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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER _____________
DELTA BEVERAGE GROUP, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 75-2048317
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
2221 DEMOCRAT ROAD, MEMPHIS, TENNESSEE 38132
(Address of Principal Executive Offices, including Zip Code)
(901) 344-7100
(Registrant's Telephone Number, including Area Code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE.
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE.
As of March 15, 2000, the Registrant had outstanding: (i) 6,440.17 shares of
Series AA Preferred Stock, $5,000 stated value, (ii) 20,301.87 shares of
voting Common Stock, $0.01 par value, and (iii) 32,949.93 shares of nonvoting
Common Stock, $0.01 par value.
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TABLE OF CONTENTS
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PART I............................................................................................................3
ITEM 1 BUSINESS.............................................................................................3
ITEM 2 PROPERTIES..........................................................................................12
ITEM 3 LEGAL PROCEEDINGS...................................................................................12
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................................................13
PART II..........................................................................................................14
ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS...............................14
ITEM 6 SELECTED FINANCIAL DATA.............................................................................15
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...............16
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..........................................27
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.........................................................28
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE................46
PART III.........................................................................................................47
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT..................................................47
ITEM 11 EXECUTIVE COMPENSATION..............................................................................51
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT......................................53
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......................................................54
PART IV..........................................................................................................56
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K....................................56
SIGNATURES.......................................................................................................58
INDEX TO EXHIBITS................................................................................................59
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INTRODUCTORY NOTE
Delta Beverage Group, Inc. is required to file this report with the
Securities and Exchange Commission pursuant to Section 4.16 of the Indenture
between Delta Beverage Group, Inc. and Norwest Bank Minnesota, National
Association dated December 17, 1996.
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PART I
ITEM 1 BUSINESS
THE FOLLOWING DESCRIPTION OF THE COMPANY'S BUSINESS CONTAINS CERTAIN
FORWARD-LOOKING TERMINOLOGY SUCH AS "BELIEVES," "ANTICIPATES," "EXPECTS," AND
"INTENDS," OR COMPARABLE TERMINOLOGY. SUCH STATEMENTS ARE SUBJECT TO CERTAIN
RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM THOSE PROJECTED. HOLDERS AND POTENTIAL PURCHASERS OF THE COMPANY'S
SECURITIES 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.
GENERAL SUMMARY
Delta Beverage Group, Inc. (the "Company"), a Delaware corporation,
is one of the largest soft drink manufacturers and distributors in the U.S.,
selling over 30.2 million hard cases of PepsiCo, Inc. ("PepsiCo") products
and 7.5 million hard cases of other soft drinks and beverage products in
1999. PepsiCo is the second leading soft drink franchisor in the U.S.,
capturing approximately 29% of all carbonated soft drink sales in 1999. In
1999, net sales for the Company totaled $363.6 million and EBITDA was $28.8
million.
During the fourth quarter of 1999, the Company's controlling
stockholder completed a combination of the Company with two related party
Pepsi-Cola bottlers: PepsiAmericas, Inc. (formerly Pepsi-Cola Puerto Rico
Bottling Company) ("PAS") and Dakota Beverage Company, Inc. ("Dakota") (the
"Merger"). The three companies generated combined revenues in 1999 of
approximately $576 million. The Company and DAKBEV, LLC (formerly Dakota)
became wholly owned subsidiaries of PAS. The combined company is PepsiCo's
third largest U.S. based anchor bottler. The Company has described this
transaction in detail on Form 8-K.
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 products of PepsiCo, Cadbury Schweppes,
Inc. ("Cadbury") and other brand owners. 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 Incorporated ("Heineken") products in greater New Orleans,
Louisiana. Detail on the Company's product lines is presented later in this
document.
The Company believes its success 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 1999, for example, PepsiCo spent in excess of $295
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 in excess of 70 million hard cases. The Company
distributes approximately 97% 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 32,000
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.
Over the last decade, 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
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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 1999, the Company's case volume and operating profit grew at compound
annual rates of 105.7% and 106.2%, respectively.
The Company issued $120.0 million (principal amount ) of 9 3/4%
Senior Notes due 2003 in 1996. At the same time, the Company entered into a
$30.0 million (borrowing capacity) Credit Agreement which expires December
2001. The Company believes these financing transactions have provided it with
(i) 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 Company was incorporated as Mid-South Bottling Company on
January 29, 1985, as a Delaware corporation. The Company's executive office
is located at 2221 Democrat Road, Memphis, Tennessee 38132, and its telephone
number is (901) 344-7100.
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.
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 the New Orleans and Baton Rouge, Louisiana area, 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 also distributes beer products 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
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.
The Miller distributor agreement provides that the Joint Venture
cannot be owned directly or indirectly by a publicly-held company. Because
the Company is owned PAS, a publicly-held company, the Company is working
with Miller to resolve this ownership issue. No assurance can be given that
the Company will be able to resolve this issue with Miller.
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PRODUCTS
SOFT DRINKS
The following table sets forth products of PepsiCo, Cadbury and
other franchisors produced and/or distributed by the Company. The Company
and/or Joint Venture packages and distributes its soft drink products in one,
two, three-liter and 20-ounce PET bottles, aluminum cans in six packs,
12-packs, 20-packs and 24-packs and five gallon containers.
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PEPSICO PRODUCTS CADBURY PRODUCTS
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Pepsi 7UP
Pepsi One Diet 7UP
Caffeine Free Pepsi Cherry 7UP
Diet Pepsi Canada Dry
Caffeine Free Diet Pepsi Country Time
Wild Cherry Pepsi Crystal Light
Mountain Dew Crush
Diet Mountain Dew
Slice OTHER PRODUCTS
Mug --------------
Ocean Spray Hawaiian Punch
All Sport Sunny Delight
Aquafina Monarch
Nugrape
PEPSICO JOINT VENTURE PRODUCTS Yoo-Hoo
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Lipton Iced Teas
Starbucks Frappuccino
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BEER
The following table sets forth products of Miller and Heineken
distributed by the Joint Venture. The Joint Venture distributes its beer
products in glass bottles, aluminum cans in six packs, 12-packs and 24-packs and
a variety of bulk draft containers.
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MILLER PRODUCTS HEINEKEN PRODUCTS
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Miller Beer Heineken
Miller Lite Amstel Light
Miller Genuine Draft
Miller High Life OTHER PRODUCTS
Lowenbrau Special --------------
Lowenbrau Dark Dixie Beer
Lowenbrau Malt Liquor Pete's Wicked Ale
Magnum Shiner Bock
Milwaukee's Best
Milwaukee's Best Light
Sharp's
Icehouse
Lite Ice
Red Dog
Molson Golden
Molson Ice
Foster's Lager
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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 the 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
have been adjusted annually. 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.
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 Joint Venture distributes Miller products and Heineken products
pursuant to distributor agreements entered into with Miller and Heineken (the
"Miller Agreement" and the "Heineken Agreement," respectively). Each of the
distributor agreements gives the Joint Venture exclusive rights to distribute
products in its territory. The Joint Venture 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. The Joint
Venture also distributes a small volume of beer produced by other brewers.
The distributor agreements relating to these beer products are substantially
similar to the Miller and Heineken Agreements. Distribution of such beer
products is not material to the Company's results of operations.
Many of the terms of the Miller and Heineken Agreements are similar.
Under these agreements, product prices to the Joint Venture are determined by
the brewer or importer. Historically, product prices have been adjusted
annually in accordance with changes in the Consumer Price Index ("CPI"). The
company who manages the distribution of the products must be approved by the
brewer or importer. Any sale, disposition, change in control or transfer of
the Joint Venture's rights pursuant to the distributor agreement must receive
prior approval of the brewer or importer. Each of the distributor agreements
remains in effect for an indefinite period of time, however, the Joint
Venture may terminate its distribution agreement with either Miller or
Heineken upon 90 days' prior written notice. Moreover, Miller or Heineken may
terminate the Joint Venture's distribution rights in the event: (i) the Joint
Venture fails to comply with any of its commitments or obligations pursuant
to the distribution
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agreement; (ii) the Joint Venture or any of its owners is convicted of a
felony; (iii) the Joint Venture engages in fraudulent conduct or substantial
misrepresentation in its dealings concerning the brewer's or importer's
products; (iv) the Joint Venture's federal, state or local licenses or
permits for its distribution operations are revoked or suspended for more
than 31 days; (v) the Joint Venture becomes insolvent, fails to pay monies
due the brewer or importer, 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 Joint Venture
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.
The Merger constituted a "change of control" under the Miller
Agreement. Miller and the Joint Venture are currently negotiating structural
changes that would allow the Joint Venture to continue to distribute Miller
products.
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 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 store
keeping unit. 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 1,415 vehicle fleet to support its sales and
distribution operations. Maintenance and service of the fleet are provided by
the Company.
SOFT DRINKS
In 1999, approximately 55% of the Company's soft drink products were
sold to supermarkets, approximately 23% to convenience stores, gas stations
and small grocery stores, approximately 9% to drug stores and mass merchants,
approximately 3% to third party operators and full service vending accounts
and approximately 10% 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
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retail outlets and convenience stores. The Company has an installed base of
approximately 11,300 visi-coolers and approximately 16,500 vending machines.
BEER
In 1999, approximately 40% of the Joint Venture's beer products were
sold to supermarkets, approximately 23% to on-premise channels such as
restaurants and bars, approximately 22% to convenience stores, approximately
8% to drug stores and mass merchants and approximately 7% to other
miscellaneous accounts.
The sales and distribution process for the Joint Venture's beer
business is essentially the same as for the Company's 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 Company builds displays in conjunction with promotional programs. The
displays are used to restock 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
franchisors. 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 Joint Venture's beer products are provided by the
brewer or importer. Marketing efforts by the Joint Venture 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
or importer.
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 63% of beer in supermarkets is sold cold. On-premise sales
are aggressively supported by both the brewer or importer and the distributor
since this channel represents significant sampling and trial of beer products.
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MANUFACTURING PROCESS
The Company produced approximately 45 million cases of soft drinks
in 1999 at its two manufacturing facilities in Collierville, Tennessee, and
Reserve, Louisiana. The Collierville and Reserve facilities have annual
production capacity of approximately 41 million and 33 million cases of
beverages, respectively. During the peak volume months of May through August,
the plants typically operate at approximately 63% of capacity.
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 or importer
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.
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 Coca-Cola Enterprises ("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 Joint Venture's principal competitors in its
beer distribution operations are distributors of Anheuser-Busch products,
whose products accounted for approximately 50% of total U.S. beer sales in
1999. Sales of Miller products in the same time period represented
approximately 20% of total U.S. beer sales. The Joint Venture believes it
competes effectively by executing its marketing campaigns and product
introductions effectively, maintaining price
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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.
A substantial portion of the Company's raw materials, including its
aluminum cans, closures, other packaging materials and fructose, are
purchased through 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. 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.
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.
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
non-returnable 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
and Tennessee both impose specific soft drink taxes. The Company believes it
is in compliance with all tax regulations pertaining to its operations.
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
10
<PAGE>
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 1,415 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 December 31, 1999, the Company and Joint Venture had
approximately 1,797 full-time employees and 58 part-time employees.
Approximately 145 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 in
September 2001 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 in December
2002. Approximately 160 of the Joint Venture'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
in April 2002. The second contract expires in November 2002. 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 50% Company matching contribution that is capped at $1,000 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
multi-employer 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."
As a result of the Merger, the Company may amend its employee
benefit plans in order to standardize benefits with Dakota. This matter is
currently being reviewed by the Company and its benefits consultants. It is
not expected that the required amendments, if any, will significantly affect
the results of operations of the Company.
11
<PAGE>
ITEM 2 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. As of December 31, 1999, the Company also
operated 24 warehouse distribution facilities from which it conducts its
sales, delivery and vending operations. The Company owned 17 of the warehouse
distribution facilities and leased 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 Shreveport, Louisiana
Jonesboro, Arkansas Columbus, Mississippi
Little Rock, Arkansas Corinth, Mississippi
Monticello, Arkansas Kosciusko, Mississippi
Baton Rouge, Louisiana Jackson, Tennessee
Covington, Louisiana
Leesville, Louisiana
Monroe, Louisiana
New Orleans, Louisiana
Thibodaux, Louisiana (1)
Batesville, Mississippi
Greenville, Mississippi
Tupelo, Mississippi
Collierville, Tennessee
Texarkana, Texas
</TABLE>
- ---------------
(1) This facility is owned by the Company and leased by the Joint Venture.
ITEM 3 LEGAL PROCEEDINGS
In August 1993, Delta was named in a lawsuit filed in the District
Court of Morris County, Texas by a number of soft drink bottlers and
distributors. Additional defendents include PepsiCo, Pepsi-Cola Company,
Coca-Cola, and CCE. The plaintiffs allege that the defendants engaged in
unfair trade practices and conspired to monopolize the soft drink industry in
eastern Texas, Louisiana and Arkansas in violation of the Texas Free
Enterprise Act and, alternatively, state antitrust statutes. The expert
witness retained by the plaintiffs has theorized in deposition testimony that
total damages to all plaintiffs could be as high as $33 million. The
defendants assert that there is no evidence of antitrust injury or direct
causation, and therefore no antitrust violations occurred. The expert witness
retained by the defendant has testified that total damages, if any, to all
plaintiffs would range from $1 to $10 million. Any damages awarded would
likely be allocated among all defendents. The lawsuit has been bifurcated
into two groups of plaintiffs, with trial scheduled to begin on April 26,
2000 for the first group of plaintiffs. Delta intends to continue to
vigorously defend itself fully in this action. The defendents believe a large
recovery in this lawsuit is remote. However, an unfavorable decision in this
case could have a material adverse effect on Delta's financial condition.
In November and December 1999, the Company was named as the
defendant in several class action lawsuits filed in the District Court of the
Parish of St. John the Baptist, Louisiana, by a group of residents near the
Company's facility in Reserve, Louisiana. The residents complained of
personal injuries resulting from noxious fumes emitted from the wastewater
pond owned by the Port of South Louisiana, into which the Company discharges
its wastewater. There are approximately 4,000 potential plaintiffs. No dollar
amount has been demanded as yet. 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.
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ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders through the
solicitation of proxies or otherwise during the fourth quarter of the
Company's most recently completed fiscal year.
13
<PAGE>
PART II
ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is no established public trading market for the Company's
Common Stock. The Company's Common Stock is not registered under Section
12(b) or Section 12(g) of the Securities Exchange Act of 1934, as amended.
See "Security Ownership of Certain Beneficial Owners and Management."
14
<PAGE>
ITEM 6 SELECTED FINANCIAL DATA
The following table presents selected financial data of the Company
and consolidated Joint Venture as of and for each of the years ended December
31, 1999, 1998, 1997, 1996 and 1995. The information presented for each of
the 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 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 Annual
Report.
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales $ 363,570 $ 352,085 $ 323,221 $ 312,284 $ 284,709
Cost of sales 250,283 245,683 216,560 215,085 198,777
----------- ----------- ----------- ----------- -----------
Gross profit 113,287 106,402 106,661 97,199 85,932
Selling, general and administrative
expenses 92,017 87,019 83,344 76,883 71,802
Amortization of franchise costs and
other intangibles 3,648 3,648 3,648 3,664 3,576
Special charges 2,863 -- -- -- --
----------- ----------- ----------- ----------- -----------
Income from operations 14,759 15,735 19,669 16,652 10,554
Interest expense 19,290 18,770 17,865 15,094 13,254
Other expenses (income) 127 175 (32) 620 75
----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes (4,658) (3,210) 1,836 938 (2,775)
Income tax expense (1) (507) (436) (2,040) (1,745) (1,641)
Minority interest in Joint Venture (2) 305 335 65 48 464
----------- ----------- ----------- ----------- -----------
Income (loss) before
non-recurring items (4,860) (3,311) (139) (759) (3,952)
Non-recurring items(3) -- -- -- (1,519) --
----------- ----------- ----------- ----------- -----------
Net income (loss) $ (4,860) $ (3,311) $ (139) $ (2,278) $ (3,952)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
BALANCE SHEET DATA (at end of period):
Working capital (4) 33,814 32,507 35,404 23,698 27,547
Total assets 294,970 271,652 260,914 255,327 248,437
Long-term debt and other obligations (5):
Senior debt 124,700 125,600 120,000 120,000 117,250
Subordinated notes payable 54,392 48,573 43,640 39,209 35,227
Other 16,171 6,557 6,764 5,067 5,673
Stockholders' equity 53,958 57,010 60,317 60,449 62,718
OTHER DATA:
EBITDA (6) 28,757 29,870 30,855 26,248 20,730
Depreciation and amortization 13,822 13,938 11,441 10,314 9,687
Capital expenditures 12,465 14,885 14,988 8,964 10,726
</TABLE>
- ---------------
(1) The effective income tax rate is significantly impacted by the non-tax
deductibility of amortization of franchise costs.
(2) Represents minority interest in the net income (loss) of the Joint
Venture which is consolidated with the Company.
(3) For the year ended December 31, 1996, includes an extraordinary item
(loss on extinguishment of debt) of $2,472, net of income tax benefit
of $953.
(4) Working capital represents current assets (excluding cash and cash
equivalents) less current liabilities (excluding current maturities of
long-term debt and other liabilities.
(5) Includes current maturities of long-term debt. As of December 31, 1999,
the subordinated notes payable are wholly held by the Company's parent.
(6) 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 Poydra's
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.
15
<PAGE>
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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
UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE
PROJECTED. HOLDERS AND POTENTIAL PURCHASERS OF THE COMPANY'S SECURITIES 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.
RESULTS OF OPERATIONS
GENERAL
The Company has accomplished a number of business combinations over
the last decade, including (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, (ii) acquiring in 1995 the distribution rights for
Miller and Heineken products in a significant portion of the joint venture
territory and (iii) combining with Dakota and Pepsi-Cola Puerto Rico Bottling
Company to form PAS effective October 15, 1999.
During the third quarter of 1999, the Company announced the entry by
its shareholders into the Delta Exchange Agreement which resulted in the
combination of the Company with two related party Pepsi-Cola bottlers: PAS
and Dakota. The three companies generated combined revenues in 1999 of
approximately $576 million. Such transactions were consummated during the
fourth quarter of 1999, with both the Company and DAKBEV, LLC (formerly
Dakota) becoming wholly owned subsidiaries of PAS. The combined company is
PepsiCo's third largest U.S. based anchor bottler.
The Company's primary measurement of unit volume is franchise case
sales which are case-sized quantities of the various consumer packages in
which products are produced and sold and may alternatively be described as
hard case sales. 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 unit volume 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 to unaffiliated companies that hold
soft drink franchises. Contract sales, which historically represent less than
15% 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.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
Net sales, excluding contract net sales, for the year ended December
31, 1999 increased by 3.6% to $321.0 million compared to $309.9 million for
the same period in 1998. The increase was due primarily to a 6.5% increase in
franchise case sales, offset by a 2.8% decrease in average pricing. The
decrease in average pricing reflects a modest mix shift towards can packages
of soft drinks which have a lower net selling price per unit and are sold
predominately in grocery stores that require greater promotional costs. The
brands showing strong growth were Mountain Dew, Pepsi One, Aquafina and Ocean
Spray. Improvement in beer pricing essentially offset a 2.2% decrease in beer
volume. Contract net sales for the year ended December 31, 1999 increased
1.1% compared to the same period in 1998. As a result of the foregoing, net
sales for the year ended December 31, 1999 increased 3.3% to $363.6 million
compared to $352.1 million for the same period in 1998.
16
<PAGE>
Cost of sales for the year ended December 31, 1999 increased to
$250.3 million compared to $245.7 million for the same period in 1998. The
increase was due primarily to the net effect of the increase in franchise
case sales and the mentioned mix shift towards lower cost can packages of
soft drinks. As a percentage of net sales, cost of sales for the year ended
December 31, 1999 decreased to 68.8% compared to 69.8% for the same period in
1998. As a result of the foregoing, gross profit for the year ended December
31, 1999 was $113.3 million compared to $106.4 million for the same period in
1998.
Selling, general and administrative expenses for the year ended
December 31, 1999 increased to $92.0 million compared to $87.0 million for
the same period in 1998. Selling, general and administrative expenses are
comprised of selling, distribution and warehousing expenses ("S&D"),
advertising and marketing expenses ("A&M"), and general and administrative
expenses ("G&A"). S&D and A&M expenses in aggregate grew less rapidly than
sales volume. G&A expenses increased due primarily to provision for the
potential accounts receivable loss in the bankruptcy of a grocery customer
and defense costs in litigation that is nearing trial. As an entire category,
these operating costs represented 25.3% and 24.7% of net sales in 1999 and
1998, respectively.
A special charge to operations of $2.9 million in 1999 resulted from
the redetermination of the Company's phantom stock plan liability, in
anticipation of its cancellation following the merger, and satisfaction of the
liability to participants by the issuance by PAS of shares of its common
stock.
As a result of the above factors, income from operations for the
year ended December 31, 1999 decreased to $14.8 million, or 4.1% of net
sales, compared to $15.7 million, or 4.5% of net sales, for the same period
in 1998. Excluding the special charge, income from operations in 1999 was
$17.6 million or 4.8% of net sales.
Interest expense for the year ended December 31, 1999 increased to
$19.3 million from $18.8 million for the same period in 1998. The increase
was due primarily to higher utilization of the Company's credit facility and
the effect by payment in kind of interest on the subordinated debt.
As a result of the above factors, the Company realized a loss before
income taxes and minority interest of ($4.7) million for the year ended
December 31, 1999 compared a loss of ($3.2) million for the same period in
1998. Excluding the special charge, the loss before income taxes and minority
interest in 1999 was $1.8 million.
The Company's effective income tax rate differs from statutory rates
primarily due to the non-tax deductibility of franchise cost amortization.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Net sales, excluding contract net sales, for the year ended December
31, 1998 increased by 3.7% to $307.2 million compared to $296.1 million for
the same period in 1997. The increase was due primarily to a 4.5% increase in
franchise case sales, of which (i) 4.0% was attributable to increased sales
of the Company's soft drink products including an increase in average unit
selling price of 0.7% and (ii) 0.5% was attributable to increased sales of
the Company's beer products including a 1.2% increase in average unit selling
prices. The majority of the increase in soft drink franchise case sales came
in single-serve packages and also in take home soft drinks. Pricing for soft
drink packages overall in 1998 was relatively consistent with the prior year
although the pricing effect of a greater proportion of sales of single-serve
packages was offset by moderate decreases in pricing of take-home packages.
Beer pricing increased, reflecting industry trends and an increase in the
proportion of premium beer sales to total beer sales. Contract net sales for
the year ended December 31, 1998 increased 55.5% compared to the same period
in 1997 due to the addition of bottled product requirements for an existing
can product customer. As a result of the foregoing, net sales for the year
ended December 31, 1998 increased 8.9% to $352.1 million compared to $323.2
million for the same period in 1997.
Cost of sales for the year ended December 31, 1998 increased to
$245.7 million compared to $216.6 million for the same period in 1997. 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. In addition, the
significant increase in the contract packaging business had the effect of
reducing average unit cost of sales by spreading fixed manufacturing costs
over a greater volume.
17
<PAGE>
As a percentage of net sales, cost of sales for the year ended December 31,
1998 increased to 69.8% compared to 67.0% for the same period in 1997 due
primarily to the effect of the substantial increase in contract net sales. As
a result of the foregoing, gross profit for the year ended December 31, 1998
was $106.4 million compared to $106.7 million for the same period in 1997.
Selling, general and administrative expenses for the year ended
December 31, 1998 increased to $87.0 million compared to $83.3 million for
the same period in 1997. S&D, A&M and G&A grew at a rate consistent with
franchise case sales growth.
As a result of the above factors, income from operations for the
year ended December 31, 1998 decreased to $15.7 million, or 4.5% of net
sales, compared to $19.7 million, or 6.1% of net sales, for the same period
in 1997.
Interest expense for the year ended December 31, 1998 increased to
$18.8 million from $17.9 million for the same period in 1997. The increase
was due primarily to higher utilization of the Company's credit facility and
the effect of payment in kind of interest on the subordinated debt.
As a result of the above factors, the Company realized a loss before
income taxes and minority interest of ($3.2) million for the year ended
December 31, 1998 compared to income of $1.8 million for the same period in
1997.
The Company's effective income tax rate differs from statutory rates
primarily due to the non-tax deductibility of franchise cost amortization.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company is highly leveraged, although there are no significant
reductions in debt scheduled before December 2003, except for the
satisfaction of any revolving credit borrowings. The Company's principal use
of funds until 2003 will be the payment of interest and investment in capital
assets and strategic acquisitions. It is expected that the Company's primary
sources of funds for its future activities will be from operations. While the
Company does not currently anticipate utilizing the funds available under its
Credit Agreement for other than seasonal working capital requirements, such
funds may be used to augment operating cash flow. Pursuant to the Credit
Agreement, the Company has a borrowing capacity of up to $30.0 million,
including $10.0 million available for the issuance of letters of credit. At
December 31, 1999, letters of credit of $8.2 million had been issued and $4.7
million had been drawn on the Credit Agreement. The credit facility will
mature in December 2001.
The Company had cash of $4.6 million and working capital of $33.8
million at December 31, 1999, compared to cash of $3.8 million and working
capital of $32.5 million at December 31, 1998. Working capital represents
current assets (excluding cash and cash equivalents) less current liabilities
(excluding advances under the Credit Agreement and current maturities of
long-term debt and other liabilities).
The $0.7 million increase in cash from December 31, 1998 to December
31, 1999 resulted from net cash provided by operations of $17.6 million less
cash used in investing activities of $15.5 million and cash used in financing
activities of $1.3 million. The cash provided by operations in 1999 was $0.5
million greater than provided in 1998 due principally to a decrease in
working capital which offset net payments under deferred compensation plans
and the higher net loss.
Cash used in investing activities of $15.5 million in the year ended
December 31, 1999 was a $7.1 million decrease over the cash used during 1998.
Cash used in investing activities included capital expenditures of $12.5
million in the year ended December 31, 1999, a $2.4 million decrease from
1998, and included $3.2 million used for expenditures to secure long-term
marketing relationships, a $4.3 million decrease from 1998.
Financing activities in the year ended December 31, 1999 used $1.3
million in net cash which represented a $6.0 million increase over the $4.7
million in net cash provided in the same period in 1998. This decrease in net
cash provided resulted primarily from a net reduction in the credit agreement
advances of approximately
18
<PAGE>
$0.9 million, compared to net credit agreement advances of approximately $5.6
million in the same period in 1998, and approximately $0.5 million of
preferred stock dividends paid in late 1999.
Management believes that the Company's production facilities will be
sufficient to meet anticipated unit growth for the next several years.
Accordingly, management anticipates the 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, marketing equipment, and routine plant, bottling,
and canning equipment additions or maintenance. During the years ended
December 31, 1999 and 1998, capital expenditures totaled $12.5 million and
$14.9 million, respectively. The Company anticipates that capital
expenditures will be approximately $11.0 million in 2000.
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 in their entirety its $120.0
million of Notes payable at their maturity on December 15, 2003. 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
assets 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.
Prior to the consummation of the transaction contemplated by the
Delta Exchange Agreement, the Company maintained subordinated notes with
interest due semi-annually on April 1 and October 1, that could be paid in
cash or, at the option of the Company, by the issuance of additional
subordinated notes ("PIK Notes"). The PIK Notes bore 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 subordinated
notes mature on December 23, 2003. Prior to the refinancing, certain of the
Company's preferred and non-voting common stockholders were subordinated debt
holders. In connection with the transaction contemplated by the Delta
Exchange Agreement, the Subordinated Noteholders sold their notes to PAS.
YEAR 2000 READINESS DISCLOSURE
Before the rollover of the year from 1999 to 2000, many installed
computer systems and software products were coded to accept only two digit
date entries and were unable to accept four digit date entries to distinguish
21st century dates from the 20th century dates. As a result, computer systems
and software used by many companies prior to the rollover date required
upgrading or replacement to comply with such "Year 2000" requirements. The
failure of the Company, its vendors, suppliers or other critical third
parties with whom the Company conducts business to achieve Year 2000
compliance on a timely basis could materially adversely affect the Company's
business.
As of March 1, 2000, the Company has not experienced and does not
anticipate any material adverse effects on its systems and operations as a
result of Year 2000 issues. Business is continuing as usual, and internal
systems will continue to be monitored for any likely disruptions. Further, as
of March 1, 2000, the Company has not experienced any operational
difficulties as a result of Year 2000 issues with its vendors, suppliers or
other critical third parties with whom the Company conducts business.
However, Year 2000 compliance has many elements and potential consequences,
some of which may not be foreseeable or may be realized in future periods.
Consequently, there can be no assurance that unforeseen circumstances may not
arise, or that the Company will not in the future identify equipment or
systems which are not Year 2000 compliant.
Although the transition to the Year 2000 did not have any
significant impact on the Company or its systems and operations, the Company
will continue to monitor the impact of Year 2000 on its systems and those of
its vendors, suppliers and other critical third parties. The contingency
plans that were developed for use in the event of Year 2000-related failures
will be maintained and generalized for ongoing business use.
19
<PAGE>
The Company has not spent, and does not anticipate spending in the
future, any material amounts relating to Year 2000 issues. This is due, in
part, to the Company's recent significant upgrades to its data communications
network and key data processing hardware, all of which are Year 2000
compliant.
INFLATION
There was no significant impact on the Company's operations as a
result of inflation during the fiscal year ended December 31, 1999, or during
the years ended December 31, 1998 or 1997.
20
<PAGE>
CAUTIONARY STATEMENT
THE COMPANY, OR PERSONS ACTING ON BEHALF OF THE COMPANY, OR OUTSIDE
REVIEWERS RETAINED BY THE COMPANY MAKING STATEMENTS ON BEHALF OF THE COMPANY,
OR UNDERWRITERS OF THE COMPANY'S SECURITIES, FROM TIME TO TIME, MAY MAKE, IN
WRITING OR ORALLY, "FORWARD-LOOKING STATEMENTS" AS DEFINED UNDER THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995 (THE "LITIGATION REFORM ACT"). THIS
CAUTIONARY STATEMENT, WHEN USED IN CONJUNCTION WITH AN IDENTIFIED
FORWARD-LOOKING STATEMENT, IS FOR THE PURPOSE OF QUALIFYING FOR THE "SAFE
HARBOR" PROVISIONS OF THE LITIGATION REFORM ACT AND IS INTENDED TO BE A
READILY AVAILABLE WRITTEN DOCUMENT THAT CONTAINS FACTORS WHICH COULD CAUSE
RESULTS TO DIFFER MATERIALLY FROM SUCH FORWARD-LOOKING STATEMENTS. THESE
FACTORS ARE IN ADDITION TO ANY OTHER CAUTIONARY STATEMENTS, WRITTEN OR ORAL,
WHICH MAY BE MADE, OR REFERRED TO, IN CONNECTION WITH ANY SUCH
FORWARD-LOOKING STATEMENT.
THE FOLLOWING MATTERS, AMONG OTHERS, MAY HAVE A MATERIAL ADVERSE
EFFECT ON THE BUSINESS, FINANCIAL CONDITION, LIQUIDITY, RESULTS OF OPERATIONS
OR PROSPECTS, FINANCIAL OR OTHERWISE, OF THE COMPANY. REFERENCE TO THIS
CAUTIONARY STATEMENT IN THE CONTEXT OF A FORWARD-LOOKING STATEMENT OR
STATEMENTS SHALL BE DEEMED TO BE A STATEMENT THAT ANY ONE OR MORE OF THE
FOLLOWING FACTORS MAY CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN
SUCH FORWARD-LOOKING STATEMENT OR STATEMENTS.
SIGNIFICANT LEVERAGE AND DEBT SERVICE
Issuance of $120.0 million principal amount (the "Debt Offering") of
9 3/4% Senior Notes Due 2003 (the "Notes"), retirement of certain existing
indebtedness of the Company and the consummation of the transaction
contemplated in the Credit Agreement (the "Credit Agreement"), dated December
16, 1996, by and among the Company, NationsBank, N.A. and other lending
institutions (collectively, the "Financing Transactions"), have heightened
the Company's highly leveraged status. At December 31, 1999, the Company had
total consolidated outstanding debt of approximately $182.1 million, of which
approximately $127.7 million was Senior Indebtedness (as defined herein) and
approximately $54.4 million was subordinated debt which was held by PAS. In
addition, subject to the restrictions in the Credit Agreement and the
Indenture (the "Indenture"), dated December 17, 1996, between the Company and
Norwest Bank Minnesota, National Association, as trustee, relating to the
Notes, the Company may incur certain additional indebtedness from time to
time, which may include additional Notes to be issued by the Company in the
future under the Indenture. At December 31, 1999, the Company had 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, of which
$4.7 million was drawn upon and $8.2 million had been issued, respectively.
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 interest on its outstanding indebtedness as well
as for 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 affected. In addition, actions taken by the lending banks under the
Credit Agreement are not subject to approval by the holders of the 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,
21
<PAGE>
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.
Borrowings under the Credit Agreement 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. At December 31, 1999, the Company had 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, of which $4.7
million was drawn upon and $8.2 million had been issued, respectively. 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. 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.
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 Notes are senior
obligations of the Company. At December 31, 1999, 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 December 31,
1999, the aggregate amount of indebtedness of the Company's subsidiary to
which the holders of the Notes were effectively subordinated was
approximately $2.9 million.
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. 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.
The Credit Agreement contains more extensive 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 the financial ratios and tests can be affected by
events beyond its control, and there can be no assurance that the Company
will meet the tests. A breach of any of the covenants could result in a
default under the Credit Agreement. Upon the occurrence of an event of
default under the Credit Agreement, the lenders
22
<PAGE>
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.
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.
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.
The Company owns 62% of the Pepsi-Cola/Seven-Up Beverage Company of
Louisiana (the "Joint Venture"), which distributes beer in the New Orleans
metropolitan area. The Miller distributor agreement provides that the Joint
Venture cannot be owned directly or indirectly by a publicly-held company.
Because Delta is owned by PAS, a publicly-held company, PAS is working with
Miller to resolve this ownership issue. No asurance can be given that PAS
will be able to address this issue with Miller.
DEPENDENCE ON PEPSICO AND MILLER PRODUCTS
For the year ended December 31, 1999, approximately 80% of the
Company's soft drink sales were derived from the sale of PepsiCo, Inc.
("PepsiCo") products pursuant to franchise agreements with PepsiCo and
approximately 79% of the Company's beer sales were derived from the sale of
Miller Brewing Company ("Miller") products pursuant to a distributor
agreement with Miller. If adverse events affect the popularity of PepsiCo or
Miller products in the Company's territories, the Company's business would be
adversely affected.
LEGAL PROCEEDINGS
The Company is subject to various legal proceedings described herein,
including a lawsuit filed in the District Court of Morris County, Texas which
alleges violations of antitrust laws by the Company and a number of other
defendants. Although not fully articulated, the damages sought by the
plaintiffs in this case against the defendants, in the aggregate, is
approximately $33 million. An unfavorable decision in this case could have an
adverse effect on the Company's financial position.
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 no employment agreements in effect with any
of its executive officers. Failure of the Company to retain its executive
officers or to attract and retain additional qualified personnel could
adversely affect the Company's operations.
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 and Tennessee both 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.
23
<PAGE>
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 Company ("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 Company's territories. This ratio has remained relatively
constant since 1990.
BEER
Competitors in the beer industry include distributors of nationally
advertised and marketed products, such as Anheuser-Busch Companies, Inc.
("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 1999, Anheuser-Busch products accounted for
approximately 50% of total U.S. beer sales, while sales of Miller products,
the Company's primary brewer, accounted for approximately 20% of total U.S.
beer sales.
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.
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. There can be no
assurance that price increases for packaging, ingredients and other raw
materials will not occur. Other than its purchasing agreement with CPG, the
Company has taken no steps to alleviate or provide for price fluctuations of
its raw materials.
EXPIRATION OF LABOR CONTRACTS
At December 31, 1999, the Company had approximately 1,797 full-time
employees and 58 part-time employees. Approximately 145 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 in September 2000 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 in December 2000. Approximately 160
of the Company's employees at its Harahan, Louisiana, facility
24
<PAGE>
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 in April 2002.
The second contract expires in November 2002. If any labor contract is not
renewed or if there is a labor dispute, the Company's financial position
could be adversely affected.
CERTAIN FACTORS AFFECTING SALES
The Company's sales are seasonal. In a typical year, approximately
55% of the Company's sales by volume occur from April to September and
approximately 45% occur 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. 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.
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 Notes could be
voided, or claims in respect of the 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 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.
NO ASSURANCE AS TO LIQUIDITY
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, prevailing interest rates, the Company's operating
results and the market for similar securities. The Company does not intend to
apply for listing of the Notes on any securities exchange.
25
<PAGE>
YEAR 2000 READINESS DISCLOSURE
As of March 1, 2000, the Company has not experienced and does not
anticipate any material adverse effects on its systems and operations as a
result of Year 2000 issues. However, the failure of the Company, its vendors,
suppliers or other critical third parties with whom the Company conducts
business to achieve Year 2000 compliance on a timely basis could materially
adversely affect the Company's business.
26
<PAGE>
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
DISCLOSURES ABOUT MARKET RISK
The Company uses financial instruments, including fixed and variable
rate debt, to finance operations, for capital expenditures and for general
corporate purposes. The Company's exposure to market risk for changes in
interest rates relates primarily to short and long term debt obligations. The
Company does not use derivative financial instruments or engage in trading
activities.
The table below summarizes the principal cash flows of the Company's
financial instruments outstanding at December 31, 1999, categorized by the
type of instrument and year of maturity.
<TABLE>
<CAPTION>
2000 2001 2002 2003 Thereafter Total Fair Value
---------- --------- ------ ---------- ---------- ---------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents:
Deposit and money market
accounts $ 4,560 $ -- $ -- $ -- $ -- $ 4,560 $ 4,560
Long term debt:
Senior notes payable
(interest at 9.75%) -- -- -- 120,000 -- 120,000 120,000
Subordinated notes payable
(interest at 11%) -- -- -- 54,392 -- 54,392 54,392
Revolving line of credit:
Swing line facility
(7% average interest
rate) -- 2,500 -- -- -- 2,500 2,500
All other
(10.8% average interest
rate) -- 2,200 -- -- -- 2,200 2,200
Note payable to Poydras -- -- -- -- 1,839 1,839 1,839
</TABLE>
27
<PAGE>
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
DELTA BEVERAGE GROUP, INC. AND SUBSIDIARY PAGE
- ----------------------------------------- ----
<S> <C>
AUDITED FINANCIAL STATEMENTS
Report of Independent Public Accountants.........................................................................29
Consolidated Balance Sheets as of December 31, 1999 and 1998.....................................................30
Consolidated Statements of Operations for the Years Ended December 31, 1999, 1998 and 1997.......................31
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1999, 1998 and 1997.............33
Consolidated Statements of Cash Flows for the Years Ended December 31, 1999, 1998 and 1997.......................34
Notes to Consolidated Financial Statements.......................................................................35
</TABLE>
28
<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, 1999 and 1998, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the years in the three year
period ended December 31, 1999. 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 auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. 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, 1999 and 1998, and the results of their
operations and their cash flows for each of the years in the three year
period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States.
ARTHUR ANDERSEN LLP
Memphis, Tennessee,
March 1, 2000.
29
<PAGE>
DELTA BEVERAGE GROUP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31
(Dollars in thousands)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,560 $ 3,818
Receivables, net of allowance for doubtful accounts of $1,298 and $597
Trade 27,267 24,201
Marketing and advertising 6,284 7,407
Other 3,982 2,715
Inventories, at cost 21,410 16,149
Shells, tanks and pallets 6,820 6,378
Prepaid expenses and other 5,167 1,783
Deferred income tax assets 5,349 4,186
----------- -----------
Total current assets 80,839 66,637
----------- -----------
PROPERTY AND EQUIPMENT:
Land 5,202 4,662
Buildings and improvements 19,807 18,732
Machinery and equipment 104,292 94,621
----------- -----------
129,301 118,015
Less accumulated depreciation and amortization (64,680) (56,476)
----------- -----------
Total property and equipment 64,621 61,539
----------- -----------
OTHER ASSETS:
Franchise rights, net of accumulated amortization of $57,946 and $54,300 105,346 108,992
Deferred income tax assets 19,717 21,071
Deferred financing costs, beverage pouring rights and other 24,447 13,413
----------- -----------
Total other assets 149,510 143,476
----------- -----------
$ 294,970 $ 271,652
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 186 $ 240
Accounts payable 21,195 14,038
Accrued liabilities 21,270 16,274
----------- -----------
Total current liabilities 42,651 30,552
LONG-TERM DEBT AND OTHER LIABILITIES 140,685 180,490
NOTES PAYABLE TO PEPSIAMERICAS, INC 54,392 --
MINORITY INTEREST 3,284 3,600
----------- -----------
Total liabilities 241,012 214,642
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 8 and 11)
STOCKHOLDERS' EQUITY:
Preferred stock-Series AA, $5,000 stated value, 30,000 shares authorized,
6,440.17 and 6,158.84 shares issued and outstanding 32,201 30,794
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 118,054 115,765
Accumulated deficit (96,297) (89,547)
Deferred compensation - (2)
----------- -----------
53,958 57,010
----------- -----------
$ 294,970 $ 271,652
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
30
<PAGE>
DELTA BEVERAGE GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31
(Dollars in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
OPERATIONS:
Net sales $ 363,570 $ 352,085 $ 323,221
Cost of sales 250,283 245,683 216,560
----------- ----------- -----------
Gross profit 113,287 106,402 106,661
Selling, general and administrative expenses 92,017 87,019 83,344
Amortization of franchise rights 3,648 3,648 3,648
Provision for deferred compensation plan termination 2,863 -- --
----------- ----------- -----------
Operating income 14,759 15,735 19,669
----------- ----------- -----------
OTHER EXPENSES (INCOME):
Interest 19,290 18,770 17,865
Other, net 127 175 (32)
----------- ----------- -----------
Total other expenses (income) 19,417 18,945 17,833
----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES AND MINORITY INTEREST (4,658) (3,210) 1,836
Income tax provision (507) (436) (2,040)
Minority interest, net of taxes 305 335 65
----------- ----------- -----------
NET LOSS $ (4,860) $ (3,311) $ (139)
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
31
<PAGE>
DELTA BEVERAGE GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
Common Stock
Preferred Stock ---------------------------------
Series AA Voting Nonvoting Additional
------------------ ---------------- ---------------- Paid-In Accumulated Deferred
Number Amount Number Amount Number Amount Capital Deficit Compensation Total
-------- -------- --------- ------ --------- ------ ---------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996 5,467.27 $ 27,336 20,301.87 $ -- 32,949.93 $ -- $115,765 $(82,639) $ (13) $ 60,449
Preferred stock dividends 335.50 1,678 -- -- -- -- -- (1,678) -- --
Recognition of expense
under deferred
compensation plan -- -- -- -- -- -- -- -- 7 7
Net loss -- -- -- -- -- -- -- (139) -- (139)
-------- -------- --------- ------ --------- ------ ---------- ----------- ------------ --------
BALANCE AT DECEMBER 31, 1997 5,802.77 29,014 20,301.87 -- 32,949.93 -- 115,765 (84,456) (6) 60,317
Preferred stock dividends 356.07 1,780 -- -- -- -- -- (1,780) -- --
Recognition of expense
under deferred
compensation plan -- -- -- -- -- -- -- -- 4 4
Net loss -- -- -- -- -- -- -- (3,311) -- (3,311)
-------- -------- --------- ------ --------- ------ ---------- ----------- ------------ --------
BALANCE AT DECEMBER 31, 1998 6,158.84 30,794 20,301.87 -- 32,949.93 -- 115,765 (89,547) (2) 57,010
Preferred stock dividends 281.33 1,407 -- -- -- -- -- (1,890) -- (483)
Recognition of expense
under deferred
compensation plan -- -- -- -- -- -- -- -- 2 2
Termination of deferred
compensation plan -- -- -- -- -- -- 2,289 -- -- 2,289
Net loss -- -- -- -- -- -- -- (4,860) -- (4,860)
-------- -------- --------- ------ --------- ------ ---------- ----------- ------------ --------
BALANCE AT DECEMBER 31, 1999 6,440.17 $ 32,201 20,301.87 $ -- 32,949.93 $ -- $118,054 $(96,297) $ -- $ 53,958
-------- -------- --------- ------ --------- ------ ---------- ----------- ------------ --------
-------- -------- --------- ------ --------- ------ ---------- ----------- ------------ --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
32
<PAGE>
DELTA BEVERAGE GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31
(Dollars in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (4,860) $ (3,311) $ (139)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 13,822 13,938 11,441
Noncash interest on long-term debt 4,931 5,884 5,514
Change in deferred income taxes 191 (29) 1,670
Minority interest expense (income), before taxes (316) (367) 70
Net expense (payments) under deferred compensation plans (1,644) 325 1,812
Changes in current assets and liabilities:
Receivables (1,832) (4,527) (5,444)
Inventories (5,261) 2,004 (3,781)
Shells, tanks and pallets (442) (38) (671)
Prepaid expenses and other current assets (1,379) (655) (512)
Accounts payable and accrued liabilities 14,359 3,822 198
----------- ----------- -----------
Net cash provided by operating activities 17,569 17,046 10,158
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (12,465) (14,885) (14,988)
Payments for exclusive beverage pouring rights (3,187) (7,495) (1,625)
Deposit on land lease -- (540) -
Proceeds from sales of property and equipment 120 304 388
Other 2 (21) 37
----------- ----------- -----------
Net cash used in investing activities (15,530) (22,637) (16,188)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving line of credit 29,600 20,500 12,000
Payments on revolving line of credit (30,500) (14,900) (12,000)
Payment of deferred financing costs (20) - (78)
Principal payments on long-term debt (224) (263) (585)
Retirements of long-term debt (54,062) -- --
Borrowings from PepsiAmericas, Inc. 54,392 - -
Preferred stock dividend, less amounts paid-in-kind (483) - -
Cash distribution to minority interest holder -- (608) (798)
----------- ----------- -----------
Net cash (used in) provided by financing activities (1,297) 4,729 (1,461)
----------- ----------- -----------
CHANGE IN CASH AND CASH EQUIVALENTS 742 (862) (7,491)
CASH AND CASH EQUIVALENTS, beginning of year 3,818 4,680 12,171
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of year $ 4,560 $ 3,818 $ 4,680
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
33
<PAGE>
DELTA BEVERAGE GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. ORGANIZATION AND NATURE OF OPERATIONS:
Delta Beverage Group, Inc. ("Delta"), and the partnership described
below (collectively, the "Company"), a wholly owned subsidiary of
PepsiAmericas, Inc. (formerly known as Pepsi-Cola Puerto Rico Bottling
Company) ("PAS"), bottle and distribute 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 beer products in
southern Louisiana.
On July 17, 1998, Pohlad Companies, which was at the time the
controlling stockholder of Delta, acquired a controlling interest in PAS.
Effective with the change in control, PAS, Delta and a related party, Dakota
Beverage Company, Inc. ("Dakota"), shared common ownership and were under the
common control of Pohlad Companies. Effective October 15, 1999, PAS combined
with Delta and Dakota, through the exchange by PAS of its Class B common
shares for the outstanding common shares of Delta and Dakota. Pohlad
Companies continues to be the controlling shareholder in PAS.
The Company operates under exclusive bottling appointments and
franchise agreements with a number of soft drink concentrate and syrup
producers. These agreements contain provisions regarding the manufacturing,
bottling, canning, distribution and sale of the franchisors' products. The
Company also distributes alcoholic beverages pursuant to distributor
agreements that contain provisions regarding the distribution and sale of
alcoholic beverages.
The Pepsi-Cola/Seven-Up Beverage Group of Louisiana (the "Joint
Venture") is a partnership between Delta and Poydras Street Investors, L.L.C.
("Poydras"). Delta's percentage ownership is 62% and Poydras' percentage
ownership is 38%. 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
accounting principles generally accepted in the United States 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 11.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include temporary investments in
short-term securities with original maturities of three months or less. As of
December 31, 1999 and 1998, the Company had bank overdrafts of $8,644 and
$2,054, respectively. Bank overdrafts are included in accounts payable in the
accompanying consolidated balance sheets.
34
<PAGE>
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 is 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 .......................... 2-10
</TABLE>
INTANGIBLES AND OTHER ASSETS
Franchise rights are being amortized on a straight-line basis over
40 years. The Company, at least annually, evaluates whether events or
circumstances have occurred that may impact the recoverability of franchise
rights. Upon the occurrence of any such event or circumstance, the Company
remeasures the realizable portion of franchise rights and adjusts the asset to
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
The Company uses the liability method of accounting for deferred
income taxes. Deferred income taxes reflect the estimated future tax
consequences atrributable 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. Deferred tax assets are recognized if management believes, based
on available evidence, that it is "more likely than not" that the future
income tax benefits will be realized. Deferred tax assets or liabilities are
classified based upon the current or long-term classification of the asset or
liability giving rise to the temporary difference or the expected future use
of the loss or credit carryforward.
SUPPLEMENTAL CASH FLOW INFORMATION
During 1999, 1998 and 1997, the Company issued additional preferred
shares as payment-in-kind dividends on preferred stock of $1,407, $1,780 and
$1,678, respectively (see Note 7).
Interest paid in cash during 1999, 1998 and 1997 was $13,212, $12,931
and $12,281, respectively. Income taxes of $550, $371 and $247 were paid in
1999, 1998 and 1997, respectively.
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 VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value 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. The estimated fair
value of total long-term debt and other liabilities was approximately
$141,000 at December 31, 1999 and approximately $187,000 at December 31,
1998, compared to a recorded value of approximately $141,000 at December 31,
1999 and approximately $180,000 at December 31, 1998.
35
<PAGE>
BOTTLER INCENTIVES
PepsiCo and other brand owners, at their sole discretion, provide
the Company with various forms of marketing support. This marketing support
is intended to cover a variety of programs and initiatives, including direct
marketplace support, capital equipment funding and shared media and
advertising support. Based on the objective of the programs and initiatives,
marketing support is recorded as an adjustment to net sales or a reduction of
selling, general and administrative expenses. Direct marketplace support is
primarily funding by PepsiCo and other brand owners of sales discounts and
similar programs and is recorded as an adjustment to net sales. Capital
equipment funding is designed to support the purchase and placement of
marketing equipment and is recorded as a reduction to selling, general and
administrative expenses. Shared media and advertising support is recorded as
a reduction to selling, general and administrative expenses. There are no
conditions or other requirements that could result in a repayment of
marketing support received.
The total amount of incentives received from PepsiCo and other brand
owners to cover a variety of marketing programs and initiatives totaled
approximately $20,656, $22,769 and $20,547 in 1999, 1998 and 1997,
respectively. Of these amounts approximately $13,037, $14,270 and $13,029 for
1999, 1998 and 1997, respectively, were recorded in net sales, with the
remainder recorded in selling, general and administrative expenses. The
amounts of bottler incentives received from PepsiCo was more than 90% of
total bottler incentives in each of the years, with the balance received from
the other brand owners.
EXCLUSIVE BEVERAGE POURING RIGHTS CONTRACTS
Amounts paid pursuant to contracts providing the Company with
exclusive beverage pouring rights are capitalized and amortized on a
straight-line basis over the terms of the related contracts. PepsiCo, at its
sole discretion, provides direct funding for certain pouring rights
contracts. PepsiCo funding for specific multi-year contracts is deferred and
recognized as an offset to amortization of the designated pouring rights
contract on a straight-line basis over the terms of the related contracts.
PepsiCo support provided for nonspecific pouring rights contracts is deferred
and recognized as an offset to amortization of the pouring rights asset on a
straight-line basis in accordance with the terms of such agreements. At
December 31, 1999, pouring rights assets, net of related PepsiCo support,
totaled approximately $17,171, with the current portion of approximately
$1,891 reflected in prepaids and other current assets in the accompanying
consolidated balance sheet.
MARKETING AND ADVERTISING COSTS
The Company is involved in a variety of programs to promote its
products. Advertising and marketing costs are expensed in the year incurred.
Certain advertising and marketing costs incurred by the Company are
reimbursed by PepsiCo and other brand owners in the form of marketing
support. This form of marketing support is recorded as a reduction in
advertising and marketing expenses. Advertising and marketing expenses were
$1,286, $2,219 and $1,697 in 1999, 1998 and 1997, respectively, net of brand
owner support.
REVENUE RECOGNITION
Revenues are recognized when goods are shipped.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities." The statement establishes
accounting and reporting standards requiring that every derivative instrument
be recorded in the balance sheet as either an asset or liability measured by
its fair value. Changes in a derivative's fair value are recognized currently
in earnings unless specific hedge accounting criteria are met. The statement
is effective for fiscal years beginning after June 15, 2000. The Company does
not trade in derivative financial instruments and does not use financial
instruments to hedge its exposure to interest rate risk. Management does not
believe the adoption of this statement will have a material impact on the
Company's consolidated financial position or results of operations.
36
<PAGE>
3. INVENTORIES:
Inventories are stated at the lower of cost (first-in, first-out
method) or market and included the following at December 31:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Raw materials $ 7,476 $ 3,116
Finished goods 13,934 13,033
--------- ---------
$21,410 $16,149
--------- ---------
--------- ---------
</TABLE>
4. ACCRUED LIABILITIES:
Accrued liabilities consisted of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Payroll and related benefits $ 4,923 $ 1,713
Taxes other than income 3,176 2,970
Insurance and related costs 4,466 4,632
Interest 1,691 1,858
Marketing and advertising costs 4,437 4,665
Obligations under exclusive
beverage pouring rights 1,709 --
Other 868 436
--------- ---------
$21,270 $16,274
--------- ---------
--------- ---------
</TABLE>
5. INCOME TAXES:
Prior to the October 15, 1999 combination (see Note 1), the Company
filed consolidated federal and state income tax returns. Effective for tax
years beginning October 16, 1999, the Company will be included in
consolidated Federal income tax returns filed by PAS. Delta and PAS have
entered into a tax sharing agreement whereby the consolidated income tax
assets and liabilities of PAS will be allocated to Delta based on a separate
company tax calculation.
For the period from October 16, 1999 through December 31, 1999, the
Company generated Federal income tax net operating loss carryforwards of
approximately $28,493 ("post-acquisition carryforwards"). The Internal
Revenue Code does not limit the Company's annual utilization of these
post-acquisition carryforwards. The post-acquisition carryforwards expire in
2020.
Also, through December 31, 1999, the Company had Federal income tax
net operating loss carryforwards of approximately $30,983 and alternative
minimum tax credit carryforwards of approximately $887, incurred through the
combination date ("pre-acquisition carryforwards"). The pre-acquisition
carryforwards expire through 2007. As a result of the combination, the
Internal Revenue Code has limited the Company's utilization of the
pre-acquisition carryforwards to approximately $5,600 per year. As of
December 31, 1999, the Company also had tax credit carryforwards of
approximately $887 that were incurred prior to March 1988. The tax credit
carryforwards may be used through 2003.
Subject to the limitations described above, the pre-acquisition and
post-acquisition carryforwards and remaining tax credit carryforwards may be
utilized by PAS in its consolidated Federal income tax returns. Accordingly,
at December 31, 1999, the Company has recognized deferred income tax assets
for the estimated future income tax benefits of pre-acquisition and
post-acquisition carryforwards and remaining tax credit carryforwards that
are expected to be realized through the reduction of future taxable income of
the consolidated operations of PAS within the carryforward periods. As a
result of the October 15, 1999 combination and the annual limitation on the
pre-acquisition net operating loss carryforwards, the 1999 income tax
provision includes a valuation allowance of approximately $987 for the tax
credit carryforwards incurred prior to March 1988 that are expected to expire
before they can be realized.
37
<PAGE>
Deferred income taxes were composed of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
---------- -----------
<S> <C> <C>
Current deferred income tax assets $ 5,349 $ 4,186
Noncurrent deferred income tax assets, net of $987 valuation
allowance at December 31, 1999 25,978 27,245
---------- -----------
31,327 31,431
Noncurrent deferred income tax liabilities (6,261) (6,174)
---------- -----------
$ 25,066 $ 25,257
---------- -----------
---------- -----------
</TABLE>
The tax effects of significant temporary differences representing
deferred income tax assets and liabilities at December 31, 1999 and 1998 were
as follows:
<TABLE>
<CAPTION>
1999 1998
---------- -----------
<S> <C> <C>
Net operating loss and tax credit carryforwards $ 22,598 $ 15,750
Basis difference in preferred stock 4,668 4,668
Difference in book and tax basis of property and equipment,
deferred financing costs and other assets (5,270) (5,280)
Deferred interest on subordinated debt, deferred compensation,
and reserves not currently deductible for income tax
purposes 3,070 10,119
---------- -----------
$ 25,066 $ 25,257
---------- -----------
---------- -----------
</TABLE>
Income tax provision recorded in the consolidated statements of
operations, net of taxes applicable to minority interest and extraordinary
item, was as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- ----------
<S> <C> <C> <C>
Current $(192) $(465) $ (235)
Deferred (315) 29 (1,805)
-------- -------- ----------
$(507) $(436) $(2,040)
-------- -------- ----------
-------- -------- ----------
</TABLE>
A reconciliation of the income tax provision to the amount computed
by applying the federal statutory tax rate to income or loss before income
taxes was as follows:
<TABLE>
<CAPTION>
(Expense)/Benefit 1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Statutory federal income tax rate 34.0% 34.0% (34.0)%
State income taxes, net of federal benefit 4.0 (1.1) (4.5)
Franchise rights amortization (27.4) (39.8) (70.4)
Valuation allowance (21.2) -- --
Change in effective state income tax rate -- (5.0) -
Meals and entertainment disallowance (1.9) (2.6) (4.9)
State tax credits -- 1.8 5.2
Other, net 1.6 (0.9) (2.5)
-------- -------- --------
(10.9)% (13.6)% (111.1)%
-------- -------- --------
-------- -------- --------
</TABLE>
38
<PAGE>
6. LONG-TERM DEBT AND OTHER LIABILITIES:
Long-term debt and other liabilities consisted of the following at
December 31:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Senior notes payable, 9.75%, due December 16, 2003 $ 120,000 $ 120,000
Subordinated notes payable, 11%, -- 48,573
Revolving line of credit 4,700 5,600
Note payable to Poydras, interest at the prime rate plus 1%
(9.50% and 8.75% at December 31, 1999 and 1998,
respectively), due December 31, 2007 1,839 1,839
Capital lease obligations, 10.89%, due in monthly installments
through May 1999 -- 96
Marketing support obligations, imputed interest at 8.25% to
8.75%, payments due quarterly through April 26, 2001 203 331
Deferred purchase obligation 900 900
Obligations under deferred compensation plans 2,302 3,333
Obligations under exclusive beverage pouring rights contracts 10,867 --
Other 60 58
----------- -----------
140,871 180,730
Less current maturities of long-term debt (186) (240)
----------- -----------
$ 140,685 $ 180,490
----------- -----------
----------- -----------
</TABLE>
The senior notes are general unsecured obligations of the Company
and are senior to all existing and future subordinated indebtedness of the
Company. Interest on the senior notes is payable semi-annually on June 15 and
December 15. The senior notes mature on December 16, 2003.
Delta is party to a $30 million revolving line of credit to be used
for working capital purposes. The revolving line of credit matures on
December 16, 2001, and bears interest, at Delta's option, at LIBOR or a
defined margin over the higher of (1) the bank's prime rate or (2) the
federal funds rate plus 0.5% (the "base rate"). Borrowings are limited to the
sum of 80% of Delta's eligible receivables and 50% of Delta's eligible
inventory. The line of credit includes a swing line facility of up to $2,500.
Swing line loans bear interest at either the base rate or at an otherwise
mutually agreed upon rate of interest. The line of credit also includes a
$10,000 limit for the issuance of letters of credit; the letter of credit
facility fee is based on the Eurodollar applicable margin less 0.125%. The
agreement also provides for a fee on the unused commitment ranging from 0.25%
to 0.50%. Borrowings under the line of credit are secured by Delta's accounts
receivable and inventory. Interest and commitment fees are payable quarterly.
As of December 31, 1999 and 1998, $4,700 and $5,600, respectively,
was outstanding under the revolving line of credit, including $2,500 under
the swing line facility. The interest rates as of December 31, 1999 and 1998
on amounts outstanding under the swing line facility were 6.92% and 6.88%,
respectively, while the interest rates on remaining amounts outstanding were
9.00% and 8.25%, respectively.
Delta has issued subordinated notes ("Notes"), with interest due
semi-annually on April 1 and October 1, that can be paid in cash or, at the
option of Delta, by the issuance of additional subordinated notes ("PIK
Notes"). The Notes bear interest at 11% or 15% depending upon whether the
terms of the note agreement would have permitted Delta to pay any portion of
the interest in cash. Delta issued additional subordinated notes of $5,490
and $4,935 under this provision during 1999 and 1998, respectively. These
additional notes bear interest at 11% and are included with subordinated
notes payable in the preceding table. The subordinated notes mature on
December 23, 2003. Prior to the October 15, 1999 combination, certain Delta
preferred and non-voting common stockholders were subordinated debt holders.
In connection with the transaction contemplated by the Delta Exchange
Agreement, the Subordinated Noteholders sold their notes to PAS.
39
<PAGE>
The Company's revolving credit and senior notes payable debt
agreement requires, 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 limit capital stock
transactions. The Company was in compliance with all such debt covenants at
December 31, 1999.
Current maturities of obligations under exclusive beverage pouring
rights contracts are included in accrued liabilities in the consolidated
balance sheets (see Note 4). The remaining obligations will be paid over the
respective contract terms, which range from two to ten years.
In 1995, the Joint Venture acquired Miller Brands of Greater New
Orleans, Inc., a beer products distributor. The purchase price included a
$900 deferred obligation payable upon the Miller business, as acquired,
achieving an annual $8,000 gross profit. Also, in connection with the 1995
and 1996 acquisitions of beer products distributors, the Joint Venture
entered into marketing support agreements with Miller Brewing Company's
advertising agency for the general promotion of Miller products in the
greater New Orleans, Louisiana area. The marketing support obligations are to
be paid through April 2001.
Scheduled maturities of long-term debt, excluding the subordinated
notes payable to PAS, during the five years subsequent to 1999 are as follows:
<TABLE>
<CAPTION>
Year Amount
<S> <C>
2000 ........................................ $ 186
2001 ........................................ 4,717
2002 ........................................ -
2003 ........................................ 120,000
2004 ........................................ -
</TABLE>
7. STOCKHOLDERS' EQUITY:
PREFERRED STOCK
Authorized preferred stock consists of 30,000 designated shares of
Series AA preferred stock, of which 6,440.17 shares are outstanding at
December 31, 1999. The Series AA preferred stock does not have voting rights
and is not convertible into common stock. Series AA preferred stockholders
receive cumulative dividends at an annual rate of 6% based on the $5 stated
value per share. The rate will increase 2% annually beginning October 1,
2004, but is limited to a cumulative increase of 8%. Following the
combination transaction described in Note 1, dividends are required to be
paid quarterly in cash. Prior to the combination, dividends were payable in
cash or in additional shares of Series AA preferred stock. The preferred
dividends through October 15, 1999 were paid with additional shares of
preferred stock.
In the event of a liquidation, Series AA preferred stockholders have
a $5 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.
40
<PAGE>
8. LEASES:
The Company leases certain buildings and other facilities, vehicles
and equipment under agreements expiring through 2010.
Future minimum rental payments under all non-cancelable operating
leases with initial or remaining lease terms of one year or more were as
follows at December 31, 1999:
<TABLE>
<CAPTION>
Year Amount
---- ----------
<S> <C>
2000 .......................................................... 3,567
2001 .......................................................... 2,897
2002 .......................................................... 2,174
2003 .......................................................... 1,087
2004 .......................................................... 675
Thereafter .................................................... 1,324
----------
$11,724
----------
----------
</TABLE>
Total rent expense during 1999, 1998 and 1997 was $4,209, $5,130 and
$4,252, respectively.
9. RELATED PARTY TRANSACTIONS:
The Company is a licensed producer and distributor of Pepsi-Cola and
related soft drinks and other beverages. The Company purchases concentrate
from PepsiCo to be used in the production of carbonated soft drinks and other
ready-to-drink beverages. The Company also produces or distributes other
products and purchases finished goods and concentrate through various
arrangements with PepsiCo or PepsiCo joint ventures. Such purchases are
reflected in cost of sales. PepsiCo and the Company share a business
objective of increasing the availability and consumption of Pepsi-Cola
beverages. Accordingly, PepsiCo provides the Company with various forms of
marketing support to promote Pepsi-Cola beverages. This support covers a
variety of initiatives, including marketplace support, marketing programs,
capital equipment investments and shared media expense. Based on the
objective of the programs and initiatives, marketing support is recorded as
an adjustment to net sales or as a reduction of selling, general and
administrative expense.
There are no minimum fees or payments that the Company is required
to make to PepsiCo, nor is the Company obligated to PepsiCo under any minimum
purchase requirements. There are no conditions or requirements that could
result in the repayment of any marketing support payments received by the
Company from PepsiCo.
The Company has entered into a management agreement with Pohlad
Companies. For services performed pursuant to the agreement, the Company pays
Pohlad Companies a management fee. Management fees of $511, $550 and $551
were paid during 1999, 1998 and 1997, respectively.
In 1998 the Company entered into an accounting services agreement
with PAS. For services performed pursuant to this agreement, PAS pays the
Company an accounting services fee. Accounting services fees of $497 and
$170, respectively, were received in 1999 and 1998. In addition, the Company
sold $1,367 and $5,411, respectively, of product at cost to PAS in 1999 and
1998, and as of December 31, 1999 and 1998 had receivables from PAS of $778
and $255, respectively.
10. EMPLOYEE BENEFITS:
The Company sponsors a defined contribution employee benefit plan
which covers all eligible full-time employees. Employees who participate in
the plan can defer up to 15% of their salaries and wages and receive matching
payments by the Company of 50% of those deferrals, limited to annual employer
contributions of $1.0 per employee. The Company's contributions were $502 for
1999, $546 for 1998 and $581 for 1997.
41
<PAGE>
The Company also maintains a nonqualified deferred compensation plan
which is available for certain executives of the Company, as selected by the
Company's board of directors. Executives who participate in the plan may
elect to defer a percentage of their compensation (as defined), subject to
limitations imposed by the Internal Revenue Service and the Company, and are
eligible to receive discretionary contributions from the Company. Employee
deferrals and employer discretionary contributions are held in a trust
restricted from the general assets of the Company. Restricted assets held in
trust, included in other assets in the accompanying consolidated balance
sheets, totaled $2,015 and $1,692 at December 31, 1999 and 1998, respectively.
The Company had a restricted stock bonus plan under which executives
and key employees were awarded shares of the Company's common stock. At the
time of the combination, any such outstanding stock was reissued as PAS Class
B common stock and the plan was terminated.
Prior to the October 15, 1999 combination transaction described in
Note 1, Delta maintained a phantom stock plan available to certain key
members of management. This plan allowed eligible executives to participate
in the continued success of the Company based upon the appreciation in the
equity value of the Company, as defined. At December 31, 1998, the equivalent
of 38,200 shares had been granted under this plan. During 1998, benefits of
$295 were earned under the plan.
In the 1999 fourth quarter, the Company revalued the deferred
compensation under the phantom stock plan based upon the revised equity value
of the Company, determined by a third party investment bank in connection
with the combination transaction described in Note 1. The Company then
terminated the deferred compensation plan by issuing to the participants in
satisfaction of the obligation 428,891 shares of Class B common stock in PAS,
and by granting 399,449 qualified stock options to acquire shares of Class B
common stock in PAS under a stock option plan established by PAS in 1999. The
redetermination of the deferred compensation plan resulted in a charge to
earnings of $2,863 and the satisfaction of this obligation resulted in $2,289
in additional contributed capital.
11. 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 items such as medical costs,
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, 1999 and 1998, the Company had $8,169 and $8,454 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 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 tax net operating loss carryforwards which expire
in varying amounts through 2007 and 2020 (see Note 5). Realization is
dependent on generating sufficient taxable income prior to expiration of
these carryforwards. Although realization is not assured, management believes
that it is "more likely than not" that all of the deferred income tax assets
resulting from operating loss carryforwards 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 periods are reduced.
42
<PAGE>
FINANCIAL STATEMENT SCHEDULE
Report of Independent Public Accountants
on Financial Statement Schedule
To Delta Beverage Group, Inc.:
We have audited in accordance with auditing standards generally accepted in
the United States, the consolidated financial statements of Delta Beverage
Group, Inc. and subsidiary included in this Form 10-K and have issued our
report thereon dated March 1, 2000. Our audit was made for the purpose of
forming an opinion on the basic financial statements taken as a whole. The
schedule listed in Item 14(a)(2) is the responsibility of the Company's
management and is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures
applied in the audit of the basic financial statements and, in our opinion,
fairly states in all material respects the financial data required to be set
forth therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Memphis, Tennessee,
March 1, 2000.
43
<PAGE>
DELTA BEVERAGE GROUP, INC. AND SUBSIDIARY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
Balance at Deductions Balance at
Beginning (Additions) End of
of Period to Earnings Recoveries Write-offs Period
------------ ------------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts for the
year ended December 31, 1999 $ 597 $ 1,132 $ 104 $ (535) $ 1,298
Allowance for doubtful accounts for the
year ended December 31, 1998 $ 562 $ 162 $ 341 $ (468) $ 597
Allowance for doubtful accounts for the
year ended December 31, 1997 $ 500 $ (439) $ 596 $ (95) $ 562
</TABLE>
44
<PAGE>
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
45
<PAGE>
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to
the directors and executive officers of the Company as of March 15, 2000. 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. There are no family relationships
between any director or officer.
<TABLE>
<CAPTION>
Name Age Position(s) With Company
- ---- --- ------------------------
<S> <C> <C>
Robert C. Pohlad 45 Chief Executive Officer and Director
John F. Bierbaum 55 Chief Financial Officer, Vice President and Director
Kenneth E. Keiser 48 President and Chief Operating Officer
Bradley J. Braun 45 Vice President, Finance and Assistant Secretary
Jay S. Hulbert 46 Vice President, Operations
Michael G. Naylor 41 Vice President, General Manager
Charles M. Pullias 50 Vice President, General Manager
Raymond R. Stitle 46 Vice President, Human Resources
Donald E. Benson 69 Chairman of the Board
Christopher E. Clouser 48 Director
Philip N. Hughes 65 Director
John F. Woodhead 61 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 Pohlad Companies, a holding and management services
company, which 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 PAS, 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 March 1988.
Mr. Bierbaum is also Chief Financial Officer of Pohlad Companies, a holding
and management services company, which provides management services to the
Company. Mr. Bierbaum has been associated with Pohlad Companies from 1975 to
the present in a variety of capacities, including his current position. Mr.
Bierbaum is also Chief Financial Officer of PAS. 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."
46
<PAGE>
KENNETH E. KEISER. Mr. Keiser joined the Company in his present
position in 1990. Mr. Keiser is also President of PAS and has held such
position since July 1998. 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 "Executive Compensation -
Employment Agreement."
BRADLEY J. BRAUN. Mr. Braun became Vice President, Finance and
Assistant Secretary for the Company in September 1991. Prior to joining the
Company, Mr. Braun served as Controller of Dakota, a PepsiCo franchise
bottler which at that time was a wholly-owned subsidiary of Pohlad Companies.
Mr. Braun is also an officer of PAS.
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. Mr. Hulbert is also an officer of PAS.
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. Mr. Naylor is also
an officer of PAS.
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 ten years working for the Pepsi-Cola Company in Texas
in various sales and marketing positions. Mr. Pullias is also an officer of
PAS.
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. Mr. Stitle is also an officer of PAS.
DONALD E. BENSON. Mr. Benson has been a director of the Company
since 1988. Mr. Benson also serves as director for Mass Mutual Corporate
Investors, Mass Mutual Participation Investors, Mesaba Holdings, Inc.,
National Mercantile Bancorp and Mercantile National Bank. Since 1995, Mr.
Benson has also been employed by Pohlad Companies, a holding and management
services company, which provides management services to the Company, and
another of its affiliates, CRP Holdings, Inc., a management services company.
Mr. Benson has served as a director and as Executive Vice President of
Marquette Bancshares, Inc., a bank holding company and an affiliate of Pohlad
Companies since 1993, and with its predecessor organizations since 1968.
CHRISTOPHER E. CLOUSER. Mr. Clouser has been a director of the
Company since 1995. Mr. Clouser was named President, Chief Executive Officer
and a director of Preview Travel Inc., an Internet travel company, in July
1999. From 1991 to July 1999, Mr. Clouser served as Senior Vice President of
Communications, Human Resources and Administration of Northwest Airlines,
Inc. Mr. Clouser has previously held officer positions at Bell Atlantic,
Hallmark Cards, U.S. Sprint and United Telecom. Mr. Clouser is currently a
director of PAS, CRP Sports, Inc. the managing general partner of the
Minnesota Twins baseball club, Colo.com and Preview Travel, Inc.
PHILIP N. HUGHES. Mr. Hughes has been a director of the Company
since 1988. Mr. Hughes is owner of Miller Printing, Inc., a commercial
printer, and Rocket Lube, Inc., a chain of quick-service vehicle lube
operations. Mr. Hughes also serves as a director of PAS.
JOHN F. WOODHEAD. Mr. Woodhead has been a director of the Company
since 1994. From 1971 to October 1999, Mr. Woodhead provided management
consulting services to Dakota, a PepsiCo franchise bottler which at that time
was a wholly-owned subsidiary of Pohlad Companies. Mr. Woodhead is also
currently owner and President of JFW Inc., a management services company,
owner and President of JFW Motor Sports, Inc., an investment and leasing
company and owner and President of Woodhead Properties, a real estate
investment firm.
47
<PAGE>
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. Mr. Woodhead is a director of WisPak, Inc. having
served in this capacity since December 1997. Mr. Woodhead is also a director
of PAS.
48
<PAGE>
BOARD OF DIRECTORS COMMITTEES AND COMPENSATION
The Company has an Executive Committee whose members, as of December
31, 1999, included Robert C. Pohlad and Donald E. Benson. John H. Agee, a
former director of the Company, served on the Executive Committee during a
portion of fiscal year 1999. 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.
The Company also has an Audit Committee whose members, as of December 31,
1999, included Donald E. Benson and Philip N. Hughes. John H. Agee served on
the Audit Committee during a portion of fiscal year 1999. The Audit Committee
is responsible for recommending independent public accountants, reviewing
with the independent public accountants the scope and results of the audit
engagement, establishing and monitoring the Company's financial policies and
control procedures, reviewing and monitoring the provision of non-audit
services by the Company's independent public accountants and reviewing all
potential conflict of interest situations. In addition, the Company has a
Compensation Committee whose members, as of December 31, 1999, included
Christopher E. Clouser and John F. Woodhead. Gerald A. Schwalbach, a former
director of the Company, served on the Compensation Committee during a
portion of fiscal year 1999. The Compensation Committee is responsible for
approving executive compensation and incentive programs.
Outside directors are paid $500 for each board meeting attended,
plus reasonable travel expenses. No payment is made to employee-directors or
directors with an equity interest in the Company.
49
<PAGE>
ITEM 11 EXECUTIVE COMPENSATION
The following table sets forth the aggregate cash compensation paid
by the Company to its most highly paid executive officers for the fiscal
years ended December 31, 1999, 1998 and 1997. Neither Robert C. Pohlad, the
Company's Chief Executive Officer, nor John F. Bierbaum, the Company's Chief
Financial Officer, receive any compensation from the Company, except that Mr.
Bierbaum participates in the Company's Superior Performance Incentive Bonus
Plan and participated in the Company's Phantom Stock Plan, which was
terminated in the 1999 fiscal year - see " - Employee Benefit Plans." Until
consummation of the transaction contemplated by the Delta Exchange Agreement,
the services of John Bierbaum and Robert Pohlad were provided to the Company
pursuant to a Management Agreement between the Company and Pohlad Companies.
See "Certain Relationships and Related Transactions - Management Agreement."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
------------------------------------------------------
Other Annual All Other
Compensation Compensation
Name and Principal Position Year Salary ($) Bonus ($) (1) ($) (2) ($) (3)
------ ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Kenneth E. Keiser 1999 266,500 135,975 -- 2,244,220
President and Chief Operating Officer 1998 274,000 107,750 -- --
1997 260,000 143,000 -- --
Charles M. Pullias 1999 157,000 11,775 -- 325,412
Vice President, General Manager 1998 150,200 22,600 108,334 --
1997 144,900 43,500 73,333 --
Jay S. Hulbert 1999 119,400 33,680 -- 325,412
Vice President, Operations 1998 125,100 32,250 54,167 --
1997 118,900 47,600 83,333 --
Michael G. Naylor 1999 139,360 10,450 -- 325,412
Vice President, General Manager 1998 134,000 20,100 54,167 --
1997 116,600 46,640 83,333 --
Bradley J. Braun 1999 117,000 32,600 -- 325,412
Vice President, Finance 1998 116,100 30,900 108,334 --
1997 110,500 44,200 73,333 --
</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 payment awarded pursuant to the Company's Superior Performance
Incentive Bonus Agreement.
(3) Represents the value of shares of PAS Class B common stock issued and
options granted by PAS in consideration of the cancellation of rights
previously granted under Delta's phantom stock plan.
EMPLOYMENT AGREEMENT
Until consummation of the transaction contemplated by the Delta
Exchange Agreement, the Company had an employment agreement with its Chief
Operating Officer, Kenneth E. Keiser. Under the terms of the employment
agreement, Mr. Keiser received 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 was also eligible to participate in Company incentive
plans and receive an incentive bonus and fringe benefits available to other
employees of the Company.
50
<PAGE>
The employment agreement was renewable for one year terms each
February 1. Had Mr. Keiser's employment been terminated for any reason prior
to the expiration of a term, Mr. Keiser would have been prohibited, through
such term, from (i) providing services, directly or indirectly, to any person
or 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 multi-employer
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. The Phantom Stock Plan was terminated in
November 1999 as part of the Merger. Participants in the Phantom Stock Plan
were issued shares of PAS Class B common stock and were granted options to
purchase shares of PAS Class B common stock in consideration of the
cancellation of outstanding rights granted under the Phantom Stock Plan.
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 15% 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 50% of employee
contributions up to $1,000.
COMPENSATION OF DIRECTORS
See "Directors and Executive Officers - Board of Directors
Committees and Compensation."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the compensation committee of the Company's board of
directors was an officer, former officer or employee of the Company during
the fiscal year ended December 31, 1999. Other than Robert C. Pohlad, no
executive officer of the Company served as a member of the compensation
committee or the board of directors of another entity, one of whose executive
officers served on the Company's compensation committee or board of directors
during the fiscal year ended December 31, 1999. Mr. Pohlad, the Company's
Chief Executive Officer, serves as a member of the compensation committee of
the board of directors of PAS. Robert C. Pohlad and John F. Bierbaum,
executive officers of PAS, serve on the Company's board of directors.
51
<PAGE>
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of the close of business on February 1, 2000, the Company had
outstanding 53,251.80 shares of Common Stock and 6,440.17 shares of
non-convertible series AA preferred stock, $0.01 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 March 15,
2000 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
Name of Beneficial Owner or Group Beneficially Owned Percent of Class
--------------------------------- -------------------- ------------------
<S> <C> <C>
PepsiAmericas, Inc.
3880 Dain Rauscher Plaza
60 South Sixth Street
Minneapolis, MN 55402 53,251.80 100%
</TABLE>
52
<PAGE>
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
MANAGEMENT AGREEMENT
The Company has a management agreement with Pohlad Companies (the
"Delta Management Agreement"). Robert C. Pohlad, the Company's Chairman and
Chief Executive Officer, is President, a director and a one-third equity
owner of Pohlad Companies. Pohlad Companies is a holding and management
services company which has interests in several entities, including PAS.
Subject to any limitations imposed by the Company's Certificate of
Incorporation, Bylaws or Board of Directors, Pohlad Companies provides the
Company with consulting and advisory services with respect to PepsiCo and
other franchisors and general business matters.
For services performed pursuant to the Delta Management Agreement,
the Company pays Pohlad Companies an annual fee of $250,000, which escalates
each year with increases in the Company's gross revenue. Management fees of
approximately $550,000 and $511,000 were paid in fiscal years 1998 and 1999,
respectively, under the Delta Management Agreement. In connection with the
Merger, the Delta Management Agreement was amended to decrease the annual fee
payable thereunder to $250,000 from $500,000.
The Delta Management Agreement may be terminated by either the
Company or Pohlad Companies, when Pohlad Companies or its affiliates cease to
hold common stock in the Company, or when Pohlad Companies is no longer
controlled by members of the Pohlad family. For purposes of the Delta
Management Agreement, an "affiliate" of Pohlad Companies means any person or
entity controlling or controlled by or under common control with Pohlad
Companies and "control" means the power to direct the management and policies
of Pohlad Companies, directly or indirectly, whether through the ownership of
voting securities, by contract or otherwise. For purposes of the Delta
Management Agreement, members of the Pohlad family means Carl R. Pohlad and
his spouse, children, grandchildren, sons-in-law, daughters-in-law, and
corporation or partnership controlled 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 the 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 Pohlad Companies.
ACCOUNTING SERVICES AGREEMENT
The Company entered into an Accounting Services Agreement with PAS
effective July 20, 1998 (the "Accounting Services Agreement") pursuant to
which the Company performs accounting and management information system
services for PAS. The Company is entitled to an annual fee for such services
in an amount equal to the aggregate costs and expenses incurred by the
Company and allocated by the Company based on case volume of PAS. Accounting
services fees of approximately $170,000 and $497,000 were paid to the Company
in fiscal years 1998 and 1999, respectively, under the Accounting Services
Agreement. Either party may terminate the Accounting Services Agreement after
ten years. In addition, the Company sold $5,411,000 and $1,367,000 of product
at cost to PAS during fiscal years 1998 and 1999, respectively, and as of
December 31, 1998 and 1999, had receivables from PAS of $255,000 and
$778,000, respectively. Robert C. Pohlad, the Chief Executive Officer and a
director of the Company, is Chairman of the Board and Chief Executive Officer
of PAS.
JOINT VENTURE
All of the Joint Venture's bottling and canning requirements are
provided by the Company. The Company charges the Joint Venture for such
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
53
<PAGE>
allocation is equal to the total profits (or losses) of such facilities
multiplied by a fraction, the numerator being the Joint Venture's bottling
and canning requirements and the denominator being the Joint Venture's
bottling and canning 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 ("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 (a "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 $28.3 million to
the Joint Venture as of December 31, 1999, of which $3.0 million was a
Mandatory Loan. Poydras had loaned approximately $1.8 million to the Joint
Venture as of December 31, 1999, 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 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.
SHAREHOLDERS' AGREEMENT
The Company and its shareholders entered into a Shareholders'
Agreement restricting the sale and 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 Pohlad Companies or to any affiliate of the
owner of the common stock or Franchise Rights. The Shareholders' Agreement
was terminated in October 1999 upon consummation of the transaction
contemplated by the Delta Exchange Agreement.
EMPLOYMENT AGREEMENT
See "Executive Compensation -- Employment Agreement."
54
<PAGE>
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1) Financial Statements.
Report of Independent Public Accountants
Consolidated Financial Statements
Balance Sheets
Statements of Operations
Statements of Stockholders' Equity
Statements of Cash Flows
Notes to Consolidated Financial Statements
(2) Financial Statement Schedule.
Report of Independent Public Accountants on Financial
Statement Schedule
Schedule II - Valuation and Qualifying Accounts
(3) Exhibits.
<TABLE>
<S> <C>
3.1 Third Amended and Restated Certificate of
Incorporation of the Company.
3.2 Amended and Restated Bylaws of the Company
(incorporated by reference to the Company's
Registration Statement on Form S-4 (File No.
333-19233) filed on January 3, 1997).
4.1 Indenture, dated as of December 17, 1996, between the
Company and Norwest Bank Minnesota, National
Association, as Trustee, relating to $120,000,000
principal amount of 9 3/4% Senior Notes Due 2003,
including form of Initial Global Note (incorporated
by reference to the Company's Registration Statement
on Form S-4 (File No. 333-19233) filed on January 3,
1997).
4.2 Credit Agreement, dated as of December 16, 1996, by
and among the Company, NationsBank, N.A. and other
lending institutions (incorporated by reference to
the Company's Registration Statement on Form S-4
(File No. 333-19233) filed on January 3, 1997).
4.3 Security Agreement, dated as of December 16, 1996, by
and among the Company, NationsBank, N.A. and other
lending institutions (incorporated by reference to
the Company's Registration Statement on Form S-4
(File No. 333-19233) filed on January 3, 1997).
4.4 Registration Rights Agreement, dated as of December
17, 1996, by and between the Company and NationsBanc
Capital Markets, Inc., as Initial Purchaser
(incorporated by reference to the Company's
Registration Statement on Form S-4 (File No.
333-19233) filed on January 3, 1997).
10.1 Management Agreement, dated as of March 8, 1988, by
and between The Bellfonte Company and Mid-South
Acquisition Corporation (incorporated by reference to
the Company's Registration Statement on Form S-4
(File No. 333-19233) filed on January 3, 1997).
10.2 Miller Brewing Company Distributor Agreement, dated
January 1, 1999, as amended, between
Pepsi-Cola/Seven-Up Beverage Group of Louisiana and
Miller Brewing Company.
55
<PAGE>
10.3 Amended and Restated Joint Venture Agreement,
effective as of September 3, 1992, by and between the
Company and Poydras Street Investors L.L.C.
(incorporated by reference to the Company's
Registration Statement on Form S-4 (File No.
333-19233) filed on January 3, 1997).
10.4 Delta Exchange Agreement, effective June 28, 1999, by
and between the Company's shareholders and
PepsiAmericas, Inc. (incorporated by reference to the
Company's Current Report on Form 8-K filed on July
14, 1999).
27.1 Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K.
The Company's Current Report on Form 8-K on October
26, 1999, relating to the acquisition by
PepsiAmericas, Inc. of Delta Beverage Group, Inc.
pursuant to an Exchange Agreement.
The Company's Current Report on Form 8-K/A on
November 17, 1999, relating to the Company's
determination that the acquisition by PepsiAmericas,
Inc. of the Company pursuant to an Exchange Agreement
did not constitute a change of control under the
Company's senior notes.
56
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized on
March 30, 2000.
DELTA BEVERAGE GROUP, INC.
By: /s/ Robert C. Pohlad
-------------------------------
Robert C. Pohlad
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/s/ Robert C. Pohlad Chief Executive Officer and Director
- ------------------------------- (Principal Executive Officer) March 30, 2000
Robert C. Pohlad
/s/ John F. Bierbaum Chief Financial Officer and Director
- ------------------------------- (Principal Accounting Officer and
John F. Bierbaum Principal Financial Officer) March 30, 2000
/s/ Donald E. Benson
- ------------------------------- Chairman of the Board March 30, 2000
Donald E. Benson
/s/ Christopher E. Clouser
- ------------------------------- Director March 30, 2000
Christopher E. Clouser
/s/ Philip N. Hughes
- ------------------------------- Director March 30, 2000
Philip N. Hughes
/s/ John F. Woodhead
- ------------------------------- Director March 30, 2000
John F. Woodhead
</TABLE>
57
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
3.1 Third Amended and Restated Certificate of Incorporation of the Company.
3.2 Amended and Restated Bylaws of the Company (incorporated by reference
to the Company's Registration Statement on Form S-4 (File No.
333-19233) filed on January 3, 1997).
4.1 Indenture, dated as of December 17, 1996, between the Company and
Norwest Bank Minnesota, National Association, as Trustee, relating to
$120,000,000 principal amount of 9 3/4% Senior Notes Due 2003,
including form of Initial Global Note (incorporated by reference to the
Company's Registration Statement on Form S-4 (File No. 333-19233) filed
on January 3, 1997).
4.2 Credit Agreement, dated as of December 16, 1996, by and among the
Company, NationsBank, N.A. and other lending institutions (incorporated
by reference to the Company's Registration Statement on Form S-4 (File
No. 333-19233) filed on January 3, 1997).
4.3 Security Agreement, dated as of December 16, 1996, by and among the
Company, NationsBank, N.A. and other lending institutions (incorporated
by reference to the Company's Registration Statement on Form S-4 (File
No. 333-19233) filed on January 3, 1997).
4.4 Registration Rights Agreement, dated as of December 17, 1996, by and
between the Company and NationsBanc Capital Markets, Inc., as Initial
Purchaser (incorporated by reference to the Company's Registration
Statement on Form S-4 (File No. 333-19233) filed on January 3, 1997).
10.1 Management Agreement, dated as of March 8, 1988, by and between The
Bellfonte Company and Mid-South Acquisition Corporation (incorporated
by reference to the Company's Registration Statement on Form S-4 (File
No. 333-19233) filed on January 3, 1997).
10.2 Miller Brewing Company Distributor Agreement, dated January 1, 1999, as
amended, between Pepsi-Cola/Seven-Up Beverage Group of Louisiana and
Miller Brewing Company.
10.3 Amended and Restated Joint Venture Agreement, effective as of September
3, 1992, by and between the Company and Poydras Street Investors L.L.C.
(incorporated by reference to the Company's Registration Statement on
Form S-4 (File No. 333-19233) filed on January 3, 1997).
10.4 Delta Exchange Agreement, effective June 28, 1999, by and between the
Company's shareholders and PepsiAmericas, Inc. (incorporated by
reference to the Company's Current Report on Form 8-K filed on July 14,
1999).
27.1 Financial Data Schedule.
</TABLE>
59
<PAGE>
Exhibit 3.1
THIRD AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF
DELTA BEVERAGE GROUP, INC.
(A DELAWARE CORPORATION)
Delta Beverage Group, Inc., a corporation organized and existing under
the laws of the State of Delaware, hereby certifies as follows:
1. The name of the corporation is Delta Beverage Group, Inc.
2. The corporation was originally incorporated as Mid-South Bottling
Company, and the original Certificate of Incorporation of the Corporation was
filed with the Secretary of State of the State of Delaware on January 29, 1985.
An Amended and Restated Certificate of Incorporation of the Corporation was
filed in the office of the Secretary of State of the State of Delaware on
September 27, 1993 ("Restated Certificate").
3. The effective time of this Third Amended and Restated Certificate
of Incorporation shall be 12:01 a.m., October 15, 1999.
4. Pursuant to Sections 228, 242 and 245 of the General Corporation
Law of the State of Delaware, this Third Amended and Restated Certificate of
Incorporation has been duly adopted and restates and amends the Restated
Certificate.
5. The text of the Third Amended and Restated Certificate of
Incorporation reads in its entirety as follows:
FIRST: The name of the corporation is Delta Beverage Group, Inc. (the
"Corporation").
SECOND: The address of the registered office of the Corporation in
the State of Delaware is 1209 Orange Street, City of Wilmington, County of New
Castle. and the name of the registered agent of the Corporation in Delaware at
such address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware, and the Corporation shall be authorized to exercise and enjoy
all powers, rights and privileges which corporations organized under the General
Corporation Law of Delaware may have under the laws of the State of Delaware as
in force from time to time.
FOURTH:
1. The total authorized number of shares which the Corporation shall
have authority to issue will be one hundred twenty-five thousand (125,000) of
which (i) sixty thousand (60,000) shall
<PAGE>
be designated as Common Stock, each with $.01 par value, (ii) thirty-five
thousand (35,000) shall be designated as Non-voting Common Stock, each with
$.01 par value, and (iii) thirty thousand (30,000) shall be designated as
Preferred Stock (Series AA) (herein referred to as the "Series AA Stock"),
each with $.01 par value.
2. Except as may be specifically required by Delaware General
Corporation Law and as hereinafter set forth in this paragraph 2 of Article
FOURTH, the Non-voting Common Stock shall have no right to vote with respect to
any matter submitted to a vote of the stockholders of the Corporation. The
Non-voting Common Stock shall have the conversion rights set forth in Article
FIFTH and, with respect to all other rights and privileges (including without
limitation rights to participate in dividends (whether payable in cash,
securities or other property and whether payable as such or pursuant to a
subdivision of shares) and in the distribution of assets upon the voluntary or
involuntary liquidation, dissolution, or winding-up of the Corporation), shall
be equal to the Common Stock of the Corporation. The approval by the affirmative
vote of the holders of at least 60% of the outstanding shares of Common Stock
and Non-voting Common Stock shall be required for:
(i) any merger or consolidation of the Corporation 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 shares of common stock
of the Corporation 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 Series AA Stock issued
as dividends pursuant to Article FIFTH; and
(iv) any increase in the number of authorized shares of any
class of capital stock of the Corporation;
(excluding for purposes of both such vote and the determination of the
aggregate number of outstanding shares of Common Stock and Non-voting Common
Stock any shares of Non-voting Common Stock, to the extent that the voting of
such shares by the holder thereof would cause such holder and its affiliates to
be deemed to directly or indirectly own, control or have the power to vote a
greater quantity of securities of any kind issued by the Corporation than such
holder and its affiliates are permitted to own, control or have the power to
vote under any regulation, rule or other requirement of any governmental
authority at any time applicable to such holder and its affiliates).
FIFTH:
1. PREFERRED STOCK (SERIES AA)
2
<PAGE>
The Series AA Stock shall have the preferences and relative,
participating, optional or other special rights, and qualifications, limitations
and restrictions thereof set forth in this Article FIFTH.
2. RANK.
The Series AA Stock shall, with respect to dividend rights, and rights on
liquidation, winding up, and dissolution of the Corporation, rank prior to the
Common Stock and the Non-voting Common Stock.
3. DIVIDENDS.
(a) The holders of the shares of Series AA Stock shall be entitled to
receive dividends at the annual rate of 6%, compounded quarterly (based on the
liquidation price per share of Series AA Stock as defined in Section 4(a) of
this Article FIFTH, as adjusted from time to time), which annual rate shall
automatically increase by two percent (2%) on October 1, 2004, and shall
increase by two percent (2%) on each October 1 thereafter, provided. however in
no event shall the cumulative increase exceed eight percent (8%). Such quarterly
dividends shall be fully cumulative (whether or not in any dividend period there
are funds legally available for payment) and shall begin to accrue on shares of
the Series AA Stock on the date of issuance of such shares and shall cease to
accrue at the earliest to occur of (i) the cancellation of such shares, or (ii)
the voluntary or involuntary liquidation, dissolution, or winding up of the
affairs of the Corporation. Such dividends shall be payable on the first
business day of July, October, January and April (each of such dates being a
"dividend payment date"), in each year, commencing with the first such date
following the date of first issuance of the Series AA Stock, with respect to the
quarter (or portion thereof) ending on the last day of the month immediately
preceding each such dividend payment date in preference to any dividends
declared on the Common Stock and the Non-voting Common Stock. Such dividends
shall be paid to the holders of record at the close of business on the 15th day
of the month immediately preceding the dividend payment date.
(b) The Corporation may elect to pay dividends in cash or in
additional shares of fully paid and nonassessable Series AA stock dated the
dividend payment date, registered in the name of the respective holders of the
Series AA Stock appearing on the books of the Corporation; provided however that
if the Senior Notes (as defined in the Note Exchange Agreement dated as of
September 23, 1993, by and among the Corporation and the other parties thereto)
is repaid in full, the Corporation shall be obligated to pay the dividends
hereunder in cash, unless otherwise prohibited by any agreement of the Company
relating to the Company's then-existing debt. All dividends paid with respect to
shares of Series AA Stock pursuant to paragraph 3(a) of this Article FIFTH shall
be paid pro rata to the holders entitled thereto. Cash dividends may be paid
only out of funds legally available therefor.
(c) Each fractional share of the Series AA Stock outstanding shall be
entitled to a ratably proportionate amount of all dividends accruing with
respect to the Series AA Stock, and shall be payable in the same manner and at
such times as provided for in paragraph 3(a) of this Article FIFTH above with
respect to dividends on each outstanding full share of Series AA Stock.
3
<PAGE>
(d) If at any time the Corporation shall have failed to pay all
dividends which have accrued on the Series AA Stock or any outstanding shares of
any other series of Preferred Stock having cumulative dividend rights ranking on
a parity with the Series AA Stock at the times such dividends are payable,
dividends may only be declared, paid or set apart for payment, without interest,
pro rata on shares of the Series AA Stock and shares of such other series of
Preferred Stock so that the amounts of any dividends declared, paid or set apart
for payment on shares of the Series AA Stock and shares of such other series of
Preferred Stock shall in all cases bear to each other the same ratio that, at
the time of such declaration, payment or setting apart for payment, all accrued
but unpaid dividends on shares of the Series AA Stock and shares of such other
series of Preferred Stock bear to each other.
(e) Holders of shares of the Series AA Stock shall be entitled to
receive the dividends provided for in paragraph 3(a) of this Article FIFTH above
in preference to and in priority over any dividends on the Common Stock or the
Non-voting Common Stock or any class or series of Preferred Stock ranking junior
to the Series AA Stock.
(f) So long as any shares of the Series AA Stock are outstanding, the
Corporation shall not declare, pay or set apart for payment any dividend on the
Common Stock or Non-voting Common Stock, or make any payment on account of, or
set apart for payment money for a sinking or other similar fund for, the
purchase, redemption or other retirement of, the Common Stock or the Non-voting
Common Stock or any warrants, rights, calls or Options exercisable for Common
Stock or Non-voting Common Stock, or make any distribution in respect thereof,
either directly or indirectly, and whether in cash, obligations or shares of the
Corporation or other property, unless prior to or concurrently with such
declaration, payment, setting apart for payment, purchase or distribution, as
the case may be, any accrued and unpaid dividends on shares of the Series AA
Stock not paid on the dates provided for in paragraph 3(a) of this Article FIFTH
above (including if not paid pursuant to the terms and conditions of paragraph
3(a) or (d) of this Article FIFTH) shall have been or be paid.
(g) Subject to the foregoing provisions of this Article FIFTH, the
Board of Directors may declare and the Corporation may pay or set apart for
payment dividends and other distributions on the Common Stock and the Non-voting
Common Stock of the Corporation, and the holders of the shares of the Series AA
Stock shall not be entitled to share therein.
4. LIQUIDATION PREFERENCE.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, the holders of
shares of Series AA Stock then outstanding shall be entitled to be paid, prior
and IN preference to any distribution of any assets of the Corporation to the
holders of shares of Common Stock or Non-voting Common Stock or any other class
or series of Preferred Stock ranking junior to the Series AA Stock, out of the
assets of the Corporation available for distribution to its stockholders, an
amount equal to $5,000 per share (subject to adjustment as provided in paragraph
4(g) of this Article FIFTH (the "liquidation price"), plus an amount equal to
the accumulated or accrued but unpaid stock dividends to the date of the final
distribution to the holders of the Series AA Stock.
4
<PAGE>
(b) If upon liquidation, dissolution, or winding up of the
Corporation. the assets of the Corporation available for distribution to its
stockholders shall be insufficient to pay the holders of the Series AA Stock the
full amounts to which they shall be entitled, the holders of the Series AA Stock
shall share ratably in any distribution of assets according to the respective
amounts which would be payable in respect of the shares held by them upon such
distribution if all amounts payable on or with respect to said shares were paid
in full.
(c) Any merger or consolidation of the Corporation into or with
another corporation in which the holders of shares of any class or series of
capital stock of the Corporation immediately prior to such merger or
consolidation shall (i) own less than 50% of the voting securities of the
surviving corporation or (ii) receive distributions of cash, non-equity
securities or other property as a result thereof, or any sale, transfer or lease
(but not including a transfer or lease by pledge or mortgage to a bona fide
lender) of all or substantially all of the assets of the Corporation, shall be
deemed to be a liquidation, dissolution or winding up of the Corporation as
those terms as used herein.
(d) The distribution with respect to each fractional share of the
Series AA Stock outstanding or accrued but unpaid shall be equal to a ratably
proportionate amount of the distribution with respect to each outstanding share
of Series AA Stock.
(e) In the event of any voluntary or involuntary liquidation,
dissolution, or winding up of the Corporation, the Corporation shall, within 10
days after the date the Board of Directors approves such action, or within 20
days prior to any stockholder meeting called to approve such action, or within
20 days after the commencement of any involuntary proceeding, whichever is
earlier, give each holder of shares of Series AA Stock initial written notice of
the proposed action. Such initial written notice shall describe the material
terms and conditions of such proposed action, including a description of the
stock, cash, and property to be received by the holders of shares of Series AA
Stock upon consummation of the proposed action and the date of delivery thereof.
If any material change in the facts set forth in the initial notice shall occur,
the Corporation shall promptly give written notice to each holder of shares of
Series AA Stock of such material change.
(f) The Corporation shall no consummate any voluntary or involuntary
liquidation, dissolution, or win up of the Corporation before the expiration of
30 days after the mailing of the initial notice thereof or 10 days after the
mailing of any subsequent written notice, whichever is later; provided that any
such 30-day or 10-day period may be shortened upon the written consent of the
holders of all of the outstanding shares of Series AA Stock.
(g) The liquidation price shall be subject to adjustment from time
follows. In case the Corporation shall at any time subdivide the outstanding
shares of the Series AA Stock, or issue a stock dividend on its outstanding
Series AA Stock (other than any dividend payable pursuant to this Article FIFTH)
the liquidation price in effect immediately prior to such subdivision or the
issuance of such dividend shall be Proportionately decreased, and in case the
Corporation shall at any time combine the outstanding shares of the Series AA
Stock, the liquidation price in effect immediately prior to such combination
shall be proportionately increased, effective at the close of business on the
date of such subdivision, dividend or combination, as the case may be.
5
<PAGE>
5. CONVERSION RIGHTS.
The holders of the Series AA Stock shall have no rights to convert their
shares into any other class or series of stock of the Corporation.
SIXTH: The Board of Directors is authorized to adopt, amend or repeal any
or all of the bylaws of this Corporation, subject to the power of the
stockholders to adopt, amend. or repeal such bylaws.
SEVENTH: No director of the Corporation shall be liable to the
Corporation or any of its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived an
improper personal benefit.
IN WITNESS WHEREOF, this Amendment to the Amended and Restated
Certificate of Incorporation is hereby executed on behalf of the Corporation by
the undersigned officer, who is authorized to execute same, on this 7th day of
October, 1999.
DELTA BEVERAGE GROUP, INC.
By /s/ John Bierbaum
---------------------
John Bierbaum, Chief Financial Officer
STATE OF MINNESOTA )
) ss
COUNTY OF HENNEPIN )
The foregoing instrument was acknowledged before me this 7th day of
October 1999, by John Bierbaum, the Chief Financial Officer of Delta Beverage
Group, Inc.
/s/ Charles W. Johnson
------------------------
Notary Public
6
<PAGE>
Exhibit 10.2
MILLER BREWING COMPANY
DISTRIBUTOR AGREEMENT
INDEX
<TABLE>
<CAPTION>
Page
------
<S> <C> <C>
Section 1 Distributor's Area and Miller Products . . . . . . . . . . . . . . . .1
1.1 Exclusive Territory . . . . . . . . . . . . . . . . . . . . . .1
1.2 Non-exclusive Territory . . . . . . . . . . . . . . . . . . . .1
1.3 Permitted Miller Sales. . . . . . . . . . . . . . . . . . . . .1
1.4 Lack of Service within Territory. . . . . . . . . . . . . . . .2
1.5 New Brands. . . . . . . . . . . . . . . . . . . . . . . . . . .2
1.6 Reservations of Rights. . . . . . . . . . . . . . . . . . . . .2
Section 2 Sales of Product . . . . . . . . . . . . . . . . . . . . . . . . . . .2
2.1 Sale Terms. . . . . . . . . . . . . . . . . . . . . . . . . . .2
2.2 Payment Terms . . . . . . . . . . . . . . . . . . . . . . . . .2
2.3 Orders. . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
2.4 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Section 3 Distributor's Responsibilities . . . . . . . . . . . . . . . . . . . .3
3.1 Proper Licensing. . . . . . . . . . . . . . . . . . . . . . . .3
3.2 Performance Standards . . . . . . . . . . . . . . . . . . . . .3
3.3 Hours of Operation. . . . . . . . . . . . . . . . . . . . . . .4
3.4 Submissions to Miller . . . . . . . . . . . . . . . . . . . . .4
3.5 Miller Property, Proprietary Materials and Information. . . . .4
3.6 Employees . . . . . . . . . . . . . . . . . . . . . . . . . . .4
3.7 Other or Additional Requirements. . . . . . . . . . . . . . . .4
Section 4 Distributor Management . . . . . . . . . . . . . . . . . . . . . . . .4
4.1 Manager Designation . . . . . . . . . . . . . . . . . . . . . .4
4.2 Manager Responsibilities. . . . . . . . . . . . . . . . . . . .5
4.3 Manager Vacancy . . . . . . . . . . . . . . . . . . . . . . . .5
4.4 Succession Planning . . . . . . . . . . . . . . . . . . . . . .5
Section 5 Distributor Ownership and Transfers. . . . . . . . . . . . . . . . . .5
5.1 Transfer Upon Owner's Death . . . . . . . . . . . . . . . . . .5
5.2 Transfer of Distributor's Business. . . . . . . . . . . . . . .6
5.3 Change in Control . . . . . . . . . . . . . . . . . . . . . . .7
5.4 Approval Criteria . . . . . . . . . . . . . . . . . . . . . . .7
5.5 No Public Ownership . . . . . . . . . . . . . . . . . . . . . .8
5.6 Providing Agreement Copy. . . . . . . . . . . . . . . . . . . .8
5.7 Change in Distributor's Business. . . . . . . . . . . . . . . .8
Section 6 Distributor's Right to Terminate . . . . . . . . . . . . . . . . . . .8
i
<PAGE>
Section 7 Miller's Right to Terminate. . . . . . . . . . . . . . . . . . . . . .8
7.1 Termination With Cure . . . . . . . . . . . . . . . . . . . . .8
7.2 Termination Without Cure. . . . . . . . . . . . . . . . . . . .9
7.3 Contemporaneous Termination . . . . . . . . . . . . . . . . . .9
Section 8 Post Termination Provisions. . . . . . . . . . . . . . . . . . . . . 10
8.1 Order Cancellation. . . . . . . . . . . . . . . . . . . . . . 10
8.2 Property Return . . . . . . . . . . . . . . . . . . . . . . . 10
8.3 Repurchase Following Termination. . . . . . . . . . . . . . . 10
Section 9 Miller Trade Designations. . . . . . . . . . . . . . . . . . . . . . 10
Section 10 Distributor's Representations. . . . . . . . . . . . . . . . . . . . 11
Section 11 Agreement Amendments . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 12 Compliance with Law. . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 13 Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 14 Assignments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 15 Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 16 Miscellaneous Provisions . . . . . . . . . . . . . . . . . . . . . . 12
Section 17 Acknowledgments. . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
ii
<PAGE>
MILLER BREWING COMPANY
DISTRIBUTOR AGREEMENT
Miller Brewing Company ("Miller") and the undersigned Distributor recognize
that the success of Miller and each of its authorized distributors depends
largely on the reputation and competitiveness of Miller products and
distributors' performance, and on how well each fulfills its responsibilities
to one another and our customers. Therefore, this Agreement imposes on both
Miller and Distributor an obligation of good faith in its performance or
enforcement. Conformance with the express terms of this Agreement shall be
deemed to constitute compliance with such good faith obligation.
Miller agrees to sell and the Distributor agrees to buy and market those
products listed on the Distributor Data Sheet attached hereto, pursuant to the
following terms and conditions:
SECTION 1 DISTRIBUTOR'S AREA AND MILLER PRODUCTS.
1.1 EXCLUSIVE TERRITORY. The following provisions shall be
applicable during all such times as permitted by applicable state or federal law
or regulation:
Miller hereby appoints Distributor as its sole
distributor within the geographic area described in the Distributor Data
Sheet ("Distributor's Area") for the products listed in the Distributor Data
Sheet ("Miller products"). Except upon the receipt of Miller's prior written
approval and compliance with such conditions Miller may require: Distributor
shall not sell or supply Miller products to any retail location within
another authorized Miller distributor's area; nor to any person Distributor
has reason to believe will sell or supply all or part of such products to any
retail location within another authorized Miller distributor's area; nor to
any retail location that sells, delivers or transfers such products to other
retail locations; nor to any person or entity who is engaged in the sale of
the Miller products for consumption outside of Distributor's Area; nor to any
retail location during such period when retailer's license to do business or
sell such products has been suspended by a governmental entity. Nothing in
this Section shall prevent Distributor from selling or supplying Miller
products to another authorized Miller distributor for the purpose of
eliminating product shortages or inventory imbalances. If Distributor fails
to comply with the provisions of this Section 1.1, Miller shall have the
right to terminate this Agreement in accordance with the procedures described
in Section 7.2.
1.2 NON-EXCLUSIVE TERRITORY. The following provisions, rather
than the provisions of Section 1.1 above, shall apply whenever any of the
provisions of Section 1.1 above are expressly prohibited by any final court
order or precluded by any applicable statute or regulation:
Miller hereby appoints Distributor as a distributor
within the geographic area described in the Distributor Data Sheet
("Distributor's Area") for the products listed in the Distributor Data Sheet
("Miller products"). Distributor's primary responsibility shall be to comply
with the Distributor obligations in accordance with this Agreement with
respect to retail locations in Distributor's Area. If Distributor sells or
supplies Miller products to retail locations outside Distributor's Area or to
any person (other than an authorized Miller distributor) who Distributor has
reason to believe will sell or supply all or part of such products to retail
locations outside Distributor's Area, Distributor's obligations under Section
3 of this Agreement shall extend to each such retail location. Distributor
shall notify Miller immediately of all such sales in order to ensure
effective monitoring of Distributor's compliance with all such obligations.
1.3 PERMITTED MILLER SALES. Miller reserves and shall have the
right to sell directly, if permitted by applicable law, to purchasers of Miller
products who are located in Distributor's Area where the retail sale or
consumption of such Miller products will occur outside Distributor's Area, or
are foreign governmental entities.
<PAGE>
1.4 LACK OF SERVICE WITHIN TERRITORY. Notwithstanding the
provisions of this Section, Miller may, after giving notice to Distributor,
permit another person or persons to sell, or Miller may sell, one or more Miller
products within all or any part of Distributor's Area if Distributor is unable
or unwilling to provide uninterrupted service to all retail locations within all
or any part of Distributor's Area, provided, where required by law, permission
to do so is obtained from the appropriate governmental regulatory agency. If
Distributor regains its ability and willingness to service retail locations as
required under this Agreement, Miller shall reinstate Distributor to provide
such service, unless Miller has pursued additional remedies as provided herein
or by law and provided such reinstatement does not violate any agreement or law
applicable to Miller,
1.5 NEW BRANDS. This Agreement shall extend only to the brands
of Miller products listed on the Distributor Data Sheet. If Distributor is in
full compliance with this Agreement, and if the grant of such rights does not
contravene or breach any agreement or law applicable to Miller, Distributor
shall have the right to have added to the Distributor Data Sheet those
additional malt beverage brands (including brand extension of the Miller
products) which are sold by Miller generally to authorized Miller distributors
and which Miller decides to have sold in Distributor's Area; provided that such
right, if exercised by Distributor, must be exercised within ninety (90) days
after such brand is introduced by Miller and is available to be sold in
Distributor's Area.
1.6 RESERVATIONS OF RIGHTS. Miller reserves the unqualified
right to manage and conduct its business in all respects and shall be free at
all times to maintain or alter the formula, ingredients, labeling or packaging
of its products; to determine the prices or other terms on which it sells Miller
products; to produce or sell any particular brands; to discontinue the sale of
any of its products, packages or containers in any geographic area; and to make
all other decisions concerning the conduct of Miller's business.
SECTION 2 SALES OF PRODUCT.
2.1 SALE TERMS. The prices charged by Miller to Distributor
for Miller products and other applicable terms of sale shall be those
established by Miller and in effect on the date of shipment. Miller shall
inform Distributor of its prices and other applicable terms of sale in writing
from time to time, but Miller shall have the unlimited right to change prices
and to establish terms of sale at any time.
2.2 PAYMENT TERMS. All sales by Miller to Distributor shall be
on a cash basis or on such credit terms as Miller, in its sole discretion, may
establish from time to time. Miller shall not be obligated to extend credit to
Distributor or to assist Distributor in securing credit. Miller's acceptance of
any order from Distributor is subject to the condition that Distributor's
account with Miller will, on the date fixed for shipment, permit the shipment of
such order in compliance, with whatever credit terms Miller has established.
Irrespective of any designation by Distributor, Miller may, in its sole
discretion, apply, offset, reapply or transfer any payments made by or credit
due Distributor against the oldest item of account or indebtedness owed to
Miller. Regardless of the method of payment, Distributor hereby grants, and
Miller shall retain, a security interest in products and containers delivered to
Distributor until Miller receives full payment of all monies owed to Miller.
Upon Miller's request, Distributor shall execute such documents as are necessary
to perfect Miller's security interest.
2.3 ORDERS. All orders for Miller products placed by
Distributor shall be subject to Millers acceptance. Miller shall have the right
to specify the forms, procedures and processes (including electronic ordering
systems) governing the placement and fulfillment of such orders, including the
designation of the carrier, source brewery and the routing to be used for
delivery of such accepted orders. In the event that Miller is restricted in the
production, sale or delivery of its products by capacity limitations, acts of
governmental authority, strikes or any other cause, natural or otherwise, beyond
Miller's control, Miller shall not be compelled to honor previously accepted
orders, but shall distribute available products among distributors in a fair and
equitable manner.
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2.4 TAXES. Distributor shall be responsible for all federal,
state and local sales, use, personal property, inventory and other taxes that
may be assessed on any Miller products or other Miller property in Distributor's
possession at the time such tax is assessed or determined. Distributor shall
also be responsible for any local, state and federal excise taxes on the
shipment of Miller products to Distributor to the extent that such excise taxes
are not included in Miller's prices.
SECTION 3 DISTRIBUTOR'S RESPONSIBILITIES.
3.1 PROPER LICENSING. Distributor shall sell Miller products
only to retailers and other persons to whom Distributor is duly licensed to sell
such products. Distributor shall comply with all valid laws, regulations,
ordinances and orders, including those applicable to the sale of Miller
products, Distributor's performance under this Agreement, and the conduct of
Distributor's business. Distributor shall maintain all permits and licenses
necessary to sell and distribute Miller products in Distributor's Area.
Distributor shall submit to Miller, if requested by Miller, copies of all such
permits and licenses, subsequent amendments thereto, renewals thereof, and all
applications for such permits, licenses, amendments or renewals.
3.2 PERFORMANCE STANDARDS. Distributor shall, by using its
best efforts, vigorously and aggressively sell, deliver, merchandise, and
promote the full package line of Miller products listed on the Distributor Data
Sheet. Distributor shall also comply at all times with those Distributor
obligations described in the Performance Standards and its subparts, including
Sales, Operations, Quality, and Finance ("the Standards"), receipt of which is
hereby acknowledged. The Standards may be modified from time to time by Miller
upon the giving of reasonable notice to Distributor and any such modifications
shall not be deemed an amendment to this Agreement. The Standards, as modified
from time to time by Miller, shall be identical for all other authorized Miller
distributors.
(a) SALES. Distributor shall prepare and submit to
Miller an annual business plan in a form and content acceptable to Miller
("Business Plan"), which shall include sales, volume, distribution and financial
goals in total and by key channels; retail service policies; sales and
merchandising execution standards; point of sale plans; and management and
succession plans. The Business Plan shall be subject to Miller's review and
written approval and shall be completed and ready to implement by January 1 of
each calendar year. Distributor and Manager (as defined in Section 4 below)
shall implement the approved Business Plan, including preparation and
implementation of detailed monthly sales plans, to achieve the goals established
therein; comply fully with the Business Plan and other commitments made to
Miller and, consult with Miller on adjustments to the Business Plan that may be
needed from time to time to meet changing market conditions.
(b) OPERATIONS. Distributor shall accurately forecast
and order Miller products in accordance with Miller's then current procedures;
maintain an inventory of Miller products at levels determined by Miller and
sufficient to prevent out-of-stock occurrences; maintain a clean, operational,
controlled-temperature warehouse(s) of sufficient capacity to meet Miller's
inventory, storage, and quality control requirements; and, properly handle and
protect from damage all Miller products and property owned by Miller.
(c) QUALITY. Distributor shall comply with Miller's
code date requirements; prevent Miller products bearing expired code dates
("overage Miller products") from reaching retailers or consumers; retrieve
overage Miller products from retail locations; replace such products with
nonoverage Miller products at no cost to the retailer; and, destroy promptly any
damaged or overage Miller products at no cost to Miller. Distributor
acknowledges that its compliance with these Standards is essential to the
successful marketing of Miller products and to the preservation and enhancement
of Miller's trademarks and goodwill.
(d) FINANCE. Distributor shall maintain sufficient
working capital to ensure that its facilities, equipment, inventory, and
personnel are adequate to compete effectively with other non-Miller brands of
malt beverages. Distributor shall purchase and maintain sufficient insurance
coverage; shall pay all federal
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state and local taxes imposed on it; and shall maintain a positive tangible
net worth. Distributor shall furnish to Miller annually within one hundred
and twenty (120) days after Distributor's fiscal year end financial
statements in compliance with generally accepted accounting principles
applied on a consistent basis, prepared by an independent accountant. The
financial statements shall include a balance sheet, income statement,
statement of cash flow, and appropriate notes to the financial statements.
Distributor shall furnish to Miller annually, in the Business Plan, both a
current year and two (2) year financial plan to include balance sheet, income
statement, and statement of cash flow, and appropriate notes supporting the
financial plans.
3.3 HOURS OF OPERATION. Distributor shall be open for business
during all hours and days necessary to receive products shipped from Miller and
to properly service retailers, including hours necessary to make regular
deliveries of Miller products with sufficient frequency to prevent retailer
out-of-stock occurrences.
3.4 SUBMISSIONS TO MILLER. Distributor shall submit only
complete and accurate notices, reports, claims, reimbursement requests, payment
requests or other communications to Miller. Records of all transactions,
including all price promotion allowance programs instituted by Miller, shall be
maintained by Distributor for a minimum of three (3) years or as prescribed by
state law, whichever is longer. Miller shall have the right to audit all such
records. For any Miller price promotion allowance program, Distributor shall be
required to file forms prescribed by Miller from time to time. Miller may audit
any reimbursement claims filed by Distributor. In the event Miller finds errors
greater than One Thousand Dollars ($1,000.00), or such other dollar amount set
by Miller from time to time, Miller may calculate the percentage rate of error
and, using that percentage rate of error, extrapolate the amount owed to Miller
for up to the prior three (3) years total reimbursement claims made by
Distributor to Miller. Miller shall notify Distributor of the extrapolated
audit results. Within thirty (30) days of such notice, Distributor must either
pay the extrapolated amount to Miller or pay for the cost of a full audit by
Miller or Miller's designee. Miller reserves the right to enforce other
appropriate remedies, including those described in Section 7 below.
3.5 MILLER PROPERTY, PROPRIETARY MATERIALS AND INFORMATION.
All kegs, computer software, and other assets owned by Miller shall remain the
property of Miller and shall be returned to Miller in accordance with Miller's
instructions. Miller trade secrets or other Miller proprietary materials (such
as point-of-sale, "P.O.S.") and information disclosed to Distributor shall be
retained in confidence by Distributor and shall only be used in the performance
of its obligations in accordance with this Agreement during the term of this
Agreement and thereafter so long as such materials and information remains a
trade secret or proprietary to Miller.
3.6 EMPLOYEES. Distributor shall recruit and retain a
qualified workforce of employees who reflect the diverse make-up of
Distributor's Area, and who are properly trained and adequately compensated to
meet Distributor's obligations hereunder.
3.7 OTHER OR ADDITIONAL REQUIREMENTS. Distributor shall
preserve and enhance the high quality image, reputation and goodwill of Miller
and Miller products. Distributor shall comply with the other provisions of this
Agreement and shall observe all other requirements that Miller may reasonably
impose from time to time for the vigorous and aggressive delivery,
merchandising, promotion and sale of Miller products.
SECTION 4 DISTRIBUTOR MANAGEMENT.
4.1 MANAGER DESIGNATION. Distributor agrees to have at all
times a Manager approved by Miller. Distributor shall designate candidate(s) as
described in Section 4.8 below, subject to Miller's approval as described
therein. If Miller's approval is given, the Manager shall be designated on the
Distributor Data Sheet. Miller has entered into this Agreement in reliance upon
and in consideration of the personal qualifications of the individual designated
as the Manager.
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4.2 MANAGER RESPONSIBILITIES. The Manager shall be qualified
to perform the duties described herein, and shall manage Distributor's business
to comply with the Distributor's obligations pursuant to this Agreement. The
Manager shall be granted the authority by Distributor and shall exercise
day-to-day operating control over the business and finances of Distributor,
including implementation of the Business Plan and the making of staffing and
personnel decisions. The Manager shall be provided with appropriate incentive
compensation to achieve the objectives in the Business Plan. (See Distributor
Manager Job Profile referenced in the Sales portion of the Standards.)
4.3 MANAGER VACANCY.
(a) Nothing contained in this Agreement shall be
construed as granting to the Manager any right to be retained in Distributor's
employ or as interfering with or limiting the sole and exclusive right of
Distributor to terminate the employment of the individual who is the Manager or
to change such individual's duties so that the individual is no longer acting as
the Manager.
(b) Miller shall have the right to withdraw its approval
of the Manager by notifying Distributor of the reasons for such withdrawal,
which reasons may include deficiencies in the Manager's performance or
Distributor's failure to comply with the Business Plan.
(c) Distributor shall notify Miller in writing if the
Manager becomes unable or ceases to manage the Distributor's business, no later
than ten (10) days from the occurrence of such event. Within sixty (60) days
after Distributor ceases for any reason to have a Manager, Distributor shall
submit to Miller a written application in the form provided by Miller requesting
Miller's approval of a properly qualified candidate selected by Distributor for
the then vacant Manager position. Miller shall be provided with all information
reasonably related to the candidate's qualifications to serve as the Manager and
shall have the right to interview the candidate.
(d) Within forty-five (45) days after the date of
receipt of Distributor's application for a new Manager, Miller shall notify
Distributor of Miller's approval or disapproval of the proposed Manager. If
Miller does not approve the proposed Manager, Distributor shall submit another
application within sixty (60) days and the procedures described herein shall be
repeated as often as necessary, provided that if a Manager is not approved
within one hundred and eighty (180) days after a vacancy has occurred, Miller
shall have the right to terminate this Agreement in accordance with the
procedures described in Section 7.2. Any changes in the identity of the Manager
shall be entered on the Distributor Data Sheet.
4.4 SUCCESSION PLANNING. Distributor shall identify key
positions and the persons assigned to those positions within its business and
shall include succession and development plans for these persons in the Business
Plan.
SECTION 5 DISTRIBUTOR OWNERSHIP AND TRANSFERS.
5.1 TRANSFER UPON OWNER'S DEATH.
(a) OWNERSHIP TRANSFER NOTIFICATION. Each owner of
Distributor shall submit for Miller's prior written approval an Ownership
Transfer Notification in the form of Schedule V to the Distributor Data Sheet.
Miller's approval of the Ownership Transfer Notification shall not be
unreasonably withheld. Except as provided in Section 5.1(c) below, upon the
death of an owner of Distributor, the interest of such owner may be conveyed
only as provided in the approved Ownership Transfer Notification.
(b) MILLER'S RIGHT TO PURCHASE. If (1) an owner of
Distributor dies without an approved Ownership Transfer Notification and the
estate of such owner attempts to sell, transfer or dispose of
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("Convey") the ownership interest in a manner not permitted under Section
5.1(c) below, or (2) a breach or default occurs under the Ownership Transfer
Notification, then Miller shall have the right and option to purchase
Distributor's Miller business in accordance with the procedures described in
Section 7.1(b). Miller may designate a third party who shall upon such
designation be granted the rights and obligations granted to Miller under
this Section, without recourse to Miller.
(c) TRANSFER TO FAMILY MEMBER. The prior written
approval of Miller shall not be required for the sale, transfer or disposition
("Transfer") at death of Distributor's business or any ownership interest
therein to a family member, provided that (1) such Transfer does not cause a
substantial adverse financial effect on the business or operations of
Distributor, and (2) upon such Transfer, Distributor shall have a Manager
approved by Miller. Any subsequent change in control of Distributor's business,
as defined in Section 5.3 below, shall require Miller's prior written approval.
The Transfer to a trust for the benefit of a family member shall be governed by
Section 5.3 below. Family member is defined as the deceased owner's spouse,
child, grandchild, parent, brother or sister who is entitled to inherit the
deceased owner's ownership interest under the terms of the deceased owner's will
or the laws of intestate succession.
5.2 TRANSFER OF DISTRIBUTOR'S BUSINESS. In transactions other
than as provided for under Section 5.1 above, Distributor shall have the right
to Convey its entire business or any part of its business to an approved
purchaser, except when such disposition results in the Transfer of Distributor's
rights or obligations under this Agreement, or results in the inability of
Distributor to fulfill its obligations under this Agreement, in which event
Distributor shall follow the procedures and comply with the conditions set forth
in this Section:
(a) LETTER OF INTENT. Prior to any such Transfer,
Distributor shall deliver to Miller a bona fide nonbinding letter of intent
negotiated on an arm's length basis duly executed by Distributor and the
proposed purchaser, which letter of intent shall be expressly made subject to
Miller's rights described in this Section and shall set forth all of the
essential terms of the transaction, including the property subject to the
Transfer; the consideration to be paid; the representations and warranties to be
given by Distributor; and, all other material terms and conditions which would
be contained in a definitive purchase and sale agreement. Such letter of intent
and a distributor application completed by the proposed purchaser shall be
submitted to Miller within five (5) days after execution by Distributor of the
letter of intent.
(b) DUE DILIGENCE. Upon receipt of the letter of
intent, Miller shall have (during Distributor's normal business hours) access to
and the right to inspect Distributor's business and its books and records,
including its financial statements, appraisals, environment assessments, assets
and liabilities, and Distributor shall cooperate in providing such data and
information that Miller may reasonably request.
(c) RIGHT OF FIRST REFUSAL. Upon receipt of the letter
of intent, Miller shall have the irrevocable right and option to purchase
Distributor's business or that part thereof which is the subject of the letter
of intent upon those terms and conditions and for the purchase price (or, if
such purchase price is not a liquidated cash price, for the equivalent cash
value) contained in such letter of intent. Such terms and conditions shall be
contained in a purchase and sale agreement to be duly executed by Distributor
and Miller, if Miller exercises its right and option. Miller shall have thirty
(30) days after receipt of the letter of intent and the information Miller may
reasonably request (including appraisals and environmental assessments requested
or commissioned by Miller) to exercise its right and option, which exercise
shall occur when written notice is given to Distributor. If Miller exercises
its right and option, Distributor shall promptly execute all documents
reasonably required to Convey Distributor's business or part thereof to Miller.
(d) REVIEW OF PROPOSED PURCHASER. If Miller does not
exercise its right and option described in Section 5.2(c) above, and Distributor
has complied with all terms in Section 5.2(c) above, Miller shall have sixty
(60) days from receipt of the completed distributor application to approve or
disapprove the proposed purchaser and transaction. Distributor may Convey its
business in accordance with the letter of intent subject to
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Miller's prior written approval of the proposed purchaser, which approval
shall not be unreasonably withheld, and the purchaser's execution of the
current form of this Agreement applicable to other authorized Miller
distributors upon completion of the Transfer. Miller's approval (if given)
shall be effective for a period of sixty (60) days after issuance (unless
extended by Miller) and thereafter shall be null and void. Distributor shall
promptly notify Miller of the completion of the Transfer. Miller shall
notify Distributor in writing if Miller disapproves the proposed purchaser.
The notice will include the reasons for the disapproval. If Miller
disapproves the proposed purchaser, Distributor shall not Convey its rights
under this Agreement or render itself unable to fulfill its obligations
hereunder unless and until it obtains Miller's approval as described in this
Section 5.2.
(e) RELEASE. As part of the completion of the Transfer
described in this Section 5.2, (1) Distributor shall pay all sums owed or to be
owing to Miller; and (2) Distributor and Miller shall execute a mutual release
of all claims, of whatever nature, each party may have against the other, except
where such claims may arise out of or result from a breach or default of any
representation, warranty, covenant, agreement or obligation by Distributor that
may be contained in the purchase and sale agreement entered into with Miller.
(f) DESIGNEE. Miller may designate a third party who
shall upon such designation be granted all of the rights and obligations granted
to Miller under Section 5.2(a) through (c) above, without recourse to Miller,
provided that the mutual release described in Section 5.2(e) above shall be
entered into between Miller and Distributor.
5.3 CHANGE IN CONTROL. There shall be no change in the
control of Distributor's business, except as provided in Section 5.1(c)
above, without Miller's prior written approval. As used herein, "a change in
the control of Distributor's business" means any change in ownership
interests, whether by one transaction or by the cumulative effect of several
transactions with the same or different parties, which has the legal or
practical effect of transferring the power to determine Distributor's
business policies. Such a change in control shall include: (1) any sale,
transfer, change of ownership or other disposition (by merger, share
exchange, sale of stock or otherwise) in either the record or beneficial
ownership of the following: (A) 10 percent or more of Distributor's voting
stock; (B) if Distributor is not incorporated, a 10 percent or more interest
in Distributor's business; (C) 10 percent or more of the voting stock of a
corporation or entity which owns 50 percent or more of Distributor's voting
stock; and (2) a change in the form of business entity presently used by
Distributor (e.g., a change from individual ownership or a partnership to a
corporation); and (3) the entering into or changing of any agreement
transferring any of the powers that determine the policies under which
Distributor's business shall be operated, including a partner, shareholder or
member voting trust or voting agreement. Without Miller's prior written
approval, there shall be no grant of stock options, establishment of trusts
to hold stock or an interest in Distributor's business, nor execution of any
agreement by one or more owners of Distributor which provides that, under
certain circumstances, the interest of one of them in Distributor shall be
sold or purchased by one or more of the owners. It shall be Distributor's
responsibility to notify all of the owners of Distributor of the provisions
of this Section, to take those actions necessary to make such provisions
enforceable with respect to the owners of Distributor, and to notify Miller
promptly in writing of any sale, transfer, change of ownership or any other
disposition of an ownership interest in Distributor.
5.4 APPROVAL CRITERIA. In determining whether to approve or
disapprove, as the case may be, a proposed Transfer, change of ownership or any
other disposition of an ownership interest in Distributor's business under this
Section 5, Miller may consider the qualifications of the proposed purchaser or
transferee to fulfill the obligations of this Agreement, the effects of the
resulting business combination, the resulting territory configuration, the
potential advantages of alternative market combinations, and such other facts
and circumstances that Miller reasonably may deem to be relevant. In evaluating
the proposed purchaser's or transferee's qualifications, Miller may consider
such factors as it deems appropriate, including:
(a) Whether the proposed purchaser or transferee has the
financial resources to purchase and own Distributor or the specified interest in
it upon terms which will not jeopardize the future
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operation of the Distributor business, and whether under such ownership
Distributor will be able to provide the financial support (including but not
limited to market spending, capital expenditures, and any equity
capitalization or refinancing requirements) necessary for the successful
operation of the Distributor business and to comply with the terms of this
Agreement.
(b) Whether the proposed purchaser or transferee and
manager have the proven business experience to successfully operate the
Distributor business, including whether the non-owner management of the proposed
purchaser or transferee has appropriate incentives to comply with the
Distributor obligations under this Agreement. Prior experience in the wholesale
malt beverage distribution business is strongly preferred by Miller. If a
proposed purchaser or transferee would be a first time Miller distributor, the
purchaser must be willing to participate along with Distributor's management in
a series of training classes in order to be educated on Miller's business
practices.
(c) Whether the proposed purchaser or transferee after
the Transfer will be engaged in selling competing brands of malt beverages or
other products to the extent that such sales would, in the reasonable judgment
of Miller, interfere with the successful marketing of, and time and resources
devoted to, the Miller products in Distributor's Area.
5.5 NO PUBLIC OWNERSHIP. Unless Miller has given its prior
written approval, neither Distributor nor any corporation or entity which,
directly or indirectly, has an ownership interest in Distributor shall be owned
by the public; and there shall be no sale or offering for sale on any stock
exchange, over the counter, or on the open market of any securities of
Distributor or securities of any corporation or entity which, directly or
indirectly, has an ownership interest in Distributor.
5.6 PROVIDING AGREEMENT COPY. It shall be Distributor's
responsibility to furnish a copy of this Agreement to any prospective purchaser
or transferee of Distributor or of any ownership interest in Distributor.
5.7 CHANGE IN DISTRIBUTOR'S BUSINESS. Prior to Distributor's
acquisition or divestiture of any or all of its business other than its Miller
business, Distributor shall provide Miller with written notice of its Intended
acquisition or divestiture and a written plan describing how Distributor will
maintain or enhance its focus on Miller products following such action,
including any amendment and resubmission for Miller approval of Distributor's
Business Plan.
SECTION 6 DISTRIBUTOR'S RIGHT TO TERMINATE.
Distributor shall have the right to terminate this Agreement at
any time by giving Miller at least ninety (90) days' prior written notice. In
such event, Miller's sole obligation to Distributor shall be the purchase of
Distributor's inventory and point of sale pursuant to Section 8.3.
SECTION 7 MILLER'S RIGHT TO TERMINATE.
7.1 TERMINATION WITH CURE. Except as provided in Section 7.2
below, Miller may at any time initiate termination in accordance with the
procedures specified in this Section if Distributor fails to comply with any
commitment or undertaking stated in its application, or with any of the
obligations set forth in this Agreement or the Standards, or as otherwise
permitted by state law.
(a) Miller shall initiate such termination by providing
written notice to Distributor which shall state the nature of Distributor's
noncompliance. Subject to extensions granted at Miller's sole discretion,
Distributor shall then have thirty (30) days in which to submit a plan of
corrective action and an additional sixty (60) days to cure such noncompliance
in accordance with such plan. If Distributor fails to cure on a timely basis,
Miller shall have the right to terminate this Agreement immediately upon written
notice.
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(b) Upon such termination, and the execution of a
general release of all claims, of whatever nature, which Distributor may have
against Miller, Miller shall pay Distributor the amount prescribed in the
Finance portion of the Standards (the "Termination with Cure Payment"). If the
Distributor, based on a monthly trend analysis, has not engaged in its business
in the ordinary course (including pre-loading or over selling the market) in the
previous two (2) months prior to the termination of the Agreement then the
Termination with Cure Payment will be adjusted by Miller accordingly.
7.2 TERMINATION WITHOUT CURE. If any of the following events
occur, Miller shall have the right to terminate this Agreement immediately upon
giving written notice without any obligation on Miller's part to follow the
procedures described in Section 7.1 above or to make a Termination with Cure
Payment to Distributor:
(a) Conviction of Distributor or any of Distributor's
owners of a felony.
(b) Distributor's fraudulent conduct or substantial
misrepresentation in any of its dealings with Miller or with others concerning
Miller products.
(c) Any significant variation between the financial data
submitted to Miller in Distributor's application and the actual financial
condition of Distributor as reflected in Distributor's balance sheet at the time
Distributor commences operations under this Agreement.
(d) The cessation of Distributor's business with respect
to Miller products or the revocation or suspension of any of Distributor's
federal, state or local licenses or permits for more than fifteen (15) days, if
such license or permit is required for the normal operation of Distributor's
business.
(e) Distributor's insolvency (including Distributor's
inability to pay its debts as they mature) or failure to pay monies due Miller
in accordance with the terms of sale established by Miller, Distributor's
assignment or attempt to assign for the benefit of creditors, the institution of
bankruptcy proceedings by or against Distributor, or the dissolution or
liquidation of Distributor.
(f) Any disposition of Distributor's business, change of
control of Distributor's business, or attempt to assign this Agreement in
violation of Section 5 (except Section 5.1(b)) or 14 of this Agreement or
Distributor's violation of the other provisions of Section 5 of this Agreement.
(g) Distributor's breach or violation of the provisions
of Sections 1, 11 or 14 of this Agreement.
(h) Distributor's failure to obtain Miller's prior
written approval of a Manager within the time period described in Section 4.3(d)
above.
(i) Distributor's sale(s) of overage Miller products,
the repackaging of overage Miller products, or the intentional mislabeling of
Miller products.
(j) Distributor's failure to undertake a good faith
effort to cure noncompliance pursuant to Section 7.1 above.
(k) Any other right to terminate granted under state
law, statute or regulation.
7.3 CONTEMPORANEOUS TERMINATION. Miller shall have the right
to terminate this Agreement at any time by giving Distributor at least thirty
(30) days' prior written notice, provided that Miller contemporaneously gives
such notice to all other authorized Miller distributors. Miller shall incur no
liability to
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Distributor by reason of such termination. In the event Miller exercises its
right under this Section and offers other distributors the right to enter
into a new agreement, Miller shall offer Distributor the right to enter into
a new agreement upon substantially similar terms and conditions.
SECTION 8 POST TERMINATION PROVISIONS.
In the event this Agreement is terminated pursuant to Sections 6,
7.1, or 7.2, or if Distributor fails to enter into a new agreement pursuant to
Section 7.3 or to execute an amendment pursuant to Section 11.1, the following
provisions shall apply:
8.1 ORDER CANCELLATION. Miller shall have the right to
terminate unfilled orders and to stop or re-route any shipment en route to
Distributor.
8.2 PROPERTY RETURN. Within ten (10) days after such
termination, Distributor shall return to Miller all property belonging to Miller
in Distributor's possession or control. Miller shall not be liable to
Distributor for any expenses incurred by Distributor in connection with such
property. If Distributor has placed a deposit with Miller on any such property,
Miller shall refund such deposit to Distributor or credit an equivalent amount
to Distributor's account when such property is returned in the same condition in
which it was delivered by Miller to Distributor, reasonable wear and tear
excepted.
8.3 REPURCHASE FOLLOWING TERMINATION. Within ten (10) days
after such termination, Distributor shall sell and Miller shall purchase (1)
Distributor's undamaged, merchantable, and originally packaged inventory of
non-overage Miller products purchased from Miller, and (2) Distributor's
current, operable, undamaged and merchantable P.O.S. related to Miller products.
Such purchased inventory and P.O.S. shall be sold to Miller with good and
marketable title, free and clear of all liens and encumbrances.
(a) The purchase price shall be equal to the sum (1) of
the net price actually paid by Distributor (A) to Miller for the inventory, and
(B) to Miller or others for the P.O.S.; (2) of any taxes paid by Distributor in
connection with purchasing the inventory and P.O.S.; (3) of the cost of
transporting the inventory and P.O.S. to Distributor's warehouse (minus any
freight charges that Distributor would have incurred in returning empty
returnable containers to Miller); (4) of a handling charge to be established
from time to time by Miller; and (5) less Miller's costs in removing overage
Miller products from Distributor's Area.
(b) In lieu of paying the purchase price described
above, Miller may, at its election, credit the equivalent amount to
Distributor's account.
SECTION 9 MILLER TRADE DESIGNATIONS.
9.1 Distributor hereby acknowledges Miller's exclusive
ownership and other rights in the various trademarks, trade names, service
marks, trade dress and other trade designations (collectively "trade
designations") relating to Miller's business or products. Miller hereby grants
Distributor a nonexclusive, non-assignable, non-licensable privilege to use
Miller trade designations only in a lawful manner and only in connection with
the distribution, advertising, display and sale of Miller products. This
privilege shall terminate upon termination of this Agreement. Such trade
designations shall be used only in manners, forms and contexts specified or
approved in writing by Miller, and upon Miller's request, Distributor shall
change or discontinue the way in which Distributor uses any Miller trade
designation. Distributor agrees that it shall not manufacture or have
manufactured any merchandise bearing such designations without Miller's prior
written approval.
9.2 Distributor agrees to remove all Miller trade designations
affixed in any fashion to property owned or controlled by Distributor (including
vehicles, equipment, and office supplies) before leasing,
10
<PAGE>
selling or otherwise transferring such property or control thereof to another
person or before putting such property to any use not connected with the
distribution of Miller products.
9.3 Distributor agrees not to use Miller trade designations in
Distributor's corporate or business name without Miller's prior written
approval. If such approval is not given by Miller, Distributor agrees to
discontinue all such use and formally change any such name at its own expense
immediately upon termination of this Agreement.
9.4 If Distributor violates any of the provisions of Sections
9.1, 9.2 or 9.3 above, Distributor shall reimburse Miller for all costs,
attorneys' fees, and other expenses incurred by Miller in any action for damages
or injunctive relief brought to enforce this Section.
9.5 Distributor agrees to notify Miller of any infringements of
Miller trade designations that Distributor discovers and to assist Miller in
taking whatever legal action against such infringement as Miller, in its sole
discretion, may decide is appropriate. Miller agrees to bear all expenses and
costs incident to any such action.
SECTION 10 DISTRIBUTOR'S REPRESENTATIONS.
Distributor represents and warrants to Miller that at the time of
the entering into of this Agreement and during the term of this Agreement:
10.1 The information submitted by or on behalf of Distributor to
Miller, including Distributor's application, any Business Plans, and the
information on the Distributor Data Sheet (which shall have been completed and
signed by Distributor at the time this Agreement is executed) is true and
complete.
10.2 Distributor has all permits and licenses necessary for
Distributor lawfully to distribute Miller products in Distributor's Area (as
defined in Sections 1.1 and 1.2 above).
10.3 Distributor has not paid nor agreed to pay any fee or
monetary consideration or anything of value to Miller or to or for the benefit
of any Miller officer, director, employee, affiliate, or representative with
respect to the issuance of this Agreement, including the right to enter into a
business or to continue a business contemplated in this Agreement.
SECTION 11 AGREEMENT AMENDMENTS.
11.1 Miller may at anytime propose an amendment to this
Agreement. Distributor shall indicate its acceptance of any such amendment by
returning two executed copies thereof to Miller. The amendment shall become
effective on the date executed by Miller, which shall retain one executed copy
of the amendment and shall return the other executed copy to Distributor. If
Distributor does not return an executed amendment to Miller within ninety (90)
days' after the proposed amendment is submitted to Distributor, this Agreement
shall immediately terminate without liability to either party, but only if
Miller has contemporaneously submitted the same proposed amendment to other
authorized Miller distributors who have executed this form of Agreement in all
jurisdictions in which such amendment would be lawful.
11.2 The provisions of Section 11.1 above shall not apply to
changes to the Distributor Data Sheet or the Standards. Distributor shall
notify Miller immediately of any such changes contained in the Distributor Data
Sheet applicable to Distributor. Except as otherwise provided in this
Agreement, no change in the Distributor Data Sheet by one party shall alter the
other party's rights or obligations hereunder, unless Miller shall have given
its prior written approval and Distributor shall have given its approval in
writing.
11
<PAGE>
SECTION 12 COMPLIANCE WITH LAW.
The illegality or unenforceability of any provision of this
Agreement shall not impair the legality or enforceability of any other
provision. The laws, rules and regulations of the jurisdiction in which
Distributor conducts its business are hereby incorporated in this Agreement to
the extent that such laws, rules and regulations are required to be so
incorporated and shall supersede any conflicting provision of this Agreement.
If required by applicable law, Miller and Distributor may enter into an
amendment of this Agreement for the sole purpose of complying with such law.
SECTION 13 NOTICE.
All notices that are required or permitted to be given under this
Agreement shall be in writing, duly signed by the party giving such notice,
shall be transmitted by prepaid express overnight courier with proof of
delivery, by personal delivery, or by registered or certified mail, with return
receipt requested and postage prepaid, and, depending upon the means of
transmittal, shall be effective when delivered to the courier, delivered to the
recipient, or mailed. Notices shall be addressed or delivered: (1) if to
Distributor, to the address of Distributor set forth in the Distributor Data
Sheet; or (2) if to Miller, to Miller Brewing Company, Attention: Distributor
Services Department, 3939 West Highland Boulevard, Milwaukee, Wisconsin 53201,
with a copy to the Miller Market Area Office that has responsibility for
Distributor's Area. The address of either party may be changed by notice to the
other party given pursuant to this Section.
SECTION 14 ASSIGNMENTS.
Except as provided in Section 5, any transfer, sale, pledge,
encumbrance, or assignment of this Agreement or of any rights or obligations
under this Agreement, in whole or in part, whether by operation of law or
otherwise, shall be null and void, unless Miller has given its prior written
approval.
SECTION 15 CONFIDENTIALITY.
Distributor financial data and ownership transfer information
obtained by Miller pursuant to this Agreement shall be treated by Miller and its
employees as confidential information and shall not be disclosed to any other
party without Distributor's written consent, unless such disclosure is compelled
by a court or governmental agency.
SECTION 16 MISCELLANEOUS PROVISIONS.
16.1 As used in this Agreement, "prior written approval"
requires a written communication signed by two corporate officers of Miller;
"authorized Miller distributor" shall mean a distributor who is party to a
written distributor agreement with Miller which is currently in effect who sells
Miller products solely in the United States and who has executed this form of
Agreement; "including" shall mean including but not limited to; and, "good
faith" means honesty in fact and the observance of reasonable commercial
standards of fair dealing in the trade.
16.2 This Agreement, the Standards, and the attached Distributor
Data Sheet constitute the entire agreement between Miller and Distributor with
regard to the subject matter described herein. No representation, promise,
inducement or statement of intention, whether oral or written, other than those
set forth in this Agreement, the Standards and the attached Distributor Data
Sheet or referred to in Section 3.2 above has been made by Miller or
Distributor, and neither party shall be bound by or liable for any other alleged
representation, promise, inducement or statement of intention. In the event of
an inconsistency between this Agreement and any document incorporated herein,
the terms of this Agreement shall control. Notwithstanding anything to the
contrary in any prior written agreement between Miller and Distributor, this
Agreement terminates
12
<PAGE>
and supersedes all previous distributor agreements between Miller and
Distributor, except for sums owed to Miller by Distributor arising out of
such prior agreements between the parties.
16.3 The failure of either Miller or Distributor at any time or
times to enforce any provision of this Agreement shall in no way be construed as
a waiver of such provision and shall not affect the right of that party at a
later time to enforce each and every such provision.
16.4 Except as specifically provided for in this Agreement, no
person, including any officer, agent or employee of Miller, has any authority to
amend, modify, waive, supersede or cancel this Agreement or any terms or
provisions of this Agreement. No conduct of any such person shall be construed
to create that authority.
16.5 Distributor acknowledges that it is, and shall remain, an
independent business entity. Miller and Distributor are not joint venturers or
partners, and, neither may act as the agent, employee, or fiduciary of the
other.
16.6 From time to time, Miller may designate on the Distributor
Data Sheet as a Miller product a product which is sold by a Miller subsidiary or
affiliate, in which event that subsidiary or affiliate shall be included within
the definition of Miller and that product included within the definition of
Miller products with regard to application of the terms and conditions of this
Agreement thereto.
16.7 From time to time, Miller may enter into agreements with
other entities. Upon designation on the Distributor Data Sheet, such entities
and/or such entities' products shall be included in this Agreement, as described
in the Distributor Data Sheet.
16.8 Any action, claim, suit or proceeding between Miller and
Distributor or any owners of Distributor, whether based on federal, state
statutory or common law, including but not limited to, any and all disputes
relating to, arising out of or in connection with the interpretation,
performance or the nonperformance of this Agreement and any and all disputes
arising out of or in connection with transactions in any way related to this
Agreement (including the termination of this Agreement) shall be litigated
solely and exclusively before the United States District Court for the Eastern
District of the State of Wisconsin. The parties consent to the IN PERSONAM
jurisdiction of said court for the purposes of any such litigation, and waive,
fully and completely, any right to dismiss and/or transfer any action pursuant
to 28 U.S.C. Section 1404 or 1406 (or any successor statutes) or the doctrine
of forum non conveniens. In the event the United States District Court does not
have subject matter jurisdiction of said matter, then such matters shall be
litigated solely and exclusively before the appropriate state court of competent
jurisdiction located in Milwaukee, Wisconsin, and the parties consent to the
personal jurisdiction of such courts for the purpose of such litigation.
16.9 If under applicable law Distributor is granted the right to
recover or be reimbursed attorneys' fees and other costs if it were to prevail
in any action against Miller, Distributor agrees to reimburse Miller for
Miller's attorneys' fees and other costs which Miller may incur in the
successful enforcement of this Agreement or in Miller's successful defense of an
action brought against Miller by or on behalf of Distributor or an owner of
Distributor.
16.10 Miller, Distributor and the owners of Distributor waive any
right to trial by jury with respect to any claim or action relating to or
arising from this Agreement or any action or omission of any signatory hereto
(or its subsidiaries or affiliates) in connection with the transactions
contemplated by this Agreement.
13
<PAGE>
16.11 From time to time, Miller may designate in the Standards
remedies related to noncompliance with the Standards (or portions thereof). The
parties agree that use of such remedies is fair and reasonable and does not
constitute waiver of any other remedies available to Miller hereunder (including
those remedies described in Section 7 above) or by law.
16.12 Each heading contained in this Agreement is inserted for
convenience only and shall not be deemed to constitute a part of this Agreement
for interpretive purposes.
14
<PAGE>
SECTION 17 ACKNOWLEDGMENTS.
The undersigned, in their personal or representative capacities,
acknowledge that they have read this Agreement in full and have had an
opportunity to review it with counsel; that they understand and agree to each of
the foregoing provisions; and, that they are duly authorized to sign this
Agreement.
This Agreement is effective on the 1 day of January ,
-------- ----------
1999 .
- -----
PEPSI-COLA/7-UP BEVERAGE GROUP OF LOUISIANA
D/B/A MILLER BRANDS OF GREATER NEW ORLEANS
------------------------------------------
By Delta Beverage Group,Inc.,
Managing Partner
By: /s/: Kenneth E. Keiser (SEAL)
---------------------------
(President)
CORPORATE
SEAL
By: /s/: John F. Bierbaum (SEAL)
-------------------------
(Vice President and Chief Financial
Officer)
By: (SEAL)
-----------------------------
(Partner)
By: (SEAL)
----------------------------
(Partner)
MILLER BREWING COMPANY
By: /s/ [illegible]
--------------------------
(Senior Vice President)
By: /s/ [illegible]
----------------------------
(Assistant Secretary)
*Delete inapplicable words beneath signature lines.
In the case of a partnership, all partners must sign.
<PAGE>
DISTRIBUTOR DATA SHEET
This distributor data sheet is a part of the Miller Brewing Company Distributor
Agreement between the undersigned Distributor (referred to herein as
"DISTRIBUTOR") and the Miller Brewing Company. Changes in the information
contained herein may be made only in accordance with said Agreement, and must be
promptly brought to the attention of Miller's Distributor Services Department
with a copy to the Miller Market Area Office that has responsibility for
Distributor's Area. The Distributor Data Sheet is comprised of the following:
/X/ Schedule I: Ownership Data /X/ Schedule IV: Product Listing/Mail-
Ship Information
/X/ Schedule II: Manager Data /X/ Schedule V: Ownership Transfer
Notification
/X/ Schedule III: Distributor's / / Schedule VI: [Reserved]
Area
Check the appropriate box(es) for the information attached.
On the initial Distributor Data Sheet, all information must be supplied.
Dated this 1 day of January , 1999 .
------ --------------- --------
PEPSI-COLA/7-UP BEVERAGE GROUP OF LOUISIANA
D/B/A MILLER BRANDS OF GREATER NEW ORLEANS
-------------------------------------------
By Delta Beverage Group, Inc.,
Managing Partner
By: /s/: Kenneth E. Keiser (SEAL)
------------------------------------
(President)
CORPORATE
SEAL
By: /s/: John F. Bierbaum (SEAL)
-----------------------------------
(Vice President and Chief
Financial Officer)
By: (SEAL)
-------------------------------------
(Partner)
By: (SEAL)
--------------------------------------
(Partner)
MILLER BREWING COMPANY
By: /s/ [illegible]
------------------------------------
(Senior Vice President)
By: /s/ [illegible]
------------------------------------
(Assistant Secretary)
*Delete inapplicable words beneath signature lines.
In the case of a partnership, all partners must sign.
<PAGE>
MILLER BRANDS OF
GREATER NEW ORLEANS
DISTRIBUTOR DATA SHEET
SCHEDULE I Page 1
DATE: January 1, 1999
----------------
OWNERSHIP DATA
SOLE PROPRIETOR (Name of Owner):
PARTNERSHIP (Name): PEPSI-COLA/SEVEN-UP BEVERAGE GROUP OF LOUISIANA
TYPE OF PARTNERSHIP (e.g., general or limited liability):
STATE OF ORGANIZATION:
<TABLE>
<CAPTION>
% NAMES OF %
PARTNERS* OWNED PARTNERS OWNED
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Delta Beverage Group, Inc. 62%*
Poydras Street Investors LLC 38%
</TABLE>
*Delta Beverage Group, Inc. is Managing General Partner.
--------
CORPORATION (Name): Pepsi-Cola/Seven-Up Beverage Group of
Louisiana
d/b/a Miller Brands of Greater New Orleans
CITY: Harahan
STATE OF INCORPORATION:
REGISTERED AGENT (Name and Address):
LIMITED LIABILITY COMPANY (Name):
STATE OF ORGANIZATION:
<TABLE>
<CAPTION>
NAMES OF SHARES OR NAMES OF SHARES OR
STOCKHOLDER/MEMBERS* INTEREST STOCKHOLDERS/MEMBERS* INTEREST
- -------------------- OWNED ---------------------- OWNED
------- -----------
<S> <C> <C> <C>
</TABLE>
--------
<TABLE>
<CAPTION>
COMMON PREFERRED
--------------------------
<S> <C> <C>
TOTAL SHARES AUTHORIZED:
TOTAL SHARES ISSUED AND OUTSTANDING:
</TABLE>
*All Partners/Members/Stockholders MUST be listed and general partners must be
designated with an asterisk prior to their name.
<PAGE>
MILLER BRANDS OF
GREATER NEW ORLEANS
DISTRIBUTOR DATA SHEET
SCHEDULE I Page 2
DATE: January 1, 1999
-----------------
CORPORATION (cont'd)
Officers and Directors (The principal officers and principal directors must be
indicated by an asterisk inserted prior to their name.)
<TABLE>
<CAPTION>
NAME TITLE
- ---- --------
<S> <C>
Donald E. Benson Director, Chairman
*Robert C. Pohlad CEO, Director
*Kenneth E. Keiser COO, President
*John F. Bierbaum CFO, Vice President, Director
John F. Woodhead Director
Gerald A. Schwalbach Director
Phil Marineau Director
Philip N. Hughes Director
John H. Agee Director
Christopher E. Clouser Director
</TABLE>
Name and address of person(s) (other than those listed above) having ANY
financial interest whatsoever in Distributor:
<TABLE>
<CAPTION>
NATURE AND EXTENT OF
NAME ADDRESS FINANCIAL INTEREST
- ------- --------- ---------------------
<S> <C> <C>
Northwestern Mutual Life 720 East Wisconsin Avenue Lender
Milwaukee, WI 53202
CIGNA 900 Cottage Grove Road Lender
Bloomfield, CT 06002
NationsBank, N.A. Independence Center Lender
Charlotte, NC 28255
Norwest Bank Minnesota, 6th and Marquette Trustee, Senior Notes Due
N.A. Minneapolis, MN 55479- 2003
0069
</TABLE>
<PAGE>
MILLER BRANDS OF
GREATER NEW ORLEANS
DISTRIBUTOR DATA SHEET
SCHEDULE I Page 3
DATE: January 1, 1999
-----------------
OWNERSHIP DATA
If any of the stock of your company or corporation is owned by another entity(s)
(such as a corporation or trust), rather than individual stockholders, complete
the following:
Name and address of entity(s) owning or controlling the stock:
Delta Beverage Group, Inc. 2221 Democrat Road
Memphis, TN 38132
Type of entity (corporation, trust, estate, etc.): Corporation, Delaware
Names of all stockholders, trustees, and administrators who own or control the
entity:
<TABLE>
<CAPTION>
NUMBER % OF OWNERSHIP
NAME OF SHARES OR CONTROL
- -------- ----------- -------------
<S> <C> <C>
Voting Stockholders:
Pohlad Companies(1) 60.8% 23%
Equity Beverage(2) 15.9% 6%
Arbeit & Co.(3) 20.6% 8%
Ken Keiser 2.6% 1%
John Bierbaum .1% Nil
Non-Voting Stockholders:
First Bank System, Inc. 1%
Norwest Equity Capital, Inc. 7%
Massachusetts Mutual Life 12%
Northwestern Mutual Life 18%
CIGNA and Subsidiaries 16%
Morgan Stanley Funds 8%
</TABLE>
(1) 100% Owned James, Robert and William Pohlad, in equal interests
(2) 100% Owned Pepsi-Cola Bottling
(3) 100% Owned Mr. and Mrs. Gerald Rauenhorst, in joint interest
<PAGE>
MILLER BRANDS OF
GREATER NEW ORLEANS
DISTRIBUTOR DATA SHEET
SCHEDULE I Page 4
DATE: January 1, 1999
-----------------
OWNERSHIP DATA
If any of the stock of your company is owned by another entity(s) (such as a
corporation or trust), rather than individual stockholders, complete the
following:
Name and address of entity(s) owning or controlling the stock:
Poydras Street Investors LLC 1615 Poydras Street, 22nd Floor
New Orleans, LA 70123
Type of entity (corporation, trust, estate, etc.): Limited Liability Company,
Louisiana
Names of all stockholders, trustees, and administrators who own or control the
entity:
<TABLE>
<CAPTION>
NUMBER % OF OWNERSHIP
NAME OF SHARES OR CONTROL
- -------- ----------- ---------------
<S> <C> <C>
James Robert Moffett, Sr. 40%
John Amato 20%
James Robert Moffett, Jr. 20%
Chrystal Moffett Perry Trust 20%
</TABLE>
<PAGE>
MILLER BRANDS OF
GREATER NEW ORLEANS
DISTRIBUTOR DATA SHEET
SCHEDULE III
DATE: January 1, 1999
-----------------
DISTRIBUTOR'S AREA
"The following geographical area constitutes Distributor's Area as defined and
subject to the limitations set forth in Section 1 of the Distributor Agreement."
Pepsi-Cola/Seven-Up Beverage Group of Louisiana
d/b/a Miller Brands of Greater New Orleans - Harahan
In the State of Louisiana:
All of the parish of SAINT BERNARD, the parish of PLAQUEMINES, the parish of
TERREBONNE and the parish of JEFFERSON.
All of ORLEANS parish, except for that portion east of the junction of U.S.
Highways 11 and 90.
That portion of ST. JOHN THE BAPTIST Parish west of the Mississippi River.
That portion of ST. CHARLES Parish west of the Mississippi River.
All of LAFOURCHE Parish, excluding that portion north of one mile south of the
November 1, 1976, city limits of Thibodaux on Louisiana Hwy. 1 and 308; exclude
that portion north of five miles south of the November 1, 1976, Kraemer city
limits.
That portion of ST. JAMES Parish on Highway 20 from the Mississippi River,
including the town of Vacherie, to the junction of Louisiana Highways 20 and
644.
<PAGE>
DISTRIBUTOR DATA SHEET
SCHEDULE IV
DATE: 1/1/99
--------
MILLER PRODUCT LISTING
MAILING - SHIPPING INFORMATION
PART I. BRANDS SUBJECT TO AGREEMENT:
<TABLE>
<S> <C> <C>
Icehouse Meister Brau Light Milwaukee's Best
Lite Miller Beer Milwaukee's Best Light
Lite Ice Miller Genuine Draft Red Dog
Lowenbrau Dark Miller Genuine Draft Light Sharp's
Lowenbrau Special Miller High Life Southpaw Light
Magnum Miller High Life Ice
Meister Brau Miller High Life Light
</TABLE>
PART II. DISTRIBUTORS:
<TABLE>
<S> <C>
Name & Mailing Address: Pepsi-Cola/7-Up Beverage Group of Louisiana
d/b/a Miller Brands of Greater New Orleans
5733 Citrus Blvd.
Harahan, Louisiana 70123
Shipping Address: 5733 Citrus Blvd.
Harahan, Louisiana 70123
Primary Telephone Number: (504) 733-8705
Primary Fax Number: (504) 731-7460
Primary BPN E-Mail Address: [email protected]
Federal Employee ID Number: 72-1220853
Federal Basic Permit No.: 71000240
Wholesaler's License No.: 16171771
Importer's License No.:
</TABLE>
Other required license numbers (give number and nature):
*If more than one state or jurisdiction is involved, give data for all.
<PAGE>
AMENDMENT TO
MILLER BREWING COMPANY DISTRIBUTOR AGREEMENT
The Miller Brewing Company (Miller) and Pepsi-Cola/7-Up Beverage Group of
Louisiana d/b/a Miller Brands of Greater New Orleans of Harahan, Louisiana
mutually agree that the Distributor Data Sheet of the Miller Brewing Company
Distributor Agreement prevailing between the parties, which Agreement was
effective January 1, 1999, be amended by deleting the following Schedule(s) and
substituting therefor the attached Schedule(s):
/ / Schedule I: Ownership / / Schedule IV: Product Listing/Mail-
Data Ship Information
/X/ Schedule II: Manager Data / / Schedule V: Ownership Transfer
Notification
/ / Schedule III: Distributor's / / Schedule VI: [Reserved]
Area
This signature page, along with the amended Schedules containing those changes
in information, are hereby incorporated into the Distributor Data sheet. Except
as otherwise provided in the Agreement, no change in the Distributor Data Sheet
by one party shall alter the other party's rights or obligations under the
Agreement, unless the other party provides its prior written approval.
Execution of this signature page by the other party shall constitute such
approval. All other terms in such Miller Brewing Company Distributor Agreement
and its Distributor Data Sheet are to remain in full force and effect.
Dated at Milwaukee, Wisconsin, June 22, 1999 .
-------------------
PEPSI-COLA/7-UP BEVERAGE GROUP OF LOUISIANA
D/B/A MILLER BRANDS OF GREATER NEW ORLEANS
(Sole Proprietorship, Partnership,
Corporation, L.L.C.)*
By /s/: Kenneth E. Keiser (SEAL)
----------------------------------
CORPORATE (President)
SEAL
By /s/: John F. Bierbaum (SEAL)
-----------------------------------
(Vice President and Chief
Financial Officer)
By (SEAL)
------------------------------------
(Owner, Member, Partner, Secretary)
By (SEAL)
------------------------------------
(Owner, Member, Partner, Secretary)
MILLER BREWING COMPANY
By: /s/ [illegible]
----------------------------------
Senior Vice President
By: /s/ [illegible]
-----------------------------------
Assistant Secretary
*Delete inapplicable words beneath signature lines. In the case of a
partnership, all partners must sign.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 4,560
<SECURITIES> 0
<RECEIVABLES> 28,565
<ALLOWANCES> 1,298
<INVENTORY> 21,410
<CURRENT-ASSETS> 79,277
<PP&E> 129,301
<DEPRECIATION> 64,680
<TOTAL-ASSETS> 294,970
<CURRENT-LIABILITIES> 42,651
<BONDS> 195,077
0
32,201
<COMMON> 0
<OTHER-SE> 21,757
<TOTAL-LIABILITY-AND-EQUITY> 294,970
<SALES> 363,570
<TOTAL-REVENUES> 363,570
<CGS> 250,283
<TOTAL-COSTS> 348,811
<OTHER-EXPENSES> 19,417
<LOSS-PROVISION> 1,132
<INTEREST-EXPENSE> 19,290
<INCOME-PRETAX> (4,658)
<INCOME-TAX> 507
<INCOME-CONTINUING> (4,860)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,860)
<EPS-BASIC> (126.74)
<EPS-DILUTED> (126.74)
</TABLE>
