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PROSPECTUS
REGISTRATIION NO. 333-19233
FILED PURSUANT TO RULE 424(b)(3) $120,000,000
DELTA BEVERAGE GROUP, INC.
9 3/4% SENIOR NOTES DUE 2003
OFFER TO EXCHANGE $1,000 IN PRINCIPAL AMOUNT OF 9 3/4%
SENIOR NOTES DUE 2003 FOR EACH $1,000 IN PRINCIPAL AMOUNT
OF OUTSTANDING 9 3/4% SENIOR NOTES DUE 2003 THAT WERE
ISSUED AND SOLD IN A TRANSACTION EXEMPT FROM REGISTRATION
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT").
Delta Beverage Group, Inc., a Delaware corporation (the "Company"), hereby
offers to exchange (the "Exchange Offer") $120 million in aggregate principal
amount of its 9 3/4% Senior Notes Due 2003 (the "Exchange Notes") for $120
million in aggregate principal amount of its outstanding 9 3/4% Senior Notes Due
2003 that were issued and sold in a transaction exempt from registration under
the Securities Act (the "Senior Notes" and, together with the Exchange Notes,
the "Notes").
The terms of the Exchange Notes are the same in all respects (including
principal amount, interest rate, maturity and ranking) as the terms of the
Senior Notes for which they may be exchanged pursuant to the Exchange Offer,
except that the Exchange Notes have been registered under the Securities Act and
therefore will not be subject to certain restrictions on transfer applicable to
the Senior Notes and will not be entitled to registration rights. The Exchange
Notes will be issued under the Indenture (as defined herein) governing the
Senior Notes. The Exchange Notes will be, and the Senior Notes are, unsecured
obligations of the Company and will rank PARI PASSU in right of payment with all
existing and future unsecured Senior Indebtedness (as defined herein) and will
be senior in right of payment to all existing and future subordinated
indebtedness of the Company. At September 30, 1996, on a pro forma basis after
giving effect to the Financing Transactions (as defined herein), including
application of the net proceeds therefrom, the Company would have had
approximately $125.4 million of outstanding Senior Indebtedness. For a complete
description of the terms of the Exchange Notes, including provisions relating to
the ability of the Company to create indebtedness that is PARI PASSU with the
Exchange Notes, see "Description of the Notes." There will be no cash proceeds
to the Company from the Exchange Offer.
The Exchange Notes will bear interest from and including their respective
dates of issuance. Holders whose Senior Notes are accepted for exchange will
receive accrued interest thereon to, but not including, the date of issuance of
the Exchange Notes, such interest to be payable with the first interest payment
on the Exchange Notes, but will not receive any payment in respect of interest
on the Senior Notes accrued after the issuance of the Exchange Notes.
The Senior Notes were originally issued and sold on December 17, 1996 in a
transaction not registered under the Securities Act, in reliance upon the
exemption provided in Section 4(2) of the Securities Act and Rule 144A of the
Securities Act (the "Offering"). Accordingly, the Senior Notes may not be
reoffered, resold or otherwise pledged, hypothecated or transferred in the
United States unless so registered or unless an applicable exemption from the
registration requirements of the Securities Act is available. Based upon its
view of interpretations provided to third parties by the Staff (the "Staff") of
the Securities and Exchange Commission (the "Commission"), the Company believes
that the Exchange Notes to be issued pursuant to the Exchange Offer in exchange
for the Senior Notes may be offered for resale, resold and otherwise transferred
by holders thereof (other than any holder which is (i) an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act (an
"Affiliate"), (ii) a broker-dealer who acquired Senior Notes directly from the
Company or (iii) a broker-dealer who acquired Senior Notes as a result of
market-making or other trading activities) without compliance with the
registration and prospectus delivery provisions of the Securities Act provided
that such Exchange Notes are acquired in the ordinary course of such holders'
business and such holders are not engaged in, and do not intend to engage in,
and have no arrangement or understanding with any person to participate in,
(PARAGRAPH CONTINUED ON FOLLOWING PAGE)
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF CERTAIN MATTERS
THAT SHOULD BE CONSIDERED BY HOLDERS OF SENIOR NOTES PRIOR TO MAKING A DECISION
WITH RESPECT TO THIS EXCHANGE OFFER.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
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TO THE CONTRARY IS A CRIMINAL OFFENSE.
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The date of this Prospectus is February 12, 1997.
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a distribution of such Exchange Notes. Holders of Exchange Notes who are
participating in a distribution must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with secondary resale
transactions. The Company has not sought, and does not intend to seek, its own
interpretation from the Staff on these issues. There can be no assurance that
the Staff would make a similar determination with respect to the Exchange Offer.
Each broker-dealer who receives Exchange Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a Prospectus in
connection with any resale of such Exchange Notes. The Letter of Transmittal,
filed as an exhibit to the Registration Statement of which this Prospectus is a
part (the "Letter of Transmittal"), states that by so acknowledging and by
delivering a Prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of Exchange Notes received in exchange
for Senior Notes where such Exchange Notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities. The Company
has agreed that, starting on the Expiration Date (as defined herein) and ending
on the close of business 180 days after the Expiration Date, it will make this
Prospectus available to any broker-dealer for use in connection with any such
resale. See "Plan of Distribution."
The Notes constitute new issues of securities with no established public
trading market. Any Senior Notes not tendered and accepted in the Exchange Offer
will remain outstanding. To the extent that Senior Notes are tendered and
accepted in the Exchange Offer, a holder's ability to sell untendered, and
tendered but unaccepted, Senior Notes could be adversely affected. Following
consummation of the Exchange Offer, the holders of Senior Notes will continue to
be subject to the existing restrictions on transfer thereof and the Company will
have no further obligation to such holders to provide for the registration under
the Securities Act of the Senior Notes except under certain limited
circumstances. No assurance can be given as to the liquidity of the trading
market for either the Senior Notes or the Exchange Notes.
Upon the occurance of a Change of Control (as defined herein), each holder
of Exchange Notes will have the right to require the Company to repurchase all
or any part (equal to $1,000 or an integral multiple thereof) of such holder's
Exchange Notes and interest thereon, if any, to the date of purchase. There can
be no assurance that the Company will have, or will have access to, adequate
funds to repurchase Exchange Notes upon a Change of Control. See "Description of
Notes--Repurchase at the Option of Holders."
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Senior Notes being tendered or accepted for exchange. The Exchange
Offer will expire at 5:00 p.m., New York City time, on April 3, 1997, unless
extended (the "Expiration Date"). The date of acceptance for exchange of the
Senior Notes (the "Exchange Date") will be the first business day following the
Expiration Date, upon surrender of the Senior Notes. Senior Notes tendered
pursuant to the Exchange Offer may be withdrawn at any time prior to the
Expiration Date; otherwise, such tenders are irrevocable.
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NOTICE TO NEW HAMPSHIRE RESIDENTS
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A
LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES
ANNOTATED, 1955, AS AMENDED ("RSA"), WITH THE STATE OF NEW HAMPSHIRE NOR THE
FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE
STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE NEW HAMPSHIRE SECRETARY OF
STATE THAT ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT
MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS
AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS
PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN
APPROVAL TO, ANY PERSON, SECURITY, OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR
CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER, OR CLIENT ANY
REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH.
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NOTICE TO FLORIDA RESIDENTS
PURSUANT TO SECTION 517.061(11)(a)(5) OF THE FLORIDA SECURITIES ACT, YOU
HAVE THE RIGHT TO RESCIND YOUR SUBSCRIPTION (UNLESS YOU ARE AN INSTITUTIONAL
INVESTOR DESCRIBED IN SECTION 517.061(7) OF THE FLORIDA SECURITIES ACT) BY
GIVING NOTICE OF SUCH RESCISSION BY TELEPHONE, TELEGRAPH OR LETTER, WITHIN THREE
DAYS AFTER YOU FIRST TENDER CONSIDERATION TO THE INITIAL PURCHASER. IF NOTICE IS
NOT RECEIVED BY SUCH TIME, THE FOREGOING RIGHT OF RESCISSION SHALL BE NULL AND
VOID.
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INFORMATION CONTAINED IN THIS PROSPECTUS CONTAINS "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995, WHICH CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH
AS "MAY," "EXPECT," "ANTICIPATE," "ESTIMATE" OR "CONTINUE" OR THE NEGATIVE
THEREOF OR OTHER VARIATIONS THEREON OR COMPARABLE TERMINOLOGY. THE STATEMENTS IN
"RISK FACTORS" BEGINNING ON PAGE 10 OF THIS PROSPECTUS CONSTITUTE CAUTIONARY
STATEMENTS IDENTIFYING IMPORTANT FACTORS, INCLUDING CERTAIN RISKS AND
UNCERTAINTIES, WITH RESPECT TO SUCH FORWARD-LOOKING STATEMENTS THAT COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE REFLECTED IN SUCH FORWARD-LOOKING
STATEMENTS.
Pepsi-Registered Trademark-, Caffeine Free Pepsi-Registered Trademark-, Diet
Pepsi-Registered Trademark-, Caffeine Free Diet Pepsi-Registered Trademark-,
Mountain Dew-Registered Trademark-, Diet Mountain Dew-Registered Trademark-,
Slice-Registered Trademark-, Ocean Spray-Registered Trademark- and All
Sport-Registered Trademark- are registered trademarks of PepsiCo (as defined
herein). Seven-Up-Registered Trademark-, Diet 7Up-Registered Trademark- and
Crush-Registered Trademark- are registered trademarks of Cadbury (as defined
herein). Miller Beer-Registered Trademark-, Miller High
Life-Registered Trademark-, Magnum-Registered Trademark-, Milwaukee's
Best-Registered Trademark-, Sharp's-Registered Trademark- and
Icehouse-Registered Trademark- are registered trademarks of Miller (as defined
herein). The Company also produces and/or distributes other products under
additional trademarks and registered trademarks belonging to third parties.
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AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 (the "Exchange Offer Registration Statement," which term shall include all
amendments, exhibits, annexes and schedules thereto) pursuant to the Securities
Act, and the rules and regulations promulgated thereunder, covering the Exchange
Notes being offered hereby. This Prospectus does not contain all the information
set forth in the Exchange Offer Registration Statement, certain parts of which
are omitted in accordance with the rules and regulations of the Commission.
Statements made in this Prospectus as to the contents of any contract, agreement
or other document referred to in the Exchange Offer Registration Statement are
not necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Exchange Offer Registration Statement,
reference is made to the exhibit for a more complete description of the matter
involved, and each such statement shall be deemed qualified in its entirety by
such reference.
Upon consummation of the Exchange Offer, the Company will become subject to
the periodic reporting and other informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Periodic reports, proxy
statements and other information filed by the Company with the Commission may be
inspected at the public reference facilities maintained by the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, or at its
regional offices located at Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60601 and 7 World Trade Center, Suite 1300, New
York, New York 10048. Copies of such material can also be obtained from the
Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. The Commission maintains a
Web site that contains reports, proxy statements, registration statements and
other information regarding registrants that file electronically with the
Commission at http://www.sec.gov. Copies of such material can be obtained from
the Company upon request.
The Company is required by the terms of the Indenture dated as of December
17, 1996, by and between the Company and Norwest Bank Minnesota, National
Association, as trustee (the "Trustee"), under which the Senior Notes were
issued, and under which the Exchange Notes are to be issued (the "Indenture") to
furnish the Trustee and the holders of the Notes, for so long as any Notes are
outstanding, within 15 days after it is or would have been required to file such
with the Commission (i) all quarterly and annual financial information that is
or would be required to be contained in a filing with the Commission on Forms
10-Q and 10-K if the Company is or were required to file such forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report thereon
by the Company's certified independent accountants and (ii) all current reports
that are or would be required to be filed with the Commission on Form 8-K if the
Company is or were required to file such reports. In addition, whether or not
required by the rules and regulations of the Commission, the Company shall file
a copy of all such information and reports with the Commission for public
availability (unless the Commission will not accept such a filing) and promptly
upon written request, supply copies of such documents to securities analysts and
prospective investors. In addition, for so long as any Notes are outstanding,
the Company shall furnish to the Trustee, the holders, securities analysts and
prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act.
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PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY INFORMATION IS QUALIFIED IN ITS ENTIRETY BY, AND
SHOULD BE READ IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL
DATA, INCLUDING THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO,
INCLUDED ELSEWHERE IN THIS PROSPECTUS. MARKET DATA USED THROUGHOUT THIS
PROSPECTUS WERE OBTAINED OR EXTRAPOLATED FROM INDUSTRY PUBLICATIONS WHICH THE
COMPANY BELIEVES TO BE RELIABLE, BUT THE ACCURACY THEREOF IS NOT GUARANTEED. AS
USED IN THIS PROSPECTUS, UNLESS THE CONTEXT OTHERWISE REQUIRES, THE TERM
"COMPANY" REFERS TO DELTA BEVERAGE GROUP, INC., A DELAWARE CORPORATION, AND THE
PEPSI-COLA/SEVEN-UP BEVERAGE GROUP OF LOUISIANA, A LOUISIANA GENERAL PARTNERSHIP
IN WHICH THE COMPANY OWNS A 62% INTEREST, TOGETHER WITH ANY PREDECESSORS. AS
USED IN THIS PROSPECTUS, UNLESS THE CONTEXT OTHERWISE REQUIRES, THE TERM
"PEPSICO" REFERS TO PEPSICO, INC., A NORTH CAROLINA CORPORATION, AND PEPSI-COLA
COMPANY, A DELAWARE CORPORATION AND WHOLLY OWNED SUBSIDIARY OF PEPSICO, INC.
PEPSICO MAKES NO REPRESENTATION WITH RESPECT TO AND IS NOT RESPONSIBLE FOR THE
INFORMATION CONTAINED IN THIS PROSPECTUS.
THE COMPANY
The Company is one of the largest soft drink manufacturers and distributors
in the U.S., selling over 44.7 million equivalent eight-ounce cases of PepsiCo
products and 23.0 million equivalent eight-ounce cases of other soft drinks in
1995. The Company is the fifth largest independent PepsiCo bottler in the U.S.
PepsiCo is the second leading soft drink franchisor in the U.S., capturing
approximately 30.6% of all soft drink sales in 1995. In 1995, net sales for the
Company totaled $284.7 million and EBITDA (as defined herein) was $20.7 million.
For the nine-month period ended September 30, 1996 compared to the same
nine-month period in 1995, net sales increased 9.7% to $239.9 million from
$218.7 million and EBITDA increased 19.7% to $21.9 million from $18.3 million.
The Company's exclusive franchise territories cover portions of Arkansas,
Louisiana, Mississippi, Tennessee and Texas and include the cities of New
Orleans, Memphis, Little Rock, Shreveport, Baton Rouge and Tupelo. In the
aggregate, there are approximately seven million people in the Company's
territories. The Company has the exclusive right within its territories to
manufacture and/or distribute the following families of products: PEPSI-COLA
(cola), MOUNTAIN DEW (heavy citrus), SEVEN-UP (lemon-lime), SLICE (orange),
OCEAN SPRAY (juices), LIPTON (iced teas), SQUIRT (heavy citrus), COUNTRY TIME
(lemonade), CANADA DRY (ginger ale), CRUSH (fruit), HAWAIIAN PUNCH (fruit), MUG
(root beer), ALL SPORT (sport drink), YOO-HOO (chocolate), CRYSTAL LIGHT (diet)
and various other product offerings. In addition, the Company is the largest
distributor of Miller Brewing Company ("Miller") products in the state of
Louisiana and has the exclusive right to distribute Miller and Heineken USA,
Inc. ("Heineken") products in greater New Orleans, Louisiana.
The Company believes its success as an independent bottler is due primarily
to its ability to produce efficiently and to market and distribute effectively
its national brands. The Company's products include highly recognizable
trademarks, most of which are supported by considerable national advertising
expenditures made by the franchisors. In 1995, for example, PepsiCo spent
approximately $152.9 million to advertise PepsiCo products. Furthermore, all of
the Company's territories are located in the southern region of the U.S. that
historically has posted above average per capita consumption of soft drinks.
The Company operates two soft drink production facilities, one in
Collierville, Tennessee and the other in Reserve, Louisiana, with a total annual
production capacity of 65.9 million cases. The Company distributes approximately
85.0% of its soft drink products to retail outlets through its computerized
direct store delivery ("DSD") system. The Company's DSD system utilizes
hand-held computer technology to receive orders from and process deliveries to
the Company's customers. Through its DSD system and its 24 warehouse
distribution facilities strategically located throughout its territories, the
Company services and distributes products to over 30,000 retail outlets in five
states. Retail customers in the Company's territories include The Kroger
Company, Wal-Mart Stores, Inc., Winn-Dixie Stores, Inc. and Circle K Convenience
Stores, Inc. The Company tracks its product sales daily and uses this
information to plan its
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production, which is subject to seasonal swings in demand, and to interpret and
react to changes in consumer buying patterns. This allows the Company to provide
efficient and effective service to its retail customers.
Since it was acquired by its current owners in 1988, the Company has
broadened its product offerings through the establishment of the Joint Venture
(as defined herein) as well as the acquisition of additional franchises,
improved its production facilities and implemented efficient delivery systems.
Moreover, the Company has better managed product discounting and driven sales
mix toward higher margin products. As a result of these initiatives, for the
period from 1990 to 1995, the Company's case volume and operating profit grew at
compound annual rates of 6.5% and 28.4%, respectively. These improvements
continued for the nine-month period ended September 30, 1996, with the Company's
case volume and operating profit growing at a rate of 5.3% and 30.9%,
respectively, over the same period in 1995.
STRATEGIC OBJECTIVES
The Company's business strategy is to continue to manufacture, distribute
and market a broad array of national brands in all beverage categories.
Specifically, the Company's long-term strategic objectives are to (i) increase
growth in volume and market share in its existing territories through
coordinating its franchisors' national advertising and marketing campaigns with
the Company's regional and local marketing efforts, (ii) improve operating
margins by shifting package mix to higher margin packages and controlling the
level of retail discounts, (iii) pursue acquisitions that leverage the Company's
existing structure and managerial expertise, (iv) strengthen the Company's
corporate culture to better leverage human resources and (v) maximize operating
efficiencies by utilizing emerging technologies to improve customer service and
communications and increase the efficiency of logistics and distribution
operations.
INDUSTRY OVERVIEW
SOFT DRINKS
The U.S. soft drink industry is the world's largest with respect to volume
consumed and the most diversified with respect to product offerings. Soft drinks
represent the most widely consumed beverage in the U.S., exceeding the aggregate
consumption of tap water, coffee and beer. From 1990 to 1995, consumption of
soft drinks increased 14.6%, with 3.6% of that growth occurring in 1995. Per
capita consumption of soft drinks has increased approximately 3.0% per year over
the last 15 years; however, since 1990, per capita growth has slowed to
approximately 1.7% per year, increasing from 48.0 gallons in 1990 to 52.2
gallons in 1995. Over that same period, however, per capita consumption of other
beverages such as coffee, tea and milk has declined. Only the consumption of
bottled water has increased more rapidly than the consumption of soft drinks.
The Company believes that factors contributing to increased consumption of soft
drinks include (i) heavy promotional and advertising activity by the soft drink
industry to broaden the appeal and consumer acceptance of soft drinks, (ii)
peaking consumption by the baby boomer age group, (iii) consumers' concerns
regarding the quality of tap water and (iv) societal and governmental pressures
to reduce the consumption of alcoholic beverages.
The Coca-Cola Company ("Coca-Cola"), PepsiCo and Cadbury Schweppes
(including Dr. Pepper ("Cadbury")) sold in the aggregate approximately 89.7% of
all the soft drinks in the U.S. in 1995. Cola flavored soft drinks dominate the
soft drink industry, accounting for 63.1% of total U.S. soft drink consumption
in 1995. In 1995, Coca-Cola, PepsiCo and Cadbury captured 43.0%, 30.6% and
16.1%, respectively, of the total U.S. soft drink market. Since 1989, PepsiCo's
market share has remained relatively constant at 31.0% of total U.S. volume,
while Coca-Cola and Cadbury have each increased their share by approximately
2.0%. In 1995, PepsiCo, Inc.'s soft drink business generated 66.1% of its sales
and 87.5% of its operating profit from domestic markets, such as the markets
served by the Company.
The number of bottlers in the U.S. has declined from approximately 700 in
1990 to approximately 500 in 1995, a reduction of approximately 28.6%. Slowing
volume growth has resulted in bottlers reducing their
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cost structures by becoming more automated and increasing their economies of
scale through geographic and market expansion. The Company believes that the
increased costs associated with effectively serving the soft drink market will
lead to continued consolidation, as smaller less efficient bottlers find
themselves at a competitive disadvantage.
BEER
Consumption of beer has remained relatively constant over the past decade.
The Company believes that this has resulted from increased pressures by society
and the government to reduce the consumption of alcoholic beverages, decreased
consumption by the baby boomer age group and increased federal excise taxes on
the sale of beer. In 1995, domestic beer production totaled 189.4 million
barrels. The beer industry is dominated by national brands and has also
undergone significant consolidation recently. The products of three brewers,
Anheuser-Busch Companies, Inc. ("Anheuser-Busch"), Miller and Adolph Coors
Company, accounted for 79.3% of total U.S. beer sales in 1995. Recently the
industry has experienced a slight shift in consumer preference from national
brands to craftbrewed beer. In 1995, each of the three largest brewers
experienced decreases in volume of less than 1.0%.
FINANCING TRANSACTIONS
The Company used approximately $111.3 million of the proceeds from the
Offering to retire certain existing indebtedness of the Company and $4.7 million
for working capital purposes. In connection with the Offering, the Company
entered into a Credit Agreement (as defined herein) pursuant to which the
Company has unused borrowing capacity of up to $30.0 million, including $10.0
million available for the issuance of letters of credit. The issuance of the
Senior Notes, retirement of certain existing indebtedness of the Company and the
consummation of the transaction contemplated in the Credit Agreement are
hereinafter sometimes collectively referred to as the "Financing Transactions."
The Company believes that the consummation of the Financing Transactions has
provided it with (i) increased operating flexibility by extending the repayment
of its debt obligations and (ii) additional cash flow for use in capital
expenditures to implement the Company's strategic objectives.
The principal executive offices of the Company are located at 2221 Democrat
Road, Memphis, Tennessee 38132, telephone number (901) 344-7100. The Company was
incorporated in the State of Delaware on January 29, 1985.
THE OFFERING
The outstanding Senior Notes were sold by the Company to the Initial
Purchaser (as defined herein) pursuant to a purchase agreement by and between
the Company and the Initial Purchaser. The Initial Purchaser subsequently resold
the Senior Notes in reliance on Rule 144A under the Securities Act. The Company
and the Initial Purchaser also entered into the Registration Rights Agreement
(as defined herein) pursuant to which the Company granted certain registration
rights for the benefit of the holders of the Senior Notes. The Exchange Offer is
intended to satisfy certain of the Company's obligations under the Registration
Rights Agreement with respect to the Senior Notes. See "--The Exchange Offer."
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THE EXCHANGE OFFER
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The Exchange Offer................ The Company is offering to exchange $1,000 in principal
amount of Exchange Notes for each $1,000 in principal
amount of Senior Notes. The terms of the Exchange Notes
are identical in all respects (including principal
amount, interest rate, maturity and ranking) to the
terms of the Senior Notes for which they may be
exchanged pursuant to the Exchange Offer, except that
the Exchange Notes have been registered under the
Securities Act and therefore will not be subject to
certain restrictions on transfer except as provided
herein and will not be entitled to registration rights.
See "The Exchange Offer--Terms of the Exchange Offer"
and "--Terms and Conditions of the Letter of Transmit-
tal."
Exchange Notes issued pursuant to the Exchange Offer in
exchange for the Senior Notes may be offered for resale,
resold and otherwise transferred by holders thereof
(other than any holder which is (i) an Affiliate, (ii) a
broker-dealer who acquired Senior Notes directly from
the Company or (iii) broker-dealers who acquired Senior
Notes as a result of market-making or other trading
activities) without compliance with the registration and
prospectus delivery provisions of the Securities Act
provided that such Exchange Notes are acquired in the
ordinary course of such holders' business and such
holders are not engaged in, and do not intend to engage
in, and have no arrangement or understanding with any
person to participate in, a distribution of such
Exchange Notes.
Expiration Date................... The Exchange Offer will expire at 5:00 p.m., New York
City time, on April 3, 1997 unless extended.
Exchange Date..................... The first date of acceptance for exchange for the Senior
Notes will be the first business day following the
Expiration Date.
Conditions to the Exchange The Exchange Offer is not conditioned upon any minimum
Offer........................... principal amount of Senior Notes being tendered for
exchange. However, the Exchange Offer is conditioned
upon the declaration by the Commission of the
effectiveness of the Exchange Offer Registration
Statement of which this Prospectus constitutes a part.
See "The Exchange Offer--Conditions to the Exchange
Offer."
Withdrawal Rights................. Tenders may be withdrawn at any time prior to the
Expiration Date. Any Senior Notes not accepted for any
reason will be returned without expense to the tendering
holders thereof as promptly as practicable after the
expiration or termination of the Exchange Offer.
Procedures for Tendering Senior
Notes........................... See "The Exchange Offer--How to Tender."
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<S> <C>
Federal Income Tax Consequences... The exchange of Senior Notes for Exchange Notes by
holders will not be treated as an exchange or otherwise
as a taxable event for federal income tax purposes.
Accordingly, holders will not recognize any taxable gain
or loss or any interest income as a result of such
exchange.
Effect on Holders of Senior As a result of the making of this Exchange Offer, and
Notes........................... upon acceptance for exchange of all validly tendered
Senior Notes pursuant to the terms of this Exchange
Offer, the Company will have fulfilled a covenant
contained in the terms of the Senior Notes and the
Registration Rights Agreement dated as of December 17,
1996 (the "Registration Rights Agreement"), between the
Company and NationsBanc Capital Markets, Inc., as
initial purchaser (the "Initial Purchaser"), and,
accordingly, the holders of the Senior Notes will have
no further registration or other rights under the
Registration Rights Agreement, except that under certain
limited circumstances, the Company shall file with the
Commission a shelf registration statement on an appro-
priate form under Rule 415 under the Securities Act (the
"Shelf Registration Statement"). Holders of Senior Notes
who do not tender their Senior Notes in the Exchange
Offer will continue to hold such Senior Notes and will
be entitled to all the rights and limitations applicable
thereto under the Indenture. All untendered, and
tendered but unaccepted, Senior Notes will continue to
be subject to the restrictions on transfers provided for
in the Senior Notes and the Indenture. To the extent
that Senior Notes are tendered and accepted in the
Exchange Offer, the trading market, if any, for the
Senior Notes could be adversely affected. See "Risk
Factors--Consequences of Failure to Exchange."
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TERMS OF THE NOTES
The Exchange Offer applies to $120 million aggregate principal amount of the
Senior Notes. The form and terms of the Exchange Notes are the same as the form
and terms of the Senior Notes except that the Exchange Notes have been
registered under the Securities Act and, therefore, will not bear legends
restricting the transfer thereof and will not be entitled to registration
rights. The Exchange Notes will evidence the same debt as the Senior Notes and
will be entitled to the benefits of the Indenture. See "Description of the
Notes."
<TABLE>
<S> <C>
Notes Offered..................... $120 million aggregate principal amount of the Company's
9 3/4% Senior Notes Due 2003.
Maturity Date..................... December 15, 2003.
Interest Payment Dates............ June 15 and December 15, commencing June 15, 1997.
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
Ranking........................... The Senior Notes are, and the Exchange Notes will be,
general senior unsecured obligations of the Company and
will rank PARI PASSU in right of payment to all existing
and future unsecured Senior Indebtedness of the Company
and will be senior in right of payment to all existing
and future subordinated indebtedness of the Company. At
September 30, 1996, on a pro forma basis after giving
effect to the Financing Transactions, the Company would
have had approximately $125.4 million of outstanding
Senior Indebtedness. In addition, the Company has unused
borrowing capacity of up to $30.0 million under the
Credit Agreement, secured by a first priority, perfected
security interest in the Company's and any future
guarantor's accounts receivable and inventory. As of
September 30, 1996, the Company had approximately $0.5
million of other secured indebtedness outstanding. The
Exchange Notes will be effectively subordinated to the
indebtedness incurred pursuant to the Credit Agreement
and such other indebtedness to the extent of such
security interests. The creditors of the Company
(including the holders of the Exchange Notes) will
effectively rank junior and subordinate to all creditors
(including unsecured creditors) of the Company's
subsidiaries (other than any subsidiary that guarantees
the Exchange Notes (a "Guaranteeing Subsidiary")), with
respect to the assets of such subsidiaries
notwithstanding that the Exchange Notes will be senior
obligations of the Company. At the date of this
Prospectus, there are no Guaranteeing Subsidiaries with
respect to the Exchange Notes. As of September 30, 1996,
on a pro forma basis after giving effect to the
Financing Transactions, the aggregate amount of
indebtedness of the Company's subsidiaries to which the
holders of the Exchange Notes would have been
effectively subordinated would have been approximately
$4.5 million. See "Description of the Notes--Ranking."
Optional Redemption............... On or after December 15, 2000, the Company may redeem
the Exchange Notes, in whole or in part, at the
redemption prices set forth herein, plus accrued and
unpaid interest, if any, to the date of redemption. See
"Description of the Notes--Optional Redemption."
Mandatory Redemption.............. None, except at maturity on December 15, 2003.
Change of Control................. Upon a Change of Control, the Company will be required
to make an offer to repurchase all outstanding Exchange
Notes at 101% of the principal amount thereof plus
accrued and unpaid interest thereon to the date of
repurchase. See "Description of the Notes--Repurchase at
the Option of Holders." There can be no assurance that
the Company will have, or will have access to, adequate
funds to repurchase Exchange Notes upon a Change of
Control. See "Risk Factors--Inability to Fund a Change
of Control Offer."
</TABLE>
6
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<TABLE>
<S> <C>
Covenants......................... The Indenture pursuant to which the Exchange Notes will
be issued restricts, among other things, the Company's
ability to incur additional indebtedness, pay dividends
or make certain other restricted payments, incur liens
to secure PARI PASSU or subordinated indebtedness, apply
net proceeds from certain asset sales, merge or
consolidate with any other person, sell, assign,
transfer, lease, convey or otherwise dispose of substan-
tially all of the assets of the Company, enter into
certain transactions with affiliates or enter into sale
and leaseback transactions. See "Description of the
Notes--Certain Covenants."
</TABLE>
RISK FACTORS
See "Risk Factors" beginning on page 10 for a discussion of certain matters
that should be considered by holders of Senior Notes prior to making a decision
with respect to this Exchange Offer.
7
<PAGE>
SUMMARY HISTORICAL FINANCIAL DATA
The following table presents summary historical financial data of the
Company and consolidated Joint Venture (as defined herein) as of and for each of
the five years ended December 31, 1991, 1992, 1993, 1994 and 1995 and each of
the nine months ended September 30, 1995 and 1996. The information presented for
each of the five years ended December 31 has been derived from the consolidated
financial statements of the Company, which statements have been audited by
Arthur Andersen LLP, independent public accountants. The information presented
for each of the nine months ended September 30 has been derived from the
unaudited interim consolidated financial statements of the Company, and, in the
opinion of management of the Company, reflects a fair presentation of the
Company's financial information. The following information should be read in
conjunction with "Selected Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Capitalization" and
the consolidated financial statements of the Company and notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31 SEPTEMBER 30
----------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.............................. $ 192,774 $ 199,182 $ 225,173 $ 245,472 $ 284,709 $ 218,654 $ 239,887
Cost of sales.......................... 130,284 132,025 147,573 162,667 198,777 150,965 164,415
--------- --------- --------- --------- --------- --------- ---------
Gross profit........................... 62,490 67,157 77,600 82,805 85,932 67,689 75,472
Selling, general and administrative
expenses............................. 51,264 54,060 60,164 62,710 71,802 53,846 58,101
Amortization of franchise costs and
other intangibles(1)................. 6,189 6,156 4,246 3,631 3,576 2,671 2,743
--------- --------- --------- --------- --------- --------- ---------
Income from operations................. 5,037 6,941 13,190 16,464 10,554 11,172 14,628
Interest expense....................... 19,669 19,907 18,433 12,152 13,254 9,795 11,286
Other expenses (income)(2)............. 198 1,530 65 (45) 75 (136) (46)
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before income taxes...... (14,830) (14,496) (5,308) 4,357 (2,775) 1,513 3,388
Income tax benefit (expense)(3)........ -- -- 189 (3,262) (1,641) (1,670) (2,262)
Minority interest in Joint
Venture(4)........................... -- 491 (11) -- 464 (17) (200)
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before non-recurring
items................................ (14,830) (14,005) (5,130) 1,095 (3,952) (174) 926
Non-recurring items(5)................. -- -- 15,409 -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Net income (loss)...................... $ (14,830) $ (14,005) $ 10,279 $ 1,095 $ (3,952) $ (174) $ 926
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital(6)..................... $ 14,000 $ 15,197 $ 23,880 $ 30,421 $ 27,547 $ 37,881 $ 29,541
Total assets........................... 201,366 208,050 231,717 244,705 248,437 252,409 244,707
Long-term debt(7):
Senior debt.......................... 119,380 127,580 105,000 106,000 117,250 117,250 111,250
Subordinated notes payable........... 40,249 46,357 30,000 31,650 35,227 33,391 37,165
Other................................ 5,278 7,264 6,839 6,579 5,673 5,745 5,418
Stockholders' equity................... 17,737 3,683 65,504 66,660 62,718 66,493 63,650
OTHER DATA:
EBITDA(8).............................. $ 17,944 $ 18,564 $ 23,610 $ 25,594 $ 20,730 $ 18,312 $ 21,856
Depreciation and amortization.......... 13,105 12,662 10,626 9,085 9,687 7,169 7,594
Capital expenditures(9)................ 4,287 5,742 6,116 7,104 11,028 8,842 6,922
Ratio of earnings to fixed
charges(10).......................... 0.26x 0.28x 0.72x 1.34x 0.80x 1.15x 1.27x
</TABLE>
- - ------------------------------
(1) Amortization of franchise costs and other intangibles for the years ended
December 31, 1991, 1992 and 1993 includes amortization of the costs of
certain noncompete agreements entered into in 1988 upon the Company's
acquisition.
(2) In connection with the formation of the Joint Venture, certain severance
expenses and other costs and losses of Poydras Street Investors LLC, a
Louisiana limited liability company ("Poydras") and the Company's minority
partner in the Joint Venture, were incurred after inception but before the
businesses were operationally merged. The Company agreed to absorb these
costs, which were recorded as an unusual item in the 1992 statement of
operations.
(3) The effective income tax rate is significantly impacted by the non-tax
deductibility of amortization of franchise costs.
8
<PAGE>
(4) Represents minority interest in the net (income) loss of the Joint Venture
which is consolidated with the Company.
(5) Includes an extraordinary item, loss on extinguishment of debt of $1,015,
net of income tax benefit of $600, and the cumulative effect of a change in
the method of accounting for income taxes of $15,824, both recorded in 1993.
(6) Working capital represents current assets (excluding cash and cash
equivalents) less current liabilities (excluding current maturities of
long-term debt and other long-term liabilities).
(7) Includes current maturities of long-term debt.
(8) EBITDA consists of net income (loss) before income taxes, interest,
depreciation and amortization. EBITDA also excludes extraordinary items and
accounting changes. EBITDA has also been adjusted for Poydras' interest in
the Joint Venture. EBITDA is included herein to provide additional
information about the Company's ability to service its debt. EBITDA should
not be considered as an alternative measure of the Company's net income,
operating income, cash flow from operating activities or liquidity.
(9) Includes capital improvements in 1995 of approximately $1,500 related and
subsequent to the acquisition of the beer distributorships to consolidate
the beer operations with those of the Company.
(10) The ratio of earnings to fixed charges is calculated as follows: income
(loss) before income taxes, minority interest, extraordinary items and
accounting changes (less minority interest expense) plus fixed charges,
divided by fixed charges. Fixed charges consist of (i) interest incurred,
(ii) amortization of debt financing costs and (iii) a portion of rent
expense on operating leases considered to represent interest cost (assumed
to be one-third of rent expense). The Company's earnings were insufficient
to cover fixed charges in 1991 ($14,830), 1992 ($14,496), 1993 ($5,319) and
1995 ($2,775).
9
<PAGE>
RISK FACTORS
HOLDERS OF SENIOR NOTES SHOULD CAREFULLY CONSIDER THE SPECIFIC FACTORS SET
FORTH BELOW AS WELL AS THE OTHER INFORMATION INCLUDED IN THIS PROSPECTUS BEFORE
DECIDING TO PARTICIPATE IN THE EXCHANGE OFFER.
CONSEQUENCES OF EXCHANGE AND FAILURE TO EXCHANGE
Holders of Senior Notes who do not exchange their Senior Notes for Exchange
Notes pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Senior Notes as set forth in the Senior Notes
and the Indenture as a consequence of the issuance of the Senior Notes pursuant
to exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
general, the Senior Notes may not be offered or sold, unless registered under
the Securities Act and applicable state securities laws, or pursuant to an
exemption therefrom. Except under certain limited circumstances, the Company
does not intend to register Senior Notes not tendered in connection with the
Exchange Offer under the Securities Act. In addition, any holder of Senior Notes
who tenders in the Exchange Offer for the purpose of participating in a
distribution of the Exchange Notes may be deemed to have received restricted
securities and, if so, will be required to comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transaction. To the extent Senior Notes are tendered and accepted in the
Exchange Offer, the trading market, if any, for the Senior Notes could be
adversely affected. See "The Exchange Offer."
SIGNIFICANT LEVERAGE AND DEBT SERVICE
Consummation of the Financing Transactions has heightened the Company's
highly leveraged status. At September 30, 1996, on a pro forma basis after
giving effect to the Financing Transactions, including application of the net
proceeds therefrom, the Company would have had total consolidated outstanding
long term debt of approximately $162.6 million, of which approximately $125.4
million would have been Senior Indebtedness and approximately $37.2 million
would have been subordinated debt. In addition, subject to the restrictions in
the Credit Agreement and the Indenture, the Company may incur certain additional
indebtedness from time to time, which may include additional Senior Notes to be
issued by the Company in the future under the Indenture. See "Description of the
Notes--Principal, Maturity and Interest" and "--Certain Covenants--Incurrence of
Indebtedness and Issuance of Preferred Stock." The Company has unused borrowing
capacity of up to $30.0 million under the Credit Agreement, including $10.0
million available thereunder for the issuance of letters of credit.
The level of the Company's indebtedness could have important consequences to
holders of the Notes, including: (i) a substantial portion of the Company's cash
flow from operations must be dedicated to debt service and will not be available
for other purposes; (ii) the Company's ability to obtain additional debt
financing in the future for other acquisitions, working capital or capital
expenditures may be limited; and (iii) the Company's level of indebtedness could
limit its flexibility in reacting to changes in its industry or economic
conditions generally.
The Company's ability to pay interest on the Notes and to satisfy its other
debt obligations will depend upon its future operating performance, which will
be affected by prevailing economic conditions and financial, business and other
factors, certain of which are beyond its control, as well as the availability of
borrowings under the Credit Agreement or any successor credit facilities. The
Company will require substantial amounts of cash to fund scheduled payments of
principal and interest on its outstanding indebtedness as well as future capital
expenditures and any increased working capital requirements. If the Company is
unable to meet its cash requirements out of cash flow from operations and its
available borrowings, there can be no assurance that it will be able to obtain
alternative financing or that it will be permitted to do so under the terms of
the Indenture or the Credit Agreement. In the absence of such financing, the
Company's ability to respond to changing business and economic conditions, to
absorb adverse operating results, to fund capital expenditures or to make future
acquisitions may be adversely
10
<PAGE>
affected. In addition, actions taken by the lending banks under the Credit
Agreement are not subject to approval by the holders of the Notes. Moreover, the
principal balance of the Company's 11% subordinated notes is due December 23,
2003 (the "Subordinated Notes"). Finally, it is anticipated that in order to pay
the principal balance of the Notes due at maturity, the Company will be required
to obtain alternative financing. There can be no assurance, however, that the
Company will be able to refinance the Notes at maturity, and the inability to
refinance the Notes would likely have a material adverse effect on the Company
and on the market value and marketability of the Notes. See "Description of
Certain Indebtedness--11% Subordinated Notes."
Borrowings under the Credit Agreement will bear interest at floating rates.
Increases in interest rates on such borrowings could adversely affect the
financial condition or results of operations of the Company. Increases in
interest rates could negatively impact the ability of the Company to meet its
debt service obligations, including its obligations under the Notes and the
Subordinated Notes.
UNSECURED STATUS OF THE NOTES
The Notes are not secured by any of the assets of the Company or its
subsidiaries. The Company has unused borrowing capacity of up to $30.0 million
under the Credit Agreement, including $10.0 million available for the issuance
of letters of credit. The indebtedness pursuant to the Credit Agreement is
secured by a first priority, perfected security interest in the Company's and
any future guarantor's accounts receivable and inventory. In addition, as of
September 30, 1996, the Company had approximately $0.5 million of other secured
indebtedness outstanding. Despite being senior indebtedness of the Company,
ranking PARI PASSU with all other unsubordinated, unsecured indebtedness of the
Company, the Notes are effectively subordinated to the indebtedness incurred
pursuant to the Credit Agreement and such other indebtedness to the extent of
such security interests. In the event of bankruptcy, liquidation, reorganization
or other winding up of the Company, the assets of the Company will be available
to pay the Company's obligations under the Notes and its other unsecured debt
only after all of the Company's obligations under the Credit Agreement and its
other secured indebtedness have been paid in full. See "Description of the
Notes--Ranking."
EFFECTIVE SUBORDINATION TO CREDITORS OF THE COMPANY'S NON-GUARANTOR SUBSIDIARIES
The creditors of the Company (including the holders of the Notes)
effectively rank, or will rank, junior to all creditors (including unsecured
creditors) of the Company's subsidiaries (other than any subsidiary that
guarantees the Notes (a "Guaranteeing Subsidiary")) with respect to the assets
of such subsidiaries notwithstanding that the Senior Notes are, and the Exchange
Notes will be, senior obligations of the Company. At the date of this
Prospectus, there are no Guaranteeing Subsidiaries with respect to the Notes.
Any right of the Company or a Guaranteeing Subsidiary to receive the assets of
any of its respective subsidiaries which are not Guaranteeing Subsidiaries upon
liquidation or reorganization of such subsidiary (and the consequent right of
the holders of the Notes to participate in those assets) will be effectively
subordinated to the claims of that subsidiary's creditors (including trade
creditors), except to the extent that the Company or such Guaranteeing
Subsidiary is itself recognized as a creditor of such subsidiary, in which case
the claims of the Company or such Guaranteeing Subsidiary would still be
subordinated to any security interests in the assets of such subsidiary in favor
of another creditor and subordinated to any indebtedness of such subsidiary
senior to that held by the Company or such Guaranteeing Subsidiary. As of
September 30, 1996, on a pro forma basis after giving effect to the Financing
Transactions, the aggregate amount of indebtedness of the Company's subsidiaries
to which the holders of the Exchange Notes would have been effectively
subordinated would have been approximately $4.5 million.
11
<PAGE>
RESTRICTIONS IMPOSED BY TERMS OF THE COMPANY'S INDEBTEDNESS
The Indenture restricts, among other things, the ability of the Company to
incur additional indebtedness, pay dividends, make certain other restricted
payments, incur liens to secure PARI PASSU or subordinated indebtedness, apply
net proceeds from certain asset sales, merge or consolidate with any other
person, sell, assign, transfer, lease, convey or otherwise dispose of
substantially all of the assets of the Company, enter into certain transactions
with affiliates or enter into sale and leaseback transactions. In addition, the
Credit Agreement contains other and more restrictive covenants. As a result of
these covenants, the ability of the Company to respond to changing business and
economic conditions and to secure additional financing, if needed, may be
significantly restricted, and the Company may be prevented from engaging in
transactions that might otherwise be considered beneficial to the Company. See
"Description of the Notes--Certain Covenants" and "--Repurchase at Option of
Holders" and "Description of Certain Indebtedness--Credit Agreement."
The Credit Agreement contains more extensive and restrictive covenants and
restrictions than the Indenture and also requires the Company to maintain
specified financial ratios and satisfy certain financial condition tests. The
Company's ability to meet those financial ratios and tests can be affected by
events beyond its control, and there can be no assurance that the Company will
meet those tests. A breach of any of these covenants could result in a default
under the Credit Agreement. Upon the occurrence of an event of default under the
Credit Agreement, the lenders thereunder could elect to declare all amounts
outstanding under the Credit Agreement, including accrued interest or other
obligations, to be immediately due and payable. If the Company were unable to
repay those amounts, such lenders could proceed against the collateral granted
to them to secure that indebtedness. If any indebtedness senior in right of
payment to all existing and future subordinated indebtedness of the Company and
PARI PASSU in right of payment to all existing and future unsubordinated
indebtedness of the Company ("Senior Indebtedness") were to be accelerated,
there can be no assurance that the assets of the Company would be sufficient to
repay in full the Senior Indebtedness and the other indebtedness of the Company,
including the Notes. See "Description of Certain Indebtedness--Credit
Agreement."
DEPENDENCE ON FRANCHISES AND DISTRIBUTOR AGREEMENTS
The Company operates under franchise agreements with a number of soft drink
concentrate and syrup producers. The franchise agreements contain comprehensive
provisions regarding the manufacturing, bottling, canning, distribution and sale
of the franchisors' products and impose substantial obligations on the Company.
Violation of the provisions of any franchise agreement could result in the
termination of such franchise, resulting in the Company's loss of the right to
bottle and sell the products covered by such franchise. No assurance can be
given that the Company will be able to maintain its existing franchises
indefinitely. See "Business--Soft Drink Franchises."
Beer distribution operations are conducted by the Company pursuant to
distributor agreements which contain comprehensive provisions regarding the
distribution and sale of beer and impose substantial obligations on the Company.
Violation of the provisions of any distributor agreement could result in the
termination of such agreement, resulting in the Company's loss of the right to
distribute and sell the products covered by the distributor agreement. No
assurance can be given that the Company will be able to maintain its existing
distributorships indefinitely. See "Business--Beer Distributorships."
DEPENDENCE ON PEPSICO PRODUCTS
For the nine-month period ended September 30, 1996, approximately 78.3% of
the Company's soft drink sales were derived from the sale of PepsiCo products
pursuant to franchise agreements with PepsiCo. If adverse events affect the
popularity of PepsiCo products in the Company's territory, the Company's
business would be adversely affected.
12
<PAGE>
DEPENDENCE ON MANAGEMENT AGREEMENT
The services of the Company's Chief Executive Officer, Robert C. Pohlad, and
Chief Financial Officer, John F. Bierbaum, are provided pursuant to a Management
Agreement between the Company and the Pohlad Companies (the "Management
Agreement"). The Management Agreement may be terminated when the Pohlad
Companies or its affiliates cease to hold any common stock in the Company or
when the Pohlad Companies is no longer controlled by members of the Pohlad
family. Termination of the Management Agreement and the loss of services
provided by Mr. Pohlad and Mr. Bierbaum could have an adverse impact on the
Company's operations. See "Management" and "Certain Relationships and Related
Transactions--Management Agreement."
DEPENDENCE ON KEY PERSONNEL
The Company believes that its continued success will depend to a significant
extent upon the efforts and abilities of its senior management team, including
Kenneth E. Keiser, the President and Chief Operating Officer of the Company. The
Company has an employment agreement in effect with Mr. Keiser which is renewable
annually each February 1, subject to the agreement of Mr. Keiser and the
Company. The Company has no employment agreements in effect with any of its
other executive officers. Failure of the Company to renew Mr. Keiser's
employment agreement, to retain its other executive officers or to attract and
retain additional qualified personnel could adversely affect the Company's
operations. See "Executive Compensation--Employment Agreement" and "--Dependence
on Management Agreement."
GOVERNMENT REGULATION
The production, distribution and sale of many of the Company's products are
subject to federal and state statutes regulating the franchising, production,
sale, safety, advertising, labeling and ingredients of such products. The
Company is subject to regulations governing the installation, maintenance and
use of, and the clean-up of any releases from underground storage tanks and the
generation, treatment, storage and disposal of hazardous materials. Of the
states in which the Company conducts business, Arkansas, Tennessee and Louisiana
all impose specific soft drink taxes. In addition, the alcoholic beverage
industry is subject to extensive regulation by state and federal agencies of
such matters as licensing requirements, trade and pricing practices, permitted
and required labeling, advertising and relations with wholesalers and retailers.
The federal government requires warning labels on packaging of beer. New or
revised taxes, increased licensing fees or additional regulatory requirements,
environmental or otherwise, could have a material adverse effect on the
Company's financial condition and its results of operations. See "Business--
Government Regulation" and "--Environmental."
COMPETITION
The soft drink and beer businesses are highly competitive. The Company's
products are sold in competition with all liquid refreshments. Sales of
beverages occur in a variety of locations, including supermarkets, retail and
convenience stores, restaurants and vending machines.
SOFT DRINKS
Competitors in the soft drink industry include bottlers and distributors of
nationally advertised and marketed products, such as Coca-Cola products, as well
as chain store and private label soft drinks. The primary methods of competition
include brand recognition, price and price promotion, retail space management,
service to the retail trade, new product introductions, packaging changes,
distribution methods and advertising. The Company's primary competitor in its
territory is Coca-Cola Enterprises ("CCE"). CCE enjoys substantial financial and
other support from Coca-Cola, which has a substantial ownership interest in CCE,
and has greater financial resources than the Company. Coca-Cola products
currently outsell the Company's PepsiCo products by a ratio of approximately
three to one in the
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Company's territories. This ratio has remained relatively constant since 1990.
See "Business--Strategic Objectives" and "--Competition."
BEER
Competitors in the beer industry include distributors of nationally
advertised and marketed products, such as Anheuser-Busch products, as well as
regional and local products. Some of the Company's beer competitors have greater
financial resources than the Company. The primary methods of competition include
quality, taste and freshness of the products, price, packaging, brand
recognition, retail space management and advertising.
The Company's principal competitors are distributors of Anheuser-Busch
products. In 1995, Anheuser-Busch products accounted for 46.1% of total U.S.
beer sales, while sales of Miller products, the Company's primary brewer,
accounted for 22.6% of total U.S. beer sales. See "Business--Competition" and
"Industry Overview."
DEPENDENCE ON RAW MATERIALS
Raw materials for the Company's soft drink products include concentrates and
syrups obtained from its franchisors, water, carbon dioxide, fructose,
polyethylene terephthalate ("PET") bottles, aluminum cans, closures, premix
containers and other packaging materials. The price of concentrates and syrups
is determined by the franchisors and may be changed at any time. Prices for the
remaining raw materials are determined by the market, and may change at any
time. Increases in prices for any of these raw materials could have a material
adverse impact on the Company's financial position. See "Business--Raw
Materials."
A substantial portion of the Company's raw materials, including its aluminum
cans, closures, other packaging materials and fructose, are purchased through
the Consolidated Purchasing Group, Inc. ("CPG"). The Company and other
franchisees or affiliates of franchisees of PepsiCo are members of CPG. The
Company and other CPG members submit their raw material requirements to CPG
which then negotiates with suppliers and makes purchases based on the combined
requirements of all CPG members.
In 1995, increased prices for packaging and ingredients led to increased raw
materials costs for all industry participants and resulted in erosion of the
Company's profit margins. There can be no assurance that such price increases
for packaging, ingredients and other raw materials will not recur. Other than
its purchasing arrangements with CPG, the Company has taken no steps to
alleviate or provide for price fluctuations of its raw materials.
Increased prices for PET bottles in 1995 and capacity constraints in the PET
bottle industry during the same time period also adversely affected the
Company's financial results. There can be no assurance that capacity constraints
and increased prices for PET bottles will not recur. Price fluctuations with
respect to the Company's raw materials and capacity constraints and increased
prices for PET bottles could have a material adverse effect on the Company's
financial position and results of operations.
EXPIRATION OF LABOR CONTRACTS
At September 30, 1996, the Company had approximately 1,682 full-time
employees and 74 part-time employees. Approximately 205 of the Company's
employees at its Collierville, Tennessee facility are represented by the
International Brotherhood of Teamsters Local Union No. 1196 pursuant to two
labor contracts. The first contract expires on September 30, 1998 and
automatically extends for one-year terms thereafter unless written notice is
provided by either party to the other at least 60 days prior to expiration of
the contract. The second contract expires on December 2, 1999. Approximately 144
of the Company's employees at its Harahan, Louisiana facility are represented by
the International Brotherhood of Teamsters, AFL-CIO, General Truck Drivers,
Chauffeurs, Warehousemen and Helpers Local 270 pursuant to
14
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two labor contracts. The first contract expires on December 31, 1999. The second
contract expires in November 1999. If any labor contract is not renewed or if
there is a labor dispute, the Company's financial position could be adversely
affected. See "Business--Employees."
CERTAIN FACTORS AFFECTING SALES
The Company's sales are seasonal. Approximately 57.9% of the Company's sales
by volume occurs from April to September and approximately 42.1% occurs from
October to March. As a result, the Company's working capital requirements and
cash flow vary substantially throughout the year. Consumer demand for the
Company's products is affected by weather conditions. Cool, wet spring or summer
weather could result in decreased sales of the Company's products and could have
an adverse effect on the Company's financial position. In addition, sales of the
Company's products are dependent on the condition of the local economies in the
Company's territories. A depressed local economy could have an adverse effect on
the Company's sales and results of operations.
INABILITY TO FUND A CHANGE OF CONTROL OFFER
Upon a Change of Control as defined in the Indenture, the Company will be
required to offer to repurchase all outstanding Notes at 101% of the principal
amount thereof plus accrued and unpaid interest to the date of repurchase and
Liquidated Damages (as defined herein). However, there can be no assurance (i)
that sufficient funds will be available at the time of any Change of Control to
make any required repurchases of Notes tendered or (ii) that restrictions in the
Credit Agreement will allow the Company to make such required repurchases.
Notwithstanding these provisions, the Company could enter into certain
transactions, including certain recapitalizations, that would not constitute a
Change of Control but would increase the amount of debt outstanding at such
time. See "Description of the Notes-- Repurchase at Option of Holders."
VOIDING OR SUBORDINATION OF THE NOTES UNDER FRAUDULENT CONVEYANCE STATUTES
Under applicable provisions of federal bankruptcy law or comparable
provisions of state fraudulent transfer law, if, among other things, the
Company, at the time it incurred the indebtedness evidenced by the Notes, (i)(a)
was insolvent or rendered insolvent by reason of such occurrence or (b) was
engaged in a business or transaction for which the assets remaining with the
Company constituted unreasonably small capital or (c) intended to incur, or
believed that it would incur, debts beyond its ability to pay such debts as they
mature, and (ii) received less than reasonably equivalent value or consideration
for the incurrence of such indebtedness, the Senior Notes could be voided, or
claims in respect of the Senior Notes could be subordinated to all other debts
of the Company. The voiding or subordination of any such indebtedness could
result in an Event of Default (as defined in the Indenture) with respect to such
indebtedness, which could result in acceleration thereof. In addition, the
payment of interest and principal by the Company pursuant to the Senior Notes
could be voided and required to be returned to the person making such payment or
to a fund for the benefit of the creditors of the Company.
The measures of insolvency for purposes of the foregoing considerations will
vary depending upon the law applied in any proceeding with respect to the
foregoing. Generally, however, the Company would be considered insolvent if (i)
the sum of its debts, including contingent liabilities, were greater than the
fair saleable value of all of its assets at a fair valuation or if the present
fair saleable value of its assets were less than the amount that would be
required to pay its probable liability on its existing debts, including
contingent liabilities, as they become absolute and mature or (ii) it could not
pay its debts as they become due. There can be no assurance, however, as to what
standard a court would apply in making such determinations.
15
<PAGE>
ABSENCE OF PUBLIC MARKET; RESTRICTIONS ON TRANSFER
There is no existing market for the Notes. Although the Senior Notes are
eligible for trading in the Private Offerings, Resales and Trading through
Automated Linkages ("PORTAL") market by "qualified institutional buyers" as
defined in Rule 144A under the Securities Act ("QIBs"), there can be no
assurance as to the liquidity of any markets that may develop for the Notes, the
ability of holders of the Notes to sell their Notes, or the prices at which
holders would be able to sell their Notes. Future trading prices of the Notes
will depend on many factors, including, among other things, the Company's
ability to effect the Exchange Offer, prevailing interest rates, the Company's
operating results and the market for similar securities. The Initial Purchaser
may make a market in the Notes; however, the Initial Purchaser is not obligated
to do so and any market-making may be discontinued at any time without notice.
The Company does not intend to apply for listing of the Notes on any securities
exchange.
USE OF PROCEEDS
There will be no proceeds payable to the Company from the issuance of the
Exchange Notes pursuant to the Exchange Offer. The Company is conducting the
Exchange Offer in order to satisfy certain of the Company's obligations under
the Registration Rights Agreement executed in connection with the issuance of
the Senior Notes. The proceeds from the issuance of the Senior Notes were used
to retire certain indebtedness, to pay fees and expenses related to the
Offering, and to fund working capital.
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The sole purpose of the Exchange Offer is to fulfill the obligations of the
Company with respect to the Registration Rights Agreement.
The Senior Notes were originally issued and sold on December 17, 1996 (the
"Issue Date"). Such sales were not registered under the Securities Act in
reliance upon the exemption provided by Section 4(2) of the Securities Act and
Rule 144A of the Securities Act. In connection with the sale of the Senior
Notes, the Company agreed to file with the Commission the Exchange Offer
Registration Statement pursuant to which senior notes of the Company covered by
such registration statement and containing the same terms as the Senior Notes,
except as set forth in this Prospectus, would be offered in exchange for Senior
Notes tendered at the option of the holders thereof. In the event that any
changes in law or applicable interpretations of the Staff do not permit the
Company to effect the Exchange Offer, or if for any reason the Exchange Offer
Registration Statement is not declared effective within 135 days following the
Issue Date or the Exchange Offer is not consummated within 135 days of the Issue
Date, the Company will, at its expense, (i) as promptly as practicable, and in
any event on or prior to 30 days after such filing obligation arises, file with
the Commission a Shelf Registration Statement covering resales of the Senior
Notes, (ii) use its best efforts to cause the Shelf Registration Statement to be
declared effective under the Securities Act as promptly as possible after such
filing occurs, and (iii) keep the Shelf Registration Statement effective until
three years after its effective date (or such shorter period that will terminate
when all the Senior Notes covered thereby have been sold pursuant thereto or in
certain other circumstances). The Company will, in the event of the filing of a
Shelf Registration Statement, provide to each holder of the Senior Notes covered
by the Shelf Registration Statement copies of the prospectus that is a part of
the Shelf Registration Statement, notify each such holder when the Shelf
Registration Statement for the Senior Notes has become effective and take
certain other actions as are required to permit unrestricted resales of the
Senior Notes.
TERMS OF THE EXCHANGE OFFER
The Company hereby offers to exchange, upon the terms and subject to the
conditions set forth herein and in the Letter of Transmittal, $1,000 in
principal amount of Exchange Notes for each $1,000 in principal
16
<PAGE>
amount of Senior Notes. The terms of the Exchange Notes are identical in all
respects to the terms of the Senior Notes for which they may be exchanged
pursuant to this Exchange Offer, except that (i) the Exchange Notes will
generally be freely transferable by holders thereof and (ii) the holders of the
Exchange Notes will not be entitled to registration rights under the
Registration Rights Agreement. See "Senior Notes Registration Notes." The
Exchange Notes will evidence the same debt as the Senior Notes and will be
entitled to the benefits of the Indenture. See "Description of the Notes."
The Exchange Offer is not conditional upon any minimum aggregate principal
amount of Senior Notes being tendered or accepted for exchange.
Based on its view of interpretations set forth in no-action letters issued
by the Staff to third parties, the Company believes that Exchange Notes issued
pursuant to the Exchange Offer in exchange for the Senior Notes may be offered
for resale, resold and otherwise transferred by holders thereof (other than any
holder which is (i) an Affiliate of the Company, (ii) a broker-dealer who
acquired Senior Notes directly from the Company or (iii) a broker-dealer who
acquired Senior Notes as a result of market-making or other trading activities)
without compliance with the registration and prospectus delivery provisions of
the Securities Act provided that such Exchange Notes are acquired in the
ordinary course of such holders' business, and such holders are not engaged in,
and do not intend to engage in, and have no arrangement or understanding with
any person to participate in, a distribution of such Exchange Notes. Holders of
Exchange Notes who are participating in a distribution must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with secondary resale transactions. The Company has not sought, and
does not intend to seek, its own no-action letter on these issues. There can be
no assurance that the Staff would make a similar determination with respect to
the Exchange Offer.
Each broker-dealer who receives Exchange Notes pursuant to the Exchange
Offer must acknowledge that it will deliver a Prospectus in connection with any
resale of such Exchange Notes. The Letter of Transmittal states that by so
acknowledging and by delivering a Prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
This Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Senior Notes where such Exchange Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities. The Company has agreed that, starting on the Expiration Date and
ending on the close of business 180 days after the Expiration Date, it will make
this Prospectus available to any broker-dealer for use in connection with any
such resale. See "Plan of Distribution."
Tendering holders of Senior Notes will not be required to pay brokerage
commissions or fees or, subject to the instructions in the Letter of
Transmittal, transfer taxes with respect to the exchange of the Senior Notes
pursuant to the Exchange Offer.
The Exchange Notes will bear interest from and including their respective
dates of issuance. Holders whose Senior Notes are accepted for exchange will
receive accrued interest thereon to, but not including, the date of issuance of
the Exchange Notes, such interest to be payable with the first interest payment
on the Exchange Notes, but will not receive any payment in respect of interest
on the Senior Notes accrued after the issuance of the Exchange Notes.
EXPIRATION DATE; EXTENSIONS; TERMINATION; AMENDMENTS
The Exchange Offer will expire at 5:00 pm., New York City time, on April 3,
1997 unless the Company in its sole discretion extends the period during which
the Exchange Offer is open, in which event the term "Expiration Date" means the
latest time and date on which the Exchange Offer, as so extended by the Company,
expires. The Company reserves the right to extend the Exchange Offer at any time
and from time to time prior to the Expiration Date by giving written notice to
Norwest Bank Minnesota, National Association (the "Exchange Agent") and by
timely public announcement communicated by no later than 5:00 p.m. on the next
business day following the Expiration Date, unless otherwise required by
applicable
17
<PAGE>
law or regulation, by making a release to the Dow Jones News Service. During any
extension of the Exchange Offer, all Senior Notes previously tendered pursuant
to the Exchange Offer will remain subject to the Exchange Offer.
The initial Exchange Date will be the first business day following the
Expiration Date. The Company expressly reserves the right to (i) terminate the
Exchange Offer and not accept for exchange any Senior Notes for any reason,
including if any of the events set forth below under "--Conditions to the
Exchange Offer" shall have occurred and shall not have been waived by the
Company and (ii) amend the terms of the Exchange Offer in any manner, whether
before or after any tender of the Senior Notes. If any such termination or
amendment occurs, the Company will notify the Exchange Agent in writing and will
either issue a press release or give written notice to the holders of the Senior
Notes as promptly as practicable. Unless the Company terminates the Exchange
Offer prior to 5:00 p.m., New York City time, on the Expiration Date, the
Company will exchange the Exchange Notes for the Senior Notes on the Exchange
Date.
If the Company waives any material condition to the Exchange Offer, or
amends the Exchange Offer in any other material respect, and if at the time that
notice of such waiver or amendment is first published, sent or given to holders
of Senior Notes in the manner specified above, the Exchange Offer is scheduled
to expire at any time earlier than the expiration of a period ending on the
fifth business day from, and including, the date that such notice is first so
published, sent or given, then the Exchange Offer will be extended until the
expiration of such period of five business days.
This Prospectus and the related Letter of Transmittal and other relevant
materials will be mailed by the Company to record holders of Senior Notes and
will be furnished to brokers, banks and similar persons whose names, or the
names of whose nominees, appear on the lists of holders for subsequent
transmittal to beneficial owners of Senior Notes.
HOW TO TENDER
The tender to the Company of Senior Notes by a holder thereof pursuant to
one of the procedures set forth below will constitute an agreement between such
holder and the Company in accordance with the terms and subject to the
conditions set forth herein and in the Letter of Transmittal.
GENERAL PROCEDURES. A holder of a Senior Note may tender the same by (i)
properly completing and signing the Letter of Transmittal or a facsimile thereof
(all references in this Prospectus to the Letter of Transmittal shall be deemed
to include a facsimile thereof) and delivering the same, together with the
certificate or certificates representing the Senior Notes being tendered and any
required signature guarantees (or a timely confirmation of a book-entry transfer
(a "Book-Entry Confirmation") pursuant to the procedure described below), to the
Exchange Agent at its address set forth on the back cover of this Prospectus on
or prior to the Expiration Date or (ii) complying with the guaranteed delivery
procedures described below.
If tendered Senior Notes are registered in the name of the signer of the
Letter of Transmittal and the Exchange Notes to be issued in exchange therefor
are to be issued (and any untendered Senior Notes are to be reissued) in the
name of the registered holder, the signature of such signer need not be
guaranteed. In any other case, the tendered Senior Notes must be endorsed or
accompanied by written instruments of transfer in form satisfactory to the
Company and duly executed by the registered holder and the signature on the
endorsement or instrument of transfer must be guaranteed by a bank, broker,
dealer, credit union, savings association, clearing agency or other institution
(each an "Eligible Institution") that is a member of a recognized signature
guarantee medallion program within the meaning of Rule 17Ad-15 under the
Exchange Act. If the Exchange Notes and/or Senior Notes not exchanged are to be
delivered to an address other than that of the registered holder appearing on
the note register for the Senior Notes, the signature on the Letter of
Transmittal must be guaranteed by an Eligible Institution.
18
<PAGE>
Any beneficial owner whose Senior Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender Senior Notes should contact such holder promptly and instruct such
holder to tender Senior Notes on such beneficial owner's behalf. If such
beneficial owner wishes to tender such Senior Notes himself, such beneficial
owner must, prior to completing and executing the Letter of Transmittal and
delivering such Senior Notes, either make appropriate arrangements to register
ownership of the Senior Notes in such beneficial owner's name or follow the
procedures described in the immediately preceding paragraph. The transfer of
record ownership may take considerable time.
BOOK-ENTRY TRANSFER. The Exchange Agent will make a request to establish an
account with respect to the Senior Notes at The Depository Trust Company (the
"Book-Entry Transfer Facility") for purpose of the Exchange Offer within two
business days after receipt of this Prospectus, and any financial institution
that is a participant in the Book-Entry Transfer Facility's systems may make
book-entry delivery of Senior Notes by causing the Book-Entry Transfer Facility
to transfer such Senior Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility in accordance with the Book-Entry Transfer
Facility's procedures for transfer. However, although delivery of Senior Notes
may be effected through book-entry transfer at the Book-Entry Transfer Facility,
the Letter of Transmittal, with any required signature guarantees and any other
required documents, must, in any case, be transmitted to and received by the
Exchange Agent at the address specified on the back cover page of this
Prospectus on or prior to the Expiration Date or the guaranteed delivery
procedures described below must be complied with.
The method of delivery of Senior Notes and all other documents is at the
election and risk of the holder. If sent by mail, it is recommended that
registered mail, return receipt requested, be used, proper insurance be
obtained, and the mailing be made sufficiently in advance of the Expiration Date
to permit delivery to the Exchange Agent on or before the Expiration Date.
GUARANTEED DELIVERY PROCEDURES. If a holder desires to accept the Exchange
Offer and time will not permit a Letter of Transmittal or Senior Notes to reach
the Exchange Agent before the Expiration Date, a tender may be effected if the
Exchange Agent has received at its office on or prior to the Expiration Date a
letter, telegram or facsimile transmission from an Eligible Institution setting
forth the name and address of the tendering holder, the principal amount of the
Senior Notes being tendered, the names in which the Senior Notes are registered
and, if possible, the certificate numbers of the Senior Notes to be tendered,
and stating that the tender is being made thereby and guaranteeing that within
three New York Stock Exchange trading days after the date of execution of such
letter, telegram or facsimile transmission by the Eligible Institution, the
Senior Notes, in proper form for transfer, will be delivered by such Eligible
Institution together with a properly completed and duly executed Letter of
Transmittal (and any other required documents). Unless Senior Notes being
tendered by the above-described method (or a timely Book-Entry Confirmation) are
deposited with the Exchange Agent within the time period set forth above
(accompanied or preceded by a properly completed Letter of Transmittal and any
other required documents), the Company may, at its option, reject the tender.
Copies of a Notice of Guaranteed Delivery which may be used by Eligible
Institutions for the purposes described in this paragraph are available from the
Exchange Agent.
A tender will be deemed to have been received as of the date when the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the Senior Notes (or a timely Book-Entry Confirmation) is
received by the Exchange Agent. Issuances of Exchange Notes in exchange for
Senior Notes tendered pursuant to a Notice of Guaranteed Delivery or letter,
telegram or facsimile transmission to similar effect (as provided above) by an
Eligible Institution will be made only against deposit of the Letter of
Transmittal (and any other required documents) and the tendered Senior Notes (or
a timely Book-Entry Confirmation).
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for exchange of any tender of Senior Notes will be
determined by the Company, whose determination will be final and binding. The
Company reserves the absolute right to reject any or all tenders not in proper
form
19
<PAGE>
or the acceptances for exchange of which may, in the opinion or counsel to the
Company, be unlawful. The Company also reserves the absolute right to waive any
of the conditions of the Exchange Offer or any defect or irregularities in
tenders of any particular holder whether or not similar defects or
irregularities are waived in the case of other holders. Neither the Company, the
Exchange Agent nor any other person will be under any duty to give notification
of any defects or irregularities in tenders or shall incur any liability for
failure to give any such notification. The Company's interpretation of the terms
and conditions of the Exchange Offer (including the Letter of Transmittal and
the instructions thereto) will be final and binding.
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among other things, the following terms
and conditions, which are part of the Exchange Offer.
The party tendering Senior Notes for exchange (the "Transferor") exchanges,
assigns and transfers the Senior Notes to the Company and irrevocably
constitutes and appoints the Exchange Agent as the Transferor's agent and
attorney-in-fact to cause the Senior Notes to be assigned, transferred and
exchanged. The Transferor represents and warrants that it has full power and
authority to tender, exchange, assign and transfer the Senior Notes and to
acquire Exchange Notes issuable upon the exchange of such tendered Senior Notes,
and that, when the same are accepted for exchange, the Company will acquire good
and uncumbered title to the tendered Senior Notes, free and clear of all liens,
restrictions, charges and encumbrances and not subject to any adverse claim. The
Transferor also warrants that it will, upon request, execute and deliver any
additional documents deemed by the Company to be necessary or desirable to
complete the exchange, assignment and transfer of tendered Senior Notes. The
Transferor further agrees that acceptance of any tendered Senior Notes by the
Company and the issuance of Exchange Notes in exchange therefor shall constitute
performance in full by the Company of its obligations under the Registration
Rights Agreement and that the Company shall have no further obligations or
liabilities thereunder (except in certain limited circumstances). All authority
conferred by the Transferor will survive the death or incapacity of the
Transferor and every obligation of the Transferor shall be binding upon the
heirs, legal representatives, successors, assigns, executors and administrators
of such Transferor.
By tendering Senior Notes and executing the Letter of Transmittal, the
Transferor certifies that (a) it is not an Affiliate of the Company within the
meaning of Rule 405 under the Securities Act, that it is not a broker-dealer
that owns Senior Notes acquired directly from the Company or an Affiliate of the
Company, that it is acquiring the Exchange Notes offered hereby in the ordinary
course of such Transferor's business and that such Transferor has no arrangement
with any person to participate in the distribution of such Exchange Notes or (b)
that it is an Affiliate of the Company or of the initial purchaser of the Senior
Notes in the Initial Offering and that it will comply with the registration and
prospectus delivery requirements of the Securities Act to the extent applicable
to it.
WITHDRAWAL RIGHTS
Senior Notes tendered pursuant to the Exchange Offer may be withdrawn at any
time prior to the Expiration Date.
For a withdrawal to be effective, a written or facsimile transmission notice
of withdrawal must be timely received by the Exchange Agent at its address set
forth on the back cover of this Prospectus prior to the Expiration Date. Any
such notice of withdrawal must specify the person named in the Letter of
Transmittal as having tendered Senior Notes to be withdrawn, the certificate
numbers of Senior Notes to be withdrawn, the principal amount of Senior Notes to
be withdrawn, a statement that such holder is withdrawing his election to have
such Senior Notes exchanged, and the name of the registered holder of such
Senior Notes, and must be signed by the holder in the same manner as the
original signature on the Letter of Transmittal (including any required
signature guarantees) or be accompanied by evidence satisfactory to the Company
that the person withdrawing the tender has succeeded to the beneficial ownership
of the Senior Notes being withdrawn. The Exchange Agent will return the properly
withdrawn
20
<PAGE>
Senior Notes promptly following receipt of notice of withdrawal. All questions
as to the validity of notices of withdrawal, including time of receipt, will be
determined by the Company, and such determination will be final and binding on
all parties.
ACCEPTANCE OF SENIOR NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon the terms and subject to the conditions of the Exchange Offer, the
acceptance for exchange of Senior Notes validly tendered and not withdrawn and
the issuance of the Exchange Notes will be made on the Exchange Date. For the
purposes of the Exchange Offer, the Company shall be deemed to have accepted for
exchange validly tendered Senior Notes when, as and if the Company has given
written notice thereof to the Exchange Agent.
The Exchange Agent will act as agent for the tendering holders of Senior
Notes for the purposes of receiving Exchange Notes from the Company and causing
the Senior Notes to be assigned, transferred and exchanged. Upon the terms and
subject to the conditions of the Exchange Offer, delivery of Exchange Notes to
be issued in exchange for accepted Senior Notes will be made by the Exchange
Agent promptly after acceptance of the tendered Senior Notes. Senior Notes not
accepted for exchange by the Company will be returned without expense to the
tendering holders (or in the case of Senior Notes tendered by book-entry
transfer into the Exchange Agent's account at the Book-Entry Transfer Facility
pursuant to the procedures described above, such non-exchanged Senior Notes will
be credited to an account maintained with such Book-Entry Transfer Facility)
promptly following the Expiration Date or, if the Company terminates the
Exchange Offer prior to the Expiration Date, promptly after the Exchange Offer
is so terminated.
CONDITIONS TO THE EXCHANGE OFFER
The Exchange Offer is not conditioned upon any minimum principal amount of
Senior Notes being tendered for exchange. However, the Exchange Offer is
conditioned upon the declaration by the Commission of the effectiveness of the
Exchange Offer Registration Statement of which this Prospectus constitutes a
part.
In addition, the Company will not accept for exchange any Senior Notes
tendered and no Exchange Notes will be issued in exchange for any such Senior
Notes, if at such time any stop order shall be threatened or in effect with
respect to (i) the Exchange Offer Registration Statement of which this
Prospectus constitutes a part or (ii) qualification of the Indenture under the
Trust Indenture Act of 1939, as amended (the "Trust Indenture Act").
EXCHANGE AGENT
Norwest Bank Minnesota, National Association has been appointed as the
Exchange Agent for the Exchange Offer. Letters of Transmittal must be addressed
to the Exchange Agent at its address set forth on the back cover of this
Prospectus.
Delivery to an address other than as set forth thereon, or transmissions of
instructions via a facsimile or telex number other than the ones set forth
thereon, will not constitute a valid delivery.
SOLICITATION OF TENDERS; EXPENSES
The Company has not retained any dealer-manager or similar agent in
connection with the Exchange Offer and will not make any payments to brokers,
dealers or others for soliciting acceptances of the Exchange Offer. The Company
will, however, pay the Exchange Agent reasonable and customary fees for its
services and will reimburse it for reasonable out-of-pocket expenses in
connection therewith. The Company will also pay brokerage houses and other
custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding tenders for their customers. The expenses to be
21
<PAGE>
incurred in connection with the Exchange Offer, including the fees and expenses
of the Exchange Agent and printing, accounting and legal fees, will be paid by
the Company and are estimated at approximately $125,000.
No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those contained
in this Prospectus. If given or made, such information or representations should
not be relied upon as having been authorized by the Company. Neither the
delivery of this Prospectus nor any exchange made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company since the respective dates as of which information is
given herein. The Exchange Offer is not being made to (nor will tenders be
accepted from or on behalf of) holders of Senior Notes in any jurisdiction in
which the making of the Exchange Offer or the acceptance thereof would not be in
compliance with the laws of such jurisdiction. However, the Company may, at its
discretion, take such action as it may deem necessary to make the Exchange Offer
in any such jurisdiction and extend the Exchange Offer to holders of Senior
Notes in such jurisdiction. In any jurisdiction the securities laws or blue sky
laws of which require the Exchange Offer to be made by a licensed broker or
dealer, the Exchange Offer is being made on behalf of the Company by one or more
registered brokers or dealers which are licensed under the laws of such
jurisdiction.
APPRAISAL RIGHTS
HOLDERS OF SENIOR NOTES WILL NOT HAVE DISSENTERS' RIGHTS OR APPRAISAL RIGHTS
IN CONNECTION WITH THE EXCHANGE OFFER.
FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Briggs and Morgan Professional Association, the exchange
of Senior Notes for Exchange Notes by holders will not be treated as an exchange
or otherwise as a taxable event for federal income tax purposes. Accordingly,
holders will not recognize any taxable gain or loss or any interest income as a
result of such exchange. The preceding discussion is based upon the current
provisions of the Internal Revenue Code of 1986, as amended, the Treasury
regulations promulgated thereunder, and judicial or ruling authority, all of
which are subject to change, which change may be retroactive. Holders are urged
to consult their own tax advisors in determining the federal, state, local
foreign and any other tax consequences to them of the exchange, ownership and
disposition of the Exchange Notes.
OTHER
Participation in the Exchange Offer is voluntary, and holders of Senior
Notes should carefully consider whether to accept the Exchange Offer and tender
their Senior Notes. Holders of the Senior Notes are urged to consult their
financial and tax advisors in making their own decisions on what action to take.
As a result of the making of, and upon acceptance for exchange of all
validly tendered Senior Notes pursuant to the terms of, this Exchange Offer, the
Company will have fulfilled a covenant contained in the terms of the Senior
Notes and the Registration Rights Agreement. Holders of the Senior Notes who do
not tender their certificates in the Exchange Offer will continue to hold such
certificates and will be entitled to all the rights, and subject to all the
limitations applicable thereto, under the Indenture, except for any such rights
under the Registration Rights Agreement, which by their terms terminate or cease
to have further effect as a result of the making of this Exchange Offer. See
"Description of the Notes--Registration Rights; Liquidated Damages." All
untendered Senior Notes will continue to be subject to the restriction on
transfer set forth in the Indenture. To the extent that Senior Notes are
tendered and accepted in the Exchange Offer, the trading market, if any, for the
Senior Notes could be adversely affected. See "Risk Factors--Consequences of
Exchange and Failure to Exchange."
The Company may in the future seek to acquire untendered Senior Notes in the
open market or privately negotiated transactions, through subsequent exchange
offers or otherwise. The Company has no present plan to acquire any Senior Notes
which are not tendered in the Exchange Offer.
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<PAGE>
CAPITALIZATION
The following table sets forth the unaudited consolidated capitalization of
the Company on a historical basis as of September 30, 1996, and on a pro forma
basis after giving effect to the Financing Transactions as if they had occurred
on September 30, 1996. The unaudited pro forma consolidated capitalization table
does not necessarily reflect the results of operations or the financial position
of the Company that actually would have resulted had the Financing Transactions
been consummated as of September 30, 1996. Accordingly, such data should not be
viewed as fully representative of the past performance of the Company or
indicative of future results. The unaudited consolidated pro forma
capitalization table should be read together with "Selected Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and notes of the Company
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
1996
-----------------------
HISTORICAL PRO FORMA
---------- -----------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Long-term debt (including current maturities):
Revolving credit facility........................................... $ 22,250 $ --
1993 Senior Notes................................................... 89,000 --
Other debt and other liabilities(1)................................. 5,418 5,418
Senior Notes offered hereby......................................... -- 120,000
11% Subordinated Notes.............................................. 37,165 37,165
---------- -----------
Total long-term debt.............................................. 153,833 162,583
Stockholders' equity:
Preferred stock..................................................... 26,932 26,932
Common stock........................................................ 115,765 115,765
Accumulated deficit(2).............................................. (79,047) (81,673)
---------- -----------
Total equity...................................................... 63,650 61,024
---------- -----------
Total capitalization.................................................. $ 217,483 $ 223,607
---------- -----------
---------- -----------
</TABLE>
- - ------------------------
(1) Other debt and other liabilities consist of a note payable to Poydras by the
Joint Venture of $1,839 capital lease and purchase money debt of $754 and
deferred purchase and related obligations of $2,825.
(2) The pro forma accumulated deficit reflects adjustment for a $2,626 write-off
of the unamortized balance of deferred financing costs related to the
repurchase and repayment of the 1993 Senior Notes (as defined herein) and
repayment of the debt outstanding under the 1993 Credit Agreement (as
defined herein).
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<PAGE>
SELECTED FINANCIAL DATA
The following table presents selected financial data of the Company and
consolidated Joint Venture as of and for each of the five years ended December
31, 1991, 1992, 1993, 1994 and 1995 and each of the nine months ended September
30, 1995 and 1996. The information presented for each of the five years ended
December 31 has been derived from the consolidated financial statements of the
Company, which statements have been audited by Arthur Andersen LLP, independent
public accountants. The information presented for each of the nine months ended
September 30 has been derived from the unaudited interim consolidated financial
statements of the Company, and, in the opinion of management of the Company,
reflects a fair presentation of the Company's financial information. The
following information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements of the Company and notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.............................. $ 192,774 $ 199,182 $ 225,173 $ 245,472 $ 284,709 $ 218,654 $ 239,887
Cost of sales.......................... 130,284 132,025 147,573 162,667 198,777 150,965 164,415
--------- --------- --------- --------- --------- --------- ---------
Gross profit........................... 62,490 67,157 77,600 82,805 85,932 67,689 75,472
Selling, general and administrative
expenses............................. 51,264 54,060 60,164 62,710 71,802 53,846 58,101
Amortization of franchise costs and
other intangibles(1)................. 6,189 6,156 4,246 3,631 3,576 2,671 2,743
--------- --------- --------- --------- --------- --------- ---------
Income from operations................. 5,037 6,941 13,190 16,464 10,554 11,172 14,628
Interest expense....................... 19,669 19,907 18,433 12,152 13,254 9,795 11,286
Other expenses (income)(2)............. 198 1,530 65 (45) 75 (136) (46)
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before income taxes...... (14,830) (14,496) (5,308) 4,357 (2,775) 1,513 3,388
Income tax benefit (expense)(3)........ -- -- 189 (3,262) (1,641) (1,670) (2,262)
Minority interest in Joint
Venture(4)........................... -- 491 (11) -- 464 (17) (200)
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before non-recurring
items................................ (14,830) (14,005) (5,130) 1,095 (3,952) (174) 926
Non-recurring items(5)................. -- -- 15,409 -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Net income (loss)...................... $ (14,830) $ (14,005) $ 10,279 $ 1,095 $ (3,952) $ (174) $ 926
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital(6)..................... $ 14,000 $ 15,197 $ 23,880 $ 30,421 $ 27,547 $ 37,881 $ 29,541
Total assets........................... 201,366 208,050 231,717 244,705 248,437 252,409 244,707
Long-term debt(7):
Senior debt.......................... 119,380 127,580 105,000 106,000 117,250 117,250 111,250
Subordinated notes payable........... 40,249 46,357 30,000 31,650 35,227 33,391 37,165
Other................................ 5,278 7,264 6,839 6,579 5,673 5,745 5,418
Stockholders' equity................... 17,737 3,683 65,504 66,660 62,718 66,493 63,650
OTHER DATA:
EBITDA(8).............................. $ 17,944 $ 18,564 $ 23,610 $ 25,594 $ 20,730 $ 18,312 $ 21,856
Depreciation and amortization.......... 13,105 12,662 10,626 9,085 9,687 7,169 7,594
Capital expenditures(9)................ 4,287 5,742 6,116 7,104 11,028 8,842 6,922
Ratio of earnings to fixed
charges(10).......................... 0.26x 0.28x 0.72x 1.34x 0.80x 1.15x 1.27x
</TABLE>
- - ------------------------------
(1) Amortization of franchise costs and other intangibles for the years ended
December 31, 1991, 1992 and 1993 includes amortization of the costs of
certain noncompete agreements entered into in 1988 upon the Company's
acquisition.
(2) In connection with the formation of the Joint Venture, certain severance
expenses and other costs and losses of Poydras and the Company's minority
partner in the Joint Venture, were incurred after inception but before the
businesses were operationally merged. The Company agreed to absorb these
costs, which were recorded as an unusual item in the 1992 statement of
operations.
(3) The effective income tax rate is significantly impacted by the non-tax
deductibility of amortization of franchise costs.
24
<PAGE>
(4) Represents minority interest in the net (income) loss of the Joint Venture
which is consolidated with the Company.
(5) Includes an extraordinary item, loss on extinguishment of debt of $1,015,
net of income tax benefit of $600, and the cumulative effect of a change in
the method of accounting for income taxes of $15,824, both recorded in 1993.
(6) Working capital represents current assets (excluding cash and cash
equivalents) less current liabilities (excluding current maturities of
long-term debt and other long-term liabilities).
(7) Includes current maturities of long-term debt.
(8) EBITDA consists of net income (loss) before income taxes, interest,
depreciation and amortization. EBITDA also excludes extraordinary items and
accounting changes. EBITDA has also been adjusted for Poydras' interest in
the Joint Venture. EBITDA is included herein to provide additional
information about the Company's ability to service its debt. EBITDA should
not be considered as an alternative measure of the Company's net income,
operating income, cash flow from operating activities or liquidity.
(9) Includes capital improvements in 1995 of approximately $1,500 related and
subsequent to the acquisition of the beer distributorships to consolidate
the beer operations with those of the Company.
(10) The ratio of earnings to fixed charges is calculated as follows: income
(loss) before income taxes, minority interest, extraordinary items and
accounting changes (less minority interest expense) plus fixed charges,
divided by fixed charges. Fixed charges consist of (i) interest incurred,
(ii) amortization of debt financing costs and (iii) a portion of rent
expense on operating leases considered to represent interest cost (assumed
to be one-third of rent expense). The Company's earnings were insufficient
to cover fixed charges in 1991 ($14,830), 1992 ($14,496), 1993 ($5,319) and
1995 ($2,775).
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
GENERAL
The Company was acquired by its current owners in March 1988 in a highly
leveraged transaction which was premised on a turnaround of operations and
expansion of business opportunities. The results of operations started to
reflect a significant turnaround in 1990 when the current senior management
group took office. The Company has accomplished a number of business
combinations since 1988, the most significant of which have been (i) combining
in 1992 its PepsiCo based sales operation in southern Louisiana with a Seven-Up
based sales operation in the same territory through a joint venture in which the
Company is majority owner and managing venturer and (ii) acquiring in April 1995
the distribution rights for Miller products in a significant portion of the
Joint Venture territory.
In September 1993, the Company issued the 1993 Senior Notes (the "1993
Senior Notes"), Subordinated Notes and other equity to refinance the debt
incurred in 1988. As a result the Company's interest expense burden was
substantially reduced. However, effective in May 1996, the interest rate on the
1993 Senior Notes was adjusted as part of obtaining covenant waivers
necessitated by the down-turn in operating results in 1995. The Company fully
repaid the 1993 Senior Notes in December 1996.
As is typical of acquisitions in the beverage industry, the Company's
balance sheet reflects significant allocation of purchase price to the cost of
franchise rights in excess of net assets acquired ($116.8 million and $117.2
million, each net of accumulated amortization, at December 31, 1995 and
September 30, 1996, respectively). Amortization of the cost of (i) franchises,
(ii) obtaining financing and (iii) non-compete agreements from former owners
constitutes a significant non-cash charge to operations.
The Company accumulated significant tax-basis net operating loss
carryforwards (NOL's) during the turnaround period prior to the 1993
recapitalization. Management believes the NOL's will be utilized before their
expiration to offset future income otherwise taxable. A deferred income tax
asset representing the income tax benefit to be realized through future
utilization of the NOL's was recorded on the Company's balance sheet in 1993
following the recapitalization. Provision for income taxes related to the
results of operations for years subsequent to and including 1993 are offset
against the deferred income tax asset and thus are effectively a non-cash charge
to the results of operations.
The Company's primary measurement of unit volume is franchise case sales
which are case-sized quantities of the various packages in which products are
produced. Franchise case sales refers to physical cases of beverages sold. The
Company also sells premix or draft products (ready-to-serve beverages which are
sold in tanks or kegs) and postmix products (fountain syrups to which carbonated
water must be added). Premix and postmix products, while effectively containing
the identical beverages as packaged product, are not included in case sales
measurements as they are not the primary focus of the Company's selling efforts.
The Company's primary source of revenue is franchise case sales which are
sales of the Company's branded products directly to retailers whether of
package, premix or postmix configuration. Another source of revenue is contract
sales which are sales, primarily of products in cans, to unaffiliated companies
that hold soft drink franchises. Contract sales, which historically represent
approximately 10.0% of total net sales, may fluctuate from year to year, and are
made at relatively low prices and gross profit margins due to the competition
for such sales, and are not a primary focus of management in determining the
Company's business strategy. As a result, management believes that changes in
franchise case sales more accurately measure growth than changes in total net
sales.
THIS DISCUSSION AND ANALYSIS CONTAINS CERTAIN FORWARD-LOOKING TERMINOLOGY
SUCH AS "BELIEVES," "ANTICIPATES," "EXPECTS," AND "INTENDS," OR COMPARABLE
TERMINOLOGY. SUCH STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND
26
<PAGE>
UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE
PROJECTED. HOLDERS OF SENIOR NOTES ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON
SUCH FORWARD-LOOKING STATEMENTS WHICH ARE QUALIFIED IN THEIR ENTIRETY BY THE
CAUTIONS AND RISKS DESCRIBED HEREIN.
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1995
Net sales, excluding contract net sales, for the nine months ended September
30, 1996 increased by 11.3% to $219.9 million compared to $197.5 million for the
same period in 1995. The increase was due in part to a 5.3% increase in
franchise case sales, of which (i) 3.7% was attributable to increased sales of
the Company's beer products due to the acquisition of additional territories and
products in April and July 1995 and January and April 1996 and (ii) 1.6% was
attributable to increased sales of the Company's soft drink products. The
increase in soft drink sales was accompanied by an increase in unit selling
prices of approximately 4.3% as consumers increasingly accepted higher selling
prices instituted in 1995. Contract net sales for the nine months ended
September 30, 1996 decreased 5.4% compared to the same period in 1995. As a
result of the foregoing, net sales for the nine months ended September 30, 1996
increased 9.7% to $239.9 million compared to $218.7 million for the same period
in 1995.
Cost of sales for the nine months ended September 30, 1996 increased to
$164.4 million compared to $151.0 million for the same period in 1995. The
increase was due primarily to an increase in franchise case sales offset by a
decrease in the unit prices paid by the Company for certain soft drink raw
materials, primarily packaging materials and sweetener. As a percentage of net
sales, cost of sales for the nine months ended September 30, 1996 decreased to
68.5% compared to 69.1% for the same period in 1995. The improved margin and
increased franchise case sales resulted in gross profit for the nine months
ended September 30, 1996 of $75.5 million or 11.5% greater than the gross profit
of $67.7 million for the same period in 1995.
Selling, general and administrative expenses for the nine months ended
September 30, 1996 increased to $58.1 million compared to $53.8 million for the
same period in 1995. This increase was primarily due to variable costs
associated with the increase in franchise case sales. The remainder of the
increase was due to general increases in the cost of goods and services of 2.3%
which was 2.0% less than the increase in unit selling prices.
As a result of the above factors, income from operations for the nine months
ended September 30, 1996 increased to $14.6 million, or 6.1% of net sales,
compared to $11.2 million, or 5.1% of net sales, for the same period in 1995.
Interest expense for the nine months ended September 30, 1996 increased to
$11.3 million from $9.8 million for the same period in 1995. The increase was
due primarily to additional debt related to the acquisition of additional beer
territories and products and the imposition of higher interest rates on the 1993
Senior Notes related to certain covenant waivers in respect of those notes,
partially offset by the scheduled repayment in September 1995 of $6.0 million of
the 1993 Senior Notes.
As a result of the above factors, the Company generated income before income
taxes of $3.4 million for the nine months ended September 30, 1996 compared to
income before income taxes of $1.5 million for the same period in 1995.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Net sales, excluding contract net sales, for the year ended December 31,
1995 increased by 19.5% to $258.1 million compared to $215.9 million for 1994.
The increase was primarily due to a 6.9% increase in franchise case sales, which
was entirely attributable to the acquisition of beer distribution rights in
April and July 1995. Further, unit selling prices of franchised soft drink
products increased approximately 5.2% in reaction to increases in the cost of
raw materials; nonetheless, the Company was able to maintain franchise case
sales of soft drinks while increasing unit selling prices to counteract higher
costs of raw
27
<PAGE>
materials. Contract net sales for the year ended December 31, 1995 decreased by
10.3% compared to 1994. As a result of the foregoing, net sales for the year
ended December 31, 1995 increased 16.0% to $284.7 million compared to $245.5
million in 1994.
Cost of sales for the year ended December 31, 1995 increased to $198.8
million compared to $162.7 million in 1994. This increase was primarily due to
increases in the unit prices paid by the Company for soft drink packaging
materials and fructose and to a lesser degree to the increase in franchise case
sales. The raw materials increases were contrary to the trend in recent years of
annual decreases in the prices of the same purchases. As a percentage of net
sales, cost of sales for the year ended December 31, 1995 increased to
approximately 69.8% as compared to 66.3% in 1994. The increase in case volume,
offset by the decreased margins, resulted in gross profit of $85.9 million, a
3.7% increase over the Company's $82.8 million gross profit in 1994.
Selling, general and administrative expenses for the year ended December 31,
1995 increased to $71.8 million compared to $62.7 million in 1994, primarily due
to an increase of approximately $5.0 million related to the acquisition of beer
distribution rights in April and July 1995 in a portion of the Company's
territory. Operating costs in the existing soft drink business increased $4.0
million primarily due to increases in salaries and wages and insurance costs.
As a result of the above factors, income from operations for the year ended
December 31, 1995 decreased to $10.6 million, or 3.7% of net sales, compared to
$16.5 million, or 6.7% of net sales, for 1994.
Interest expense for the year ended December 31, 1995 increased to $13.3
million in 1995 from $12.2 million in 1994, due to increased debt which financed
the acquisition of the beer distribution rights, the effect of which was
partially offset by an interest expense reduction related to the scheduled
repayment in September 1995 and in September 1994 of $6.0 million and $4.0
million, respectively, of the 1993 Senior Notes.
As a result of the above factors, the Company generated a loss before income
taxes of $2.8 million for the year ended December 31, 1995 compared to income
before income taxes of $4.4 million in 1994.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
Net sales, excluding contract net sales, for the year ended December 31,
1994 increased by 5.2% to $215.9 million compared to $205.2 million for 1993.
The increase was primarily due to a 9.6% increase in franchise case sales, which
was largely attributable to increased sales to the Company's supermarket
customers as a result of increased promotional activity. Contract net sales for
the year ended December 31, 1994 increased 48.4% compared to 1993. As a result
of the foregoing, net sales for the year ended December 31, 1994 increased 9.0%
to $245.5 million compared to $225.2 million for 1993.
Cost of sales for the year ended December 31, 1994 increased to $162.7
million compared to $147.6 million for 1993. The increase was primarily due to
the increase in franchise and contract case sales, partially offset by an
overall decrease in the unit prices paid by the Company for packaging materials.
As a percentage of net sales, cost of sales for the year ended December 31, 1994
increased to 66.3% as compared to 65.5% in 1993 due in large part to the
significant increase in low margin contract net sales.
Selling, general and administrative expenses for the year ended December 31,
1994 increased to $62.7 million as compared to $60.2 million for 1993. This
increase is related to the increase in franchise case sales of 9.6%, however,
the expense increase of only 4.2% reflects increased efficiency of utilization
of the Company's overhead.
As a result of the above factors, income from operations for the year ended
December 31, 1994 increased to $16.5 million, or 6.7% of net sales, compared to
$13.2 million, or 5.9% of net sales, for 1993.
Interest expense for the year ended December 31, 1994 decreased to $12.2
million compared to $18.4 million in 1993. The decrease was due to a
recapitalization of the Company in September 1993 when
28
<PAGE>
existing subordinated notes together with accrued interest thereon were
exchanged for preferred stock and common stock and the effect of the scheduled
repayment in September 1994 of $4.0 million of the 1993 Senior Notes.
As a result of the above factors, the Company generated income before income
taxes of $4.4 million for the year ended December 31, 1994 compared to a loss
before income taxes of $5.3 million for 1993.
LIQUIDITY AND CAPITAL RESOURCES
The Company remains highly leveraged following the consummation of the
Financing Transactions. The Company's principal use of funds in the future will
be the payment of principal and interest under the Credit Agreement and Notes,
investment in capital assets and strategic acquisitions.
It is expected that the Company's primary sources of financing for its
future business activities will be funds from operations. While the Company does
not currently anticipate utilizing the funds available under the Credit
Agreement other than for seasonal working capital requirements, such funds may
be used to augment operating cash flow. Pursuant to the Credit Agreement, the
Company has unused borrowing capacity of up to $30.0 million, including $10.0
million available for the issuance of letters of credit. The Credit Facility
will mature in 2001. See "Description of Certain Indebtedness--Credit
Agreement."
Because the obligations under the Credit Facility will bear interest at
floating rates, the Company will be sensitive to changes in prevailing interest
rates. See "Description of Certain Indebtedness--Credit Agreement."
The Company had working capital, as previously defined, of $29.5 million at
September 30, 1996, compared to working capital of $27.5 million at December 31,
1995.
Based on the Company's anticipated operating results, management believes
that the Company's future operating activities will generate sufficient cash
flows to repay borrowings under the Credit Agreement as they become due and
payable. However, based on such anticipated operating results, management does
not expect that the Company's future operating activities will generate
sufficient cash flows to repay the Notes at their maturity. Accordingly, the
Company expects it will be required to refinance all or substantially all of the
Notes at their maturity or sell equity or assets to fund the repayment of all or
substantially all of the Notes at their maturity, or effect a combination of the
foregoing. While management believes that the Company will be able to refinance
the Notes at or prior to their maturity, or raise sufficient funds through
equity or asset sales to repay such indebtedness, or effect a combination of the
foregoing, there can be no assurance that it will be able to do so.
The Subordinated Notes mature on December 23, 2003. However the maturity of
the Subordinated Notes can be extended to December 23, 2004 and then to December
23, 2005 if any debt incurred to refinance the 1993 Senior Notes is then
outstanding. The Subordinated Notes have an interest rate of 11.0% which can be
paid under certain conditions with additional Subordinated Notes ("PIK Notes").
Management expects those conditions will exist at least until December 1998 and
that it will make payments of interest in PIK Notes to conserve cash. Management
does not expect that the Company's future operating activities will generate
sufficient cash flows to repay the Subordinated Notes at their maturity.
Accordingly, the Company expects it will be required to refinance all or
substantially all of the Subordinated Notes, including any PIK Notes, at their
maturity or sell equity or assets to fund the repayment of all or substantially
all of the Subordinated Notes, including any PIK Notes, at their maturity, or
effect a combination of the foregoing. While management believes that the
Company will be able to refinance the Subordinated Notes, including any PIK
Notes, at or prior to their maturity, or raise sufficient funds through equity
or asset sales to repay such indebtedness, or effect a combination of the
foregoing, there can be no assurance that it will be able to do so. See "Risk
Factors--Significant Leverage and Debt Service."
29
<PAGE>
The Credit Agreement contains numerous financial and operating covenants and
prohibitions that impose limitations on the liquidity of the Company, including
requirements that the Company satisfy certain financial ratios and maintain
certain specified levels of net worth, and limitations on the incurrence of
additional indebtedness. See "Description of Certain Indebtedness--Credit
Agreement." The Indenture governing the Senior Notes also contains covenants
that impose limitations on the liquidity of the Company including a limitation
on the incurrence of additional indebtedness. See "Description of the
Notes--Certain Covenants." The ability of the Company to meet its debt service
requirements and to comply with such covenants will be dependent upon future
operating performance and financial results of the Company, which will be
subject to financial, economic, competitive and other factors affecting the
Company, many of which are beyond its control.
Management believes that the Company's production facilities will be
sufficient to meet anticipated unit growth for the next several years.
Accordingly, management anticipates that capital expenditures in respect of such
facilities will consist of expenditures to maintain operating efficiency.
Capital expenditures will be required primarily for the Company's automobile and
truck fleet, vending machines, and routine plant, bottling, and canning
equipment additions or maintenance. During 1995 and the nine months ended
September 30, 1996, capital expenditures totaled $11.0 million and $6.9 million
respectively. The Company anticipates that capital expenditures will total
approximately $10.0 million to $12.0 million for each of the years 1996 through
1998.
INFLATION
There was no significant impact on the Company's operations as a result of
inflation during the nine months ended September 30, 1996 or during the fiscal
years ended December 31, 1995 or 1994.
IMPACT OF CHANGES IN ACCOUNTING STANDARDS
In 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." This statement
addresses the timing of recognition and the measurement of (i) long-lived
assets, certain identifiable intangibles and goodwill related to those assets to
be held and used and (ii) long-lived assets and certain identifiable intangibles
to be disposed of. This statement requires that such assets be reviewed for
impairment whenever events or changes in circumstances indicate that their
carrying amount may not be recoverable, and that such assets be reported at the
lower of carrying amount or fair value. The statement is required to be adopted
in 1996.
In the opinion of the management of the Company, adoption of this statement
will not have a material impact on the Company's consolidated financial position
or results of operations.
30
<PAGE>
INDUSTRY OVERVIEW
SOFT DRINK INDUSTRY TRENDS
The U.S. soft drink industry is the world's largest with respect to volume
consumed and the most diversified with respect to product offerings. Soft drinks
represent the most widely consumed beverage in the U.S., exceeding the aggregate
consumption of tap water, coffee and beer. From 1990 to 1995, consumption of
soft drinks increased 14.6%, with 3.6% of that growth occurring in 1995. Per
capita consumption of soft drinks has increased approximately 3.0% per year over
the last 15 years; however, since 1990, per capita growth has slowed to
approximately 1.7% per year, increasing from 48.0 gallons in 1990 to 52.2
gallons in 1995. Over that same period, however, per capita consumption of other
beverages such as coffee, tea and milk has declined. Only the consumption of
bottled water has increased more rapidly than the consumption of soft drinks.
The Company believes that factors contributing to increased consumption of soft
drinks include (i) heavy promotional and advertising activity by the soft drink
industry to broaden the appeal and consumer acceptance of soft drinks, (ii)
peaking consumption by the baby boomer age group, (iii) consumers' concerns
regarding the quality of tap water and (iv) societal and governmental pressures
to reduce the consumption of alcoholic beverages.
Coca-Cola, PepsiCo and Cadbury sold in the aggregate approximately 89.7% of
all the soft drinks in the U.S. in 1995. Cola flavored soft drinks dominate the
soft drink industry, accounting for 63.1% of total U.S. soft drink consumption
in 1995. In 1995, Coca-Cola, PepsiCo and Cadbury captured 43.0%, 30.6% and
16.1%, respectively, of the total U.S. soft drink market. Since 1989, PepsiCo's
market share has remained relatively constant at 31.0% of total U.S. volume,
while Coca-Cola and Cadbury have each increased their share by approximately
2.0%. In 1995, PepsiCo, Inc.'s soft drink business generated 66.1% of its sales
and 87.5% of its operating profit from domestic markets, such as the markets
served by the Company.
The following table shows the top U.S. soft drink franchisors of 1995
according to total gallonage, along with the market share captured by each
franchisor for 1995 and its change in market share for the periods 1994 to 1995
and 1990 to 1995.
<TABLE>
<CAPTION>
MARKET 1990-1995
RANK FRANCHISOR SHARE 1995 GROWTH GROWTH
----- -------------------------------------------------------- GALLONAGE ----------- ------------ -------------
---------
(MILLIONS)
<C> <S> <C> <C> <C> <C>
1 The Coca-Cola Company 5,915.4 43.0% 6.0% 20.3%
2 Pepsi-Cola Company 4,201.8 30.6 3.2 12.3
3 Cadbury Schweppes(1) 2,208.1 16.1 2.3 25.7
4 Cott Corporation(2) 336.8 2.4 12.0 --
5 Royal Crown Cola Co. 268.6 2.0 2.3 (13.5)
6 National Beverage Corp. 233.5 1.7 2.5 16.5
7 The Monarch Company, Inc. 147.5 1.1 (1.0) (22.5)
8 The Double-Cola Company, USA 51.8 0.4 (2.6) (6.5)
9 Grant-Lydick Beverage Co. d/b/a Big Red Bottling Co. of 30.8 0.2 2.5 --
San Antonio(3)
10 All Others(4) 358.6 2.5 (19.4) (56.6)
--------- ----- ----- -----
13,752.9 100.0% 3.6% 14.6%
Total Soft Drink Industry
--------- ----- ----- -----
--------- ----- ----- -----
</TABLE>
- - ------------------------
(1) Cadbury Schweppes includes previous totals for Dr. Pepper/Seven-Up through
1994.
(2) Cott Corporation included since 1992.
(3) Grant-Lydick Beverage Co. included since 1994.
(4) Barq's Inc., acquired by The Coca-Cola Company in August 1995, is included
with "All Others" prior to July 1995.
31
<PAGE>
Historically, the soft drink industry has been an industry of continual
change and evolution. It is characterized by relative absence of technological
risk, lack of foreign competition and significant barriers to entry, including
significant capital expenditure requirements and geographic exclusivity
agreements with franchisors. The competitive climate of the soft drink industry
requires bottlers and franchisors to adapt quickly to market challenges,
including changes in consumer tastes and package preferences and developments in
manufacturing and distribution methods. Competition among soft drink bottlers is
based primarily on price, packaging, management of shelf space, customer
service, new product development and marketing.
The soft drink industry distributes products in two primary forms, packaged
and fountain service. The packaged segment, which includes aluminum cans and
plastic or glass bottles, comprised approximately 72.5% of the total market in
gallons, with 10.0 billion gallons of packaged soft drinks sold in 1995.
Fountain service comprised approximately 27.5% of the market in gallons with 3.8
billion gallons sold in 1995. From 1994 to 1995, the fountain service segment
increased 5.5% compared to a 2.9% year to year increase in the packaged segment.
Growth in the fountain segment has been driven primarily by the continued growth
of distribution channels such as convenience stores, gas stations and
restaurants which are the primary sales outlets for fountain service. The
fountain segment includes many national accounts which are negotiated by the
franchisor. Margins for the fountain segment are generally lower than margins
for the packaged segment due to the increased capital expenditures for fountain
equipment required to distribute soft drinks.
Packaged products are distributed through a number of different channels
including supermarkets, convenience stores, drug stores and mass merchants.
Supermarkets represent the largest volume and lowest margin packaged product
channel. With overall annual volume growth between approximately 2.0% to 3.0% in
the 1990s compared to approximately 3.0% to 5.0% in the 1980s, participants in
the soft drink industry are attempting to drive the volume mix towards higher
margin packaged product channels such as the vending and single-serve segments.
The Company's volume of products sold through the vending and single-serve
segments increased at a compound annual growth rate of 10.7% and 5.0%,
respectively, for the period 1990 to 1995. Growth in these market segments is
driven primarily through the use of vending machines and in-store coolers which
make products available to consumers. The Company believes that, over the next
several years, volume through the vending and single serve channels will become
an increasingly larger percentage of the overall channel mix in the soft drink
industry.
Another trend in the soft drink industry is the consolidation of bottlers.
The number of bottlers in the U.S. has declined from approximately 700 in 1990
to approximately 500 in 1995, a reduction of approximately 28.6%. Slowing volume
growth has resulted in bottlers reducing their cost structures by becoming more
automated and increasing their economies of scale through geographic and market
expansion. The Company believes that the increased costs associated with
effectively serving the soft drink market will lead to continued consolidation,
as smaller less efficient bottlers find themselves at a competitive
disadvantage.
As bottled waters, teas, juices and sports drinks ("new age beverages") are
added to traditional offerings of soft drinks, it is becoming increasingly
important to be a well managed and efficient bottler. The new age beverage
segment has experienced above-average growth compared to traditional offerings
of soft drinks with growth of approximately 22.3% per year over the last two
years, although growth slowed to approximately 13.4% in 1995. In addition, the
more health conscious consumer and the baby boomer population who respond to
innovative packaging and design have increased the relative importance of new
product introduction and innovative packaging. As a result of these factors, the
average number of store keeping units ("SKUs") supplied by a typical bottler has
more than tripled over the last ten years. This trend has increased the capital
requirements for bottlers by requiring investment in automated systems and
technologically advanced information systems to produce efficiently and track
effectively the wide array of product offerings. Furthermore, as the number of
SKUs rises, competition for shelf space will intensify.
32
<PAGE>
The Company believes those bottlers able to provide a wide variety of
nationally recognized product offerings coupled with competitive product pricing
will have more influence with retailers with respect to product placement and
in-store promotional activities. The variety of a bottler's nationally
recognized product offerings is dependent, in part, upon the level of support
the bottler receives from its franchisors with respect to new product offerings
and national advertising. Soft drink purchases tend to be impulse purchases and
consumer preferences tend to be directly influenced by advertising. The Company
believes advertising helps build consumer awareness while the bottler's
merchandising and promotion activities ultimately drive the sales of the
products. In 1995, the top three soft drink franchisors spent approximately
$441.1 million in national advertising, with PepsiCo spending approximately
$152.9 million of that amount for its products. The majority of local
advertising and promotion is conducted by the bottler. Since each geographic
region of the country varies with respect to climate, buying patterns and
consumer tastes, the Company believes that a focused, locally designed
advertising and promotional campaign is critical to the overall success of a
bottler.
BEER INDUSTRY TRENDS
Consumption of beer has remained relatively constant over the past decade.
The Company believes that this has resulted from increased pressures by society
and the government to reduce the consumption of alcoholic beverages, decreased
consumption by the baby boomer age group and increased federal excise taxes on
the sale of beer. In 1995, domestic beer production totaled 189.4 million
barrels. The beer industry is dominated by national brands and has undergone
significant consolidation recently. The products of three brewers,
Anheuser-Busch, Miller and Adolph Coors Company accounted for 79.3% of total
U.S. beer sales in 1995. Recently the industry has experienced a slight shift in
consumer preference from national brands to craftbrewed beer. In 1995, each of
the three largest brewers experienced decreases in volume of less than 1.0%.
The following table sets forth total barrelage and market share for the top
10 U.S. beer brewers of 1995.
<TABLE>
<CAPTION>
RANK BREWER 1995 MARKET SHARE
----- ------------------------------------- 1995 BARRELAGE -------------------
---------------
(MILLIONS)
<C> <S> <C> <C>
1 Anheuser-Busch Companies, Inc. 87.4 46.1%
2 Miller Brewing Company 42.8 22.6
3 Adolph Coors Company 20.1 10.6
4 The Stroh Brewery Company 11.0 5.8
5 G. Heileman Brewing Co., Inc. 7.6 4.0
6 S&P Company 7.5 4.0
7 Genesee Corporation 1.9 1.0
8 Latrobe Brewing Co. 1.1 0.6
9 Boston Brewing Company, Inc. 0.9 0.5
10 Pittsburgh Brewing Company 0.5 0.3
----- -----
Top 10 Brewers 180.9 95.5
All Other Brewers 8.5 4.5
----- -----
Total Domestic Production 189.4 100.0
</TABLE>
33
<PAGE>
BUSINESS
GENERAL
The Company is one of the largest soft drink manufacturers and distributors
in the U.S., selling over 44.7 million equivalent eight-ounce cases of PepsiCo
products and 23.0 million equivalent eight-ounce cases of other soft drinks in
1995. The Company is the fifth largest independent PepsiCo bottler in the U.S.
PepsiCo is the second leading soft drink franchisor in the U.S., capturing
approximately 30.6% of all soft drink sales in 1995. In 1995, net sales for the
Company totaled $284.7 million and EBITDA was $20.7 million. For the nine-month
period ended September 30, 1996 compared to the same nine-month period in 1995,
net sales increased 9.7% to $239.9 million from $218.7 million and EBITDA
increased 19.7% to $21.9 million from $18.3 million.
The Company's exclusive franchise territories cover portions of Arkansas,
Louisiana, Mississippi, Tennessee and Texas and include the cities of New
Orleans, Memphis, Little Rock, Shreveport, Baton Rouge and Tupelo. In the
aggregate, there are approximately seven million people in the Company's
territories. The Company has the exclusive right within its territories to
manufacture and/or distribute the following families of products: PEPSI-COLA
(cola), MOUNTAIN DEW (heavy citrus), SEVEN-UP (lemon-lime), SLICE (orange),
OCEAN SPRAY (juices), LIPTON (iced teas), SQUIRT (heavy citrus), COUNTRY TIME
(lemonade), CANADA DRY (ginger ale), CRUSH (fruit), HAWAIIAN PUNCH (fruit), MUG
(root beer), ALL SPORT (sport drink), YOO-HOO (chocolate), CRYSTAL LIGHT (diet)
and various other product offerings. In addition, the Company is the largest
distributor of Miller products in the state of Louisiana and has the exclusive
right to distribute Miller and Heineken products in greater New Orleans,
Louisiana.
The Company believes its success as an independent bottler is due primarily
to its ability to produce efficiently and to market and distribute effectively
its national brands. The Company's products include highly recognizable
trademarks, most of which are supported by considerable national advertising
expenditures made by the franchisors. In 1995, for example, PepsiCo spent
approximately $152.9 million in national advertising to advertise PepsiCo
products. Furthermore, all of the Company's territories are located in the
southern region of the U.S. that historically has posted above average per
capita consumption of soft drinks.
The Company operates two soft drink production facilities, one in
Collierville, Tennessee and the other in Reserve, Louisiana, with a total annual
production capacity of 65.9 million cases. The Company distributes approximately
85.0% of its soft drink products to retail outlets through its computerized
direct store delivery ("DSD") system. The Company's DSD system utilizes
hand-held computer technology to receive orders from and process deliveries to
the Company's customers. Through its DSD system and its 24 warehouse
distribution facilities strategically located throughout its territories, the
Company services and distributes products to over 30,000 retail outlets in five
states. Retail customers in the Company's territories include The Kroger
Company, Wal-Mart Stores, Inc., Winn-Dixie Stores, Inc. and Circle K Convenience
Stores, Inc. The Company tracks its product sales daily and uses this
information to plan its production, which is subject to seasonal swings in
demand, and to interpret and react to changes in consumer buying patterns. This
allows the Company to provide efficient and effective service to its retail
customers.
Since it was acquired by its current owners in 1988, the Company has
broadened its product offerings through the establishment of the Joint Venture
as well as the acquisition of additional franchises, improved its production
facilities and implemented efficient delivery systems. Moreover, the Company has
better managed product discounting and driven sales mix toward higher margin
products. As a result of these initiatives, for the period from 1990 to 1995,
the Company's case volume and operating profit grew at compound annual rates of
6.5% and 28.4%, respectively. These improvements continued for the nine-month
period ended September 1996, with the Company's case volume and operating profit
growing at a rate of 5.3% and 30.9%, respectively, over the same period in 1996.
34
<PAGE>
The Company used approximately $111.3 million of the proceeds from the
Offering to retire certain existing indebtedness of the Company and $4.7 million
for working capital purposes. In connection with the Offering, the Company also
entered into a Credit Agreement pursuant to which the Company has unused
borrowing capacity of up to $30.0 million, including $10.0 million available for
the issuance of letters of credit. The Company believes that the consummation of
the Financing Transactions has provided it with (i) increased operating
flexibility by extending the repayment of its debt obligations and (ii)
additional cash flow for use in capital expenditures to implement the Company's
strategic objectives.
STRATEGIC OBJECTIVES
The Company's business strategy is to continue to manufacture, distribute
and market a broad array of national brands in all beverage categories.
Specifically, the Company's long-term strategic objectives are to (i) increase
growth in volume and market share in its existing territories through
coordinating its franchisors' national advertising and marketing campaigns with
the Company's regional and local marketing efforts, (ii) improve operating
margins by shifting package mix to higher margin packages and controlling the
level of retail discounts, (iii) pursue acquisitions that leverage the Company's
existing structure and managerial expertise, (iv) strengthen the Company's
corporate culture to better leverage human resources and (v) maximize operating
efficiencies by utilizing emerging technologies to improve customer service and
communications and increase the efficiency of logistics and distribution
operations.
INCREASE GROWTH IN VOLUME AND MARKET SHARE
The Company intends to increase its growth in volume and market share by
increasing consumer preference for its high volume products. The Company
believes it can achieve this objective by maintaining a wide variety of national
brands supported by the franchisor's national advertising and major marketing
campaigns, and coordinating its own regional and local merchandising and
promotion activities to take advantage of such national advertising and
marketing campaigns. Current national advertising and marketing campaigns
supporting the Company's products include PepsiCo's PEPSI STUFF and MOUNTAIN DEW
EXTREME and Cadbury's IT'S AN UP THING. In addition, the Company's New Orleans
territory is a test market for PepsiCo's 1997 marketing initiative, PEPSI BLUE.
Under the PEPSI BLUE initiative, all Pepsi-Cola trademark graphics on packaging,
point-of-sales, cold storage equipment and delivery trucks will be coordinated
with PEPSI BLUE advertising. The Company believes these advertising and
marketing campaigns will help build consumer awareness of its product offerings.
The Company believes its own regional and local merchandising and promotion
activities, designed to take advantage of such increased consumer awareness,
will ultimately increase consumer preference and sales volume for its products.
To this end, the Company intends to (i) conduct consumer research to identify
those brands, packaging configurations and retail channels which appeal to
consumers in the Company's territories and tailor regional and local marketing
efforts accordingly, (ii) increase its share of local print advertising,
conducted primarily by high volume supermarkets and mass merchandisers, through
shared product advertisements which benefit both the retailer, by increasing the
total volume and profitability, and the Company, through higher volume due to
increased advertising frequency and (iii) continue to develop regional marketing
initiatives such as LOUISIANA LAGNIAPPE, an under the cap promotion in Louisiana
that rewards consumers with free products, merchandise and discount offers from
the Company's local business partnerships, the use of Louisiana cane sugar in
Pepsi-Cola distributed in Louisiana to promote the local sugar industry and the
relaunch of a southern version of the PEPSI CHALLENGE to build awareness of the
Pepsi-Cola trademark in the Company's territories.
IMPROVE OPERATING MARGINS
The Company intends to improve its operating margins by shifting package mix
to higher margin packages and controlling the level of discounts. Single-serve
20-ounce packages and one-liter bottles sold through cold storage equipment
(i.e., "visi-coolers" and express lane merchandise units) for immediate
35
<PAGE>
consumption are less price sensitive than other non-refrigerated packages.
Therefore, sales of single serve cold drink packages generate above average
margins for both the Company and retailers. The Company intends to increase the
presence and sales of these single serve packages by increasing its capital
investment in cold storage equipment in convenience stores, supermarkets and
other single serve outlets throughout its territories. By investing in these
assets, the Company hopes to drive volume and profitability of its major soft
drink brands while providing additional refrigerated space to merchandise more
effectively the Company's other less visible products such as new age beverages.
The Company typically receives a full return on its investment in these assets
in approximately two years. Twenty-ounce vending machine products represent
another high margin package, and the Company intends to capitalize on the
20-ounce vending market by investing in additional 20-ounce vending machines.
The Company also intends to continue to control the level of product
discounting for its more price sensitive packages such as cans and two-liter
bottles. The Company manages its product discounts by a variety of methods,
including (i) using its information system capabilities to analyze volume/price
relationships by package and customer detail, (ii) utilizing retail scan
information to analyze volume and retail price sensitivities, (iii) developing
retail audits to monitor the effectiveness of merchandising and discount
offerings, including the introduction of new promotional strategies to shift
consumer preference to less price sensitive packages and (iv) providing
innovative and unique account specific promotions to provide additional value to
consumers.
ACQUISITION STRATEGY
The Company's acquisition strategy includes identifying and pursuing
potential franchise opportunities (i) contiguous to the Company's existing
territories and (ii) that would permit the Company to extend its existing
operations while leveraging its existing structure and managerial expertise. The
acquisition of the Miller distributorships illustrates the Company's acquisition
philosophy. The Company consolidated soft drinks and beer operations into a
single facility and incorporated both products into its existing organization,
thereby extending its operations while leveraging its structure and managerial
expertise.
STRENGTHEN CORPORATE CULTURE
The Company intends to strengthen its corporate culture by rewarding
employees for achieving common goals and operating improvements, empowering
employees with flexibility to make decisions, providing an opportunity for
personal growth and encouraging open communications and teamwork by developing
common goals.
MAXIMIZE OPERATING EFFICIENCIES
The Company believes it can further enhance its operating efficiency by
utilizing emerging technologies to improve customer service and communications
and increase the efficiency of logistics and distribution operations. In
addition, the Company intends to continue to invest in its manufacturing
operations to improve production efficiencies and flexibility.
Over the past four years, the Company has invested approximately $4.5
million to upgrade its computer hardware and networking systems and acquire
hand-held computer technology in order to automate its selling, ordering and
delivery processes. See "--Sales and Distribution." In addition, the Company
acquired and developed new software to automate its forecasting, production
scheduling, inventory controls, transportation of goods and back hauling of raw
materials. Furthermore, the Company acquired distribution software systems for
two of its larger distribution locations to automate the truck loading and
dispatching of over 100 delivery routes.
The Company intends to expand its existing technology systems to create
additional operating efficiencies. The Company intends to utilize Electronic
Data Interchange (EDI) to create paperless transactions with customers and
suppliers by permitting electronic transmission of transactions. In
36
<PAGE>
addition, the Company intends to build an intranet with an internet access point
to enable direct electronic communications with its customers. The Company also
intends to create a data warehouse which will enable the Company to use advanced
tool sets to analyze realtime information which will aid management in its
decision-making processes. Finally, the Company intends to expand and improve
its dispatching process to maximize delivery efficiencies through optimal
geographical routing, delivery frequency, drop sizes and automated truck
loading.
JOINT VENTURE
Pursuant to a joint venture agreement dated September 3, 1992, as amended
and restated (the "Joint Venture Agreement"), the Company and Poydras Street
Investors LLC, a Louisiana limited liability company ("Poydras"), formed the
Pepsi Cola/Seven-Up Beverage Group of Louisiana, a Louisiana general partnership
(the "Joint Venture"). The Joint Venture distributes soft drinks in New Orleans
and Baton Rouge, Louisiana pursuant to franchise agreements entered into or
assumed by the Joint Venture. The soft drink products distributed by the Joint
Venture are supplied by the Company. The Joint Venture distributes beer in
greater New Orleans, pursuant to distributor agreements entered into by the
Joint Venture. See "--Products" and "Certain Relationships and Related
Transactions--Joint Venture."
The day to day operations of the Joint Venture are managed by the Company in
its role as Managing Venturer. As Managing Venturer, the Company has the
authority to make capital expenditures to maintain and replace facilities to
meet the anticipated needs of the Joint Venture. The business and affairs of the
Joint Venture are subject to the governance of a four member Management
Committee, of which two members are designated by the Company and two members
are designated by Poydras. The Company has a 62.0% interest in the Joint
Venture. Poydras has the remaining 38.0% interest. Profits and losses of the
Joint Venture are distributed based on the parties' interests in the Joint
Venture.
Under the terms of the Joint Venture Agreement, the Company may elect, as of
December 31, 1999, to purchase Poydras' ownership interest at a price equal to
38.0% of the fair market value of the Joint Venture. Poydras may elect to defer
the closing of any such purchase to January, 2001. No similar feature exists for
purchase of the Company's ownership interest by Poydras.
PRODUCTS
SOFT DRINKS
The following table sets forth products of PepsiCo, Cadbury and other
franchisors produced and/or distributed by the Company (hereinafter referred to
as "PepsiCo Products" and "Cadbury Products," respectively). The Company
packages and distributes its soft drink products in one, two, three-liter and
20-ounce PET bottles and aluminum cans in six packs, 12-packs, 20-packs and
24-packs.
<TABLE>
<CAPTION>
PEPSICO PRODUCTS CADBURY PRODUCTS
- - --------------------------------------------- ---------------------------------------------
<S> <C>
PEPSI SEVEN-UP
CAFFEINE FREE PEPSI DIET 7UP
DIET PEPSI CHERRY 7UP
CAFFEINE FREE DIET PEPSI COUNTRY TIME
MOUNTAIN DEW CRYSTAL LIGHT
DIET MOUNTAIN DEW CRUSH
SLICE
MUG ROOT BEER OTHER PRODUCTS
LIPTON ICE TEA ------------------
OCEAN SPRAY HAWAIIAN PUNCH
ALL SPORT SUNNY DELIGHT
MONARCH
YOO-HOO
</TABLE>
37
<PAGE>
The following table sets forth products of Miller and Heineken distributed
by the Company (hereinafter referred to as "Miller Products" and "Heineken
Products," respectively). The Company distributes its beer products in glass
bottles and aluminum cans in six packs, 12-packs and 24-packs.
<TABLE>
<CAPTION>
MILLER PRODUCTS HEINEKEN PRODUCTS
- - --------------------------------------------- ---------------------------------------------
<S> <C>
MILLER BEER HEINEKEN
MILLER HIGH LIFE AMSTEL LIGHT
MILLER HIGH LIFE LITE
MILLER GENUINE DRAFT LIGHT
LOWENBRAU SPECIAL
LOWENBRAU DARK
LOWENBRAU MALT LIQUOR
MAGNUM
MILWAUKEE'S BEST
MILWAUKEE'S BEST LIGHT
SHARP'S
ICEHOUSE
LITE ICE
RED DOG
MOLSON GOLDEN
MOLSON ICE
FOSTER'S LAGER F
</TABLE>
SOFT DRINK FRANCHISES
Under franchise agreements with PepsiCo, Cadbury and several other beverage
companies, the Company produces and/or distributes soft drinks and engages in
certain other marketing activities. Under the terms of the franchise agreements,
the Company has the exclusive right to produce and distribute certain products
of the franchisors in prescribed geographic areas. The Company believes that it
is currently in compliance with all of the terms of its franchise agreements.
The Company's franchisors are the sole owners of the secret formulae under
which the primary component (concentrate or syrup) of various soft drink
products bearing the franchisors' trademarks are manufactured. Each concentrate,
when mixed with water and sweetener, produces syrup which, when mixed with
carbonated water, produces soft drinks. Except to the extent reflected in the
price of concentrate or syrup, no royalty or other compensation is paid under
the franchise agreements to the franchisors for the right of the Company to use
the franchisors' trade names and trademarks in its territories and the
associated patents, copyrights, designs and labels, all of which are owned by
the franchisors.
Under the terms of its franchise agreements with PepsiCo, the Company is
required to purchase either concentrate or syrup manufactured only by PepsiCo,
at prices established by PepsiCo, for PepsiCo trademarked products.
Historically, prices established by PepsiCo for its concentrates and syrups have
been adjusted annually in accordance with changes in the Consumer Price Index
("CPI"). The PepsiCo franchise agreements further provide that suppliers of
bottles and crowns for PepsiCo products must be approved by PepsiCo. The
franchise agreements require the Company to promote vigorously the sale of
PepsiCo products in its territory, to ensure it has adequate capacity to meet
demand for PepsiCo products and to advertise and promote actively PepsiCo
products in its territory at its own cost. The PepsiCo franchise agreements
prohibit the Company from bottling, distributing or selling any other beverage
which could be confused with Pepsi-Cola. The franchise agreements remain in
effect for an indefinite period of time, subject to termination with due notice
by PepsiCo upon (i) the violation of any of the prescribed terms thereof, (ii)
the insolvency of the Company, an assignment by the Company for the benefit of
its creditors, or the failure of the Company to vacate the appointment of a
receiver within 60 days thereof, or (iii) the sale, disposition, change in
control or transfer of the Company's rights pursuant to the franchise agreement
without the written consent of PepsiCo.
38
<PAGE>
The franchise agreements relating to soft drink products from other
significant soft drink franchisors are substantially similar to the franchise
agreements with PepsiCo. The territories covered by the franchise agreements for
products of other franchisors generally correspond with the territories covered
by the franchise agreements with PepsiCo.
BEER DISTRIBUTORSHIPS
The Company distributes Miller Products and Heineken Products pursuant to
distributor agreements entered into with the respective brewers (the "Miller
Agreement" and the "Heineken Agreement," respectively). Each of the distributor
agreements gives the Company exclusive rights to distribute the brewers'
products in its territory. The Company began distribution of Miller Products
pursuant to the Miller Agreement in 1995 and began distribution of Heineken
Products pursuant to the Heineken Agreement in 1996.
Many of the terms of the Miller and Heineken Agreements are similar. Under
these agreements, prices of the brewers' products to the Company are determined
by the brewer. Historically, prices of the brewers' products have been adjusted
annually in accordance with changes in the CPI. The individual who manages the
distribution of the brewer's products must be approved by the brewer. Any sale,
disposition, change in control or transfer of the Company's rights pursuant to
the distributor agreement must receive prior approval of the brewer. Each of the
distributor agreements remains in effect for an indefinite period of time,
however, the Company may terminate its distribution agreement with either Miller
or Heineken upon 90 days' prior written notice. Moreover, Miller or Heineken may
terminate the Company's distribution rights in the event: (i) the Company fails
to comply with any of its commitments or obligations pursuant to the
distribution agreement; (ii) the Company or any of its owners is convicted of a
felony; (iii) the Company engages in fraudulent conduct or substantial
misrepresentation in its dealings concerning the brewer's products; (iv) the
Company's federal, state or local licenses or permits for its distribution
operations are revoked or suspended for more than 31 days; (v) the Company
becomes insolvent, fails to pay monies due the brewer, makes an assignment or
attempts to make an assignment for the benefit of creditors, institutes or has
instituted against it bankruptcy proceedings, dissolves or liquidates; or (vi)
the Company fails to undertake a good faith effort to cure any such
noncompliance. Miller reserves the right to terminate the Miller Agreement upon
30 days' notice, provided it gives notice contemporaneously to all of the other
Miller distributors in the U.S. Heineken reserves the right to terminate the
Heineken Agreement upon 30 days' notice, provided it gives notice
contemporaneously to all of the other Heineken distributors in Louisiana.
SALES AND DISTRIBUTION
The Company's products are generally sold in advance by a salesperson and
then delivered within 24 hours from one of the Company's distribution facilities
to the customer. The Company recently invested in hand-held computer technology
and other hardware and software to improve customer service and delivery
effectiveness. Hand-held computers allow the advance salesperson to download all
order information for each customer into the Company's main computer system. The
orders are electronically processed for truck loading, route dispatching and
customer invoicing. Customer files are controlled with the correct wholesale
price and discount for each SKU. The product is delivered by a Company employee
using a hand-held delivery computer. The delivery is verified by both the
customer and Company employee, and a computerized invoice is printed and
presented to the customer. Upon completing delivery of all orders, the driver
performs a self settlement at the Company's distribution facility. The customer
data is then transferred from the hand-held computer into the Company's route
settlement process for verification.
The Company operates a 1,300 vehicle fleet to support its sales and
distribution operations. Maintenance and service of the fleet are provided by
the Company.
39
<PAGE>
SOFT DRINKS
In 1995, approximately 53.6% of the Company's soft drink products were sold
to supermarkets, 23.8% to convenience stores, gas stations and small grocery
stores, 9.3% to drug stores and mass merchants, 7.6% to third party operators
and full service vending accounts and 5.7% to other miscellaneous accounts.
Soft drink sales oriented towards high-volume customers such as large retail
chains result in economies of scale in selling and distribution expenses. Bulk
deliveries for high-volume customers are made from the Company's distribution
facilities to the customer's outlets via transport vehicles and are unloaded
into the outlets in full pallet quantities. Some soft drink deliveries are made
directly from the manufacturing plant to retail outlets, thereby bypassing the
Company's warehouse operations. Soft drink sales are also made to smaller
independent retail outlets where consumers prefer to purchase cold beverages in
single packages or at fountain outlets. Conventional route trucks are used to
make soft drink deliveries to the Company's smaller customers.
The Company also makes cold soft drinks available to consumers through
vending machines, fountain equipment and visi-coolers. Substantially all vending
machines utilized by the Company are Company-owned and provided at no cost to
retail outlets or third-party operators. Company-owned vending machines are
maintained and stocked by the Company. Vending machines provided to retail
outlets or third-party operators are maintained by the Company and stocked by
the party operating the vending machine. Fountain equipment dispenses products
in convenience stores, gas stations, restaurants, bars, theaters and other
similar locations. The Company sells either premix, a ready-to-use product, or
postmix, a syrup product, to retailers in stainless steel or disposable
containers for use in fountain equipment. Visi-coolers are generally loaned by
the Company to large retail outlets and convenience stores. The Company has an
installed base of approximately 6,000 visi-coolers and 10,200 vending machines.
BEER
For the nine-month period ended September 30, 1996, approximately 39.9% of
the Company's beer products were sold to supermarkets, 20.1% to on-premise
channels such as restaurants and bars, 20.4% to convenience stores, 9.4% to drug
stores and mass merchants and 10.2% to other miscellaneous accounts.
The sales and distribution process for the Company's beer business is
essentially the same as for soft drinks. To maximize distribution efficiency,
beer and soft drinks are loaded and delivered on the same vehicle for
distribution and merchandising to large bulk customers. Kegs of beer for
delivery to on-premise customers are stored in a climate-controlled refrigerated
section of the Company's facilities and delivered on refrigerated route
vehicles.
MARKETING
The Company's marketing efforts are directed towards brand management, key
account management, promotional activities and merchandising. The Company
believes that its marketing program allows it to compete effectively in its
territories.
SOFT DRINKS
Marketing programs for each of the Company's soft drink products are
coordinated with the franchisor. Advertising campaigns are developed by the
franchisors on the national level and by both the Company and the franchisor on
the local level. A significant portion of the Company's promotional effort
focuses on price discounting and allowances, newspaper advertising and coupons.
The goal of these activities is to position the Company's brands to compete
effectively in the marketplace and to obtain "feature" retail advertisements and
end-aisle displays in high volume retail outlets. End-aisle and secondary
displays are generally limited to special promotions and advertisements designed
to stimulate sales and encourage impulse purchases. As a service to customers
and to better merchandise its products, the
40
<PAGE>
Company builds displays in conjunction with promotional programs and for
restocking products in grocery stores, mass merchandise outlets and convenience
stores.
The Company pays retail stores under annual marketing agreements for the
right to be included in the retailer's advertising programs. Retail promotional
programs are the Company's most significant marketing expenditures and are
supported through cost-sharing arrangements with the franchisors. Other
marketing expenditures are also typically supported by the franchisor. National
media advertising is funded primarily by the franchisors, while local media
advertising is funded through cost-sharing arrangements. See "--General."
BEER
Marketing programs, national advertising and all television and radio
advertising for the Company's beer products are provided by the brewer.
Marketing efforts by the Company to secure large accounts such as supermarkets
and convenience stores in its territories and discount pricing of beer products
are also generally supported by the brewer.
Promotional efforts focus on price discounting and allowances to obtain
newspaper advertising that features value pricing to consumers supported with
secondary displays. Cold merchandising availability is also important as over
60.0% of beer in supermarkets is sold cold. On-premise sales are aggressively
supported by both the brewer and distributor since this channel represents
significant sampling and trial of beer products.
MANUFACTURING FACILITIES AND PHYSICAL PROPERTIES
The Company currently bottles and cans soft drink products in two production
facilities, a 110,000 square foot production facility adjacent to an 89,000
square foot warehouse facility in Collierville, Tennessee (located outside
Memphis, Tennessee), and a 120,000 square foot production facility in Reserve,
Louisiana (located outside New Orleans, Louisiana). The Company believes that
its production facilities will be sufficient to meet anticipated production
needs for the foreseeable future.
The Company's headquarters are located in Memphis, Tennessee. The
headquarters facilities are leased. The Company also operates 24 warehouse
distribution facilities from which it conducts its sales, delivery and vending
operations. The Company owns 17 of the warehouse distribution facilities and
leases the remaining 7 facilities. The locations of the warehouse distribution
facilities are as follows:
<TABLE>
<CAPTION>
OWNED FACILITIES LEASED FACILITIES
- - -------------------------- ---------------------------
<S> <C>
Batesville, Arkansas Forrest City, Arkansas
Camden, Arkansas Alexandria, Louisiana
Hot Springs, Arkansas Baton Rouge, Louisiana
Jonesboro, Arkansas Shreveport, Louisiana
Little Rock, Arkansas Columbus, Mississippi
Monticello, Arkansas Kosciusko, Mississippi
Covington, Louisiana Jackson, Tennessee
Harahan, Louisiana
Leesville, Louisiana
Monroe, Louisiana
Shriever, Louisiana(1)
Batesville, Mississippi
Corinth, Mississippi
Greenville, Mississippi
Tupelo, Mississippi
Collierville, Tennessee
Texarkana, Texas
</TABLE>
- - ------------------------
(1) This facility is owned by the Company and leased to the Joint Venture.
41
<PAGE>
MANUFACTURING PROCESS
The Company produced 36.6 million cases of soft drinks in 1995 at its two
manufacturing facilities in Collierville, Tennessee and Reserve, Louisiana. The
Collierville and Reserve facilities have annual production capacity of 34.7
million and 31.2 million cases of beverages, respectively. During the peak
volume months of May through August, the plants typically operate at
approximately 80.0% of capacity. See "Risk Factors--Certain Factors Affecting
Sales."
The manufacturing process consists of receiving, batching, filling and
packaging product. Containers are received in bulk and are moved from the
supplier's trailers to "de-palletizing" equipment which then automatically
places the containers on conveyers that feed them to the filling equipment.
Treated water, extract and additives are combined in large stainless steel tanks
and mixed, or "batched," into syrup with a motorized impeller. The syrup is then
mixed with additional purified water and carbonated. Finished product is then
sent to the filling equipment. At the same time, containers arrive by conveyor
and are rinsed using ionized air and vacuums to remove dust particles. The
filling equipment fills the cleaned containers with finished products. The
filled cans and bottles are then automatically scanned to test levels and cap or
top placement. Cans are either placed in corrugated trays and fastened with
plastic rings or placed in multipack cartons. Bottles are usually placed in
boxes for stability. Each case is then automatically transported to a
"palletizer" where it is stacked on a wooden pallet and shrink-wrapped to be
stored before distribution.
The Company's can lines have been modified for additional capacity as well
as the capability to produce six pack cans and multi-pack cans simultaneously.
The bottle lines which produce 20-ounce, one-liter and two-liter bottles have
on-line labeling capabilities that reduce packaging inventories. Moreover, the
filling equipment on the Company's bottle lines has been upgraded with quick
change parts to reduce down time for flavor changeovers. One-liter, two-liter,
three-liter and 20-ounce PET bottle products have been converted to standardized
deposit shells, which eliminate packaging costs and provide intraplant
flexibility to cross ship products regardless of plant location.
The Company receives all beer products from brewer manufacturing facilities
and does not itself manufacture beer products.
COMPETITION
The beverage industry is highly competitive. The Company's products are sold
in competition with all liquid refreshments. Sales of beverages occur in a
variety of locations, including supermarkets, retail and convenience stores,
restaurants and vending machines. See "Risk Factors--Competition."
SOFT DRINKS
Competitors in the soft drink industry include bottlers and distributors of
nationally advertised and marketed products as well as chain store and private
label soft drinks. The principal methods of competition include brand
recognition, price and price promotion, retail space management, service to the
retail trade, new product introductions, packaging changes, distribution methods
and advertising. The Company's primary competitor in its territory is CCE. The
Company believes that its flexibility and innovation in developing and
implementing new methods of marketing, merchandising and distributing its
products permit it to compete effectively against CCE. See "--Strategic
Objectives."
BEER
Competitors in the distribution of beer include distributors of nationally
advertised and marketed products as well as regional and local products. The
primary methods of competition include quality, taste and freshness of the
products, price, packaging, brand recognition, retail space management and
advertising. The Company's principal competitors in its beer distribution
operations are distributors of Anheuser-
42
<PAGE>
Busch products, whose products accounted for 46.1% of total U.S. beer sales in
1995. Sales of Miller products in the same time period represented 22.6% of
total U.S. beer sales. The Company believes it competes effectively by executing
its marketing campaigns and product introductions effectively, maintaining price
competitiveness and increasing presence and maximizing availability of its
products in selected distribution channels.
RAW MATERIALS
In addition to concentrates and syrups obtained from its franchisors, the
Company also purchases water, carbon dioxide, fructose, PET bottles, aluminum
cans, closures, premix containers and other packaging materials. The price of
concentrates and syrups is determined by the franchisors, and may be changed at
any time; however, historically these prices have been adjusted annually in
accordance with changes in the CPI. Prices for the remaining raw materials are
determined by the market. See "Risk Factors--Dependence on Raw Materials."
A substantial portion of the Company's raw materials, including its aluminum
cans, closures, other packaging materials and fructose, are made through CPG.
The Company and other franchisees or affiliates of franchisees of PepsiCo are
members of CPG. The Company and other CPG members submit their raw material
requirements to CPG which then negotiates with suppliers and makes purchases
based on the combined requirements of all CPG members. In 1995, CPG purchased
4.5 billion or 9.0% of all aluminum cans used in the U.S. beverage industry, and
15.0% of all fructose used in the U.S. soft drink industry. The Company believes
the magnitude of CPG's purchases gives the Company greater influence with
suppliers than the Company could achieve on a stand alone basis.
In 1995, increased prices for packaging and ingredients led to increased raw
materials costs for all soft drink industry participants and resulted in erosion
of the Company's profit margins. CPG has altered its purchasing strategies as a
result of these increases, and the Company believes CPG's new purchasing
strategies provide the Company with greater price protection.
Increased prices for PET bottles in 1995 and capacity constraints in the PET
bottle industry during the same time period adversely affected the Company's
financial results. Additional capacity in the PET bottle industry has alleviated
the capacity constraints and reduced prices for PET bottles. The Company does
not believe a hedging position with respect to PET bottles is necessary at this
time.
GOVERNMENT REGULATION
The production, distribution and sale of many of the Company's products are
subject to the Federal Food, Drug and Cosmetic Act, the Occupational Safety and
Health Act and various federal and state statutes regulating the franchising,
production, sale, safety, advertising, labeling and ingredients of such
products. Two ingredients in its soft drink products, saccharin and aspartame,
are regulated by the U.S. Food and Drug Administration. See "Risk
Factors--Government Regulations."
Bills are considered from time to time in various state legislatures and in
Congress which would prohibit the sale of beverages unless a deposit is made for
the containers. Proposals have been introduced in certain states and localities
that would impose a special tax on beverages sold in nonreturnable containers as
a means of encouraging the use of returnable containers. No such legislation is
currently in effect and, to the knowledge of management of the Company, none is
currently under consideration in any territories served by the Company.
Specific soft drink taxes have been imposed in some states for several
years. Of the states in which the Company conducts business, Arkansas, Tennessee
and Louisiana all impose specific soft drink taxes. The Company believes it is
in compliance with all tax regulations pertaining to its operations.
43
<PAGE>
The Company's beer distribution operations are subject to extensive
regulations by state and federal agencies of such matters as licensing
requirements, trade and pricing practices, permitted and required labeling,
advertising and relations with retailers. The federal government also requires
warning labels on packaging of beer. The distribution and sale of beer is
subject to excise taxes at both the state and federal level. The Company
believes it is in compliance with all such regulations pertaining to its beer
distribution operations.
The Company's business is also subject to federal and state environmental
laws, rules and regulations. See "--Environmental."
ENVIRONMENTAL
The Company is subject to a variety of federal and state environmental laws,
rules and regulations, as are other companies in the same or similar business.
In particular, the Company is subject to regulations governing the installation,
maintenance and use of, and the clean-up of any releases from, underground
storage tanks and the generation, treatment, storage and disposal of hazardous
materials. The Company believes it is in substantial compliance with such laws,
rules and regulations; however, these laws, rules and regulations change from
time to time, and such changes may affect the ongoing business and operations of
the Company. From time to time, the Company has received, and in the future may
receive, requests from environmental regulatory authorities to provide
information or to conduct investigative or remediation activities with respect
to its facilities. None of these requests is expected by management to have a
material adverse effect on the Company's business.
In connection with the maintenance and service of its 1,300 vehicle fleet,
the Company generates hazardous wastes, which are either transported off-site by
licensed haulers to permitted disposal facilities or recycled by vendors as
mandated by federal and state law. Some of the Company's facilities have
underground storage tanks which meet U.S. Environmental Protection Agency and
state standards. Other facilities have above-ground storage tanks which are
owned and maintained by petroleum vendors.
EMPLOYEES AND EMPLOYEE BENEFITS
At September 30, 1996, the Company had approximately 1,682 full-time
employees and 74 part-time employees. Approximately 205 of the Company's
employees at its Collierville, Tennessee facility are represented by the
International Brotherhood of Teamsters Local Union No. 1196 pursuant to two
labor contracts. The first contract expires on September 30, 1998 and
automatically extends for one-year terms thereafter unless written notice is
provided by either party to the other at least 60 days prior to expiration of
the contract. The second contract expires on December 2, 1999. Approximately 144
of the Company's employees at its Harahan, Louisiana facility are represented by
the International Brotherhood of Teamsters, AFL-CIO, General Truck Drivers,
Chauffeurs, Warehousemen and Helpers Local 270 pursuant to two labor contracts.
The first contract expires on December 31, 1999. The second contract expires in
November 1999. See "Risk Factors--Expiration of Labor Contracts." The Company
has not experienced any labor disputes and believes relations with its employees
are satisfactory.
The Company makes a variety of benefits available to its employees. In
particular, the Company sponsors a tax-qualified 401(k) plan that permits
eligible employees to defer a portion of their salary on a tax-deferred basis
and receive a Company matching contribution that is capped at $500 per employee.
In addition, the Company sponsors welfare benefits programs that provide health,
dental, life and accidental death and dismemberment insurance coverage to
substantially all employees. The Company does not presently maintain, or
contribute to, any defined benefit pension plans or multiemployer pension plans.
The Company also provides additional benefits to its executive employees. These
plans provide bonus, incentive and deferred compensation to eligible executive
employees. See "Executive Compensation."
44
<PAGE>
LEGAL PROCEEDINGS
In August 1996, Michael Church filed suit in U.S. District Court for the
Southern District of Alabama against the Company, the Joint Venture, members of
the Pohlad family and certain other individuals alleging breach of an agreement
with plaintiff to compensate him for arranging for the acquisition of the Miller
distributorship by the Joint Venture. The plaintiff is seeking compensatory and
punitive damages in an amount to be established at trial. The Company believes
there is no foundation for the allegations in the suit and intends to defend
itself fully against such allegations. The Company recently filed a motion to
dismiss for lack of personal jurisdiction and alternatively to transfer the
matter to the Eastern District of Louisiana.
Between June 1993 and June 1994, the Company and the Joint Venture were
named in multiple suits filed in the Civil District Court for the Parish of New
Orleans, which suits have been consolidated into one suit, with respect to an
incident arising at the Pepsi Super Fair held in New Orleans, an event sponsored
by the Company and the Joint Venture. PepsiCo is also a named defendant in the
suit, along with numerous other parties. The suit alleges that the defendants'
negligence resulted in physical injuries to the plaintiffs, most of whom were
participants in a particular carnival ride or were in the proximity of such
ride. The plaintiffs are seeking damages in an amount to be established at
trial. The Company intends to defend itself fully in this action.
In August, 1993, the Company was named in a suit filed in the District Court
of Morris County, Texas by a number of bottlers in parts of the Company's
territories. Additional defendants named in the suit include PepsiCo, Inc.,
Pepsi-Cola Company, Coca-Cola, CCE and others. The suit alleges that the
defendants engaged in unfair trade practices and conspired to monopolize the
soft drink industry in eastern Texas, Louisiana and Arkansas. The Company
intends to defend itself fully in this action.
From time to time, the Company is involved in various other legal
proceedings arising in the ordinary course of business. The Company believes
ultimate resolution of such litigation will not have a material adverse effect
on the Company's business, financial condition or results of operations.
45
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
directors and executive officers of the Company as of September 30, 1996. All
directors of the Company hold office until the next annual meeting of
shareholders or until their successors have been elected and qualified.
Executive officers are elected by the board of directors to hold office until
their successors are elected and qualified.
<TABLE>
<CAPTION>
NAME AGE POSITION(S) WITH COMPANY
- - ----------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Robert C. Pohlad............................... 42 Chief Executive Officer and Director
John F. Bierbaum............................... 52 Chief Financial Officer and Director
Kenneth E. Keiser.............................. 45 President and Chief Operating Officer
Bradley J. Braun............................... 41 Vice President, Finance and Assistant Secretary
Jay S. Hulbert................................. 43 Vice President, Operations
Michael G. Naylor.............................. 37 Vice President, General Manager
Charles M. Pullias............................. 47 Vice President, General Manager
Raymond R. Stitle.............................. 42 Vice President, Human Resources
Brian D. Wenger................................ 35 Secretary
Donald E. Benson............................... 66 Chairman of the Board
John H. Agee................................... 48 Director
Brenda C. Barnes............................... 43 Director
Christopher E. Clouser......................... 44 Director
Philip N. Hughes............................... 61 Director
Gerald A. Schwalbach........................... 51 Director
John F. Woodhead............................... 57 Director
</TABLE>
ROBERT C. POHLAD. Mr. Pohlad has served as director and Chief Executive
Officer of the Company since 1988. Since 1987, Mr. Pohlad has also served as
President of the Pohlad Companies, a holding and management services company,
which has an ownership interest in and provides management services to the
Company. Prior to 1987, Mr. Pohlad was Northwest Area Vice President of the
Pepsi-Cola Bottling Group. Mr. Pohlad also currently serves as a director for
Mesaba Holdings, Inc. and Grow Biz International, Inc. See "Certain
Relationships and Related Transactions--Management Agreement."
JOHN F. BIERBAUM. Mr. Bierbaum has served as director of the Company since
1993, and as Chief Financial Officer of the Company since 1988. Mr. Bierbaum is
also Chief Financial Officer of the Pohlad Companies, a holding and management
services company, which has an ownership interest in and provides management
services to the Company. Mr. Bierbaum has been associated with the Pohlad
Companies from 1975 to the present in a variety of capacities, including his
current position. From 1986 to 1988, Mr. Bierbaum served as Vice President of
the Pepsi-Cola Bottling Company of Tampa. See "Certain Relationships and Related
Transactions--Management Agreement."
KENNETH E. KEISER. Mr. Keiser joined the Company in his present position in
1990. From 1976 to 1990, he was employed by the Pepsi-Cola Bottling Group in
various capacities, including Division Vice President of the Central Division
from 1989 to 1990, Vice President of the Minneapolis Area from 1986 to 1989,
Director of Corporate Trade Development from 1985 to 1986, Area Vice President
of Philadelphia from 1982 to 1985, and various other capacities from 1976 to
1985. See "Certain Relationships and Related Transactions--Employment
Agreement."
BRADLEY J. BRAUN. Mr. Braun became Vice President of Finance and Assistant
Secretary for the Company in 1991. Prior to joining the Company, Mr. Braun
served as Controller of the Dakota Beverage Company, Inc., a PepsiCo franchise
bottler which is a wholly owned subsidiary of the Pohlad Companies.
46
<PAGE>
JAY S. HULBERT. Mr. Hulbert joined the Company in 1988 as Director of
Operations, and in January, 1991 was promoted to his current position of Vice
President, Operations. Prior to joining the Company, Mr. Hulbert spent seven
years working for the Pepsi-Cola Bottling Group in a variety of capacities.
MICHAEL G. NAYLOR. Mr. Naylor joined the Company in 1984. In January, 1991,
Mr. Naylor was promoted to his present position of Vice President, General
Manager. From 1984 to 1990 Mr. Naylor served the Company in a variety of
capacities, including Regional Sales Manager.
CHARLES M. PULLIAS. Mr. Pullias joined the Company in 1991 as Vice
President of Sales for the Southern Region. In January, 1991, Mr. Pullias was
promoted to his current position of Vice President, General Manager. Prior to
1991, Mr. Pullias spent seven years working for the Pepsi-Cola Company in Texas
in various sales and marketing positions.
RAYMOND R. STITLE. Mr. Stitle joined the Company in 1988 as Director of
Human Resources, and was promoted to his current position of Vice President,
Human Resources in January, 1991. Prior to joining the Company, Mr. Stitle was
employed by Pepsi-Cola USA.
BRIAN D. WENGER. Mr. Wenger has served as the Company's Secretary since
1995. Mr. Wenger is a shareholder with the law firm of Briggs and Morgan, P.A.,
where he has been employed since 1988. See "Certain Relationships and Related
Transactions--Certain Business Relationships."
DONALD E. BENSON. Mr. Benson has been a director of the Company since 1988.
Mr. Benson also currently serves as director for Mass Mutual Corporate Investors
and Mass Mutual Participation Investors. Since 1995, Mr. Benson has also been
employed by the Pohlad Companies, a holding and management services company,
which has an ownership interest in and provides management services to the
Company, and another of its affiliates, CRP Holdings, Inc., a management
services company. Mr. Benson has served as Executive Vice President of Marquette
Bancshares, Inc., a bank holding company and an affiliate of the Pohlad
Companies, since 1993 and with its predecessor organizations since 1968. From
1986 to 1994, Mr. Benson was President and director of MEI Diversified Inc., a
holding company with interests in various operating entities. In February 1993,
MEI Diversified Inc. filed for Chapter 11 bankruptcy protection. A Plan of
Reorganization for MEI Diversified Inc. was confirmed in October 1994, pursuant
to which its assets and liabilities were liquidated.
JOHN H. AGEE. Mr. Agee has been a director of the Company since 1988. Since
1986, Mr. Agee has also been President of ADLER MANAGEMENT CORP., a financial
consulting and management services company. Mr. Agee was nominated by Arbeit &
Co. and elected to his position by the shareholders of the Company pursuant to
the Amended and Restated Shareholders' Agreement dated as of September 23, 1993
(the "Shareholders' Agreement"), among all of the shareholders of the Company,
which provides that Arbeit & Co. may nominate one director to the Company's
board of directors and that the shareholders will vote for such nominee. See
"Certain Relationships and Related Transactions--Shareholders' Agreement."
BRENDA C. BARNES. Ms. Barnes has been a director of the Company since 1994.
Since April 1996, Ms. Barnes has been President and Chief Executive Officer of
Pepsi-Cola North America. From 1994 to April 1996, Ms. Barnes was President and
Chief Operating Officer of Pepsi-Cola North America. From 1992 to 1994, Ms.
Barnes was Executive Vice President of Pepsi-Cola North America. Prior to 1992,
Ms. Barnes was Senior Vice President of Corporate Development of Pepsi-Cola
North America. Ms. Barnes is also a director of AVON Products, Inc. Ms. Barnes
was nominated by PepsiCo and elected to her position by the shareholders of the
Company pursuant to the Shareholders' Agreement, which provides that PepsiCo,
Inc. may nominate one director to the Company's board of directors and that the
shareholders will vote for such nominee. See "Certain Relationships and Related
Transactions--Shareholders' Agreement."
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<PAGE>
CHRISTOPHER E. CLOUSER. Mr. Clouser has been a director of the Company
since 1995. Mr. Clouser also currently serves as a director of Northwest
Airlines, Inc. Since 1991, Mr. Clouser has been employed by Northwest Airlines,
Inc. as Senior Vice President, Administration.
PHILIP N. HUGHES. Mr. Hughes has been a director of the Company since 1988.
Mr. Hughes is also owner of Miller Printing, Inc., a commercial printer, Rocket
Lube, Inc., a chain of quick-service vehicle lube operations, and Champion
Athletic Glove, Inc., a manufacturer and distributor of sport gloves. From 1982
to 1986, Mr. Hughes was a director of MEI Corporation, and from 1983 to 1986
served as Senior Vice President of MEI Corporation. From May 1986 to December
1986, Mr. Hughes was President, MEI Division, Pepsi-Cola Bottling Group, a
division of PepsiCo Inc. From 1986 to 1993, Mr. Hughes served as a director of
MEI Diversified, Inc. In February 1993, MEI Diversified Inc. filed for Chapter
11 bankruptcy protection. A Plan of Reorganization for MEI Diversified Inc. was
confirmed in October 1994, pursuant to which its assets and liabilities were
liquidated.
GERALD A. SCHWALBACH. Mr. Schwalbach has served as a director of the
Company since 1988. Since July, 1996, Mr. Schwalbach has been a member of
Superior Storage, LLC., an owner and operator of mini-storage facilities. From
1985 to June, 1996, Mr. Schwalbach served as Executive Vice President of Jacobs
Management, Inc. From 1988 to June, 1996, Mr. Schwalbach served concurrently as
Vice President of an affiliate of Jacobs Management, I.J. Holdings, Inc. From
1990 to June, 1996, Mr. Schwalbach served concurrently as Executive Vice
President and Executive Vice President and Treasurer of two other affiliates of
Jacobs Management, Jacobs Investors, Inc. and IMR General, Inc., respectively.
JOHN F. WOODHEAD. Mr. Woodhead has been a director of the Company since
1994. Since 1971, Mr. Woodhead has provided management consulting services to
Dakota Beverage Company, Inc., a PepsiCo franchise bottler which is a
wholly-owned subsidiary of the Pohlad Companies. Mr. Woodhead is also currently
owner and President of JFW Inc., a management services company, and Woodhead
Properties, a real estate investment firm. Since 1992, Mr. Woodhead has also
served as President and Chairman of Park National Bank. From 1982 to 1995, Mr.
Woodhead was owner and Chairman of Allstate Medical Products.
BOARD OF DIRECTORS COMMITTEES AND COMPENSATION
The Company has an Executive Committee whose members include Robert C.
Pohlad, John H. Agee and Donald E. Benson. The Executive Committee is authorized
by the board of directors to have and exercise the authority of the board of
directors in the management of the business of the Company, including
determining compensation levels for the Company's executives and officers.
Outside directors are paid $500 for each board meeting attended, plus
reasonable travel expenses. No payment is made to employee-directors or
directors with an equity interest in the Company.
48
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the aggregate cash compensation paid by the
Company to its most highly paid executive officers for the fiscal year ended
December 31, 1995. Neither Robert C. Pohlad, the Company's Chief Executive
Officer, nor John F. Bierbaum, the Company's Chief Financial Officer, receive
any compensation from the Company, except that Mr. Bierbaum participates in the
Company's Superior Performance Incentive Bonus Plan. See "--Employee Benefit
Plans." The services of Mr. Pohlad and Mr. Bierbaum are provided to the Company
pursuant to a Management Agreement between the Company and the Pohlad Companies.
See "Certain Relationships and Related Transactions--Management Agreement."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
1995 ANNUAL COMPENSATION
--------------------------------------
NAME AND PRINCIPAL POSITION OTHER ANNUAL
DURING FISCAL 1995 SALARY BONUSES(1) COMPENSATION
------------------------------- ---------- ----------- -------------
<S> <C> <C> <C>
Kenneth E. Keiser
President and Chief Operating Officer................................... $ 215,000 $ 24,750 $ 819,868(2)
Charles M. Pullias
Vice President, General Manager......................................... 129,000 5,160
Jay S. Hulbert
Vice President, Operations.............................................. 111,000 4,440
Michael G. Naylor
Vice President, General Manager......................................... 106,000 4,240
Bradley J. Braun
Vice President, Finance................................................. 101,000 4,040
</TABLE>
- - ------------------------
(1) Reflects bonuses awarded pursuant to the Company's 1995 bonus plan for
certain employees of the Company based in part on the financial performance
of the Company.
(2) Reflects compensation paid to Mr. Keiser pursuant to an agreement entered
into by the Company and Mr. Keiser dated February 1, 1990 (the "Keiser
Agreement"), whereby Mr. Keiser received phantom stock appreciation rights
in common stock of PepsiCo, Inc which vested fully on February 1, 1994. The
purpose of the Keiser Agreement was for the Company to replace the value of
stock options which Mr. Keiser then held with his former employer, PepsiCo.
Pursuant to the Keiser Agreement, Mr. Keiser exercised the remainder of his
stock appreciation rights in 1995. The compensation paid to Mr. Keiser upon
such exercise as reported above is equivalent to the difference in the base
value of the PepsiCo, Inc. common stock (as defined in the Keiser Agreement)
and the fair market value of such stock on the date of exercise.
EMPLOYMENT AGREEMENT
The Company has entered into an employment agreement with its Chief
Operating Officer, Kenneth E. Keiser (the "Employment Agreement"). Under the
terms of the Employment Agreement, Mr. Keiser receives a base salary as
determined by the Company's board of directors, with any increases in such base
salary subject to the unanimous approval of the board of directors. Pursuant to
the Employment Agreement, Mr. Keiser is also eligible to participate in Company
incentive plans and receive an incentive bonus and fringe benefits available to
other employees of the Company.
The Employment Agreement is renewable for one year terms each February 1
(the "Term"). In the event Mr. Keiser's employment is terminated for any reason
prior to the expiration of a Term, Mr. Keiser is prohibited, through such Term,
from (i) providing services, directly or indirectly, to any person or
49
<PAGE>
organization which is in the same or similar business as or is in competition
with the Company, (ii) advising any Company employee or anyone in the service of
the Company to compete with the Company or (iii) advising any competitor of the
Company to engage the services of any Company employee or anyone in the service
of the Company.
EMPLOYEE BENEFIT PLANS
GENERAL.
The Company makes a variety of benefits available to its employees. The
Company sponsors welfare benefits programs that provide health, dental, life and
accidental death and dismemberment insurance coverage to substantially all
employees. The Company does not presently maintain or contribute to any defined
benefit pension plans or multiemployer pension plans.
INCENTIVE PLANS.
The Company adopted a Superior Performance Incentive Bonus Agreement for
certain executives and officers of the Company in 1991. The incentive plan
provides for payments to participants upon meeting or exceeding certain
operating income goals. Awards under this plan are fully vested and paid three
years following the date of grant in the event the Company meets certain
operating income goals during each year of the vesting period. In the event the
Company fails to meet the operating income goals for a particular year during
the vesting period, the amount payable may be reduced by one-third.
PHANTOM STOCK PLAN.
Effective January 1994, the Company's board of directors approved a Phantom
Stock Plan (the "Phantom Stock Plan") which provides for the issuance of phantom
stock awards to select officers and other key employees of the Company. A total
of 1,000,000 shares of Common Stock are deemed outstanding pursuant to the
Phantom Stock Plan, and are adjusted to reflect any additional shareholder
capital contributions. The Company's board of directors, or a committee
authorized by the Company's board of directors, has authority to administer (the
"Administrator") the Phantom Stock Plan, select those officers and key employees
eligible to participate in the Phantom Stock Plan, determine whether and to what
extent phantom stock will be granted, determine the terms and conditions of any
phantom stock granted under the Phantom Stock Plan, determine whether
participants may enter into deemed purchases of phantom stock with deferred
bonuses, and interpret, prescribe, amend or rescind the regulations relating to
the Phantom Stock Plan. The Phantom Stock Plan will remain in effect until
terminated by the board of directors of the Company.
The value of each phantom share award will be at the date of the grant of
the award, (i) the average of the Company's operating cash flow for the prior
three years multiplied by a factor established from time to time by the
Administrator to reflect the value of the Company, plus any excess cash less any
debt and preferred stock outstanding, divided by (ii) the number of deemed
shares outstanding. Participants are entitled to payment in the amount of the
increase in value of the phantom share from the date of grant to the date of an
event of distribution. Each phantom share award, other than deemed purchases of
phantom shares, will be 100% vested at the earlier of the third anniversary of
the date of the grant of the phantom award, the participant's death, disability,
involuntary termination or retirement at age 65, or the sale of all or
substantially all of the assets of the Company or a change of stock ownership of
greater than 50%, excluding purchases by the Pohlad Companies, its shareholders
or their family members or its affiliates. During employment with the Company
and for a period of three years following an event of distribution, participants
are subject to a non-compete and non-solicitation restriction in consideration
for phantom share awards. The Company made no payments pursuant to the Phantom
Stock Plan during fiscal year 1995.
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401(K) PLAN.
The Company sponsors a 401(k) retirement savings plan for substantially all
employees of the Company who are at least 21 years of age and have been employed
by the Company for one year. An employee may contribute, on a pre-tax basis, up
to 10% of the employee's covered compensation, not to exceed contribution
amounts established under the Internal Revenue Code. Contributions are allocated
to each employee's individual account and are, at the employee's election,
invested in various investment alternatives offered by the plan trustee.
Employee contributions are fully vested and nonforfeitable. The Company matches
employee contributions up to $500.
BOARD OF DIRECTOR COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Executive Committee, which determines compensation levels for
the Company's executives and officers, includes Robert C. Pohlad, the Company's
Chief Executive Officer. Mr. Pohlad's services to the Company are provided
pursuant to a Management Agreement between the Company and the Pohlad Companies,
and Mr. Pohlad receives no compensation from the Company. See "Certain
Transactions--Management Agreement." Other than Mr. Pohlad, none of the members
of the Company's Executive Committee is an officer or employee or former officer
or employee of the Company. None of the Company's executive officers serves on
the board of any entity of which any committee member is an executive officer or
director or on the compensation committee of the board of any entity, one of
whose executive officers serves as a director of the Company.
51
<PAGE>
SECURITIES OWNERSHIP
As of the close of business on September 30, 1996, the Company had
outstanding 53,251.80 shares of common stock, $.01 par value per share ("Common
Stock"), and 5,386.48 shares of non-convertible series AA preferred stock, $.01
par value per share ("Preferred Stock"). The Common Stock consists of 20,301.87
shares of voting Common Stock and 32,949.93 shares of non-voting Common Stock.
The following table contains certain information as of September 30, 1996 as
to the number of shares of voting Common Stock beneficially owned by (i) each
person known by the Company to own beneficially more than five percent (5%) of
the Company's stock, (ii) each person who is a director of the Company, (iii)
each executive officer named in the Summary Compensation Table and (iv) all
persons who are directors and officers of the Company as a group, and as to the
percentage of the outstanding shares held by them on such date. Unless otherwise
noted, each person identified below possesses sole voting and investment power
with respect to such shares.
<TABLE>
<CAPTION>
COMMON STOCK
--------------------------------
NUMBER OF SHARES
BENEFICIALLY PERCENT OF
NAME OF BENEFICIAL OWNER OR GROUP OWNED CLASS
- - ------------------------------------------------------------------------------------ ----------------- -------------
<S> <C> <C>
Pohlad Companies.................................................................... 12,037.87 59.3%
Dain Bosworth Plaza
Suite 3880
Minneapolis, MN 55402
Arbeit & Co......................................................................... 4,187.92 20.6
c/o ADLER MANAGEMENT CORP.
601 Second Avenue South
Suite 4950
Minneapolis, MN 55402
Equity Beverage, Inc................................................................ 3,221.57 15.9
1 Pepsi Way
Mail Drop 812, Floor 8N
Somers, NY 10589
Robert C. Pohlad(1)................................................................. 12,137.87 59.8
John H. Agee(2)..................................................................... 4,187.92 20.6
Brenda C. Barnes.................................................................... -- --
Donald E. Benson.................................................................... -- --
John F. Bierbaum.................................................................... 22.00 *
Christopher E. Clouser.............................................................. -- --
Philip N. Hughes.................................................................... -- --
Gerald A. Schwalbach................................................................ -- --
John F. Woodhead.................................................................... -- --
Kenneth E. Keiser................................................................... 532.51 2.6
Charles M. Pullias.................................................................. -- --
Jay S. Hulbert...................................................................... -- --
Raymond R. Stitle................................................................... -- --
Bradley J. Braun.................................................................... -- --
All directors and executive officers as a group (16 persons)(3)..................... 16,880.30 83.1%
</TABLE>
- - ------------------------
* Less than 1%
52
<PAGE>
(1) Includes 12,037.87 shares owned by the Pohlad Companies. Robert C. Pohlad is
a one-third owner of the Pohlad Companies and exercises shared investment
and voting power over such shares with the remaining owners of the Pohlad
Companies.
(2) Includes 4,187.92 shares owned by Arbeit & Co. John H. Agee has power of
attorney and exercises sole investment and voting power over such shares.
(3) Includes 12,037.87 shares owned by the Pohlad Companies, of which Robert C.
Pohlad is a one-third owner, and 4,187.92 shares owned by Arbeit & Co., over
which John H. Agee has power of attorney.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
MANAGEMENT AGREEMENT
The services of the Company's Chief Executive Officer, Robert C. Pohlad, and
Chief Financial Officer, John F. Bierbaum, are provided to the Company pursuant
to a Management Agreement between the Company and the Pohlad Companies. The
Pohlad Companies owns 59.3% of the Company's voting Common Stock. Robert C.
Pohlad owns one-third of the Pohlad Companies. The Pohlad Companies is a holding
and management services company which has interests in several entities,
including Dakota Beverage Corp., Inc. and the Company. Neither Robert C. Pohlad
nor John F. Bierbaum receives any compensation from the Company, except that
John F. Bierbaum participates in the Company's Superior Performance Incentive
Bonus Plan. See "Risk Factors--Dependence on Management Agreement."
Subject to any limitations imposed by the Company's Amended and Restated
Certificate of Incorporation, Amended and Restated Bylaws, Shareholders'
Agreement, dated September 23, 1993 (the "Governing Documents"), or board of
directors, the Pohlad Companies has the authority under the Management Agreement
to: (i) administer, manage and direct the Company and its business and
properties; (ii) monitor the day to day operations of the Company and make
recommendations with respect thereto; (iii) investigate and make recommendations
with respect to the selection and conduct of relations with the Company's
consultants and technical advisors; and (iv) conduct all negotiations with
franchisors. Subject to the limitations imposed by the Governing Documents, the
Management Agreement and any other contractual limitations imposed on or
obligating the Company, the Pohlad Companies also has the authority to: (i)
cause the Company to expend its funds to further its business; (ii) sell,
hypothecate, exchange, trade or otherwise dispose of the Company's properties or
its interests therein; (iii) cause the Company to borrow money; (iv) refer to
arbitration, settle, prosecute or defend any legal matter, proceeding or claim
involving the Company; (v) mortgage, pledge, grant security interests in or
otherwise encumber Company assets; and (vi) retain or employ and coordinate the
services of all employees necessary to further the Company's business.
The Management Agreement provides that the Pohlad Companies may devote as
much time to the management of the Company as the Pohlad Companies deems
necessary and that the Pohlad Companies may engage in any other businesses,
including the bottling and distribution of soft drinks.
For services performed pursuant to the Management Agreement, the Company
pays the Pohlad Companies a management fee and a transaction fee. The management
fee is paid monthly in advance at an annual rate equivalent to $400,000
multiplied by the ratio of the CPI as of the year preceding the date of
computation to the CPI as of 1987; PROVIDED that the management fee cannot be
less than $500,000. The transaction fee is payable upon the acquisition of
additional franchises and is equivalent to 1.5% of the Company's acquisition
cost of such franchises. In 1995, the Company paid the Pohlad Companies $520,000
in management fees pursuant to the Management Agreement and owes the Pohlad
Companies $134,000 in transaction fees for that year.
The Management Agreement may be terminated by either the Company or the
Pohlad Companies when the Pohlad Companies or its affiliates cease to hold
Common Stock or when the Pohlad Companies is no longer controlled by members of
the Pohlad family. For purposes of the Management Agreement, an
53
<PAGE>
"affiliate" of the Pohlad Companies means any person or entity controlling or
controlled by or under common control with the Pohlad Companies, and "control"
means the power to direct the management and policies of the Pohlad Companies,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise. For purposes of the Management Agreement, members of the
Pohlad family means Carl R. Pohlad and his spouse, children, grandchildren,
sons-in-law, daughters-in-law, any corporation or partnership controlled by or
affiliated with any of the foregoing and any employees of such corporations or
partnerships, and any trust or foundation in which any of the foregoing has a
substantial beneficial interest or serves as a trustee or in any similar
capacity and retains voting powers of securities held in the trust or
foundation. Robert C. Pohlad and his brothers, James O. Pohlad and William M.
Pohlad, are all sons of Carl R. Pohlad, and the owners of all the equity
interest of the Pohlad Companies.
JOINT VENTURE
All of the Joint Venture's bottling and canning requirements (the "Joint
Venture Requirements") are provided by the Company. The Company charges the
Joint Venture for the Joint Venture Requirements at its net cost, which includes
the actual cost of such requirements plus a proportionate charge for
depreciation, amortization and cost of capital. See "Business--Joint Venture."
The profits (or losses) of the Joint Venture include an allocation of the
profits (or losses) of the Company's manufacturing facilities in Reserve,
Louisiana and Collierville, Tennessee. The Joint Venture's allocation is equal
to the total profits (or losses) of such facilities multiplied by a fraction,
the numerator being the Joint Venture Requirements and the denominator being the
Joint Venture Requirements plus all other requirements of such facilities by the
Company's other distribution facilities.
The Company in its role as Managing Venturer of the Joint Venture may cause
the Joint Venture to borrow funds to support the operations of the Joint
Venture. To the extent the Joint Venture is unable to borrow such funds, the
Managing Venturer may call upon Poydras and the Company to make loans to the
Joint Venture (the "Mandatory Loans") in proportion to their respective
ownership interests, in such amounts and payable at such times, in such manner
and on such terms as may reasonably be determined by the Managing Venturer;
PROVIDED, HOWEVER, that unless and until determined otherwise by the Management
Committee, Mandatory Loans will bear interest, payable quarterly, at a rate per
annum equal to 1.0% over the prime or reference rate announced from time to time
by Citibank, N.A. In the event either Poydras or the Company fails to make a
Mandatory Loan (the "Refusing Venturer"), the party which has made the Mandatory
Loan may (i) pursue any and all legal remedies against the Refusing Venturer and
recover costs and expenses from the Refusing Venturer in connection with the
pursuit of such remedies or (ii) make a loan to the Refusing Venturer in the
amount of the Refusing Venturer's Mandatory Loan, which loan will bear interest,
payable monthly, at a rate per annum equal to 5.0% over the prime or reference
rate announced from time to time by Citibank, N.A. The Company had loaned
approximately $22.4 million to the Joint Venture as of September 30, 1996, of
which $3.0 million was a Mandatory Loan. Poydras had loaned approximately $1.8
million to the Joint Venture as of September 30, 1996, all of which was a
Mandatory Loan.
Personnel employed by the Joint Venture who also provide services to the
Company or any entity directly or indirectly controlling, controlled by or under
common control with the Company, any officer, director, employee or partner of
the Company or any entity for which an officer, director or partner of the
Company acts in any capacity or any affiliate of the foregoing will be paid by
the Company or its affiliate proportionately. All personnel employed by the
Company or its affiliate who also provide services to the Joint Venture will be
paid by the Joint Venture proportionately.
To the extent that the Company provides management and support functions to
the Joint Venture from its office in Memphis, Tennessee, the Joint Venture will
reimburse the Company for such services, including a proportionate share of (i)
the reasonable overhead and administrative costs associated with the Company's
Memphis office and (ii) the management fee, exclusive of travel and other
expenses, paid by
54
<PAGE>
the Company pursuant to the Management Agreement. See "--Management Agreement."
The Joint Venture's obligation to pay such costs and fees is subject to the
following limitations: (i) the management fee shall not exceed $500,000, as
adjusted annually for changes in the CPI, as provided in the Management
Agreement; (ii) the Memphis office costs and the management fee described above
shall be allocated to the Joint Venture according to the proportion that the
number of cases distributed by the Joint Venture bears to the total number of
cases distributed by the Joint Venture, the Company, its affiliates and others
provided management and/or support services by the Memphis office; and (iii)
only costs attributable to services being provided to the Joint Venture shall be
allocated to the Joint Venture. Except for the proportionate share of overhead
and administrative costs associated with such management and support functions,
the Joint Venture will not reimburse the Company or Poydras for items generally
constituting direct overhead or administrative expenses of the business.
CERTAIN BUSINESS RELATIONSHIPS
Brian D. Wenger, the Company's secretary, is a shareholder in the law firm
of Briggs and Morgan, P.A. which acts as counsel for the Company. Brenda C.
Barnes, one of the Company's directors, is President and Chief Executive Officer
of Pepsi-Cola of North America, the domestic soft drink division of PepsiCo,
Inc. PepsiCo is the Company's primary franchisor.
SHAREHOLDERS' AGREEMENT
The Company and its shareholders entered into an Amended and Restated
Shareholders' Agreement dated as of September 23, 1993 (the "Shareholders'
Agreement"). The Shareholders' Agreement restricts the sale or transfer of (i)
any Common Stock of the Company or the beneficial ownership thereof or (ii) any
franchise rights relating to PepsiCo (the "Franchise Rights"), except for those
sales or transfers to any affiliate of the Pohlad Companies or to any affiliate
of the owner of the Common Stock or Franchise Rights. The Shareholders'
Agreement further provides that a holder of Common Stock or Franchise Rights
desiring to sell such Common Stock or Franchise Rights will first grant to
Equity Beverage, Inc. ("Equity Beverage") the right to purchase any Common Stock
or Franchise Rights at a purchase price equal to the higher of (i) the price
negotiated between the holder of Common Stock or Franchise Rights and Equity
Beverage or (ii) the price determined by two nationally recognized independent
investment or merchant banks, one selected by Equity Beverage and the other
selected by the holder of Common Stock or Franchise Rights. See "Securities
Ownership."
The Shareholders' Agreement provides that, for a period of 10 years
following the date of the Shareholders' Agreement, each of PepsiCo,Inc. and
Arbeit & Co. may nominate one director, and the holders of at least 60.0% of the
Company's non-voting Common Stock may nominate two directors to the Company's
board of directors. Under the Shareholders' Agreement, the holders of the
Company's Common Stock agree to elect such nominees to the Company's board of
directors.
The Shareholders' Agreement also requires the Pohlad Companies to offer to
the Company, for a period of 10 years following the date of the Shareholders'
Agreement, any business opportunities available to the Pohlad Companies in the
Company's existing territories or in certain states surrounding the Company's
existing territories to bottle or distribute brand name soft drinks or
carbonated water pursuant to franchise or similar agreements.
The Pohlad Companies and certain members of the Pohlad family and their
affiliates may elect to purchase shares of the Company's Preferred Stock from
the holders thereof for a purchase price of $5,000 per share, plus accrued and
unpaid dividends. Such election is valid through September 15, 2013.
55
<PAGE>
DESCRIPTION OF THE NOTES
GENERAL
The Exchange Notes will be issued pursuant to an Indenture (the "Indenture")
between the Company, as issuer, and Norwest Bank Minnesota, National
Association, as trustee (the "Trustee"). The terms of the Notes include those
stated in the Indenture and those made part of the Indenture by reference to the
Trust Indenture Act. The following summary of certain provisions of the
Indenture does not purport to be complete and is qualified in its entirety by
reference to the Indenture, including the definitions therein of certain terms
used below. Copies of the Indenture and the Registration Rights Agreement are
available as set forth under "Available Information." The definitions of certain
terms used in the following summary are set forth below under the caption
"--Certain Definitions."
PRINCIPAL, MATURITY AND INTEREST
The Notes will be limited in aggregate principal amount to $120.0 million
and will mature on December 15, 2003. Interest on the Notes will accrue at the
rate of 9 3/4% per annum and will be payable semiannually in arrears on June 15
and December 15 of each year, commencing on June 15, 1997, to holders of record
on the immediately preceding June 1 and December 1. Interest on the Notes will
accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from December 17, 1996. Interest will be computed on the
basis of a 360-day year comprised of twelve 30-day months. Principal, premium,
if any, interest and Liquidated Damages on the Notes will be payable at the
office or agency of the Company maintained for such purpose within the City and
State of New York or, at the option of the Company, payment of interest and
Liquidated Damages may be made by check mailed to the holders of the Notes at
their respective addresses set forth in the register of holders of Notes;
PROVIDED that all payments with respect to Global Notes and Certificated Notes
(as such terms are defined below under the caption "--Book-Entry, Delivery and
Form") the holders of which have given wire transfer instructions to the Company
will be required to be made by wire transfer of immediately available funds to
the accounts specified by the holders thereof. Until otherwise designated by the
Company, the Company's office or agency in New York will be in the office of the
Trustee maintained for such purpose. The Notes will be issued only in fully
registered form, without coupons and in denominations of $1,000 and integral
multiples thereof.
The Company may in the future, subject to the restrictions contained in the
Credit Agreement and described below under "--Certain Covenants--Incurrence of
Indebtedness and Issuance of Preferred Stock," issue additional Notes under the
Indenture. No offering of any such additional Notes is being or shall in any
manner be deemed to be made by this Prospectus. There can be no assurance as to
when or whether the Company will issue any such additional Notes or as to the
aggregate principal amount of such additional Notes. In addition, any such
additional Notes may only be offered or sold pursuant to an exemption from the
registration requirements of the Securities Act or pursuant to an effective
registration statement. See "--Registration Rights; Liquidated Damages."
RANKING
The Exchange Notes will be general senior unsecured obligations of the
Company. The Exchange Notes will rank PARI PASSU in right of payment with all of
the Company's existing and future unsecured Senior Indebtedness and will be
senior in right of payment to all existing and future subordinated Indebtedness
of the Company. The Credit Agreement is secured by a first priority, perfected
security interest in the Company's and any future guarantor's accounts
receivable and inventory. Secured creditors of the Company will have a claim on
the assets which secure the obligations of the Company prior to claims of
holders of the Notes against those assets. The Exchange Notes will be
effectively subordinated to such security interests to the extent of such
security interests. See "Risk Factors--Unsecured Status of the Notes" and
"--Effective Subordination to Creditors of the Company's Non-Guarantor
Subsidiaries."
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<PAGE>
On a pro forma basis, after giving effect to the Financing Transactions, at
September 30, 1996, the principal amount of total Indebtedness outstanding of
the Company on a consolidated basis would have been approximately $162.6
million, of which (i) approximately $125.4 million would have been Senior
Indebtedness and (ii) approximately $37.2 million would have been subordinated
debt. Of the approximately $125.4 million of Senior Indebtedness, (i)
approximately $0.5 million would have been secured debt and (ii) approximately
$4.5 million would have been debt of the Company's subsidiaries to which the
holders of the Exchange Notes would have been effectively subordinated. The
Company has unused borrowing capacity of up to $30.0 million under the Credit
Agreement. The terms of the Indenture permit the Company to incur additional
Indebtedness, subject to certain limitations. See the discussion below under the
captions "--Certain Covenants--Incurrence of Indebtedness and Issuance of
Preferred Stock" and "--Certain Covenants--Liens."
OPTIONAL REDEMPTION
The Notes will not be redeemable at the Company's option prior to December
15, 2000. Thereafter, the Notes will be subject to redemption at the option of
the Company, in whole or in part, upon not less than 30 nor more than 60 days'
notice, at the redemption prices (expressed as percentages of principal amount)
set forth below plus accrued and unpaid interest and Liquidated Damages, if any,
thereon to the applicable redemption date, if redeemed during the twelve-month
period beginning on December 15 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- - -------------------------------------------------------------------------------- ------------
<S> <C>
2000............................................................................ 104.8750%
2001............................................................................ 102.4375%
2002 and thereafter............................................................. 100.0000%
</TABLE>
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed, or, if the Notes are not so listed, on a pro rata basis;
PROVIDED that no Notes of $1,000 or less shall be redeemed in part. Notices of
redemption shall be mailed by first class mail at least 30 but not more than 60
days before the redemption date to each holder of Notes to be redeemed at its
registered address. If any Note is to be redeemed in part only, the notice of
redemption that relates to such Note shall state the portion of the principal
amount thereof to be redeemed. A new Note in principal amount equal to the
unredeemed portion thereof will be issued in the name of the holder thereof upon
cancellation of the original Note. On and after the redemption date, interest
ceases to accrue on Notes or portions of them called for redemption.
MANDATORY REDEMPTION
The Company is not required to make mandatory redemption or sinking fund
payments with respect to the Notes.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder of Notes will have
the right to require the Company to repurchase all or any part (equal to $1,000
or an integral multiple thereof) of such holder's Notes pursuant to the offer
described below (the "Change of Control Offer") at a purchase price (the "Change
of Control Purchase Price") in cash equal to 101% of the principal amount
thereof plus accrued and unpaid interest and Liquidated Damages, if any, thereon
to the date of purchase (the "Change of Control Payment Date"). Within 30 days
after the date of any Change of Control, the Company will mail a notice to each
holder describing the transaction or transactions that constitute the Change of
Control and offering to repurchase Notes pursuant to the procedures required by
the Indenture and described in such
57
<PAGE>
notice. The Change of Control Payment Date shall be a business day not less than
30 days nor more than 60 days after such notice is mailed.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (i) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (ii) irrevocably deposit with the
Paying Agent an amount equal to the Change of Control Purchase Price in respect
of all Notes or portions thereof so tendered and (iii) deliver or cause to be
delivered to the Trustee the Notes so tendered together with an officers'
certificate stating the aggregate principal amount of Notes or portions thereof
being purchased by the Company. The Paying Agent will promptly mail to each
holder of Notes so tendered and accepted for payment the Change of Control
Purchase Price for such Notes, and the Trustee will promptly authenticate and
mail (or cause to be transferred by book entry) to each holder a new Note equal
in principal amount to any unpurchased portion of the Notes surrendered, if any;
PROVIDED that each such new Note will be in a principal amount of $1,000 or an
integral multiple thereof. The Company will publicly announce the results of the
Change of Control Offer on or as soon as practicable after the Change of Control
Payment Date.
Except as described above with respect to a Change of Control, the Indenture
does not contain provisions that permit the holders of the Notes to require that
the Company repurchase or redeem the Notes in the event of a takeover,
recapitalization or similar restructuring. Although the existence of a holder's
right to require the Company to repurchase the Notes in respect of a Change of
Control may deter a third party from acquiring the Company in a transaction that
constitutes a Change of Control, the provisions of the Indenture relating to a
Change of Control in and of themselves may not afford holders of the Notes
protection in the event of a highly leveraged transaction, reorganization,
recapitalization, restructuring, merger or similar transaction involving the
Company that may adversely affect holders, if such transaction is not the type
of transaction included within the definition of a Change of Control.
The Credit Agreement provides that certain change of control events with
respect to the Company would constitute a default thereunder. Any future credit
agreements or other agreements relating to Senior Indebtedness to which the
Company becomes a party may contain similar restrictions and provisions. In the
event a Change of Control occurs at a time when the Company is prohibited from
purchasing Notes, the Company could seek the consent of its lenders to the
purchase of Notes or could attempt to refinance the borrowings that contain such
prohibition. If the Company does not obtain such a consent or repay such
borrowings, the Company will remain prohibited from purchasing Notes. In such
case, the Company's failure to purchase tendered Notes would constitute an Event
of Default under the Indenture which would, in turn, constitute a default under
the Credit Agreement. In such circumstances, secured creditors of the Company,
which include the lenders under the Credit Agreement, will have a claim on the
assets of the Company that secure the obligations of the Company prior to claims
of holders of the Notes against those assets.
The meaning of the phrase "all or substantially all", as used in the
definition of "Change of Control" with respect to a sale of assets varies
according to the facts and circumstances of the subject transaction, has no
clearly established meaning under relevant law and is subject to judicial
interpretation. Accordingly, in certain circumstances, there may be a degree of
uncertainty in ascertaining whether a particular transaction would involve a
disposition of "all or substantially all" of the assets of the Company, and
therefore it may be unclear whether a Change of Control has occurred and whether
the Notes are subject to a Change of Control Offer.
Restrictions in the Indenture described herein on the ability of the Company
and its Subsidiaries to incur additional Indebtedness, to grant Liens on its or
their property, to make Restricted Payments and to make Asset Sales also may
make more difficult or discourage a takeover of the Company, whether favored or
opposed by the management of the Company. Consummation of any such transaction
in certain circumstances may require redemption or repurchase of the Notes, and
there can be no assurance that the Company or the acquiring party will have
sufficient financial resources to effect such redemption or
58
<PAGE>
repurchase. In certain circumstances, such restrictions and the restrictions on
transactions with Affiliates may make more difficult or discourage any leveraged
buyout of the Company or any of its Subsidiaries. While such restrictions cover
a variety of arrangements which traditionally have been used to effect highly
leveraged transactions, the Indenture may not afford the holders of Notes
protection in all circumstances from the adverse aspects of a highly leveraged
transaction, reorganization, restructuring, merger or similar transaction.
ASSET SALES
The Indenture will provide that the Company will not, and will not permit
any of its Subsidiaries to, directly or indirectly, engage in an Asset Sale
unless (i) the Company (or such Subsidiary) receives consideration at the time
of such Asset Sale at least equal to the fair market value of the assets sold or
otherwise disposed of, and in the case of a lease of assets, a lease providing
for rent and other conditions which are no less favorable to the Company (or
such Subsidiary) in any material respect than the then prevailing market
conditions (evidenced in each case by a resolution of the board of directors of
the Company set forth in an officers' certificate delivered to the Trustee), and
(ii) at least 85% (100% in the case of lease payments) of the consideration
therefor received by the Company (or such Subsidiary) is in the form of cash or
Cash Equivalents, PROVIDED that for purposes of this clause (ii), "cash" shall
include the amount of any Indebtedness for money borrowed and any Capital Lease
Obligation that (x) is assumed by the transferee of any such assets or other
property in such Asset Sale or (y) with respect to the sale or other disposition
of all of the Capital Stock of any Subsidiary of the Company, remains the
liability of such Subsidiary subsequent to such sale or other disposition, but
only to the extent that such assumption, sale or other disposition, as the case
may be, is effected on a basis under which there is no further recourse to the
Company or any of its Subsidiaries with respect to such liability.
The Company may apply Net Proceeds of an Asset Sale, at its option, within
180 days after the consummation of such an Asset Sale (a) to permanently reduce
any outstanding Indebtedness (i) of the Company (and to correspondingly reduce
the commitments, if any, with respect thereto) under the Credit Agreement or
that ranks PARI PASSU with the Notes or (ii) owed by any Joint Venture to any
owner of Equity Interests in such Joint Venture, provided in the case of this
clause (ii) that the Net Proceeds being so applied result from an Asset Sale by
or relating to such Joint Venture, (b) to acquire another business or any
substantial part of another business or other long-term assets, in each case, in
or used or useful in, the same or a similar line of business as the Company was
engaged in on the date of the Indenture or any reasonable extensions or
expansions thereof (including the Capital Stock of another Person engaged in
such business, PROVIDED such other Person is, or immediately after giving effect
to any such acquisition shall become, a Wholly Owned Subsidiary of the Company),
or (c) to reimburse the Company (or its Subsidiaries) for expenditures made, and
costs incurred, to repair, rebuild, replace or restore property subject to loss,
damage or taking to the extent that the Net Proceeds consist of insurance
proceeds received on account of such loss, damage or taking. Pending the final
application of any such Net Proceeds, the Company may temporarily reduce Senior
Bank Debt (without any obligation to reduce the commitments thereunder) or
otherwise invest such Net Proceeds temporarily in Cash Equivalents. All amounts
received by the Company from any Joint Venture pursuant to clause (a)(ii) of the
second preceding sentence shall constitute Net Proceeds of an Asset Sale for
purposes of this paragraph. Any Net Proceeds from Asset Sales that are not
applied within 180 days after the consummation of an Asset Sale as provided in
the first sentence of this paragraph will be deemed to constitute "Excess
Proceeds." When the aggregate amount of Excess Proceeds exceeds $5.0 million,
the Company will be required to make an offer to all holders of Notes (an "Asset
Sale Offer") to purchase, on a pro rata basis, the principal amount of Notes
equal in amount to the Excess Proceeds (and not just the amount thereof that
exceeds $5.0 million), at a purchase price in cash in an amount equal to 100% of
the principal amount thereof plus accrued and unpaid interest and Liquidated
Damages, if any, thereon to the date of purchase, in accordance with the
procedures set forth in the Indenture. If the aggregate principal amount of
Notes surrendered by holders thereof plus accrued but unpaid interest and
Liquidated Damages, if any, thereon exceeds the amount of Excess
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Proceeds, the Company shall select the Notes to be purchased on a pro rata
basis. If the aggregate principal amount of Notes (plus accrued and unpaid
interest and Liquidated Damages, if any, thereon to the date of purchase)
tendered pursuant to such Asset Sale Offer is less than the Excess Proceeds, the
Company may use any remaining Excess Proceeds following the completion of the
Asset Sale Offer for general corporate purposes (subject to the other provisions
of the Indenture), and the amount of Excess Proceeds then required to be
otherwise applied in accordance with this covenant shall be reset to zero,
subject to any subsequent Asset Sale.
In the event of the transfer of substantially all (but not all) of the
property and assets of the Company as an entirety to a Person in a transaction
permitted under the caption "--Certain Covenants--Merger, Consolidation or Sale
of Assets" below, the successor corporation shall be deemed to have sold the
properties and assets of the Company not so transferred for purposes of this
covenant and shall comply with the provisions of this covenant with respect to
such deemed sale as if it were an Asset Sale. In addition, the fair market value
of such properties and assets of the Company or its Subsidiaries deemed to be
sold shall be deemed to be Net Proceeds for purposes of this covenant.
If at any time any non-cash consideration received by the Company in
connection with any Asset Sale is converted into or sold or otherwise disposed
of for cash, then such conversion or disposition shall be deemed to constitute
an Asset Sale hereunder and the Net Proceeds thereof shall be applied in
accordance with this covenant.
The Company will comply with the requirements of Section 14(e) of, and Rule
14e-1 under, the Exchange Act and any other securities laws and regulations
thereunder to the extent such laws and regulations are applicable in connection
with the repurchase of the Senior Notes as a result of a Change of Control or an
Asset Sale.
CERTAIN COVENANTS
OWNERSHIP OF AND LIENS ON CAPITAL STOCK OF SUBSIDIARIES
The Indenture provides that the Company (i) will not permit any Person
(other than the Company or any Wholly Owned Subsidiary of the Company) to own
any Capital Stock of any Subsidiary of the Company and (ii) will not permit any
Subsidiary of the Company to issue Capital Stock (except to the Company or to a
Wholly Owned Subsidiary) or create, incur, assume or suffer to exist any Lien
thereon, in each case except (a) directors' qualifying shares, (b) Capital Stock
issued prior to the time such Person became a Subsidiary of the Company,
PROVIDED that such Capital Stock was not issued in anticipation of such
transaction, (c) any Equity Interests owned by Poydras in Louisiana Beverage and
outstanding on the date of the Indenture, (d) if such Subsidiary merges with
another Subsidiary of the Company, (e) if such Subsidiary ceases to be a
Subsidiary of the Company (as a result of the sale of 100% of the shares of such
Subsidiary, the Net Proceeds from which are applied in accordance with
"--Repurchase at the Option of Holders--Asset Sales"), (f) Liens on Capital
Stock of any Subsidiary of the Company to secure Indebtedness incurred under the
Credit Agreement (and any Permitted Refinancing Indebtedness relating thereto),
(g) Liens existing on the date of the Indenture under the Joint Venture
Agreement relating to Louisiana Beverage or (h) Liens on Capital Stock of any
Subsidiary of the Company granted in accordance with the provisions of the
Indenture described below under the caption "--Liens."
RESTRICTED PAYMENTS
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or
make any distribution of any kind or character (whether in cash, securities or
other property) on account of any class of the Company's or any of its
Subsidiaries' Equity Interests or to holders thereof (including, without
limitation, any payment to stockholders of the Company in connection with a
merger or consolidation involving the Company), other than (a) dividends or
distributions payable solely in Equity Interests (other than Disqualified Stock)
of the
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Company or (b) dividends or distributions payable solely to the Company or any
Wholly Owned Subsidiary of the Company and, if such Subsidiary is not a Wholly
Owned Subsidiary of the Company, payable simultaneously to its minority
shareholders on a pro rata basis; (ii) purchase, redeem or otherwise acquire or
retire for value any Equity Interests of the Company, any Subsidiary of the
Company, any Unrestricted Subsidiary or any other Affiliate of the Company
(other than any such Equity Interests owned by the Company or any Wholly Owned
Subsidiary of the Company); (iii) make any principal payment on, or purchase,
redeem, defease or otherwise acquire or retire for value, any Indebtedness of
the Company that is PARI PASSU with or subordinated to the Senior Notes prior to
any scheduled repayment date, mandatory sinking fund payment date or final
maturity date (other than the Senior Notes), other than through the purchase,
redemption or acquisition by the Company of Indebtedness of the Company or any
of its Subsidiaries through the issuance in exchange therefor of Equity
Interests (other than Disqualified Stock) of the Company; or (iv) make any
Investment (other than Permitted Investments) (all such payments and other
actions set forth in clauses (i) through (iv) above being collectively referred
to as "Restricted Payments"), unless, at the time of and after giving effect to
such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof;
(b) at the time of such Restricted Payment and after giving pro forma
effect thereto as if such Restricted Payment had been made at the beginning
of the applicable four-quarter period, the Company would have been permitted
to incur at least $1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the first paragraph of the covenant
described below under the caption "--Incurrence of Indebtedness and Issuance
of Preferred Stock"; and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments declared or made by the Company and its
Subsidiaries on or after the date of the Indenture (excluding Restricted
Payments permitted by clauses (ii), (iii) and (iv) of the second sentence of
the next succeeding paragraph), is less than the sum of (i) 50% of the
Consolidated Net Income of the Company for the period (taken as one
accounting period) from the beginning of the first fiscal quarter commencing
after the date of the Indenture to the end of the Company's most recently
ended fiscal quarter for which internal financial statements are available
at the time of such Restricted Payment (or, if such Consolidated Net Income
for such period is a deficit, less 100% of such deficit), plus (ii) 100% of
the aggregate net cash proceeds received by the Company from the issue or
sale after the date of the Indenture of Equity Interests of the Company or
of debt securities of the Company that have been converted into such Equity
Interests (other than Equity Interests (or convertible debt securities) sold
to a Subsidiary of the Company or an Unrestricted Subsidiary and other than
Disqualified Stock or debt securities that have been converted into
Disqualified Stock), subject to the first sentence of the next succeeding
paragraph, plus (iii) 100% of the net reduction in Investments in any Joint
Venture or Unrestricted Subsidiary resulting from payments of dividends,
repayments of loans or advances, or other transfers of assets, in each case
to the Company or any Subsidiary of the Company from such Joint Venture or
Unrestricted Subsidiary (except to the extent that any such payment is
included in the calculation of Consolidated Net Income), or from
redesignations of Unrestricted Subsidiaries as Subsidiaries of the Company,
PROVIDED that the amount included in this clause (iii) shall not exceed the
amount of Investments previously made by the Company and its Subsidiaries in
such Joint Venture or Unrestricted Subsidiary.
Notwithstanding the foregoing, the aggregate amount of Restricted Payments
permitted by paragraph (c) above shall be reduced (but not below zero) by the
aggregate amount of Investments (except to the extent repaid) by the Company
after the date of the Indenture in Louisiana Beverage and in any other Joint
Venture. The foregoing clauses (b) and (c) will not prohibit (i) the payment of
any dividend on any class of Capital Stock of the Company or any Subsidiary of
the Company within 60 days after the date of declaration thereof, if on the date
on which such dividend was declared such payment would have complied with the
provisions of the Indenture; (ii) the making of any Investment in exchange for,
or out of
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the proceeds of, the substantially concurrent sale (other than to a Subsidiary
of the Company or to any Unrestricted Subsidiary) of Equity Interests of the
Company (other than Disqualified Stock); PROVIDED that any net cash proceeds
that are utilized for any such Investment, and any Net Income resulting
therefrom, shall be excluded from clause (c) of the preceding paragraph; (iii)
the redemption, repurchase, retirement or other acquisition of any Equity
Interests of the Company in exchange for, or out of the proceeds of, the
substantially concurrent sale (other than to a Subsidiary of the Company or to
any Unrestricted Subsidiary) of other Equity Interests of the Company (other
than any Disqualified Stock), PROVIDED that any net cash proceeds that are
utilized for any such redemption, repurchase, retirement or other acquisition,
and any Net Income resulting therefrom, shall be excluded from clause (c) of the
preceding paragraph; and (iv) the defeasance, redemption or repurchase of PARI
PASSU or subordinated Indebtedness with the net cash proceeds from an incurrence
of Permitted Refinancing Indebtedness or the substantially concurrent sale
(other than to a Subsidiary of the Company or to any Unrestricted Subsidiary) of
Equity Interests of the Company (other than Disqualified Stock), PROVIDED that
any net cash proceeds that are utilized for any such defeasance, redemption or
repurchase, and any Net Income resulting therefrom, shall be excluded from
clause (c) of the preceding paragraph.
The amount of all Restricted Payments (other than cash) shall be the fair
market value (evidenced by a resolution of the board of directors set forth in
an officers' certificate delivered to the Trustee) on the date of the Restricted
Payment of the asset(s) proposed to be transferred by the Company or such
Subsidiary, as the case may be, pursuant to the Restricted Payment. Not later
than the date of making any Restricted Payment, the Company shall deliver to the
Trustee an officers' certificate stating that such Restricted Payment is
permitted and setting forth the basis upon which the calculations required by
the covenant described under this caption were computed, which calculations may
be based upon the Company's latest available financial statements.
As of the date of the Indenture, none of the Company's Subsidiaries is an
Unrestricted Subsidiary. For purposes of designating any Subsidiary as an
Unrestricted Subsidiary, all outstanding Investments by the Company and its
Subsidiaries (except to the extent repaid) in the Subsidiary so designated will
be deemed to be Restricted Payments in an amount determined as set forth in the
last sentence of the definition of Investments. Such designation will be
permitted only if a Restricted Payment in such amount would be permitted under
the Indenture at such time and if such Subsidiary otherwise meets the definition
of an Unrestricted Subsidiary. An Unrestricted Subsidiary and all of its
Subsidiaries will not be subject to any of the restrictive covenants set forth
in the Indenture.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guarantee or otherwise become directly or indirectly liable, contingently or
otherwise, with respect to (collectively, "incur") any Indebtedness (including
Acquired Indebtedness) and that the Company will not issue any Disqualified
Stock and will not permit any of its Subsidiaries to issue any shares of
Preferred Stock; PROVIDED, HOWEVER, that the Company may incur Indebtedness
(including Acquired Indebtedness) and the Company may issue shares of
Disqualified Stock if: (i) the Fixed Charge Coverage Ratio for the Company's
most recently ended four full fiscal quarters for which internal financial
statements are available immediately preceding the date on which such additional
Indebtedness is incurred or such Disqualified Stock is issued would have been at
least 1.75 to 1.0 if such Indebtedness is incurred on or before December 15,
1998 and 2.0 to 1.0 if such Indebtedness is incurred after December 15, 1998, in
each case determined on a pro forma basis (including a pro forma application of
the net proceeds therefrom), as if the additional Indebtedness had been
incurred, or the Disqualified Stock had been issued, as the case may be, at the
beginning of such four-quarter period; and (ii) no Default or Event of Default
shall have occurred and be continuing or would occur as a consequence thereof.
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The foregoing limitations on the incurrence of Indebtedness will not apply
to:
(i) the incurrence by the Company of Indebtedness under the Credit
Agreement in an aggregate principal amount at any time outstanding (with
letters of credit being deemed to have a principal amount equal to the
maximum potential liability of the Company and its Subsidiaries thereunder)
not to exceed $30.0 million, less the aggregate amount of all Net Proceeds
of Asset Sales applied to permanently reduce the outstanding amount of or
the commitments with respect to such Indebtedness pursuant to the covenant
described above under the caption "--Repurchase at the Option of
Holders--Asset Sales" and less the aggregate principal amount of outstanding
Indebtedness permitted under clause (xii) below;
(ii) the incurrence by the Company of Indebtedness represented by the
Notes;
(iii) any Preferred Stock of the Company outstanding on the date of the
Indenture;
(iv) the Company's 11% Subordinated Notes Due 2003;
(v) the incurrence by the Company or any of its Subsidiaries of
Indebtedness represented by Capital Lease Obligations, mortgage financings
or Purchase Money Obligations, in each case incurred for the purpose of
financing all or any part of the purchase price or cost of construction or
improvement of property used in the business of the Company or such
Subsidiary or any Permitted Refinancing Indebtedness thereof, PROVIDED that
(a) the aggregate principal amount of any such Indebtedness does not exceed
100% of the purchase price or cost of the property to which such
Indebtedness relates, (b) the Indebtedness is incurred within 180 days of
the acquisition, construction or improvement of such property and (c) the
aggregate principal amount of such Indebtedness outstanding, together with
the aggregate principal amount of Attributable Indebtedness with respect to
Sale and Leaseback Transactions permitted under clause (vi) below at any
time shall not exceed $5.0 million;
(vi) Attributable Indebtedness with respect to Sale and Leaseback
Transactions permitted under the caption below "--Limitation on Sale and
Leaseback Transactions", PROVIDED that the aggregate principal amount of
such Indebtedness outstanding, together with the aggregate principal amount
of Indebtedness permitted under clause (v) above, at any time shall not
exceed $5.0 million;
(vii) the incurrence by the Company of Permitted Refinancing Indebtedness
in exchange for, or the net proceeds of which are used to extend, refinance,
renew, replace, defease or refund, any Indebtedness described in clause (i)
above or Indebtedness outstanding on the date of this Indenture that is owed
by Louisiana Beverage to the Company or to Poydras;
(viii) the incurrence by the Company or any of its Subsidiaries of
intercompany Indebtedness between or among the Company and any of its Wholly
Owned Subsidiaries or between or among any Wholly Owned Subsidiaries;
PROVIDED that, in the case of Indebtedness of the Company, such obligations
shall be unsecured and subordinated in case of an event of default in all
respects to the Company's obligations pursuant to the Notes; and PROVIDED,
HOWEVER, that (a) any subsequent issuance or transfer of Equity Interests
that results in any such Indebtedness being held by a Person other than the
Company or a Wholly Owned Subsidiary of the Company and (b) any sale or
other transfer of any such Indebtedness to a Person that is not either the
Company or a Wholly Owned Subsidiary of the Company shall be deemed, in each
case, to constitute an incurrence of such Indebtedness by the Company or
such Subsidiary, as the case may be, to which this clause (viii) no longer
applies;
(ix) the incurrence by the Company of Hedging Obligations;
(x) the incurrence by Subsidiaries (other than Joint Ventures) of
Indebtedness represented by clause (v) of this covenant;
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(xi) Indebtedness evidenced by Investments by the Company (and any other
Person) in Joint Ventures that are permitted under "--Restricted Payments"
above;
(xii) incurrence of Indebtedness by any Joint Venture (other than
Indebtedness owed to the Company by such Joint Venture) in an aggregate
principal amount at any time outstanding not to exceed $5.0 million,
PROVIDED that the aggregate principal amount of Indebtedness permitted at
any time under clause (i) above shall be reduced by the aggregate principal
amount of outstanding Indebtedness permitted under this clause (xii);
(xiii) Indebtedness incurred by the Company in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund, any of the Company's 11% Subordinated Notes Due 2003, PROVIDED (a)
the Indebtedness so incurred by the Company (1) is not senior in right of
payment to the Notes, (2) has a Weighted Average Life to Maturity equal to
or greater than the Weighted Average Life to Maturity of the Notes, (3) does
not have a stated maturity earlier than the stated maturity of the Notes and
(4) does not permit redemption or other retirement (including pursuant to
any required offer to purchase to be made by the Company or a Subsidiary of
the Company) of such Indebtedness at the option of the holder thereof prior
to the final stated maturity of the Notes, other than a redemption or other
retirement at the option of the holder of such Indebtedness (including
pursuant to a required offer to purchase made by the Company or a Subsidiary
of the Company) which is conditioned upon a change of control of the Company
pursuant to provisions substantially similar to those contained in the
Indenture described under "--Repurchase at the Option of Holders--Change of
Control" above; and (b) the Company satisfies the conditions described under
clauses (i) and (ii) of the preceding paragraph; and
(xiv) the incurrence by the Company of Indebtedness (in addition to
Indebtedness permitted by any other clause of this paragraph) in an
aggregate principal amount at any time outstanding not to exceed $2.0
million.
LIENS
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, directly or indirectly, create, incur, assume or suffer to
exist any Lien on any of its assets, now owned or hereafter acquired, securing
any Indebtedness, unless the Notes are secured equally and ratably with such
other Indebtedness; PROVIDED that, if such Indebtedness is by its terms
expressly subordinate or junior to the Notes, the Lien securing such subordinate
or junior Indebtedness shall be subordinate and junior to the Lien securing the
Notes with the same relative priority as such subordinate or junior Indebtedness
shall have with respect to the Notes. The foregoing restrictions shall not apply
to the following Liens:
(i) Liens under the Credit Agreement;
(ii) Liens securing only the Notes;
(iii) Liens to secure Indebtedness incurred for the purpose of financing
all or any part of the purchase price or cost of construction or improvement
of the property subject to such Liens and permitted by the provisions of the
Indenture described above under clause (v) of the second sentence under the
caption "--Incurrence of Indebtedness and Issuance of Preferred Stock";
PROVIDED that such Lien does not extend to or cover any property other than
such item of property and any improvements on such item;
(iv) Liens securing Attributable Indebtedness of the Company incurred
with respect to Sale and Leaseback Transactions permitted by the Indenture;
PROVIDED that such Lien does not extend to or cover any property other than
the property sold and leased back pursuant to such Sale and Leaseback
Transaction;
(v) Liens outstanding on the date of Indenture under the Joint Venture
Agreement relating to Louisiana Beverage;
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(vi) Liens on property existing immediately prior to the time of
acquisition thereof (and not created in anticipation or contemplation of
such acquisition or the financing of such acquisition) and securing Acquired
Indebtedness; PROVIDED that such Lien does not extend to or cover any
property other than such item of property and any improvements on such item;
(vii) (a) Liens for taxes, assessments, governmental charges or claims
that are being contested in good faith by appropriate legal proceedings
promptly instituted and diligently conducted and for which a reserve or
other appropriate provision, if any, as shall be required in conformity with
GAAP shall have been made; (b) statutory Liens of landlords and carriers,
warehousemen, mechanics, suppliers, materialmen, repairmen or other similar
Liens arising in the ordinary course of business and with respect to amounts
not yet delinquent or being contested in good faith by appropriate legal
proceedings, promptly instituted and diligently conducted and for which a
reserve or other appropriate provision, if any, as shall be required in
conformity with GAAP shall have been made; and (c) easements, rights-of-way,
municipal and zoning ordinances and similar charges, encumbrances, title
defects or other irregularities that do not materially interfere with the
ordinary course of business of the Company or any of its Subsidiaries; and
(viii) Liens to secure Permitted Refinancing Indebtedness of any
Indebtedness secured by Liens referred to in the foregoing clauses (i),
(iii) or (iv), so long as such Lien does not extend to any other property.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, directly or indirectly, create or otherwise cause or suffer
to exist or become effective any consensual encumbrance or restriction of any
kind on the ability of any Subsidiary of the Company to (i)(a) pay dividends or
make any other distributions to the Company or any of its Subsidiaries on its
Capital Stock or with respect to any other interest or participation in, or
measured by, its profits, or (b) pay any Indebtedness or other obligation owed
to the Company or any of its Subsidiaries, (ii) make loans or advances to the
Company or any of its Subsidiaries, (iii) sell, lease or transfer any of its
properties or assets to the Company or any of its Subsidiaries, or (iv)
guarantee the obligations of the Company evidenced by the Notes or any renewals,
refinancings, exchanges, refundings or extensions thereof, except for such
encumbrances or restrictions existing under or by reason of (a) Existing
Indebtedness as in effect on the date of the Indenture consisting of capital
leases whose encumbrances or restrictions are limited to the property subject to
such leases, (b) the Indenture and the Notes, (c) applicable law, (d) any
instrument governing Acquired Indebtedness or Capital Stock of a Person acquired
by the Company or any of its Subsidiaries as in effect at the time of such
acquisition (except to the extent such Acquired Indebtedness was incurred in
connection with or in contemplation of such acquisition), which encumbrance or
restriction is not applicable to any Person, or the properties or assets of any
Person, other than the Person, or the property or assets of the Person, so
acquired, PROVIDED that the Consolidated EBITDA of such Person is not taken into
account in determining whether such acquisition was permitted by the terms of
the Indenture, (e) any document or instrument governing Indebtedness incurred
pursuant to clause (v) of the second paragraph under the caption "--Incurrence
of Indebtedness and Issuance of Preferred Stock," PROVIDED that any such
restriction contained therein relates only to the asset or assets constructed or
acquired in connection therewith, or (f) Permitted Refinancing Indebtedness of
Indebtedness described in clause (d) hereof, PROVIDED that the restrictions
contained in the agreements governing such Permitted Refinancing Indebtedness
are no more restrictive than those contained in the agreements governing the
Indebtedness being refinanced.
MERGER, CONSOLIDATION OR SALE OF ASSETS
The Indenture provides that the Company will not, and the Company will not
permit any Subsidiary of the Company to, in a single transaction or series of
related transactions, consolidate or merge with or into
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(other than the consolidation or merger of a Wholly Owned Subsidiary of the
Company with another Wholly Owned Subsidiary of the Company or into the Company)
(whether or not the Company or such Subsidiary is the surviving corporation), or
directly and/or indirectly through its Subsidiaries sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of the properties
or assets of the Company and its Subsidiaries (determined on a consolidated
basis for the Company and its Subsidiaries taken as a whole) in one or more
related transactions to, another corporation, Person or entity unless:
(i) either (a) the Company, in the case of a transaction involving the
Company, or such Subsidiary, in the case of a transaction involving a
Subsidiary of the Company, is the surviving corporation or (b) in the case
of a transaction involving the Company or such Subsidiary, the entity or the
Person formed by or surviving any such consolidation or merger (if other
than the Company or such Subsidiary) or to which such sale, assignment,
transfer, lease, conveyance or other disposition shall have been made is a
corporation organized or existing under the laws of the United States of
America, any state thereof or the District of Columbia and expressly assumes
all the obligations of the Company under the Notes and the Indenture,
pursuant to a supplemental indenture in a form reasonably satisfactory to
the Trustee;
(ii) immediately after such transaction no Default or Event of Default
exists;
(iii) in the case of a transaction involving the Company, the Company or,
if other than the Company, the entity or Person formed by or surviving any
such consolidation or merger, or to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made (a) will have
Consolidated Net Worth immediately after the transaction on a pro forma
basis equal to or greater than the Consolidated Net Worth of the Company
immediately preceding the transaction and (b) will, at the time of such
transaction and after giving pro forma effect thereto as if such transaction
had occurred at the beginning of the applicable four-quarter period, be
permitted to incur at least $1.00 of additional Indebtedness pursuant to the
Fixed Charge Coverage Ratio test set forth in the first paragraph of the
covenant described above under the caption "--Incurrence of Indebtedness and
Issuance of Preferred Stock";
(iv) if, as a result of any such transaction, property or assets of the
Company would become subject to a Lien securing Indebtedness not excepted
from the provisions of the Indenture described above under the caption
"--Liens," the Company or the surviving entity, as the case may be, shall
have secured the Notes as required by such provisions; and
(v) the Company shall have delivered to the Trustee an officers'
certificate and, except in the case of a merger of a Subsidiary of the
Company into the Company or into a Wholly Owned Subsidiary of the Company,
an opinion of counsel, each stating that such consolidation, merger,
conveyance, lease or disposition and any supplemental indenture with respect
thereto, comply with all of the terms of this covenant and that all
conditions precedent provided for in this provision relating to such
transaction or series of transactions have been complied with.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Subsidiaries of the
Company, the Capital Stock of which constitutes all or substantially all of the
properties and assets of the Company, shall be deemed to be the transfer of all
or substantially all of the properties and assets of the Company, except in the
case of a merger of a Subsidiary of the Company into the Company or into a
Wholly Owned Subsidiary of the Company.
TRANSACTIONS WITH AFFILIATES
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, directly or indirectly, after the date of the Indenture, in
any one transaction or a series of related transactions, sell, lease, transfer
or otherwise dispose of any of its properties, assets or services to, or make
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any payment to, or purchase any property, assets or services from, or enter into
or make any agreement, loan, advance or guarantee with, or for the benefit of,
any Affiliate (each of the foregoing, an "Affiliate Transaction"), other than
Exempt Affiliate Transactions, unless (i) such Affiliate Transaction is on terms
that are no less favorable to the Company or the relevant Subsidiary than those
that would have been obtained in a comparable arm's-length transaction by the
Company or such Subsidiary with a Person that is not an Affiliate and (ii) the
Company delivers to the Trustee (a) with respect to any Affiliate Transaction
entered into after the date of the Indenture involving aggregate consideration
in excess of $1.0 million, a resolution of the board of directors of the Company
set forth in an officers' certificate certifying that such Affiliate Transaction
complies with clause (i) above and that such Affiliate Transaction has been
approved by a majority of the disinterested members of the board of directors of
the Company and (b) with respect to any Affiliate Transaction involving
aggregate consideration in excess of $2.5 million, a written opinion issued by
an independent financial advisor of national standing that such Affiliate
Transaction is fair to the Company or such Subsidiary, as the case may be, from
a financial point of view.
LIMITATION ON SALE AND LEASEBACK TRANSACTIONS
The Indenture provides that the Company will not, and will not cause or
permit any of its Subsidiaries to, enter into any Sale and Leaseback Transaction
unless (a) after giving pro forma effect to any such Sale and Leaseback
Transaction, the Company or such Subsidiary, as the case may be, could incur the
Attributable Indebtedness relating to such Sale and Leaseback Transaction under
the covenants described above under the captions "--Incurrence of Indebtedness
and Issuance of Preferred Stock" and "--Liens," (b) the gross cash proceeds of
such Sale and Leaseback Transaction are at least equal to the fair market value
of such property, as determined by the board of directors of the Company, such
determination to be evidenced by a resolution of the board of directors of the
Company, (c) the aggregate rent payable by the Company or such Subsidiary in
respect of such Sale and Leaseback Transaction is not in excess of the fair
market rental value of the property leased pursuant to such Sale and Leaseback
Transaction and (d) the Company applies the Net Proceeds of the property sold
pursuant to the Sale and Leaseback Transaction as provided above under the
caption "--Repurchase at the Option of Holders--Asset Sales," to the extent
required therein.
REPORTS
The Indenture provides that, whether or not required by the rules and
regulations of the Commission, so long as any Notes are outstanding, the Company
will furnish to the holders of Notes, and file with the Trustee, within 15 days
after it is or would have been required to file such with the Commission (i) all
quarterly and annual financial information that is or would be required to be
contained in a filing with the Commission on Forms 10-Q and 10-K if the Company
is or were required to file such Forms, including a "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and, with respect to
the annual information only, a report thereon by the Company's certified
independent accountants and (ii) all current reports that are or would be
required to be filed with the Commission on Form 8-K if the Company is or were
required to file such reports. In addition, whether or not required by the rules
and regulations of the Commission, at any time after the Company files the
Exchange Offer Registration Statement or a Shelf Registration Statement, the
Company will file a copy of all such information and reports with the Commission
for public availability (unless the Commission will not accept such a filing)
and make such information available to securities analysts and prospective
investors upon request. In addition, the Company has agreed that, for so long as
any Notes remain outstanding, it will furnish to the holders, the Trustee and to
securities analysts and prospective investors, upon their request, the
information specified in Rule 144A(d)(4) under the Securities Act.
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EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to, the Notes; (ii) default in payment when due
of the principal of or premium, if any, on the Notes; (iii) failure by the
Company to comply with the provisions described under the captions "--Repurchase
at the Option of Holders--Change of Control," "--Repurchase at the Option of
Holders--Asset Sales," "--Certain Covenants--Ownership of and Liens on Capital
Stock of Subsidiaries," "--Restricted Payments," "--Incurrence of Indebtedness
and Issuance of Preferred Stock" or "Merger, Consolidation or Sale of Assets";
(iv) failure by the Company to comply with any of its other agreements or
covenants in the Indenture or the Notes for 30 days after written notice by the
Trustee or holders of at least 25% of the aggregate principal amount of the
Notes outstanding; (v) default under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Subsidiaries (or
the payment of which is guaranteed by the Company or any of its Subsidiaries)
whether such Indebtedness or Guarantee now exists, or is created after the date
of the Indenture, which default (a) is caused by a failure to pay principal of
or interest on such Indebtedness when due after giving effect to applicable
grace periods (a "Payment Default") or (b) results in the acceleration of such
Indebtedness prior to its express maturity and, in each case, the principal
amount of any such Indebtedness, together with the principal amount of any other
such Indebtedness as to which there has been a Payment Default or the maturity
of which has been so accelerated, exceeds in the aggregate $2.5 million; (vi)
failure by the Company or any of its Subsidiaries to pay final judgments (not
fully covered by insurance) which exceed in the aggregate $2.5 million, which
judgments are not paid, discharged or stayed for a period of 30 days; and (vii)
certain events of bankruptcy, insolvency or reorganization with respect to the
Company or any of its Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the holders
of at least 25% in aggregate principal amount of all of the then outstanding
Notes may declare all the Notes to be due and payable immediately. After such
acceleration, but before a judgment or decree based on acceleration, the holders
of a majority in aggregate principal amount of outstanding Notes may, under
certain circumstances, rescind and annul such acceleration if all Events of
Default, other than the non-payment of principal, interest, premium or
Liquidated Damages that have become due solely because of such acceleration,
have been cured or waived as provided in the Indenture. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency with respect to the Company or any Subsidiary of the
Company, all outstanding Notes will become due and payable without further
action or notice. Holders of the Notes may not enforce the Indenture or the
Notes except as provided in the Indenture. Subject to certain limitations,
holders of a majority in principal amount of the then outstanding Notes may
direct the Trustee in its exercise of any trust or power. The Indenture provides
that if a Default occurs and is continuing, generally the Trustee must give
notice of such Default to the holders within 90 days after the occurrence of
such Default. The Trustee may withhold from holders of the Notes notice of any
continuing Default or Event of Default (except a Default or Event of Default
relating to the payment of principal or premium, if any, or interest or
Liquidated Damages) if it determines that withholding notice is in their
interest.
The holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the holders of all of the
Notes waive any existing Default or Event of Default and its consequences under
the Indenture except a continuing Default or Event of Default in the payment of
interest or premium or Liquidated Damages on, or the principal of, any Note
(except a payment default resulting from an acceleration that has been
rescinded) or in respect of a provision that cannot be amended or waived without
the consent of the holder affected. See "--Amendment, Supplement and Waiver."
No holder of any Note will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless such holder shall
have previously given to the Trustee written notice of a
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continuing Event of Default and unless the holders of at least 25% in aggregate
principal amount of the outstanding Notes shall have made written request, and
offered reasonable indemnity, to the Trustee to institute such proceeding as
Trustee, and the Trustee shall not have received from the holders of a majority
in aggregate principal amount of the outstanding Notes a direction inconsistent
with such request and shall have failed to institute such proceeding within 30
days. However, such restrictions do not apply to a suit instituted by a holder
of a Note for enforcement of payment of the principal of and premium, if any, or
interest or Liquidated Damages, if any, on such Note on or after the respective
due dates expressed in such Note.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and upon becoming aware of any Default
or Event of Default, the Company is required to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company,
as such, shall have any liability for any obligations of the Company under the
Notes or the Indenture or for any claim based on, in respect of, or by reason
of, such obligations or their creation, solely by reason of its status as a
director, officer, incorporator or stockholder of the Company. Each holder of
Notes by accepting a Note waives and releases all such liability. The waiver and
release are part of the consideration for issuance of the Notes. Such waiver may
not be effective to waive liabilities under the federal securities laws and it
is the view of the Commission that such waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
At its option and at any time, the Company may elect to have all of the
obligations of the Company discharged with respect to the outstanding Notes
("Legal Defeasance") except for (i) the rights of holders of outstanding Notes
to receive payments in respect of the principal of, premium, if any, and
interest and Liquidated Damages on such Notes when such payments are due from
the trust referred to below, (ii) the Company's obligations with respect to the
Notes concerning issuing temporary Notes, registration of Notes, mutilated,
destroyed, lost or stolen Notes and the maintenance of an office or agency for
payment and money for security payments held in trust, (iii) the Company's
obligations under the Registration Rights Agreement, (iv) the rights, powers,
trusts, duties and immunities of the Trustee, and the Company's obligations in
connection therewith and (v) the Legal Defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time, elect to have the
obligations of the Company released with respect to certain covenants that are
described in the Indenture ("Covenant Defeasance") and thereafter any omission
to comply with such obligations shall not constitute a Default or Event of
Default with respect to the Notes. In the event Covenant Defeasance occurs,
certain events (not including nonpayment, bankruptcy and insolvency events)
described under "Events of Default" will no longer constitute an Event of
Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit of
the holders of the Notes, cash in U.S. dollars, U.S. Government Obligations, or
a combination thereof, in such amounts as will be sufficient, in the written
opinion of a nationally recognized firm of independent public accountants, to
pay the principal of, premium, if any, and interest and Liquidated Damages on
the outstanding Notes on the stated maturity or on the applicable redemption
date, as the case may be, and the Company must specify whether the Notes are
being defeased to maturity or to a particular redemption date; (ii) in the case
of Legal Defeasance, the Company shall have delivered to the Trustee an opinion
of counsel in the U.S. reasonably acceptable to the Trustee confirming that (a)
the Company has received from, or there has been published by, the Internal
Revenue Service a ruling or (b) since the date of the Indenture, there has been
a change in the applicable federal income tax law, in either case to the effect
that, and based thereon such opinion of counsel shall confirm that, the holders
of the outstanding Notes will not recognize income, gain or loss for
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federal income tax purposes as a result of such Legal Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such Legal Defeasance had not
occurred; (iii) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the U.S. reasonably acceptable
to the Trustee confirming that the holders of the outstanding Notes will not
recognize income, gain or loss for federal income tax purposes as a result of
such Covenant Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such Covenant Defeasance had not occurred; (iv) no Default or Event of Default
shall have occurred and be continuing on the date of such deposit (other than a
Default or Event of Default resulting from the borrowing of funds to be applied
to such deposit) after giving effect thereto or insofar as Events of Default
from bankruptcy or insolvency events are concerned, at any time in the period
ending on the 123rd day after the date of deposit; (v) such Legal Defeasance or
Covenant Defeasance will not result in a breach or violation of, or constitute a
default under, any material agreement or instrument (other than the Indenture)
to which the Company or any of its Subsidiaries is a party or by which the
Company or any of its Subsidiaries is bound; (vi) the Company must deliver to
the Trustee an officers' certificate stating that the deposit was not made by
the Company with the intent of defeating, hindering, delaying or defrauding
creditors of the Company or others; (vii) such Legal Defeasance or Covenant
Defeasance shall not result in the trust arising from such deposit constituting
an investment company within the meaning of the Investment Company Act of 1940,
as amended, unless such trust shall be registered under such Act or exempt from
registration thereunder; and (viii) the Company must deliver to the Trustee an
officers' certificate and a opinion of counsel, each stating that all conditions
precedent relating to Legal Defeasance or Covenant Defeasance, as the case may
be, have been complied with.
TRANSFER AND EXCHANGE
A holder may transfer or exchange Notes in accordance with the Indenture.
The Trustee will act as paying agent and registrar for the Notes. The Company,
the registrar and the Trustee may require a holder, among other things, to
furnish appropriate endorsements and transfer documents as well as
certifications, legal opinions and other information, and the Company may
require a holder to pay any taxes and fees required by law or permitted by the
Indenture. The Company is not required to transfer or exchange any Note selected
for redemption. Also, the Company is not required to transfer or exchange any
Note for a period of 15 days before a selection of Notes to be redeemed.
The registered holder of a Note will be treated as the owner of it for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture or
the Notes may be amended or supplemented with the consent of the holders of at
least a majority in principal amount of the Notes then outstanding (including
consents obtained in connection with a tender offer or exchange offer for the
Notes), and any existing default or failure to comply with any provision of the
Indenture or the Notes may be waived with the consent of the holders of a
majority in principal amount of the then outstanding Notes (including consents
obtained in connection with a tender offer or exchange offer for the Notes).
Without the consent of each holder, an amendment or waiver may not: (i)
reduce the principal amount of Notes whose holders must consent to an amendment,
supplement or waiver, (ii) reduce the principal of or premium on or change the
fixed maturity of any Note or alter or waive any of the provisions with respect
to the redemption of the Notes (other than provisions relating to the covenants
described above under the caption "--Repurchase at the Option of Holders"),
(iii) reduce the rate of or change the time for payment of interest on any Note,
(iv) waive a Default or Event of Default in the payment of principal of or
premium, if any, or interest or Liquidated Damages on the Notes (except a
rescission of acceleration of the Notes by the holders of at least a majority in
aggregate principal amount of the then
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outstanding Notes and a waiver of the payment default that resulted from such
acceleration), (v) make any Note payable in money other than that stated in the
Notes, (vi) make any change in the provisions of the Indenture relating to
waivers of past Defaults or the rights of holders of Notes to receive payments
of principal of or premium, if any, or interest or Liquidated Damages on the
Notes, (vii) waive a redemption payment with respect to any Note (other than a
payment required by one of the covenants described above under the caption
"--Repurchase at the Option of Holders"), (viii) modify the ranking or priority
of the Notes or (ix) make any change in the foregoing amendment and waiver
provisions.
Notwithstanding the foregoing, without the consent of any holder of Notes,
the Company and the Trustee may amend or supplement the Indenture or the Notes
to cure any ambiguity, defect or inconsistency, to provide for uncertificated
Notes in addition to or in place of Certificated Notes, to provide for the
assumption of the Company's obligations to holders of Notes in the case of a
merger or consolidation, to secure the Notes, to make any change that would
provide any additional rights or benefits to the holders of Notes or that does
not adversely affect the interests of the holders of the Notes in any material
respect, to comply with requirements of the Commission in order to effect or
maintain the qualification of the Indenture under the Trust Indenture Act or to
provide for the issuance of additional Senior Notes pursuant to the Indenture to
the extent permitted under the restrictions contained in the Credit Agreement
and described under "--Certain Covenants--Incurrence of Indebtedness and
Issuance of Preferred Stock."
PAYMENTS FOR CONSENT
Neither the Company nor any of its Subsidiaries or Unrestricted Subsidiaries
shall, directly or indirectly, pay or cause to be paid any consideration,
whether by way of interest, fee or otherwise, to any holder of any Notes for or
as an inducement to any consent, waiver or amendment of any terms or provisions
of the Notes, unless such consideration is offered to be paid or agreed to be
paid to all holders of the Notes which so consent, waive or agree to amend in
the time frame set forth in the solicitation documents relating to such consent,
waiver or agreement.
CONCERNING THE TRUSTEE
Norwest Bank Minnesota, National Association is the Trustee under the
Indenture. The Trustee's current address is Sixth and Marquette, Minneapolis,
Minnesota 55479.
The holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not have been cured), the Trustee will be required, in
the exercise of its power, to use the degree of care of a prudent person in the
conduct of his or her own affairs. Subject to such provisions, the Trustee will
be under no obligation to exercise any of its rights or powers under the
Indenture at the request of any holder of Notes, unless such holder shall have
offered to the Trustee security and indemnity satisfactory to it against any
loss, liability or expense.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture and
Registration Rights Agreement without charge by writing to Delta Beverage Group,
Inc., 2221 Democrat Road, Memphis, Tennessee 38132, Attention: Chief Operating
Officer.
BOOK-ENTRY, DELIVERY AND FORM
The Exchange Notes initially will be issued in the form of one Global Note
(the "Global Note"). The Global Note will be deposited with the Trustee as
custodian for The Depository Trust Company (the
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"Depositary") and registered in the name of Cede & Co., as nominee of the
Depositary (such nominee being referred to herein as the "Global Note Holder").
The Depositary is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the "Participants"
or the "Depositary's Participants") and to facilitate the clearance and
settlement of transactions in such securities between Participants through
electronic book-entry changes in accounts of its Participants. The Depositary's
Participants include securities brokers and dealers (including the Initial
Purchaser), banks and trust companies, clearing corporations and certain other
organizations. Access to the Depositary's system is also available to other
entities such as banks, brokers, dealers and trust companies (collectively, the
"Indirect Participants" or the "Depositary's Indirect Participants") that clear
through or maintain a custodial relationship with a Participant, either directly
or indirectly. Persons who are not Participants may beneficially own securities
held by or on behalf of the Depositary only through the Depositary's
Participants or the Depositary's Indirect Participants.
The Company expects that pursuant to procedures established by the
Depositary (i) upon deposit of the Global Note, the Depositary will credit the
accounts of Participants exchanging Senior Notes for Exchange Notes with
portions of the principal amount of the Global Note and (ii) ownership of the
Exchange Notes evidenced by the Global Note will be shown on, and the transfer
of ownership thereof will be effected only through, records maintained by the
Depositary (with respect to the interests of the Depositary's Participants), the
Depositary's Participants and the Depositary's Indirect Participants. Holders
are advised that the laws of some states require that certain persons take
physical delivery in definitive form of securities that they own. Consequently,
the ability to own, transfer or pledge Exchange Notes evidenced by the Global
Note will be limited to such extent.
So long as the Global Note Holder is the registered owner of any Exchange
Notes, the Global Note Holder will be considered the sole holder under the
Indenture of any Exchange Notes evidenced by the Global Note. Beneficial owners
of Exchange Notes evidenced by the Global Note will not be considered the owners
or holders thereof under the Indenture for any purpose, including with respect
to the giving of any directions, instructions or approvals to the Trustee
thereunder. Neither the Company nor the Trustee will have any responsibility or
liability for any aspect of the records of the Depositary or for maintaining,
supervising or reviewing any records of the Depositary relating to the Senior
Notes.
Payments in respect of the principal of, premium, if any, interest and
Liquidated Damages, if any, on any Exchange Notes registered in the name of the
Global Note Holder on the applicable record date will be payable by the Trustee
to or at the direction of the Global Note Holder in its capacity as the
registered holder under the Indenture. Under the terms of the Indenture, the
Company and the Trustee may treat the persons in whose names Exchange Notes,
including the Global Note, are registered as the owners thereof for the purpose
of receiving such payments. Consequently, neither the Company nor the Trustee
has or will have any responsibility or liability for the payment of such amounts
to beneficial owners of Exchange Notes. The Company believes, however, that it
is currently the policy of the Depositary to immediately credit the accounts of
the relevant Participants with such payments, in amounts proportionate to their
respective holdings of beneficial interests in the relevant security as shown on
the records of the Depositary. Payments by the Depositary's Participants and the
Depositary's Indirect Participants to the beneficial owners of Exchange Notes
will be governed by standing instructions and customary practice and will be the
responsibility of the Depositary's Participants or the Depositary's Indirect
Participants.
CERTIFICATED NOTES
If (i) the Company notifies the Trustee in writing that the Depositary is no
longer willing or able to act as a depositary and the Company is unable to
locate a qualified successor within 90 days or (ii) the Company, at its option,
notifies the Trustee in writing that it elects to change the issuance of
Exchange Notes in the form of Certificated Securities under the Indenture then,
upon surrender by the Global Note
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Holder of its Global Note, Certificated Notes will be issued to each person that
the Global Note Holder and the Depositary identify as being the beneficial owner
of the related Exchange Notes.
Neither the Company nor the Trustee will be liable for any delay by the
Global Note Holder or the Depositary in identifying the beneficial owners of the
Notes, and the Company and the Trustee may conclusively rely on, and will be
protected in relying on, instructions from the Global Note Holder or the
Depositary for all purposes.
SAME-DAY SETTLEMENT AND PAYMENT
The Indenture requires that payments in respect of the Notes represented by
the Global Note (including principal, premium, if any, interest and Liquidated
Damages, if any) be made by wire transfer of immediately available funds to the
accounts specified by the Global Note Holder. With respect to Certificated
Notes, the Company will make all payments of principal, premium, if any,
interest and Liquidated Damages, if any, by wire transfer of immediately
available funds to the accounts specified by the holders thereof or, if no such
account is specified, by mailing a check to each such holder's registered
address. Secondary trading in long-term notes and debentures of corporate
issuers is generally settled in clearing-house or next-day funds. In contrast,
the Notes represented by the Global Note are expected to trade in the
Depositary's Same-Day Funds Settlement System, and any permitted secondary
market trading activity in such Notes will, therefore, be required by the
Depositary to be settled in immediately available funds. The Company expects
that secondary trading in the Certificated Notes will also be settled in
immediately available funds.
GOVERNING LAW
The Indenture and the Notes will be governed by the law of the State of New
York.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
The Company and the Initial Purchaser entered into a Registration Rights
Agreement (the "Registration Rights Agreement") on December 17, 1996. Pursuant
to the Registration Rights Agreement, the Company has agreed, for the benefit of
the holders of the Senior Notes, at the Company's expense, to (i) file on or
prior to 30 days after the Closing Date an Exchange Offer Registration Statement
with the Commission with respect to a registered offer to exchange the Senior
Notes for Exchange Notes to be issued under the Indenture and with terms that
will be identical in all respects to the Senior Notes (except that the
Liquidated Damages provisions and transfer restrictions will be modified or
eliminated, as appropriate, and that the Exchange Notes will not be entitled to
registration rights) and, (ii) use its best efforts to cause the Exchange Offer
Registration Statement to be declared effective under the Securities Act on or
prior to 135 days after the Closing Date and (iii) use its best efforts to
consummate the Exchange Offer on or prior to 135 days after the date of the
Closing Date. Promptly after the Exchange Offer Registration Statement is
declared effective, the Company will offer the Exchange Notes in exchange for
surrender of the Senior Notes. The Company will keep the Exchange Offer open for
not less than 30 business days (or longer if required by applicable law) after
the date notice of the Exchange Offer is mailed to the holders of the Senior
Notes. For each Senior Note tendered to the Company pursuant to the Exchange
Offer and not validly withdrawn by the holder thereof, the holder of such Senior
Note will receive an Exchange Note having a principal amount equal to the
principal amount of such surrendered Senior Note.
Based on existing interpretations of the Securities Act by the Staff set
forth in several no-action letters to third parties, and subject to the
immediately following sentence, the Company believes that the Exchange Notes
that will be issued pursuant to the Exchange Offer may be offered for resale,
resold and otherwise transferred by the holders thereof without further
compliance with the registration and prospectus delivery provisions of the
Securities Act. However, any purchaser of Senior Notes who is an "affiliate" of
the Company or who intends to participate in the Exchange Offer for the purpose
of distributing the
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Exchange Notes (i) will not be able to rely on the interpretation by the staff
of the Commission set forth in the above-mentioned no-action letters, (ii) will
not be able to tender its Senior Notes in the Exchange Offer and (iii) must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any sale or transfer of the Senior Notes
unless such sale or transfer is made pursuant to an exemption from such
requirements. Holders of Exchange Notes who are participating in a distribution
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with secondary resale transactions. The Company has
not sought, and does not intend to seek, its own no-action letter on these
issues. There can be no assurance that the Staff would make a similar
determination with respect to the Exchange Offer.
Each holder of the Senior Notes who wishes to exchange Senior Notes for
Exchange Notes in the Exchange Offer will be required to represent that (i) it
is not an affiliate of the Company, (ii) any Exchange Notes to be received by it
were acquired in the ordinary course of its business and (iii) it has no
arrangement with any person to participate in the distribution (within the
meaning of the Securities Act) of the Exchange Notes. In addition, in connection
with any resales of Exchange Notes, any broker-dealer (an "Exchanging Dealer")
who acquired the Senior Notes for its own account as a result of market-making
activities or other trading activities must deliver a prospectus meeting the
requirements of the Securities Act. The Commission has taken the position that
Exchanging Dealers may fulfill their prospectus delivery requirements with
respect to the Exchange Notes with the prospectus contained in the Exchange
Offer Registration Statement. Under the Registration Rights Agreement, the
Company will make available to Exchanging Dealers the Prospectus contained in
the Exchange Offer Registration Statement in connection with the resale of such
Exchange Notes.
In the event that any changes in law or applicable interpretations of the
staff of the Commission do not permit the Company to effect the Exchange Offer,
or if for any reason the Exchange Offer is not consummated on or prior to 135
days after the Closing Date or in certain other circumstances, the Company will,
at its expense, (i) as promptly as practicable, and in any event on or prior to
30 days after such filing obligation arises, file with the Commission a shelf
registration statement (the "Shelf Registration Statement") covering resales of
the Senior Notes, (ii) use its best efforts to cause the Shelf Registration
Statement to be declared effective under the Securities Act on or prior to 45
days after such filing occurs and (iii) use its best efforts to keep effective
the Shelf Registration Statement until three years after its effective date (or
such shorter period that will terminate when all the Senior Notes covered
thereby have been sold pursuant thereto or in certain other circumstances). The
Company will, in the event of the filing of a Shelf Registration Statement,
provide to each holder of the Senior Notes covered by the Shelf Registration
Statement copies of the prospectus that is a part of the Shelf Registration
Statement, notify each such holder when the Shelf Registration Statement for the
Senior Notes has become effective and take certain other actions as are required
to permit unrestricted resales of the Senior Notes. A holder of Senior Notes
that sells such Senior Notes pursuant to the Shelf Registration Statement
generally will be required to be named as a selling securityholder in the
related prospectus and to deliver a prospectus to the purchaser, will be subject
to certain of the civil liability provisions under the Securities Act in
connection with such sales and will be bound by the provisions of the
Registration Rights Agreement that are applicable to such holder (including
certain indemnification obligations). In addition, each holder of the Senior
Notes will be required to deliver certain information to be used in connection
with the Shelf Registration Statement in order to have its Senior Notes included
in the Shelf Registration. If (a) the Company fails to file any of the
registration statements required by the Registration Rights Agreement on or
before the date specified for such filing, (b) any of such registration
statements is not declared effective by the Commission on or prior to the date
specified for such effectiveness (the "Effectiveness Target Date"), (c) the
Company fails to consummate the Exchange Offer within 30 days of the
Effectiveness Target Date with respect to the Exchange Offer Registration
Statement or (d) the Shelf Registration Statement or the Exchange Offer
Registration Statement is declared effective but thereafter ceases to be
effective during the periods specified in the Registration Rights Agreement
(each such event referred to in clauses (a) through (d) above, a "Registration
Default"), then the Company will pay liquidated damages
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("Liquidated Damages") to each holder of Senior Notes, with respect to the first
90-day period immediately following the occurrence of such Registration Default
in an amount equal to $.05 per week per $1,000 principal amount of Senior Notes
held by such holder for each week or portion thereof during which such
Registration Default continues. The amount of the Liquidated Damages for such
Registration Default will increase by an additional $.05 per week per $1,000
principal amount of Senior Notes with respect to each subsequent 90-day period
until such Registration Default has been cured, up to an aggregate maximum
amount of Liquidated Damages of $.30 per week per $1,000 principal amount of
Senior Notes for all Registration Defaults. All accrued Liquidated Damages will
be paid by the Company on each interest payment date with respect to the Senior
Notes. Following the cure of all Registration Defaults, the accrual of
Liquidated Damages will cease and all accrued and unpaid Liquidated Damages
shall be paid promptly thereafter.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is qualified in its entirety by
reference to the Registration Rights Agreement, a copy of which is available as
set forth above under "Available Information."
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"ACQUIRED INDEBTEDNESS" means, with respect to any specified Person, (i) any
Indebtedness or Disqualified Stock of any other Person existing at the time such
other Person is merged with or into or becomes a Subsidiary of such specified
Person, including, without limitation, Indebtedness incurred in connection with,
or in contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person, and in either case for
purposes of the Indenture shall be deemed to be incurred by such specified
Person at the time such other Person is merged with or into or becomes a
Subsidiary of such specified Person or at the time such asset is acquired by
such specified Person, as the case may be.
"AFFILIATE" of any specified Person means (i) any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person or (ii) any other Person who is a director or
executive officer of (a) such specified Person or (b) any Person described in
the preceding clause (i). For purposes of this definition, "control" (including,
with correlative meanings, the terms "controlling," "controlled by" and "under
common control with"), as used with respect to any Person, shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; PROVIDED that
beneficial ownership of 10% or more of any class, or any series of any class, of
equity securities of a Person, whether or not voting, shall be deemed to be
control.
"AGENT BANK" means NationsBank, N.A. and its successors under the Credit
Agreement.
"ASSET SALE" means with respect to any Person, the sale, lease, conveyance,
disposition or other transfer, that does not constitute a Restricted Payment or
an Investment, by such Person of any of its properties or assets (including,
without limitation, by way of a Sale and Leaseback Transaction and including the
issuance, sale or other transfer of any Equity Interest in any Subsidiary or the
sale or transfer of Equity Interests in any Unrestricted Subsidiary of such
Person) other than to the Company (including the receipt of proceeds of
insurance paid on account of the loss of or damage to any asset and awards of
compensation for any asset taken by condemnation, eminent domain or similar
proceeding, and including the receipt of proceeds of business interruption
insurance), in each case, in one or a series of related transactions; PROVIDED,
that notwithstanding the foregoing, the term "Asset Sale" shall not include: (a)
the sale, lease, conveyance, disposition or other transfer of all or
substantially all of the assets of the Company, in accordance with the terms of
the covenant described under the caption "--Certain Covenants--Merger,
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Consolidation or Sale of Assets," (b) the sale or lease of equipment, inventory,
accounts receivable or other assets in the ordinary course of business
consistent with past practice, (c) a transfer of assets by the Company to a
Wholly Owned Subsidiary of the Company or by a Wholly Owned Subsidiary of the
Company to the Company or to another Wholly Owned Subsidiary of the Company, (d)
an issuance of Equity Interests by a Wholly Owned Subsidiary of the Company to
the Company or to another Wholly Owned Subsidiary of the Company, PROVIDED that
the consideration paid by the Company or such Wholly Owned Subsidiary of the
Company for such Equity Interests shall be deemed to be an Investment, or (e)
the sale or other disposition of cash or Cash Equivalents.
"ATTRIBUTABLE INDEBTEDNESS" means, in respect of a Sale and Leaseback
Transaction at the time of determination thereof, the greater of (i) the
capitalized amount in respect of such transaction that would appear on the face
of a balance sheet of the lessee in accordance with GAAP and (ii) the present
value (discounted at the interest rate borne by the Notes, compounded annually)
of the total obligations of the lessee for rental payments during the remaining
term of the lease included in such Sale and Leaseback Transaction (including any
period for which such lease has been extended).
"CAPITAL LEASE OBLIGATION" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"CAPITAL STOCK" means (i) in the case of a corporation, capital stock, (ii)
in the case of an association or business entity, any and all shares, interests,
participations, rights or other equivalents (however designated) of capital
stock, (iii) in the case of a partnership, partnership interests (whether
general or limited) and (iv) any other interest or participation that confers on
a Person the right to receive a share of the profits and losses of, or
distributions of assets of, the issuing Person.
"CASH EQUIVALENT" means (a) securities issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof (PROVIDED that the full faith and credit of the United
States is pledged in support thereof) having maturities not more than twelve
months from the date of acquisition, (b) U.S. dollar denominated (or foreign
currency fully hedged) time deposits, certificates of deposit, Eurodollar time
deposits or Eurodollar certificates of deposit of (i) any domestic commercial
bank of recognized standing having capital and surplus in excess of $500 million
or (ii) any bank whose short-term commercial paper rating from S&P is at least
A-1 or the equivalent thereof or from Moody's is at least P-1 or the equivalent
thereof (any such bank being an "Approved Lender"), in each case with maturities
of not more than twelve months from the date of acquisition, and (c) commercial
paper issued by any Approved Lender (or by the parent company thereof) or any
variable rate notes issued by, or guaranteed by, any domestic corporation rated
A-2 (or the equivalent thereof) or better by Standard & Poor's or P-2 (or the
equivalent thereof) or better by Moody's and maturing within twelve months of
the date of acquisition.
"CHANGE OF CONTROL" means such time as either:
(i) (a) the Pohlad Companies or any Person, 80% of the voting power of
the Voting Stock of which Person is owned by the Pohlad Family, ceases to
be, directly or indirectly, the beneficial owners in the aggregate of more
than 50% of the voting power of the Voting Stock of the Company on a fully
diluted basis, after giving effect to the conversion and exercise of all
outstanding warrants, options and other securities of the Company
convertible into or exercisable for Voting Stock of the Company (whether or
not such securities are then currently convertible or exercisable) or (b)
the Pohlad Family ceases to be, directly or indirectly, the beneficial owner
in the aggregate of more than 80% of the voting power of the Voting Stock of
the Pohlad Companies; or
(ii) any "person" or "group" (within the meaning of Section 13(d) or
14(d) of the Exchange Act) (other than (a) an underwriter conducting a firm
commitment underwriting of the Company's Voting Stock or (b) Pepsi or any
Affiliate of Pepsi) has become, directly or indirectly, the "beneficial
owner"
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(as defined in Rule 13d-3 and 13d-5 under the Exchange Act, except that a
Person shall be deemed to have "beneficial ownership" of all shares that any
such Person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), by way of merger,
consolidation or otherwise, of 25% or more of the voting power of the Voting
Stock of the Company on a fully-diluted basis, after giving effect to the
conversion and exercise of all outstanding warrants, options and other
securities of the Company convertible into or exercisable for Voting Stock
of the Company (whether or not such securities are then currently
convertible or exercisable); or
(iii) the sale, lease or transfer of all or substantially all of the
assets of the Company to any Person or group; or
(iv) during any period of two consecutive calendar years, individuals
who at the beginning of such period constituted the board of directors of
the Company, together with any new members of such board of directors or
whose nomination for election by the stockholders of the Company was
approved by a vote of a majority of the members of such board of directors
then still in office who either were directors at the beginning of such
period or whose election or nomination for election was previously so
approved, cease for any reason to constitute a majority of the directors of
the Company then in office; or
(v) the Company consolidates with or merges with or into another Person
or any Person consolidates with, or merges with or into, the Company (in
each case, whether or not in compliance with the terms of the Indenture), in
any such event pursuant to a transaction in which immediately after the
consummation thereof Persons owning a majority of the Voting Stock of the
Company immediately prior to such consummation shall cease to own a majority
of the Voting Stock of the Company or the surviving entity if other than the
Company.
"CONSOLIDATED EBITDA" means, with respect to any Person for any period, the
sum of, without duplication, (i) the Consolidated Net Income of such Person and
its Subsidiaries for such period, plus (ii) the Fixed Charges for such period,
plus (iii) amortization of deferred financing charges for such period, plus (iv)
provision for taxes based on income or profits for such period (to the extent
such income or profits were included in computing Consolidated Net Income for
such period), plus (v) consolidated depreciation, amortization and other noncash
charges of such Person and its Subsidiaries required to be reflected as expenses
on the books and records of such Person, minus (vi) cash payments with respect
to any nonrecurring, noncash charges previously added back pursuant to clause
(v), and excluding (vii) the impact of foreign currency translations.
Notwithstanding the foregoing, the provision for taxes based on the income or
profits of, and the depreciation and amortization and other noncash charges of,
a Subsidiary of a Person shall be added to Consolidated Net Income to compute
Consolidated EBITDA only to the extent (and in the same proportion) that the Net
Income of such Subsidiary was included in calculating the Consolidated Net
Income of such Person and only if a corresponding amount would be permitted at
the date of determination to be dividended to such Person by such Subsidiary
without prior approval (unless such approval has been obtained), pursuant to the
terms of its charter and all agreements, instruments, judgments, decrees,
orders, statutes, rules and governmental regulations applicable to that
Subsidiary or its stockholders.
"CONSOLIDATED NET INCOME" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Subsidiaries for such
period, on a consolidated basis, determined in accordance with GAAP; PROVIDED
that (i) the Net Income (but not loss) of any Person that is not a Subsidiary or
that is accounted for by the equity method of accounting shall be included only
to the extent of the amount of dividends or distributions paid in cash to the
referent Person or a Wholly Owned Subsidiary thereof, (ii) the Net Income of any
Subsidiary shall be excluded to the extent that the declaration or payment of
dividends or similar distributions by that Subsidiary of that Net Income is not
at the date of determination permitted without any prior governmental approval
(unless such approval has been obtained) or, directly or indirectly, by
operation of the terms of its charter or any agreement,
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instrument, judgment, decree, order, statute, rule or governmental regulation
applicable to that Subsidiary or its stockholders, (iii) the Net Income (if
positive) of any Person acquired in a pooling of interests transaction for any
period prior to the date of such acquisition shall be excluded, (iv) the
cumulative effect of a change in accounting principles shall be excluded, and
(v) the Net Income of, or any dividends or other distributions from, any
Unrestricted Subsidiary, to the extent otherwise included, shall be excluded,
until distributed in cash to the Company or one of its Subsidiaries.
"CONSOLIDATED NET WORTH" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the common stockholders of such Person
and its consolidated Subsidiaries as of such date plus (ii) the respective
amounts reported on such Person's balance sheet as of such date with respect to
any series of preferred stock (other than Disqualified Stock) that by its terms
is not entitled to the payment of dividends unless such dividends may be
declared and paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash received by such
Person upon issuance of such preferred stock, less (x) all write-ups subsequent
to the date of the Indenture in the book value of any asset owned by such Person
or a consolidated Subsidiary of such Person (other than purchase accounting
adjustments made, in connection with any acquisition of any entity that becomes
a consolidated Subsidiary of such Person after the date of the Indenture, to the
book value of the assets of such entity), (y) all investments as of such date in
unconsolidated Subsidiaries and in Persons that are not Subsidiaries (except, in
each case, Permitted Investments), and (z) all unamortized debt discount and
expense and unamortized deferred charges as of such date, all of the foregoing
determined on a consolidated basis in accordance with GAAP.
"CREDIT AGREEMENT" means that certain Credit Agreement, dated as of the date
of the Indenture, by and among the Company and NationsBank, N.A., as
administrative agent, and the lenders parties thereto, including any related
notes, guarantees, collateral documents, instruments and agreements executed in
connection therewith, and in each case as amended, modified, increased, renewed,
refunded, replaced, restated or refinanced from time to time.
"DEFAULT" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"DISQUALIFIED STOCK" means (a) with respect to any Person, Capital Stock of
such Person that, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable) or upon the happening of any event,
matures or is mandatorily redeemable, pursuant to a sinking fund obligation or
otherwise, or is redeemable at the option of the holder thereof, in whole or in
part, on or prior to the date which is one year after the date on which the
Notes mature and (b) with respect to any Subsidiary of such Person (including
with respect to any Subsidiary of the Company), any Capital Stock other than any
common stock with no preference, privileges, or redemption or repayment
provisions.
"EQUITY INTERESTS" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock), whether outstanding prior
to, on or after the date of the Indenture.
"EXEMPT AFFILIATE TRANSACTIONS" means (a) transactions between or among the
Company and/or its Wholly Owned Subsidiaries, (b) advances to officers of the
Company or any Subsidiary of the Company in the ordinary course of business to
provide for the payment of reasonable expenses incurred by such persons in the
performance of their responsibilities to the Company or such Subsidiary or in
connection with any relocation not to exceed $500,000 in any fiscal year of the
Company, (c) fees and compensation paid to and indemnity provided on behalf of
directors, officers or employees of the Company or any Subsidiary of the Company
in the ordinary course of business, (d) any employment agreement that is in
effect on the date of the Indenture in the ordinary course of business and any
such agreement entered into by the Company or a Subsidiary of the Company after
the date of the Indenture in the ordinary course of business of the Company or
such Subsidiary, (e) payments to Pepsi in the ordinary course of business and
contemplated by any distributor or franchise agreement between the Company and
Pepsi, and (f) any Restricted Payment that is not prohibited by the covenant set
forth under the caption "--Certain Covenants--Restricted Payments" above or any
Permitted Investment.
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"EXISTING INDEBTEDNESS" means the Indebtedness of the Company and its
Subsidiaries (other than Indebtedness under the Credit Agreement) in existence
on the date of the Indenture, until such amounts are repaid.
"FIXED CHARGE COVERAGE RATIO" means with respect to any Person for any
period, the ratio of the Consolidated EBITDA of such Person and its Subsidiaries
for such period to the Fixed Charges of such Person and its Subsidiaries for
such period. In the event that the Company or any of its Subsidiaries incurs,
assumes, guarantees or repays or redeems any Indebtedness (other than revolving
credit borrowings) or issues or redeems preferred stock subsequent to the
commencement of the four-quarter reference period for which the Fixed Charge
Coverage Ratio is being calculated but on or prior to the date on which the
event for which the calculation of the Fixed Charge Coverage Ratio is made (the
"Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated
giving pro forma effect to such incurrence, assumption, guarantee, repayment or
redemption of Indebtedness, or such issuance or redemption of preferred stock,
as if the same had occurred at the beginning of the applicable four-quarter
reference period. For purposes of making the computation referred to above, (i)
acquisitions that have been made by the Company or any of its Subsidiaries,
including through mergers or consolidations and including any related financing
transactions, during the four-quarter reference period or subsequent to such
reference period and on or prior to the Calculation Date shall be deemed to have
occurred on the first day of the four-quarter reference period and Consolidated
EBITDA for such reference period shall be calculated without giving effect to
clause (iii) of the proviso set forth in the definition of Consolidated Net
Income, and (ii) the Consolidated EBITDA attributable to discontinued
operations, as determined in accordance with GAAP, and operations or businesses
disposed of prior to the Calculation Date, shall be excluded, and (iii) the
Fixed Charges attributable to discontinued operations, as determined in
accordance with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded, but only to the extent that the obligations
giving rise to such Fixed Charges will not be obligations of the referent Person
or any of its Subsidiaries following the Calculation Date.
"FIXED CHARGES" means, with respect to any Person for any period, the sum,
without duplication, of (i) the consolidated interest expense of such Person and
its Subsidiaries for such period (net of any interest income) including, without
limitation, amortization of original issue discount, noncash interest payments,
the interest component of any deferred payment obligations, the interest
component of all payments associated with Capital Lease Obligations and any
Attributable Indebtedness, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financings, and
net payments (if any) pursuant to Hedging Obligations, but excluding
amortization of deferred financing charges for such period and (ii) the
consolidated interest expense of such Person and its Subsidiaries that was
capitalized during such period, and (iii) any interest expense on Indebtedness
of another Person that is guaranteed by such Person or one of its Subsidiaries
or secured by a Lien on assets of such Person or one of its Subsidiaries
(whether or not such guarantee or Lien is called upon) and (iv) the product of
(a) all cash dividend payments (and noncash dividend payments in the case of a
Person that is a Subsidiary) on any series of preferred stock of such Person
payable to a party other than the Company or a Wholly Owned Subsidiary,
multiplied by (b) a fraction, the numerator of which is one and the denominator
of which is one minus the then current combined federal, state and local
statutory tax rate of such Person, expressed as a decimal, on a consolidated
basis and in accordance with GAAP.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession of the United States which are in effect on the date of the
Indenture.
"GUARANTEE" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters
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of credit and reimbursement agreements in respect thereof), of all or any part
of any Indebtedness. The term "Guarantee" used as a verb shall have a
correlative meaning.
"HEDGING OBLIGATIONS" means, with respect to any Person, the obligations of
such Person entered into in the ordinary course of business under (i) interest
rate swap agreements, interest rate cap agreements and interest rate collar
agreements and other similar financial agreements or arrangements designed to
protect such Person against, or manage the exposure of such Person to,
fluctuations in interest rates, and (ii) forward exchange agreements, currency
swap, currency option and other similar financial agreements or arrangements
designed to protect such Person against, or manage the exposure of such Person
to, fluctuations in foreign currency exchange rates.
"INDEBTEDNESS" means, with respect to any Person on any date of
determination (without duplication), any indebtedness of such Person, whether or
not contingent, in respect of borrowed money or evidenced by bonds, notes,
debentures or similar instruments or letters of credit (or reimbursement
agreements in respect thereof) or banker's acceptances or representing Capital
Lease Obligations, or the balance deferred and unpaid of the purchase price of
any property or representing any Hedging Obligations, except any such balance
that constitutes an accrued expense or trade payable incurred in the ordinary
course of business, if and to the extent any of the foregoing indebtedness
(other than letters of credit and Hedging Obligations) would appear as a
liability upon a balance sheet of such Person prepared in accordance with GAAP,
as well as all indebtedness of others secured by a Lien on any asset of such
Person (whether or not such indebtedness is assumed by such Person) and, to the
extent not otherwise included, the Guarantee by such Person of any indebtedness
of any other Person.
"INVESTMENTS" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the form of direct or indirect
loans (including guarantees of Indebtedness or other obligations), advances or
other extensions of credit or capital contributions (excluding advances to
officers of the type specified in clause (b) of the definition of Exempt
Affiliate Transactions), purchases or other acquisitions for consideration of
Indebtedness, Equity Interests or other securities and all other items that are
or would be classified as investments on a balance sheet prepared in accordance
with GAAP; PROVIDED that an acquisition of assets, Equity Interests or other
securities by the Company for consideration consisting of common equity
securities of the Company shall not be deemed to be an Investment. For purposes
of the definition of "Unrestricted Subsidiary" and the covenant described under
"--Certain Covenants--Restricted Payments," (i) "Investments" shall include the
portion (proportionate to the Company's equity interest in such Subsidiary) of
the fair market value of the net assets of a Subsidiary of the Company at the
time that such Subsidiary is designated an Unrestricted Subsidiary; PROVIDED,
HOWEVER, that upon a redesignation of such Unrestricted Subsidiary as a
Subsidiary, the Company shall be deemed to continue to have a permanent
"Investment" in an Unrestricted Subsidiary equal to an amount (if positive)
equal to (x) the Company's "Investment" in such Subsidiary at the time of such
redesignation less (y) the portion (proportionate to the Company's equity
interest in such Subsidiary) of the fair market value of the net assets of such
Subsidiary at the time of such redesignation; and (ii) any property transferred
to or from an Unrestricted Subsidiary shall be valued at its fair market value
at the time of such transfer, in each case as determined in good faith by the
board of directors.
"JOINT VENTURE" means (i) Louisiana Beverage and (ii) any other
single-purpose corporation, partnership or other legal arrangement hereafter
formed by the Company or any of its Subsidiaries with another Person in order to
conduct a common venture or enterprise in or related to the same line of
business as the Company with such Person through a separate legal entity,
provided that at least 51% of the total voting power of the Capital Stock
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees of such corporation, partnership or
other legal arrangement is at all times owned or controlled, directly or
indirectly, by the Company.
"LIEN" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected
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under applicable law (including any conditional sale or other title retention
agreement, any lease in the nature thereof, any option or other agreement to
sell or give a security interest in and any filing of or agreement to give any
financing statement under the Uniform Commercial Code (or equivalent statutes)
of any jurisdiction).
"LOUISIANA BEVERAGE" means the Pepsi Cola/Seven-Up Beverage Group of
Louisiana, a Louisiana general partnership.
"NET INCOME" means, with respect to any Person for any period, the net
income (loss) of such Person, determined in accordance with GAAP and before any
reduction in respect of preferred stock dividends, excluding, however, (i) any
gain (but not loss), together with any related provision for taxes on such gain
(but not loss), realized in connection with (a) any Asset Sale (including,
without limitation, dispositions pursuant to Sale and Leaseback Transactions) or
(b) the disposition of any securities by such Person or any of its Subsidiaries
or the extinguishment of any Indebtedness of such Person or any of its
Subsidiaries and (ii) any extraordinary or nonrecurring gain (but not loss),
together with any related provision for taxes on such extraordinary or
nonrecurring gain (but not loss).
"NET PROCEEDS" means the aggregate cash proceeds received by the Company or
any of its Subsidiaries in respect of any Asset Sale (including, without
limitation, any cash received upon the sale or other disposition of any noncash
consideration received in any Asset Sale), net of the direct costs and expenses
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions), taxes paid or payable as a
result thereof, and any reserve for adjustment in respect of the sale price of
such asset or assets established in accordance with GAAP.
"NON-RECOURSE DEBT" means Indebtedness (i) as to which neither the Company
nor any of its Subsidiaries (a) provides credit support of any kind (including
any undertaking, agreement or instrument that would constitute Indebtedness),
(b) is directly or indirectly liable (as a guarantor or otherwise), or (c)
constitutes the lender; and (ii) no default with respect to which (including any
rights that the holders thereof may have to take enforcement action against an
Unrestricted Subsidiary) would permit (upon notice, lapse of time or both) any
holder of any other Indebtedness of the Company or any of its Subsidiaries to
declare a default on such other Indebtedness or cause the payment thereof to be
accelerated or payable prior to its stated maturity.
"OBLIGATIONS" means any principal, interest, special interest, penalties,
premiums, fees, indemnifications, reimbursements, damages and other liabilities
payable under the documentation governing any Indebtedness.
"PERMITTED INVESTMENTS" means (a) any Investments in the Company; (b) any
Investments in Cash Equivalents; (c) Investments made as a result of the receipt
of noncash consideration from an Asset Sale that was made pursuant to and in
compliance with the covenant described above under the caption "--Repurchase at
the Option of Holders--Asset Sales"; (d) Investments outstanding as of the date
of the Indenture; (e) Investments in Wholly Owned Subsidiaries of the Company
and any entity that (i) is engaged in the same or a similar line of business as
the Company or any of its Subsidiaries was engaged in on the date of the
Indenture or any reasonable extensions or expansions thereof and (ii) as a
result of such Investment, becomes a Wholly Owned Subsidiary of the Company; (f)
Investments by the Company (other than as permitted by clause (g) below) in
Joint Ventures, PROVIDED the aggregate amount of such Investments (except to the
extent repaid) permitted under this clause (f) at any time shall not exceed
$10.0 million; and (g) Investments by the Company (other than as permitted under
clause (f) above) in a Joint Venture, PROVIDED (i) after giving effect to such
Investment, the Fixed Charge Coverage Ratio for such Joint Venture's or the
Company's most recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the date on which such
Investment is made would have been at least 2.0 to 1.0, (ii) no Default or Event
of Default has occurred and is continuing or would result therefrom, and (iii)
the aggregate amount of Investments (except to the extent repaid) permitted
under this clause (g) at any time shall not exceed $10.0 million.
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"PERMITTED REFINANCING INDEBTEDNESS" means any Indebtedness of the Company
or any of its Subsidiaries issued in exchange for, or the net proceeds of which
are used to extend, refinance, renew, replace, defease or refund other
Indebtedness of the Company or any of its Subsidiaries; PROVIDED that: (i) the
principal amount of such Permitted Refinancing Indebtedness does not exceed the
principal amount of the Indebtedness so extended, refinanced, renewed, replaced,
defeased or refunded (plus the amount of reasonable expenses incurred in
connection therewith); (ii) such Permitted Refinancing Indebtedness (x) has a
Weighted Average Life to Maturity equal to or greater than the Weighted Average
Life to Maturity of, the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded, (y) does not have a stated maturity earlier than
the stated maturity of the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded and (z) does not permit redemption or other
retirement (including pursuant to any required offer to purchase to be made by
the Company or a Subsidiary of the Company) of such Indebtedness at the option
of the holder thereof prior to the final stated maturity of the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded, other than
a redemption or other retirement at the option of the holder of such
Indebtedness (including pursuant to a required offer to purchase made by the
Company or a Subsidiary of the Company) which is conditioned upon a change of
control of the Company pursuant to provisions substantially similar to those
contained in the Indenture described under "--Repurchase at the Option of
Holders--Change of Control" above; (iii) if the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded is subordinated in right of
payment to the Notes, such Permitted Refinancing Indebtedness has a final
maturity date later than the final maturity date of, and is subordinated in
right of payment to, the Notes on terms at least as favorable to the holders of
Notes as those contained in the documentation governing the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; and (iv) such
Permitted Refinancing Indebtedness is incurred either by the Company or by the
Subsidiary of the Company that is the obligor on the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded. Permitted
Refinancing Indebtedness also shall include Indebtedness incurred by the
Company, the net proceeds of which are used to repay all or any portion of any
outstanding Indebtedness of any Joint Venture, PROVIDED the Indebtedness so
incurred by the Company (a) meets the requirements of clauses (i)-(iii) of the
preceding sentence and (b) is not senior in right of payment to the Notes.
"PERSON" means any individual, corporation, limited or general partnership,
joint venture, association, joint stock company, trust, unincorporated
organization or government or any agency or political subdivision thereof or any
other entity.
"POHLAD FAMILY" means James O. Pohlad, Robert C. Pohlad, William M. Pohlad
and their spouses, lineal descendants (including adoptive children), parents and
siblings and their heirs, legatees, legal representatives and all trusts
established by any of them for estate planning purposes of which any such
individuals are the sole beneficiaries or grantors.
"POYDRAS" means Poydras Street Investors LLC, a Louisiana limited liability
company and successor in interest to the Seven-Up/Royal Crown Bottling Company
of Louisiana, Inc.
"PREFERRED STOCK," as applied to the Capital Stock of any corporation, means
Capital Stock of any class or classes (however designated) that is preferred as
to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such corporation, over
shares of Capital Stock of any other class of such corporation.
"PURCHASE MONEY OBLIGATIONS" of any Person means any obligations of such
Person to any seller or any other Person incurred or assumed to finance the
construction and/or acquisition of real or personal property to be used in the
business of such Person or any of its Subsidiaries (excluding accounts payable
to trade creditors incurred in the ordinary course of business), which
obligation is secured by a Lien on such property constructed or acquired.
"SALE AND LEASEBACK TRANSACTION" of any Person means an arrangement with any
lender or investor or to which such lender or investor is a party providing for
the leasing by such Person of any property or asset
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<PAGE>
of such Person which has been or is being sold or transferred by such Person
more than 180 days after the acquisition thereof or the completion of
construction or commencement of operation thereof to such lender or investor or
to any Person to whom funds have been or are to be advanced by such lender or
investor on the security of such property or asset. The stated maturity of such
arrangement shall be the date of the last payment of rent or any other amount
due under such arrangement prior to the first date on which such arrangement may
be terminated by the lessee without payment of a penalty.
"SENIOR BANK DEBT" means the Obligations outstanding under the Credit
Agreement.
"SENIOR INDEBTEDNESS" means, with respect to the Company, (i) the Senior
Bank Debt and (ii) any other Indebtedness permitted to be incurred by the
Company under the terms of the Indenture, unless the instrument under which such
Indebtedness is incurred expressly provides that it is subordinated in right of
payment to any Indebtedness for money borrowed. Notwithstanding anything to the
contrary in the foregoing, Senior Indebtedness will not include (i) any
liability for federal, state, local or other taxes owed or owing by the Company,
(ii) any Indebtedness of the Company to any of its Subsidiaries, Unrestricted
Subsidiaries or other Affiliates, (iii) any trade payables or (iv) any
Indebtedness to the extent that it is incurred in violation of the Indenture.
"Senior Indebtedness" means, with respect to any future guarantor, any guarantee
by such guarantor of Senior Indebtedness of the Company.
"SUBSIDIARY" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of such Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof). Notwithstanding the
foregoing, an Unrestricted Subsidiary and all of its Subsidiaries shall not be
Subsidiaries of the Company for any purposes of the Indenture.
"UNRESTRICTED SUBSIDIARY" means (i) any Person that (a) is acquired or
formed after the date of the Indenture, (b) at the time of acquisition or
formation shall be designated an Unrestricted Subsidiary by the board of
directors of the Company in the manner provided below and (c) would, but for
such designation, be a Subsidiary of the Company and (ii) any Subsidiary of an
Unrestricted Subsidiary. The board of directors of the Company shall make any
such designation if (i) such Subsidiary does not, directly or indirectly, own
any Capital Stock or Indebtedness of, or own or hold any Lien on any property
of, the Company or any other Subsidiary of the Company that is not a Subsidiary
of the Subsidiary to be so designated; (ii) the amount of the Investment by the
Company or any of its Subsidiaries in such Unrestricted Subsidiary would be
permitted under "--Certain Covenants--Restricted Payments" as a "Restricted
Payment" after giving effect to the designation; and (iii) all Indebtedness of
such Unrestricted Subsidiary is Non-Recourse Debt. The board of directors of the
Company may designate any Unrestricted Subsidiary to be a Subsidiary; PROVIDED,
HOWEVER, that immediately after giving pro forma effect to such designation (i)
the Company could incur $1.00 of additional Indebtedness pursuant to the
Consolidated Interest Coverage Ratio test in "--Certain Covenants--Incurrence of
Indebtedness and Issuance of Preferred Stock" and (ii) no Default or Event of
Default shall have occurred and be continuing following such designation. Any
such designation by the board of directors of the Company shall be evidenced to
the Trustee by promptly filing with the Trustee a copy of the board resolution
giving effect to such designation and an officers' certificate certifying that
such designation complies with the foregoing provisions.
"U.S. GOVERNMENT OBLIGATIONS" means (i) securities that are (a) direct
obligations of the United States of America for the payment of which the full
faith and credit of the United States of America is pledged or (b) obligations
of a Person controlled or supervised by and acting as an agency or
instrumentality of the United States of America the payment of which is
unconditionally guaranteed as a full faith and credit obligation by the United
States of America, which, in either case, are not callable or redeemable at the
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option of the issuer thereof; and (ii) depositary receipts issued by a bank (as
defined in Section 3(a)(2) of the Securities Act) as custodian with respect to
any U.S. Government Obligation which is specified in clause (i) above and held
by such bank for the account of the holder of such depositary receipt, or with
respect to any specific payment of principal or interest on any U.S. Government
Obligation which is so specified and held, PROVIDED that (except as required by
law) such custodian is not authorized to make any deduction from the amount
payable to the holder of such depository receipt from any amount received by the
custodian in respect of the U.S. Government Obligation or the specific payment
of principal or interest of the U.S. Government Obligation evidenced by such
depositary receipt.
"VOTING STOCK" of a corporation means all classes of Capital Stock of such
corporation then outstanding and normally entitled to vote in the election of
directors.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the product
obtained by multiplying (a) the amount of each then remaining installment,
sinking fund, serial maturity or other required payments of principal, including
payments at final maturity, in respect thereof, by (b) the number of years
(calculated to the nearest one-twelfth) that will elapse between such date and
the making of such payment, by (ii) the then outstanding principal amount of
such Indebtedness.
"WHOLLY OWNED SUBSIDIARY" of any Person means a Subsidiary of such Person
all of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person. Unrestricted
Subsidiaries shall not be included in the definition of Wholly Owned Subsidiary
for any purpose of the Indenture.
DESCRIPTION OF CERTAIN INDEBTEDNESS
CREDIT AGREEMENT
On December 16, 1996, the Company entered into a $30.0 million revolving
credit facility with a syndicate of lenders (the "Lenders") led by NationsBanc
Capital Markets, Inc., as syndication agent (the "Syndication Agent"), and
NationsBank, N.A., as administrative agent (the "Administrative Agent"). The
revolving credit facility includes a $10.0 million sublimit for the issuance of
letters of credit and a swingline facility of up to $2.5 million. Borrowings
under the revolving credit facility will be used to refinance existing
indebtedness of the Company, to provide for expenses associated with such
refinancing and as working capital. The revolving credit facility commitment
will terminate five years after the date of closing.
The revolving credit facility will bear interest, at the Company's option,
at the London Interbank Offered Rate (LIBOR) for one, two, three or six months,
or an alternative base rate equal to the higher of (i) the Administrative
Agent's prime rate or (ii) the federal funds rate plus 0.50% per annum, plus a
margin which will depend on the Company's senior debt to EBITDA ratio. Swingline
loans will bear interest at a rate to be mutually agreed upon by the Company and
the Administrative Agent.
Loans made pursuant to the revolving credit facility will be made subject to
availability. Availability will be determined by a monthly borrowing base equal
to the sum of approximately 80.0% of the Company's eligible receivables and
approximately 50.0% of the Company's eligible inventory, exclusive of the
eligible receivables and inventory of the Joint Venture.
The Company paid an upfront fee necessary to reduce the Administrative
Agent's commitment to a level not to exceed $10.0 million. At closing and at
each anniversary date thereafter, the Company paid and will pay an annual fee to
the Administrative Agent. In addition, the Company will pay a fronting fee to
the Administrative Agent for each letter of credit equal to a percentage of the
face amount of each letter of credit.
The Company may repay the revolving credit facility loans in whole or in
part at any time, in an amount of not less than $1.0 million, subject to
breakage costs associated with prepaying a LIBOR loan.
84
<PAGE>
The Company may reduce the revolving credit facility commitment at any time, in
an amount of not less than $5.0 million, subject to breakage costs associated
with prepaying a LIBOR loan.
The revolving credit facility will be guaranteed by any future subsidiaries
of the Company and by the Joint Venture in the event the Company becomes the
sole owner of the Joint Venture.
Repayment of the indebtedness evidenced by the Credit Agreement will be
secured by a first priority, perfected security interest in the Company's and
any future guarantor's accounts receivable and inventory, and in all of the
capital stock of any future guarantors.
The Credit Agreement contains customary covenants and restrictions on the
Company's ability to engage in certain activities. In addition, the Credit
Agreement provides that the Company must meet or exceed certain financial ratios
on a quarterly basis. The Credit Agreement also includes customary events of
default.
11% SUBORDINATED NOTES
The Company is also currently indebted in the aggregate principal amount of
approximately $37.2 million under its 11% Subordinated Notes issued under a Note
Exchange Agreement dated as of September 23, 1993 (the "Note Exchange
Agreement"), between the Company, as issuer, and certain lenders. The
Subordinated Notes represent unsecured general obligations of the Company,
subordinate in right of payment to the Notes and certain other obligations of
the Company. Interest on the indebtedness evidenced by the Subordinated Notes is
payable at the annual rate of 11% semiannually on April 1 and October 1, and may
be paid, at the option of the Company, in the form of cash or additional notes
in an aggregate principal amount equal to the amount of interest accrued (the
"PIK Notes"). The rate of interest on the PIK Notes may be 11% or 15%, as
determined by certain terms in the agreement entered into by the Company and
certain lenders on September 23, 1993, as amended, regarding the 1993 Senior
Notes. The Subordinated Notes will mature on December 23, 2003, PROVIDED,
HOWEVER, that if any debt pursuant to the agreement entered into by the Company
and certain lenders on September 23, 1993, as amended, regarding the
establishment of the revolving credit facility (the "1993 Credit Agreement") or
any debt which refinances such indebtedness remains outstanding on that date,
the maturity date of the Subordinated Notes may be extended at the discretion of
the Company. The 1993 Senior Notes were retired and the debt pursuant to the
1993 Credit Agreement has been repaid as of December 20, 1996. See "Use of
Proceeds." The Note Exchange Agreement does not contain any financial covenants,
nor any limitation on the Company's ability to incur Senior Debt, as hereinafter
defined.
The indebtedness evidenced by the Subordinated Notes and the payment of
principal and interest thereon, including any redemption or repurchase price,
are subordinate and subject in right of payment to the prior payment in full of
all Senior Debt, including the Notes. "Senior Debt" means all indebtedness of
the Company for money borrowed, other than the Subordinated Notes, except
indebtedness that by the terms of the instrument or instruments by which such
indebtedness was created, incurred or assumed expressly provides that it is
junior and subordinate in right of payment to the Subordinated Notes.
The Subordinated Notes are redeemable at the option of the Company at any
time, on 60 days' notice, in whole or in part, in units of $1,000,000 or
integral multiples of $100,000 in excess thereof. The prepayment price is the
aggregate principal amount of the Subordinated Notes to be prepaid then
outstanding, plus interest accrued on the amount to be prepaid through and
including the date fixed for prepayment.
PREFERRED STOCK
As of September 30, 1996, the Company had 30,000 authorized shares of
Preferred Stock of which 5,386.48 shares were outstanding. The Preferred Stock
ranks prior to the Company's voting Common Stock and non-voting Common Stock
with respect to dividend rights, rights on liquidation, winding up and
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<PAGE>
dissolution of the Company. The holders of Preferred Stock have no rights to
convert their shares into any other class or series of stock of the Company.
Holders of Preferred Stock have no right to vote with respect to matters
submitted to the stockholders of the Company, except (a) as may be specifically
required by Delaware law, (b) the affirmative vote of the holders of at least
75.0% of the outstanding Preferred Stock is required for: (i) any merger,
consolidation or sale of substantially all of the assets of the Corporation;
(ii) any dissolution or liquidation of the Corporation; (iii) any issuance of
additional shares of capital stock having any preference or priority over the
Preferred Stock; (iv) any issuance of shares of Preferred Stock other than the
shares to be issued pursuant to the Stock Exchange Agreement between the
Corporation and the holders identified therein dated September 23, 1993 or any
shares of Preferred Stock issued as dividends pursuant to Article VI of the
Company's Certificate of Incorporation; (v) any increase in the number of
authorized shares of any class of capital stock of the Corporation, and (c) the
approval by the affirmative vote of all of the then outstanding shares of
Preferred Stock is required for any change in the voting, dividend or
liquidation preferences of the shares of Preferred Stock.
Holders of Preferred Stock are entitled to receive dividends at the annual
rate of 6.0%, compounded quarterly, based on the liquidation price per share of
Preferred Stock as defined in the Company's Certificate of Incorporation, which
annual rate will automatically increase by 2.0% on October 1, 2004 and will
increase by 2.0% on each October 1 thereafter; PROVIDED, HOWEVER, in no event
will the cumulative increase exceed 8.0%. Quarterly dividends are fully
cumulative, whether or not in any dividend period there are funds legally
available for payment, and begin to accrue on shares of Preferred Stock on
issuance of such shares and cease to accrue at the earliest of: (i) the
cancellation of such shares or (ii) the voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Company. Payment of dividends is
made quarterly, and may be made in cash or in additional shares of Preferred
Stock, PROVIDED, HOWEVER, that the Company is obligated to pay such dividends in
cash, unless otherwise prohibited by any other agreement entered into by the
Company relating to the Company's then existing debt. Holders of Preferred Stock
are entitled to receive dividends in preference to and in priority over any
dividends on the voting Common Stock and the non-voting Common Stock. So long as
any shares of Preferred Stock are outstanding, the Company may not declare, pay
or set apart for payment any dividends on the voting Common Stock or the
non-voting Common Stock.
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the affairs of the Company, the holders of Preferred Stock are
entitled to be paid, prior and in preference to any distribution of any assets
of the Company to the holders of shares of voting Common Stock or non-voting
Common Stock, out of the assets of the Company available for distribution to its
shareholders, an amount equal to $5,000 per share, subject to adjustment in the
event the Company subdivides the outstanding shares of Preferred Stock or issues
a dividend other than the quarterly dividend described herein, plus an amount
equal to the accumulated or accrued but unpaid dividends to the holders of
Preferred Stock.
PLAN OF DISTRIBUTION
Based on interpretations by the Staff set forth in no-action letters issued
to third parties, the Company believes that Exchange Notes issued pursuant to
the Exchange Offer in exchange for the Senior Notes may be offered for resale,
resold and otherwise transferred by holders thereof (other than any holder which
is (i) an Affiliate of the Company, (ii) a broker-dealer who acquired Senior
Notes directly from the Company or (iii) a broker-dealer who acquired Senior
Notes as a result of market-making or other trading activities) without
compliance with the registration and prospectus delivery provisions of the
Securities Act PROVIDED that such Exchange Notes are acquired in the ordinary
course of such holders' business, and such holders are not engaged in, and do
not intend to engage in, and have no arrangement or understanding with any
person to participate in, a distribution of such Exchange Notes. Holders of
Exchange Notes who are participating in a distribution must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with secondary resale transactions. The Company has not sought, and
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<PAGE>
does not intend to seek, its own no-action letter on these issues. There can be
no assurance that the Staff would make a similar determination with respect to
the Exchange Offer.
Each broker-dealer (a "Participating Broker-Dealer") who receives Exchange
Notes for its own account pursuant to the Exchange Offer must acknowledge that
it will deliver a Prospectus in connection with any resale of such Exchange
Notes. This Prospectus, as it may be amended or supplemented from time to time,
may be used by a broker-dealer in connection with resales of Exchange Notes
received in exchange for Senior Notes where such Senior Notes were acquired as a
result of market-making activities or other trading activities.
The Company has agreed that, starting on the Expiration Date and ending on
the close of business 180 days after the Expiration Date, it will make this
Prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any such resale. In addition, until May 13, 1997, all dealers
effecting transactions in the Exchange Notes may be required to deliver a
Prospectus.
Each holder of the Senior Notes who wishes to exchange its Senior Notes in
the Exchange Offer will be required to make certain representations to the
Company as set forth in "The Exchange Offer Terms and Conditions of the Letter
of Transmittal." In addition, each holder who is a broker-dealer and who
receives Exchange Notes for its own account in exchange for Senior Notes that
were acquired by it as a result of market-making activities or other trading
activities, will be required to acknowledge that it will deliver a prospectus in
connection with any resale made by it of such Exchange Notes.
The Company will not receive any proceeds from any sale of Exchange Notes by
broker-dealers. Exchange Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the Exchange Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or at negotiated prices. Any such resale may be
made directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such broker-
dealer and/or the purchasers of any such Exchange Notes. Any broker-dealer that
resells Exchange Notes that were received by it for its own account pursuant to
the Exchange Offer and any broker or dealer that participates in a distribution
of such Exchange Notes may be deemed to be an "underwriter" within the meaning
of the Securities Act and any profit on any such resale of Exchange Notes and
any commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
Prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer who requests such documents
in the Letter of Transmittal.
The Company has agreed to pay all expenses incidental to the Exchange Offer
(including the expenses of one counsel for the holders of the Senior Notes)
other than commissions and concessions of any brokers or dealers and will
indemnify holders of the Senior Notes (including any broker-dealers) against
certain liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
Certain matters with respect to the legality of the Exchange Notes and with
respect to the federal income tax matters discussed under "Prospectus
Summary--Federal Income Tax Consequences" and "The Exchange Offer--Federal
Income Tax Consequences" will be passed upon for the Company by Briggs and
Morgan, Professional Association, Minneapolis, Minnesota.
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EXPERTS
The audited financial statements of the Company as of December 31, 1994 and
1995, and for each of the three years ended December 31, 1995, included in this
Prospectus, have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in giving said
report.
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<PAGE>
INDEX TO FINANCIAL STATEMENTS
DELTA BEVERAGE GROUP, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
AUDITED FINANCIAL STATEMENTS
Report of Independent Public Accountants................................................................. F-2
Consolidated Balance Sheets as of December 31, 1994 and 1995............................................. F-3
Consolidated Statements of Operations for the years ended December 31, 1993, 1994 and 1995............... F-4
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1993, 1994 and 1995..... F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1994 and 1995............... F-6
Notes to Consolidated Financial Statements............................................................... F-7
UNAUDITED INTERIM FINANCIAL STATEMENTS
Consolidated Balance Sheets as of December 31, 1995 and September 30, 1996 (unaudited)................... F-19
Consolidated Statements of Operations for the nine months ended September 30, 1995 and 1996
(unaudited)............................................................................................ F-20
Consolidated Statements of Cash Flows for the nine months ended September 30, 1995 and 1996
(unaudited)............................................................................................ F-21
Notes to Consolidated Financial Statements (unaudited)................................................... F-22
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Delta Beverage Group, Inc.:
We have audited the accompanying consolidated balance sheets of DELTA
BEVERAGE GROUP, INC. (a Delaware corporation) and subsidiary as of December 31,
1994 and 1995, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years ended December
31, 1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Delta Beverage Group, Inc.
and subsidiary as of December 31, 1994 and 1995, and the results of their
operations and their cash flows for each of the three years ended December 31,
1995 in conformity with generally accepted accounting principles.
As discussed in Notes 2 and 6 to the consolidated financial statements,
effective January 1, 1993, the Company changed its method of accounting for
income taxes.
ARTHUR ANDERSEN LLP
Memphis, Tennessee,
November 15, 1996.
F-2
<PAGE>
DELTA BEVERAGE GROUP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.................................................................. $ 9,540 $ 7,933
Receivables, net of allowance for doubtful accounts of $461 and $433.......................
Trade.................................................................................... 21,253 19,047
Marketing and advertising................................................................ 9,421 6,472
Other.................................................................................... 1,432 2,013
Inventories, at cost (Note 4).............................................................. 17,020 13,517
Bottles, cases and pallets, at deposit value............................................... 4,220 5,511
Prepaid expenses and other................................................................. 1,240 1,027
Deferred income taxes (Note 6)............................................................. 3,882 2,324
--------- ---------
Total current assets..................................................................... 68,008 57,844
--------- ---------
PROPERTY AND EQUIPMENT:
Land....................................................................................... 2,108 4,639
Buildings and improvements................................................................. 11,283 15,614
Machinery and equipment.................................................................... 65,666 72,216
--------- ---------
79,057 92,469
Less accumulated depreciation and amortization............................................. (44,744) (46,556)
--------- ---------
34,313 45,913
--------- ---------
OTHER ASSETS:
Cost of franchises in excess of net assets acquired, net of accumulated amortization of
$39,856 and $43,382...................................................................... 114,946 116,839
Deferred income taxes (Note 6)............................................................. 24,995 24,931
Deferred financing costs and other......................................................... 2,443 2,910
--------- ---------
142,384 144,680
--------- ---------
$ 244,705 $ 248,437
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt and other liabilities................................. $ 11,721 $ 7,643
Accounts payable........................................................................... 9,985 7,250
Accrued liabilities (Note 5)............................................................... 18,062 15,114
--------- ---------
Total current liabilities................................................................ 39,768 30,007
--------- ---------
LONG-TERM DEBT AND OTHER LIABILITIES (Note 8)................................................ 132,508 150,507
MINORITY INTEREST............................................................................ 5,769 5,205
COMMITMENTS AND CONTINGENCIES (Notes 10 and 13)
STOCKHOLDERS' EQUITY (Note 9):
Preferred stock--
Series AA, $5,000 stated value, 30,000 shares authorized, 4,853.35 and 5,151.18 shares
issued and outstanding.................................................................. 24,267 25,756
Common stock--
Voting, $.01 par value, 60,000 shares authorized, 20,301.87 shares issued and
outstanding............................................................................. -- --
Nonvoting, $.01 par value, 35,000 shares authorized, 32,949.93 shares issued and
outstanding............................................................................. -- --
Additional paid-in capital................................................................. 115,765 115,765
Accumulated deficit........................................................................ (73,340) (78,781)
Deferred compensation (Note 12)............................................................ (32) (22)
--------- ---------
66,660 62,718
--------- ---------
$ 244,705 $ 248,437
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-3
<PAGE>
DELTA BEVERAGE GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
OPERATIONS:
Net sales.................................................................. $ 225,173 $ 245,472 $ 284,709
Cost of sales.............................................................. 147,573 162,667 198,777
---------- ---------- ----------
Gross profit............................................................. 77,600 82,805 85,932
Selling, general and administrative expenses............................... 60,164 62,710 71,802
Amortization of franchise costs and other intangibles...................... 4,246 3,631 3,576
---------- ---------- ----------
Operating income......................................................... 13,190 16,464 10,554
---------- ---------- ----------
OTHER EXPENSES:
Interest................................................................... 18,433 12,152 13,254
Other, net................................................................. 65 (45) 75
---------- ---------- ----------
18,498 12,107 13,329
---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES, MINORITY INTEREST, EXTRAORDINARY ITEM AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE...................................... (5,308) 4,357 (2,775)
Income tax (provision) benefit............................................. 189 (3,262) (1,641)
Minority interest, net of taxes............................................ (11) -- 464
---------- ---------- ----------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM AND CUMULATIVE EFFECT OF ACCOUNTING
CHANGE...................................................................... (5,130) 1,095 (3,952)
Extraordinary item--loss on extinguishment of debt, net of income tax
benefit of $600 (Note 7)................................................. (415) -- --
Cumulative effect of change in method of accounting for income taxes (Note
6)....................................................................... 15,824 -- --
---------- ---------- ----------
NET INCOME (LOSS)............................................................ $ 10,279 $ 1,095 $ (3,952)
---------- ---------- ----------
---------- ---------- ----------
EARNINGS PER COMMON SHARE:
Income (loss) before extraordinary item and cumulative effect of accounting
change................................................................... $ (318.11) $ (5.83) $ (102.18)
Extraordinary item......................................................... (18.12) -- --
Cumulative effect of accounting change..................................... 691.30 -- --
---------- ---------- ----------
Net income (loss).......................................................... $ 355.07 $ (5.83) $ (102.18)
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
DELTA BEVERAGE GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994, AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PREFERRED STOCK
-------------------------------------------------------------------------------
SERIES AA SERIES A SERIES B SERIES C
------------------- ------------------ ------------------ ------------------
NUMBER OF NUMBER OF NUMBER OF NUMBER OF
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- -------- --------- ------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1992........ -- $ -- 2,783.85 $ -- 3,214.77 $ -- 3,356.52 $ --
Preferred stock dividends, Series B
and C............................. -- -- -- -- 291.47 -- 304.33 --
Exchange of Series A, B and C
preferred stock for common stock.. -- -- (2,783.85) -- (3,506.24) -- (3,660.85) --
Notes for Series AA preferred stock
and common stock.................. 4,500.00 22,500 -- -- -- -- -- --
Preferred stock dividends, Series
AA................................ 72.76 364 -- -- -- -- -- --
Recognition of expense under
deferred compensation plan........ -- -- -- -- -- -- -- --
Net income.......................... -- -- -- -- -- -- -- --
--------- -------- --------- ------- --------- ------- --------- -------
BALANCE AT DECEMBER 31, 1993........ 4,572.76 22,864 -- -- -- -- -- --
Preferred stock dividends........... 280.59 1,403 -- -- -- -- -- --
Sale of common stock................ -- -- -- -- -- -- -- --
Recognition of expense under
deferred compensation plan........ -- -- -- -- -- -- -- --
Net income.......................... -- -- -- -- -- -- -- --
--------- -------- --------- ------- --------- ------- --------- -------
BALANCE AT DECEMBER 31, 1994........ 4,853.35 24,267 -- -- -- -- -- --
Preferred stock dividends........... 297.83 1,489 -- -- -- -- -- --
Recognition of expense under
deferred compensation plan........ -- -- -- -- -- -- -- --
Compensation net loss............... -- -- -- -- -- -- -- --
--------- -------- --------- ------- --------- ------- --------- -------
BALANCE AT DECEMBER 31, 1995........ 5,151.18 $25,756 -- $ -- -- $ -- -- $ --
--------- -------- --------- ------- --------- ------- --------- -------
--------- -------- --------- ------- --------- ------- --------- -------
<CAPTION>
COMMON STOCK
----------------------------------------
VOTING NONVOTING
------------------- ------------------- ADDITIONAL ACCUMU- DEFERRED
NUMBER OF NUMBER OF PAID-IN LATED COMPEN-
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT SATION TOTAL
--------- -------- --------- -------- --------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1992........ 2,238.15 $ -- -- $ -- $ 84,908 $(81,160) $ (65) $ 3,683
Preferred stock dividends, Series B
and C............................. -- -- -- -- 1,787 (1,787) -- --
Exchange of Series A, B and C
preferred stock for common stock.. 17,531.21 -- 21,088.09 -- -- -- -- --
Notes for Series AA preferred stock
and common stock.................. -- -- 11,861.84 -- 29,022 -- -- 51,522
Preferred stock dividends, Series
AA................................ -- -- -- -- -- (364) -- --
Recognition of expense under
deferred compensation plan........ -- -- -- -- -- -- 19 19
Net income.......................... -- -- -- -- -- 10,279 -- 10,279
--------- -------- --------- -------- --------- -------- ------- --------
BALANCE AT DECEMBER 31, 1993........ 19,769.36 -- 32,949.93 -- 115,717 (73,032) (46) 65,503
Preferred stock dividends........... -- -- -- -- -- (1,403) -- --
Sale of common stock................ 532.51 -- -- -- 48 -- -- 48
Recognition of expense under
deferred compensation plan........ -- -- -- -- -- -- 14 14
Net income.......................... -- -- -- -- -- 1,095 -- 1,095
--------- -------- --------- -------- --------- -------- ------- --------
BALANCE AT DECEMBER 31, 1994........ 20,301.87 -- 32,949.93 -- 115,765 (73,340) (32) 66,660
Preferred stock dividends........... -- -- -- -- -- (1,489) -- --
Recognition of expense under
deferred compensation plan........ -- -- -- -- -- -- 10 10
Compensation net loss............... -- -- -- -- -- (3,952) -- (3,952)
--------- -------- --------- -------- --------- -------- ------- --------
BALANCE AT DECEMBER 31, 1995........ 20,301.87 $ -- 32,949.93 $ -- 115,765 $(78,781) $ (22) $ 62,718
--------- -------- --------- -------- --------- -------- ------- --------
--------- -------- --------- -------- --------- -------- ------- --------
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
DELTA BEVERAGE GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1993 1994 1995
---------- --------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................................................ $ 10,279 $ 1,095 $ (3,952)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities :
Depreciation and amortization.............................................. 10,626 9,085 9,687
Noncash interest on long-term debt......................................... 5,170 2,101 4,048
Write-off of deferred financing fees....................................... 1,015 -- --
Change in deferred income taxes............................................ (16,743) 2,765 1,622
Loss (gain) on dispositions of property and equipment...................... (4) 22 --
Minority interest, before taxes............................................ 141 -- (564)
Net expense (payments) under deferred compensation plans................... 483 24 (956)
Changes in current assets and liabilities:
Receivables.............................................................. (7,013) (8,059) 4,875
Inventories.............................................................. (276) (6,854) 6,150
Bottles, cases and pallets, at deposit value............................. (511) (730) (1,091)
Prepaid expenses and other............................................... 253 (161) (590)
Accounts payable and accrued liabilities................................. 2,163 10,341 (6,044)
Redemption of investments.................................................. 1,662 157 15
---------- --------- ----------
Net cash provided by operating activities.............................. 7,245 9,786 13,200
---------- --------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures......................................................... (6,116) (7,104) (11,028)
Acquisitions of businesses (Note 3).......................................... -- -- (13,549)
Purchase of franchise rights................................................. (1,214) (23) --
Proceeds from sales of property and equipment................................ 41 119 --
Collections on note receivable............................................... 133 96 163
---------- --------- ----------
Net cash used in investing activities.................................. (7,156) (6,912) (24,414)
---------- --------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt..................................... 105,000 -- --
Borrowings under revolving line of credit.................................... -- 8,000 35,250
Payments on revolving line of credit......................................... -- (3,000) (18,000)
Retirement of long-term debt................................................. (97,580) -- --
Payment of deferred financing costs.......................................... (2,574) -- (237)
Principal payments on long-term debt and other liabilities................... (1,320) (4,814) (7,406)
Cash distribution to minority interest holder................................ (750) (900) --
Sale of common stock......................................................... -- 48 --
---------- --------- ----------
Net cash provided by (used in) financing activities.................... 2,776 (666) 9,607
---------- --------- ----------
CHANGE IN CASH AND CASH EQUIVALENTS............................................ 2,865 2,208 (1,607)
CASH AND CASH EQUIVALENTS, beginning of year................................... 4,467 7,332 9,540
---------- --------- ----------
CASH AND CASH EQUIVALENTS, end of year......................................... $ 7,332 $ 9,540 $ 7,933
---------- --------- ----------
---------- --------- ----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
DELTA BEVERAGE GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1994 AND 1995
1. ORGANIZATION AND NATURE OF OPERATIONS:
Delta Beverage Group, Inc. ("Delta") and the partnership described below
(collectively, the "Company") are licensed bottlers and distributors of beverage
products, principally Pepsi-Cola and Seven-Up products, in the mid-southern
United States. The franchise territories cover portions of Arkansas, Louisiana,
Mississippi, Tennessee and Texas. The partnership also distributes Miller
Brewing Company alcoholic beverages in southern Louisiana.
On September 3, 1992, Delta Beverage of Louisiana, Inc. ("DBL"), a then
wholly-owned subsidiary of Delta, and Poydras Street Investors, L.L.C.
("Poydras," formerly The Seven-Up/Royal Crown Bottling Company of Louisiana,
Inc.) formed The Pepsi-Cola/Seven-Up Beverage Group of Louisiana (the "Joint
Venture"). Effective December 31, 1994, DBL merged into Delta. In April 1995,
the partnership agreement was amended to, among other things, change the
percentage ownerships from 50% for both Delta and Poydras to 62% for Delta and
38% for Poydras. Beginning January 1, 2000, Delta can purchase the percentage
interest of Poydras at fair market value (as defined).
The Joint Venture's operations and net assets are consolidated, with those
of Delta in the accompanying financial statements. All significant intercompany
accounts and transactions have been eliminated in consolidation. Poydras' share
of the Joint Venture's income (loss) and net assets is reflected as a minority
interest in the accompanying consolidated financial statements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
USE OF ACCOUNTING ESTIMATES--
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities, at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The more
significant estimates with regard to these financial statements are disclosed in
Note 13.
CASH AND CASH EQUIVALENTS--
Cash and cash equivalents include temporary investments in short-term
securities with original maturities of three months or less.
PROPERTY AND EQUIPMENT--
Property and equipment are stated at cost. Property and equipment renewals
and betterments are capitalized, while maintenance and repair expenditures are
charged to operations currently. Depreciation and amortization are computed
using the straight-line method over the estimated useful lives of purchased
property and equipment, or the shorter of the lease terms or the estimated
useful lives of assets acquired under capital lease arrangements. Those lives
are as follows:
<TABLE>
<CAPTION>
YEARS
---------
<S> <C>
Buildings and improvements............................................................ 20-40
Machinery and equipment............................................................... 3-10
</TABLE>
F-7
<PAGE>
DELTA BEVERAGE GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
INTANGIBLE AND OTHER ASSETS--
The cost of franchises in excess of net assets acquired is being amortized
evenly over 35 to 40 years. The Company, at least annually, evaluates whether
events or circumstances have occurred that may impact the recoverability of
franchise costs. Upon the occurrence of any such event or circumstance, the
Company remeasures the realizable portion of franchise costs and records such
intangible asset at the lesser of its carrying value or fair value.
Costs incurred to obtain long-term financing are deferred and amortized as
adjustments of interest using the effective interest method over the terms of
the related debt.
INCOME TAXES--
Effective January 1, 1993, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes," ("SFAS
No. 109") which requires the use of the liability method of accounting for
deferred income taxes. Accordingly, deferred income taxes reflect both the
estimated future tax consequences attributable to operating loss and tax credit
carryforwards, and temporary differences between the Company's assets and
liabilities for financial reporting and income tax purposes, using income tax
rates currently in effect.
The Company elected the cumulative catch-up method of implementation, and
the cumulative effect of the change in accounting principle has been recorded in
the 1993 statement of operations.
EARNINGS PER COMMON SHARE--
Earnings per common share were computed by dividing net income (loss), less
dividends on preferred stock, by the weighted average number of shares of common
stock and common stock equivalents. Share awards issuable under the equivalent
share award plan (see Note 12) as of the beginning of 1994 and 1995 (no such
grants were outstanding in 1993) were not considered in the computation of fully
diluted earnings per common share as their effect was anti-dilutive.
The weighted average number of shares used in computing earnings per common
share were 22,890, 52,824 and 53,252 for 1993, 1994 and 1995, respectively.
SUPPLEMENTAL CASH FLOW INFORMATION--
During 1993 and 1994, the Company acquired equipment under capital lease
obligations totaling approximately $387,000 and $493,000, respectively. During
1993, 1994 and 1995, the Company issued additional preferred shares as
payment-in-kind dividends on preferred stock of approximately $2,151,000,
$1,403,000 and $1,489,000, respectively (see Note 9).
Interest paid in cash during 1993, 1994 and 1995 was approximately
$13,434,000, $9,992,000, and $8,836,000, respectively. Income taxes of
approximately $286,000 and $316,000 were paid in 1994 and 1995, respectively. No
income taxes were paid in 1993.
F-8
<PAGE>
DELTA BEVERAGE GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
CONCENTRATION OF CREDIT RISK--
The Company's business activities are concentrated within the mid-southern
United States. However, management believes that there are no significant
concentrations of credit risk with any individual party or groups of parties.
FAIR VALUES OF FINANCIAL INSTRUMENTS--
The estimated fair values of the Company's financial instruments, except for
fixed rate long-term debt, approximate their carrying amounts. For fixed rate
long-term debt, fair value was estimated based on the current rates offered for
similar obligations and maturities. Estimated fair value of total long-term debt
and other liabilities was approximately $135 million and $151 million as of
December 31, 1994 and 1995, respectively.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENT--
In 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." This statement
addresses the timing of recognition and the measurement of impairment of (a)
long-lived assets, certain identifiable intangibles and goodwill related to
those assets to be held and used, and (b) long-lived assets and certain
identifiable intangibles to be disposed of. This statement requires that such
assets be reviewed for impairment whenever events or changes in circumstances
indicate that their carrying amount may not be recoverable, and that such assets
be reported at the lower of carrying amount or fair value. The statement will be
adopted in 1996. Management has reviewed its long-lived assets, including
franchise costs, for impairment under the provisions of this accounting
pronouncement and believes that adoption of this statement will not have a
material impact on the Company's consolidated financial position or results of
operations.
3. ACQUISITIONS:
On April 6, 1995, the Joint Venture acquired substantially all of the assets
of Miller Brands of Greater New Orleans, Inc. On July 8, 1995, the Joint Venture
acquired certain assets of Svoboda Distributing Company, Inc. Both businesses
acquired were engaged in the wholesale distribution of alcoholic beverages,
primarily Miller Brewing Company products, in the greater New Orleans, Louisiana
area. The aggregate purchase price for the assets of both acquisitions,
consisting primarily of inventories; land, buildings and equipment; and
distribution rights, was approximately $13,550,000 cash and a $900,000 deferred
obligation, payable upon the Miller business in New Orleans achieving an annual
$8,000,000 gross profit. Management expects to pay this obligation in 1998. In
addition, the Joint Venture entered into a marketing support agreement with
Miller Brewing Company's advertising agency for the general promotion of Miller
products in the greater New Orleans area. This marketing support obligation has
been capitalized as part of the aggregate purchase price and is being amortized.
Both acquisitions were accounted for as purchases, and the Company's
consolidated results of operations include the results of the acquisitions since
the purchase dates. Costs of the franchises in excess of net assets acquired of
approximately $5,400,000 are being amortized evenly over 40 years. The
consolidated financial statements include a preliminary allocation of the
purchase prices.
F-9
<PAGE>
DELTA BEVERAGE GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
3. ACQUISITIONS: (CONTINUED)
The following unaudited pro forma financial information reflects the
combined results of operations of the Company and the 1995 acquisitions
discussed above as if the transactions occurred as of the beginning of each
respective year. The pro forma adjustments are based on available information,
preliminary purchase price allocations and certain assumptions that the Company
believes are reasonable. There can be no assurance that the assumptions and
estimates will be realized. The pro forma information does not purport to
represent the actual results of operations if the transactions described above
had occurred at the beginning of the years presented. In addition, the
information may not be indicative of future results.
In thousands of dollars, except per share amounts, for the years ended
December 31 (unaudited):
<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
Net sales............................................................. $ 285,282 $ 295,700
Net income (loss)..................................................... 64 $ (4,306)
Earnings per common share............................................. $ (25.36) $ (108.82)
</TABLE>
4. INVENTORIES:
Inventories are stated at the lower of cost (first-in, first-out method) or
market and included the following at December 31 (in thousands of dollars):
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Raw materials........................................................... $ 5,675 $ 2,796
Finished goods.......................................................... 11,345 10,721
--------- ---------
$ 17,020 $ 13,517
--------- ---------
--------- ---------
</TABLE>
5. ACCRUED LIABILITIES:
Accrued liabilities consisted of the following at December 31 (in thousands
of dollars):
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Payroll and related benefits............................................ $ 1,688 $ 1,213
Taxes other than income................................................. 1,918 2,178
Insurance and related costs............................................. 4,477 4,279
Interest................................................................ 2,942 3,307
Marketing and advertising costs......................................... 6,719 3,949
Other................................................................... 318 188
--------- ---------
$ 18,062 $ 15,114
--------- ---------
--------- ---------
</TABLE>
6. INCOME TAXES:
Effective January 1, 1993, the Company adopted the provisions of SFAS No.
109 (see Note 2). The $30,723,000 cumulative effect as of January 1, 1993 of the
change in accounting for income taxes was recognized as a credit to operations
of approximately $15,824,000 and a reduction in franchise costs of approximately
$14,899,000, the latter of which represents the tax benefit of acquired net
operating loss and
F-10
<PAGE>
DELTA BEVERAGE GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
6. INCOME TAXES: (CONTINUED)
tax credit carryforwards arising from a prior business combination. The Company
elected not to restate prior years' financial statements.
At December 31, 1995, the Company had federal income tax net operating loss
carryforwards of approximately $27,074,000 which had been incurred since the
predecessor business was acquired in March 1988. These net operating loss
carryforwards expire through 2007. In addition, as of December 31, 1995, the
Company had similar net operating loss and tax credit carryforwards of
approximately $24,553,000 and $1,187,000, respectively, which were incurred
prior to March 1988. Effective at that date, the predecessor business was
acquired in a transaction accounted for as a purchase. The Internal Revenue Code
limits the Company's utilization of these acquired net operating loss and tax
credit carryforwards to approximately $3,000,000 per year. These net operating
loss and tax credit carryforwards may be used through 2003.
The Company has recognized deferred income tax assets for the estimated
future income tax benefits of the pre- and post-acquisition net operating loss
and tax credit carryforwards that are expected to be realized through the
reduction of future taxable income from operations within the carryforward
periods.
Deferred income taxes were composed of the following at December 31 (in
thousands of dollars):
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Current deferred income tax assets...................................... $ 3,882 $ 2,324
Noncurrent deferred income tax assets, net of $1,645 valuation allowance
at December 31, 1995.................................................. 28,047 29,289
--------- ---------
31,929 31,613
Noncurrent deferred income tax liabilities.............................. (3,052) (4,358)
--------- ---------
$ 28,877 $ 27,255
--------- ---------
--------- ---------
</TABLE>
The tax effects of significant temporary differences representing deferred
income tax assets and liabilities at December 31, 1994 and 1995 were as follows
(in thousands of dollars):
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Net operating loss and tax credit carryforwards......................... $ 20,363 $ 19,372
Basis difference in preferred stock and common stock.................... 8,022 8,022
Difference in book and tax basis of property and equipment, deferred
financing costs and other assets...................................... (2,242) (3,640)
Deferred interest on subordinated debt, deferred compensation and
reserves not currently deductible for income tax purposes............. 2,734 3,501
--------- ---------
$ 28,877 $ 27,255
--------- ---------
--------- ---------
</TABLE>
F-11
<PAGE>
DELTA BEVERAGE GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
6. INCOME TAXES: (CONTINUED)
Income tax (provision) benefit recorded in the consolidated statements of
operations, net of taxes applicable to minority interest and extraordinary item,
was as follows (in thousands of dollars):
<TABLE>
<CAPTION>
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Current.......................................................... $ -- $ (233) $ --
Deferred......................................................... 189 (3,029) (1,641)
--------- --------- ---------
$ 189 $ (3,262) $ (1,641)
--------- --------- ---------
--------- --------- ---------
</TABLE>
Included in the 1995 income tax provision was a valuation allowance of
$1,645,000 for deferred income tax assets relating to various state net
operating loss carryforwards that have or are expected to expire before the
carryforwards can be realized. These deferred income tax assets were originally
recorded in 1993 as part of the adoption of SFAS No. 109.
The effective income tax rate was impacted primarily by state income taxes,
non-tax deductible amortization of franchise costs, and the establishment of the
valuation reserve discussed above. A reconciliation of the (provision) benefit
for income taxes to the amount computed by applying the federal statutory tax
rate to income (loss) before income taxes is as follows:
<TABLE>
<CAPTION>
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
Statutory federal income tax rate........................... 34.0% (34.0)% 34.0%
State income taxes, net of federal benefit.................. 4.0 (4.0) 4.0
Franchise cost amortization................................. (27.1) (30.4) (46.4)
Valuation allowance......................................... -- -- (59.3)
Minority interest........................................... (2.5) -- 3.6
Other, net.................................................. (4.8) (6.5) 5.0
----- ----- -----
3.6% (74.9)% (59.1)%
----- ----- -----
----- ----- -----
</TABLE>
7. DEBT RESTRUCTURE AND EQUITY RECAPITALIZATION:
On September 23, 1993, the Company and its lenders and shareholders
consummated a restructuring plan which, among other things, cured all then
existing events of default, restructured the debt service required of the
Company, and recapitalized the Company's equity. A summary of the restructuring
plan is as follows:
a. $105 million of 7.36% senior notes were issued in a private placement. A
portion of the proceeds were used to satisfy all obligations, including
accrued and unpaid interest and fees, outstanding under the prior
revolving credit loan agreement. The remainder of the proceeds were used
to satisfy a portion of the amounts outstanding, including accrued
interest, under the prior senior notes and deferred interest senior
notes. The remaining balance of the prior senior notes and deferred
interest senior notes of $30 million were exchanged for new subordinated
debt.
b. The old subordinated notes, including Series 1 and 2 subordinated notes,
were exchanged for non-voting common stock (representing 22.5% of total
outstanding common stock) and 6% Series AA preferred stock with a stated
value of $22.5 million. Series A and Series C classes of then existing
preferred stock were converted into non-voting common stock, and Series B
preferred stock was converted into voting common stock.
c. A new $20 million bank revolving line of credit was arranged.
F-12
<PAGE>
DELTA BEVERAGE GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
7. DEBT RESTRUCTURE AND EQUITY RECAPITALIZATION: (CONTINUED)
Deferred financing costs relating to debt retired of approximately
$1,015,000 were written off. This write-off, less a related income tax benefit
of $600,000, is reported as an extraordinary item in the 1993 statement of
operations.
8. LONG-TERM DEBT AND OTHER LIABILITIES:
Long-term debt and other liabilities consisted of the following at December
31 (in thousands of dollars):
<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
Senior notes payable, due September 23, 2003, payable in annual
installments........................................................ $ 101,000 $ 95,000
Subordinated notes payable, 11%, due December 23, 2003................ 31,650 35,227
Revolving line of credit, interest at the prime rate plus 1% (9.5% at
December 31, 1994 and 1995), due September 30, 1997................. 5,000 22,250
Note payable to Poydras, interest at the prime rate plus 1% (9.5% at
December 31, 1994 and 1995), due December 31, 2007.................. 2,500 1,839
Other long-term debt (due to previous owners of acquired beverage
companies under noncompete agreements and notes payable, equipment
purchase contracts and mortgage notes payable), 6% to 15%, payable
through 1997, net of unamortized discount of $101 and $36 at
December 31, 1994 and 1995, respectively............................ 1,796 1,446
Capital lease obligations, 5.80% to 18.03%, due in monthly
installments through 1998........................................... 1,073 758
Marketing support obligation, imputed interest at 8.75%, payments due
quarterly through June 30, 2000..................................... -- 487
Other long-term liabilities, including a $900 deferred purchase
obligation at December 31, 1995 (see Note 3)........................ 1,210 1,143
---------- ----------
144,229 158,150
Less current maturities............................................... (11,721) (7,643)
---------- ----------
$ 132,508 $ 150,507
---------- ----------
---------- ----------
</TABLE>
Delta has a credit agreement with two banks which, as amended in 1995 and
1996, provides for a total commitment of $30 million, including up to $10
million for letters of credit. Advances bear interest at a floating rate, based
upon either the lender's prime rate plus a defined margin or the Eurodollar base
rate plus a defined margin, as selected by Delta. Effective September 20, 1996,
the applicable margin was increased by 0.5%. The letter of credit facility fee
is based on the above Eurodollar applicable margin. The agreement also provides
for a fee of 0.5% on the unused commitment. Interest and commitment fees are
payable quarterly.
F-13
<PAGE>
DELTA BEVERAGE GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
8. LONG-TERM DEBT AND OTHER LIABILITIES: (CONTINUED)
During 1995, the Company borrowed amounts under the revolving line of credit
to acquire the Miller businesses (see Note 3). In connection therewith, the
Company incurred approximately $237,000 of financing costs, which have been
capitalized and are being amortized.
The credit agreement contains provisions requiring that outstanding amounts
be maintained below specified levels at certain intervals throughout the term of
the debt. Outstanding borrowings cannot exceed $17 million for a period of at
least 30 consecutive days from January 1, 1996 to February 27, 1997.
Amounts borrowed under the revolving line of credit at December 31, 1995,
including the amount necessary to be below the threshold in 1996, have been
reflected in the consolidated balance sheet as noncurrent as the ultimate
maturity of the credit agreement is September 30, 1997. At December 31, 1994,
the Company had $5,000,000 outstanding under this facility which was included
with current maturities of long-term debt and other liabilities in the 1994
consolidated balance sheet; the balance outstanding was paid in January 1995.
The senior notes are governed by a note agreement and are senior to the
subordinated notes. Interest on the senior notes is payable semi-annually on
March 23 and September 23. The senior notes accrued interest at 7.36% through
March 31, 1996, then 8.72% for the period April 1, 1996 to September 19, 1996.
Effective at that date, the interest rate increased to 9.72% through September
1997; then decreasing to 8.72% through the remaining term of the borrowing.
Interest on the subordinated notes is due semi-annually on April 1 and
October 1, and may be paid in cash or, at the option of the Company, by the
issuance of additional subordinated notes ("PIK Notes"). The PIK Notes bear
interest at 11% or 15% depending upon whether the terms of the note agreement
would have permitted the Company to pay any portion of the interest in cash. The
Company issued additional subordinated notes of $1,650,000 and $3,577,242 under
this provision in 1994 and 1995, respectively. These additional notes bear
interest at 11% and are included with subordinated notes payable in the
preceding table.
Certain of the subordinated debt holders are also preferred and non-voting
common shareholders of the Company.
The Company's long-term debt agreements require, among other things, the
maintenance of certain minimum financial ratios and financial requirements, and
limit additional indebtedness, sales of assets, investments and capital
expenditures. The agreements also restrict the payment of dividends and
dispositions of capital stock.
Delta has granted a security interest in substantially all of its assets to
the senior note holders and the two banks providing the credit facility.
Certain obligations to former owners of acquired beverage companies and
former key employees, including obligations under noncompete agreements, have
been discounted using the Company's incremental borrowing rate at the date of
acquisition. These discounts are being amortized to expense over the terms of
the related obligations.
F-14
<PAGE>
DELTA BEVERAGE GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
8. LONG-TERM DEBT AND OTHER LIABILITIES: (CONTINUED)
Scheduled maturities of long-term debt and other liabilities during the four
years subsequent to 1996 are as follows (in thousands of dollars):
<TABLE>
<CAPTION>
YEAR AMOUNT
- - ------------------------------------------------------------------------- ---------
<S> <C>
1997..................................................................... $ 30,751
1998..................................................................... 9,096
1999..................................................................... 10,232
2000..................................................................... 12,061
</TABLE>
The Company continues to be highly leveraged with significant debt service
requirements and dividend obligations on its preferred stock. The Company's cash
flow from operations will not be sufficient to service its debt maturities in
1997, and it will be required to refinance the revolving line of credit prior to
its September 30, 1997 maturity.
9. STOCKHOLDERS' EQUITY:
PREFERRED STOCK--
Authorized preferred stock consists of 30,000 designated Series AA preferred
shares. The Series AA preferred stock does not contain voting rights. Series AA
preferred shareholders receive cumulative dividends at an annual rate of 6%
based on the $5,000 stated value per share. The rate will increase 2% annually
beginning October 1, 2004, but is limited to a cumulative increase of 8%.
Dividends are payable quarterly in cash or in additional shares of Series AA
preferred stock. The Company is obligated to pay the dividends in cash once the
senior notes are retired. The preferred stock dividends for 1994 and 1995 were
paid with additional preferred shares and are included in stockholders' equity
at December 31, 1994 and 1995. So long as the Series AA preferred stock is
outstanding, the Company cannot declare or pay dividends on its common stock.
In the event of a liquidation, Series AA preferred shareholders have a
$5,000 per share liquidation preference.
VOTING COMMON STOCK--
Voting common stock consists of 60,000 authorized shares.
NON-VOTING COMMON STOCK--
Non-voting common stock consists of 35,000 authorized shares. Should the
Company register its shares in a public offering, the non-voting common stock
may be converted, at the holder's option, into voting common stock. The
conversion rate is one share of non-voting common stock for one share of voting
common stock. The conversion rate is subject to adjustment in certain instances
as defined in the Certificate of Incorporation.
The transfer and sale of shares by and among the shareholders and the
Company are restricted by a Shareholders' Agreement.
F-15
<PAGE>
DELTA BEVERAGE GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
10. LEASES:
The Company leases certain buildings and other facilities, vehicles and
equipment under agreements expiring through 2009. Future minimum rental payments
under all noncancellable operating leases with initial or remaining lease terms
of one year or more were as follows at December 31, 1995 (in thousands of
dollars):
<TABLE>
<S> <C>
1996........................................................ $ 1,986
1997........................................................ 1,717
1998........................................................ 1,332
1999........................................................ 1,066
2000........................................................ 403
Thereafter.................................................. 1,098
---------
$ 7,602
---------
---------
</TABLE>
Total rent expense for all operating leases during 1993, 1994 and 1995 was
approximately $2,687,000, $2,564,000 and $3,158,000, respectively.
11. RELATED PARTY TRANSACTIONS:
The Company has entered into a management agreement with a company
controlled by three individuals who own shares of the Company's common stock.
For services performed pursuant to the management agreement, the Company pays
that company a management fee and a transaction fee. Management fees of
$500,000, $505,000 and $520,000 were paid in 1993, 1994 and 1995, respectively.
The transaction fee is payable upon the acquisition of additional franchises and
is equal to 1 1/2% of the acquisition cost of such franchises. Affiliates of the
management company also own common stock of the Company.
12. EMPLOYEE BENEFITS:
The Company sponsors a defined contribution employee benefit plan (the
"Plan") which covers all eligible full-time employees. Employees who participate
in the Plan may defer up to 10% of their salaries and wages and receive matching
payments by the Company of 50% of those deferrals, limited to annual employer
contributions of $500 per employee. The Company's contributions were
approximately $201,000 in 1993 and 1994, and $231,000 in 1995.
The Company has a restricted stock bonus plan under which executives and key
employees may be awarded shares of the Company's common stock. All shares
granted contain restrictions on sale or transfer; these restrictions lapse over
an eleven-year period. A maximum of 250 shares of common stock may be awarded
under this plan. At December 31, 1994 and 1995, 22 restricted shares were
outstanding, all of which were held by an officer.
The Company previously granted stock appreciation rights to an officer by
which this officer could receive amounts based upon changes in the quoted market
value of PepsiCo, Inc. common stock since February 1, 1990. These stock
appreciation rights were exercised in 1994 and 1995. Total deferred compensation
related to this arrangement at December 31, 1994 was approximately $604,000. The
amount of compensation expense (credit) in 1993, 1994 and 1995 was approximately
$830,000, $(163,000) and $316,000, respectively.
F-16
<PAGE>
DELTA BEVERAGE GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
12. EMPLOYEE BENEFITS: (CONTINUED)
Effective January 1, 1994, the board of directors adopted an equivalent
share award plan for certain key members of management. This plan allows
eligible employees to participate in the continued success of the Company based
upon the annual appreciation in the equity value of the Company, as defined. The
board granted the equivalent of 38,200 shares effective January 1, 1994. Each
share equivalent award vests over a three-year period, and is payable in cash or
shares of the Company's common stock upon the earlier of the participant's
death, disability, termination or retirement. Each participant is subject to a
noncompete and nonsolicitation restriction in consideration of the share
equivalent grant. All grants contain restrictions on assignment or transfer.
There was no appreciation in the equity value of the Company, as defined, in
1994 or 1995.
Effective April 7, 1995, the Joint Venture assumed sponsorship of the Miller
Brands of Greater New Orleans, Inc. Pension Plan. The plan is a non-contributory
defined benefit plan and covers all eligible hourly workers of the acquired
Miller business in New Orleans, Louisiana (see Note 3). Monthly pension plan
benefits are based on a stipulated amount per year of credited service.
Net periodic pension income in 1995 for this plan was not material.
The following table sets forth the actuarial present value of the benefit
obligation and the funded status for the plan as of December 31, 1995 (in
thousands of dollars):
<TABLE>
<S> <C>
Accumulated benefit obligation, fully vested......................... $ (464)
Projected benefit obligation......................................... $ (464)
Plan assets at fair value............................................ 635
---------
Plan assets in excess of projected benefit obligation................ 171
Unrecognized net actuarial gain.................................... (34)
Unrecognized net transition amount................................. (102)
Unrecognized prior service cost.................................... 25
---------
Net prepaid pension asset............................................ $ 60
---------
---------
</TABLE>
Assumptions used in developing the net prepaid pension asset as of December
31, 1995 were as follows:
<TABLE>
<S> <C>
Discount rate........................................................ 7.5%
Rate of increase in compensation levels.............................. 0.0%
Rate of return on plan assets........................................ 9.0%
</TABLE>
During 1996, the Joint Venture terminated this plan. The net pension
liability recognized upon termination was not material.
13. CERTAIN SIGNIFICANT ESTIMATES:
SELF INSURANCE--
The Company maintains self insurance reserves for estimated workers'
compensation and product, automobile and general liability claims. These
estimates are based on historical information along with certain assumptions
about future events. Changes in assumptions for things such as medical costs,
F-17
<PAGE>
DELTA BEVERAGE GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
13. CERTAIN SIGNIFICANT ESTIMATES: (CONTINUED)
environmental hazards and legal actions, as well as changes in actual
experience, could cause these estimates to change in the near term.
As of December 31, 1994 and 1995, the Company had $6,147,000 and $7,715,068
in outstanding letters of credit to secure the obligations to insurance
companies for workers' compensation and product, automobile and general
liability claims.
LOSS CONTINGENCIES--
The Company leases a building, which it vacated in 1995, under an operating
lease which expires in 2003. Management has sublet a portion of the building and
is actively seeking tenants to sublease the remainder of the building at a rate
higher than the current lease rate. The exposure under the lease agreement, if
the remainder of the building is not sublet, is approximately $1,000,000.
Changes in market conditions could impact management's ability to sublease this
building.
The Company is subject to various litigation, claims and assessments arising
in the normal course of business. Management believes that the ultimate
resolution of these matters, either individually or in the aggregate, will not
have a materially adverse effect on the Company's consolidated financial
position or results of operations.
DEFERRED INCOME TAX ASSETS--
The Company has recorded deferred income tax assets reflecting the expected
future benefits of net operating loss and tax credit carryforwards which expire
in varying amounts through 2007 (see Note 6). Realization is dependent on
generating sufficient taxable income prior to expiration of the net operating
loss and tax credit carryforwards. Although realization is not assured,
management believes that it is more likely than not that all of the deferred
income tax assets will be realized. The amount of the deferred income tax assets
considered realizable, however, could be reduced in the near term if estimates
of future taxable income during the carryforward period are reduced.
14. SUBSEQUENT EVENTS:
In January 1996, the Joint Venture acquired approximately $1,000,000 of
Heineken beer inventory for distribution in the greater New Orleans area. Soon
thereafter, it also acquired for approximately $2,000,000 the franchise rights
to distribute these products in that area. Additionally, in April 1996, the
Joint Venture acquired substantially all of the assets of a wholesale
distributor of alcoholic beverages, primarily Miller Brewing Company products,
in Raceland, Louisiana, for approximately $1,000,000.
Prior to December 31, 1996, the Company intends to refinance its existing
indebtedness through the placement of $120 million of new senior notes and the
execution of a new $30 million revolving credit facility. The net proceeds of
the debt offering would be used primarily to retire the existing senior notes
and revolving line of credit.
F-18
<PAGE>
DELTA BEVERAGE GROUP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
UNAUDITED
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------- -------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents......................................................... $ 7,933 $ 3,750
Receivables, net of allowance for doubtful accounts of $433 and $369
Trade........................................................................... 19,047 18,796
Marketing and advertising....................................................... 6,472 2,162
Other........................................................................... 2,013 2,274
Inventories, at cost.............................................................. 13,517 15,879
Bottles, cases and pallets, at deposit value...................................... 5,511 6,435
Prepaid expenses and other........................................................ 1,027 1,524
Deferred income taxes............................................................. 2,324 4,078
------------- -------------
Total current assets............................................................ 57,844 54,898
------------- -------------
PROPERTY AND EQUIPMENT:
Land.............................................................................. 4,639 4,639
Buildings and improvements........................................................ 15,614 15,682
Machinery and equipment........................................................... 72,216 78,608
------------- -------------
92,469 98,929
Less accumulated depreciation and amortization.................................... (46,556) (50,961)
------------- -------------
45,913 47,968
------------- -------------
OTHER ASSETS:
Cost of franchises in excess of net assets acquired, net of accumulated
amortization of $43,382 and $46,094............................................. 116,839 117,180
Deferred income taxes............................................................. 24,931 21,137
Deferred financing costs and other................................................ 2,910 3,524
------------- -------------
144,680 141,841
------------- -------------
$ 248,437 $ 244,707
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt and other liabilities........................ $ 7,643 $ 30,699
Accounts payable.................................................................. 7,250 7,372
Accrued liabilities............................................................... 15,114 14,235
------------- -------------
Total current liabilities....................................................... 30,007 52,306
------------- -------------
LONG-TERM DEBT AND OTHER LIABILITIES................................................ 150,507 $ 123,134
MINORITY INTEREST................................................................... 5,205 5,617
STOCKHOLDERS' EQUITY:
Preferred stock--
Series AA, $5,000 stated value, 30,000 shares authorized, 5,151.18 and 5,386.48
shares issued and outstanding.................................................. 25,756 26,932
Common stock--
Voting, $.01 par value, 60,000 shares authorized, 20,301.87 shares issued and
outstanding.................................................................... -- --
Nonvoting, $.01 par value, 35,000 shares authorized, 33,949.93 shares issued and
outstanding.................................................................... -- --
Additional paid-in capital........................................................ 115,765 115,765
Accumulated deficit............................................................... (78,781) (79,032)
Deferred compensation............................................................. (22) (15)
------------- -------------
62,718 63,650
------------- -------------
$ 248,437 $ 244,707
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-19
<PAGE>
DELTA BEVERAGE GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30
UNAUDITED
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
OPERATIONS:
Net sales............................................................................... $ 218,654 $ 239,887
Cost of sales........................................................................... 150,965 164,415
---------- ----------
Gross profit.......................................................................... 67,689 75,472
Selling, general and administrative expenses............................................ 53,846 58,101
Amortization of franchise costs and other intangibles................................... 2,671 2,743
---------- ----------
Operating income...................................................................... 11,172 14,628
---------- ----------
OTHER EXPENSES:
Interest................................................................................ 9,795 11,286
Other, net.............................................................................. (136) (46)
---------- ----------
9,659 11,240
---------- ----------
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST.......................................... 1,513 3,388
Income tax provision.................................................................... (1,670) (2,262)
Minority interest, net of taxes......................................................... (17) (200)
---------- ----------
NET INCOME (LOSS)......................................................................... $ (174) $ 926
---------- ----------
---------- ----------
EARNINGS PER COMMON SHARE................................................................. $ (24.08) $ (4.70)
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-20
<PAGE>
DELTA BEVERAGE GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30
UNAUDITED
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996
---------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................................................ $ (174) $ 926
Adjustments to reconcile net income (loss) to net cash provided by operating
activities.............................................................................
Depreciation and amortization.......................................................... 7,169 7,594
Noncash interest on long-term debt..................................................... 2,009 2,251
Change in deferred income taxes........................................................ 1,524 2,040
Minority interest, before taxes........................................................ 163 412
Net payments under deferred compensation plans......................................... (568) (61)
Changes in current assets and liabilities--
Receivables.......................................................................... (1,630) 4,329
Inventories.......................................................................... 2,892 (2,200)
Bottles, cases and pallets, at deposit value......................................... (533) (913)
Prepaid expenses and other........................................................... (1,006) (487)
Accounts payable and accrued liabilities............................................. (4,818) (718)
---------- ---------
Net cash provided by operating activities................................................ 5,028 13,173
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures..................................................................... (8,842) (6,922)
Acquisitions of businesses............................................................... (13,549) (1,028)
Purchase of franchise rights............................................................. -- (997)
Collections on note receivable........................................................... 135 110
---------- ---------
Net cash used in investing activities.................................................. (22,256) (8,837)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving line of credit................................................ 29,250 --
Payments on revolving line of credit..................................................... (12,000) --
Principal payments on long-term debt and other liabilities............................... (7,167) (7,514)
Payment of deferred financing costs...................................................... (237) (1,005)
---------- ---------
Net cash provided by (used in) financing activities.................................... 9,846 (8,519)
---------- ---------
CHANGE IN CASH AND CASH EQUIVALENTS........................................................ (7,382) (4,183)
CASH AND CASH EQUIVALENTS, beginning of period............................................. 9,540 7,933
---------- ---------
CASH AND CASH EQUIVALENTS, end of period................................................... $ 2,158 $ 3,750
---------- ---------
---------- ---------
</TABLE>
The accompanying notes are an integral part of these statements.
F-21
<PAGE>
DELTA BEVERAGE GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
UNAUDITED
1. BASIS OF PRESENTATION:
The accompanying unaudited consolidated financial statements of Delta
Beverage Group, Inc. ("Delta", a Delaware corporation) and subsidiary
(collectively, the "Company") have been prepared in accordance with generally
accepted accounting principles for interim financial information and, in the
opinion of management, include all adjustments (consisting of normal and
recurring adjustments) which are considered necessary for a fair presentation of
financial position, results of operations and cash flows as of September 30,
1996 and for all interim periods presented. These condensed interim financial
statements do not include all of the financial information and disclosures
required by generally accepted accounting principles for complete financial
statements, and should be read in conjunction with the Company's audited
consolidated financial statements and related notes thereto for the year ended
December 31, 1995. Also, the results of operations for the interim periods
presented may not be indicative of the results for the entire year.
2. ACQUISITIONS:
On April 26, 1996, the subsidiary acquired substantially all of the assets
of a wholesale distributor of alcoholic beverages, primarily Miller Brewing
Company products, in Raceland, Louisiana. The aggregate purchase price for the
assets, consisting primarily of inventories; land, buildings and equipment; and
distribution rights, was approximately $1,000,000. In addition, the subsidiary
entered into a marketing support agreement with Miller Brewing Company's
advertising agency for the general promotion of Miller products in that area.
This marketing support obligation has been capitalized as part of the aggregate
purchase price and is being amortized.
The acquisition was accounted for as a purchase, and the Company's
consolidated results of operations include the results of the acquisition since
the purchase date. Cost of the franchise in excess of net assets acquired of
approximately $900,000 is being amortized evenly over 40 years. The consolidated
financial statements include a preliminary allocation of the purchase price.
In addition, in January 1996, the subsidiary acquired approximately
$1,000,000 of Heineken beer inventory for distribution in the greater New
Orleans area. Soon thereafter, it also acquired for approximately $2,000,000 the
franchise rights to distribute these products in that area.
3. LONG-TERM DEBT AND OTHER LIABILITIES:
At September 30, 1996, all amounts outstanding under the credit agreement
($22,250,000) were included in current maturities of long-term debt and other
liabilities in the accompanying consolidated balance sheet as the maturity date
is September 30, 1997.
4. EMPLOYEE BENEFITS:
During 1996, the subsidiary terminated a non-contributory defined benefit
pension plan that covered all eligible hourly workers of the Miller business in
New Orleans, Louisiana that was acquired in 1995. The net pension liability
recognized upon termination was not material.
F-22
<PAGE>
DELTA BEVERAGE GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1996
UNAUDITED
5. EARNINGS PER COMMON SHARE:
Earnings per common share were computed by dividing net income (loss), less
dividends on preferred stock of approximately $1,108,000 and $1,176,000 for the
nine months ended September 30, 1995 and 1996, respectively, by the weighted
average number of shares of common stock and common stock equivalents. The
weighted average number of shares used in computing earnings per common share
was 53,252 as of September 30, 1995 and 1996, respectively.
6. SUBSEQUENT EVENT:
Prior to December 31, 1996, the Company intends to refinance its existing
indebtedness through the placement of $120 million of new senior notes and the
execution of a new $30 million revolving credit facility. The net proceeds of
the debt offering would be used primarily to retire the existing senior notes
and revolving line of credit.
F-23
<PAGE>
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
ALL TENDERED SENIOR NOTES, EXECUTED LETTERS OF TRANSMITTAL AND OTHER RELATED
DOCUMENTS SHOULD BE DIRECTED TO THE EXCHANGE AGENT. QUESTIONS AND REQUESTS FOR
ASSISTANCE AND REQUESTS FOR ADDITIONAL COPIES OF THE PROSPECTUS, THE LETTER OF
TRANSMITTAL AND OTHER RELATED DOCUMENTS SHOULD BE ADDRESSED TO THE EXCHANGE
AGENT AS FOLLOWS:
BY REGISTERED OR CERTIFIED MAIL:
Norwest Bank Minnesota, National
Association
Corporate Trust Operations
P.O. Box 1517
Minneapolis, MN 55480-1517
BY OVERNIGHT COURIER:
Norwest Bank Minnesota, National
Association
Corporate Trust Operations
Norwest Center
Sixth and Marquette
Minneapolis, MN 55479-0113
BY HAND:
Norwest Bank Minnesota,
National Association
Corporate Trust Operations
Northstar East, 12th Floor
608 2nd Avenue
Minneapolis, MN 55479-0113
BY FACSIMILE:
Norwest Bank Minnesota,
National Association
Corporate Trust Operations
(612) 667-4927
Confirm by telephone:
(612) 667-9764
(ORIGINALS OF ALL DOCUMENTS SUBMITTED BY FACSIMILE SHOULD BE SENT PROMPTLY
BY HAND, OVERNIGHT COURIER, OR REGISTERED OR CERTIFIED MAIL.)
No dealer, salesperson or other person is authorized in connection with any
offering made hereby to give any information or to make any representation not
contained in this Prospectus, and, if given or made, such information or
representation must not be relied upon as having been authorized by the Company
or by the Initial Purchaser. This Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy any security other than the securities
offered hereby, nor does it constitute an offer to sell or a solicitation of an
offer to buy any of the securities offered hereby to any person in any
jurisdiction in which it is unlawful to make such offer or solicitation to such
person. Neither the delivery of this Prospectus nor any sale made hereunder
shall, under any circumstances, create an implication that the information
contained herein is correct as of any date subsequent to the date hereof.
------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... ii
Prospectus Summary........................................................ 1
Risk Factors.............................................................. 10
Use of Proceeds........................................................... 16
The Exchange Offer........................................................ 16
Capitalization............................................................ 23
Selected Financial Data................................................... 24
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 26
Industry Overview......................................................... 31
Business.................................................................. 34
Management................................................................ 46
Executive Compensation.................................................... 49
Securities Ownership...................................................... 52
Certain Relationships and Related Transactions............................ 53
Description of the Notes.................................................. 56
Description of Certain Indebtedness....................................... 84
Plan of Distribution...................................................... 86
Legal Matters............................................................. 87
Experts................................................................... 88
Index to Financial Statements............................................. F-1
</TABLE>
DELTA BEVERAGE GROUP, INC.
OFFER TO EXCHANGE ALL OUTSTANDING 9 3/4%
SENIOR NOTES DUE 2003 ($120,000,000
PRINCIPAL AMOUNT) FOR 9 3/4% SENIOR
NOTES DUE 2003
---------------------
PROSPECTUS
---------------------
FEBRUARY 12, 1997
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
<PAGE>
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., EASTERN STANDARD TIME, ON APRIL 3,
1997, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE WITHDRAWN PRIOR TO
5:00 P.M., EASTERN STANDARD TIME, ON THE EXPIRATION DATE.
DELTA BEVERAGE GROUP
2221 DEMOCRAT ROAD
MEMPHIS, TENNESSEE 38132
LETTER OF TRANSMITTAL
FOR 9-3/4% SENIOR NOTES DUE 2003
EXCHANGE AGENT:
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
<TABLE>
<CAPTION>
BY REGISTERED OR CERTIFIED MAIL: BY OVERNIGHT COURIER:
<S> <C>
Norwest Bank Minnesota, National Association Norwest Bank Minnesota, National Association
Corporate Trust Operations Corporate Trust Operations
P.O. Box 1517 Norwest Center
Minneapolis, MN 55480-1517 Sixth and Marquette
Minneapolis, MN 55479-0113
BY HAND: BY FACSIMILE:
Norwest Bank Minnesota, National Association Norwest Bank Minnesota, National Association
Corporate Trust Operations Corporate Trust Operations
Northstar East, 12th Floor (612) 667-4927
608 2nd Avenue Confirm by telephone:
Minneapolis, MN 55479-0113 (612) 667-9764
</TABLE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE DOES NOT
CONSTITUTE A VALID DELIVERY.
The undersigned acknowledges receipt of (i) the Prospectus dated February
12, 1997 (the "Prospectus") of Delta Beverage Group, Inc., a Delaware
corporation (the "Issuer"), and (ii) this Letter of Transmittal for 9 3/4%
Senior Notes Due 2003 which may be amended from time to time (this "Letter"),
which together constitute the Issuer's offer (the "Exchange Offer") to exchange
for each $1,000 principal amount of its outstanding 9 3/4% Senior Notes Due 2003
(the "Initial Notes") $1,000 in principal amount of 9 3/4% Senior Notes Due 2003
(the "Exchange Notes"). The terms of the Exchange Notes are the same in all
respects (including principal amount, interest rate, maturity and ranking) to
the terms of the Initial Notes for which they may be exchanged pursuant to the
Exchange Offer, except that the Exchange Notes have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), and therefore will
not be subject to certain restrictions on transfer applicable to the Initial
Notes and will not be entitled to registration rights.
The undersigned has completed, executed and delivered this Letter to
indicate the action he or she desires to take with respect to the Exchange
Offer.
All holders of Initial Notes who wish to tender their Initial Notes must,
prior to the Expiration Date: (1) complete, sign, date and mail or otherwise
deliver this Letter to the Exchange Agent, in person or to the address set forth
above; and (2) tender his or her Initial Notes or, if a tender of Initial Notes
is to be made by book-entry transfer to the account maintained by the Exchange
Agent at The Depository Trust
1
<PAGE>
Company (the "Book-Entry Transfer Facility"), confirm such book-entry transfer
(a "Book-Entry Confirmation"), in each case in accordance with the procedures
for tendering described in the Instructions to this Letter. All tenders must be
received on or prior to the Expiration Date.
The Instructions included in this Letter must be followed in their entirety.
Questions and requests for assistance or for additional copies of the Prospectus
or this Letter may be directed to the Exchange Agent, at the address listed
above, or Mr. Bradley J. Braun, Vice President of Finance and Assistant
Secretary of the Company, at (901) 334-7103, 2221 Democrat Road, Memphis,
Tennessee, 38132.
PLEASE READ CAREFULLY THE ENTIRE LETTER OF TRANSMITTAL,
INCLUDING THE INSTRUCTIONS TO THIS LETTER,
BEFORE CHECKING ANY BOX BELOW
Capitalized terms used in this Letter and not defined herein shall have the
respective meanings ascribed to them in the Prospectus.
List in Box 1 below the Initial Notes of which you are the holder. If the
space provided in Box 1 is inadequate, list the certificate numbers and
principal amount of Initial Notes on a separate SIGNED SCHEDULE AND AFFIX THAT
SCHEDULE TO THIS LETTER.
<TABLE>
<S> <C> <C> <C>
BOX 1
TO BE COMPLETED BY ALL TENDERING HOLDERS
NAME(S) AND ADDRESS(ES) OF PRINCIPAL AMOUNT OF
REGISTERED HOLDER(S) INITIAL NOTES PRINCIPAL AMOUNT
(PLEASE FILL IN IF REPRESENTED BY OF INITIAL NOTES
BLANK) CERTIFICATE NUMBER(S)(1) CERTIFICATE(S) TENDERED(2)
Totals:
(1) Need not be completed if Initial Notes are being tendered by book-entry transfer.
(2) Unless otherwise indicated, the entire principal amount of Initial Notes represented by a
certificate delivered to the Exchange Agent will be deemed to have been tendered.
</TABLE>
2
<PAGE>
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned tenders to the Issuer the principal amount of Initial Notes
indicated above. Subject to, and effective upon, the acceptance for exchange of
the Initial Notes tendered with this Letter, the undersigned exchanges, assigns
and transfers to, or upon the order of, the Issuer all right, title and interest
in and to the Initial Notes tendered.
The undersigned constitutes and appoints the Exchange Agent as his or her
agent and attorney-in-fact with respect to the tendered Initial Notes, with full
power of substitution, to: (a) deliver certificates for such Initial Notes; (b)
deliver Initial Notes and all accompanying evidence of transfer and authenticity
to or upon the order of the Issuer upon receipt by the Exchange Agent, as the
undersigned's agent, of the Exchange Notes to which the undersigned is entitled
upon the acceptance by the Issuer of the Initial Notes tendered under the
Exchange Offer; and (c) receive all benefits and otherwise exercise all rights
of beneficial ownership of the Initial Notes, all in accordance with the terms
of the Exchange Offer. The power of attorney granted in this paragraph shall be
deemed irrevocable and coupled with an interest.
The undersigned hereby represents and warrants that he or she has full power
and authority to tender, exchange, assign and transfer the Initial Notes
tendered hereby and that the Issuer will acquire good and unencumbered title
thereto, free and clear of all liens, restrictions, charges and encumbrances and
not subject to any adverse claim. The undersigned will, upon request, execute
and deliver any additional documents deemed by the Issuer to be necessary or
desirable to complete the assignment and transfer of the Initial Notes tendered.
The undersigned agrees that acceptance of any tendered Initial Notes by the
Issuer and the issuance of Exchange Notes in exchange therefor shall constitute
performance in full by the Issuer of its obligations under the Registration
Rights Agreement (as defined in the Prospectus) and that, upon the issuance of
the Exchange Notes, the Issuer will have no further obligations or liabilities
thereunder (except in certain limited circumstances). By tendering Initial
Notes, the undersigned certifies that: (a) it is not an "affiliate" of the
Issuer within the meaning of Rule 405 under the Securities Act, that it is not a
broker-dealer that owns Initial Notes acquired directly from the Issuer or an
affiliate of the Issuer, that it is acquiring the Exchange Notes in the ordinary
course of the undersigned's business and that the undersigned has no arrangement
with any person to participate in the distribution of the Exchange Notes; or (b)
that it is an "affiliate" (as so defined) of the Issuer and that it will comply
with the registration and prospectus delivery requirements of the Securities Act
to the extent applicable to it.
The undersigned acknowledges that, if it is a broker-dealer that will
receive Exchange Notes for its own account, it will deliver a prospectus in
connection with any resale of such Exchange Notes. By so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
The undersigned understands that the Issuer may accept the undersigned's
tender by delivering oral or written notice of acceptance to the Exchange Agent,
at which time the undersigned's right to withdraw such tender will terminate.
All authority conferred or agreed to be conferred by this Letter shall
survive the death or incapacity of the undersigned, and every obligation of the
undersigned under this Letter shall be binding upon the undersigned's heirs,
personal representatives, successors and assigns. Tenders may be withdrawn only
in accordance with the procedures set forth in the Instructions contained in
this Letter.
Unless otherwise indicated under "Special Delivery Instructions" below, the
Exchange Agent will deliver Exchange Notes (and, if applicable, a certificate
for any Initial Notes not tendered but represented by a certificate also
encompassing Initial Notes which are tendered) to the undersigned at the address
set forth in Box 1.
3
<PAGE>
This Letter is to be completed by holders if certificates are to be
forwarded herewith pursuant to the procedures set forth in the Prospectus.
Holders whose certificates are not immediately available or who cannot deliver
their certificates and all other documents required hereby to the Exchange Agent
on or prior to the Expiration Date must tender their Initial Notes according to
the guaranteed delivery procedure set forth under the caption "The Exchange
Offer -- How to Tender" in the Prospectus (see Instruction 1). The undersigned
understands that the Exchange Offer is subject to the more detailed terms set
forth in the Prospectus and, in case of any conflict between the terms of the
Prospectus and this Letter, the Prospectus shall prevail.
/ / CHECK HERE IF TENDERED INITIAL NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE
BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution: _____________________________________________
Account Number: ____________________________________________________________
Transaction Code Number: ___________________________________________________
/ / CHECK HERE IF TENDERED INITIAL NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND
COMPLETE THE FOLLOWING:
Name(s) of Registered Owner(s): ____________________________________________
Date of Execution of Notice of Guaranteed Delivery: ________________________
Window Ticket Number (if available): _______________________________________
Name of Institution which Guaranteed Delivery: _____________________________
/ / CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name: ______________________________________________________________________
Address: ___________________________________________________________________
If the undersigned is not a broker-dealer, the undersigned represents that
it is not engaged in, and does not intend to engage in, a distribution of the
Exchange Notes. If the undersigned is a broker-dealer that will receive Exchange
Notes for its own account in exchange for Initial Notes, it represents that the
Initial Notes to be exchanged for Exchange Notes were acquired by it as a result
of market-making activities or other trading activities in the ordinary course
of its business and acknowledges that it will deliver a Prospectus in connection
with any resale of such Exchange Notes; however, by so acknowledging and by
delivering a Prospectus, the undersigned will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
The undersigned acknowledges that if he or she were to engage in a
distribution of the Exchange Notes, he or she (1) could not rely on the position
of the staff of the Securities and Exchange Commission enunciated in EXXON
CAPITAL or interpretive letters of similar effect and (2) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction.
4
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
<TABLE>
<S> <C> <C>
BOX 2
PLEASE SIGN HERE
(WHETHER OR NOT INITIAL NOTES ARE BEING PHYSICALLY TENDERED HEREBY)
----------------------------------------------------------------------
----------------------------------------------------------------------
Signatures of Owners or Date
authorized Signatory
Area Code and Telephone Number:
This box must be signed by registered holder(s) of Initial Notes as
their name(s) appear(s) on certificate(s) for Initial Notes, or by
person(s) authorized to become registered holder(s) by endorsement and
documents transmitted with this Letter. If signature is by a trustee,
executor, administrator, guardian, officer or other person acting in a
fiduciary or representative capacity, such person must set forth his
or her full title below. (See Instruction 3)
Name(s)
----------------------------------------------------------------------
----------------------------------------------------------------------
(Please Print)
Capacity
Address
----------------------------------------------------------------------
(Include Zip Code)
SIGNATURE GUARANTEE
Signature(s) guaranteed
(Authorized Signature)
(If required by Instruction 3)
(Title)
(If required by Instruction 3)
(Name of Firm)
</TABLE>
5
<PAGE>
<TABLE>
<C> <S> <C>
BOX 3
TO BE COMPLETED BY ALL TENDERING HOLDERS
PAYER'S NAME: NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
Part 1--PLEASE PROVIDE YOUR TAXPAYER Social Security Number
IDENTIFICATION NUMBER (TIN) IN THE BOX AT OR --------------------------
SUBSTITUTE RIGHT AND CERTIFY BY SIGNING AND DATING Employer Identification Number
FORM W-9 BELOW.
Part 2--Check the box if you are NOT subject to back-up withholding under
the provisions of Section 2406(a)(1)(C) of the Internal Revenue Code
because (1) you have not been notified that you are subject to back-up
withholding as a result of failure to report all interest or dividends or
Department of the Treasury (2) the Internal Revenue Service has notified you that you are no longer
Internal Revenue Service subject to back-up withholding. / /
</TABLE>
<TABLE>
<C> <S> <C>
CERTIFICATION--UNDER PENALTIES OF PERJURY, I Part 3
PAYER'S REQUEST FOR TAXPAYER CERTIFY THAT THE INFORMATION PROVIDED ON THIS FORM
IDENTIFICATION NUMBER ("TIN") IS TRUE, CORRECT, AND COMPLETE.
SIGNATURE: DATE: Check If Awaiting TIN
------------------------------ ------------ / /
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE OFFER, PLEASE
REVIEW THE "IMPORTANT TAX INFORMATION" SECTION FOR MORE DETAILS.
<TABLE>
<S> <C> <C>
BOX 4
SPECIAL ISSUE INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if certificates for Initial Notes in a principal
amount not tendered, or Exchange Notes, are to be issued in the name
of someone other than the person whose signature appears in Box 2.
Issue and deliver:
(check appropriate boxes)
/ / Initial Notes not tendered
/ / Exchange Notes to:
Name
Please Print
Address
Please complete the Substitute form W-9 at Box 3
Tax I.D. or Social Security Number:
</TABLE>
6
<PAGE>
<TABLE>
<S> <C> <C>
BOX 5
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if certificates for Initial Notes in a principal
amount not tendered, or Exchange Notes, are to be issued in the name
of someone other than the person whose signature appears in Box 2 or
to an address other than that shown in Box 1.
Deliver:
(check appropriate boxes)
/ / Initial Notes not tendered
/ / Exchange Notes to:
Name
Please Print
Address
</TABLE>
7
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND
CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER AND CERTIFICATES. Certificates for Initial
Notes or a Book-Entry Confirmation, as the case may be, as well as a properly
completed and duly executed copy of this Letter and any other documents required
by this Letter, must be received by the Exchange Agent at one of its addresses
set forth herein on or before the Expiration Date. The method of delivery of
this Letter, certificates for Initial Notes or a Book-Entry Confirmation, as the
case may be, and any other required documents is at the election and risk of the
tendering holder, but except as otherwise provided below, the delivery will be
deemed made when actually received by the Exchange Agent. If delivery is by
mail, the use of registered mail with return receipt requested, properly
insured, is suggested.
Holders whose Initial Notes are not immediately available or who cannot
deliver their Initial Notes or a Book-Entry Confirmation, as the case may be,
and all other required documents to the Exchange Agent on or before the
Expiration Date may tender their Initial Notes pursuant to the guaranteed
delivery procedures set forth in the Prospectus. Pursuant to such procedure: (i)
tender must be made by or through an Eligible Institution (as defined in the
Prospectus under the caption "The Exchange Offer"); (ii) prior to the Expiration
Date, the Exchange Agent must have received from the Eligible Institution a
properly completed and duly executed Notice of Guaranteed Delivery (by telegram,
telex, facsimile transmission, mail or hand delivery) (x) setting forth the name
and address of the holder, the description of the Initial Notes and the
principal amount of Initial Notes tendered, (y) stating that the tender is being
made thereby and (z) guaranteeing that, within three New York Stock Exchange
trading days after the date of execution of such Notice of Guaranteed Delivery,
this Letter together with the certificates representing the Initial Notes or a
Book-Entry Confirmation, as the case may be, and any other documents required by
this Letter will be deposited by the Eligible Institution with the Exchange
Agent; and (iii) the certificates for all tendered Initial Notes, as well as all
other documents required by this Letter, must be received by the Exchange Agent
within three New York Stock Exchange trading days after the date of execution of
such Notice of Guaranteed Delivery, all as provided in the Prospectus under the
caption "The Exchange Offer -- How to Tender."
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Initial Notes will be determined
by the Issuer, whose determination will be final and binding. The Issuer
reserves the absolute right to reject any or all tenders that are not in proper
form or the acceptance of which, in the opinion of the Issuer's counsel, would
be unlawful. The Issuer also reserves the right to waive any irregularities or
conditions of tender as to particular Initial Notes. All tendering holders, by
execution of this Letter, waive any right to receive notice of acceptance of
their Initial Notes.
Neither the Issuer, the Exchange Agent nor any other person shall be
obligated to give notice of defects or irregularities in any tender, nor shall
any of them incur any liability for failure to give any such notice.
2. PARTIAL TENDERS; WITHDRAWALS. If less than the entire principal amount
of any Initial Note evidenced by a submitted certificate or by a Book-Entry
Confirmation is tendered, the tendering holder must fill in the principal amount
tendered in the fourth column of Box 1 above. All of the Initial Notes
represented by a certificate or Book-Entry Confirmation delivered to the
Exchange Agent will be deemed to have been tendered unless otherwise indicated.
A certificate for Initial Notes not tendered will be sent to the holder, unless
otherwise provided in Box 5, as soon as practicable after the Expiration Date,
in the event that less than the entire principal amount of Initial Notes
represented by a submitted certificate is tendered (or, in the case of Initial
Notes tendered by book-entry transfer, such non-exchanged Initial Notes will be
credited to an account maintained by the holder with the Book-Entry Transfer
Facility).
8
<PAGE>
If not yet accepted, a tender pursuant to the Exchange Offer may be
withdrawn prior to the Expiration Date. To be effective with respect to the
tender of Initial Notes, a notice of withdrawal must: (i) be received by the
Exchange Agent before the Company notifies the Exchange Agent that it has
accepted the tender of Initial Notes pursuant to the Exchange Offer; (ii)
specify the name of the person who tendered the Initial Notes; (iii) contain a
description of the Initial Notes to be withdrawn, the certificate numbers shown
on the particular certificates evidencing such Initial Notes and the principal
amount of Initial Notes represented by such certificates; and (iv) be signed by
the holder in the same manner as the original signature on this Letter
(including any required signature guarantee).
3. SIGNATURES ON THIS LETTER; ASSIGNMENTS; GUARANTEE OF SIGNATURES. If
this Letter is signed by the holder(s) of Initial Notes tendered hereby, the
signature must correspond with the name(s) as written on the face of the
certificate(s) for such Initial Notes, without alteration, enlargement or any
change whatsoever.
If any of the Initial Notes tendered hereby are owned by two or more joint
owners, all owners must sign this Letter. If any tendered Initial Notes are held
in different names on several certificates, it will be necessary to complete,
sign and submit as many separate copies of this Letter as there are names in
which certificates are held.
If this Letter is signed by the holder of record and (i) the entire
principal amount of Initial Notes represented by submitted certificates are
tendered; and/or (ii) the certificates for any untendered Initial Notes, if any,
are to be issued to the holder of record, then the holder of record need not
endorse any certificates for tendered Initial Notes, nor provide a separate bond
power. In any other case, the holder of record must transmit a separate bond
power with this Letter.
If this Letter or any certificate or assignment is signed by trustees,
executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and proper evidence satisfactory to the
Issuer of its authority to so act must be submitted, unless waived by the
Issuer.
Signatures on this Letter must be guaranteed by an Eligible Institution,
unless Initial Notes are tendered: (i) by a holder who has not completed Box 4
or 5 on this Letter; or (ii) for the account of an Eligible Institution. In the
event that the signatures in this Letter or a notice of withdrawal, as the case
may be, are required to be guaranteed, such guarantees must be by an eligible
guarantor institution which is a member of The Securities Transfer Agents
Medallion Program (STAMP), The New York Stock Exchange's Medallion Signature
Program (MSP) or The Stock Exchange's Medallion Program (SEMP) (collectively,
"Eligible Institutions"). If Initial Notes are registered in the name of a
person other than the signer of this Letter, the Initial Notes surrendered for
exchange must be endorsed by, or be accompanied by a written instrument or
instruments of transfer or exchange, in satisfactory form as determined by the
Issuer in its sole discretion, duly executed by the registered holder with the
signature thereon guaranteed by an Eligible Institution.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. Tendering holders should
indicate, in Box 4 or 5, as applicable, the name and address to which the
Exchange Notes or certificates for Initial Notes not tendered are to be sent or
issued, if different from the name and address of the person signing this
Letter. In the case of issuance in a different name, the tax identification
number of the person named must also be indicated. Holders tendering Initial
Notes by book-entry transfer may request that Initial Notes not exchanged be
credited to such account maintained at the Book-Entry Transfer Facility as such
holder may designate.
5. RETURN OF NOTES. If any tendered Initial Notes are not exchanged
pursuant to the Exchange Offer for any reason, such unexchanged Initial Notes
shall be returned, without expense, to the undersigned at the address shown in
Box 1 or at a different address as may be indicated in Box 5.
9
<PAGE>
6. TAX IDENTIFICATION NUMBER. Federal income tax law requires that a
holder whose tendered Initial Notes are accepted for exchange must provide the
exchange agent (as payor) with his or her correct taxpayer identification number
("TIN"), which, in the case of a holder who is an individual, is his or her
social security number. If the Exchange Agent is not provided with the correct
TIN, the holder may be subject to a $50 penalty imposed by the Internal Revenue
Service ("IRS"). In addition, delivery to the holder of the Exchange Notes
pursuant to the Exchange Offer may be subject to back-up withholding. (If
withholding results in overpayment of taxes, a refund may be obtained). Exempt
holders (including, among others, all corporations and certain foreign
individuals) are not subject to these back-up withholding and reporting
requirements. See "Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9" on page 13 for additional instructions.
Under federal income tax laws, payments that may be made by the Issuer on
account of Exchange Notes issued pursuant to the Exchange Offer may be subject
to back up withholding at a rate of 31%. In order to prevent back-up
withholding, each tendering holder must provide his or her correct TIN by
completing the "Substitute Form W-9" referred to above, certifying that the TIN
provided is correct (or that the holder is awaiting a TIN) and that: (i) the
holder has not been notified by the IRS that he or she is subject to back-up
withholding as a result of failure to report all interest or dividends; or (ii)
the IRS has notified the holder that he or she is no longer subject to back-up
withholding; or (iii) certify in accordance with the Guidelines that such holder
is exempt from back-up withholding. If the Initial Notes are in more than one
name or are not in the name of the actual owner, consult "Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9" on page
13 for information on which TIN to report.
7. TRANSFER TAXES. The Issuer will pay all transfer taxes, if any,
applicable to the transfer of Initial Notes to it or its order pursuant to the
Exchange Offer. If, however, the Exchange Notes or certificates for Initial
Notes not tendered are to be delivered to, or are to be issued in the name of,
any person other than the record holder, or if tendered certificates are
recorded in the name of any person other than the person signing this Letter, or
if a transfer tax is imposed by any reason other than the transfer of Initial
Notes to the Company or its order pursuant to the Exchange Offer, then the
amount of such transfer taxes (whether imposed on the record holder or any other
person) will be payable by the tendering holder. If satisfactory evidence of
payment of taxes or exemption from taxes is not submitted with this Letter, the
amount of transfer taxes will be billed directly to the tendering holder.
Except as provided in this Instruction 7, it will not be necessary for
transfer tax stamps to be affixed to the certificates listed in this Letter.
8. WAIVER OF CONDITIONS. The Issuer reserves the absolute right to amend
or waive any of the specified conditions in the Exchange Offer in the case of
any Initial Notes tendered.
9. NO CONDITIONAL TENDER. No alternative, conditional, irregular or
contingent tender of Initial Notes or transmittal of this Letter will be
accepted.
10. MUTILATED, LOST, STOLEN OR DESTROYED CERTIFICATES. Any holder whose
certificates for Initial Notes have been mutilated, lost, stolen or destroyed
should contact the Exchange Agent at the address indicated above, for further
instructions.
11. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to
the procedure for tendering, as well as requests for additional copies of the
Prospectus or this Letter, may be directed to the Exchange Agent.
IMPORTANT: THIS LETTER (TOGETHER WITH CERTIFICATES REPRESENTING TENDERED
INITIAL NOTES OR A BOOK-ENTRY CONFIRMATION AND ALL OTHER REQUIRED DOCUMENTS)
MUST BE RECEIVED BY THE EXCHANGE AGENT ON OR BEFORE THE CLOSE OF BUSINESS ON THE
EXPIRATION DATE (AS DEFINED IN THE PROSPECTUS).
10
<PAGE>
IMPORTANT TAX INFORMATION
Under federal income tax law, a holder of Initial Notes (a "Noteholder")
whose Initial Notes are surrendered for exchange is required to provide the
Exchange Agent with such Noteholder's correct TIN on Substitute Form W-9 (see
page 6). If such Noteholder is an individual, the TIN is his social security
number. If the Exchange Agent is not provided with the correct TIN, the
Noteholder may be subject to a $50 penalty imposed by the IRS.
Certain Noteholders (including, among others, all corporations and certain
foreign individuals) are not subject to these back-up withholding and reporting
requirements. In order for a foreign individual to qualify as an exempt
recipient, that Noteholder must submit a statement, signed under penalties of
perjury, attesting to that individual's exempt status. Such statements may be
obtained from the Exchange Agent.
Back-up withholding is not an additional tax. Rather, the tax liability of
persons subject to back-up withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent back-up withholding on payments that are made to a Noteholder
with respect to any Initial Notes, the Noteholder is required to notify the
Exchange Agent of his correct TIN by completing Box 3 on page 6 certifying that
the TIN provided on the Substitute Form W-9 is correct (or that such Noteholder
is awaiting a TIN).
WHAT NUMBER TO GIVE THE EXCHANGE AGENT
The Noteholder is required to give the Exchange Agent the social security
number or employer identification number of the record owner of the Initial
Notes. If the Initial Notes are in more than one name or are not in the name of
the actual owner, consult "Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9" on page 13 for additional
guidelines on which number to report.
PURPOSE OF FORM W-9
A person who is required to file an information return with the IRS must
obtain your correct TIN to report income paid to you, real estate transactions,
mortgage interest you paid, the acquisition or abandonment of secured property,
or contributions you made to an IRA. Use Form W-9 to furnish your correct TIN to
the requester (the person asking you to furnish your TIN) and, when applicable,
(1) to certify that the TIN you are furnishing is correct (or that you are
waiting for a number to be issued), (2) to certify that you are not subject to
back-up withholding, and (3) to claim exemption from back-up withholding if you
are an exempt payee. Furnishing your correct TIN and making the appropriate
certifications will prevent certain payments from being subject to back-up
withholding.
NOTE: If a requester gives you a form other than a W-9 to request your TIN,
you must use the requester's form.
HOW TO OBTAIN A TIN
If you do not have a TIN, apply for one immediately. To apply, get FORM
SS-5, application for a Social Security Number Card (for individuals) from your
local office of the Social Security Administration, or FORM SS-4, Application
for Employer Identification Number (for business and all other entities) from
your IRS office.
To complete Form W-9 if you do not have a TIN, check the space for "Awaiting
TIN" on Part 3 of Box 3, sign and date the form, and give it to the requester.
Generally, you will then have 60 days to obtain a TIN and furnish it to the
requester. If the requester does not receive your TIN within 60 days, back-up
withholding, if applicable, will begin and continue until you furnish your TIN
to the requester. For
11
<PAGE>
reportable interest or dividend payments, the payer must exercise one of the
following options concerning back-up withholding during this 60-day period.
Under option (1), a payer must backup withhold on any reportable interest or
dividend payments made to your account, regardless of whether you make any
withdrawals. The back-up withholding under option (2) must begin no later than
seven business days after the requester receives this form back. Under option
(2), the payer is required to refund the amounts withheld if your certified TIN
is received within the 60-day period and you were not subject to back-up
withholding during that period.
NOTE: Checking "Awaiting TIN" on the form means that you have already
applied for a TIN, OR that you intend to apply for one in the near future.
As soon as you receive your TIN, complete another Form W-9, include your
TIN, sign and date the form, and give it to the requester.
12
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
Guidelines for Determining the Proper Identification Number to Give the
Payer--Social Security Numbers have nine digits separated by two hyphens: i.e.,
000-00-0000. Employer Identification Numbers have nine digits separated by only
one hyphen: i.e., 00-0000000. The table below will help determine the number to
give the payer.
<TABLE>
<CAPTION>
GIVE THE SOCIAL EMPLOYER
FOR THIS TYPE SECURITY FOR THIS TYPE IDENTIFICATION
OF ACCOUNT: NUMBER OF: OF ACCOUNT: NUMBER OF:
- - --------------------------- --------------------------- --------------------------- ---------------------------
<S> <C> <C> <C>
1. An individual's account The individual 9. A valid trust estate, or Legal entity (Do not
pension fund furnish the identifying
number of the personal
representative or trustee
unless the legal entity
itself is not designated in
the account title)
2. Two or more individuals The actual owner of the 10. Corporate account The corporation
(joint account) account or, if combined
funds, any one of the
individuals
3. Husband and wife (joint The actual owner of the 11. Religious, charitable, The organization
account) joint account or, if joint or educational organization
funds, either person (1)
4. Custodian account of a The minor (2) 12. Partnership account The partnership
minor (Uniform Gift to held in the name of the
Minors Act) business
5. Adult and minor (joint The adult or, if the minor 13. Association The organization
account) is the only contributor,
the minor (1)
6. Account in the name of The ward, minor, or 14. A broker or registered The broker or nominee
guardian or committee for a incompetent person nominee
designated ward, minor, or
incompetent person
7. a. The usual revocable The grantor-trustee (1) 15. Account with the The public entity
savings trust account Department of Agriculture
(grantor is also trustee) in the name of a public
entity
b. So-called trust The actual owner (1) (such as a State or local
account that is not a legal government, school
or valid trust under State district, or prison) that
law receives
8. Sole proprietorship The owner (4) agricultural program
account payment
</TABLE>
- - ------------------------------
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) Show the name of the owner.
(5) List first and circle the name of the legal trust, estate or pension trust.
NOTE: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
OBTAINING A NUMBER
If you don't have a TIN or you don't know your number, obtain Form SS-5,
Application for a Social Security Number Card, or Form SS-4, Application for
Employer Identification Number, at the local office of the Social Security
Administration or the IRS and apply for a number. (Section references are to the
Internal Revenue Code)
13
<PAGE>
PAYEES EXEMPT FROM BACK-UP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include
the following:
- A corporation.
- A financial institution.
- An organization exempt from tax under section 501(a) or an individual
retirement plan.
- The United States or any agency or instrumentality thereof.
- A State, the District of Columbia, a possession of the United States, or
any subdivision or instrumentality thereof.
- A foreign government, political subdivision of a foreign government, or
agency or instrumentality thereof.
- An international organization or any agency or instrumentality thereof. A
registered dealer in securities or commodities registered in the U.S. or a
possession of the U.S.
- A real estate investment trust.
- A common trust fund operated by a bank under section 584(a)
- An exempt charitable remainder trust or a non-exempt trust described in
section 4947(a)(1).
- An entity registered at all times under the Investment Company Act of
1940. A foreign central bank of issue.
Exempt payees described above should file Form W-9 to avoid possible
erroneous backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TIN,
WRITE "EXEMPT" ON THE FACE OF THE FORM, AND RETURN IT TO THE PAYER. IF THE
PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS, ALSO SIGN AND DATE THE
FORM.
Certain payments other than interest dividends, and patronage dividends,
that are not subject to information reporting are also not subject to back-up
withholding. For details, see the regulations under sections 6041, 6041A(a),
6045, and 6050A.
PRIVACY ACT NOTICE. Section 6109 requires you to furnish your correct TIN
to persons who must file information returns with the IRS to report interest,
dividends, and certain other income paid to you, mortgage interest you paid, the
acquisition or abandonment of secured property, or contributions you made to an
IRA. The IRS uses the numbers for identification purposes and to help verify the
accuracy of your tax return. Payers must generally withhold 31% of taxable
interest, dividend, and certain other payments to a payee who does not furnish a
TIN to a payer. Certain penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER-- If you
fail to furnish your taxpayer identification number to a payer, you are subject
to a penalty of $50 for each such failure unless your failure is due to
reasonable causes and not to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING-- If
you make a false statement with no reasonable basis which results in no
imposition of backup withholding, you are subject to a penalty of $500.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION WITH RESPECT TO
WITHHOLDING-- Willfully falsifying certifications or affirmations may subject
you to criminal penalties including fines and/or imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE IRS.
14
<PAGE>
DELTA BEVERAGE GROUP, INC.
EXCHANGE OFFER
TO HOLDERS OF ITS
9 3/4% SENIOR NOTES DUE 2003
NOTICE OF GUARANTEED DELIVERY
As set forth in the Prospectus dated February 12, 1997 (the "Prospectus") of
Delta Beverage Group, Inc. (the "Issuer") under "The Exchange Offer--How to
Tender" and in the Letter of Transmittal for the 9 3/4% Senior Notes Due 2003
(the "Initial Notes") issued pursuant to an Offering Memorandum dated December
12, 1996 (the "Letter of Transmittal"), this form or one substantially
equivalent hereto must be used to accept the Exchange Offer (as defined below)
of the Issuer if: (i) certificates for the Initial Notes are not immediately
available; or (ii) time will not permit all required documents to reach the
Exchange Agent (as defined below) on or prior to the Expiration Date (as defined
in the Prospectus) of the Exchange Offer. Such form may be delivered by hand or
transmitted by telegram, telex, facsimile transmission or letter to the Exchange
Agent (as defined below).
TO: NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
(THE "EXCHANGE AGENT")
<TABLE>
<S> <C>
BY REGISTERED OR CERTIFIED MAIL: BY OVERNIGHT COURIER:
Norwest Bank Minnesota, National Association Norwest Bank Minnesota, National Association
Corporate Trust Operations Corporate Trust Operations
P.O. Box 1517 Norwest Center
Minneapolis, MN 55480-1517 Sixth and Marquette
Minneapolis, MN 55479-0113
BY HAND: BY FACSIMILE:
Norwest Bank Minnesota, National Association Norwest Bank Minnesota, National Association
Corporate Trust Operations Corporate Trust Operations
Northstar East, 12th Floor (612) 667-4927
608 2nd Avenue Confirm by telephone:
Minneapolis, MN 55479-0113 (612) 667-9764
</TABLE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN
AS SET FORTH ABOVE OR TRANSMITTAL OR THIS INSTRUMENT TO
A FACSIMILE OR TELEX NUMBER OTHER THAN AS SET FORTH
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
THIS NOTICE OF GUARANTEED DELIVERY IS NOT USED TO GUARANTEE SIGNATURES. IF A
SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE GUARANTEED BY AN ELIGIBLE
INSTITUTION UNDER THE INSTRUCTIONS THERETO, SUCH SIGNATURE GUARANTEE MUST APPEAR
IN THE APPLICABLE SPACE PROVIDED ON THE LETTER OF TRANSMITTAL FOR GUARANTEE OF
SIGNATURES.
1
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to the Issuer, upon the terms and conditions
set forth in the Prospectus and the Letter of Transmittal (which together
constitute the "Exchange Offer"), receipt of which are hereby acknowledged, the
principal amount of Initial Notes set forth below pursuant to the guaranteed
delivery procedure described in the Prospectus and the Letter of Transmittal.
<TABLE>
<S> <C>
Principal Amount Sign Here
of Initial Notes
Tendered:
Signature(s):
(Authorized Signature)
Certificate Nos.
of Initial Notes
if available):
Please Print or Type the Following Information
Name(s):
Total Principal
Amount Represented Address:
by Initial Note
Certificate(s):
Area Code and Telephone Number(s):
Account Number:
Dated: , 1997
</TABLE>
2
<PAGE>
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a member of a recognized signature guarantee medallion
program or otherwise an "eligible guarantor institution" within the meaning of
Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended, hereby
guarantees that delivery to the Exchange Agent of certificates tendered hereby,
in proper form for transfer, or delivery of such certificates pursuant to the
procedure for book-entry transfer, in either case with delivery of a properly
completed and duly executed Letter of Transmittal (or facsimile thereof) and any
other required documents, will be made within three trading days after the date
of execution of a Notice of Guaranteed Delivery of the above-named person.
--------------------------------------
Name of Firm
--------------------------------------
Authorized Signature
--------------------------------------
Number and Street or P.O. Box
--------------------------------------
City State Zip Code
--------------------------------------
Area Code and Telephone No.
Dated:___________, 1997
DO NOT SEND INITIAL NOTES WITH THIS FORM. ACTUAL SURRENDER OF INITIAL NOTES MUST
BE MADE PURSUANT TO, AND BE ACCOMPANIED BY, AN EXECUTED LETTER OF TRANSMITTAL.
3
<PAGE>
DELTA BEVERAGE GROUP, INC.
EXCHANGE OFFER
TO HOLDERS OF ITS
9 3/4% SENIOR NOTES DUE 2003
LETTER TO CLIENTS
To Our Clients:
Enclosed for your consideration are (i) a Prospectus dated February 12, 1997
(as the same may be amended or supplemented from time to time, the "Prospectus")
and (ii) a form of Letter of Transmittal (the "Letter of Transmittal") relating
to the offer (the "Exchange Offer") by Delta Beverage Group, Inc. (the "Issuer")
to exchange up to $120,000,000 in principal amount of its 9 3/4% Senior Notes
Due 2003 (the "Initial Notes") for $120,000,000 in principal amount of its
9 3/4% Senior Notes Due 2003 (the "Exchange Notes").
The material is being forwarded to you as the beneficial owner of Initial
Notes held by us for your account or benefit but not registered in your name. A
tender of any Initial Notes may be made only by us as the registered holder and
pursuant to your instructions. Therefore, the Issuer urges beneficial owners of
Initial Notes registered in the name of a broker, dealer, commercial bank, trust
company or other nominee to contact such registered holder promptly if they wish
to tender Initial Notes in the Exchange Offer.
Accordingly, we request instructions as to whether you wish us to tender any
or all Initial Notes, pursuant to the terms and conditions set forth in the
Prospectus and Letter of Transmittal. WE URGE YOU TO READ CAREFULLY THE
PROSPECTUS AND LETTER OF TRANSMITTAL BEFORE INSTRUCTING US TO TENDER YOUR
INITIAL NOTES.
YOUR INSTRUCTIONS TO US SHOULD BE FORWARDED AS PROMPTLY AS POSSIBLE IN ORDER
TO PERMIT US TO TENDER INITIAL NOTES ON YOUR BEHALF IN ACCORDANCE WITH THE
PROVISIONS OF THE EXCHANGE OFFER. THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
EASTERN STANDARD TIME, ON APRIL 3, 1997, UNLESS EXTENDED (THE "EXPIRATION
DATE"). INITIAL NOTES TENDERED PURSUANT TO THE EXCHANGE OFFER MAY BE WITHDRAWN,
SUBJECT TO THE PROCEDURES DESCRIBED IN THE PROSPECTUS, AT ANY TIME PRIOR TO THE
EXPIRATION DATE.
If you wish to have us tender any or all of your Initial Notes held by us
for your account or benefit, please so instruct us by completing, executing and
returning to us the instruction form that appears below. The accompanying Letter
of Transmittal is furnished to you for informational purposes only and may not
be used by you to tender Initial Notes held by us and registered in our name for
your account or benefit.
1
<PAGE>
INSTRUCTIONS
The undersigned acknowledge(s) receipt of your letter and the enclosed
material referred to therein relating to the Exchange Offer of Delta Beverage
Group, Inc.
THIS WILL INSTRUCT YOU TO TENDER THE PRINCIPAL AMOUNT OF NOTES INDICATED
BELOW HELD BY YOU FOR THE ACCOUNT OR BENEFIT OF THE UNDERSIGNED AND TO DELIVER
THE UNDERSIGNED'S CONSENT WITH RESPECT TO SUCH NOTES, PURSUANT TO THE TERMS OF
AND CONDITIONS SET FORTH IN THE STATEMENT AND THE LETTER OF TRANSMITTAL.
Box 1 / / Please tender my Notes held by you for my account or benefit and
deliver my Consent with respect to such Notes. I have identified on
a signed schedule attached hereto the principal amount of Notes to
be tendered, in integral multiples of $1,000, if I wish to tender
less than all of my Notes.
Box 2 / / Please do not tender any Notes held by you for my account or benefit
and do not deliver my Consent.
Date:____________________
______________________________________
______________________________________
Signature(s)
______________________________________
______________________________________
Please print name(s) here
- - ------------------------
Unless a specific contrary instruction is given in a signed Schedule attached
hereto, your signature(s) hereon shall constitute an instruction to us to tender
all your Notes and to deliver your Consent with respect thereto.
2
<PAGE>
DELTA BEVERAGE GROUP, INC.
EXCHANGE OFFER
TO HOLDERS OF ITS
9 3/4% SENIOR NOTES DUE 2003
LETTER TO NOMINEES
To Securities Dealers, Commercial Banks
Trust Companies and Other Nominees:
Enclosed for your consideration are (i) a Prospectus dated February 12, 1997
(as the same may be amended or supplemented from time to time, the "Prospectus")
and (ii) a form of Letter of Transmittal (the "Letter of Transmittal") relating
to the offer (the "Exchange Offer") by Delta Beverage Group, Inc. (the "Issuer")
to exchange up to $120,000,000 in principal amount of its 9 3/4% Senior Notes
Due 2003 (the "Exchange Notes") for $120,000,000 in principal amount of its
9 3/4% Senior Notes Due 2003 (the "Initial Notes").
We, Norwest Bank Minnesota, National Association, are asking you to contact
your clients for whom you hold Initial Notes registered in your name or in the
name of your nominee. In addition, we ask you to contact your clients who, to
your knowledge, hold Initial Notes registered in their own name. The Issuer will
not pay any fees or commissions to any broker, dealer or other person in
connection with the solicitation of tenders pursuant to the Exchange Offer. You
will, however, be reimbursed by the Issuer for customary mailing and handling
expenses incurred by you in forwarding any of the enclosed materials to your
clients. The Issuer will pay all transfer taxes, if any, applicable to the
tender of Initial Notes to it or its order, except as otherwise provided in the
Prospectus and the Letter of Transmittal.
Enclosed are copies of the following documents:
1. The Prospectus;
2. A Letter of Transmittal for your use in connection with the tender of
Initial Notes and for the information of your clients, including Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9;
3. A form of letter that may be sent to your clients for whose accounts you
hold Initial Notes registered in your name or the name of your nominee, with
space provided for obtaining the clients' instructions with regard to the
Exchange Offer; and
4. A form of Notice of Guaranteed Delivery.
Your prompt action is requested. The Exchange Offer will expire at 5:00
p.m., Eastern Standard Time, on April 3, 1997 unless extended (the "Expiration
Date"). Initial Notes tendered pursuant to the Exchange Offer may be withdrawn,
subject to the procedures described in the Prospectus, at any time prior to the
Expiration Date.
To tender Initial Notes, certificates for Initial Notes, a duly executed and
properly completed Letter of Transmittal or a facsimile thereof, together with
any other required documents, must be received by the Exchange Agent as provided
in the Prospectus and the Letter of Transmittal.
Additional copies of the enclosed material may be obtained from the Exchange
Agent, Norwest Bank Minnesota, National Association, by calling (612) 667-9764.
NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY
PERSON AS AN AGENT OF THE ISSUER OR THE EXCHANGE AGENT, OR AUTHORIZE YOU OR ANY
OTHER PERSON TO MAKE ANY STATEMENTS ON BEHALF OF EITHER OF THEM WITH RESPECT TO
THE EXCHANGE OFFER, EXCEPT FOR STATEMENTS EXPRESSLY MADE IN THE PROSPECTUS AND
THE LETTER OF TRANSMITTAL.
