercised or lapsed.
Other
Share Plans
Cadbury Schweppes has an International Share Award Plan
(ISAP) which is used to reward exceptional
performance of employees. Following the decision to cease
granting discretionary options other than in exceptional
circumstances, the ISAP is now used to grant conditional awards
to employees, who previously received discretionary options.
Awards under this plan are classified as liabilities until
vested.
F-42
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
Share
Award Fair Values
The fair value is measured using the valuation technique that is
considered to be the most appropriate to value each class of
award; these include Binomial models, Black-Scholes
calculations, and Monte Carlo simulations. These valuations take
into account factors such as nontransferability, exercise
restrictions and behavioral considerations. Key assumptions are
detailed below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
BSRP
|
|
LTIP
|
|
ISAP
|
|
Expected volatility
|
|
|
N/A
|
|
|
|
15%
|
|
|
|
N/A
|
|
Expected life
|
|
|
3 years
|
|
|
|
3 years
|
|
|
|
1-3 years
|
|
Risk-free rate
|
|
|
5.5%
|
|
|
|
N/A
|
|
|
|
4.9%-5.8%
|
|
Expected dividend yield
|
|
|
2.5%
|
|
|
|
2.5%
|
|
|
|
2.5%-3.0%
|
|
Fair value per award (% of share price at date of
|
|
|
|
|
|
|
|
|
|
|
|
|
grant)
|
|
|
185.5%
|
|
|
|
92.8%UEPS
|
|
|
|
91.8%-99.3%
|
|
|
|
|
|
|
|
|
45.1%TSR
|
|
|
|
|
|
Possibility of ceasing employment before vesting
|
|
|
|
|
|
|
|
|
|
|
|
|
Expectations of meeting performance criteria
|
|
|
40%
|
|
|
|
70%
|
|
|
|
100%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
BSRP
|
|
LTIP
|
|
ISAP
|
|
Expected volatility
|
|
|
N/A
|
|
|
|
18%
|
|
|
|
N/A
|
|
Expected life
|
|
|
3 years
|
|
|
|
3 years
|
|
|
|
1-3 years
|
|
Risk-free rate
|
|
|
4.5%
|
|
|
|
N/A
|
|
|
|
4.2%-4.9%
|
|
Expected dividend yield
|
|
|
2.5%
|
|
|
|
2.5%
|
|
|
|
2.3%-2.5%
|
|
Fair value per award (% of share price at date of grant)
|
|
|
185.2%
(1)
|
|
|
|
92.8%UEPS
|
|
|
|
93.0%-99.3%
|
|
|
|
|
|
|
|
|
46%TSR
|
|
|
|
|
|
Possibility of ceasing employment before
|
|
|
|
|
|
|
|
|
|
|
|
|
vesting
|
|
|
|
|
|
|
|
|
|
|
|
|
Expectations of meeting performance criteria
|
|
|
40%
|
|
|
|
70%
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
BSRP
|
|
LTIP
|
|
DSOP
|
|
ISAP
|
|
Expected volatility
|
|
|
N/A
|
|
|
|
22%
|
|
|
|
22%
|
|
|
|
N/A
|
|
Expected life
|
|
|
3 years
|
|
|
|
3 years
|
|
|
|
(2)
|
|
|
|
1-3 years
|
|
Risk-free rate
|
|
|
4.5%
|
|
|
|
N/A
|
|
|
|
4.80%
|
|
|
|
4.3%
|
|
Expected dividend yield
|
|
|
2.5%
|
|
|
|
3.0%
|
|
|
|
3.0%
|
|
|
|
2.3%-2.5%
|
|
Fair value per award (% of share price at date of grant)
|
|
|
185.3%
(1)
|
|
|
|
91.4%UEPS
|
|
|
|
23.0%
|
|
|
|
93.0%-97.8%
|
|
|
|
|
|
|
|
|
49.6%TSR
|
|
|
|
|
|
|
|
|
|
Possibility of ceasing employment before vesting
|
|
|
|
|
|
|
|
|
|
|
9%
|
|
|
|
|
|
Expectations of meeting performance criteria
|
|
|
40%
|
|
|
|
50%
|
|
|
|
100%
|
|
|
|
N/A
|
|
|
|
|
(1)
|
|
Fair value of BSRP includes 100% of the matching shares
available.
|
F-43
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
|
(2)
|
|
The fair value calculation of a discretionary share option uses
an expected life to the point of expected exercise. This is
determined through analysis of historical evidenced exercise
patterns of option holders.
|
Expected volatility was determined by calculating the historical
volatility of the Companys share price over the previous
three years. The expected life used in the model has been
adjusted, based on managements best estimate, for the
effects of nontransferability, exercise restrictions and
behavioral considerations. The risk-free rates used reflect the
implied yield on zero coupon bonds issued in the UK, with
periods which match the expected term of the awards valued. The
expected dividend yield is estimated using the historical
dividend yield of Cadbury Schweppes.
A summary of the status of the Companys non-vested shares,
in relation to the BSRP, LTIP and ISAP as of December 31,
2007, and changes during the year ended December 31, 2007,
is presented below:
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Weighted
|
|
|
|
Non-vested
|
|
|
Average
|
|
|
|
Shares
|
|
|
Grant Date
|
|
|
|
(000)
|
|
|
Fair Value
|
|
|
Non-vested as of December 31, 2006
|
|
|
2,388
|
|
|
$
|
6.61
|
|
Granted
|
|
|
743
|
|
|
|
4.62
|
|
Vested
|
|
|
(828
|
)
|
|
|
6.06
|
|
Forfeitures
|
|
|
(417
|
)
|
|
|
5.75
|
|
|
|
|
|
|
|
|
|
|
Non-vested as of December 31, 2007
|
|
|
1,886
|
|
|
|
6.26
|
|
|
|
|
|
|
|
|
|
|
The total grant date fair value of shares vested during the year
was $5 million in 2007 and $1 million in each of 2006
and 2005. The total vested share units at December 31, 2007
was 237,447 with a weighted average grant date fair value of
$6.31.
A summary of option activity during 2007, in relation to the
DSOP, is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Shares
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
(000)
|
|
|
Price
|
|
|
Term
|
|
|
Value
|
|
|
Outstanding at the beginning of the year
|
|
|
22,669
|
|
|
$
|
8.62
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(6,006
|
)
|
|
$
|
8.37
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(146
|
)
|
|
$
|
9.76
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
735
|
|
|
$
|
10.52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at the end of the year
|
|
|
17,252
|
|
|
$
|
9.00
|
|
|
|
5.3
|
|
|
$
|
58,632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at the end of the year
|
|
|
13,502
|
|
|
$
|
8.58
|
|
|
|
4.8
|
|
|
$
|
51,588
|
|
The Company presents segment information in accordance with
SFAS No. 131,
Disclosures about Segments of an
Enterprise and Related Information,
which established
reporting and disclosure standards for an enterprises
operating segments. Operating segments are defined as components
of an enterprise that are businesses, for which separate
financial information is available, and for which the financial
information is regularly reviewed by the Company leadership team
and the chief operating decision maker.
Segment results are based on management reports, which are
prepared in accordance with International Financial Reporting
Standards. Net sales and underlying operating profit
(UOP) are the significant financial measures used to
measure the operating performance of the Companys
operating segments. UOP is defined as
F-44
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
income from operations before restructuring costs, non-trading
items, interest, amortization and impairment of intangibles.
As of December 31, 2007, the Companys operating
structure consisted of the following four operating segments:
|
|
|
|
|
The Beverage Concentrates segment reflects sales from the
manufacture of concentrates and syrups in the United States and
Canada. Most of the brands in this segment are CSD brands.
|
|
|
|
The Finished Goods segment reflects sales from the manufacture
and distribution of finished beverages and other products in the
United States and Canada. Most of the brands in this segment are
non-CSD brands.
|
|
|
|
The Bottling Group segment reflects sales from the manufacture,
bottling
and/or
distribution of finished beverages, including sales of the
Companys own brands and third-party owned brands.
|
|
|
|
The Mexico and Caribbean segment reflects sales from the
manufacture, bottling
and/or
distribution of both concentrates and finished beverages in
those geographies.
|
Prior to December 31, 2007, the Companys operating
structure consisted of five operating segments. The five
segments include Beverage Concentrates, Finished Goods, Bottling
Group, Snapple Distributors, and Mexico and Caribbean. The
previously reported Snapple Distributors segments is now
reported under the Bottling Group segment. Financial information
for all periods presented is reported under the current
operating structure consisting of four reportable segments.
The Companys current segment reporting structure is
largely the result of acquiring and combining various portions
of our business over the past several years. Although the
Company continues to report its segments separately, due to the
integrated nature of its business model, it manages its business
to maximize profitability for the Company as a whole. As a
result, profitability trends in individual segments may not be
consistent with the profitability of the Company or comparable
to its competitors.
The Company has significant intersegment transactions. For
example, the Bottling Group segment purchases concentrates from
the Beverage Concentrates segment. In addition, the Bottling
Group segment purchases finished beverages from the Finished
Goods segment. These sales are eliminated in preparing the
Companys combined results of operations. Intersegment
transactions are included in segments net sales results for all
periods presented.
The Company incurs selling, general and administrative expenses
in each of its segments. In the Companys segment
reporting, the selling, general and administrative expenses of
the Bottling Group, and Mexico and the Caribbean segments relate
primarily to those segments. However, as a result of the
Companys historical segment reporting policies, certain
combined selling activities that support the Beverage
Concentrates and Finished Goods segments have not been
proportionally allocated between these two segments. The Company
also incurs certain centralized finance and corporate costs that
support its entire business, which have not been directly
allocated to its respective segments but rather have been
allocated primarily to the Beverage Concentrates segment.
Information about the Companys operations by operating
segment for 2007, 2006 and 2005 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Net Sales*
|
|
|
|
|
|
|
|
|
|
|
|
|
Beverage Concentrates
|
|
$
|
1,342
|
|
|
$
|
1,330
|
|
|
$
|
1,304
|
|
Finished Goods
|
|
|
1,562
|
|
|
|
1,516
|
|
|
|
1,516
|
|
Bottling Group
|
|
|
3,143
|
|
|
|
2,001
|
|
|
|
241
|
|
Mexico and the Caribbean
|
|
|
418
|
|
|
|
408
|
|
|
|
354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment total
|
|
|
6,465
|
|
|
|
5,255
|
|
|
|
3,415
|
|
Adjustments and eliminations
|
|
|
(717
|
)
|
|
|
(520
|
)
|
|
|
(210
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales as Reported
|
|
$
|
5,748
|
|
|
$
|
4,735
|
|
|
$
|
3,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Intersegment revenue eliminations from the Bottling Group and
Finished Goods segments were reclassified from revenues to
adjustments and eliminations. Prior year balances have been
recast to reflect these changes.
|
F-45
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Underlying Operating Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
Beverage Concentrates
|
|
$
|
731
|
|
|
$
|
710
|
|
|
$
|
657
|
|
Finished Goods
|
|
|
167
|
|
|
|
172
|
|
|
|
165
|
|
Bottling Group
|
|
|
130
|
|
|
|
130
|
|
|
|
44
|
|
Mexico and the Caribbean
|
|
|
100
|
|
|
|
102
|
|
|
|
96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment total
|
|
|
1,128
|
|
|
|
1,114
|
|
|
|
962
|
|
Corporate and other
|
|
|
(42
|
)
|
|
|
(14
|
)
|
|
|
11
|
|
Adjustments and eliminations
|
|
|
(269
|
)
|
|
|
(295
|
)
|
|
|
(186
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes, equity in earnings
of unconsolidated subsidiaries and cumulative effect of change
in accounting policy as reported
|
|
$
|
817
|
|
|
$
|
805
|
|
|
$
|
787
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
Beverage Concentrates
|
|
$
|
12
|
|
|
$
|
11
|
|
|
$
|
12
|
|
Finished Goods
|
|
|
23
|
|
|
|
21
|
|
|
|
22
|
|
Bottling Group
|
|
|
79
|
|
|
|
51
|
|
|
|
5
|
|
Mexico and the Caribbean
|
|
|
9
|
|
|
|
11
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment total
|
|
|
123
|
|
|
|
94
|
|
|
|
49
|
|
Corporate and other
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(2
|
)
|
Adjustments and eliminations
|
|
|
(2
|
)
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation as reported
|
|
$
|
120
|
|
|
$
|
94
|
|
|
$
|
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Fixed Assets
|
|
|
|
|
|
|
|
|
Beverage Concentrates
|
|
$
|
84
|
|
|
$
|
81
|
|
Finished Goods
|
|
|
135
|
|
|
|
131
|
|
Bottling Group
|
|
|
579
|
|
|
|
476
|
|
Mexico and the Caribbean
|
|
|
61
|
|
|
|
62
|
|
|
|
|
|
|
|
|
|
|
Segment total
|
|
|
859
|
|
|
|
750
|
|
Corporate and other
|
|
|
19
|
|
|
|
23
|
|
Adjustments and eliminations
|
|
|
(10
|
)
|
|
|
(18
|
)
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net as reported
|
|
|
868
|
|
|
|
755
|
|
Current assets as reported
|
|
|
2,739
|
|
|
|
1,632
|
|
All other non-current assets as reported
|
|
|
6,921
|
|
|
|
6,959
|
|
|
|
|
|
|
|
|
|
|
Total assets as reported
|
|
$
|
10,528
|
|
|
$
|
9,346
|
|
|
|
|
|
|
|
|
|
|
F-46
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
Reconciliation
of Segment Information
Total segment net sales include Beverage Concentrates and
Finished Goods sales to the Bottling Group segment. These sales
amounted to $726 million in 2007 and are eliminated in the
Combined Statement of Operations.
UOP represents a measure of income from operations. To reconcile
the segments total UOP to the Companys total income
from operations on a U.S. GAAP basis, adjustments are
primarily required for: (1) restructuring costs,
(2) non-cash compensation charges on stock option awards,
(3) amortization and impairment of intangibles and
(4) incremental pension costs. In addition, adjustments are
required for total company corporate costs and other items. To
reconcile UOP to the line item income before provision for
income taxes, equity in earnings of unconsolidated subsidiaries
and cumulative effect of change in accounting policy as
reported on a U.S. GAAP basis, additional adjustments are
required, primarily for interest expense, interest income and
other expense (income).
Geographic
Data
The Company utilizes separate legal entities for transactions
with customers outside of the United States. Information about
the Companys operations by geographic region for 2007,
2006 and 2005 is below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
5,122
|
|
|
$
|
4,151
|
|
|
$
|
2,675
|
|
International
|
|
|
626
|
|
|
|
584
|
|
|
|
530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales:
|
|
$
|
5,748
|
|
|
$
|
4,735
|
|
|
$
|
3,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Property, plant and equipment net:
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
796
|
|
|
$
|
681
|
|
International
|
|
|
72
|
|
|
|
74
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment net
|
|
$
|
868
|
|
|
$
|
755
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|
|
|
|
|
|
|
|
|
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Major
Customers
In 2007, Wal-Mart Stores, Inc. was the Companys only
customer which accounted for 10% or more of total net sales,
with $588 million of net sales for the year. These sales
were reported primarily in the Finished Goods and Bottling Group
segments, contributing 16% and 10% of the segments net
sales, respectively. No customers contributed 10% or more of
total net sales in 2006 or 2005.
|
|
16.
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Related
Party Transactions
|
Allocated
Expenses
Cadbury Schweppes has allocated certain costs to the Company,
including costs in respect of certain corporate functions
provided for us by Cadbury Schweppes. These allocations have
been based on the most relevant allocation method for the
services provided. To the extent expenses have been paid by
Cadbury Schweppes on behalf of the Company, they have been
allocated based upon the direct costs incurred. Where specific
identification of expenses has not been practicable, the costs
of such services has been allocated based upon the most relevant
allocation method to the services provided, primarily either as
a percentage of net sales or headcount of the Company. The
Company was allocated $161 million, $142 million and
$115 million of costs in 2007, 2006 and 2005, respectively.
F-47
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
Cash
Management
Cadbury Schweppes uses a centralized approach to cash management
and financing of operations. The Companys cash is
available for use and is regularly swept by Cadbury Schweppes
operations in the U.S. at its discretion. Cadbury Schweppes
also funds the Companys operating and investing activities
as needed. Transfers of cash, both to and from Cadbury
Schweppes cash management system, are reflected as a
component of Cadbury Schweppes net investment
in the Companys Combined Balance Sheets.
Royalties
The Company earns royalties from other Cadbury Schweppes-owned
companies for the use of certain brands owned by the Company.
Total amounts earned were $1 million, $1 million and
$9 million for 2007, 2006 and 2005, respectively.
Notes
Receivable
The Company held a notes receivable balance with wholly owned
subsidiaries of Cadbury Schweppes with outstanding principal
balances of $1,527 million and $579 million as of
December 31, 2007 and 2006, respectively. The Company
recorded $57 million, $25 million and $36 million
of interest income related to these notes for 2007, 2006 and
2005, respectively.
Debt
and Payables
The Company has entered into a variety of debt agreements with
other companies owned by Cadbury Schweppes. These agreements (as
well as outstanding balances under the agreements) are described
in Note 10.
The related party payable balances of $175 million and
$183 million as of December 31, 2007 and 2006,
respectively, represent non-interest bearing payable balances
with companies owned by Cadbury Schweppes, related party accrued
interest payable associated with interest bearing notes, and
related party payables for sales of goods and services all with
companies owned by Cadbury Schweppes. The non-interest bearing
payable balance was $75 million and $158 million as of
December 31, 2007 and 2006, respectively. The accrued
interest payable balance was $11 million and
$25 million at December 31, 2007 and 2006,
respectively. The intercompany current payable was
$89 million as of December 31, 2007.
Transactions
with Dr Pepper/Seven Up Bottling Group
Prior to the Companys acquisition of the remaining shares
of DPSUBG on May 2, 2006, the Company and DPSUBG entered
into various transactions in the ordinary course of business as
outlined below:
Marketing
support, co-packing fees and other arrangements
The Company assisted DPSUBG in a variety of marketing programs,
local media advertising and other similar arrangements to
promote the sale of Company-branded products. DPSUBG charged the
Company co-packing fees related to the manufacture of certain
Company-branded products. The Company paid DPSUBG marketing
support, co-packing fees and other fees totaling
$41 million and $125 million during 2006 and 2005,
respectively.
F-48
DR PEPPER
SNAPPLE GROUP, INC.
NOTES TO
COMBINED FINANCIAL
STATEMENTS (Continued)
Sales of
beverage concentrates
DPSUBG bought concentrates from the Company for the manufacture
of Company-branded soft drinks. The Companys concentrates
sales to DPSUBG totaled $100 million and $426 million
during 2006 and 2005, respectively.
Sales of
finished goods
DPSUBG purchased finished product from the Company for sale to
retailers. The Companys finished product sales totaled
$16 million and $53 million during 2006 and 2005,
respectively.
The Company had recorded receivables from DPSUBG relating to the
above transactions totaling $64 million at January 1,
2006.
In January 2008, the Company began to separate commingled
pension plans which contained participants of both the Company
and other Cadbury Schweppes global companies. As a result, the
Company re-measured the projected benefit obligation of the
separated pension plans. The Company expects the re-measurement
to result in an increase of approximately $71 million to
other non-current liabilities and a decrease of
approximately $53 million to accumulated other
comprehensive income, a component of invested equity. The
actual pension liability and associated unamortized losses will
be finalized at the separation date.
On March 10, 2008, the Company entered into arrangements
with a group of lenders to provide it with an aggregate of
$4.4 billion of financing. The new arrangements consist of
a $2.4 billion senior credit agreement that provides a
$1.9 billion term loan A facility and a $500 million
revolving credit facility (collectively, the senior credit
facility) and a
364-day
bridge credit agreement that provides a $2.0 billion bridge
loan facility.
The Company currently expects to borrow an aggregate of
$3.9 billion under the term loan A facility and the bridge
loan facility prior to the completion of the separation
(assuming the conditions to such borrowing have been satisfied
or waived) and the proceeds will be held in escrow pending
completion of the separation.
Borrowings under the senior credit facility and the bridge loan
facility will bear interest at a floating rate per annum based
upon LIBOR or the alternate base rate (ABR), in each
case plus an applicable margin which varies based upon our debt
ratings, from 1.00 % to 2.50% in the case of LIBOR loans
and 0.00 % to 1.50 % in the case of ABR loans. The
alternate base rate means the greater of (a) JPMorgan Chase
Banks prime rate and (b) the federal funds effective
rate plus
1
/
2
of 1%. Based on the Companys expected debt ratings at the
time of the separation, the applicable margin for LIBOR loans
would be 2.00% and for ABR loans would be 1.00%. The
documentation relating to the senior credit facility and bridge
loan facility contains certain provisions that allow the
bookrunners to increase the interest rates or yield of the
loans, add collateral, reallocate up to $500 million
between the term loan A facility and the bridge loan facility
(and vice versa) and modify other terms and aspects of the
facilities, in each case within a limit agreed upon by the
bookrunners and the Company.
* * * * *
F-49