<PAGE> 1
Filed Pursuant to Rule 424(b)(3)
Registration No. 333-33223
[AMERISERVE LOGO]
Nebco Evans Holding Company PROSPECTUS
12 3/8% New Senior Discount Notes Due 2007
------------------------
The 12 3/8% New Senior Discount Notes due 2007 (the "New Senior Discount
Notes" or "New Notes") were issued in exchange for the 12 3/8% Senior Discount
Notes due 2007 (the "Senior Discount Notes" or "Notes") by Nebco Evans Holding
Company ("NEHC"), a Delaware corporation. See "Description of New Notes."
The New Notes accrete at a rate of 12 3/8% compounded semi-annually to an
aggregate principal amount of $100,387,000 at July 15, 2002. Thereafter, the New
Notes will accrue interest at the rate of 12 3/8% per annum, payable
semiannually on January 15 and July 15 of each year, commencing July 15, 2003.
The New Notes are redeemable at the option of NEHC, in whole or in part, at any
time on or after July 15, 2002 in cash at the redemption prices set forth
herein, plus accrued and unpaid interest and liquidated damages, if any, thereon
to the date of redemption. In addition, at any time, NEHC may redeem the New
Notes, in whole but not in part, at the option of NEHC, at a redemption price of
112.375% of the accreted value (determined at the date of redemption), with the
net cash proceeds of a Public Equity Offering. See "Description of the New
Notes -- Optional Redemption," and "Prospectus Summary -- Summary of Terms of
New Notes."
Upon the occurrence of a Change of Control, each Holder (as defined herein)
of New Notes will have the right to require NEHC to repurchase all or any part
of such Holder's New Notes at an offer price in cash equal to 101% of the
Accreted Value (determined at the date of redemption) thereof on the date of
repurchase (if such date of repurchase is prior to July 15, 2002) or 101% of the
aggregate principal amount thereof, plus accrued and unpaid interest and
liquidated damages, if any, thereon to the date of repurchase (if such date of
repurchase is on or after July 15, 2002). "Description of New Notes-Repurchase
at the Option of Holders." There can be no assurance that, in the event of a
Change of Control, NEHC would have sufficient funds to repurchase all New Notes
tendered. See "Risk Factors -- Payment Upon a Change of Control."
The New Notes are general, unsecured obligations of NEHC, rank pari passu
in right of payment with all existing and future senior indebtedness of NEHC and
rank senior in right of payment to all subordinated indebtedness of NEHC. As
indebtedness of NEHC, however, the Notes are effectively subordinated to all
indebtedness of the Company. As of June 28, 1997, on a pro forma basis, after
giving effect to the Transactions and the Refinancing, the Notes would have been
effectively subordinate to approximately $885.4 million of indebtedness of the
Company.
------------------------
SEE "RISK FACTORS," COMMENCING ON PAGE 11, FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE NEW
NOTES.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
This Prospectus is to be used by Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJ") in connection with the offers and sales in market-making
transactions at negotiated prices related to prevailing market prices at the
time of sale. The Company does not intend to list the New Notes on any
securities exchange or to seek admission thereof to trading in the National
Association of Securities Dealers Automated Quotation System. DLJ has advised
the Company that it intends to make a market in the New Notes; however, it is
not obligated to do so and any market-making may be discontinued at any time.
The Company will receive no portion of the proceeds of the sale of the New Notes
and will bear expenses incident to the registration thereof.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
------------------------
THE DATE OF THIS PROSPECTUS IS DECEMBER 11, 1997.
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No dealer, salesperson or other person has been authorized to give
information or to make any representations not contained in this Prospectus,
and, if given or made, such information or representations must not be relied
upon as having been authorized by NEHC or DLJ. This Prospectus does not
constitute an offer to sell or the solicitation of an offer to buy any security
other than the New Notes offered hereby, nor does it constitute an offer to sell
or the solicitation of an offer to buy any of the New Notes to any person in any
jurisdiction in which it is unlawful to make such an offer or solicitation to
such person. Neither the delivery of this Prospectus nor any sale made hereunder
shall under any circumstances create any implication that the information
contained herein is correct as of any date subsequent to the date hereof.
AVAILABLE INFORMATION
NEHC has filed with the Securities and Exchange Commission ("SEC") a
Registration Statement on Form S-4 under the Securities Act for the registration
of the New Notes offered hereby (the "Registration Statement"). This Prospectus,
which constitutes a part of the Registration Statement, does not contain all of
the information set forth in the Registration Statement, certain items of which
are contained in exhibits and schedules to the Registration Statement as
permitted by the rules and regulations of the SEC. For further information with
respect to NEHC or the New Notes offered hereby, reference is made to the
Registration Statement, including the exhibits and financial statement schedules
thereto, which may be inspected without charge at the public reference facility
maintained by the SEC at 450 Fifth Street, N.W., Room 1024, Washington, D.C.
20549, and copies of which may be obtained from the SEC at prescribed rates.
Statements made in this Prospectus concerning the contents of any document
referred to herein are not necessarily complete. With respect to each such
document filed with the SEC as an exhibit to the Registration Statement,
reference is made to the exhibit for a more complete description of the matter
involved, and each such statement shall be deemed qualified in its entirety by
such reference.
Upon the effectiveness of the Registration Statement, NEHC became subject
to the information requirements of the Securities Exchange Act of 1934 (the
"Exchange Act"), and in accordance therewith will file reports and other
information with the SEC. Such reports and other information filed by NEHC can
be inspected and copied at the public reference facilities of the SEC at 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549, at the Website
(http://www.sec.gov.) maintained by the SEC, and the regional offices of the SEC
located at 7 World Trade Center, 13th Floor, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, 14th Floor, Chicago, Illinois 60661.
Copies of such materials may be obtained from the Public Reference Section of
the SEC, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at
its public reference facilities in New York, New York and Chicago, Illinois at
prescribed rates.
So long as NEHC is subject to the periodic reporting requirements of the
Exchange Act, it is required to furnish the information required to be filed
with the SEC to (i) State Street Bank and Trust Company as trustee (the "Senior
Discount Note Trustee"), under the Indenture dated as of July 11, 1997 (the
"Senior Discount Note Indenture") among the Company and the Senior Discount Note
Trustee, pursuant to which the outstanding Notes were, and the New Notes will
be, issued and (ii) the holders of the Notes and the New Notes. NEHC has agreed
that, even if they are not required under the Exchange Act to furnish such
information to the SEC, they will nonetheless continue to furnish information
that would be required to be furnished by NEHC by Section 13 of the Exchange Act
to the Trustees and the holders of the Notes or New Notes as if they were
subject to such periodic reporting requirements.
In addition, NEHC has agreed that for so long as any of the New Notes
remain outstanding, they will make available to any prospective purchaser of the
New Notes or Holder of the New Notes in connection with any sale thereof, the
information required by Rule 144A(d)(4) under the Securities Act.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to and
should be read in conjunction with the more detailed information and financial
statements, including the notes thereto, appearing elsewhere in this Prospectus.
Unless otherwise indicated, all references in this Prospectus to the NEHC
business and pro forma data give effect to the Transactions described below. An
index of certain defined terms used herein can be found on page 99. Unless the
context indicates or otherwise requires, references in this Prospectus to the
"Company" or "AmeriServe" are to AmeriServe Food Distribution, Inc., its
predecessors and its subsidiaries, and give effect to the acquisition of PFS and
the contribution of The Harry H. Post Company ("Post"), each as described below,
and references to "NEHC" are to Nebco Evans Holding Company, a Delaware
corporation, and its subsidiaries.
NEHC
Following the consummation of the Transactions and the HWPI Transaction
(described below), the capital stock of AmeriServe and Holberg Warehouse
Properties, Inc., a Delaware corporation ("HWPI" and, together with AmeriServe,
the "NEHC Subsidiaries"), accounts for substantially all of NEHC's assets. NEHC
will conduct substantially all of its business through AmeriServe. HWPI's sole
operation consists of the leasing of two distribution centers to AmeriServe.
THE COMPANY
AmeriServe is North America's largest systems foodservice distributor
specializing in distribution to chain restaurants, the fastest growing segment
of the domestic restaurant industry. The Company is the primary supplier to its
customers of a wide variety of items, including fresh and frozen meat and
poultry, seafood, frozen foods, canned and dry goods, fresh and pre-processed
produce, beverages, dairy products, paper goods, cleaning supplies and
equipment. The Company serves over 30 different restaurant chains and over
26,500 restaurant locations in North America. The Company has had long-standing
relationships with such leading restaurant concepts as Pizza Hut, Taco Bell,
KFC, Wendy's, Burger King, Dairy Queen, Subway and Applebee's. The Company's
strategy is to capitalize on its market leading position, compelling industry
trends and management's extensive experience to: (i) pursue profitable internal
and external growth opportunities; (ii) capitalize on its nationwide network of
distribution centers to increase customer density and regional market
penetration; (iii) continue to provide low cost, superior customer service; and
(iv) maximize operating leverage by pursuing selective acquisitions within the
fragmented foodservice distribution industry. For the fiscal year ended December
28, 1996, the Company generated pro forma net sales, pro forma EBITDA and pro
forma net loss of $4.9 billion, $128.0 million and $7.9 million, respectively.
The Company has achieved a record of strong growth in net sales and EBITDA
by successfully implementing this strategy. From 1992 to 1996, exclusive of PFS,
the Company's net sales increased from $293.6 million to $1.3 billion,
representing a compound annual growth rate ("CAGR") of 44.5%. During the same
period, the Company's EBITDA, exclusive of PFS, increased from $6.0 million to
$26.0 million, representing a CAGR of 44.1%. The Company believes it is well
positioned to continue to expand its presence in the systems foodservice
distribution industry as a result of its reputation for providing superior
customer service as well as its ability to provide low cost, efficient services.
The Company believes that it was primarily as a result of these factors that in
January 1997 it was awarded a three-year exclusive contract effective April 1997
to provide foodservice distribution to approximately 2,600 Arby's restaurants.
The Company estimates that this contract, which management believes represents
the single largest customer migration in the systems foodservice distribution
industry, will result in the addition of approximately $325 million of net sales
in the first 12 months of such contract.
On July 11, 1997, in furtherance of its strategy, NEHC acquired PFS, the
foodservice distribution business ("PFS") of PepsiCo, Inc. ("PepsiCo") (the
"Acquisition"). Prior to the Acquisition, PFS was North America's second largest
systems foodservice distributor, serving over 17,000 restaurants in the Pizza
Hut, Taco Bell and KFC restaurant systems. The Company expects to realize
significant benefits from the
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Acquisition, including: (i) enhanced customer and concept diversification; (ii)
increased customer density; (iii) broadened national and international presence;
and (iv) substantial cost savings and economies of scale. In addition, in
connection with the Acquisition, the Company has entered into the Distribution
Agreement whereby it will be the exclusive distributor of selected products for
five years to the approximately 9,800 Pizza Hut, Taco Bell and KFC restaurants
in the continental United States owned by PepsiCo and previously serviced by
PFS. These restaurants accounted for approximately 68% of PFS's 1996 net sales
and 44% of the Company's 1996 pro forma net sales after giving effect to the
Arby's contract.
The Company believes it is well positioned to capitalize on the attractive
characteristics of the chain restaurant segment of the foodservice distribution
industry, which include: (i) the high growth rate of the segment, which
experienced an approximately 7.4% net sales CAGR from 1985 to 1995; (ii) the
uniformity of product offerings and consistency of demand by chain restaurant
customers; (iii) the increased focus by chain restaurants on foodservice
distributors that can provide consistent quality, reliable service and value on
a nationwide basis to maintain the chain's uniform standards; and (iv) the
fragmented nature of the industry, which includes over 3,000 foodservice
distribution companies. As the largest systems foodservice distributor serving
chain restaurants, the Company believes it is better positioned than its
competitors to offer consistent quality, reliable service and value on a
national scale in order to accommodate the growth of each customer.
COMPETITIVE ADVANTAGES
The Company believes that it will benefit from the following competitive
advantages:
- Market Leader with a Nationwide Presence. As a result of its national
presence, the Company believes it is one of the few systems foodservice
distributors capable of effectively serving large national accounts. The
Company believes it has significant advantages over smaller, regional
foodservice distributors as a result of its ability to: (i) derive
significant economies of scale in operating and distribution expenses;
(ii) benefit from increased purchasing power; (iii) make significant
investments in advanced technology and equipment, which enhance
productivity and customer service; and (iv) provide superior customer
service on a national scale.
- Low Cost Structure. The Company believes that it is uniquely positioned
to provide distribution services to chain restaurants at attractive
prices while also providing superior customer service. A critical
component of the Company's ability to reduce costs is the Company's
effective management of its warehouse and distribution costs, primarily
as a result of: (i) utilizing fewer, larger distribution centers within
each of its geographic regions; and (ii) maximizing customer density
within each region it serves. Furthermore, the Company has made
significant investments in advanced distribution centers, transportation
equipment and information technology, which enable it to efficiently
serve its customers.
- Stable Customer Base. The Company services over 26,500 restaurant
locations within more than 30 different restaurant concepts. The Company
believes it has among the best relationships with its customers of any
systems foodservice distributor as evidenced by the length and stability
of such relationships. For example, as a result of its ability to
provide high quality service at attractive rates, the Company has
developed long-standing relationships with many of the leading
restaurant concepts, including Dairy Queen (customer for 46 years),
Burger King (customer for 36 years), KFC (customer for 26 years),
Wendy's (customer for 21 years), Pizza Hut (customer for 20 years) and
Taco Bell (customer for 18 years).
- Experienced Management Team. The Company's management team has
extensive experience in the systems foodservice distribution business
and has developed long-standing relationships with franchisees and
senior management of successful concepts. The top four senior executives
of the Company have an average of approximately 24 years of experience
with the Company. In addition, prior to the Acquisition, the Company's
management team has successfully integrated five acquisitions since
1990, representing approximately $1.2 billion in aggregate annual sales.
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BUSINESS STRATEGY
The Company's objective is to continue to increase net sales and EBITDA by
implementing the following key elements of its business strategy:
- Continue to Pursue Internal and External Growth Opportunities. The
Company intends to continue to grow through a combination of the
development of new business from existing customers, the addition of new
chains, international expansion and selective acquisitions.
- Capitalize on the Benefits of the PFS Acquisition. Management believes
that combining the operations of AmeriServe and PFS will present it with
opportunities to eliminate duplicative costs and realign the Company's
distribution center network to capitalize effectively on economies of
scale and the benefits of higher customer density.
- Continue to Maximize Operating Leverage. As the largest systems
foodservice distributor in North America, the Company pursues a low-cost
operating strategy based primarily on achieving economies of scale in
the areas of warehousing, transportation, general and administrative
functions and management information systems.
- Continue to Provide Superior Customer Service. The Company believes it
enjoys a reputation for providing consistent, high quality service based
on its customer focus, its commitment to service excellence and the
depth of its management team.
THE TRANSACTIONS
In connection with the Acquisition, NEHC: (i) consummated the Note Offering
(as defined herein); and (ii) effected the HWPI Transaction (as defined herein)
(collectively, the "NEHC Transactions"). Concurrently, the Company: (i)
consummated the offering of $500.0 million of 10 1/8% Senior Subordinated Notes
due 2007 (the "Subordinated Notes Offering"); (ii) entered into the New Credit
Facility (as defined herein); (iii) established the Accounts Receivable Program
(as defined herein); (iv) received the Equity Contribution (as defined herein);
(v) effected the Preferred Stock Contribution (as defined herein); and (vi)
consummated the Post Contribution (as defined herein) (collectively, the
"AmeriServe Transactions" and, together with the NEHC Transactions, the
"Transactions"). See "The Transactions," "Description of Indebtedness" and
"Certain Relationships and Related Party Transactions."
THE REFINANCING
On October 15, 1997, the Company completed the offering (the "Senior Notes
Offering") and sale of its 8 7/8% Senior Notes due 2006 (the "Senior Notes") in
transactions not registered under the Securities Act in reliance upon the
exemption provided in Section 4(2) of the Securities Act. The Senior Notes
Offering was completed as part of the refinancing of certain outstanding term
indebtedness of the Company incurred under the New Credit Facility in connection
with the Acquisition to, among other things, (i) extend the maturity of the
borrowings, (ii) fix the interest rate of those borrowings at a rate believed by
the Company to be attractive for fixed rate financing, and (iii) provide the
Company with additional cash to be utilized for working capital and to fund
possible future acquisitions (collectively, the "Refinancing"). See "The
Refinancing," "The Business -- Business Strategy," "Description of
Indebtedness -- New Credit Facility" and "Description of Indebtedness -- 8 7/8%
Senior Notes due 2006."
NEHC's principal executive offices are located at 545 Steamboat Road,
Greenwich, Connecticut 06830 and its telephone number is (203) 661-2500.
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SUMMARY OF TERMS OF NEW NOTES
The form and terms of the New Notes are the same as the form and terms of
the Notes (which they have replaced) except that (i) the New Notes have been
registered under the Securities Act, and, therefore, do not bear legends
restricting the transfer thereof and (ii) the Holders of the New Notes generally
are not entitled to further registration rights under the Registration Rights
Agreement, which rights generally have been satisfied when the Exchange Offer
was consummated. The New Notes evidence the same debt as the Notes and are
entitled to the benefits of the Indenture. See "Description of New Notes."
SECURITIES OFFERED......... $100,387,000 principal amount at maturity of NEHC's
12 3/8% New Senior Discount Notes due 2007.
MATURITY DATE.............. July 15, 2007.
ACCRETION.................. The New Notes accrete at a rate of 12 3/8%,
compounded semi-annually to an aggregate principal
amount of $100,387,000 at July 15, 2002.
INTEREST RATE.............. The New Notes bear cash interest at the rate of
12 3/8% per annum, payable semiannually on July 15
and January 15 of each year, commencing January 15,
2003.
RANKING.................... The New Notes are general unsecured obligations of
NEHC, rank pari passu in right of payment to all
existing and future senior indebtedness of NEHC and
rank senior in right of payment to all subordinated
indebtedness of NEHC. As indebtedness of NEHC,
however, the Notes are effectively subordinated to
all indebtedness of the Company. As of June 28,
1997, on a pro forma basis, after giving effect to
the Transactions and the Refinancing, the Notes
would have been effectively subordinate to
approximately $885.4 million of indebtedness of the
Company. See "Risk Factors -- Holding Company
Structure; Effective Subordination."
OPTIONAL REDEMPTION........ The New Notes are redeemable at the option of NEHC,
in whole or in part, at any time on or after July
15, 2002 in cash at the redemption prices set forth
herein, plus accrued and unpaid interest and
liquidated damages, if any, thereon to the date of
redemption. In addition, at any time, NEHC may
redeem the New Notes, in whole but not in part, at
the option of NEHC, at a redemption price of
112.375% of the accreted value (determined at the
date of redemption), with the net cash proceeds of
a Public Equity Offering. See "Description of the
New Notes -- Optional Redemption," and "Prospectus
Summary -- Summary of Terms of New Notes."
CHANGE OF CONTROL.......... Upon the occurrence of a Change of Control, each
holder of New Notes has the right to require NEHC
to repurchase all or any part of such holder's
Notes at an offer price in cash equal to 101% of
the Accreted Value thereof on the date of
repurchase (if such date of repurchase is prior to
July 15, 2002) or 101% of the aggregate principal
amount thereof, plus accrued and unpaid interest
and liquidated damages, if any, thereon to the date
of repurchase (if such date of purchase is on or
after July 15, 2002). See "Description of New
Notes -- Repurchase at the Option of
Holders -- Change of Control." There can be no
assurance that, in the event of a Change of
Control, NEHC would have sufficient funds to
repurchase all New Notes tendered. See "Risk
Factors -- Payment Upon a Change of Control."
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CERTAIN COVENANTS.......... The Indenture contains certain covenants that
limit, among other things, the ability of NEHC to:
(i) pay dividends, redeem capital stock or make
certain other restricted payments or investments;
(ii) incur additional indebtedness or issue
preferred equity interests; (iii) merge,
consolidate or sell all or substantially all of its
assets; (iv) create liens on assets; and (v) enter
into certain transactions with affiliates or
related persons. See "Description of New
Notes -- Certain Covenants."
FORM AND DENOMINATION...... The certificates representing the New Notes are
issued in fully registered form, deposited with a
custodian for and registered in the name of a
nominee of the Depository in the form of a Global
New Note. Beneficial interests in the certificates
representing the Global New Notes are shown on, and
transfers thereof are effected through, records
maintained by the Depository and its Participants.
See "Book Entry, Delivery and Form."
ORIGINAL ISSUE DISCOUNT.... The New Notes are being issued with original issue
discount for U.S. federal income tax purposes.
Thus, although interest will not be payable on the
Notes prior to July 15, 2002, holders will be
required to include amounts in gross income for
U.S. federal income tax purposes in advance of
receipt of the cash payments to which such income
is attributable. See "Description of Certain
Federal Income Tax Consequences -- Original Issue
Discount."
EXCHANGE OFFER REGISTRATION
RIGHTS................... If any Holder of an aggregate of at least $2.0
million in principal amount of Notes notifies NEHC
within 20 days of the consummation of the Exchange
Offer that (A) such Holder is prohibited by law or
SEC policy from participating in the Exchange
Offer, or (B) such Holder may not resell the New
Notes acquired by it in the Exchange Offer to the
public without delivering a prospectus and the
Prospectus contained in the Exchange Offer
Registration Statement is not appropriate or
available for such resales by such Holder, or (C)
such Holder is a broker-dealer and holds Notes
acquired directly from NEHC or one of its
respective affiliates, then NEHC will be required
to provide a shelf registration statement (the
"Shelf Registration Statement") to cover resales of
the Notes by the Holders thereof. Notwithstanding
the foregoing, at any time after consummation of
the Exchange Offer, NEHC may allow the Shelf
Registration Statement to cease to be effective and
usable if (i) the Board of Directors of NEHC
determines in good faith that it is in the best
interests of NEHC not to disclose the existence of
or facts surrounding any proposed or pending
material corporate transaction involving NEHC, and
NEHC notifies the Holders within a certain period
of time after the Board of Directors makes such
determination, or (ii) the prospectus contained in
the Shelf Registration Statement contains an untrue
statement of a material fact necessary in order to
make the statements therein, in the light of the
circumstances under which they were made, not
misleading. NEHC will pay certain liquidated
damages to Holders of Notes and Holders of New
Notes if NEHC is not in compliance with its
obligations under the Registration Rights
Agreement. See "Exchange Offer; Registration
Rights."
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
PARTICIPANTS IN THE EXCHANGE OFFER, SEE "RISK FACTORS."
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SUMMARY UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS)
The following table sets forth summary unaudited pro forma consolidated
balance sheet data at June 28, 1997 and summary unaudited pro forma consolidated
income statement data of NEHC for the fiscal year ended December 28, 1996 and
the six months ended June 28, 1997. NEHC has a fiscal year ending on the
Saturday closest to the end of the calendar year. NEHC's fiscal year is 52
weeks. PFS had a fiscal year ending on the last Wednesday in December. The PFS
fiscal year was 52 weeks. The pro forma consolidated balance sheet data at June
28, 1997 give effect to the Transactions and the Refinancing as if they had
occurred on June 28, 1997. The pro forma consolidated income statement data and
other data for the fiscal year ended December 28, 1996 and the six months ended
June 28, 1997 give effect to the Transactions and the Refinancing as if they had
occurred at the beginning of the period presented. The following information
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations," the historical and unaudited pro
forma financial statements of NEHC, the historical financial statements of PFS
and the related notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
FISCAL SIX MONTHS
YEAR ENDED
1996 JUNE 28, 1997
---------- -------------
<S> <C> <C>
INCOME STATEMENT DATA:
Net sales....................................................... $4,875,479 $ 2,301,495
Gross profit.................................................... 488,552 234,947
Operating expenses.............................................. 405,017 200,799
Operating income................................................ 83,535 34,148
OTHER DATA:
Pro forma EBITDA(1)............................................. $ 128,002 $ 56,803
Depreciation and amortization................................... 44,950 22,655
Capital expenditures............................................ 41,510 19,775
Ratio of earnings to fixed charges(2)........................... N/A N/A
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 28, 1997
-----------------------
ACTUAL PRO FORMA
---------- ----------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................................... $ 3,474 $ 162,166
Working capital..................................................... 222,469 167,138
Total assets........................................................ 1,446,512 1,413,800
Long-term debt, including current portion........................... 1,036,262 940,382
Stockholder's equity................................................ 14,791 89,973
</TABLE>
- ---------------
(1) Pro forma EBITDA represents pro forma operating income plus pro forma
depreciation and amortization and excludes one-time non-recurring gains and
losses.
Pro forma EBITDA is computed as follows:
<TABLE>
<CAPTION>
SIX
MONTHS ENDED
FISCAL YEAR JUNE 28,
1996 1997
----------- ------------
<S> <C> <C>
Pro forma operating income.................................. $ 83,535 $ 34,148
Pro forma depreciation and amortization..................... 44,950 22,655
Non-recurring gains/losses:
Gain on sale of assets.................................... (4,283) --
Integration costs......................................... 3,800 --
-------- -------
Pro forma EBITDA............................................ $ 128,002 $ 56,803
======== =======
</TABLE>
Pro-forma EBITDA is presented because management believes it is a widely
accepted financial indicator used by certain investors and analysts to
analyze and compare companies on the basis of operating performance. NEHC
understands that EBITDA, as used herein, is not necessarily comparable to
other similarly titled captions of other companies due to potential
inconsistencies in the method of calculation. EBITDA is not intended to
represent cash flows for the period, nor has it been presented as an
alternative to operating income as an indicator of operating performance
and should not be considered in isolation or
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as a substitute for measures of performance prepared in accordance with
generally accepted accounting principles. See the historical and unaudited
pro forma financial statements of NEHC, the historical financial statements
of PFS and the related notes thereto included elsewhere herein.
(2) For purposes of computing this ratio, earnings consist of income before
income taxes plus fixed charges. Fixed charges consist of interest expense,
amortization of deferred finance fees and one-third of the rent expense from
operating leases, which management believes is a reasonable approximation of
the interest factor of the rent. For the fiscal year ended December 28, 1996
and the six months ended June 28, 1997, on a pro forma basis, earnings were
inadequate to cover fixed charges by $12.9 million and $13.6 million,
respectively.
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SUMMARY SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS)
The following table sets forth summary historical financial data of NEHC
and PFS for the fiscal years 1994, 1995 and 1996, which have been derived from
the audited financial statements of NEHC and PFS, respectively. The financial
statements of NEHC were audited by Ernst & Young LLP for fiscal years 1994, 1995
and 1996. The financial statements of PFS were audited by KPMG Peat Marwick LLP
for fiscal years 1994, 1995 and 1996. NEHC has a fiscal year ending on the
Saturday closest to the end of the calendar year. Each fiscal year for NEHC was
52 weeks. PFS had a 52-53 week fiscal year ending on the last Wednesday in
December. Each fiscal year for PFS was 52 weeks, except 1994, which contained 53
weeks. Data for the first six months of 1996 and 1997 have been derived from
unaudited financial statements of NEHC and PFS, which, in the opinion of
management, include all adjustments necessary for a fair presentation of the
information. Data at and for the first six months of 1997 do not purport to be
indicative of results to be expected for the full fiscal year. The following
information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," the historical and
unaudited pro forma financial statements of NEHC and the historical financial
statements of PFS and related notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
FISCAL YEAR SIX MONTHS
------------------------------------ -----------------------
NEHC 1994 1995 1996 1996 1997
- ------------------------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales.......................... $ 358,516 $ 400,017 $1,389,601 $ 636,167 $ 802,900
Gross profit....................... 37,914 40,971 140,466 64,414 79,011
Operating expenses................. 34,488 36,695 122,430 57,914 73,085
Operating income................... 3,426 4,276 18,036 6,500 5,926
OTHER DATA:
EBITDA(1).......................... $ 6,710 $ 7,038 $ 27,925 $ 10,875 $ 12,717
Depreciation and amortization...... 3,284 2,762 10,372 4,375 6,791
Capital expenditures............... 1,331 2,496 12,701 4,332 6,737
Net cash provided by (used in):
Operating activities............ 4,276 4,505 4,151 (1,767) (13,791)
Investing activities............ (5,422) (5,574) (105,417) (100,697) (9,450)
Financing activities............ 490 619 102,915 103,246 24,491
PFS
- -------------------------------------
INCOME STATEMENT DATA:
Net sales.......................... $3,279,837 $3,458,944 $3,422,086 $1,552,475 $1,498,345
Gross profit....................... 326,672 344,777 341,484 154,852 155,686
Operating expenses................. 239,772 265,305 261,741 122,528 120,945
Operating income................... 86,900 79,472 79,743 32,324 34,741
OTHER DATA:
EBITDA(1).......................... $ 103,953 $ 98,236 $ 99,573 $ 41,143 $ 43,555
Depreciation and amortization...... 17,053 18,764 19,830 8,819 8,814
Capital expenditures............... 21,310 25,245 28,771 14,214 12,291
Net cash provided by (used in):
Operating activities............ 64,717 29,580 78,437 897 7,972
Investing activities............ (20,263) (24,388) (27,561) (13,182) (4,048)
Financing activities............ (44,360) (5,163) (49,454) 12,661 (5,517)
</TABLE>
- ---------------
(1) EBITDA represents operating income plus depreciation and amortization and
excludes one-time non-recurring gains and losses. EBITDA for NEHC in fiscal
1996 excludes net one-time, non-recurring gains of $0.5 million. EBITDA is
presented because management believes it is a widely accepted financial
indicator used by certain investors and analysts to analyze and compare
companies on the basis of operating performance. EBITDA is not intended to
represent cash flows for the period, nor has it been presented as an
alternative to operating income as an indicator of operating performance and
should not be considered in isolation or as a substitute for measures of
performance prepared in accordance with generally accepted accounting
principles. NEHC understands that while EBITDA is frequently used by
securities analysts in the evaluation of companies, EBITDA, as used herein,
is not necessarily comparable to other similarly titled captions of other
companies due to potential inconsistencies in the method of calculation. See
the historical and unaudited pro forma financial statements of NEHC and the
historical financial statements of PFS and the related notes thereto
included elsewhere herein.
10
<PAGE> 11
RISK FACTORS
Investors should consider carefully the factors set forth below, as well as
the other information set forth elsewhere in this Prospectus, before making a
decision to invest in the New Notes. This Prospectus includes forward-looking
statements, including statements concerning the Company's business strategy,
operations, cost savings initiatives, economic performance, financial condition
and liquidity and capital resources. Such statements are subject to various
risks and uncertainties. NEHC's actual results may differ materially from the
results discussed in such forward-looking statements because of a number of
factors, including those identified in this "Risk Factors" section and elsewhere
in this Prospectus. See "Summary," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "The Business." The
forward-looking statements are made as of the date of this Prospectus, and NEHC
assumes no obligation to update the forward-looking statements or to update the
reasons why actual results could differ from those projected in the
forward-looking statements.
SUBSTANTIAL LEVERAGE AND DEBT SERVICE
NEHC is and will continue to be highly leveraged as a result of the
substantial indebtedness it has incurred in connection with the Transactions and
the additional indebtedness it incurred in connection with the Refinancing. On a
pro forma basis after giving effect to the Transactions and Refinancing, the
Company would have had total indebtedness of $940.4 million and stockholders'
equity of $90.0 million as of June 28, 1997, and NEHC's earnings would have been
inadequate to cover fixed charges by $12.9 million and $13.6 million for the
year ended December 28, 1996 and the six months ended June 28, 1997,
respectively. The Company may incur additional indebtedness in the future,
subject to limitations imposed by the Indenture and the New Credit Facility. See
"Capitalization," "Unaudited Pro Forma Combined Financial Statements" and "The
Transactions -- The Acquisition."
NEHC's ability to make scheduled payments of principal of, or to pay
interest on, or to refinance its indebtedness (including the New Notes) depends
on its future performance, which, to a certain extent, is subject to general
economic, financial, competitive, legislative, regulatory and other factors
beyond its control. Based upon the current level of operations and anticipated
growth, the management of NEHC believes that NEHC's available cash flow,
together with available borrowings under the Company's New Credit Facility and
other sources of liquidity, including the Accounts Receivable Program, will be
adequate to pay such leases, dividends or other payments to enable NEHC to meet
NEHC's anticipated future requirements for working capital, capital
expenditures, scheduled payments of principal of and interest on its
indebtedness, and interest on the New Notes. However, all or a portion of the
principal payments at maturity on the New Notes may require refinancing. There
can be no assurance that NEHC will generate sufficient cash flow from operations
or that future borrowings will be available in an amount sufficient to enable
NEHC to service its indebtedness, including the New Notes, or to make necessary
capital expenditures, or that any refinancing would be available on commercially
reasonable terms or at all. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
The degree to which NEHC is now leveraged could have important consequences
to holders of the New Notes, including, but not limited to, the following: (i) a
substantial portion of NEHC's cash flow will be required to be dedicated to debt
service and will not be available for other purposes; (ii) NEHC's ability to
obtain additional financing in the future could be limited; (iii) the Indenture
and the Senior Note Indenture (as defined herein) contain financial and
restrictive covenants that limit the ability of NEHC to, among other things,
borrow additional funds, dispose of assets or pay cash dividends. Failure by
NEHC to comply with such covenants could result in an event of default, which,
if not cured or waived, could have a material adverse effect on NEHC. In
addition, the degree to which NEHC is leveraged could prevent it from
repurchasing all New Notes tendered to it upon the occurrence of a Change of
Control. See "Description of New Notes -- Repurchase at the Option of
Holders -- Change of Control," "Description of Indebtedness" and "The
Transactions -- The Acquisition."
11
<PAGE> 12
HOLDING COMPANY STRUCTURE; EFFECTIVE SUBORDINATION
NEHC is a holding company and does not have any material operations or
assets other than ownership of capital stock of its subsidiaries. Accordingly,
the New Notes are effectively subordinated to all existing and future
liabilities of NEHC's subsidiaries, including indebtedness under the New Credit
Facility, the Senior Notes and Senior Subordinated Notes. As of June 28, 1997,
on a pro forma basis after giving effect to the Transactions and the
Refinancing, the aggregate amount of indebtedness of NEHC's subsidiaries to
which the holders of the New Notes would be effectively subordinated would have
been approximately $885.4 million. In addition, certain of NEHC's subsidiaries
have $150.0 million of additional availability under the New Credit Facility for
future borrowings. NEHC and its subsidiaries may incur additional indebtedness
in the future, subject to certain limitations contained in the instruments
governing their indebtedness.
Any right of NEHC to participate in any distribution of the assets of its
subsidiaries upon the liquidation, reorganization or insolvency of any such
subsidiary (and the consequent right of the Holders of the New Notes to
participate in the distribution of those assets) will be subject to the prior
claims of the respective subsidiary's creditors. The obligations of NEHC's
subsidiaries under the New Credit Facility are secured by substantially all of
their respective assets. Additionally, NEHC will guarantee AmeriServe's
obligations under the New Credit Facility and such guarantee will be secured by
a first priority pledge of all the capital stock of AmeriServe owned by NEHC.
See "Description of Indebtedness -- New Credit Facility."
LIMITATION ON THE PAYMENT OF FUNDS TO NEHC BY ITS SUBSIDIARIES
NEHC's cash flow, and consequently its ability to pay dividends and to
service debt, including its obligations under the New Notes, is dependent upon
the cash flows of its subsidiaries and the payment of funds by such subsidiaries
to NEHC in the form of loans, dividends or otherwise. NEHC's subsidiaries have
no obligation, contingent or otherwise, to pay any amounts due pursuant to the
New Notes or to make any funds available therefor. In addition, the Company's
New Credit Facility and the indentures governing the New Notes, the Senior Notes
and the Senior Subordinated Notes impose, and agreements entered into in the
future may impose, significant restrictions on the payment of dividends and the
making of loans by the Company to NEHC. Under the New Credit Facility, subject
to meeting certain financial covenants, NEHC's subsidiaries will be permitted to
pay dividends to NEHC equal to the semi-annual interest payments due on the New
Notes; provided that upon a notice of a default or event of default under the
New Credit Facility, NEHC's subsidiaries will be prohibited from paying such
dividends until the earlier of the 180th day following such notice and the date
such default or event of default is cured or waived. Accordingly, repayment of
the New Notes may depend upon the ability of NEHC to effect an offering of
capital stock or to refinance the New Notes.
ASSET ENCUMBRANCES
In connection with the New Credit Facility, NEHC has granted the lenders
thereunder a first priority lien on all of the capital stock of the Company as
security for its guarantee of the Company's obligations under the New Credit
Facility. In the event of a default under the New Credit Facility or such
guarantee, the lenders under the New Credit Facility (the "Lenders") could
foreclose upon the assets pledged to secure the New Credit Facility, including
such capital stock, and the holders of the New Notes might not be able to
receive any payments until any payment default was cured or waived, any
acceleration was rescinded, or the indebtedness under the New Credit Facility
was discharged or paid in full.
RELIANCE ON KEY CONTRACTS
In January 1997, the Company entered into a three-year agreement, which
became effective April 1997, to become the primary supplier to approximately
2,600 Arby's restaurants nationwide. The Company expects to generate at least
$325 million of annual net sales during the term of the agreement. No assurance
can be given that the Company's contract with Arby's will be renewed upon
expiration, that any renewal of such contract will be on terms as favorable to
the Company as the current contract or that the Company will realize expected
net sales under the existing contract.
12
<PAGE> 13
In connection with the Acquisition, the Company entered into a five-year
Distribution Agreement effective from the Transactions Closing (as defined
herein) with each of PepsiCo's chain restaurant businesses pursuant to which the
Company will be the exclusive distributor of specified restaurant products
purchased by Pizza Hut, Taco Bell and KFC restaurants within the continental
United States, which are owned, directly or indirectly, by the subsidiaries of
PepsiCo which hold each of the three restaurant businesses as of the
Transactions Closing (other than certain specified restaurants) or which are
acquired or built by PepsiCo's chain restaurant businesses during the term of
the Distribution Agreement. Each of the subsidiaries which is a party to the
Distribution Agreement will be owned by TRICON Global Restaurants, Inc.
("TRICON") following PepsiCo's spin-off of its core restaurant businesses to its
shareholders. As a result, the spin-off of TRICON will have no impact on the
Distribution Agreement. On a pro forma basis after giving effect to the
Transactions and after giving effect to the Arby's contract, approximately 44%
of the Company's 1996 net sales would have been generated under the Distribution
Agreement. The Distribution Agreement may be terminated at any time (i) by any
party in the event that the other party breaches any material term and such
breach remains unremedied for a period of 30 calendar days after written notice
of such breach, (ii) by the PepsiCo Chains if the Company is in material breach
of the Distribution Agreement for failure to maintain specified service levels
for a specified period of time or (iii) by either party in the event that the
other party becomes the subject of a bankruptcy, insolvency or other similar
proceeding. See "The Acquisition -- Distribution Agreement."
While exclusive or written arrangements are not typically the basis of
foodservice distribution sales and have not historically been requisite to the
Company's growth, the Distribution Agreement will expire in five years and no
assurance can be given that the Distribution Agreement will be renewed or, if
renewed, whether such renewal will be on terms as favorable as the existing
agreement. Furthermore, no assurance can be given that the Company will be able
to achieve the expected net sales under the current Distribution Agreement.
Gross profit and net pretax profit on certain sales by PFS to Pizza Hut under
the Distribution Agreement are limited.
DEPENDENCE ON CERTAIN CHAINS AND CUSTOMERS
The Company derives substantially all of its net sales from several chain
restaurant concepts. On a pro forma basis after giving effect to the
Transactions, and the Arby's contract, the largest chains serviced by the
Company would have been Pizza Hut, Taco Bell and KFC, representing 28%, 28% and
12% of 1996 net sales, respectively. Adverse developments affecting such chains
or a decision by a corporate owner or franchisor to revoke its approval of the
Company as a distributor could have a material adverse effect on the Company's
operating results.
The Company's customers are generally individual franchisees or
corporate-owned restaurants within such restaurant chains. Although the
corporate owner or franchisor of a chain generally reserves the right to approve
the distributors for its franchisees, each customer generally makes its
selection of a foodservice distributor from an approved group of distributors.
On a pro forma basis after giving effect to the Transactions and after giving
effect to the Arby's contract, the Company's largest customer would have been
PepsiCo, representing 44% of the Company's 1996 net sales. No other customer
accounted for more than 10% of the Company's pro forma net sales in 1996.
Adverse events affecting any of the Company's largest customers, a material
decrease in sales to any such customers or the loss of a major customer through
the acquisition thereof by a company with an internal foodservice distribution
business or otherwise could have a material adverse effect on the Company's
operating results. In addition, the Company's continued growth is dependent in
part on the continued growth and expansion of its customers.
A significant portion of the Company's business is conducted with customers
with which the Company does not have contracts. Such customers could cease doing
business with the Company on little or no notice. The Company's contracts with
its other customers are subject to termination by the customer prior to
expiration of the stated term under circumstances specified in each contract,
including, in some cases, failure to comply with performance reliability
standards. Although the Company is not aware of any issues of non-compliance
that could reasonably be expected to result in termination of any such contracts
prior to expiration of the stated term, and has not been notified by any
customer that it intends to terminate its contract with the Company, there can
be no assurance that historic levels of business from any customer of the
Company will be maintained in the future. See "-- Key Contracts" and "The
Business -- Customers."
13
<PAGE> 14
ABILITY TO INTEGRATE ACQUISITIONS
The Company has achieved a significant portion of its growth through
acquisitions and will continue to try to grow in this way. Although each of the
previously acquired companies has a significant operating history, the Company
has a limited history of owning and operating the most recently acquired of
these businesses on a consolidated basis. Holberg Industries, Inc. ("Holberg")
acquired NEBCO Distribution of Omaha, Inc. ("NEBCO") in 1986. NEBCO acquired
Evans Brothers Company ("Evans") in January 1990 and the combined company was
renamed "NEBCO EVANS Distribution, Inc." ("NEBCO EVANS"). NEBCO EVANS acquired
L.L. Distribution Systems Inc. in 1990, Condon Supply Company in 1991, AmeriServ
Food Company ("AmeriServ") in January 1996 and, in April 1997, changed its name
to AmeriServe Food Distribution, Inc. Following the Acquisition, the Company
will have to integrate PFS with its existing business, including its prior
acquisitions. While the Company believes that such integration provides
significant opportunities to reduce costs, there can be no assurance that the
Company will be able to meet performance expectations or successfully integrate
these businesses on a timely basis without disruption in the quality and
reliability of service to its customers or diversion of management resources. In
addition, while the Company has made acquisitions successfully before, the
Acquisition is substantially larger than the Company's prior acquisitions. The
integration of such businesses will also require improvements in the Company's
management information systems. There can be no assurance that such improvements
will be realized on a timely basis.
DEPENDENCE ON KEY PERSONNEL
The Company's and NEHC's success is, and will continue to be, substantially
dependent upon the continued services of its senior management, particularly Mr.
John V. Holten, Chairman and Chief Executive Officer of NEHC and the Company,
and Mr. Raymond E. Marshall, President, Chief Operating Officer and Treasurer of
NEHC and President and Treasurer of the Company. The loss of the services of one
or more members of senior management could adversely affect NEHC's operating
results. The Company has entered into employment agreements with Mr. Marshall
and other members of senior management, and has obtained key-man life insurance
in the amount of $3.0 million on Mr. Marshall. In addition, the Company's
continued growth depends on the ability to attract and retain skilled operating
managers and employees and the ability of its key personnel to manage the
Company's growth and consolidate and integrate its operations. See "Management."
COMPETITION
The foodservice distribution industry is highly competitive. The Company
competes with other systems foodservice distribution companies that focus on
chain restaurants and with broadline foodservice distributors that distribute to
a wide variety of customers. Further, the Company could face increased
competition to the extent that there is an increase in the number of foodservice
distributors specializing in distribution to chain restaurants on a nationwide
basis. See "The Business -- Competition."
CONTROL BY PRINCIPAL STOCKHOLDER
As a result of the consummation of the Transactions, Holberg indirectly
owns a majority of the issued and outstanding capital stock of NEHC. See
"Security Ownership of Certain Beneficial Holders and Management." Holberg and
DLJ collectively have sufficient voting power to elect the entire Board of
Directors of each of NEHC, and through NEHC, the Company, and thereby exercise
control over the business, policies and affairs of NEHC and the Company, and, in
general, determine the outcome of any corporate transaction or other matters
submitted to stockholders for approval, such as any amendment to the certificate
of incorporation of NEHC (the "Certificate of Incorporation"), the authorization
of additional shares of capital stock, and any merger, consolidation or sale of
all or substantially all of the assets of NEHC, all of which could adversely
affect NEHC and holders of the New Notes.
14
<PAGE> 15
PAYMENT UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder of New Notes may
require NEHC to repurchase all or a portion of such holder's New Notes at 101%
of the Accreted Value thereof on the date of repurchase (if such date of
repurchase is prior to July 15, 2002) or 101% of the aggregate principal amount
thereof, together with accrued and unpaid interest, if any, and Liquidated
Damages, if any, to the date of repurchase (if such date of repurchase is on or
after July 15, 2002). In addition, the New Credit Facility will provide that, if
a Change of Control (as defined therein) occurs, it will constitute an event of
default under the New Credit Facility. In the event of such a Change of Control,
the Company would be required to repay the indebtedness outstanding under the
New Credit Facility and the Company may be required to repay the New Notes.
There can be no assurance that the Company and NEHC would have the resources
necessary to repay their respective indebtedness or that a Change of Control
would not have a material adverse effect on the value of the New Notes or the
ability of NEHC to repay the indebtedness under the New Notes. See "Description
of New Notes -- Repurchase at the Option of Holders -- Change of Control" and
"-- Holding Company Structure; Effective Subordination."
FRAUDULENT CONVEYANCE
Management of NEHC believes that the indebtedness represented by the New
Notes is being incurred for proper purposes and in good faith, and that, based
on present forecasts, asset valuations and other financial information, after
the consummation of the Transactions and the Offering, NEHC will be solvent,
will have sufficient capital for carrying on its business and will be able to
pay its debts as they mature. See "-- Substantial Leverage and Debt Service."
Notwithstanding management's belief, however, if a court of competent
jurisdiction in a suit by an unpaid creditor or a representative of creditors
(such as a trustee in bankruptcy or a debtor-in-possession) were to find that,
at the time of the incurrence of such indebtedness, NEHC was insolvent, was
rendered insolvent by reason of such incurrence, was engaged in a business or
transaction for which its remaining assets constituted unreasonably small
capital, intended to incur, or believed that it would incur, debts beyond its
ability to pay such debts as they matured, or intended to hinder, delay or
defraud its creditors, and that the indebtedness was incurred for less than
reasonably equivalent value, then such court could, among other things, (i) void
all or a portion of NEHC's obligations to the holders of the New Notes, the
effect of which would be that the holders of the New Notes may not be repaid in
full and/or (ii) subordinate NEHC's obligations to the holders of the New Notes
to other existing and future indebtedness of NEHC to a greater extent than would
otherwise be the case, the effect of which would be to entitle such other
creditors to be paid in full before any payment could be made on the New Notes.
TRADING MARKET FOR THE NEW NOTES
There is no existing trading market for the New Notes, and there can be no
assurance regarding the future development of a market for the New Notes or the
ability of the Holders of the New Notes to sell their New Notes or the price at
which such Holders may be able to sell their New Notes. If such market were to
develop, the New Notes could trade at prices that may be higher or lower than
their initial offering price depending on many factors, including prevailing
interest rates, NEHC's operating results and the market for similar securities.
Although it is not obligated to do so, DLJ intends to make a market in the New
Notes. Any such market-making activity may be discontinued at any time, for any
reason, without notice at the sole discretion of DLJ. No assurance can be given
as to the liquidity of or the trading market for the New Notes.
DLJ may be deemed to be an affiliate of NEHC and, as such, may be required
to deliver a prospectus in connection with its market-making activities in the
New Notes. Pursuant to the Registration Rights Agreement, NEHC agreed to use its
respective best efforts to file and maintain a registration statement that would
allow DLJ to engage in market-making transactions in the New Notes for up to 120
days from the date on which the Exchange Offer is consummated. NEHC has agreed
to bear substantially all the costs and expenses related to such registration
statement.
15
<PAGE> 16
FORWARD-LOOKING STATEMENTS
This Prospectus includes forward-looking statements, including statements
concerning the Company's business strategy, operations, cost savings
initiatives, economic performance, financial condition and liquidity and capital
resources. Such statements are subject to various risks and uncertainties. The
Company's actual results may differ materially from the results discussed in
such forward-looking statements because of a number of factors, including those
identified in the sections of this Prospectus captioned "Prospectus Summary,"
"Risk Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "The Business." Forward-looking statements are made
as of the date of this Prospectus, and the Company assumes no obligation to
update the forward-looking statements, or to update the reasons why actual
results could differ from those projected in the forward-looking statements.
THE TRANSACTIONS
In connection with the Acquisition, NEHC: (i) consummated the Note Offering
and (ii) effected the HWPI Transaction. Concurrently, AmeriServe: (i)
consummated the Subordinated Notes Offering; (ii) entered into the New Credit
Facility; (iii) established the Accounts Receivable Program; (iv) received the
Equity Contribution; (v) effected the Preferred Stock Contribution; and (vi)
consummated the Post Contribution. See "Description of Indebtedness" and
"Certain Relationships and Related Party Transactions."
THE ACQUISITION
Pursuant to an Asset Purchase Agreement (together with the related
agreement covering Canadian assets, the "Asset Purchase Agreement"), dated as of
May 23, 1997, by and between NEHC and PepsiCo, which was assigned to the Company
at the closing of the Transactions on July 11, 1997 (the "Transactions
Closing"), the Company subject to the terms and conditions contained in the
Asset Purchase Agreement, acquired substantially all of the assets and
properties used or held for use by PFS for $830.0 million in cash, subject to
adjustment, and assumed certain liabilities, including post-closing purchase
price adjustments.
OLD NEHC NOTE REDEMPTION
DLJ Merchant Banking, L.P. and certain affiliates ("DLJMB") beneficially
own 12 1/2% Senior Secured Notes of NEHC (the "Old NEHC Notes"), with an initial
principal amount of $22.0 million. Orkla ASA ("Orkla") also holds Old NEHC
Notes, with an initial principal amount of $8.0 million. The respective accrued
principal and interest of the Old NEHC Notes held by DLJMB and Orkla as of June
28, 1997 are $26.2 million and $9.5 million, respectively.
In connection with the consummation of the Offering, all of the outstanding
Old NEHC Notes were redeemed with a portion of the proceeds of the Offering.
Substantially all of the balance of the proceeds of the Offering was used to
fund a portion of the Equity Contribution.
EQUITY CONTRIBUTION
In connection with the Acquisition, NEHC contributed $130.0 million of cash
to the Company (the "Equity Contribution"). A portion of such funds was raised
by NEHC through the sale to DLJ Merchant Banking, L.P. II and Affiliates
("DLJMBII") for aggregate consideration of $115.0 million: (i) $60.0 million
initial liquidation preference of 13 1/2% Senior Exchangeable Preferred Stock
(the "Senior Preferred Stock"); (ii) $55.0 million initial liquidation
preference of 15% Junior Exchangeable Preferred Stock (the "Junior Preferred
Stock"); and (iii) warrants (the "New Warrants") to purchase shares of NEHC
Class A Common Stock ("Warrant Shares") with an exercise price of $0.01 per
Warrant Share, representing the right to acquire an aggregate of up to 22.5% of
the Common Stock of NEHC on a fully diluted basis (the "DLJMB Equity
Investment").
16
<PAGE> 17
The Senior Preferred Stock will mature in 2009 and will pay dividends
quarterly at a rate of 13 1/2% per annum. The first twenty quarterly dividend
payments will be payable in additional shares of Senior Preferred Stock. The
Senior Preferred Stock will rank senior to all classes of Common Stock of NEHC
and each other class of capital stock or series of preferred stock issued by
NEHC, the terms of which specifically provide that such series will rank junior
to the Senior Preferred Stock or which do not specify their rank ("Junior
Securities"), excluding the NEHC 8% Senior Convertible Preferred Stock, which
will rank pari passu with the Senior Preferred Stock.
The Junior Preferred Stock will mature in 2009 and will pay dividends
quarterly at a rate of 15% per annum. The first twenty quarterly dividend
payments will be payable in additional shares of Junior Preferred Stock. The
Junior Preferred Stock will rank junior to the Senior Preferred Stock and senior
to all classes of Common Stock of NEHC and each other class of capital stock or
series of preferred stock issued by NEHC the terms of which specifically provide
that such series will rank junior to the Junior Preferred Stock or which do not
specify their rank, excluding the NEHC 8% Senior Convertible Preferred Stock,
which will rank senior to the Junior Preferred Stock. Holberg will have the
right at any time prior to the expiration of 180 days after initial issuance of
the Junior Preferred Stock (provided that a binding commitment of Holberg to do
so has been furnished to DLJMB no later than 90 days after such issuance) to
require DLJMB to sell to Holberg 55% of the Junior Preferred Stock, together
with 29 1/3% of the New Warrants, for cash in an amount, at the date of such
sale, equal to the sum of (x) the liquidation preference of such Junior
Preferred Stock on such date plus (y) an amount sufficient to cause the sum of
(x) and (y) to equal a value that yields an internal rate of return of 25% with
respect to the Junior Preferred Stock and Warrants.
DLJMB, Orkla and the Company are also party to an investors agreement
pursuant to which DLJMB has the right to name two directors to the board of NEHC
and the Company and to approve certain actions by NEHC and its subsidiaries. The
investors agreement also provides for certain restrictions on transfer, rights
of first offer, rights to participate in transfers by other parties, preemptive
rights and other customary matters.
THE POST CONTRIBUTION
In connection with the January 1996 purchase of AmeriServ, the Company
acquired a minority interest in Post Holdings Company ("Post Holdings"), which
owned 93.6% of Post. Post is a systems food distributor with three distribution
centers in the western United States. For the fiscal year ending December 28,
1996, Post generated net sales of $119.4 million and EBITDA of $1.9 million. On
November 25, 1996, NEHC: (i) acquired (a) the Company's ownership interest in
Post Holdings, and (b) Daniel W. Crippen's 50% ownership of Post Holdings and
(ii) merged Post Holdings with and into NEHC with NEHC as the surviving entity.
Mr. Crippen is the Company's Chief Operating Officer and was the President of
Post.
In connection with the Acquisition: (i) the remaining 6.4% of the capital
stock outstanding of Post was acquired from the minority stockholder; (ii) a
dividend of $4.7 million was declared to eliminate the intercompany balance
between Post and NEHC; (iii) all of the capital stock of Post was transferred to
AmeriServ Food Company, a wholly-owned subsidiary of the Company; and (iv)
Post's $10.6 million of outstanding indebtedness was refinanced. AmeriServ Food
Company's investment in NEHC preferred stock of $2.5 million was cancelled
(collectively, the "Post Contribution"). See note 2 to the historical financial
statements of NEHC.
PREFERRED STOCK CONTRIBUTION
In connection with the Acquisition, NEHC contributed to the Company an
aggregate principal amount of $45.0 million of outstanding non-convertible
preferred stock of the Company (the "Preferred Stock Contribution"). See
"Capitalization."
17
<PAGE> 18
HWPI TRANSACTION
HWPI was owned 55% by Holberg and 45% by the Company. In connection with
the Acquisition, NEHC purchased for $1.5 million Holberg's 55% interest in HWPI.
As a result, NEHC owns 100% of the capital stock of HWPI. HWPI's sole operations
consist of the leasing of two distribution centers, located in Omaha, Nebraska
and Waukesha, Wisconsin, to the Company.
The following table sets forth the estimated sources and uses of funds in
connection with the Transactions, assuming that the Transactions occurred on
June 28, 1997 (in millions):
<TABLE>
<S> <C>
SOURCES
-------------------------------------------------------------------
NEHC TRANSACTIONS
Senior Discount Notes due 2007..................................... $ 55.0
DLJMB Equity Investment............................................ 115.0
--------
Total sources............................................ $ 170.0
========
AMERISERVE TRANSACTIONS
New Credit Facility(1):
Revolving Credit Facility........................................ $ 0.0
Term Loans....................................................... 205.0
--------
Total.................................................... 205.0
Accounts Receivable Program(2)..................................... 225.0
Senior Subordinated Notes due 2007................................. 500.0
Equity Contribution................................................ 130.0
--------
Total sources............................................ $1,060.0
========
USES
NEHC TRANSACTIONS
Equity Contribution................................................ $ 130.0
Redemption of Old NEHC Notes....................................... 35.7
HWPI Acquisition................................................... 1.5
Cash for working capital........................................... 0.3
Estimated expenses................................................. 2.5
--------
Total uses............................................... $ 170.0
========
AMERISERVE TRANSACTIONS
Repayment of PepsiCo, Inc. note payable............................ $ 830.0
Refinance AmeriServe senior debt................................... 138.8
Refinance other debt............................................... 16.2
Cash for working capital........................................... 24.4
Estimated fees and expenses........................................ 50.6
--------
Total uses............................................... $1,060.0
========
</TABLE>
- ---------------
(1) At the Transactions Closing, the Company entered into a new $355.0 million
senior credit facility (the "New Credit Facility") by and among Bank of
America National Trust and Savings Association ("Bank of America NT&SA"; in
such capacity, the "Administrative Agent"), and DLJ Capital Funding, Inc.
(in such capacity, the documentation agent; and with the Administrative
Agent, the "Agents") and the other Lenders thereto. BancAmerica Robertson
Stephens ("BancAmerica Robertson Stephens") will serve as the syndication
agent. At the Transactions Closing the following amounts were drawn under
the New Credit Facility: $205.0 million of term loans (the "Term Loans"),
consisting of: (a) $78.1 million Term Loan A, which matures in six years;
(b) $42.3 million of Term Loan B, which matures in seven years; (c) $42.3
million of Term Loan C, which matures in eight years; and (d) $42.3 million
of Term Loan D,
18
<PAGE> 19
which matures in nine years. The Term Loans were fully repaid in connection
with the Refinancing. See "Description of Indebtedness -- New Credit
Facility" and "The Refinancing." A $150.0 million revolving credit facility
(the "Revolving Credit Facility") remains available as part of the New
Credit Facility for working capital and general corporate purposes,
including the issuance of letters of credit, which were $11.1 million at the
Transactions Closing, subject to the achievement of certain financial ratios
and compliance with certain conditions.
(2) At the Transactions Closing, the Company entered into a $250.0 million
Accounts Receivable Program (the "Accounts Receivable Program"),
approximately $225.0 million of which was funded at the Transactions
Closing. Under the Accounts Receivable Program, the Company established a
wholly-owned, special purpose bankruptcy-remote subsidiary that purchases
from the Company, on a revolving basis, all trade receivables generated by
the Company and/or one or more of its subsidiaries. See "Description of
Indebtedness -- Accounts Receivable Program."
USE OF PROCEEDS
This Prospectus is delivered in connection with the sale of the New Notes
by DLJ in market-making transactions. NEHC will not receive any of the proceeds
from such transactions.
THE REFINANCING
On October 15, 1997, the Company completed the Senior Notes Offering,
pursuant to which it offered and sold $350 million of its 8 7/8% Senior Notes
due 2006 (the "Senior Notes"). The Senior Notes Offering was completed as part
of the refinancing of certain outstanding term indebtedness of the Company
incurred under the New Credit Facility in connection with the Acquisition. The
purpose of the Refinancing was to, among other things, (i) extend the maturity
of those borrowings, (ii) fix the interest rate of those borrowings at a rate
believed by the Company to be attractive for fixed rate financing, and (iii)
provide the Company with additional cash to be utilized for working capital and
to fund possible future acquisitions (collectively, the "Refinancing"). The net
proceeds from the sale of the Senior Notes were approximately $339.0 million
(after deducting discounts and commissions and estimated expenses of the Senior
Notes Offering) and were used to repay $205 million of term loans which were
outstanding under the New Credit Facility (the "Term Loans") and to provide cash
for working capital and other general corporate purposes. See "The
Business -- Business Strategy" and "Description of Indebtedness -- New Credit
Facility" and "Description of Indebtedness -- 8 7/8% Senior Notes due 2006."
19
<PAGE> 20
CAPITALIZATION
(DOLLARS IN THOUSANDS)
The following table sets forth the consolidated cash and capitalization of
NEHC as of June 28, 1997 and the pro forma consolidated capitalization of NEHC
as of June 28, 1997, adjusted to reflect the Transactions and the Refinancing.
This table should be read in conjunction with the historical and unaudited pro
forma financial statements of NEHC and the related notes thereto included
elsewhere herein. See "The Transactions" and "The Refinancing."
<TABLE>
<CAPTION>
AS OF JUNE 28, 1997
-----------------------
ACTUAL PRO FORMA
---------- ----------
<S> <C> <C>
Cash and cash equivalents............................................. $ 3,474 $ 162,166
======== ========
Long-term debt (including current portion):
Existing credit facility............................................ 149,442 --
Revolving Credit Facility........................................... -- --
Term Loans.......................................................... -- --
Capital lease obligation............................................ 24,070 31,838
Senior Notes due 2006............................................... -- 350,000
Note payable to PepsiCo, Inc. ...................................... 830,000 --
Senior Discount Notes due 2007...................................... -- 55,000
Senior Subordinated Notes due 2007.................................. -- 500,000
Senior notes........................................................ 27,174 --
Other............................................................... 5,576 3,544
-------- --------
Total long-term debt........................................ 1,036,262 940,382
Stockholder's equity:
Preferred........................................................... 17,350 132,350
Common.............................................................. (2,559) (42,377)
-------- --------
Total stockholder's equity.................................. 14,791 89,973
-------- --------
Total capitalization.................................................. $1,051,053 $1,030,355
======== ========
</TABLE>
20
<PAGE> 21
SELECTED NEHC HISTORICAL FINANCIAL DATA
(DOLLARS IN THOUSANDS)
The following table presents selected historical financial data of NEHC at
and for the fiscal years 1992, 1993, 1994, 1995 and 1996 which have been derived
from the audited financial statements of NEHC, and at and for the first six
months of 1996 and 1997, which have been derived from the unaudited financial
statements of NEHC. The historical financial statements of NEHC for the fiscal
years 1994, 1995 and 1996 were audited by Ernst & Young LLP. The historical data
of NEHC at and for the first six months of 1996 and 1997 have been derived from,
and should be read in conjunction with, the unaudited financial statements of
NEHC and the related notes thereto, included elsewhere herein. In the opinion of
management, such interim financial statements reflect all adjustments
(consisting only of normal recurring adjustments) necessary to fairly present
the information presented for such periods. The results of operations for the
first six months of 1997 are not necessarily indicative of the results of
operations to be expected for the full year. The selected financial data set
forth below should be read in conjunction with "The Transactions," "The
Refinancing," "Summary Selected Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and the historical
financial statements of NEHC and the related notes thereto included elsewhere
herein.
<TABLE>
<CAPTION>
FISCAL YEAR SIX MONTHS
------------------------------------------------------ ---------------------
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales.................................. $293,621 $327,606 $358,516 $400,017 $1,389,601 $636,167 $ 802,900
Gross profit............................... 33,827 35,153 37,914 40,971 140,466 64,414 79,011
Operating expenses......................... 30,347 32,054 34,488 36,695 122,430 57,914 73,085
-------- -------- -------- -------- ---------- -------- --------
Operating income........................... 3,480 3,099 3,426 4,276 18,036 6,500 5,926
Interest expense........................... (3,404) (2,759) (3,294) (3,936) (16,423) (7,694) (10,520)
Interest income -- Holberg and affiliate... 293 150 533 749 528 215 237
Minority interest.......................... -- -- -- -- (2,345) 100 --
-------- -------- -------- -------- ---------- -------- --------
Income (loss) before income taxes,
extraordinary loss, and cumulative effect
of accounting change..................... 369 490 665 1,089 (204) (879) (4,357)
Provision (credit) for income taxes........ 223 172 523 583 1,300 340 (629)
-------- -------- -------- -------- ---------- -------- --------
Income (loss) before extraordinary loss and
cumulative effect of accounting change... 146 318 142 506 (1,504) (1,219) (3,728)
Extraordinary loss on early extinguishment
of debt.................................. -- (613) -- -- -- -- --
Cumulative effect of change in method of
accounting for income taxes.............. -- (495) -- -- -- -- --
-------- -------- -------- -------- ---------- -------- --------
Net income (loss).......................... $ 146 $ (790) $ 142 $ 506 $ (1,504) $ (1,219) $ (3,728)
======== ======== ======== ======== ========== ======== ========
OTHER DATA:
EBITDA(1).................................. $ 6,034 $ 6,195 $ 6,710 $ 7,038 $ 27,925 $ 10,875 $ 12,717
Depreciation and amortization.............. 2,554 3,096 3,284 2,762 10,372 4,375 6,791
Capital expenditures....................... 3,446 2,205 1,331 2,496 12,701 4,332 6,737
Net cash provided by (used in):
Operating activities..................... 10,462 4,680 4,276 4,505 4,151 (1,767) (13,791)
Investing activities..................... (3,352) (6,556) (5,422) (5,574) (105,417) (100,697) (9,450)
Financing activities..................... (6,462) 2,676 490 619 102,915 103,246 24,491
Ratio of earnings to fixed charges(2)...... 1.1x 1.1x 1.1x 1.2x N/A N/A N/A
BALANCE SHEET DATA:
Cash....................................... $ 882 $ 1,682 $ 1,025 $ 575 $ 2,224 $ 1,357 $ 3,474
Total assets............................... 68,040 75,265 79,218 77,503 314,946 313,918 1,446,512
Long-term debt, including current
portion.................................. 34,065 34,170 32,160 32,779 164,444 150,343 1,036,262
Total stockholders' equity................. 10,212 14,779 17,205 10,157 18,519 16,012 14,791
</TABLE>
- ---------------
(1) EBITDA represents operating income plus depreciation, amortization and
excludes one-time non-recurring gains and losses. EBITDA in fiscal 1996
excludes net one-time, non-recurring gains of $0.5
21
<PAGE> 22
million. EBITDA is presented because management believes it is a widely
accepted financial indicator used by certain investors and analysts to
analyze and compare companies on the basis of operating performance. EBITDA
is not intended to represent cash flows for the period, nor has it been
presented as an alternative to operating income as an indicator of operating
performance and should not be considered in isolation or as a substitute for
measures of performance prepared in accordance with generally accepted
accounting principles. NEHC understands that, while EBITDA is frequently
used by securities analysts in the evaluation of companies, EBITDA, as used
herein, is not necessarily comparable to other similarly titled captions of
other companies due to potential inconsistencies in the method of
calculation. See the historical and unaudited pro forma financial statements
of NEHC and the related notes thereto included elsewhere herein.
(2) For purposes of computing this ratio, earnings consist of income before
income taxes plus fixed charges. Fixed charges consist of interest expense,
amortization of deferred finance fees and one-third of the rent expense from
operating leases, which management believes is a reasonable approximation of
the interest factor of the rent. For the fiscal year 1996, the first six
months of 1996 and the first six months of 1997, earnings were inadequate to
cover fixed charges by $0.2 million, $0.9 million and $4.4 million,
respectively.
22
<PAGE> 23
SELECTED PFS HISTORICAL FINANCIAL DATA
(DOLLARS IN THOUSANDS)
The following table presents selected historical financial data of PFS at
and for the fiscal years 1992, 1993, 1994, 1995 and 1996, and the first six
months of 1996 and 1997. The selected historical financial data for the fiscal
years 1992, 1993, 1994, 1995 and 1996 have been derived from the audited
financial statements of PFS. The historical financial statements of PFS for the
fiscal years 1992, 1993, 1994, 1995 and 1996 were audited by KPMG Peat Marwick
LLP. The historical data of PFS at and for the first six months of 1996 and 1997
have been derived from, and should be read in conjunction with, the unaudited
financial statements of PFS and the related notes thereto, which are included
elsewhere herein. In the opinion of management, such interim financial
statements reflect all adjustments (consisting only of normal and recurring
adjustments) necessary to fairly present the information presented for such
periods. The results of operations for the first six months of 1997 are not
necessarily indicative of the results of operations to be expected for the full
year. The selected financial data set forth below should be read in conjunction
with "The Transactions," "The Refinancing," "Summary Selected Financial Data,"
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations" and the historical financial statements of PFS and the related notes
thereto included elsewhere herein.
<TABLE>
<CAPTION>
FISCAL YEAR(1) SIX MONTHS(1)
-------------------------------------------------------------- -----------------------
1992 1993 1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales.......................... $2,799,673 $3,126,745 $3,279,837 $3,458,944 $3,422,086 $1,552,475 $1,498,345
Gross profit....................... 273,858 304,030 326,672 344,777 341,484 154,852 155,686
Operating expenses................. 198,776 219,332 239,772 265,305 261,741 122,528 120,945
---------- ---------- ---------- ---------- ---------- -------- --------
Operating income................... 75,082 84,698 86,900 79,472 79,743 32,324 34,741
Interest expense(4)................ (10,331) (10,282) (12,934) (17,613) (15,566) (7,102) (8,041)
---------- ---------- ---------- ---------- ---------- -------- --------
Income before income taxes......... 64,751 74,416 73,966 61,859 64,177 25,222 26,700
Provision for income taxes......... 24,624 28,703 28,874 23,844 24,597 9,928 9,924
---------- ---------- ---------- ---------- ---------- -------- --------
Net income......................... $ 40,127 $ 45,713 $ 45,092 $ 38,015 $ 39,580 $ 15,294 $ 16,776
========== ========== ========== ========== ========== ======== ========
OTHER DATA:
EBITDA(2).......................... $ 87,264 $ 96,872 $ 103,953 $ 98,236 $ 99,573 $ 41,143 $ 43,555
Depreciation and amortization...... 13,202 13,676 17,053 18,764 19,830 8,819 8,814
Capital expenditures............... 16,246 24,927 21,310 25,245 28,771 14,214 12,291
Net cash provided by (used in):
Operating activities............. 29,077 29,412 64,717 29,580 78,437 897 7,972
Investing activities............. (18,709) (20,679) (20,263) (24,388) (27,561) (13,182) (4,048)
Financing activities............. (10,377) (8,758) (44,360) (5,163) (49,454) 12,661 (5,517)
Ratio of earnings to fixed
charges(3)....................... 5.5x 6.1x 5.2x 3.8x 4.1x 3.7x 3.6x
BALANCE SHEET DATA:
Cash............................... $ (441) $ 80 $ 174 $ 203 $ 1,625 $ 579 $ 32
Total assets....................... 401,168 462,042 479,799 516,288 478,921 521,014 508,455
Long-term debt, including current
portion.......................... -- -- -- -- -- -- --
Divisional equity.................. 77,997 100,146 85,707 88,579 93,405 96,168 87,639
</TABLE>
- ---------------
(1) PFS had a 52-53 week fiscal year ending on the last Wednesday in December.
Each fiscal year had 52 weeks, except 1994 contained 53 weeks. Each six
months presented was 24 weeks.
(2) EBITDA represents operating income plus depreciation, amortization and
excludes one-time non-recurring gains and losses. EBITDA is presented
because management believes it is a widely accepted financial indicator used
by certain investors and analysts to analyze and compare companies on the
basis of operating performance. EBITDA is not intended to represent cash
flows for the period, nor has it been presented as an alternative to
operating income as an indicator of operating performance and should not be
considered in isolation or as a substitute for measures of performance
prepared in accordance with generally accepted accounting principles.
Management understands that, while EBITDA is frequently used by securities
analysts in the evaluation of companies, EBITDA, as used herein, is not
necessarily
23
<PAGE> 24
comparable to other similarly titled captions of other companies due to
potential inconsistencies in the method of calculation. See the historical
financial statements of PFS and the related notes thereto included elsewhere
herein.
(3) For purposes of computing this ratio, earnings consist of income before
income taxes plus fixed charges. Fixed charges consist of interest expense,
amortization of deferred finance fees and one-third of the rent expense from
operating leases, which management believes is a reasonable approximation of
the interest factor of the rent.
(4) Interest is paid on advances from PepsiCo, Inc. and affiliates at the prime
rate (8.35% at December 31, 1996). The advances are not subject to stated
repayment terms. PFS and PepsiCo, Inc. have agreed to reclassify amounts
between advances and divisional equity in order to maintain a preestablished
debt to equity ratio, as defined, as part of agreements between PFS and
Pizza Hut, Inc. and its franchisees.
24
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
AmeriServe is North America's largest systems foodservice distributor
specializing in distribution to chain restaurants, the fastest growing segment
of the domestic restaurant industry. The Company serves over 30 different
restaurant chains and over 26,500 restaurant locations in North America. The
Company has long-standing relationships with such leading restaurant concepts as
Pizza Hut, Taco Bell, KFC, Wendy's, Arby's, Burger King, Dairy Queen, Subway and
Applebee's. Holberg was formed in 1986 to acquire and manage foodservice
distribution businesses. Management believes the Company's history of
successfully identifying and integrating acquisitions helped the Company achieve
its current market position.
Acquisitions prior to the Acquisition of PFS consisted of:
- The acquisition in December 1986 of NEBCO, a regional systems distributor
based in Omaha, Nebraska for $6.0 million. NEBCO had annual sales of
approximately $60 million at the time of such acquisition.
- The acquisition in January 1990 of Evans, a regional systems distributor
based in Waukesha, Wisconsin for $33.9 million. Evans had annual sales of
approximately $115 million at the time of such acquisition.
- The acquisition in December 1990 of L.L. Distribution Systems Inc., a
regional systems distributor based in Plymouth, Minnesota for $10.0
million. L.L. Distribution Systems Inc. had annual sales of approximately
$50 million at the time of such acquisition.
- The acquisition in March 1991 of Condon Supply Company, a regional
systems distributor based in St. Cloud, Minnesota for $3.4 million.
Condon Supply Company had annual sales of approximately $15 million at
the time of such acquisition.
- The acquisition in January 1996 of AmeriServ, a wholesale distributor of
food and other supply items based in Dallas, Texas for a purchase price
of $92.9 million. AmeriServ had annual sales of approximately $940
million at the time of such acquisition.
- The acquisition of Chicago Consolidated Corporation, an operator of
redistribution facilities for dry goods based in Chicago, Illinois for
approximately $2.0 million.
Primarily as a result of these acquisitions, NEHC's net sales increased
from $277.9 million in 1991 to $1.4 billion in 1996. In May 1997, in furtherance
of its growth strategy, the Company entered into an agreement to acquire PFS,
subject to certain conditions. See "The Transactions."
RECENT DEVELOPMENTS
During the third quarter of 1997, management of the Company performed an
extensive review of the existing operations including the recently acquired PFS
operations with the objective of developing a business plan for the
restructuring and consolidation of the organizations. The business plan, which
was approved by the Company's Board of Directors late in the third quarter,
identified a number of actions designed to significantly increase the efficiency
and effectiveness of the combined entity's warehouse and transportation network
and operational support infrastructure, and position the Company for continued
sales growth and increased penetration in the chain restaurant segment of the
foodservice distribution industry. These actions include construction of new
strategically located warehouse facilities, closures of certain existing
warehouse facilities and expansions of others, dispositions of property and
equipment, conversion of computer systems, reductions in workforce and
relocation of the Company's headquarters.
To reflect the impact of the business plan on existing operations, the
Company intends to record a restructuring charge of approximately $31.0 million,
to be recorded in the third quarter of 1997, which primarily relates to these
actions. Included in this charge are approximately: (i) $18.0 million related to
25
<PAGE> 26
impairment of property, equipment and other assets; (ii) $9.0 million for exit
costs associated with future lease terminations and employee displacements; and
(iii) $4.0 million of integration expenses incurred in the third quarter of 1997
associated with a previous acquisition and certain incurred employee relocations
associated with the business plan.
Although the business plan action, when completed, is expected to result in
cost savings of $7.9 million, results in 1998 will be impacted by start-up costs
and other operating inefficiencies associated with the warehouse and
transportation network reconfiguration, including workforce hiring and training
and integration of customer delivery routes.
RESULTS OF OPERATIONS OF NEHC
The following financial information presents certain historical financial
information of NEHC, expressed as a percentage of net sales, for the fiscal
years 1994, 1995 and 1996 and for the first six months of 1996 and 1997.
<TABLE>
<CAPTION>
FISCAL YEAR SIX MONTHS
------------------------- ---------------
1994 1995 1996 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales.......................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit....................................... 10.6 10.2 10.1 10.1 9.8
Distribution, selling and administrative
expenses......................................... 9.6 9.1 8.8 9.1 9.1
Operating income................................... 1.0 1.1 1.3 1.0 0.7
</TABLE>
FIRST SIX MONTHS OF 1997 COMPARED TO FIRST SIX MONTHS OF 1996
AmeriServ was acquired on January 26, 1996. Therefore, the first quarter of
1996 includes only five months of operations related to the acquisition of
AmeriServ.
Net Sales. Net sales increased by $166.7 million, or 26.2%, during the
first six months of 1997 as compared to the first six months of 1996. The pro
forma effect of the AmeriServ acquisition accounted for $63.3 million, or 38.0%,
of such increase, and increased account penetration, new store openings and
service to Arby's accounted for the remaining $103.4 million, or 62.0%, of such
increase. The increased account penetration in new store openings was
principally a result of successful marketing of the Company's service
capabilities and attractive pricing.
Gross Profit. Gross profit increased by $14.6 million, or 22.7%, during
the first six months of 1997 as compared to the first six months of 1996. The
increase was due to the pro forma effect of the AmeriServ acquisition ($6.1
million) and the increase in sales ($8.5 million). Gross margin decreased from
10.1% during the first six months of 1996 as compared to 9.8% for the first six
months of 1997 due to the slightly higher cost of products purchased by
customers added through the AmeriServ acquisition.
Distribution, Selling and Administrative Expenses. Distribution, selling
and administrative expenses increased by $15.2 million, or 26.2%, during the
first six months of 1997 as compared to the first six months of 1996. The
increase was primarily due to costs related to preparation for the commencement
of service to Arby's. Distribution, selling and administrative expenses as a
percent of net sales remained constant at 9.1% during the first six months of
1997 as compared to the first six months of 1996.
Operating Income. Operating income decreased by $0.6 million, or 8.8%,
during the first six months of 1997 as compared to the first six months of 1996.
The decrease was due to increased (i) depreciation resulting from capital
projects and capital expenditures associated with the integration of AmeriServ
and (ii) amortization resulting from goodwill associated with the acquisition of
AmeriServ, offset by the increase in net sales. Operating income margin
decreased from 1.0% during the first six months of 1996 to 0.7% during the first
six months of 1997.
26
<PAGE> 27
FISCAL 1996 COMPARED TO FISCAL 1995
Net Sales. Net sales increased by $989.6 million, or 247.4%, during fiscal
1996 as compared to fiscal 1995. This increase was primarily due to the
acquisition of AmeriServ. The increase in net sales was net of certain account
resignations made during fiscal 1996. The Company regularly reviews the
profitability of its account portfolio, and at times decides to discontinue
relationships with accounts deemed not sufficiently profitable for the Company.
Gross Profit. Gross profit increased by $99.5 million, or 242.8%, during
fiscal 1996 as compared to fiscal 1995. The increase was due to the acquisition
of AmeriServ. Gross margin declined slightly from 10.2% during fiscal 1995 as
compared to 10.1% during fiscal 1996, due to the slightly higher cost of
products purchased by customers added through the AmeriServ acquisition.
Distribution, Selling and Administrative Expenses. Distribution, selling
and administrative expenses increased by $85.7 million, or 233.6%, during fiscal
1996 as compared to fiscal 1995. The overall increase was primarily due to the
AmeriServ acquisition. Distribution, selling and administrative expenses as a
percent of net sales decreased from 9.1% during fiscal 1995 to 8.8% during
fiscal 1996, due to decreased operating costs offset by an increase in
depreciation and amortization of $7.6 million. The increased amortization and
depreciation were a result of the AmeriServ acquisition and the capital
expenditures made by the Company in 1996.
Operating Income. Operating income increased by $13.8 million, or 321.8%,
during fiscal 1996 as compared to fiscal 1995, principally as a result of the
increase in net sales. Operating margin increased from 1.1% during fiscal 1995
to 1.3% during fiscal 1996.
FISCAL 1995 COMPARED TO FISCAL 1994
Net Sales. Net sales increased by $41.5 million, or 11.6%, during fiscal
1995 as compared to fiscal 1994. This increase was primarily due to new store
openings by existing customers, increased account penetration and expanded
geographical coverage.
Gross Profit. Gross profit increased by $3.1 million, or 8.1%, during
fiscal 1995 as compared to fiscal 1994. The increase was due to new store
openings by existing customers, increased account penetration and expanded
geographical coverage, offset by lower gross margins. Gross margin decreased
from 10.6% during fiscal 1994 to 10.2% during fiscal 1995, consistent with
decreases in gross margin throughout the industry at that time.
Distribution, Selling and Administrative Expenses. Distribution, selling
and administrative expenses increased by $2.2 million, or 6.4%, during fiscal
1995 as compared to fiscal 1994. The increase was primarily due to several
distribution center expansions. Distribution, selling and administrative
expenses as a percent of net sales decreased from 9.6% during fiscal 1994 to
9.1% during fiscal 1995.
Operating Income. Operating income increased by $0.9 million, or 24.8%,
during fiscal 1995 as compared to fiscal 1994 for the reasons stated above. As a
result, operating income margin increased from 1.0% during fiscal 1994 to 1.1%
during fiscal 1995.
RESULTS OF OPERATIONS OF PFS
The following financial information presents certain historical financial
information of PFS, expressed as a percentage of net sales, for the fiscal years
1994, 1995 and 1996 and for the first six months of 1996 and
27
<PAGE> 28
1997. PFS sales are reported net of rebates as a result of profit limitation
agreements with Pizza Hut, Inc. and its franchisees. Such profit limitation
agreements continue after the Transactions Closing.
<TABLE>
<CAPTION>
FISCAL YEAR SIX MONTHS
------------------------- ---------------
1994 1995 1996 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales.......................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit....................................... 10.0 10.0 10.0 10.0 10.5
Operating expenses................................. 7.4 7.7 7.7 7.9 8.1
Operating income................................... 2.6 2.3 2.3 2.1 2.0
</TABLE>
FIRST SIX MONTHS 1997 COMPARED TO FIRST SIX MONTHS 1996
Net Sales. PFS net sales of $1,498.3 million declined by $54.1 million, or
3.5%, during the first six months of 1997 as compared to the first six months of
1996, primarily due to new product rollouts and sales of promotional items in
the first six months of 1996 and lower store volumes in the current period,
offset slightly by an increased market share in the first six months of 1997.
Gross Profit. Gross profit increased by $0.8 million, or 0.5%, during the
first six months of 1997 as compared to the first six months of 1996, due to the
impact of low margin promotional sales on margins during the first six months of
1996. Gross margin increased from 10.0% during the first six months of 1996 to
10.4% during the first six months of 1997, due to a shift in sales to higher
margin products.
Operating Expenses. Operating expenses decreased by $1.6 million, or 1.3%,
during the first six months of 1997 as compared to the first six months of 1996,
due to lower headcounts, lower computer processing charges and a decline in bad
debt expense, partially offset by costs associated with a new computer system,
which is expected to be implemented in 1998.
Operating Income. Operating income increased by $2.4 million, or 7.5%,
during the first six months of 1997 as compared to the first six months of 1996
due to the reasons stated above. As a result, operating income margin increased
from 2.1% during the first six months of 1996 to 2.3% during the first six
months of 1997.
FISCAL 1996 COMPARED TO FISCAL 1995
Net Sales. Net sales decreased by $36.9 million, or 1.1%, during fiscal
1996 as compared to fiscal 1995. This decrease was due to the impact of soft
sales in the equipment segment, which declined by $24.7 million from fiscal
1995. Food and supply revenues declined by $12.2 million during fiscal 1996 as
compared to fiscal 1995, due to soft volumes in the customer base, offset
slightly by increased market share.
Gross Profit. Gross profit decreased by $3.3 million, or 1.0%, during
fiscal 1996 as compared to fiscal 1995, due to the decrease in revenue during
fiscal 1996. Gross margin was consistent with prior year results during fiscal
1996.
Operating Expenses. Operating expenses decreased by $3.6 million, or 1.3%,
during fiscal 1996 as compared to fiscal 1995. This decline reflected
temporarily higher field management expenses in fiscal 1995 and lower bad debt
expense in fiscal 1996, partially offset by increased depreciation expense in
fiscal 1996 due to several distribution center expansions and the relocation of
a distribution center.
Operating Income. Operating income increased by $0.3 million, or 0.3%,
during fiscal 1996 as compared to fiscal 1995. This increase was primarily due
to a favorable performance in operating expenses, largely offset by a decline in
gross margin. Operating income margin during fiscal 1996 was consistent with the
prior year's margin of 2.3%.
FISCAL 1995 COMPARED TO FISCAL 1994
Net Sales. Net sales increased by $179.1 million, or 5.5%, during fiscal
1995 as compared to fiscal 1994, due to an increase in the number of units
served by an average of almost 1,000 stores, as well as increased product costs.
Strong food and supply sales were offset by soft sales in the equipment segment.
28
<PAGE> 29
Gross Profit. Gross profit increased by $18.1 million, or 5.5%, during
fiscal 1995 as compared to fiscal 1994, due to the increase in revenue during
fiscal 1995. Gross margin was consistent with prior year results during fiscal
1995.
Operating Expenses. Operating expenses increased by $25.5 million, or
10.6%, during fiscal 1995 as compared to fiscal 1994, reflecting increased bad
debt expense, costs associated with a short-term field management reorganization
and increased depreciation due to the relocation of a distribution center and
several center expansions.
Operating Income. Operating income decreased by $7.4 million, or 8.5%,
during fiscal 1995 as compared to fiscal 1994, for the reasons stated above.
Operating income margin decreased from 2.6% during fiscal 1994 to 2.3% during
fiscal 1995, as a result of the increased operating expenses.
LIQUIDITY AND CAPITAL RESOURCES
HISTORICAL NEHC
NEHC had $222.5 million of working capital at June 28, 1997 as compared to
$25.8 million at the end of fiscal 1996. The increase of $196.7 million was
primarily due to increased receivables of $345.4 million and increased
inventories of $105.2 million, offset by increased accounts payable of $205.8
million and increased accrued liabilities of $50.7 million. The changes in
working capital were due to the acquisition of PFS and the new business related
to Arby's.
NEHC had $25.8 million of working capital at December 28, 1996 compared to
$10.5 million of working capital at December 30, 1995. The increase was due to
the working capital required to service the customer base of AmeriServ, which
was acquired on January 25, 1996.
NEHC had $10.5 million of working capital at December 30, 1995 as compared
to $10.9 million of working capital at December 31, 1994. The decrease was due
to an increase in accounts payable.
Net cash used in operating activities for the first six months of 1997 was
$13.8 million compared to net cash used in operating activities of $1.8 million
for the first six months of 1996. The increase in cash used in operating
activities was primarily due to the increase in working capital needs for the
new Arby's business.
Net cash used in investing activities during the first six months of 1997
was $9.5 million compared to net cash used in investing activities of $100.7
million for the first six months of 1996. The decrease in cash used in investing
activities was primarily due to the acquisition of AmeriServ for $92.9 million
during 1996, offset by an increase in capital expenditures of $3.9 million.
Net cash provided by financing activities during the first six months of
1997 was $24.5 million compared to net cash provided by financing activities of
$103.2 million for the first six months of 1996. The decrease in cash provided
by financing activities was primarily due to proceeds from the issuance of
subordinated loans and warrants and borrowings under the Company's credit
facility in order to fund the acquisition of AmeriServ in 1996, offset by
borrowings under the Company's credit facilities in the first six months of 1997
to service the working capital needs of Arby's.
Net cash provided by operating activities during fiscal 1996 was $4.2
million compared to $4.5 million in fiscal 1995. The decrease in cash provided
by operating activities was due to the increase in working capital at December
28, 1996 compared to December 30, 1995 (as discussed above) and a decrease in
net income from $0.5 million during fiscal 1995 to a net loss of $1.5 million in
fiscal 1996, offset by an increase in depreciation and amortization from $2.8
million in fiscal 1995 to $10.4 million in fiscal 1996.
Net cash used in investing activities during fiscal 1996 increased $99.8
million to $105.4 million compared to $5.6 million in fiscal 1995. This increase
was principally due to the acquisition of AmeriServ for $92.9 million during
fiscal 1996. In addition, capital expenditures increased from $2.5 million in
fiscal 1995 to $12.7 million in fiscal 1996 as a result of expenditures to
modify and expand certain distribution centers.
29
<PAGE> 30
Net cash provided by financing activities during fiscal 1996 was $102.9
million compared to $0.6 million in fiscal 1995. This increase was principally
due to proceeds from the issuance of subordinated loans and warrants and
borrowings under the Company's credit facilities in order to fund the
acquisition of AmeriServ.
Net cash provided by operating activities during fiscal 1995 was $4.5
million, which was comparable to the net cash provided by operating activities
of $4.3 million in fiscal 1994. Net cash used in investing activities during
fiscal 1995 was $5.6 million compared to $5.4 million in fiscal 1995. Net cash
provided by financing activities during fiscal 1995 was $0.6 million compared to
$0.5 million in fiscal 1994.
PRO FORMA
After the Transactions and the Refinancing, NEHC's primary capital
requirements, on a pro forma basis, will be for debt service, working capital
and capital expenditures. NEHC believes that cash flow from operating
activities, cash and cash equivalents and borrowings under the New Credit
Facility will be adequate to meet NEHC's short-term and long-term liquidity
requirements prior to the maturity of its long-term indebtedness, although no
assurance can be given in this regard. Under the New Credit Facility, the
Revolving Credit Facility provides $150 million of revolving credit
availability, of which approximately $138.9 million will be available (after
reductions of $11.1 million of letters of credit) for draw after Closing subject
to customary covenants. In addition, the Company may increase the Accounts
Receivable Program, further improving liquidity, although no assurance can be
given that the Receivables will be sufficient to increase the Accounts
Receivable Program. See "Risk Factors -- Substantial Leverage and Debt Service."
The Company estimates that capital expenditures for fiscal 1997 will be
approximately $35 million, which includes maintenance capital expenditures and
various planned and potential projects designed to increase efficiencies and
enhance the Company's competitiveness and profitability. Specifically, such
capital expenditures include the planned distribution center consolidation,
modification and expansion of certain distribution centers, integration and
upgrade of MIS and other general capital improvements.
HISTORICAL PFS
Net cash provided by operating activities for the first six months of 1997
increased $7.1 million compared to the first six months of 1996. Growth in net
income contributed $1.5 million of this increase. Changes in receivables and
accounts payable resulted in a $1.2 million decline in cash outflows compared to
1996. An unfavorable change in accounts receivable reflected a recovery in sales
from the late 1996 decline. This impact was more than offset by a favorable
change in accounts payable that also reflected the recovery in sales from the
late 1996 decline, as well as timing of payments in the first six months of
1996. Accrued liabilities provided a favorable change of $2.9 million due to
increases in 1997 bonus accruals to be paid in 1998. Investing activities
provided a $9.1 million favorable change as compared to 1996, which included
$7.3 million in transfers of property to affiliates of the Parent in
anticipation of the sale of PFS and a $1.9 million decline in capital spending.
Financing activities, which largely represent net transfers of funds to/from the
Parent, reflected an $18.2 million change from a cash inflow in 1996 to a cash
outflow in 1997. This change includes $9.0 million representing the increase in
net cash provided by operating activities and a decrease in capital spending, as
well as the $7.3 million in transfers of property to affiliates of the Parent.
Net cash provided by operating activities in fiscal 1996 increased $48.9
million, or 165.2%, compared to fiscal 1995. This growth was driven by favorable
changes in working capital. Changes in receivables, inventories and accounts
payable provided net cash inflows of $22.7 million in 1996 compared to cash
outflows of $29.4 million in 1995. These changes reflect a decline in net sales
late in 1996, compared to sales growth in 1995. Investing activities reflected
capital spending growth over 1995 of $3.5 million to $28.8 million. Capital
spending activity was led by purchases of fleet and material handling equipment
and expenditures related to the expansion of a distribution center. Financing
activities, which largely represent net transfers of funds to/from the Parent,
reflected a $44.3 million increase in cash outflows compared to 1995. This
change primarily represents the increase in net cash provided by operating
activities, partially offset by the increase in capital spending.
30
<PAGE> 31
Net cash provided by operating activities in fiscal 1995 decreased $35.1
million, or 54.3%, compared to fiscal 1994. Changes in accrued liabilities
accounted for $17.8 million of the decline reflecting timing of income and sales
tax payments. Unfavorable changes in accounts payable of $11.9 million were due
to timing of payments while unfavorable changes in inventories of $9.9 million
resulted from sales growth in fiscal 1995 and inventory control efforts late in
fiscal 1994. Investing activities reflected capital spending growth over 1994 of
$3.9 million to $25.2 million. Capital spending activity was led by purchases of
fleet and material handling equipment and expenditures related to the relocation
of two distribution centers. Financing activities, which largely represent net
transfers of funds to/from the Parent, reflected a $39.2 million decrease in
cash outflows compared to 1996. This change primarily represents the decline in
net cash provided by operating activities as well as the increase in capital
spending.
SEASONALITY AND INFLATION
Historically, AmeriServe's sales and operating results have reflected
seasonal variations. The Company experiences lower net sales and income from
operations in the first and fourth quarters, with the effects being more
pronounced in the first quarter. Additionally, the effect of these seasonal
variations is more pronounced in regions where winter weather is generally more
inclement.
Inflation has not had a significant impact on the Company's operations.
Food price deflation could adversely affect the Company's profitability as a
significant portion of the Company's sales are at prices based on product cost
plus a percentage markup. The Company has not been adversely affected by food
price deflation in recent years.
ENVIRONMENTAL MATTERS
Under applicable environmental laws, NEHC may be responsible for
remediation of environmental conditions and may be subject to associated
liabilities (including liabilities resulting from lawsuits brought by private
litigants) relating to its distribution centers and the land on which its
distribution centers are situated, regardless of whether NEHC leases or owns the
stores or land in question and regardless of whether such environmental
conditions were created by NEHC or by a prior owner or tenant.
NEHC believes it currently conducts its business, and in the past has
conducted its business, in substantial compliance with applicable environmental
laws and regulations. In addition, compliance with federal, state and local laws
enacted for protection of the environment has had no material effect on NEHC.
However, there can be no assurance that environmental conditions relating to
prior, existing or future distribution centers or distribution center sites will
not have a material adverse effect on NEHC.
In connection with the Acquisition, NEHC reviewed existing reports and
retained environmental consultants to conduct an environmental audit of PFS's
operations in order to identify conditions that could have material adverse
effects on NEHC. NEHC has obtained final reports on the results of such audit
with regard to PFS, which concluded that there are no environmental matters that
are likely to have a material adverse effect on NEHC.
31
<PAGE> 32
THE BUSINESS
AmeriServe is North America's largest systems foodservice distributor
specializing in distribution to chain restaurants, the fastest growing segment
of the domestic restaurant industry. The Company is the primary supplier to its
customers of a wide variety of items, including fresh and frozen meat and
poultry, seafood, frozen foods, canned and dry goods, fresh and pre-processed
produce, beverages, dairy products, paper goods, cleaning supplies and
equipment. The Company serves over 30 different restaurant chains and over
26,500 restaurant locations in North America. The Company has had long-standing
relationships with such leading restaurant concepts as Pizza Hut, Taco Bell,
KFC, Wendy's, Burger King, Dairy Queen, Subway and Applebee's. The Company's
strategy is to capitalize on its market leading position, compelling industry
trends and management's extensive experience to: (i) pursue profitable internal
and external growth opportunities; (ii) capitalize on its nationwide network of
distribution centers to increase customer density and regional market
penetration; (iii) continue to provide low cost, superior customer service; and
(iv) maximize operating leverage by pursuing selective acquisitions within the
fragmented foodservice distribution industry. For the fiscal year ended December
28, 1996, the Company generated pro forma net sales, pro forma EBITDA and pro
forma net loss of $4.9 billion, $128.0 million and $7.9 million, respectively.
The Company has achieved a record of strong growth in net sales and EBITDA
by successfully implementing this strategy. From 1992 to 1996, exclusive of PFS,
the Company's net sales increased from $293.6 million to $1.3 billion,
representing a CAGR of 44.5%. During the same period, the Company's EBITDA,
exclusive of PFS, increased from $6.0 million to $26.0 million, representing a
CAGR of 44.1%. The Company believes it is well positioned to continue to expand
its presence in the systems foodservice distribution industry as a result of its
reputation for providing superior customer service as well as its ability to
provide low cost, efficient services. The Company believes that it was primarily
as a result of these factors that in January 1997 it was awarded a three-year
exclusive contract effective April 1997 to provide foodservice distribution to
approximately 2,600 Arby's restaurants. The Company estimates that this
contract, which management believes represents the single largest customer
migration in the systems foodservice distribution industry, will result in the
addition of approximately $325 million of net sales in the first 12 months of
such contract.
On July 11, 1997, in furtherance of its strategy, NEHC acquired PFS, the
foodservice distribution business of PepsiCo. Prior to the Acquisition, PFS was
North America's second largest systems foodservice distributor, serving over
17,000 restaurants in the Pizza Hut, Taco Bell and KFC restaurant systems. The
Company expects to realize significant benefits from the Acquisition, including:
(i) enhanced customer and concept diversification; (ii) increased customer
density; (iii) broadened national and international presence; and (iv)
substantial cost savings and economies of scale. In addition, in connection with
the Acquisition, the Company has entered into the Distribution Agreement,
whereby it will be the exclusive distributor of selected products for five years
to the approximately 9,800 Pizza Hut, Taco Bell and KFC restaurants in the
continental United States owned by PepsiCo and previously serviced by PFS. These
restaurants accounted for approximately 68% of PFS's 1996 net sales and 44% of
the Company's 1996 pro forma net sales after giving effect to the Arby's
contract.
The Company believes it is well positioned to capitalize on the attractive
characteristics of the chain restaurant segment of the foodservice distribution
industry, which include: (i) the high growth rate of the segment, which
experienced an approximately 7.4% net sales CAGR from 1985 to 1995; (ii) the
uniformity of product offerings and consistency of demand by chain restaurant
customers; (iii) the increased focus by chain restaurants on foodservice
distributors that can provide consistent quality and reliable service on a
nationwide basis to maintain the chain's uniform standards; and (iv) the
fragmented nature of the industry, which includes over 3,000 foodservice
distribution companies. As the largest systems foodservice distributor serving
chain restaurants, the Company believes it is better positioned than its
competitors to offer consistent quality, reliable service and value on a
national scale in order to accommodate the growth of each customer.
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<PAGE> 33
FOODSERVICE DISTRIBUTION INDUSTRY
Generally
The foodservice distribution business involves the purchasing, receiving,
warehousing, marketing, selecting, loading and transportation of fresh and
frozen meat and poultry, seafood, frozen foods, canned and dry goods, fresh and
preprocessed produce, beverages, dairy products, paper goods, cleaning supplies,
equipment and other supplies from manufacturers and vendors to a broad range of
enterprises, including restaurants, cafeterias, nursing homes, hospitals, other
health care facilities and schools (but generally does not include supermarkets
and other retail grocery stores). The United States foodservice distribution
industry was estimated to generate $123 billion in sales in 1996.
Within the foodservice distribution industry, there are two primary types
of distributors: broadline foodservice distributors and specialist foodservice
distributors, such as the Company. Broadline foodservice distributors service a
wide variety of customers including both independent and chain restaurants,
schools, cafeterias and hospitals. Broadline distributors may purchase and
inventory as many as 25,000 different food and food-related items. Customers
utilizing broadline foodservice distributors typically purchase inventory from
several distributors. Specialist foodservice distributors may be segregated into
three categories: product specialists, which distribute a limited number of
products (such as produce or meat); market specialists, which distribute to one
type of restaurant (such as Mexican); and systems specialists, which focus on
one type of customer (such as chain restaurants or health care facilities).
Systems specialists, such as the Company, typically serve as a single source of
supply for their customers. In addition, chain restaurant foodservice
distributors are less vulnerable to customer migrations because much of their
inventory is proprietary to the restaurant concept. Also, broadline foodservice
distributors generally rely on sales representatives who must call on customers
regularly. Systems' distributors, however, regularly process orders
electronically without the need for a sales representative's involvement.
Systems Specialty -- Chain Restaurants
The Company operates as a systems distributor that specializes in servicing
chain restaurants. The chain restaurant segment represents a significant portion
of the foodservice distribution industry, with 1996 industry sales in this
segment estimated by NEHC to be approximately $103 billion at the retail level
and approximately $44 billion at the distributor level. In addition, retail
sales in this segment are estimated to have grown at a CAGR of approximately
7.4% from 1985 to 1995, reflecting both the growth of existing chain restaurants
and the introduction of new chain restaurant concepts. The chain restaurant
market at the retail level is projected to grow from $103 billion in 1996 to
$162 billion by 2005, representing a ten-year inflation adjusted CAGR of
approximately 5%.
NEHC believes a significant factor influencing growth in the systems
distribution market share segment is the ability of the systems distributor to
provide consistently high quality and reliable distribution services at
competitive prices, which has resulted in customers' forming long-term
relationships with their systems distributor in order to tailor specific
programs that meet the particular needs of the customer while creating operating
and cost efficiencies for both the customer and the systems distributor.
NEHC believes that systems distributors are better able to service chain
restaurants than broadline distributors because NEHC believes systems
distributors are often able to offer their customers a higher quality of service
at a lower cost. Given the uniformity of product offerings and the consistency
of demand of chain restaurants, a systems distributor has the opportunity to
reduce its overall costs and consequently those of its customers through
purchasing and holding fewer SKUs in inventory than a broadline distributor.
This reduces both the inbound and outbound freight costs through higher volumes
and larger drop sizes and provides more efficient and reliable distribution
schedules, thereby reducing labor costs of both the systems distributor and its
customer. In addition, systems distributors generally require a smaller sales
force than broadline distributors. NEHC believes that the uniformity of product
offerings, frequency of deliveries and magnitude of volumes allow a systems
distributor to chain restaurants to significantly improve net asset turnover as
compared to a broadline distributor. In addition, management believes that the
larger systems distributors have the volume and scale to offer chain restaurants
an opportunity to further reduce their costs
33
<PAGE> 34
through value-added services, such as procurement of nonproprietary items and
in-bound freight logistics management. In addition, larger systems distributors
can invest in technology and business processes, such as electronic order entry,
to reduce the cost of distributing to the restaurants.
NEHC believes that the Company has the leading market share in the chain
restaurant foodservice distribution segment. The foodservice distribution
industry remains highly fragmented and continues to experience significant
consolidation. The number of foodservice distributors has decreased from
approximately 3,600 in 1985 to approximately 3,000 in 1997, with a significant
increase in the market shares of the largest distributors. NEHC anticipates that
further consolidation may take place in this segment and intends that the
Company will be a leading participant in any such further consolidation.
BUSINESS STRATEGY
The Company's objective is to continue to grow net sales and EBITDA by
implementing the following key elements of its business strategy:
- Continue to Pursue Internal and External Growth Opportunities. The
Company intends to continue to grow through a combination of the
development of new business from existing customers, the addition of new
chains, international expansion and selective acquisitions.
Growth From Existing Chains. As the primary foodservice
distributor to most of its customers, the Company expects to benefit
from the continued growth of the domestic chain restaurant industry, the
fastest growing sector of the restaurant industry. From 1985 to 1995,
the chain restaurant segment experienced an approximately 7.4% net sales
CAGR, which exceeds the estimated 3.0% CAGR experienced by the overall
restaurant industry. The Company expects to realize growth from its
existing base of customers and concepts primarily due to: (i) increased
traffic within existing restaurants; (ii) the addition of new product
lines; (iii) new restaurant development and restaurant acquisitions by
existing customers; and (iv) the addition of new customers within
concepts currently serviced by the Company.
Growth Through Addition of New Chains. The Company continually
monitors the marketplace for opportunities to expand its portfolio of
customers and concepts. The Company targets (i) chains operating in
geographic areas where the Company could benefit from increased customer
density, further enhancing its operating leverage, and (ii) concepts
that could benefit from the Company's national presence and superior
customer service. In April 1997, the Company began operating under a
recently awarded three-year exclusive contract to provide foodservice
distribution to over 2,600 Arby's restaurants nationwide. The Company
estimates that this contract, which management believes represents the
single largest customer migration in the systems foodservice
distribution industry, will result in the addition of approximately $325
million of net sales in the first 12 months of such contract. In
addition, the Company plans to pursue additional export opportunities
and further expand its operations in international markets. After giving
effect to the Acquisition, the Company exports products from its
distribution centers in the United States to approximately 65 foreign
countries.
Pursue Selective Acquisition Opportunities. As North America's
largest systems foodservice distributor serving chain restaurants, the
Company believes it is well positioned to capitalize on the
consolidation taking place in the fragmented foodservice distribution
industry. The number of foodservice distributors has decreased from
approximately 3,600 in 1985 to approximately 3,000 in 1997, with a
significant increase in the market shares of the largest distributors.
The Company intends to continue to make strategic fold-in acquisitions
in order to augment its operations in existing markets, enhance customer
density and further reduce costs, and may also make larger acquisitions
as appropriate opportunities arise.
- Capitalize on the Benefits of the PFS Acquisition. Management believes
that combining the operations of AmeriServe and PFS will present it with
opportunities to eliminate duplicative costs and realign the Company's
distribution center network to effectively capitalize on economies of
scale and the benefits of higher customer density. Management has
identified approximately $27 million of
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<PAGE> 35
annual cost savings, which it believes it can achieve through the
elimination of general and administrative expenses and the consolidation
of distribution centers in certain markets. Following the Acquisition,
the Company expects to reduce the number of current distribution centers
from 39 to 29. In addition, the five-year Distribution Agreement will
further secure the Company's customer base and provide for a long-term
contract covering approximately 44% of the Company's pro forma 1996 net
sales after giving effect to the Arby's contract.
- Continue to Maximize Operating Leverage. As the largest systems
foodservice distributor in North America, the Company pursues a low-cost
operating strategy based primarily on achieving economies of scale in
the areas of warehousing, transportation, general and administrative
functions and management information systems. The Company generates
significant operating leverage by utilizing large distribution centers
strategically within each of its geographic markets, enabling it to: (i)
service multiple concepts from the same warehouse; (ii) maximize the
density of restaurants served from each facility; (iii) optimize
delivery routes; (iv) invest in advanced technology, which increases
operational efficiencies and enhances customer service; and (v) manage
inventory more efficiently.
- Continue to Provide Superior Customer Service. The Company believes it
enjoys a reputation for providing consistent, high quality service based
on its customer focus, its commitment to service excellence and the
depth of its management team. The Company has successfully implemented a
decentralized management structure that enables the Company to respond
quickly and flexibly to local customer needs. The Company typically
interacts with its customers on a daily basis, and generally makes
multiple deliveries to each restaurant each week. The Company measures
daily its service performance by continuously monitoring the accuracy
and promptness of deliveries. The Company's advanced computer systems
are linked to many of its customers' locations, enabling customers to
communicate electronically with the Company, thereby reducing the
Company's administrative costs, and enabling it to more efficiently
respond to customers' needs. In addition, the Company's national
presence allows it to provide consistent and reliable service to
national restaurant concepts with geographically diverse locations.
CUSTOMERS
The Company's customers are generally individual franchisees or
corporate-owned restaurants of chain restaurant concepts. The Company's
customers include over 30 restaurant concepts with over 26,500 restaurant
locations. The corporate owner or franchisor of the restaurant concept generally
reserves the right to designate one or more approved foodservice distributors
within a geographic region, and each franchisee is typically allowed to select
its foodservice distributor from such approved list.
Concept Mix and Concentration
On a pro forma basis after giving effect to the Transactions and the Arby's
contract, the Company's net sales in 1996 to its largest restaurant concepts
were as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF 1996 NET SALES
--------------------------------
PRO FORMA
CONCEPT AMERISERVE PFS COMBINED
------------------------------------------------------- ---------- --- ---------
<S> <C> <C> <C>
Pizza Hut restaurants(1)............................... 43% 28%
Taco Bell restaurants(2)............................... 43% 28%
KFC restaurants(3)..................................... 7% 14% 12%
Wendy's restaurants.................................... 30% 10%
Arby's restaurants..................................... 17% 6%
Burger King restaurants................................ 14% 5%
</TABLE>
- ---------------
(1) PepsiCo-owned Pizza Hut restaurants accounted for approximately 17.4% of pro
forma combined net sales.
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<PAGE> 36
(2) PepsiCo-owned Taco Bell restaurants accounted for approximately 18.3% of pro
forma combined net sales.
(3) PepsiCo-owned KFC restaurants accounted for approximately 7.9% of pro forma
combined net sales.
On a pro forma basis after giving effect to the Transactions and to the
Arby's contract, aggregate sales to PepsiCo Chains would have represented 44% of
the Company's 1996 net sales. No other single customer accounted for more than
10% of the Company's pro forma net sales in fiscal 1996. See "Risk Factors --
Dependence on Certain Chains and Customers."
Length of Customer Relationships
The Company has enjoyed long and successful relationships with its
customers that, in many cases, date back to the initial start-up of the
concept's operations. The following table illustrates concepts that are serviced
by the Company and the number of years the Company has serviced customers within
these concepts:
<TABLE>
<CAPTION>
YEARS AS A
CONCEPT CUSTOMER
--------------------------------------------------------------- ----------
<S> <C>
Dairy Queen.................................................... 46
Burger King.................................................... 36
KFC............................................................ 26
Wendy's........................................................ 21
Pizza Hut...................................................... 20
Taco Bell...................................................... 18
Applebee's..................................................... 8
Subway......................................................... 6
</TABLE>
The Distribution Agreement entered into with PepsiCo will provide the
Company with exclusive distribution rights for certain restaurant products to
approximately 9,800 Pizza Hut, Taco Bell and KFC restaurants for a five-year
term. Historically, PFS has had great success retaining business with
restaurants formerly owned by PepsiCo that have been refranchised. The
increasing penetration of franchise restaurants and the strong refranchising
retention rate have resulted in an overall net increase in restaurants served
every year. PFS's high level of customer satisfaction is a direct result of
management's emphasis on customer service. PFS's field level management is
responsible for maintaining and reinforcing long-standing partnerships with the
Pizza Hut, Taco Bell and KFC restaurants.
In January 1997, the Company entered into a three-year agreement, which
became effective April 1997, to become the primary supplier to approximately
2,600 Arby's restaurants nationwide. Management believes this to be the single
largest customer migration in the systems foodservice distribution business. The
Company services these restaurants together with three other cooperating
distributors. The cooperating distributors currently serve Arby's restaurants
located outside the Company's pre-Acquisition primary service territory. NEHC
expects the Company to generate at least $325 million of net sales during the
first 12 months of the Distribution Agreement. See "Risk Factors -- Key
Contracts."
OPERATIONS AND DISTRIBUTION
The Company's operations generally can be categorized into three business
processes: product replenishment, product storage and order fulfillment. Product
replenishment involves the management of logistics from the vendors through the
delivery of products to the Company's distribution centers. Product storage
involves the warehousing and rotation of temperature-controlled inventory at the
distribution centers pending sale to customers. Order fulfillment involves all
activities from customer order placement and selecting and loading through
delivery from the distribution centers to the restaurant location. Supporting
these processes is the Company's nationwide network of distribution centers, its
fleet of approximately 900 tractors and 1,200 trailers and its management
information systems. Substantially all the Company's products are purchased,
stored and delivered in sealed cases, that the Company does not open or alter.
36
<PAGE> 37
Product Replenishment
While the Company is responsible for purchasing products to be delivered to
its customers, chain restaurants typically approve the vendors and negotiate the
price for their proprietary products. The Company determines the distribution
centers that will warehouse products for each customer and the quantities in
which such products will be purchased. Order quantities for each product are
systematically determined for each distribution center, taking into account both
recent sales history and projected customer demand. The distribution centers
selected to serve a customer are based on the location of the restaurants to be
serviced.
The Company works with its chain customers in order to optimize
transportation from vendor locations to distribution centers. By utilizing the
collective demand of its customers for inbound transportation, its existing
fleet of trucks, and its expertise in managing transportation, the Company can,
in many instances, offer its customers inbound transportation on a more
economical basis than the vendors that have traditionally provided such
services. NEHC believes the Company can offer its customers lower inbound
transportation costs through (i) the use of the Company's delivery fleet to
backhaul products, and (ii) the consolidation of products from more than one
vendor or for use by more than one customer to increase truckloads and brokering
freight to third-party carriers with whom the Company has negotiated lower
transportation rates.
Product Storage
The Company currently warehouses approximately 1,100 to 5,500 SKUs
(excluding the redistribution and equipment distribution centers) for its
customers at 36 facilities in 30 metropolitan areas. Upon receipt of the product
at the distribution centers, the product is inspected and stored in pallets, in
racks or in bulk in the appropriate temperature-controlled environment. Products
stored at the distribution centers are generally not reserved for a specific
customer. Rather, customer orders are filled from the common inventory at the
relevant distribution center. The Company's computer systems continuously
monitor inventory levels in an effort to maintain optimal levels, taking into
account required service levels, buying opportunities and capital requirements.
Each distribution center contains ambient, refrigerated (including cool docks)
and frozen space, as well as offices for operations, sales and customer service
personnel and a computer network, accessing systems at other distribution
centers and the Company's corporate support centers.
A majority of the Company's distribution centers are between 100,000 to
200,000 square feet with approximately 20% refrigerated storage space, 30%
frozen storage space and 50% dry storage area. The Company uses sophisticated
logistics programs to strategically locate new distribution centers in areas
near key highways with specific consideration given to the proximity of
customers and suppliers. The Company also employs consultants in distribution
center layout and product flow to design the distribution center with the
objective of maximizing product throughput. The Company estimates that each
distribution center can effectively service customers within a 350 mile radius,
although the Company's objective is to service customers within a 150 mile
radius.
Order Fulfillment
The Company places a significant emphasis on providing high quality service
in order fulfillment. By providing high quality service and reliability, NEHC
believes that the Company can reduce the number of reorders and redeliveries,
reducing costs for both the Company and its customers. Each restaurant places
product orders based on recent usage, estimated sales and existing restaurant
inventories. The Company uses its management information systems to continually
update routes and delivery times with each customer in order to lower
fulfillment costs. Product orders are placed with the Company one to three times
a week either through the Company's customer service representatives or through
electronic transmission using specially designed software. Many of the
restaurants served by the Company transmit product orders electronically.
Once ordered by the customer, products are picked and labeled at each
distribution center, and the products are generally placed on a pallet for the
loading of outbound trailers. Delivery routes are scheduled to both fully
utilize the trailer's load capacity and minimize the number of miles driven in
order to exploit the cost benefit of customer density.
37
<PAGE> 38
Fleet
The Company operates a fleet of approximately 900 tractors and 1,200
trailers. The Company leases approximately 300 of the tractors from General
Electric Capital Corp. pursuant to full-service leases that include maintenance,
licensing and fuel tax reporting. The Company owns approximately 600 tractors
and approximately 800 trailers. The remaining trailers are leased under similar
full-service leases from a variety of leasing companies. Lease terms average six
years for new tractors and nine years for new trailers.
Most of the Company's vehicles contain onboard computers. The computers
assist in managing fleet operations and provide expense controls, automated
service level data collection and real-time driver feedback, thereby enhancing
the Company's service level to customers. Data from the onboard computers are
loaded into the routing software after each route in order to continually
optimize the route structure. Substantially all of the Company's trailers
contain three temperature-controlled compartments, which allow the Company to
simultaneously deliver frozen food, refrigerated food and dry goods.
Management Information Systems
AmeriServe and PFS currently operate with different computer systems.
AmeriServe utilizes a variety of personal computer and IBM AS/400-based software
applications. PFS also operates with a variety of applications, the core of
which are mainframe-based. Both companies have invested significantly in their
systems, and both consider their systems to be among the leaders in the
industry. Programs in use include various customized and special-purpose
applications, such as warehouse management tools, remote order entry, automated
replenishment, delivery routing, and onboard computers for delivery trucks.
Following the Acquisition, the Company intends to replace its core
applications with software from J.D. Edwards in order to integrate the systems
of AmeriServe and PFS. This conversion process is expected to take 18 to 24
months to complete and will result in all of the Company's distribution centers
operating with the same computer systems and the same operating policies and
practices.
Procurement, Logistics and Re-Distribution
The Company procures a wide range of food, paper and cleaning products for
ultimate distribution to its chain restaurant customers. These products include
fresh and frozen meat and poultry, seafood, frozen foods, canned and dry goods,
fresh and preprocessed produce, beverages, dairy products, paper goods, cleaning
supplies and equipment. The Company is also exclusively responsible for the
inventory management of these items for its customers. The Company also operates
two re-distribution centers for the purpose of purchasing slow-moving inventory
items and consolidating these items into full truckload shipments to the
Company's distribution centers nationally, as well as to customers outside the
Company. The re-distribution division has been approved as a national
consolidation point for Burger King, Dairy Queen, Arby's, KFC, Taco Bell, Pizza
Hut and several other chains. The major benefits of consolidation are: (i)
effective reduction of inbound freight costs; and (ii) increased distributor
inventory turns, providing optimal quantity purchase opportunities and
optimizing the inventory management of both the Company's distribution centers
and the chain customers. The Company also offers re-distribution services to
customers outside of the continental U.S.
The Company operates a freight logistics division for the purpose of
achieving the lowest landed costs to its distribution centers through the review
of purchase orders generated at the various distribution centers. The Company
generates freight savings through leveraged purchasing, with key carriers
operating in defined traffic lanes. This division also provides logistical
services to a substantial number of customers outside of the Company on a fee
basis. Current inbound purchase orders controlled by this division exceed 2,500
truckloads monthly. Further, the Company operates a nationally registered common
carrier fleet of temperature-controlled tractor-trailer units. This division
serves as a "core-carrier" to several national food manufacturers and is an
integral part of the Company's inbound freight logistics initiative.
38
<PAGE> 39
MARKETING AND CUSTOMER SERVICE
The Company employs national and regional marketing representatives who
service existing customers, as well as focus on developing new customers from
among other restaurant concepts. Additionally, each division President and
certain members of senior management are active in maintaining relationships
with current and potential customers. The Company compensates its sales and
marketing representatives under various compensation plans, which combine a base
pay with an incentive bonus.
The Company's customer service activities are highly customized to the
unique needs of each customer. Each customer has a dedicated account manager who
is responsible for overseeing all of a customer's needs and coordinating the
services provided to such customer. In order to manage problem resolution, the
Company tracks customer calls to ensure that appropriate action and follow-up
occur. The Company's representatives travel frequently to the customer's
restaurant or office for regularly scheduled meetings and key project reviews to
ensure close coordination between the Company and the customer.
A key component of the Company's marketing plan is the use of customized
information systems to improve customer service, and to assist the customer in
the daily operation of its business. The Company utilizes on-line order entry
inventory systems, which permit the Company to simultaneously take orders,
compare the order to previous orders, track and replenish inventory and schedule
the delivery. In addition to placing orders, certain customers may also access
their own accounts, and inventory information, and print copies of order
acknowledgments, invoices and account statements. This electronic data
interchange system provides certain customers with access to the Company's
information systems at their convenience and enables the Company to accept
orders 24 hours a day, seven days a week. The electronic data interchange not
only allows for greater efficiencies, but also produces reduced administrative
expenses and fewer ordering errors. NEHC believes that this system provides
customers with superior value-added services, which strengthens the relationship
between the Company and its customers and creates certain competitive strengths.
COMPETITION
The foodservice distribution industry is highly competitive. Competitors
include other systems distribution companies focused on the chain restaurants
and captive, multi-unit franchisor-owned distribution companies and broadline
foodservice distributors.
The Company competes directly with other systems specialists that target
chain restaurant concepts. The Company's principal competitors are ProSource,
Inc., Sysco Corporation's Sygma division, Marriott Distribution Services Inc.,
Alliant Foodservice Inc. and MBM Corp. The Company also competes with regional
and local distributors in the foodservice industry, principally for business
from franchisee-owned chain restaurants. National and regional chain restaurant
concepts typically receive service from one or more systems distributors.
Distributors are appointed or approved to service these concepts and/or their
franchisees on either a national or regional basis. NEHC believes that
distributors in the foodservice industry compete on the bases of quality,
reliability of service and price. Because a number of the Company's customers
prefer a distributor that is able to service their restaurants on a nationwide
basis, NEHC believes that the Company is in a strong position to retain and
compete for national chain restaurant customers and concepts. NEHC believes that
restaurant management, in general, is reluctant to change distributors or use
multiple distributors if service and prices are satisfactory. Accordingly, the
ability to provide quality service and deliver the products in a timely,
dependable manner is the key to building, as well as maintaining, customer
relationships. NEHC believes the Company has an excellent reputation as a prompt
and reliable systems foodservice distributor with competitive prices.
Opportunities for growth by gaining access to new chains typically occur at
the expense of a competitor and are awarded in a bid or negotiation situation,
in which large blocks of business are awarded to the most efficient distributor.
NEHC believes that a key competitive advantage is continuously pursuing a
strategy of being the low-cost provider of distribution and other value-added
services within the industry. See "Risk Factors -- Competition."
39
<PAGE> 40
LITIGATION
From time to time NEHC and/or the Company are involved in litigation
relating to claims arising out of their normal business operations. Neither NEHC
nor the Company is currently engaged in any legal proceedings that are expected,
individually or in the aggregate, to have a material adverse effect on NEHC or
the Company.
REGULATORY MATTERS
NEHC and the Company are subject to a number of federal, state and local
laws, regulations and codes, including those relating to the protection of human
health and the environment, compliance with which has required, and will
continue to require, capital and operating expenditures. NEHC believes that it
and the Company are in compliance, in all material respects, with all such laws,
regulations and codes. Neither NEHC nor the Company, however, is able to predict
the impact of any changes in the requirements or mode of enforcement of these
laws, regulations and codes on their operating results.
EMPLOYEES
NEHC has no paid employees. As of June 28, 1997, after giving effect to the
Acquisition, the Company had approximately 4,800 full-time employees,
approximately 400 of whom were employed in corporate support functions and
approximately 4,400 of whom were warehouse, transportation, sales, and
administrative staff at the distribution centers. As of such date, approximately
275 of the Company's employees were covered by two collective bargaining
agreements. One such collective bargaining agreement, covering approximately 200
employees, will expire in January 1998. The other such collective bargaining
agreement, covering approximately 75 employees, will expire at the end of
November 1998. The Company has not experienced any significant labor disputes or
work stoppages and believes that its relationships with its employees are good.
Substantially all full-time employees who are over age 21 and have completed one
year of service with the Company are eligible to participate in the Company's
401(k) plans.
40
<PAGE> 41
FACILITIES
NEHC currently operates 39 distribution centers located throughout the
United States and Canada as follows:
<TABLE>
<CAPTION>
AMERISERVE PFS
- ------------------------------------------------- -------------------------------------------------
APPROXIMATE APPROXIMATE
LOCATION SQUARE FEET LEASED/OWNED LOCATION SQUARE FEET LEASED/OWNED
- ----------------------- ----------- ------------ ----------------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Albuquerque, NM........ 65,000 Leased Albany, NY............. 104,000 Leased
Canton, MS............. 80,500 Leased Arlington, TX.......... 105,600 Leased
Charlotte, NC.......... 158,500 Owned Charlotte, NC.......... 91,771 Leased
Denver, CO............. 119,000 Leased Columbus, OH........... 143,903 Leased
Fort Worth, TX......... 113,000 Leased Denver, CO............. 74,360 Leased
Gainesville, FL........ 53,000 Leased Gulfport, MS........... 63,792 Leased
Grand Rapids, MI....... 180,000 Leased Houston, TX............ 69,800 Leased
Hebron, KY............. 124,000 Leased Indianapolis, IN....... 115,200 Leased
Jacksonville, FL....... 119,600 Leased Indianapolis, IN(3).... 180,100 Leased
Lemont, IL(1).......... 105,000 Leased Jonesboro, GA.......... 124,076 Leased
Madison, WI(1)......... 123,000 Leased Lenexa, KS............. 105,600 Leased
Norcross, GA........... 169,900 Owned Manassas, VA........... 100,337 Owned
Omaha, NE.............. 105,000 Leased Memphis, TN............ 70,750 Leased
Orlando, FL(2)......... 268,000 Leased Milwaukee, WI.......... 123,185 Leased
Plymouth, MN........... 104,200 Leased Mississauga, Ontario... 53,487 Leased
Salt Lake City, UT..... 31,000 Leased Mt. Holly, NJ.......... 126,637 Leased
Waukesha, WI(4)........ 196,000 Leased Novi, MI............... 72,830 Leased
Oklahoma City, OK...... 52,500 Leased
Orlando, FL............ 115,240 Leased
Ontario, CA............ 201,454 Leased
Portland, OR........... 81,815 Leased
Stockton, CA........... 105,000 Leased
Tempe, AZ.............. 67,660 Leased
</TABLE>
- ---------------
(1) Re-distribution facilities
(2) Under construction
(3) PFS restaurant equipment distribution center
(4) Capital lease
Within five years of December 31, 1996, two of the Company's distribution
center leases are due to expire. NEHC believes that the Company will be able to
renew expiring leases at reasonable rates in the future. NEHC believes that the
Company's existing distribution centers, together with planned modifications and
expansions, provide sufficient space to support the Company's expected expansion
over the next several years.
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<PAGE> 42
THE ACQUISITION
Pursuant to the Asset Purchase Agreement, which NEHC assigned to the
Company at the Transactions Closing (with the Canadian agreement being assigned
to a Canadian subsidiary of the Company), the Company acquired substantially all
of the assets and properties used or held for use by PFS for a price of $830.0
million in cash, subject to adjustment, and assumed certain liabilities.
The Asset Purchase Agreement contains customary representations and
warranties from PepsiCo with respect to the assets and liabilities of PFS.
PepsiCo has agreed to indemnify NEHC and its affiliates, including the Company,
for any loss (i) resulting from any breach of any such representation, warranty
or agreement made by PepsiCo, provided, however, that such indemnity is limited
to cover only losses in excess of $3.0 million in the aggregate; or (ii)
resulting from or arising out of any liability or obligation not expressly
assumed by the Company pursuant to the Asset Purchase Agreement. The Company has
agreed to indemnify PepsiCo and its affiliates for any loss resulting from any
breach of any representation, warranty or agreement made by the Company pursuant
to the Asset Purchase Agreement or the operation of PFS by the Company after the
Closing. PepsiCo has agreed to refrain from actively and directly soliciting any
officer, manager or key employee of the Company without the prior written
consent of the Company for the 12 months following the Transactions Closing.
DISTRIBUTION AGREEMENT
Upon consummation of the Acquisition, the Company was assigned and assumed
the Sales and Distribution Agreement (the "Distribution Agreement") dated as of
May 6, 1997, as amended as of May 29, 1997, by and among PFS and PepsiCo's chain
restaurant businesses (the "PepsiCo Chains"). The Distribution Agreement
provides that the Company will be the exclusive distributor of specified
restaurant products purchased by the Pizza Hut, Taco Bell and KFC restaurants
within the continental United States, which are owned by the PepsiCo Chains as
of the Transactions Closing (other than certain specified restaurants), or which
are acquired or built by the PepsiCo Chains during the term of the Distribution
Agreement. The Distribution Agreement will continue to cover restaurants
refranchised by PepsiCo (other than KFC restaurants) for the five-year term.
Additionally, the Distribution Agreement provides that the Company will be an
approved distributor of specified restaurant products sold to all Pizza Hut,
Taco Bell and KFC restaurants, whether franchised or owned by the PepsiCo
Chains, in the United States, Canada or the countries to which PFS currently
exports restaurant products from its distribution centers in the United States.
The Distribution Agreement will be effective from the Transactions Closing and
through the fifth anniversary of the Transactions Closing, unless renewed or
extended by mutual agreement of the parties. The Distribution Agreement may be
terminated at any time (i) by any party in the event that the other party
breaches any material term and such breach remains unremedied for a period of 30
calendar days after written notice of such breach from the nonbreaching party,
(ii) by the PepsiCo Chains if the Company is in material breach of the
Distribution Agreement for failure to maintain specified service levels for a
specified period or (iii) by either party in the event that the other party
becomes the subject of a bankruptcy, insolvency or other similar proceeding. See
"Risk Factors -- Key Contracts."
42
<PAGE> 43
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information as of August 1, 1997,
with respect to each person who is an executive officer, a significant employee,
or director of NEHC:
<TABLE>
<CAPTION>
NAME AGE TITLE
- ----------------------------------------------- --- ------------------------------------------
<S> <C> <C>
John V. Holten................................. 40 Director, Chairman and Chief Executive
Officer
John R. Evans.................................. 57 Director and Vice Chairman
Raymond E. Marshall............................ 47 Director, President, Chief Operating
Officer and Treasurer
Donald J. Rogers............................... 37 Chief Financial Officer and Vice President
Gunnar E. Klintberg............................ 48 Director
A. Petter Ostberg.............................. 35 Vice President and Secretary
Leif F. Onarheim............................... 62 Director
Peter T. Grauer................................ 51 Director
Benoit Jamar................................... 42 Director
Daniel Crippen................................. 45 Director
</TABLE>
John V. Holten. Mr. Holten has served as Chairman and Chief Executive
Officer of Holberg since its inception in 1986. Mr. Holten was Managing Director
of DnC Capital Corporation, a merchant banking firm in New York City, from 1984
to 1986. Mr. Holten received his M.B.A. from Harvard University in 1982 and he
graduated from the Norwegian School of Economics and Business Administration in
1980.
John R. Evans. Mr. Evans has been in the foodservice distribution industry
for nearly forty years, all of which have been with the Company or its
predecessors. Mr. Evans became President of Evans in 1971, and was named Chief
Executive Officer of the combined company when Evans merged with NEBCO in 1990.
Along with building Evans from its infancy, Mr. Evans has played an active
leadership role in the industry. Mr. Evans obtained his degree from Spencerian
College and serves on the Board of Directors of each of M&I Northern Bank,
Aerial Company, Inc., AFI Inc., and AmeriServe.
Raymond E. Marshall. Mr. Marshall has 27 years of foodservice distribution
experience, including 24 years with the Company or its predecessors. Mr.
Marshall progressed through management positions in virtually all areas of NEBCO
before being named President and Chief Executive Officer in 1980. In 1989, at
the time of the merger between NEBCO and Evans, Mr. Marshall was named President
and Chief Operating Officer of NEBCO EVANS. He took on his new position as
President of AmeriServe in April 1996. Mr. Marshall earned his PMD from Harvard
Business School in 1980 after attending the University of Omaha and serves on
the Board of Directors of each of NEHC, AmeriServe and Independent Distributors
of America ("IDA").
Daniel W. Crippen. Mr. Crippen has spent the last 20 years in the
foodservice distribution business with Post. In addition, Mr. Crippen was
appointed to his present position at AmeriServe in April 1997. He is Chairman of
the Board of Directors of IDA. Mr. Crippen received his B.A. from Augustana
College in Rock Island, Illinois in 1973 and is a certified public accountant.
Donald J. Rogers. Mr. Rogers joined AmeriServe in March 1993 after
spending five years with Holberg. While at Holberg, Mr. Rogers worked closely
with AmeriServe's management on a variety of projects. Before joining Holberg,
Mr. Rogers held financial analyst positions at The Dun & Bradstreet Corporation
and Keypoint Financial Corporation and spent three years in a management
training program at Metropolitan Life Insurance Company. Mr. Rogers earned an
M.B.A. from UCLA Graduate School of Management in 1987 and his B.S. degree from
The Wharton School, University of Pennsylvania in 1982.
Gunnar E. Klintberg. Mr. Klintberg has served as Vice Chairman of Holberg
since its inception in 1986. Mr. Klintberg was a Managing Partner of DnC Capital
Corporation, a merchant banking firm in New York
43
<PAGE> 44
City, from 1983 to 1986. From 1975 to 1983, Mr. Klintberg held various
management positions with the Axel Johnson Group, headquartered in Stockholm,
Sweden. Mr. Klintberg headed up the Axel Johnson Group's headquarters in Moscow
from 1976 to 1979 and served as assistant to the President of Axel Johnson
Group's $1 billion operation in the U.S., headquartered in New York City, from
1979 to 1983. Mr. Klintberg received his undergraduate degree from Dartmouth
College in 1972 and a degree in Business Administration and Economics from the
University of Uppsala, Sweden in 1974.
A. Petter Ostberg. Mr. Ostberg joined Holberg in 1994 and was appointed as
Chief Financial Officer in 1997. Prior to joining Holberg, Mr. Ostberg held
various finance positions from 1990 to 1994 with New York Cruise Lines, Inc.,
including Group Vice President, Treasurer and Secretary. Prior to joining New
York Cruise Lines, Inc., Mr. Ostberg was General Manager of Planter Technology
Ltd. in Mountain View, California, and from 1985 to 1987, Mr. Ostberg was a
Financial Analyst with Prudential Securities, Inc. in New York. Mr. Ostberg
received a B.A. in International Relations and Economics from Tufts University
in 1985, and an M.B.A. from Stanford University Graduate School of Business in
1989.
Leif F. Onarheim. Mr. Onarheim is one of Norway's leading industrialists
and for the last 4 years held the position as president of Norway's largest
business school. He is currently Vice Chairman of the Board of the Norwegian
School of Management. In 1996, Mr. Onarheim was elected chairman of NHO, the
country's largest association of business and industry. From 1980 to 1992 Mr.
Onarheim served as CEO of Nora Industries. When Nora merged with Orkla
Borregaard to form the Orkla Group in 1991, Onarheim briefly served as the new
group's Chairman. The Orkla Group is one of Scandinavia's largest branded goods
company with production facilities in the US, Germany, Poland and England. Mr.
Onarheim is a graduate of the Norwegian School of Business and Economics in
Bergen, Norway. He serves as Chairman of the Board of Directors of H. Aschehoug
& Co. publishers, Norwegian Fair, Netcom ASA and Narvesen ASA, Vice Chairman of
Saga Petroleum ASA and is a board member with Wilhelm Wihelmsen Ltd. (shipping).
He has been a director of AmeriServe since 1986 and a director of Holberg since
1997.
Peter T. Grauer. Mr. Grauer has been a Managing Director of DLJ Merchant
Banking, Inc. since September 1992. From April 1989 to September 1992, he was
Co-Chairman of Grauer & Wheat, Inc., an investment firm specializing in
leveraged buyouts. Prior thereto Mr. Grauer was a Senior Vice President of
Donaldson, Lufkin & Jenrette Securities Corporation. Mr. Grauer serves on the
Board of Directors of each of Doane Products Co. and Total Renal Care, Inc.
Benoit Jamar. Mr. Jamar is a Managing Director in the Mergers &
Acquisitions group at Donaldson, Lufkin & Jenrette Securities Corporation. Prior
to joining Donaldson, Lufkin & Jenrette Securities Corporation in 1989, he
worked at Lehman Brothers in its financial restructuring group. Mr. Jamar is a
director of the Company.
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<PAGE> 45
EXECUTIVE COMPENSATION
NEHC has no paid employees. The following table sets forth the information
for 1996 with regard to compensation for services rendered in all capacities to
the Company by the Chief Executive Officer and the other four most highly
compensated executive officers of the Company (collectively, the "Named
Executive Officers"). Information set forth in the table reflects compensation
earned by such individuals for services with the Company or its respective
subsidiaries.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
OTHER
ANNUAL ALL OTHER
COMPEN- COMPEN-
FISCAL SALARY BONUS SATION SATION
NAME AND PRINCIPAL POSITION YEAR ($)(1) ($) ($) ($)(2)
- ---------------------------------------- ------ -------- ------- ------- ---------
<S> <C> <C> <C> <C> <C>
John V. Holten.......................... 1996 -- -- -- --
Chairman and Chief 1995 -- -- -- --
Executive Officer 1994 -- -- -- --
Raymond E. Marshall..................... 1996 273,793 265,000(3) -- 11,600
President and 1995 212,492 109,220 -- 10,400
Treasurer 1994 202,000 64,000 -- 6,800
Daniel W. Crippen....................... 1996 246,764 265,076 -- 9,659
Chief Operating Officer 1995 202,538 129,464 -- 9,788
1994 202,250 295,284 -- 9,394
Donald J. Rogers........................ 1996 158,529 125,000(3) 33,000 (4) 11,600
Chief Financial Officer 1995 115,671 45,000 33,000 (4) 10,400
and Vice President 1994 106,050 15,000 34,000 (4) 6,800
John R. Evans........................... 1996 263,000 -- -- 4,800
Vice Chairman 1995 262,832 -- -- 4,800
1994 262,600 -- -- 4,800
</TABLE>
The Company will pay an annual management fee to Holberg for management
services. The amount of this fee is not set or allocated with respect to any
particular employee's compensation from Holberg.
- ---------------
(1) The amounts shown in this column include amounts contributed by the Company
to its 401(k) plan under a contribution matching program.
(2) The amounts shown in this column reflect premiums paid by the Company on
behalf of Named Executive Officers for whole life insurance policies and
annuities to which the Named Executive Officers are entitled to the cash
surrender value.
(3) These amounts include discretionary cash bonuses paid by Holberg for
services provided during 1995 in connection with the acquisition of
AmeriServ Food Company.
(4) This amount reflects forgiveness by the Company of a portion of a $100,000
relocation assistance loan.
DIRECTOR COMPENSATION
Directors of NEHC do not receive compensation for serving on NEHC's Board
of Directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company did not have a Compensation Committee in fiscal 1996. The
Company intends to form a Compensation Committee in fiscal 1997. The members of
such committee have not yet been determined. During fiscal 1996, no executive
officer of NEHC served as a member of the Compensation Committee of another
entity.
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<PAGE> 46
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
Mr. Marshall's current employment agreement with the Company provides for a
three year term, scheduled to lapse on January 1, 1998, with default annual
renewals, and an annual base salary of $210,000, which will increase for 1997 to
$285,000 plus an annual bonus to be determined by the Chairman of the Board of
Directors after considering the Company's Reported Operating Profit, plus
participation in any employee benefit plans sponsored by the Company. Mr.
Marshall agrees not to disclose confidential information for so long as such
information remains competitively sensitive. During the term of the employment
agreement and for one year after its termination, Mr. Marshall agrees not to
render services to, or have any ownership interest in, any business which is
competitive with the Company. Mr. Marshall's employment agreement does not
contain any change of control provisions.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL HOLDERS
AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of NEHC Common Stock by (i) each person known to the Company to own
beneficially more than 5% of any class of NEHC Common Stock, (ii) each director
of the Company, (iii) each Named Executive Officer of the Company and (iv) all
executive officers and directors of the Company, as a group. All information
with respect to beneficial ownership has been furnished to the Company by the
respective stockholders of NEHC. Except as otherwise indicated in the footnotes,
each beneficial owner has the sole power to vote and to dispose of all shares
held by such holder.
<TABLE>
<CAPTION>
PERCENT
AMOUNT AND NATURE OF SHARES
NAME AND ADDRESS OF BENEFICIAL OWNERSHIP OUTSTANDING
- ----------------------------------------- -------------------------------------- -----------
<S> <C> <C>
Nebco Evans Distributors, Inc.
("NED")................................ 6,508 shares of Class A Common Stock 100%(+)
1,733 shares of Class B Common Stock 100%(+)
Orkla.................................... (1)
DLJMB.................................... Warrants to purchase 3,682 shares of
Class A Common Stock 36.1%(++)
Warrants to purchase 981 shares of
Class B Common Stock 36.1%(++)
John V. Holten........................... (2)
Daniel W. Crippen........................ (3)
John R. Evans............................ --
Peter T. Grauer.......................... (4)
Benoit Jamar............................. (4)
Gunnar E. Klintberg...................... (5)
Raymond E. Marshall...................... (6)
Leif F. Onarheim......................... (7)
Donald J. Rogers......................... (8)
</TABLE>
- ---------------
(+) Computed with respect to the currently outstanding shares of Class A and
Class B Common Stock of NEHC, and without taking into account any options
or convertible interests of NEHC.
(++) Computed with respect to the currently outstanding shares of Class A and
Class B Common Stock of NEHC and the warrants held by DLJMB, but without
taking into account any other options or convertible interests of NEHC.
Holberg has exercised a contractual right to repurchase from DLJMB and
affiliates (i) 55% of the junior exchangeable preferred stock of NEHC
acquired by DLJMB and affiliates in connection with the Acquisition (see
"Certain Relationships and Related Party Transactions"), and (ii) warrants
conferring the right to acquire 851.84 shares of the Common Stock. The
consummation of such repurchase is expected to be in or before January
1998. The ownership
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<PAGE> 47
information reported herein does not give effect to such expected
repurchase, but reflects actual ownership as of the date hereof.
(1) Orkla owns approximately 7% of the outstanding common stock of NED, and has
an additional interest in the common stock of NED of approximately 8%
through certain warrants to purchase such common stock. In addition, Orkla
owns approximately 30% of the outstanding common stock of Holberg (which
itself owns the balance of the common stock of NED not owned directly by
Orkla and has an additional interest in the common stock of NED of
approximately 75% through certain preferred stock convertible into common
stock), and an additional interest in the common stock of Holberg of
approximately 17% through certain preferred stock convertible into common
stock. The warrant and convertible interests described in this note have
been computed based upon the outstanding common shares of NED and Holberg,
without taking into account any options or convertible interests of NED or
Holberg. Orkla also has certain contractual rights as to NED and NEHC
pursuant to an Amended and Restated Investors Agreement among DLJMB, NEHC,
NED, Holberg and Orkla.
(2) Mr. Holten owns all of the outstanding common stock of the corporate parent
of Holberg, which entity owns approximately 70% of the outstanding common
stock of Holberg, and an additional interest in the common stock of Holberg
of approximately 25% through certain preferred stock convertible into
common stock. As noted above, Holberg owns approximately 93% of the
outstanding NED common stock and has an additional interest through certain
preferred stock convertible into common stock. The convertible interests
described in this note have been computed based upon the outstanding common
shares of Holberg and NED, without taking into account any options or
convertible interests of Holberg or NED.
(3) Mr. Crippen owns shares of a series of convertible preferred stock of NEHC
that, if converted, would result in his ownership of approximately 1.6% of
the outstanding common stock of NEHC, taking into account the actually
outstanding shares and the warrants held by DLJMB.
(4) Messrs. Grauer and Jamar are Managing Directors of DLJ, and may be
considered to have beneficial ownership of the interests of DLJMB in the
Company and NEHC. Messrs. Grauer and Jamar disclaim such beneficial
ownership.
(5) Mr. Klintberg is an officer and director of NED and certain of its
corporate parents, but disclaims beneficial ownership of any of the shares
owned by NED.
(6) Mr. Marshall has an interest of 5% in NED through certain options that have
been granted to him by NED. Such interest has been computed based upon the
outstanding common shares of NED, without taking into account any options
or convertible interests of NED.
(7) Mr. Onarheim has an interest of less than 1% in NED through certain options
that have been granted to him by NED. Such interest has been computed based
upon the outstanding common shares of NED, without taking into account any
options or convertible interests of NED. Mr. Onarheim has also had a long
affiliation with Orkla and acts as Orkla's representative on the Board of
Directors of the Company and NEHC, but disclaims beneficial ownership of
any interests held by Orkla.
(8) Mr. Rogers has an indirect interest of less than 1% in NEHC and the Company
through certain options that have been granted to him as an indirect
corporate shareholder of NEHC.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
DLJMB, an affiliate of DLJ, and certain of its affiliates beneficially own
approximately 36.1% of the common stock of NEHC. Peter T. Grauer, a principal of
DLJ, is a member of the Board of Directors of NEHC and the Company; Benoit
Jamar, a principal of DLJ, is a member of the Board of Directors of NEHC and the
Company as of Closing. Further, DLJ Capital Funding, Inc., an affiliate of DLJ,
acted as documentation agent in connection with the New Credit Facility for
which it received certain customary fees and expenses. In addition, DLJ received
a merger advisory fee of $4.0 million in cash from the Company upon consummation
of the Transactions.
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<PAGE> 48
Holberg has received customary investment banking and advisory fees from
the Company and its affiliates in connection with certain prior transactions,
and received a $4.0 million merger advisory fee upon consummation of the
Transactions. In addition, it is expected that the Company will pay Holberg a
financial advisory and arrangement fee of $1.0 million in connection with the
Refinancing, as well as a management fee of approximately $4.0 million annually
for 1997 and subsequent years. See "Management -- Executive Compensation."
The Company leases a warehouse and office facility in Waukesha, Wisconsin
from an affiliated partnership owned by certain former shareholders of an
acquired company, including Mr. John Evans, for approximately $810,000 per year
through May 31, 2008.
With the January 1996 acquisition of AmeriServ, the Company acquired a
minority interest in Post Holdings, a 93.6% owner of Post. On November 25, 1996
NEHC acquired: (i) the Company's ownership interest in Post Holdings; and (ii)
Daniel W. Crippen's 50% ownership of Post Holdings. In connection with this
transaction, Mr. Crippen, the Company's Chief Operating Officer, received $4.4
million ($2.0 million cash and $2.4 million in NEHC 8% Senior Convertible
Preferred Stock) in exchange for his 50% equity interest in Post Holdings.
The Company participates in a self-insured group casualty (including
workers compensation and auto liability) risk program with an affiliate, which
determines the insurance expenses to be allocated to the Company. The Company
and Holberg also periodically engage in bi-lateral interest-bearing loans and
advances. See Note 11 to the Company's historical financial statements included
elsewhere herein.
DLJ and BancAmerica Robertson Stephens have, from time to time, provided
investment banking and other financial advisory services for which they have
received customary compensation, including fees received in connection with the
offering of the Senior Subordinated Notes and the Senior Notes.
In connection with the Acquisition, NEHC, pursuant to the Equity
Contribution, contributed $130.0 million of cash to the Company. This
contribution was financed in part through NEHC's sale of debt and equity
securities, as well as warrants to purchase NEHC Common Stock, to affiliates of
DLJ.
The debt and equity securities sold by NEHC to affiliates of DLJ consisted
of NEHC senior secured discount notes, senior exchangeable preferred stock,
junior exchangeable preferred stock and warrants to purchase shares of NEHC
Class A Common Stock (representing the right to acquire an aggregate of up to
22.5% of the common stock of NEHC).
Bank of America NT&SA, an affiliate of BancAmerica Robertson Stephens, is
an agent and lender under the Company's existing credit facility and will
receive proceeds from the financing transactions described herein in connection
with the repayment of loans under such credit facility. See "Use of Proceeds."
Bank of America NT&SA will be an agent and lender under the New Credit Facility.
It is expected that BancAmerica Securities will receive an arrangement fee in
connection with the New Credit Facility and will be the syndication agent and an
agent with respect to the Accounts Receivable Program for which, in each case,
it is receiving certain customary fees and expenses.
See "The Transactions," and "Plan of Distribution."
DESCRIPTION OF INDEBTEDNESS
The following sets forth information concerning the Company's indebtedness,
other than the Notes, outstanding immediately following the consummation of the
Refinancing.
ACCOUNTS RECEIVABLE PROGRAM
In connection with the Acquisition, the Company entered into the Accounts
Receivable Program. The Accounts Receivable Program is structured as an
off-balance sheet financing for accounting purposes.
Under the Accounts Receivable Program, the Company will transfer to
AmeriServe Funding Corporation ("AmeriServe Funding"), a newly-formed
wholly-owned, special purpose bankruptcy-remote subsidiary, on a
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<PAGE> 49
daily basis, all of the trade receivables (the "Receivables") generated by the
Company and/or one or more of its subsidiaries. AmeriServe Funding will then
sell the receivables to a newly-formed master trust, AmeriServe Master Trust
(the "Trust"), which will issue a series of certificates representing an
undivided interest in the assets of the Trust. The certificates will be
purchased by any of Bank of America, a commercial paper conduit administered by
Bank of America NT&SA, and/or a group of banks (all of the foregoing,
collectively, referred to as the "Banks").
Up to $225.0 million of proceeds are presently available under the Accounts
Receivable Program. However, when the Company satisfies certain reporting
requirements, up to $250.0 million of total proceeds will be available. The
Accounts Receivable Program is available to AmeriServe Funding for five years
from the Transactions Closing, subject to early termination in accordance with
the terms of the transaction documents.
All of the Receivables are transferred on a daily basis to AmeriServe
Funding. The exchange price for the Receivables conveyed to AmeriServe Funding
is a dollar amount equal to the aggregate unpaid balance of the Receivables less
a discount specified in the transaction documents. AmeriServe Funding may also
pay the exchange price for such Receivables by increasing the principal amount
of notes payable by it to the Company and subsidiaries of the Company rather
than paying cash for such Receivables. Certain of the Receivables have been
transferred by the Company to AmeriServe Funding as a contribution of capital.
AmeriServe Funding (and the Trust, in turn) has obtained first priority,
perfected ownership interests in the Receivables, and any related security and
proceeds thereof. The Company serves as the initial master servicer of the
Accounts Receivable Program.
The Banks' yield on their Invested Amount will be based on either LIBOR or
a Base Rate plus a margin. The "Invested Amount" generally will be calculated as
the sum of the purchase prices paid by the Banks from time to time for undivided
interests in the Receivables in the Trust, reduced by the aggregate amount of
distributions made to the Banks on account of principal. As of June 30, 1997,
the Banks' yield would have been 6.875%.
A non-usage fee of 3/8 of 1% per annum on a daily average of (i) the
aggregate commitments of the Banks under the Accounts Receivable Program minus
(ii) the Invested Amount is payable by AmeriServe Funding monthly in arrears.
Prior to termination of the Banks' commitment under the Accounts Receivable
Program, AmeriServe Funding may cause the Trust to sell undivided interests in
the Receivables to the Banks from time to time so long as certain conditions are
satisfied, including, without limitation, that after giving effect to such sale,
the Invested Amount (less amounts held in certain Trust accounts) would not
exceed the Base Amount. The "Base Amount" generally will be equal to the result
of (a)(i) the Net Eligible Receivables, times (ii) 100% minus the Applicable
Reserve Ratio, minus (b) the Carrying Cost Receivables Reserve. The "Net
Eligible Receivables" generally will be calculated as the aggregate unpaid
balance of Receivables held by the Trust that satisfy certain eligibility
criteria, less unapplied cash held by the Trust, less funds not yet made
available by lockbox banks holding collections on Receivables, less the
aggregate amount of excess concentrations of Receivables as specified in the
transaction documents. The "Applicable Reserve Ratio" will be calculated
consistent with the trade receivable rating methodology of Standard & Poor's
and/or Duff & Phelps, will incorporate specified loss reserve ratios and
dilution reserve ratios, and will be subject to a floor of 15%. The "Carrying
Cost Receivables Reserve" generally will be calculated to reflect interest
payable to the Banks, the servicing fee payable from the Assets of the Trust,
certain accrued and unpaid expenses and certain additional amounts based on days
sales outstanding.
The Accounts Receivable Program contains customary conditions, including,
without limitation, delivery of true sale and non-consolidation opinions. In
addition, BancAmerica Robertson Stephens has been satisfied that structural
enhancements are in place so that the Accounts Receivable Program satisfies, at
a minimum, the "BBB" rating criteria of Standard & Poor's and/or Duff & Phelps.
The Accounts Receivable Program also contains customary termination events,
including, without limitation, bankruptcy or insolvency of the Company or
AmeriServe Funding, cross-acceleration to other material indebtedness of the
Company and Receivables performance triggers.
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<PAGE> 50
NEW CREDIT FACILITY
The Company has entered into the New Credit Facility, pursuant to which the
Company has available a new revolving credit facility (the "Revolving Credit
Facility"), and, prior to the Refinancing, four term loan facilities (the "Term
Loans"). At the closing of the Senior Notes Offering, the Company used a portion
of the proceeds from the Senior Notes Offering to repay in full the Term Loans.
The undrawn amount of $150.0 million under the Revolving Credit Facility remains
available for working capital and general corporate purposes, including the
issuance of letters of credit, which were $11.1 million at the closing of the
Senior Notes Offering, subject to the achievement of certain financial ratios
and compliance with certain conditions.
The initial interest rate for borrowings under the Revolving Credit
Facility will be, at the option of the Company, LIBOR plus 2.50% or the Base
Rate plus 1.25%. The initial rates for borrowings under the Revolving Credit
Facility will remain in effect until December 31, 1997, at which time they may
be reduced according to a pricing grid contained in the New Credit Facility
agreements. The Company may elect interest periods of one, two, three or six
months for LIBOR borrowings. Calculation of interest shall be on the basis of
actual days elapsed in a year of 360 days (or 365 or 366 days, as the case may
be, in the case of the Base Rate Loans based on the Administrative Agent's
"reference rate") and interest shall be payable at the end of each interest
period and, in any event, at least every three months or 90 days, as the case
may be. The "Base Rate" is the higher of (i) the Administrative Agent's
reference rate and (ii) the Federal Funds Effective Rate plus one-half of 1%.
LIBOR will at all times include statutory reserves to the extent actually
incurred.
NEHC and all domestic subsidiaries of the Company guarantee indebtedness
under the New Credit Facility (the "Guarantors"). All extensions of credit under
the New Credit Facility to the Company and guaranties of subsidiaries of the
Company are secured by all existing and after acquired personal property (other
than accounts receivable transferred in connection with the Accounts Receivable
Program or any securitization refinancing of the Accounts Receivable Program) of
the Company and its subsidiaries, including all outstanding capital stock of the
Company and of all of its domestic subsidiaries, 65% of outstanding capital
stock of the Company's foreign subsidiaries and any intercompany debt
obligations, and, subject to exceptions to be agreed upon all existing and
after-acquired real property fee and leasehold interests. NEHC's guaranty is
secured by a pledge of all outstanding capital stock of the Company. With
certain exceptions, NEHC, the Company and its subsidiaries are prohibited from
pledging any of their assets other than under the New Credit Facility
agreements.
Under the New Credit Facility, the letter of credit fee is 2.50% per annum
for standby letters of credit, which will be shared by all Lenders, and an
additional 0.25% per annum to be retained by the issuing bank for issuing the
standby letters of credit, based upon the amount available for drawing under
outstanding standby letters of credit. There will be adjustments after December
31, 1997, in the letter of credit fees described above, according to a
to-be-determined pricing grid contained in the New Credit Facility Agreements.
Indebtedness under the New Credit Facility may be prepaid in whole or in
part without premium or penalty (subject in some cases to related breakage) and
the Lenders' commitments relative thereto reduced or terminated upon such notice
and in such amounts as may be agreed upon.
The Company is required to make the following mandatory prepayments and
permanent reduction of the commitments under the Revolving Credit Facility
(subject to certain exceptions and basket amounts set forth in the New Credit
Facility): (a) with respect to asset sales, prepayments in an amount equal to
100% of (i) the net after-tax cash proceeds of the sale or other disposition of
any property or assets of the Company or any of its subsidiaries other than net
cash proceeds of sales or certain other dispositions in the ordinary course of
business, or (ii) the net after-tax cash proceeds in excess of $275 million from
the sale or other disposition of receivables payable upon receipt; (b) with
respect to debt financings of the Company or any of its subsidiaries,
prepayments in an amount equal to 100% of the net cash proceeds received from
such debt financings (excluding, among other things, the Senior Subordinated
Notes and, with respect to the Revolving Credit Facility, the Notes), payable
upon receipt; (c) with respect to equity offerings of the Company or any of its
subsidiaries, prepayments in an amount equal to 50% of the net cash proceeds
received from the issuance of such equity securities, payable upon receipt; and
(d) with respect to Excess Cash Flow (as defined in the
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<PAGE> 51
New Credit Facility), prepayments in an amount equal to 50% of Excess Cash Flow,
payable within 90 days of fiscal year-end.
The New Credit Facility contains customary and appropriate representations
and warranties, including without limitation those relating to due organization
and authorization, no conflicts, financial condition, no material adverse
changes, title to properties, liens, litigation, payment of taxes, no material
adverse agreements, compliance with laws, environmental liabilities and full
disclosure.
The New Credit Facility also contains customary and appropriate conditions
to all borrowings under the Revolving Credit Facility including requirements
relating to prior written notice of borrowing, the accuracy of representations
and warranties, and the absence of any default or potential event of default.
The New Credit Facility also contains customary affirmative and negative
covenants (including, where appropriate, certain exceptions and baskets),
including but not limited to furnishing information and limitations on other
indebtedness, liens, investments, guarantees, restricted payments, restructuring
and reserve costs, mergers and acquisitions, sales of assets, capital
expenditures, leases, and affiliate transactions. The New Credit Facility also
contains financial covenants relating to minimum interest coverage; minimum
fixed charge coverage; and maximum leverage.
Events of default under the New Credit Facility include those relating to:
(a) non-payment of interest, principal or fees payable under the New Credit
Facility; (b) non-performance of certain covenants; (c) cross default to other
material debt of the Company and its subsidiaries; (d) bankruptcy or insolvency;
(e) judgments in excess of specified amounts; (f) impairment of security
interests in collateral; (g) invalidity of guarantees; (h) materially inaccurate
or false representations or warranties; and (i) change of control.
10 1/8% SENIOR SUBORDINATED NOTES DUE 2007 (THE "SENIOR SUBORDINATED NOTES").
On July 9, 1997, the Company issued and sold $500,000,000 principal amount
of the Senior Subordinated Notes pursuant to an Indenture, dated as of July 11,
1997, by and among the Company, the Subsidiary Guarantors and State Street Bank
and Trust Company as Trustee (the "Senior Subordinated Note Indenture"). The
Senior Subordinated Notes were sold pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities Act
and applicable state securities laws. The Company consummated an offer to
exchange the Senior Subordinated Notes for new Senior Subordinated Notes, which
are registered under the Securities Act with terms substantially identical to
the Senior Subordinated Notes.
The Senior Subordinated Notes will mature on July 15, 2007. Interest
accrues at the rate of 10 1/8% per annum and is payable semi-annually in arrears
on January 15 and July 15 each year. Payment of principal, premium and interest
on the Senior Subordinated Notes are subordinated, as set forth in the Senior
Subordinated Indenture, to the prior payment in full of the Company's Senior
Debt (as defined in the Senior Subordinated Note Indenture), including the
Notes.
The Senior Subordinated Notes may not be redeemed at the option of the
Company any time prior to July 15, 2002. Thereafter, the Senior Subordinated
Notes may be prepaid with a premium that declines each year until July 5, 2005
when the Senior Subordinated Notes may be prepaid in whole or in part at 100% of
their principal amount. Upon a Change of Control, each holder can require the
Company to redeem such holder's Senior Subordinated Notes at an offer price
equal to 101% of their principal amount plus accrued and unpaid interest,
subject to restrictions contained in the New Credit Facility and the Indenture.
The Senior Subordinated Note Indenture contains various restrictive
covenants that, among other things, limit (i) the incurrence of indebtedness by
the Company and its subsidiaries and the issuance of preferred stock by the
Company, (ii) the payment of dividends on capital stock of the Company and its
subsidiaries and certain other Restricted Payments (as defined in the Senior
Subordinated Note Indenture), (iii) transactions with affiliates, (iv) the
business activities of the Company, (v) the creation of liens on the assets of
the Company and (vi) consolidations, mergers, conveyances, transfers and leases
of all or substantially all of the Company's assets. All of these limitations,
however, are subject to a number of important qualifications.
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Events of default under the Senior Subordinated Indenture include, among
other things, (i) a default continuing for 30 days in payment of interest or
Liquidated Damages when due, (ii) a default in the payment of any principal or
premium when due, (iii) the failure to comply with covenants in the Senior
Subordinated Note Indenture, subject in certain instances to grace periods, (iv)
a default under other indebtedness of the Company or any Subsidiary in excess of
$15 million which is caused by a failure to make a required payment beyond any
applicable grace period or which results in the acceleration of such
indebtedness prior to its stated maturity, (v) certain events of bankruptcy or
insolvency with respect to the Company of any subsidiary, and (vi) the failure
to pay any judgment in excess of $5 million for a period of 60 days. However,
certain of these defaults will not constitute an Event of Default (as defined
under the Senior Subordinated Indenture) until the Trustee or the holders of 25%
in principal amount of the outstanding Senior Subordinated Notes notify the
Company of the default and the Company does not cure such default within the
time required after receipt of such notice.
8 7/8% SENIOR NOTES DUE 2006 (THE "SENIOR NOTES")
On October 15, 1997, the Company issued and sold $350,000,000 principal
amount of the Senior Notes pursuant to an Indenture, dated as of October 15,
1997, by and among the Company, the Subsidiary Guarantors and State Street Bank
and Trust Company as Trustee (the "Senior Note Indenture"). The Senior Notes
were sold pursuant to exemptions from, or in transactions not subject to, the
registration requirements of the Securities Act and applicable state securities
laws. The Company consummated an offer to exchange the Senior Notes for new
Senior Notes, which are registered under the Securities Act with terms
substantially identical to the Senior Notes.
The Senior Notes will mature on October 15, 2006. Interest accrues at the
rate of 8 7/8% per annum and is payable semi-annually in arrears on April 15 and
October 15 of each year. Payment of principal, premium and interest are
effectively subordinated, however, to all secured obligations of the Company,
including the Company's borrowings, if any, under the New Credit Facility, to
the extent of the assets securing such obligations.
The Senior Notes may not be redeemed at the option of the Company any time
prior to April 15, 2002. Thereafter, the Senior Notes may be prepaid with a
premium that declines each year until April 15, 2004 when the Senior Notes may
be prepaid in whole or in part at 100% of their principal amount. Upon a Change
of Control, each holder can require the Company to redeem such holder's Senior
Notes at an offer price equal to 101% of their principal amount plus accrued and
unpaid interest, subject to restrictions contained in the New Credit Facility
and the Senior Note Indenture.
The Senior Note Indenture contains various restrictive convenants that,
among other things, limit (i) the incurrence of indebtedness by the Company and
its subsidiaries and the issuance of preferred stock by the Company, (ii) the
payment of dividends on capital stock of the Company and its subsidiaries and
certain other Restricted Payments (as defined in the Senior Note Indenture),
(iii) transactions with affiliates, (iv) the business activities of the Company,
(v) the creation of liens on the assets of the Company and (vi) consolidations,
mergers, conveyances, transfers and leases of all or substantially all of the
Company's assets. All of these limitations, however, are subject to a number of
important qualifications.
Events of default under the Senior Note Indenture include, among other
things, (i) a default continuing for 30 days in payment of interest or
Liquidated Damages when due, (ii) a default in the payment of any principal or
premium when due, (iii) the failure to comply with covenants in the Senior Note
Indenture, subject in certain instances to grace periods, (iv) a default under
other indebtedness of the Company or any Subsidiary in excess of $15 million
which is caused by a failure to make a required payment beyond any applicable
grace period or which results in the acceleration or such indebtedness prior to
its stated maturity, (v) certain events of bankruptcy or insolvency with respect
to the Company of any subsidiary, and (vi) the failure to pay any judgment in
excess of $5 million for a period of 60 days. However, certain of these defaults
will not constitute an Event of Default (as defined under the Senior Note
Indenture) until the Trustee or the holders of 25% in principal amount of the
outstanding Senior Notes notify the Company of the default and the Company does
not cure such default within the time required after receipt of such notice.
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DESCRIPTION OF NEW NOTES
GENERAL
The New Notes are issued pursuant to the same indenture (the "Indenture")
among NEHC and State Street Bank and Trust Company, as trustee (the "Trustee"),
under which the Notes were issued. See "Notice to Investors." The terms of the
New Notes include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939, as amended (the
"Trust Indenture Act"). The New Notes are subject to all such terms, and Holders
of Notes are referred to the Indenture and the Trust Indenture Act for a
statement thereof. The following summary of the material provisions of the
Indenture does not purport to be complete and is qualified in its entirety by
reference to the Indenture and the Registration Rights Agreement, including the
definitions therein of certain terms used below. Copies of the Indenture and
Registration Rights Agreement are available as set forth below under
"-- Additional Information." The definitions of certain terms used in the
following summary are set forth below under "-- Certain Definitions."
The New Notes rank pari passu in right of payment to all senior
Indebtedness of NEHC and rank senior in right of payment to all subordinated
Indebtedness of NEHC. As obligations of a holding company, the New Notes are
effectively subordinated to all obligations of the Subsidiaries of NEHC,
including the Senior Subordinated Notes and Senior Notes and borrowings under
the New Credit Facility. See "Risk Factors -- Holding Company Structure;
Effective Subordination."
PRINCIPAL, MATURITY AND INTEREST
The New Notes are limited in aggregate principal amount to $100,387,000 at
maturity and will mature on July 15, 2007. No cash interest will be payable on
the New Notes prior to January 15, 2003. Interest on the New Notes accrues at
the rate of 12 3/8% per annum and is payable semi-annually in arrears on July 15
and January 15 of each year, commencing on January 15, 2003, to Holders of
record on the immediately preceding July 1 and January 1. Interest on the New
Notes accrues from the most recent date to which interest has been paid or, if
no interest has been paid, from January 15, 2003. Interest is computed on the
basis of a 360-day year comprised of twelve 30-day months. Principal, premium
and Liquidated Damages, if any, and interest on the New Notes is payable at the
office or agency of NEHC maintained for such purpose within the City and State
of New York or, at the option of NEHC, payment of interest and Liquidated
Damages, if any, may be made by check mailed to the Holders of the New Notes at
their respective addresses set forth in the register of Holders of New Notes;
provided that all payments of principal, premium and Liquidated Damages, if any,
and interest with respect to New Notes the Holders of which have given wire
transfer instructions to NEHC are required to be made by wire transfer of
immediately available funds to the accounts specified by the Holders thereof.
Until otherwise designated by NEHC, NEHC's office or agency in New York is the
office of the Trustee maintained for such purpose. The New Notes are issued in
denominations of $1,000 and integral multiples thereof.
OPTIONAL REDEMPTION
The New Notes will not be redeemable at NEHC's option prior to July 15,
2002. Thereafter, the New Notes will be subject to redemption at any time at the
option of NEHC, in whole or in part, upon not less than 30 nor more than 60
days' notice, at the redemption prices (expressed as percentages of principal
amount) set forth below plus accrued and unpaid interest and Liquidated Damages
thereon, if any, to the applicable redemption date, if redeemed during the
twelve-month period beginning on July 15 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
-------------------------------------------------- ----------
<S> <C>
2002.............................................. 106.188%
2003.............................................. 104.125%
2004.............................................. 102.063%
2005 and thereafter............................... 100.000%
</TABLE>
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Notwithstanding the foregoing, at any time NEHC may redeem the New Notes,
in whole but not in part, at the option of NEHC, at a redemption price of
112.375% of the Accreted Value (determined at the date of redemption), with the
net cash proceeds of a Public Equity Offering; provided that such redemption
shall occur within 45 days of the date of the closing of such Public Equity
Offering.
SELECTION AND NOTICE
If less than all of the New Notes are to be redeemed at any time, selection
of New Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
New Notes are listed, or, if the New Notes are not so listed, on a pro rata
basis, by lot or by such method as the Trustee shall deem fair and appropriate;
provided that no New Notes of $1,000 or less shall be redeemed in part. Notices
of redemption shall be mailed by first class mail at least 30 but not more than
60 days before the redemption date to each Holder of New Notes to be redeemed at
its registered address. Notices of redemption may not be conditional. If any New
Note is to be redeemed in part only, the notice of redemption that relates to
such New Note shall state the portion of the principal amount thereof to be
redeemed. A new New Note in principal amount equal to the unredeemed portion
thereof will be issued in the name of the Holder thereof upon cancellation of
the original New Note. New Notes called for redemption become due on the date
fixed for redemption. On and after the redemption date, interest ceases to
accrue on New Notes or portions of them called for redemption.
MANDATORY REDEMPTION
Except as set forth below under "-- Repurchase at the Option of Holders,"
NEHC is not required to make mandatory redemption or sinking fund payments with
respect to the New Notes.
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control
Upon the occurrence of a Change of Control, each Holder of New Notes will
have the right to require NEHC to repurchase all or any part (equal to $1,000 or
an integral multiple thereof) of such Holder's New Notes pursuant to the offer
described below (the "Change of Control Offer") at an offer price in cash equal
to 101% of the Accreted Value thereof on the date of purchase (if such date of
purchase is prior to July 15, 2002) or 101% of the aggregate principal amount
thereof plus accrued and unpaid interest and Liquidated Damages thereon, if any,
to the date of purchase (if such date of purchase is on or after July 15, 2002)
(the "Change of Control Payment"). Within 30 days following any Change of
Control, NEHC will mail a notice to each Holder describing the transaction or
transactions that constitute the Change of Control and offering to repurchase
New Notes on the date specified in such notice, which date shall be no earlier
than 30 days and no later than 60 days from the date such notice is mailed (the
"Change of Control Payment Date"), pursuant to the procedures required by the
Indenture and described in such notice. NEHC will comply with the requirements
of Rule 14e-1 under the Exchange Act and any other securities laws and
regulations thereunder to the extent such laws and regulations are applicable in
connection with the repurchase of the New Notes as a result of a Change of
Control.
On the Change of Control Payment Date, NEHC will, to the extent lawful, (1)
accept for payment all New Notes or portions thereof properly tendered pursuant
to the Change of Control Offer, (2) deposit with the Paying Agent an amount
equal to the Change of Control Payment in respect of all New Notes or portions
thereof so tendered and (3) deliver or cause to be delivered to the Trustee the
New Notes so accepted together with an Officers' Certificate stating the
aggregate principal amount of New Notes or portions thereof being purchased by
NEHC. The Paying Agent will promptly mail to each Holder of New Notes so
tendered the Change of Control Payment for such New Notes, and the Trustee will
promptly authenticate and mail (or cause to be transferred by book entry) to
each Holder a new New Note equal in principal amount to any unpurchased portion
of the Notes surrendered, if any; provided that each such new New Note will be
in a principal amount of $1,000 or an integral multiple thereof. NEHC will
publicly announce the results of the Change of Control Offer on, or as soon as
practicable after, the Change of Control Payment Date.
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Due to Change of Control repayment provisions in certain indebtedness of
NEHC's Subsidiaries and the existence of a Change of Control event of default in
the New Credit Facility, it is unlikely that NEHC would be able to repurchase
all of the New Notes upon the occurrence of a Change of Control. See "Risk
Factors -- Change of Control." In addition, the New Notes will rank pari passu
in right of payment with other senior Indebtedness of NEHC. The ability of NEHC
to redeem all of the New Notes upon a Change of Control may also be limited by
restrictions on the ability of NEHC's Subsidiaries to pay dividends to NEHC.
Finally, the New Notes will be effectively subordinated to Obligations of
Subsidiaries of NEHC, including with respect to Change of Control Payments. See
"-- General."
The Change of Control provision of the Indenture could have the effect of
deterring certain acquisition proposals which would constitute a Change of
Control even if such acquisition might be beneficial to certain Holders of New
Notes, as well as restricting the ability of NEHC to obtain additional financing
in the future.
The Change of Control provisions described above are applicable whether or
not any other provisions of the Indenture are applicable. Except as described
above with respect to a Change of Control, the Indenture does not contain
provisions that permit the Holders of the New Notes to require that NEHC
repurchase or redeem the New Notes in the event of a takeover, recapitalization
or similar transaction.
NEHC will not be required to make a Change of Control Offer upon a Change
of Control if a third party makes the Change of Control Offer in the manner, at
the times and otherwise in compliance with the requirements set forth in the
Indenture applicable to a Change of Control Offer made by NEHC and purchases all
New Notes validly tendered and not withdrawn under such Change of Control Offer.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of NEHC and its Subsidiaries taken as a whole. Although there is a
developing body of case law interpreting the phrase "substantially all," there
is no precise established definition of that phrase under applicable law.
Accordingly, the ability of a Holder of New Notes to require NEHC to repurchase
such New Notes as a result of a sale, lease, transfer, conveyance or other
disposition of less than all of the assets of NEHC and its Subsidiaries taken as
a whole to another Person or group may be uncertain.
Asset Sales
The Indenture provides that NEHC will not, and will not permit any of its
Restricted Subsidiaries to, consummate an Asset Sale other than transfers of
Receivables to a Receivables Subsidiary in connection with a Receivables
Transaction unless (i) NEHC (or the Restricted Subsidiary, as the case may be)
receives consideration at the time of such Asset Sale at least equal to the fair
market value (evidenced by a resolution of the Board of Directors set forth in
an Officers' Certificate delivered to the Trustee) of the assets or Equity
Interests issued or sold or otherwise disposed of and (ii) at least 80% of the
consideration therefor received by NEHC or such Restricted Subsidiary is in the
form of cash; provided that the amount of (x) any liabilities (as shown on
NEHC's or such Restricted Subsidiary's most recent balance sheet) of NEHC or any
Restricted Subsidiary (other than contingent liabilities and liabilities that
are by their terms subordinated to the New Notes or any guarantee thereof) that
are assumed by the transferee of any such assets pursuant to a customary
novation agreement that releases NEHC or such Restricted Subsidiary from further
liability and (y) any securities, notes or other obligations received by NEHC or
any such Restricted Subsidiary from such transferee that are converted by NEHC
or such Restricted Subsidiary into cash within 180 days (to the extent of the
cash received), shall be deemed to be cash for purposes of this provision.
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
NEHC may apply such Net Proceeds, at its option, to the acquisition of a
controlling interest in another business, the making of a capital expenditure or
the acquisition of other long-term assets, in each case, in a Permitted
Business. Pending the final application of any such Net Proceeds, NEHC may
invest such Net Proceeds in any manner that is not prohibited by the Indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as provided
in the first sentence of this paragraph will be deemed to constitute "Excess
Proceeds." When the aggregate amount of Excess Proceeds exceeds $20.0 million,
NEHC will be required to make an offer to all Holders of New Notes (an "Asset
Sale Offer") to purchase the maximum principal amount of New Notes that may be
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<PAGE> 56
purchased out of the Excess Proceeds, at an offer price in cash in an amount
equal to 100% of the Accreted Value thereof on the date of purchase (if such
date of purchase is prior to July 15, 2002) or 100% of the principal amount
thereof plus accrued and unpaid interest and Liquidated Damages thereon, if any,
to the date of purchase (if such date of purchase is on or after July 15, 2002),
in each case in accordance with the procedures set forth in the Indenture. To
the extent that the aggregate amount of New Notes tendered pursuant to an Asset
Sale Offer is less than the Excess Proceeds, NEHC may use any remaining Excess
Proceeds for general corporate purposes. If the aggregate principal amount of
New Notes surrendered by Holders thereof exceeds the amount of Excess Proceeds,
the Trustee shall select the New Notes to be purchased on a pro rata basis. Upon
completion of such offer to purchase, the amount of Excess Proceeds shall be
reset at zero.
CERTAIN COVENANTS
Restricted Payments
The Indenture provides that, from and after the date of the Indenture NEHC
will not, and will not permit any of its Restricted Subsidiaries to, directly or
indirectly: (i) declare or pay any dividend or make any other payment or
distribution on account of NEHC's or any of its Restricted Subsidiaries' Equity
Interests (including, without limitation, any payment in connection with any
merger or consolidation involving NEHC) or to the direct or indirect holders of
NEHC's or any of its Restricted Subsidiaries' Equity Interests in their capacity
as such (other than dividends or distributions payable in Equity Interests
(other than Disqualified Stock) of NEHC); (ii) purchase, redeem or otherwise
acquire or retire for value (including without limitation, in connection with
any merger or consolidation involving NEHC) any Equity Interests of NEHC or any
direct or indirect parent of NEHC; (iii) make any payment on or with respect to,
or purchase, redeem, defease or otherwise acquire or retire for value any
Indebtedness of NEHC that is pari passu with or subordinated to the New Notes
(other than the Notes), except a payment of interest or principal at Stated
Maturity; or (iv) make any Restricted Investment (all such payments and other
actions set forth in clauses (i) through (iv) above being collectively referred
to as "Restricted Payments"), unless, at the time of and after giving effect to
such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(b) NEHC would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made
at the beginning of the applicable four-quarter period, have been permitted
to incur at least $1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the first paragraph of the covenant
described below under caption "-- Incurrence of Indebtedness and Issuance
of Preferred Stock"; and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by NEHC and its Subsidiaries after the date
of the Indenture (excluding Restricted Payments permitted by clause (ii) of
the next succeeding paragraph), is less than the sum of (i) 50% of the
Consolidated Net Income of NEHC for the period (taken as one accounting
period) from the beginning of the first fiscal quarter commencing after the
date of the Indenture to the end of NEHC's most recently ended fiscal
quarter for which internal financial statements are available at the time
of such Restricted Payment (or, if such Consolidated Net Income for such
period is a deficit, less 100% of such deficit), plus (ii) 100% of the
aggregate net cash proceeds received by NEHC from the issue or sale since
the date of the Indenture of Equity Interests of NEHC (other than
Disqualified Stock) or of Disqualified Stock or debt securities of NEHC
that have been converted into such Equity Interests (other than Equity
Interests (or Disqualified Stock or convertible debt securities) sold to a
Subsidiary of NEHC and other than Disqualified Stock or convertible debt
securities that have been converted into Disqualified Stock), plus (iii) to
the extent that any Restricted Investment that was made after the date of
the Indenture is sold for cash or otherwise liquidated or repaid for cash,
the lesser of (A) the cash return of capital with respect to such
Restricted Investment (less the cost of disposition, if any) and (B) the
initial amount of such Restricted Investment, plus (iv) if any Unrestricted
Subsidiary (A) is redesignated as a Restricted
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<PAGE> 57
Subsidiary, the fair market value of such redesignated Subsidiary (as
determined in good faith by the Board of Directors) as of the date of its
redesignation or (B) pays any cash dividends or cash distributions to NEHC
or any of its Restricted Subsidiaries, 50% of any such cash dividends or
cash distributions made after the date of the Indenture.
The foregoing provisions will not prohibit (i) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of the
Indenture; (ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any pari passu or subordinated Indebtedness or Equity Interests
of NEHC in exchange for, or out of the net cash proceeds of the substantially
concurrent sale or issuance (other than to a Restricted Subsidiary of NEHC) of,
other Equity Interests of NEHC (other than any Disqualified Stock); provided
that the amount of any such net cash proceeds that are utilized for any such
redemption, repurchase, retirement, defeasance or other acquisition shall be
excluded from clause (c)(ii) of the preceding paragraph; (iii) the defeasance,
redemption, repurchase or other acquisition of pari passu or subordinated
Indebtedness with the net cash proceeds from an incurrence of Permitted
Refinancing Indebtedness; (iv) the payment of any dividend by a Restricted
Subsidiary of NEHC to the holders of its Equity Interests on a pro rata basis;
(v) the declaration or payment of dividends to Holberg for expenses incurred by
Holberg in its capacity as a holding company that are attributable to the
operations of NEHC and its Restricted Subsidiaries, including, without
limitation, (a) customary salary, bonus and other benefits payable to officers
and employees of Holberg, (b) fees and expenses paid to members of the Board of
Directors of Holberg, (c) general corporate overhead expenses of Holberg, (d)
foreign, federal, state or local tax liabilities paid by Holberg, (e)
management, consulting or advisory fees paid to Holberg not to exceed $1.0
million in any fiscal year, and (f) the repurchase, redemption or other
acquisition or retirement for value of any Equity Interests of NEHC or Holberg
held by any member of NEHC's (or any of its Restricted Subsidiaries') management
pursuant to any management equity subscription agreement or stock option
agreement in effect as of the date of the Indenture; provided, however, the
aggregate amount paid pursuant to the foregoing clauses (a) through (f) does not
exceed $10.0 million in any fiscal year; (vi) Investments in any Person (other
than NEHC or a Wholly-Owned Restricted Subsidiary) engaged in a Permitted
Business in an amount not to exceed $7.0 million; (vii) other Investments in
Unrestricted Subsidiaries having an aggregate fair market value, taken together
with all other Investments made pursuant to this clause (vii) that are at that
time outstanding, not to exceed $3.0 million; (viii) Permitted Investments; (ix)
payments to Holberg pursuant to the tax sharing agreement among Holberg and
other members of the affiliated corporations of which Holberg is the common
parent; (x) non-cash accretions to the liquidation value of shares of Senior
Exchangeable Preferred Stock and shares of Junior Exchangeable Preferred Stock,
and any payment in kind dividends with respect to any of the foregoing; (xi) any
exchange of shares of Senior Exchangeable Preferred Stock and Junior
Exchangeable Preferred Stock for 13 1/2% Subordinated Exchange Debentures due
2009, or 15% Subordinated Exchange Debentures due 2009, as the case may be,
pursuant to the terms of the Senior Exchangeable Preferred Stock or Junior
Exchangeable Preferred Stock, as the case may be; or (xii) other Restricted
Payments in an aggregate amount not to exceed $15.0 million.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default; provided
that in no event shall the business currently operated by the Company be
transferred to or held by an Unrestricted Subsidiary. For purposes of making
such determination, all outstanding Investments by NEHC and its Restricted
Subsidiaries (except to the extent repaid in cash) in the Subsidiary so
designated will be deemed to be Restricted Payments at the time of such
designation and will reduce the amount available for Restricted Payments under
the first paragraph of this covenant. All such outstanding Investments will be
deemed to constitute Investments in an amount equal to the fair market value of
such Investments at the time of such designation (as determined in good faith by
the Board of Directors). Such designation will only be permitted if such
Restricted Payment would be permitted at such time and if such Restricted
Subsidiary otherwise meets the definition of an Unrestricted Subsidiary.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by NEHC or such Subsidiary, as the case may
be, pursuant to the Restricted Payment. The fair market value of any non-cash
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Restricted Payment shall be determined in good faith by the Board of Directors
whose resolution with respect thereto shall be delivered to the Trustee; such
determination to be based upon an opinion or appraisal issued by an accounting,
appraisal or investment banking firm of national standing if such fair market
value exceeds $10.0 million. Not later than the date of making any Restricted
Payment, NEHC shall deliver to the Trustee an Officers' Certificate stating that
such Restricted Payment is permitted and setting forth the basis upon which the
calculations required by the covenant "Restricted Payments" were computed,
together with a copy of any fairness opinion or appraisal required by the
Indenture.
Incurrence of Indebtedness and Issuance of Preferred Stock
The Indenture provides that NEHC will not, and will not permit any of its
Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee
or otherwise become directly or indirectly liable, contingently or otherwise,
with respect to (collectively, "incur") any Indebtedness (including Acquired
Debt) and that NEHC will not issue any Disqualified Stock and will not permit
any of its Subsidiaries to issue any shares of preferred stock; provided,
however, that NEHC may incur Indebtedness (including Acquired Debt) or issue
shares of Disqualified Stock if the Fixed Charge Coverage Ratio for NEHC's most
recently ended four full fiscal quarters for which internal financial statements
are available immediately preceding the date on which such additional
Indebtedness is incurred or such Disqualified Stock is issued would have been at
least 2.0 to 1, determined on a pro forma basis (including a pro forma
application of the net proceeds therefrom), as if the additional Indebtedness
had been incurred, or the Disqualified Stock had been issued, as the case may
be, at the beginning of such four-quarter period.
The provisions of the first paragraph of this covenant will not apply to
the incurrence of any of the following items of Indebtedness (collectively,
"Permitted Debt"):
(i) the incurrence by the Restricted Subsidiaries of NEHC of term
Indebtedness under the New Credit Facility; provided that the aggregate
principal amount of all term Indebtedness outstanding under the New Credit
Facility after giving effect to such incurrence does not exceed the
aggregate amount of term Indebtedness borrowed under the New Credit
Facility on July 11, 1997 less the aggregate amount of all repayments,
optional or mandatory, of the principal of any term Indebtedness under the
New Credit Facility (other than repayments that are immediately reborrowed)
that have been made since July 11, 1997; provided that the foregoing
proviso shall not limit the principal amount of Permitted Refinancing
Indebtedness that may be incurred to refund, refinance or replace any
Indebtedness incurred pursuant to this clause (i);
(ii) the incurrence by the Restricted Subsidiaries of NEHC of
revolving Indebtedness and letters of credit pursuant to the New Credit
Facility; provided that the aggregate principal amount of all revolving
Indebtedness (with letters of credit being deemed to have a principal
amount equal to the maximum potential liability of the Restricted
Subsidiaries of NEHC thereunder) outstanding under the New Credit Facility
after giving effect to such incurrence does not exceed $150.0 million;
provided that the foregoing proviso shall not limit the principal amount of
Permitted Refinancing Indebtedness that may be incurred to refinance or
replace any Indebtedness incurred pursuant to this clause (ii);
(iii) the incurrence by NEHC and its Restricted Subsidiaries of the
Existing Indebtedness;
(iv) the incurrence by NEHC and its Restricted Subsidiaries of
Indebtedness represented by the New Notes, the New Senior Subordinated
Notes and the New Senior Subordinated Note Guarantees;
(v) the incurrence by NEHC or any of its Restricted Subsidiaries of
Indebtedness represented by Capital Lease Obligations, mortgage financings
or purchase money obligations, in each case incurred for the purpose of
financing all or any part of the purchase price or cost of construction or
improvement of property, plant or equipment used in the business of NEHC or
such Restricted Subsidiary (whether through the direct purchase of assets
or the Capital Stock of any Person owning such Assets), in an aggregate
principal amount not to exceed $150.0 million;
(vi) the incurrence by NEHC or any of its Restricted Subsidiaries of
Indebtedness in connection with the acquisition of assets or a new
Restricted Subsidiary; provided that such Indebtedness was
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incurred by the prior owner of such assets or such Restricted Subsidiary
prior to such acquisition by NEHC or one of its Subsidiaries and was not
incurred in connection with, or in contemplation of, such acquisition by
NEHC or one of its Subsidiaries; provided further that the principal amount
(or accreted value, as applicable) of such Indebtedness, together with any
other outstanding Indebtedness incurred pursuant to this clause (vi), does
not exceed $7.0 million;
(vii) the incurrence by NEHC or any of its Restricted Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds of
which are used to refund, refinance or replace Indebtedness that was
permitted by the Indenture to be incurred;
(viii) the incurrence by NEHC or any of its Restricted Subsidiaries of
intercompany Indebtedness between or among NEHC and any of its Wholly-Owned
Restricted Subsidiaries; provided, however, that (i) if NEHC is the obligor
on such Indebtedness and the payee is not a Subsidiary Guarantor, such
Indebtedness is expressly subordinated to the prior payment in full in cash
of all Obligations with respect to the New Notes and (ii)(A) any subsequent
issuance or transfer of Equity Interests that results in any such
Indebtedness being held by a Person other than NEHC or a Wholly Owned
Restricted Subsidiary and (B) any sale or other transfer of any such
Indebtedness to a Person that is not either NEHC or a Wholly Owned
Restricted Subsidiary shall be deemed, in each case, to constitute an
incurrence of such Indebtedness by NEHC or such Restricted Subsidiary, as
the case may be;
(ix) the incurrence by NEHC or any of its Restricted Subsidiaries of
Hedging Obligations that are incurred for the purpose of fixing or hedging
currency risk or interest rate risk with respect to any floating rate
Indebtedness that is permitted by the terms of this Indenture to be
outstanding;
(x) the guarantee by NEHC or any of its Restricted Subsidiaries of
Indebtedness of NEHC or a Restricted Subsidiary of NEHC that was permitted
to be incurred by another provision of this covenant;
(xi) the incurrence by NEHC's Unrestricted Subsidiaries of
Non-Recourse Debt, provided, however, that if any such Indebtedness ceases
to be Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be
deemed to constitute an incurrence of Indebtedness by a Restricted
Subsidiary of NEHC;
(xii) Asset Sales in the form of Receivables Transactions;
(xiii) Indebtedness incurred by NEHC or any of its Restricted
Subsidiaries constituting reimbursement obligations with respect to letters
of credit issued in the ordinary course of business, including without
limitation to letters of credit in respect to workers' compensation claims
or self-insurance, or other Indebtedness with respect to reimbursement type
obligations regarding workers' compensation claims provided, however, that
upon the drawing of such letters of credit or the incurrence of such
Indebtedness, such obligations are reimbursed within 30 days following such
drawing or incurrence;
(xiv) Indebtedness arising from agreements of NEHC or a Restricted
Subsidiary providing for indemnification, adjustment of purchase price or
similar obligations, in each case, incurred or assumed in connection with
the disposition of any business, asset to a Subsidiary, other than
guarantees of Indebtedness incurred by any Person acquiring all or any
portion of such business, assets or a Subsidiary for the purpose of
financing such acquisition; provided that the maximum aggregate liability
of all such Indebtedness shall at no time exceed 50% of the gross proceeds
actually received by NEHC and its Restricted Subsidiaries in connection
with such disposition;
(xv) obligations in respect of performance and surety bonds and
completion guarantees provided by NEHC or any Restricted Subsidiary in the
ordinary course of business;
(xvi) any incurrence of Indebtedness permitted by clause (xi) of the
exceptions to the covenant described above under the caption "-- Restricted
Payments";
(xvii) guarantees incurred in the ordinary course of business in an
aggregate principal amount not to exceed $7.0 million at any time
outstanding; and
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(xviii) the incurrence by NEHC or any of its Restricted Subsidiaries
of additional Indebtedness, including Attributable Debt incurred after the
date of the Indenture, in an aggregate principal amount (or accreted value,
as applicable) at any time outstanding, including all Permitted Refinancing
Indebtedness incurred to refund, refinance or replace any other
Indebtedness incurred pursuant to this clause (xviii), not to exceed $30.0
million.
For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (i) through (xviii) above or
is entitled to be incurred pursuant to the first paragraph of this covenant,
NEHC shall, in its sole discretion, classify such item of Indebtedness in any
manner that complies with this covenant and such item of Indebtedness will be
treated as having been incurred pursuant to only one of such clauses or pursuant
to the first paragraph hereof. Accrual of interest and the accretion of accreted
value will not be deemed to be an incurrence of Indebtedness for purposes of
this covenant.
Liens
The Indenture provides that NEHC will not, and will not permit any of its
Restricted Subsidiaries to, create, incur, assume or otherwise cause or suffer
to exist or become effective any Lien of any kind securing trade payables or
Indebtedness of NEHC that is subordinate to or pari passu with the Notes (other
than Permitted Liens) upon any of their property or assets, now owned or
hereafter acquired.
Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries
The Indenture provides that NEHC will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary to (i)(a) pay dividends or make any other
distributions to NEHC or any of its Restricted Subsidiaries (1) on its Capital
Stock or (2) with respect to any other interest or participation in, or measured
by, its profits, or (b) pay any indebtedness owed to NEHC or any of its
Restricted Subsidiaries, (ii) make loans or advances to NEHC or any of its
Restricted Subsidiaries or (iii) transfer any of its properties or assets to
NEHC or any of its Restricted Subsidiaries, except for such encumbrances or
restrictions existing under or by reason of (a) Existing Indebtedness as in
effect on July 11, 1997, (b) the New Credit Facility as in effect as of July 11,
1997, and any amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or refinancings thereof, provided that
such amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings are no more restrictive in the
aggregate (as determined by the Credit Agent in good faith) with respect to such
dividend and other payment restrictions than those contained in the New Credit
Facility as in effect on July 11, 1997, (c) the Indenture and the New Notes, (d)
any applicable law, rule, regulation or order, (e) any instrument governing
Indebtedness or Capital Stock of a Person acquired by NEHC or any of its
Restricted Subsidiaries as in effect at the time of such acquisition (except to
the extent such Indebtedness was incurred in connection with or in contemplation
of such acquisition), which encumbrance or restriction is not applicable to any
Person, or the properties or assets of any Person, other than the Person, or the
property or assets of the Person, so acquired, provided that, in the case of
Indebtedness, such Indebtedness was permitted by the terms of the Indenture to
be incurred, (f) by reason of customary non-assignment provisions in leases
entered into in the ordinary course of business and consistent with past
practices, (g) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions of the nature described in clause
(iii) above on the property so acquired, (h) Permitted Refinancing Indebtedness,
provided that the material restrictions contained in the agreements governing
such Permitted Refinancing Indebtedness are no more restrictive than those
contained in the agreements governing the Indebtedness being refinanced, (i)
contracts for the sale of assets, including without limitation customary
restrictions with respect to a Subsidiary pursuant to an agreement that has been
entered into for the sale or disposition of all or substantially all of the
Capital Stock or assets of such Subsidiary, and (j) restrictions on cash or
other deposits or net worth imposed by customers under contracts entered into in
the ordinary course of business.
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Merger, Consolidation, or Sale of Assets
The Indenture provides that NEHC may not consolidate or merge with or into
(whether or not NEHC is the surviving corporation), or sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of its properties
or assets in one or more related transactions, to another corporation, Person or
entity unless (i) NEHC is the surviving corporation or the entity or the Person
formed by or surviving any such consolidation or merger (if other than NEHC) or
to which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made is a corporation organized or existing under the laws of
the United States, any state thereof or the District of Columbia; (ii) the
entity or Person formed by or surviving any such consolidation or merger (if
other than NEHC) or the entity or Person to which such sale, assignment,
transfer, lease, conveyance or other disposition shall have been made assumes
all the obligations of NEHC under the New Notes and the Indenture pursuant to a
supplemental indenture in a form reasonably satisfactory to the Trustee; (iii)
immediately after such transaction no Default or Event of Default exists; and
(iv) except in the case of a merger of NEHC with or into a Wholly-Owned
Restricted Subsidiary of NEHC, NEHC or the entity or Person formed by or
surviving any such consolidation or merger (if other than NEHC), or to which
such sale, assignment, transfer, lease, conveyance or other disposition shall
have been made will, at the time of such transaction and after giving pro forma
effect thereto as if such transaction had occurred at the beginning of the
applicable four-quarter period, be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set
forth in the first paragraph of the covenant described above under the caption
"-- Incurrence of Indebtedness and Issuance of Preferred Stock."
Transactions with Affiliates
The Indenture provides that NEHC will not, and will not permit any of its
Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or
otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any transaction,
contract, agreement, understanding, loan, advance or guarantee with, or for the
benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction")
involving consideration in excess of $5.0 million unless (i) such Affiliate
Transaction is on terms that are no less favorable to NEHC or the relevant
Restricted Subsidiary than those that would have been obtained in a comparable
transaction by NEHC or such Restricted Subsidiary with an unrelated Person and
(ii) NEHC delivers to the Trustee (a) with respect to any Affiliate Transaction
or series of related Affiliate Transactions involving aggregate consideration in
excess of $7.5 million, a resolution of the Board of Directors set forth in an
Officers' Certificate certifying that such Affiliate Transaction complies with
clause (i) above and that such Affiliate Transaction has been approved by a
majority of the disinterested members of the Board of Directors and (b) with
respect to any Affiliate Transaction or series of related Affiliate Transactions
involving either aggregate consideration in excess of $15.0 million or an
aggregate consideration in excess of $10.0 million where there are no
disinterested members of the Board of Directors, an opinion as to the fairness
to the Holders of such Affiliate Transaction from a financial point of view
issued by an accounting, appraisal or investment banking firm of national
standing; provided that the following shall not be deemed Affiliate
Transactions: (p) any transaction permitted by the Amended and Restated
Investors Agreement dated on or about July 11, 1997, as the same may be from
time to time amended, provided that no such amendment materially affects the
Notes, (q) any employment agreement entered into by NEHC or any of its
Restricted Subsidiaries in the ordinary course of business and consistent with
the past practice of NEHC or such Restricted Subsidiary, (r) transactions
between or among NEHC and/or its Restricted Subsidiaries, (s) Permitted
Investments and Restricted Payments that are permitted by the provisions of the
Indenture described above under the caption "-- Restricted Payments," (t)
customary loans, advances, fees and compensation paid to, and indemnity provided
on behalf of, officers, directors, employees or consultants of NEHC or any of
its Restricted Subsidiaries, (u) annual management fees paid to Holberg not to
exceed $5.0 million in any one year, (v) transactions pursuant to any contract
or agreement in effect on the date of the Indenture as the same may be amended,
modified or replaced from time to time so long as any such amendment,
modification or replacement is no less favorable to NEHC and its Restricted
Subsidiaries than the contract or agreement as in effect on the Issue Date or is
approved by a majority of the disinterested directors of NEHC, (w) transactions
between NEHC or its Restricted Subsidiaries on the one hand, and
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Holberg on the other hand, involving the provision of financial or advisory
services by Holberg; provided that fees payable to Holberg do not exceed the
usual and customary fees for similar services, (x) transactions between NEHC or
its Restricted Subsidiaries on the one hand, and Donaldson, Lufkin & Jenrette
Securities Corporation or its Affiliates ("DLJ") on the other hand, involving
the provision of financial, advisory, placement or underwriting services by DLJ;
provided that fees payable to DLJ do not exceed the usual and customary fees of
DLJ for similar services, (y) the insurance arrangements between NEHC and its
Subsidiaries and an Affiliate of Holberg that are not less favorable to NEHC or
any of its Subsidiaries than those that are in effect on the date hereof
provided such arrangements are conducted in the ordinary course of business
consistent with past practices, and (z) payments under the tax sharing agreement
among Holberg and other members of the affiliated group of corporations of which
it is the common parent.
Sale and Leaseback Transactions
The Indenture provides that NEHC will not, and will not permit any of its
Restricted Subsidiaries to, enter into any sale and leaseback transaction;
provided that NEHC may, and may permit its Restricted Subsidiaries to, enter
into a sale and leaseback transaction if (i) NEHC could have (a) incurred
Indebtedness in an amount equal to the Attributable Debt relating to such sale
and leaseback transaction pursuant to the covenant described above under the
caption "-- Incurrence of Additional Indebtedness and Issuance of Preferred
Stock" and (b) incurred a Lien to secure such Indebtedness pursuant to the
covenant described above under the caption "-- Liens," (ii) the gross cash
proceeds of such sale and leaseback transaction are at least equal to the fair
market value (as determined in good faith by the Board of Directors and set
forth in an Officers' Certificate delivered to the Trustee) of the property that
is the subject of such sale and leaseback transaction and (iii) the transfer of
assets in such sale and leaseback transaction is permitted by, and NEHC, to the
extent it receives the proceeds of such transactions, applies the proceeds of
such transaction in compliance with, the covenant described above under the
caption "-- Asset Sales."
Limitation on Issuances and Sales of Capital Stock of Wholly-Owned Restricted
Subsidiaries
The Indenture provides that NEHC (i) will not, and will not permit any
Wholly-Owned Restricted Subsidiary of NEHC to, transfer, convey, sell, lease or
otherwise dispose of any Capital Stock of any Wholly-Owned Subsidiary of NEHC to
any Person (other than NEHC or a Wholly-Owned Restricted Subsidiary of NEHC),
unless (a) such transfer, conveyance, sale, lease or other disposition is of all
the Capital Stock of such Wholly-Owned Restricted Subsidiary and (b) the cash
Net Proceeds from such transfer, conveyance, sale, lease or other disposition
are applied in accordance with the covenant described above under the caption
"-- Asset Sales," and (ii) will not permit any Wholly-Owned Restricted
Subsidiary of NEHC to issue any of its Equity Interests (other than, if
necessary, shares of its Capital Stock constituting directors' qualifying
shares) to any Person other than to NEHC or a Wholly-Owned Restricted Subsidiary
of NEHC.
Business Activities
NEHC will not, and will not permit any Restricted Subsidiary to, engage in
any business other than a Permitted Business, except to such extent as would not
be material to NEHC and its Restricted Subsidiaries taken as a whole.
Reports
The Indenture provides that, whether or not required by the rules and
regulations of the Commission, so long as any New Notes are outstanding, NEHC
will furnish to the Holders of Notes (i) all quarterly and annual financial
information that would be required to be contained in a filing with the
Commission on Forms 10-Q and 10-K if NEHC were required to file such Forms,
including a "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and, with respect to the annual information only, a
report thereon by NEHC's certified independent accountants and (ii) all current
reports that would be required to be filed with the Commission on Form 8-K if
NEHC were required to file such reports. In addition, whether or not required by
the rules and regulations of the Commission, NEHC will file a copy of all such
information and reports with the Commission for public availability (unless the
Commission will not
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accept such a filing) and make such information available to securities analysts
and prospective investors upon request. In addition, NEHC has agreed that, for
so long as any New Notes remain outstanding, it will furnish to the Holders and
to securities analysts and prospective investors, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to, the New Notes (whether or not prohibited by
the subordination provisions of the Indenture); (ii) default in payment when due
of the principal of or premium, if any, on the New Notes (whether or not
prohibited by the subordination provisions of the Indenture); (iii) failure by
NEHC to comply with the provisions described under the captions "-- Change of
Control," "-- Asset Sales," or "-- Merger, Consolidation, or Sale of Assets";
(iv) failure by NEHC for 30 days after notice from the Trustee or at least 25%
in principal amount of the New Notes then outstanding to comply with the
provisions described under the captions "-- Restricted Payments" or
"-- Incurrence of Indebtedness and Issuance of Preferred Stock"; (v) failure by
NEHC for 60 days after notice from the Trustee or at least 25% in principal
amount of the New Notes then outstanding to comply with any of its other
agreements in the Indenture or the New Notes; (vi) default under any mortgage,
indenture or instrument under which there may be issued or by which there may be
secured or evidenced any Indebtedness for money borrowed by NEHC or any of its
Subsidiaries (or the payment of which is guaranteed by NEHC or any of its
Subsidiaries) whether such Indebtedness or Guarantee now exists, or is created
after the date of the Indenture, which default (a) is caused by a failure to pay
principal of or premium, if any, or interest on such Indebtedness prior to the
expiration of the grace period provided in such Indebtedness on the date of such
default (a "Payment Default") or (b) results in the acceleration of such
Indebtedness prior to its express maturity and, in each case, the principal
amount of any such Indebtedness, together with the principal amount of any other
such Indebtedness under which there has been a Payment Default or the maturity
of which has been so accelerated, aggregates $15.0 million or more; (vii)
failure by NEHC or any of its Subsidiaries to pay final judgments aggregating in
excess of $5.0 million, which judgments are not paid, discharged or stayed for a
period of 60 days; and (viii) certain events of bankruptcy or insolvency with
respect to NEHC or any of its Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding New Notes
may declare all the New Notes to be due and payable immediately. Upon such
declaration, the principal of (or, if prior to July 15, 2002, the Accreted Value
of), premium, if any, and accrued and unpaid interest on the New Notes shall be
due and payable immediately. Notwithstanding the foregoing, in the case of an
Event of Default arising from certain events of bankruptcy or insolvency, with
respect to NEHC or any of its Subsidiaries all outstanding New Notes will become
due and payable without further action or notice. Holders of the New Notes may
not enforce the Indenture or the New Notes except as provided in the Indenture.
Subject to certain limitations, Holders of a majority in principal amount of the
then outstanding New Notes may direct the Trustee in its exercise of any trust
or power. The Trustee may withhold from Holders of the New Notes notice of any
continuing Default or Event of Default (except a Default or Event of Default
relating to the payment of principal or interest) if it determines that
withholding notice is in their interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of NEHC with the
intention of avoiding payment of the premium that NEHC would have had to pay if
NEHC then had elected to redeem the New Notes pursuant to the optional
redemption provisions of the Indenture, an equivalent premium shall also become
and be immediately due and payable to the extent permitted by law upon the
acceleration of the New Notes. If an Event of Default occurs prior to July 15,
2002 by reason of any willful action (or inaction) taken (or not taken) by or on
behalf of NEHC with the intention of avoiding the prohibition on redemption of
the New Notes prior to July 15, 2002, then the premium specified in the
Indenture shall also become immediately due and payable to the extent permitted
by law upon the acceleration of the New Notes.
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The Holders of a majority in aggregate principal amount of the New Notes
then outstanding by notice to the Trustee may on behalf of the Holders of all of
the New Notes waive any existing Default or Event of Default and its
consequences under the Indenture except a continuing Default or Event of Default
in the payment of interest on, or the principal of, the New Notes.
NEHC is required to deliver to the Trustee annually a statement regarding
compliance with the Indenture, and NEHC is required upon becoming aware of any
Default or Event of Default, to deliver to the Trustee a statement specifying
such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of NEHC, as
such, shall have any liability for any obligations of NEHC under the New Notes,
the Indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder of New Notes by accepting a New Note
waives and releases all such liability. The waiver and release are part of the
consideration for issuance of the New Notes. Such waiver may not be effective to
waive liabilities under the federal securities laws and it is the view of the
Commission that such a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
NEHC may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding New Notes ("Legal
Defeasance") except for (i) the rights of Holders of outstanding New Notes to
receive payments in respect of the principal of, premium and Liquidated Damages,
if any, and interest on such New Notes when such payments are due from the trust
referred to below, (ii) NEHC's obligations with respect to the New Notes
concerning issuing temporary New Notes, registration of New Notes, mutilated,
destroyed, lost or stolen New Notes and the maintenance of an office or agency
for payment and money for security payments held in trust, (iii) the rights,
powers, trusts, duties and immunities of the Trustee, and NEHC's obligations in
connection therewith and (iv) the Legal Defeasance provisions of the Indenture.
In addition, NEHC may, at its option and at any time, elect to have the
obligations of NEHC and the Subsidiary Guarantors released with respect to
certain covenants that are described in the Indenture ("Covenant Defeasance")
and thereafter any omission to comply with such obligations shall not constitute
a Default or Event of Default with respect to the New Notes. In the event
Covenant Defeasance occurs, certain events (not including non-payment,
bankruptcy, receivership, rehabilitation and insolvency events) described under
"Events of Default" will no longer constitute an Event of Default with respect
to the New Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
NEHC must irrevocably deposit with the Trustee, in trust, for the benefit of the
Holders of the New Notes, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants,
to pay the principal of, premium and Liquidated Damages, if any, and interest on
the outstanding New Notes on the stated maturity or on the applicable redemption
date, as the case may be, and NEHC must specify whether the New Notes are being
defeased to maturity or to a particular redemption date; (ii) in the case of
Legal Defeasance, NEHC shall have delivered to the Trustee an opinion of counsel
in the United States reasonably acceptable to the Trustee confirming that (A)
NEHC has received from, or there has been published by, the Internal Revenue
Service a ruling or (B) since the date of the Indenture, there has been a change
in the applicable federal income tax law, in either case to the effect that, and
based thereon such opinion of counsel shall confirm that, the Holders of the
outstanding New Notes will not recognize income, gain or loss for federal income
tax purposes as a result of such Legal Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Legal Defeasance had not occurred; (iii) in the
case of Covenant Defeasance, NEHC shall have delivered to the Trustee an opinion
of counsel in the United States reasonably acceptable to the Trustee confirming
that the Holders of the outstanding New Notes will not recognize income, gain or
loss for federal income tax purposes as a result of such Covenant Defeasance and
will be subject to federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such Covenant Defeasance
had not occurred; (iv) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or
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Event of Default resulting from the borrowing of funds to be applied to such
deposit) or insofar as Events of Default from bankruptcy or insolvency events
are concerned, at any time in the period ending on the 91st day after the date
of deposit; (v) such Legal Defeasance or Covenant Defeasance will not result in
a breach or violation of, or constitute a default under any material agreement
or instrument (other than the Indenture) to which NEHC or any of its
Subsidiaries is a party or by which NEHC or any of its Subsidiaries is bound;
(vi) NEHC must have delivered to the Trustee an opinion of counsel to the effect
that after the 91st day following the deposit, the trust funds will not be
subject to the effect of any applicable bankruptcy, insolvency, reorganization
or similar laws affecting creditors' rights generally; (vii) NEHC must deliver
to the Trustee an Officers' Certificate stating that the deposit was not made by
NEHC with the intent of preferring the Holders of New Notes over the other
creditors of NEHC with the intent of defeating, hindering, delaying or
defrauding creditors of NEHC or others; and (viii) NEHC must deliver to the
Trustee an Officers' Certificate and an opinion of counsel, each stating that
all conditions precedent provided for relating to the Legal Defeasance or the
Covenant Defeasance have been complied with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange New Notes in accordance with the
Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and NEHC may
require a Holder to pay any taxes and fees required by law or permitted by the
Indenture. NEHC is not required to transfer or exchange any New Note selected
for redemption. Also, NEHC is not required to transfer or exchange any New Note
for a period of 15 days before a selection of New Notes to be redeemed.
The registered Holder of a New Note will be treated as the owner of it for
all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture or
the New Notes may be amended or supplemented with the consent of the Holders of
at least a majority in principal amount of the New Notes then outstanding
(including, without limitation, consents obtained in connection with a purchase
of, or tender offer or exchange offer for, New Notes), and any existing default
or compliance with any provision of the Indenture or the New Notes may be waived
with the consent of the Holders of a majority in principal amount of the then
outstanding New Notes (including consents obtained in connection with a tender
offer or exchange offer for New Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any New Notes held by a non-consenting Holder): (i) reduce the
principal amount of New Notes whose Holders must consent to an amendment,
supplement or waiver; (ii) reduce the principal of or change the fixed maturity
of any New Note or alter the provisions with respect to the redemption of the
New Notes (other than provisions relating to the covenants described above under
the caption "-- Repurchase at the Option of Holders"); (iii) reduce the rate of
or change the time for payment of interest on any New Note; (iv) waive a Default
or Event of Default in the payment of principal of or premium, if any, or
interest on the New Notes (except a rescission of acceleration of the New Notes
by the Holders of at least a majority in aggregate principal amount of the New
Notes and a waiver of the payment default that resulted from such acceleration);
(v) make any New Note payable in money other than that stated in the New Notes;
(vi) make any change in the provisions of the Indenture relating to waivers of
past Defaults or the rights of Holders of New Notes to receive payments of
principal of or premium, if any, or interest on the New Notes; (vii) waive a
redemption payment with respect to any New Note (other than a payment required
by one of the covenants described above under the caption "-- Repurchase at the
Option of Holders") or (viii) make any change in the foregoing amendment and
waiver provisions.
Notwithstanding the foregoing, without the consent of any Holder of New
Notes, NEHC and the Trustee may amend or supplement the Indenture or the New
Notes to cure any ambiguity, defect or inconsistency, to provide for
uncertificated New Notes in addition to or in place of certificated New Notes,
to provide for the assumption of NEHC's obligations to Holders of New Notes in
the case of a merger or consolidation, to make
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any change that would provide any additional rights or benefits to the Holders
of New Notes or that does not adversely affect the legal rights under the
Indenture of any such Holder, or to comply with requirements of the Commission
in order to effect or maintain the qualification of the Indenture under the
Trust Indenture Act.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of NEHC, to obtain payment of claims in certain
cases, or to realize on certain property received in respect of any such claim
as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the Commission for permission to continue
or resign.
The Holders of a majority in principal amount of the then outstanding New
Notes will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the conduct
of his own affairs. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request of any Holder of New Notes, unless such Holder shall have offered to the
Trustee security and indemnity satisfactory to it against any loss, liability or
expense.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture and
Registration Rights Agreement without charge by writing to NEHC, 545 Steamboat
Road, Greenwich, Connecticut 06830; Attention: Secretary.
BOOK-ENTRY, DELIVERY AND FORM
The New Notes issued in exchange for the Notes generally are represented by
one or more fully-registered global notes without interest coupons
(collectively, "Global New Notes"). Notwithstanding the foregoing, Notes held in
certificated form were exchanged solely for New Notes in certificated form as
discussed below. The Global New Note is deposited upon issuance with The
Depository Trust Company ("DTC"), in New York, New York, and is registered in
the name of DTC or its nominee, in each case for credit to an account of a
direct or indirect participant as described below. Except as set forth below,
the Global New Note may be transferred, in whole and not in part, only to
another nominee of the DTC or to a successor of the DTC or its nominee. See
"-- Exchange of Book-Entry New Notes for Certificated Notes."
The New Notes may be presented for registration of transfer and exchange at
the offices of the Registrar.
Depository Procedures
DTC has advised NEHC that DTC is a limited-purpose trust company created to
hold securities for its participating organizations (collectively, the
"Participants") and to facilitate the clearance and settlement of transactions
in those securities between Participants through electronic book-entry changes
in accounts of Participants. The Participants include securities brokers and
dealers (including the Initial Purchaser), banks, trust companies, clearing
corporations and certain other organizations. Access to DTC's system is also
available to other entities such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a Participant,
either directly or indirectly (collectively, the "Indirect Participants").
Persons who are not Participants may beneficially own securities held by or on
behalf of DTC only through the Participants or Indirect Participants. The
ownership interest and transfer of ownership interest of each actual purchaser
of each security held by or on behalf of DTC are recorded on the records of the
Participants and Indirect Participants.
DTC has also advised NEHC that pursuant to procedures established by it,
(i) upon deposit of the Global New Notes, DTC will credit the accounts of
Participants designated by the Initial Purchaser with
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portions of the principal amount of Global New Notes and (ii) ownership of such
interests in the Global New Notes will be shown on, and the transfer ownership
thereof will be effected only through, records maintained by DTC (with respect
to Participants) or by Participants and the Indirect Participants (with respect
to other owners of beneficial interests in the Global New Notes).
EXCEPT AS DESCRIBED BELOW, OWNERS OF INTERESTS IN THE GLOBAL NEW NOTES DO
NOT HAVE NOTES REGISTERED IN THEIR NAMES, DO NOT RECEIVE PHYSICAL DELIVERY OF
NEW NOTES IN CERTIFICATED FORM AND ARE NOT CONSIDERED THE REGISTERED OWNERS OR
HOLDERS THEREOF UNDER THE INDENTURE FOR ANY PURPOSE.
Payments in respect of the principal and premium and Liquidated Damages, if
any, and interest on a Global New Note registered in the name of DTC or its
nominee are payable by the Trustee to DTC or its nominee in its capacity as the
registered holder under the Indenture. Under the terms of the Indenture, NEHC
and the Trustee will treat the persons in whose names the New Notes, including
the Global New Notes, are registered as the owners thereof for the purpose of
receiving such payments and for any and all other purposes whatsoever.
Consequently, none of NEHC, the Trustee nor any agent of NEHC or the Trustee has
or will have any responsibility or liability for (i) any aspect of DTC's records
or any Participant's or Indirect Participant's records relating to or payments
made on account of beneficial ownership interests in the Global New Notes, or
for maintaining, supervising or reviewing any of DTC's records or any
Participant's or Indirect Participant's records relating to the beneficial
ownership interests in the Global New Notes or (ii) any other matter relating to
the actions and practices of DTC or any of its Participants or Indirect
Participants.
DTC has advised NEHC that its current practice, upon receipt of any payment
in respect of securities such as the New Notes (including principal and
interest), is to credit the accounts of the relevant Participants with the
payment on the payment date, in amounts proportionate to their respective
holdings in principal amount of beneficial interests in the relevant security
such as the Global New Notes as shown on the records of DTC. Payments by
Participants and the Indirect Participants to the beneficial owners of New Notes
are governed by standing instructions and customary practices and are not the
responsibility of DTC, the Trustee or NEHC. Neither NEHC nor the Trustee is
liable for any delay by DTC or its Participants in identifying the beneficial
owners of the New Notes, and NEHC and the Trustee may conclusively rely on and
will be protected in relying on instructions from DTC or its nominee as the
registered owner of the New Notes for all purposes.
DTC has advised NEHC that it will take any action permitted to be taken by
a holder of New Notes only at the direction of one or more Participants to whose
account DTC interests in the Global New Notes are credited and only in respect
of such portion of the aggregate principal amount of the New Notes as to which
such Participant or Participants have given direction. However, if there is an
Event of Default under the New Notes, DTC reserves the right to exchange Global
New Notes for legended New Notes in certificated form, and to distribute such
New Notes to its Participants.
The information in this section concerning DTC and its book-entry system
has been obtained from sources that NEHC believes to be reliable, but NEHC takes
no responsibility for the accuracy thereof.
Although DTC has agreed to the foregoing procedures to facilitate transfers
of interests in the Global New Notes among Participants in DTC, it is under no
obligation to perform or to continue to perform such procedures, and such
procedures may be discontinued at any time. None of NEHC, the Initial Purchaser
or the Trustee will have any responsibility for the performance by DTC or its
Participants or indirect Participants of its obligations under the rules and
procedures governing their operations.
Exchange of Book-Entry New Notes for Certificated New Notes
A Global New Note is exchangeable for definitive New Notes in registered
certificated form if (i) DTC (x) notifies NEHC that it is unwilling or unable to
continue as depositary for the Global New Note and NEHC thereupon fails to
appoint a successor depositary or (y) has ceased to be a clearing agency
registered under the Exchange Act, (ii) NEHC, at its option, notifies the
Trustee in writing that it elects to cause the issuance of the New Notes in
certificated form or (iii) there shall have occurred and be continuing to occur
a
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Default or an Event of Default with respect to the New Notes. In addition,
beneficial interests in a Global New Note may be exchanged for certificated New
Notes upon request but only upon at least 20 days' prior written notice given to
the Trustee by or on behalf of DTC in accordance with customary procedures. In
all cases, certificated New Notes delivered in exchange for any Global New Note
or beneficial interest therein are registered in the names, and issued in any
approved denominations, requested by or on behalf of the depositary (in
accordance with its customary procedures).
Subject to the restrictions on the transferability of the New Notes
described in "Risk Factors -- Restrictions on Transfer," a New Note in
definitive form will be issued (i) in the Exchange Offer solely in exchange for
certificated Notes or (ii) following the Exchange Offer, upon the resale, pledge
or other transfer of any New Note or interest therein to any person or entity
that does not participate in the Depository. The exchange of certificated Notes
in the Exchange Offer may be made only by presentation of the Notes, duly
endorsed, together with a duly completed Letter of Transmittal and other
required documentation as described under "The Exchange Offer -- Procedures for
Tendering" and "-- Guaranteed Delivery Procedures." Transfers of certificated
New Notes may be made only by presentation of New Notes, duly endorsed, to the
Trustees for registration of transfer on the Note Register maintained by the
Trustees for such purposes.
The information in this section concerning the Depository and the
Depository's book-entry system has been obtained from sources that the Company
believes to be reliable, but the Company takes no responsibility for the
accuracy thereof.
CERTIFICATED NEW NOTES
Subject to certain conditions, any person having a beneficial interest in
the Global New Note may, upon request to the Trustee, exchange such beneficial
interest for New Notes in the form of Certificated New Notes. Upon any such
issuance, the Trustee is required to register such Certificated New Notes in the
name of, and cause the same to be delivered to, such person or persons (or the
nominee of any thereof). In addition, if (i) NEHC notifies the Trustee in
writing that the DTC is no longer willing or able to act as a depositary and
NEHC is unable to locate a qualified successor within 90 days or (ii) NEHC, at
its option, notifies the Trustee in writing that it elects to cause the issuance
of New Notes in the form of Certificated New Notes under the Indenture, then,
upon surrender by the Global New Note Holder of its Global New Note, New Notes
in such form will be issued to each person that the Global New Note Holder and
the DTC identify as being the beneficial owner of the related Notes.
Neither NEHC nor the Trustee is liable for any delay by the Global New Note
Holder or the DTC in identifying the beneficial owners of New Notes and NEHC and
the Trustee may conclusively rely on, and is protected in relying on,
instructions from the Global New Note Holder or the DTC for all purposes.
SAME DAY SETTLEMENT AND PAYMENT
The Indenture requires that payments in respect of the New Notes
represented by the Global New Note (including principal, premium, if any,
interest and Liquidated Damages, if any) be made by wire transfer of immediately
available next day funds to the accounts specified by the Global New Note
Holder. With respect to Certificated New Notes, NEHC will make all payments of
principal, premium, if any, interest and Liquidated Damages, if any, by wire
transfer of immediately available funds to the accounts specified by the Holders
thereof or, if no such account is specified, by mailing a check to each such
Holder's registered address. NEHC expects that secondary trading in the
Certificated New Notes will also be settled in immediately available funds.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
NEHC and the Initial Purchaser entered into the Registration Rights
Agreement on the Closing Date. Pursuant to the Registration Rights Agreement,
NEHC agreed to file with the Commission the Exchange Offer Registration
Statement of which this Prospectus is a part on the appropriate form under the
Securities Act with respect to the New Notes. Pursuant to the Exchange Offer,
NEHC offered to the Holders of Transfer Restricted Securities who were able to
make certain representations the opportunity to exchange
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their Transfer Restricted Securities for New Notes. If any Holder of Transfer
Restricted Securities notifies NEHC prior to the 20th day following consummation
of the Exchange Offer that (i) it is prohibited by law or Commission policy from
participating in the Exchange Offer or (ii) that it may not resell the New Notes
acquired by it in the Exchange Offer to the public without delivering a
prospectus and the prospectus contained in the Exchange Offer Registration
Statement is not appropriate or available for such resales or (iii) that it is a
broker-dealer and owns Notes acquired directly from NEHC or an affiliate of
NEHC, NEHC will file with the Commission a Shelf Registration Statement to cover
resales of the Notes by the Holders thereof who satisfy certain conditions
relating to the provision of information in connection with the Shelf
Registration Statement. NEHC will use its best efforts to cause the applicable
registration statement to be declared effective as promptly as possible by the
Commission. For purposes of the foregoing, "Transfer Restricted Securities"
means each Note until (i) the date on which such Note has been exchanged by a
person other than a broker-dealer for a New Note in the Exchange Offer, (ii)
following the exchange by a broker-dealer in the Exchange Offer of a Note for a
New Note, the date on which such New Note is sold to a purchaser who receives
from such broker-dealer on or prior to the date of such sale a copy of this
Prospectus, (iii) the date on which such Note has been effectively registered
under the Securities Act and disposed of in accordance with the Shelf
Registration Statement or (iv) the date on which such Note is distributed to the
public pursuant to Rule 144 under the Act.
The Registration Rights Agreement provides among other things, that
(i)unless the Exchange Offer would not be permitted by applicable law or
Commission policy, NEHC will have commenced the Exchange Offer and used its best
efforts to issue on or prior to 30 business days after the date on which the
Exchange Offer Registration Statement was declared effective by the Commission,
New Notes in exchange for all Notes tendered prior thereto in the Exchange Offer
and (ii) if obligated to file the Shelf Registration Statement, NEHC will use
its best efforts to file the Shelf Registration Statement with the Commission on
or prior to 45 days after such filing obligation arises and to cause the Shelf
Registration to be declared effective by the Commission on or prior to 120 days
after such obligation arises. If NEHC (a) fails to file any of the Registration
Statements required by the Registration Rights Agreement on or before the date
specified for such filing, (b) any of such Registration Statements is not
declared effective by the Commission on or prior to the date specified for such
effectiveness (the "Effectiveness Target Date"), or (c) fails to consummate the
Exchange Offer within 30 business days of the Effectiveness Target Date with
respect to the Exchange Offer Registration Statement, or (d) the Shelf
Registration Statement or the Exchange Offer Registration Statement is declared
effective but thereafter ceases to be effective or usable in connection with
resales of Transfer Restricted Securities during the periods specified in the
Registration Rights Agreement (each such event referred to in clauses (a)
through (d) above a "Registration Default"), then NEHC will pay Liquidated
Damages to each Holder of Notes, with respect to the first 90-day period
immediately following the occurrence of the first Registration Default in an
amount equal to $.05 per week per $1,000 principal amount of Notes held by such
Holder. The amount of the Liquidated Damages will increase by an additional $.05
per week per $1,000 principal amount of Notes with respect to each subsequent
90-day period until all Registration Defaults have been cured, up to a maximum
amount of Liquidated Damages of $.50 per week per $1,000 principal amount of
Notes. All accrued Liquidated Damages will be paid by NEHC on each Damages
Payment Date to the Global Note Holder by wire transfer of immediately available
funds or by federal funds check and to Holders of Certificated Notes by wire
transfer to the accounts specified by them or by mailing checks to their
registered addresses if no such accounts have been specified. Following the cure
of all Registration Defaults, the accrual of Liquidated Damages will cease.
Holders of Notes were required to make certain representations to NEHC (as
described in the Registration Rights Agreement) in order to participate in the
Exchange Offer and will be required to deliver information to be used in
connection with the Shelf Registration Statement and to provide comments on the
Shelf Registration Statement within the time periods set forth in the
Registration Rights Agreement in order to have their Notes included in the Shelf
Registration Statement and benefit from the provisions regarding Liquidated
Damages set forth above.
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CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Accreted Value" means, for each $1,000 face amount of Notes, as of any
date of determination prior to July 15, 2002, the sum of (i) the initial
offering price of each Note and (ii) that portion of the excess of the principal
amount of each Note over such initial offering price which shall have been
accreted thereon through such date, such amount to be so accreted on a daily
basis and compounded semi-annually on each July 15 and January 15 at the rate of
12 3/8% per annum from the date of issuance of the Notes through the date of
determination.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition of
any assets or rights (including, without limitation, by way of a sale and
leaseback) other than sales of inventory in the ordinary course of business
consistent with past practices and other than a Receivables Transaction
(provided that the sale, lease, conveyance or other disposition of all or
substantially all of the assets of NEHC and its Restricted Subsidiaries taken as
a whole will be governed by the provisions of the Indenture described above
under the caption "-- Change of Control" and/or the provisions described above
under the caption "-- Merger, Consolidation or Sale of Assets" and not by the
provisions of the Asset Sale covenant), and (ii) the issue or sale by NEHC or
any of its Restricted Subsidiaries of Equity Interests of any of NEHC's
Restricted Subsidiaries, in the case of either clause (i) or (ii), whether in a
single transaction or a series of related transactions (a) that have a fair
market value in excess of $3.0 million or (b) for net proceeds in excess of $3.0
million. Notwithstanding the foregoing: (i) a transfer of assets by NEHC to a
Wholly Owned Restricted Subsidiary or by a Wholly Owned Restricted Subsidiary to
NEHC or to another Wholly Owned Restricted Subsidiary, (ii) an issuance of
Equity Interests by a Wholly Owned Restricted Subsidiary to NEHC or to another
Wholly Owned Restricted Subsidiary, and (iii) a Restricted Payment that is
permitted by the covenant described above under the caption "-- Restricted
Payments" will not be deemed to be Asset Sales.
"Attributable Debt" in respect of a sale and leaseback transaction means,
at the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership
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interests (whether general or limited) and (iv) any other interest or
participation that confers on a Person the right to receive a share of the
profits and losses of, or distributions of assets of, the issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than six
months from the date of acquisition, (iii) certificates of deposit and
eurodollar time deposits with maturities of six months or less from the date of
acquisition, bankers' acceptances with maturities not exceeding six months and
overnight bank deposits, in each case with any lender party to the New Credit
Facility or with any domestic commercial bank having capital and surplus in
excess of $500 million and a Thompson Bank Watch Rating of "B" or better, (iv)
repurchase obligations with a term of not more than seven days for underlying
securities of the types described in clauses (ii) and (iii) above entered into
with any financial institution meeting the qualifications specified in clause
(iii) above, (v) commercial paper having the highest rating obtainable from
Moody's Investors Service, Inc. or Standard & Poor's Corporation and in each
case maturing within six months after the date of acquisition and (vi)
securities quoted by the Nasdaq National Market or listed on a United States,
Canadian or Western European national securities exchange.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of NEHC and its Subsidiaries taken as a whole to
any "person" (as such term is used in Section 13(d)(3) of the Exchange Act)
other than the Principals or their Related Parties (as defined below), (ii) the
adoption of a plan relating to the liquidation or dissolution of NEHC, (iii) the
consummation of any transaction (including, without limitation, any merger or
consolidation) the result of which is that any "person" (as defined above),
other than the Principals and their Related Parties, becomes the "beneficial
owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange
Act, except that a person shall be deemed to have "beneficial ownership" of all
securities that such person has the right to acquire, whether such right is
currently exercisable or is exercisable only upon the occurrence of a subsequent
condition), directly or indirectly, of more than 50% of the Voting Stock of NEHC
(measured by voting power rather than number of shares), (iv) the first day on
which a majority of the members of the Board of Directors of NEHC are not
Continuing Directors or (v) NEHC consolidates with, or merges with or into, any
Person or sells, assigns, conveys, transfers, leases or otherwise disposes of
all or substantially all of its assets to any Person, or any Person consolidates
with, or merges with or into, NEHC, in any such event pursuant to a transaction
in which any of the outstanding Voting Stock of NEHC is converted into or
exchanged for cash, securities or other property, other than any such
transaction where the Voting Stock of NEHC outstanding immediately prior to such
transaction is converted into or exchanged for Voting Stock (other than
Disqualified Stock) of the surviving or transferee Person constituting a
majority of the outstanding shares of such Voting Stock of such surviving or
transferee Person (immediately after giving effect to such issuance).
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (i) an amount
equal to any extraordinary loss plus any net loss realized in connection with an
Asset Sale (to the extent such losses were deducted in computing such
Consolidated Net Income), plus (ii) provision for taxes based on income or
profits of such Person and its Subsidiaries for such period, to the extent that
such provision for taxes was included in computing such Consolidated Net Income,
plus (iii) consolidated interest expense of such Person and its Subsidiaries for
such period, whether paid or accrued and whether or not capitalized (including,
without limitation, amortization of debt issuance costs and original issue
discount, non-cash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated with
Capital Lease Obligations, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financings, and
net payments (if any) pursuant to Hedging Obligations), to the extent that any
such expense was deducted in computing such Consolidated Net Income, plus (iv)
depreciation, amortization (including amortization of goodwill and other
intangibles but excluding amortization of prepaid cash expenses that were paid
in a prior period) and other non-cash expenses (excluding any such non-cash
expense to the extent that it represents an accrual of or reserve for cash
expenses in any future period or
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amortization of a prepaid cash expense that was paid in a prior period) of such
Person and its Subsidiaries for such period to the extent that such
depreciation, amortization and other non-cash expenses were deducted in
computing such Consolidated Net Income, plus (v) projected quantifiable
improvements in operating results (on an annualized basis) due to cost
reductions calculated in accordance with Article 11 of Regulation S-X under the
Securities Act and evidenced by (A) in the case of cost reductions of less than
$10.0 million, an Officers' Certificate delivered to the Trustee and (B) in the
case of cost reductions of $10.0 million or more, a resolution of the Board of
Directors set forth in an Officers' Certificate delivered to the Trustee, minus
(vi) non-cash items increasing such Consolidated Net Income for such period.
Notwithstanding the foregoing, the provision for taxes on the income or profits
of, and the depreciation and amortization and other non-cash charges of, a
Subsidiary of the referent Person shall be added to Consolidated Net Income to
compute Consolidated Cash Flow only to the extent that a corresponding amount
would be permitted at the date of determination to be dividended to NEHC by such
Subsidiary without prior governmental approval (that has not been obtained), and
without direct or indirect restriction pursuant to the terms of its charter and
all agreements, instruments, judgments, decrees, orders, statutes, rules and
governmental regulations applicable to that Subsidiary or its stockholders.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that (i) the Net Income (but not loss) of any Person that is not a
Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Wholly Owned Restricted
Subsidiary thereof, (ii) the Net Income of any Restricted Subsidiary shall be
excluded to the extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not at the
date of determination permitted without any prior governmental approval (that
has not been obtained) or, directly or indirectly, by operation of the terms of
its charter or any agreement, instrument, judgment, decree, order, statute, rule
or governmental regulation applicable to that Subsidiary or its stockholders,
(iii) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded, (iv) the cumulative effect of a change in accounting principles shall
be excluded and (v) the Net Income of any Unrestricted Subsidiary shall be
excluded, whether or not distributed to NEHC or one of its Restricted
Subsidiaries for purposes of the covenant described under the caption
"Incurrence of Indebtedness and Issuance of Preferred Stock" and shall be
included for purposes of the covenant described under the caption "Restricted
Payments" only to the extent of the amount of dividends or distributions paid in
cash to NEHC or one of its Restricted Securities.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the common stockholders of such Person
and its consolidated Subsidiaries as of such date plus (ii) the respective
amounts reported on such Person's balance sheet as of such date with respect to
any series of preferred stock (other than Disqualified Stock) that by its terms
is not entitled to the payment of dividends unless such dividends may be
declared and paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash received by such
Person upon issuance of such preferred stock, less (x) all write-ups (other than
write-ups resulting from foreign currency translations and write-ups of tangible
assets of a going concern business made within 12 months after the acquisition
of such business) subsequent to the date of the Indenture in the book value of
any asset owned by such Person or a consolidated Subsidiary of such Person, (y)
all investments as of such date in unconsolidated Subsidiaries and in Persons
that are not Subsidiaries (except, in each case, Permitted Investments), and (z)
all unamortized debt discount and expense and unamortized deferred charges as of
such date, all of the foregoing determined in accordance with GAAP.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of NEHC who (i) was a member of such Board of
Directors on the date of the Indenture or (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election.
"Credit Agent" means the Bank of America, in its capacity as Administrative
Agent for the lenders party to the New Credit Facility, or any successor thereto
or any person otherwise appointed.
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"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the Holder thereof, in whole or in part, on or prior to the date
that is 91 days after the date on which the New Notes mature; provided, however,
that any Capital Stock that would not qualify as Disqualified Stock but for
change of control provisions shall not constitute Disqualified Stock if the
provisions are not more favorable to the holders of such Capital Stock than the
provisions described under "-- Change of Control" applicable to the Holders of
the New Notes.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Existing Indebtedness" means Indebtedness of NEHC and its Subsidiaries
(other than Indebtedness under the New Credit Facility) in existence on the date
of the Indenture, until such amounts are repaid.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of (i) the consolidated interest expense of such Person and
its Restricted Subsidiaries for such period, whether paid or accrued (including,
without limitation, original issue discount, non-cash interest payments, the
interest component of any deferred payment obligations, the interest component
of all payments associated with Capital Lease Obligations, commissions,
discounts and other fees and charges incurred in respect of letter of credit or
bankers' acceptance financings, and net payments (if any) pursuant to Hedging
Obligations), (ii) the consolidated interest expense of such Person and its
Restricted Subsidiaries that was capitalized during such period, (iii) any
interest expense on Indebtedness of another Person that is Guaranteed by such
Person or one of its Restricted Subsidiaries or secured by a Lien on assets of
such Person or one of its Restricted Subsidiaries (whether or not such Guarantee
or Lien is called upon) and (iv) the product of (a) all dividend payments,
whether or not in cash, on any series of preferred stock of such Person or any
of its Restricted Subsidiaries, other than dividend payments on Equity Interests
payable solely in Equity Interests of NEHC, times (b) a fraction, the numerator
of which is one and the denominator of which is one minus the then current
combined federal, state and local statutory tax rate of such Person, expressed
as a decimal, in each case, on a consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person and its
Restricted Subsidiaries for such period to the Fixed Charges of such Person and
its Restricted Subsidiaries for such period. In the event that NEHC or any of
its Restricted Subsidiaries incurs, assumes, Guarantees or redeems any
Indebtedness (other than revolving credit borrowings) or issues preferred stock
subsequent to the commencement of the period for which the Fixed Charge Coverage
Ratio is being calculated but prior to the date on which the event for which the
calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"),
then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect
to such incurrence, assumption, Guarantee or redemption of Indebtedness, or such
issuance or redemption of preferred stock, as if the same had occurred at the
beginning of the applicable four-quarter reference period. In addition, for
purposes of making the computation referred to above, (i) acquisitions that have
been made by NEHC or any of its Restricted Subsidiaries, including through
mergers or consolidations and including any related financing transactions,
during the four-quarter reference period or subsequent to such reference period
and on or prior to the Calculation Date shall be deemed to have occurred on the
first day of the four-quarter reference period and Consolidated Cash Flow for
such reference period shall be calculated without giving effect to clause (iii)
of the proviso set forth in the definition of Consolidated Net Income, (ii) the
Consolidated Cash Flow attributable to discontinued operations, as determined in
accordance with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded, and (iii) the Fixed Charges attributable to
discontinued operations, as determined in accordance with GAAP, and operations
or businesses disposed of prior to the Calculation Date, shall be excluded, but
only to the extent that the obligations giving rise to such Fixed Charges will
not be obligations of the referent Person or any of its Restricted Subsidiaries
following the Calculation Date.
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"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date of the Indenture.
"Global Notes" means the Rule 144A Global Note, the Regulation S Temporary
Global Notes and the Regulation S Permanent Global Notes.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States is pledged.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates or currency rates.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or bankers' acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of the
purchase price of any property or representing any Hedging Obligations, except
any such balance that constitutes an accrued expense or trade payable, if and to
the extent any of the foregoing indebtedness (other than letters of credit and
Hedging Obligations) would appear as a liability upon a balance sheet of such
Person prepared in accordance with GAAP, as well as all indebtedness of others
secured by a Lien on any asset of such Person (whether or not such indebtedness
is assumed by such Person) and, to the extent not otherwise included, the
Guarantee by such Person of any indebtedness of any other Person. The amount of
any Indebtedness outstanding as of any date shall be (i) the accreted value
thereof, in the case of any Indebtedness that does not require current payments
of interest, and (ii) the principal amount thereof, together with any interest
thereon that is more than 30 days past due, in the case of any other
Indebtedness.
"Insolvency or Liquidation Proceedings" means (i) any insolvency or
bankruptcy case or proceeding, or any receivership, liquidation, reorganization
or other similar case or proceeding, relative to NEHC or to the creditors of
NEHC, as such, or to the assets of NEHC, or (ii) any liquidation, dissolution,
reorganization or winding up of NEHC, whether voluntary or involuntary, and
involving insolvency or bankruptcy, or (iii) any assignment for the benefit of
creditors or any other marshalling of assets and liabilities of NEHC.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
If NEHC or any Restricted Subsidiary of NEHC sells or otherwise disposes of any
Equity Interests of any direct or indirect Restricted Subsidiary of NEHC such
that, after giving effect to any such sale or disposition, such Person is no
longer a Restricted Subsidiary of NEHC, NEHC shall be deemed to have made an
Investment on the date of any such sale or disposition equal to the fair market
value of the Equity Interests of such Restricted Subsidiary not sold or disposed
of in an amount determined as provided in the final paragraph of the covenant
described above under the caption "-- Restricted Payments."
"Junior Exchangeable Preferred Stock" means the 15% Junior Exchangeable
Preferred Stock Due 2009 of NEHC.
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"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b) the
disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or any of
its Restricted Subsidiaries and (ii) any extraordinary or nonrecurring gain (but
not loss), together with any related provision for taxes on such extraordinary
or nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by NEHC or any of
its Restricted Subsidiaries in respect of any Asset Sale (including, without
limitation, any cash received upon the sale or other disposition of any non-cash
consideration received in any Asset Sale), net of the direct costs relating to
such Asset Sale (including, without limitation, legal, accounting and investment
banking fees, and sales commissions) and any relocation expenses incurred as a
result thereof, taxes paid or payable as a result thereof (after taking into
account any available tax credits or deductions and any tax sharing
arrangements), and any reserve for adjustment in respect of the sale price of
such asset or assets established in accordance with GAAP.
"New Credit Facility" means that certain Credit Facility, dated as of the
date of the Indenture, by and among AmeriServe and Bank of America, providing
for up to $150.0 million of revolving credit borrowings and $205.0 million of
term credit borrowings, including any related notes, guarantees, collateral
documents, instruments and agreements executed in connection therewith, and in
each case as amended, modified, renewed, refunded, replaced or refinanced from
time to time.
"Non-Recourse Debt" means Indebtedness (i) as to which neither NEHC nor any
of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable (as a guarantor or
otherwise), or (c) constitutes the lender; (ii) no default with respect to which
(including any rights that the holders thereof may have to take enforcement
action against an Unrestricted Subsidiary) would permit (upon notice, lapse of
time or both) any holder of any other Indebtedness (other than the New Notes
being offered hereby) of NEHC or any of its Restricted Subsidiaries to declare a
default on such other Indebtedness or cause the payment thereof to be
accelerated or payable prior to its stated maturity; and (iii) as to which the
lenders have been notified in writing that they will not have any recourse to
the stock or assets of NEHC or any of its Restricted Subsidiaries.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Permitted Business" means any of the businesses and any other businesses
related to the businesses engaged in by NEHC and its respective Restricted
Subsidiaries on the date of the Indenture.
"Permitted Investments" means (a) any Investment in NEHC or in a Wholly
Owned Restricted Subsidiary of NEHC that is engaged in a Permitted Business; (b)
any Investment in Cash Equivalents; (c) any Investment by NEHC or any Restricted
Subsidiary of NEHC in a Person, if as a result of such Investment (i) such
Person becomes a Wholly Owned Restricted Subsidiary of NEHC that is engaged in a
Permitted Business or (ii) such Person is merged, consolidated or amalgamated
with or into, or transfers or conveys substantially all of its assets to, or is
liquidated into, NEHC or a Wholly Owned Restricted Subsidiary of NEHC that is
engaged in a Permitted Business; (d) any Restricted Investment made as a result
of the receipt of non-cash consideration from an Asset Sale that was made
pursuant to and in compliance with the
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covenant described above under the caption "-- Repurchase at the Option of
Holders -- Asset Sales"; (e) any acquisition of assets solely in exchange for
the issuance of Equity Interests (other than Disqualified Stock) of NEHC; (f)
loans and advances made after the date of the Indenture to Holberg Industries,
Inc. not to exceed $12.0 million at any time outstanding; and (g) other
Investments made after the date of the Indenture in any Person having an
aggregate fair market value (measured on the date each such Investment was made
and without giving effect to subsequent changes in value), when taken together
with all other Investments made pursuant to this clause (g) that are at the time
outstanding, not to exceed $12.0 million.
"Permitted Liens" means (i) Liens securing Indebtedness under the New
Credit Facility that was permitted by the terms of the Indenture to be incurred;
(ii) Liens in favor of NEHC; (iii) Liens on property of a Person existing at the
time such Person is merged into or consolidated with NEHC or any Restricted
Subsidiary of NEHC, provided that such Liens were in existence prior to the
contemplation of such merger or consolidation and do not extend to any assets
other than those of the Person merged into or consolidated with NEHC; (iv) Liens
on property existing at the time of acquisition thereof by NEHC or any
Restricted Subsidiary of NEHC, provided that such Liens were in existence prior
to the contemplation of such acquisition; (v) Liens to secure the performance of
statutory obligations, surety or appeal bonds, performance bonds or other
obligations of a like nature incurred in the ordinary course of business; (vi)
Liens existing on the date of the Indenture; (vii) Liens for taxes, assessments
or governmental charges or claims that are not yet delinquent or that are being
contested in good faith by appropriate proceedings promptly instituted and
diligently concluded, provided that any reserve or other appropriate provision
as shall be required in conformity with GAAP shall have been made therefor;
(viii) Liens incurred in the ordinary course of business of NEHC or any
Restricted Subsidiary of NEHC with respect to obligations that do not exceed
$7.0 million at any one time outstanding and that (a) are not incurred in
connection with the borrowing of money or the obtaining of advances or credit
(other than trade credit in the ordinary course of business) and (b) do not in
the aggregate materially detract from the value of the property or materially
impair the use thereof in the operation of business by NEHC or such Restricted
Subsidiary, and (ix) Liens on assets of Unrestricted Subsidiaries that (A)
secure Non-Recourse Debt of Unrestricted Subsidiaries or (B) are incurred in
connection with a Receivables Transaction.
"Permitted Refinancing Indebtedness" means any Indebtedness of NEHC or any
of its Restricted Subsidiaries issued in exchange for, or the net proceeds of
which are used to extend, refinance, renew, replace, defease or refund other
Indebtedness of NEHC or any of its Restricted Subsidiaries; provided that: (i)
except for Indebtedness used to extend, refinance, renew, replace, defease or
refund the New Credit Facility, the principal amount (or accreted value, if
applicable) of such Permitted Refinancing Indebtedness does not exceed the
principal amount of (or accreted value, if applicable), plus accrued interest
on, the Indebtedness so extended, refinanced, renewed, replaced, defeased or
refunded (plus the amount of reasonable expenses incurred in connection
therewith); (ii) such Permitted Refinancing Indebtedness has a final maturity
date later than the final maturity date of, and has a Weighted Average Life to
Maturity equal to or greater than the Weighted Average Life to Maturity of, the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; (iii) if the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded is subordinated in right of payment to the New
Notes, such Permitted Refinancing Indebtedness has a final maturity date later
than the final maturity date of, and is subordinated in right of payment to, the
New Notes on terms at least as favorable to the Holders of New Notes as those
contained in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; and (iv) such Indebtedness
is incurred either by NEHC or by the Restricted Subsidiary who is the obligor on
the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded.
"Principals" means Holberg Industries, Inc., John V. Holten, Orkla, ASA,
Nebco Evans Distributors, Inc., DLJ Merchant Banking, L.P., DLJ International
Partners, C.V., DLJ Offshore Partners, C.V., DLJ Merchant Banking Funding, Inc.,
DLJ Merchant Banking Partners II, L.P., DLJ Merchant Banking Partners II-A,
L.P., DLJ Offshore Partners II, C.V., DLJ Diversified Partners, L.P., DLJ
Diversified Partners - A, L.P., DLJ Millennium Partners, L.P., DLJ Millennium
Partners - A, L.P., DLJMB Funding II, Inc., DLJ First ESC LLC, DLJ EAB Partners,
L.P. and UK Investment Plan 1997 Partners.
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"Public Equity Offering" means a public offering of Equity Interests (other
than Disqualified Stock) of (i) NEHC or (ii) Holberg.
"Receivables" means, with respect to any Person or entity, all of the
following property and interests in property of such Person or entity, whether
now existing or existing in the future or hereafter acquired or arising: (i)
accounts, (ii) accounts receivable incurred in the ordinary course of business,
including, without limitation, all rights to payment created by or arising from
sales of goods, leases of goods or the rendition of services, no matter how
evidenced, whether or not earned by performance, (iii) all rights to any goods
or merchandise represented by any of the foregoing after creation of the
foregoing, including, without limitation, returned or repossessed goods, (iv)
all reserves and credit balances with respect to any such accounts receivable or
account debtors, (v) all letters of credit, security or guarantees for any of
the foregoing, (vi) all insurance policies or reports relating to any of the
foregoing, (vii) all collection or deposit accounts relating to any of the
foregoing, (viii) all proceeds of the foregoing and (ix) all books and records
relating to any of the foregoing.
"Receivables Subsidiary" means an Unrestricted Subsidiary exclusively
engaged in Receivables Transactions and activities related thereto; provided,
however, that (i) at no time shall NEHC and its Subsidiaries have more than one
Receivables Subsidiary and (ii) all Indebtedness or other borrowings of such
Unrestricted Subsidiary shall be Non-Recourse Debt.
"Receivables Transaction" means (i) the sale or other disposition to a
third party of Receivables or an interest therein, or (ii) the sale or other
disposition of Receivables or an interest therein to a Receivables Subsidiary
followed by a financing transaction in connection with such sale or disposition
of such Receivables (whether such financing transaction is effected by such
Receivables Subsidiary or by a third party to whom such Receivables Subsidiary
sells such Receivables or interests therein); provided that in each of the
foregoing, NEHC or its Subsidiaries receive at least 80% of the aggregate
principal amount of any Receivables financed in such transaction.
"Regulation S" means Regulation S promulgated under the Securities Act.
"Regulation S Global Notes" means the Regulation S Temporary Global Notes
or the Regulation S Permanent Global Notes as applicable.
"Regulation S Permanent Global Notes" means the permanent global notes that
are deposited with and registered in the name of the Depository or its nominee,
representing a series of Notes sold in reliance on Regulation S.
"Regulation S Temporary Global Notes" means the temporary global notes that
are deposited with and registered in the name of the Depositary or its nominee,
representing a series of Notes sold in reliance on Regulation S.
"Related Party" with respect to any Principal means (A) any controlling
stockholder, 80% (or more) owned Subsidiary, or spouse or immediate family
member (in the case of an individual) of such Principal or (B) any trust,
corporation, partnership or other entity, the beneficiaries, stockholders,
partners, owners or Persons beneficially holding an 80% or more controlling
interest of which consist of such Principal and/or such other Persons referred
to in the immediately preceding clause (A).
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Rule 144A" means Rule 144A promulgated under the Securities Act.
"Rule 144A Global Note" means a permanent global note that is deposited
with and registered in the name of the Depository or its nominee, representing a
series of Notes sold in reliance on Rule 144A.
"Senior Exchangeable Preferred Stock" means the 13 1/2% Senior Exchangeable
Preferred Stock Due 2009 of NEHC.
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"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
"Subsidiary Guarantors" means all direct and indirect Restricted
Subsidiaries of the Senior Subordinated Notes.
"Unrestricted Subsidiary" means (i) any Subsidiary that is designated by
the Board of Directors as an Unrestricted Subsidiary pursuant to a Board
Resolution; but only to the extent that such Subsidiary: (a) has no Indebtedness
other than Non-Recourse Debt; (b) is not party to any agreement, contract,
arrangement or understanding with NEHC or any Restricted Subsidiary of NEHC
unless the terms of any such agreement, contract, arrangement or understanding
are no less favorable to NEHC or such Restricted Subsidiary than those that
might be obtained at the time from Persons who are not Affiliates of NEHC; (c)
is a Person with respect to which neither NEHC nor any of its Restricted
Subsidiaries has any direct or indirect obligation (x) to subscribe for
additional Equity Interests or (y) to maintain or preserve such Person's
financial condition or to cause such Person to achieve any specified levels of
operating results; (d) has not guaranteed or otherwise directly or indirectly
provided credit support for any Indebtedness of NEHC or any of its Restricted
Subsidiaries; and (e) has at least one director on its board of directors that
is not a director or executive officer of NEHC or any of its Restricted
Subsidiaries and has at least one executive officer that is not a director or
executive officer of NEHC or any of its Restricted Subsidiaries. Any such
designation by the Board of Directors shall be evidenced to the Trustee by
filing with the Trustee a certified copy of the Board Resolution giving effect
to such designation and an Officers' Certificate certifying that such
designation complied with the foregoing conditions and was permitted by the
covenant described above under the caption "Certain Covenants -- Restricted
Payments." If, at any time, any Unrestricted Subsidiary would fail to meet the
foregoing requirements as an Unrestricted Subsidiary, it shall thereafter cease
to be an Unrestricted Subsidiary for purposes of the Indenture and any
Indebtedness of such Subsidiary shall be deemed to be incurred by a Restricted
Subsidiary of NEHC as of such date (and, if such Indebtedness is not permitted
to be incurred as of such date under the covenant described under the caption
"Incurrence of Indebtedness and Issuance of Preferred Stock," NEHC shall be in
default of such covenant). The Board of Directors of NEHC may at any time
designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided
that such designation shall be deemed to be an incurrence of Indebtedness by a
Restricted Subsidiary of NEHC of any outstanding Indebtedness of such
Unrestricted Subsidiary and such designation shall be permitted only if (i) such
Indebtedness is permitted under the covenant described under the caption
"Certain Covenants Incurrence of Indebtedness and Issuance of Preferred Stock,"
and (ii) no Default or Event of Default would be in existence following such
designation.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
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"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person.
DESCRIPTION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a summary of certain U.S. federal income tax
considerations relevant to the purchase, ownership and disposition of the New
Notes by the holders thereof. This summary does not purport to be a complete
analysis of all the potential federal income tax effects relating to the
acquisition, ownership and disposition of the New Notes. There can be no
assurance that the U.S. Internal Revenue Service will take a similar view of
such consequences. Further, the discussion does not address all aspects of
taxation that may be relevant to particular purchasers in light of their
individual circumstances (including the effect of any foreign, state or local
laws) or to certain types of purchasers (including dealers in securities,
insurance companies, financial institutions, persons that hold New Notes that
are a hedge or that are hedged against currency risks or that are part of a
straddle or conversion transaction, persons whose functional currency is not the
U.S. dollar and tax-exempt entities) subject to special treatment under U.S.
federal income tax laws. The discussion below assumes that the New Notes are
held as capital assets.
The discussion of the U.S. federal income tax consequences set forth below
is based upon currently existing provisions of the Internal Revenue Code of
1986, as amended (the "Code"), judicial decisions, and administrative
interpretations. Because individual circumstances may differ, each prospective
purchaser of the New Notes is strongly urged to consult its own tax advisor with
respect to its particular tax situation and the particular tax effects of any
state, local, non-U.S. or other tax laws and possible changes in the tax laws.
As used herein, the term "U.S. Holder" means a beneficial owner of a New
Note who or which is for U.S. federal income tax purposes either (i) a citizen
or resident of the U.S., (ii) a corporation, partnership or other entity created
or organized in or under the laws of the U.S. or of any political subdivision
thereof, (iii) an estate or trust the income of which is subject to U.S. federal
income taxation regardless of its source or (iv) a trust if a court within the
U.S. is able to exercise primary supervision over the administration of the
trust and one or more U.S. fiduciaries have the authority to control all
substantial decisions of the trust. The term also includes certain former
citizens of the U.S. whose income and gain on the New Notes will be subject to
U.S. taxation. As used herein, the term "U.S. Alien Holder" means a beneficial
owner of a New Note that is not a U.S. Holder.
ORIGINAL ISSUE DISCOUNT
The New Notes are issued with original issue discount for U.S. federal
income tax purposes. U.S. Holders holding the New Notes are required to include
original issue discount in gross income as it accrues, on a constant-yield
basis, regardless of their method of tax accounting. This means that each U.S.
Holder may be required to include amounts in gross income without a
corresponding receipt of cash attributable to such gross income. The amount of
original issue discount on the New Notes is the excess of the stated redemption
price at maturity over the issue price of the New Notes. The issue price of the
New Notes is the first price at which a substantial amount of New Notes is sold
(other than to an underwriter, placement agent or wholesaler). The stated
redemption price at maturity of a debt instrument is the total of all payments
to be made on the instrument other than payments of qualified stated interest.
Qualified stated interest includes only interest that is unconditionally payable
at least annually at a single fixed rate during the entire term of the New
Notes. None of the interest on the New Notes will be qualified stated interest,
and all of the interest payable on the New Notes will be included in the stated
redemption price at maturity.
U.S. Holders of the New Notes must include in gross income, as interest,
the daily portions of original issue discount each day during the taxable year
on which the New Notes were held. The daily portions of original issue discount
will be determined by allocating to each day in each accrual period the ratable
portion of the original issue discount allocable to that period. (The accrual
periods may be of any length and may vary in length over the term of a debt
instrument, provided that each accrual period is no longer than one year and
each scheduled payment of interest or principal occurs on either the final day
or the first day of an accrual
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period.) The original issue discount allocable to an accrual period will equal
the product of the adjusted issue price of the New Notes at the beginning of the
accrual period and the New Notes' yield to maturity (determined on the basis of
compounding at the close of each accrual period and properly adjusted for the
length of the accrual period). Original issue discount allocable to a final
accrual period is the difference between the amount payable at maturity and the
adjusted issue price at the beginning of the final accrual period. Special rules
will apply for calculating original issue discount for an initial short period.
The adjusted issue price of the New Notes at the start of any accrual period
will be the issue price of the New Notes, increased by the amount of original
issue discount that accrued in all previous accrual periods and decreased by the
amount of any payments previously made on the New Notes and any payment made on
the first day of the current accrual period. Because the U.S. Holders of the New
Notes will include original issue discount in income as it accrues, actual
payments of cash interest on the New Notes will not trigger any additional
interest income to the U.S. Holders. Under these rules, a U.S. Holder will have
to include in income increasingly greater amounts of original issue discount in
successive accrual periods. NEHC is required to provide information returns
stating the amount of original issue discount accrued on New Notes held of
record by persons other than corporations and other exempt holders.
SALE OR OTHER TAXABLE DISPOSITION OF NEW NOTES
A U.S. Holder of a New Note will have a tax basis in the New Notes equal to
such U.S. Holder's purchase price of the New Note, increased by the amount of
original issue discount on the New Note that is included in the U.S. Holder's
gross income and decreased by payments of cash interest on the New Note received
by the U.S. Holder.
A U.S. Holder of a New Note will generally recognize gain or loss on the
sale, redemption or other taxable disposition of the New Note equal to the
difference (if any) between the amount realized from such sale, redemption or
disposition and the U.S. Holder's adjusted tax basis in the New Note. Such gain
or loss will generally be long-term capital gain or loss if the New Note has
been held for more than one year. In the case of individual U.S. Holders, net
capital gain will be taxed at a maximum rate of 28% if the U.S. Holder's holding
period is more than one year but not more than 18 months and at a maximum rate
of 20% if the U.S. Holder's holding period is more than 18 months.
A U.S. Holder will recognize no gain or loss on the exchange of a Note for
a New Note pursuant to the Exchange Offer.
OPTIONAL REDEMPTION; REPURCHASE AT THE OPTION OF HOLDERS
Under certain circumstances, NEHC has the right to redeem the Notes prior
to July 15, 2007. See "Description of New Notes -- Optional Redemption."
Moreover, upon a Change of Control, holders of New Notes will have the right to
require the Company to repurchase their New Notes. See "Description of New
Notes -- Repurchase at the Option of Holders -- Change of Control."
The presence of such options may affect the calculation of original issue
discount, among other things. The relevant Treasury Regulations provide that,
solely for purposes of the accrual of original issue discount, an issuer of a
debt instrument having an option or combination of options to redeem the debt
instrument prior to its stated maturity date will be presumed to exercise such
option or options in a manner that minimizes the yield on the debt instrument.
Conversely, a holder having an option to elect repayment of the debt instrument
prior to its stated maturity date or a combination of such options will be
presumed to exercise such option or options in a manner that maximizes the yield
on the debt instrument. If the exercise of such option or options to redeem the
debt instrument prior to its stated maturity date or to elect repayment of the
debt instrument prior to its stated maturity date actually occurs or does not
occur, contrary to the presumption made under the Treasury Regulations (a
"change of circumstances"), then, solely for purposes of the accrual of original
issue discount, the debt instrument is treated as reissued on the date of the
change in circumstances for an amount equal to its adjusted issue price on that
date.
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APPLICABLE HIGH-YIELD DISCOUNT OBLIGATIONS
If the New Notes are considered to have "significant original issue
discount" and if the yield of the New Notes is at least five percentage points
above the applicable federal rate, for the calendar month in which the New Notes
are issued, NEHC will not be able to deduct for tax purposes any original issue
discount accruing with respect thereto until such interest is actually paid. In
addition, in that event, if the yield of the New Notes is more than six
percentage points above the applicable federal rate, then (i) a portion of such
interest corresponding to the yield in excess of six percentage points above the
applicable federal rate will not be deductible by NEHC at any time, and (ii) a
corporate holder may be entitled to treat the interest that is not deductible as
a dividend to the extent of the earnings and profits of NEHC, which dividend may
then qualify for the dividends-received deduction. In such event, corporate
holders should consult their tax advisors concerning the availability of the
dividends-received deduction.
TAX CONSEQUENCES TO U.S. ALIEN HOLDERS
Under present U.S. federal income and estate tax law, and subject to the
discussion below concerning backup withholding:
(a) payments of principal or interest on the New Note (including
original issue discount) by the NEHC or any paying agent to a beneficial
owner of a New Note that is a U.S. Alien Holder, as defined above, will not
be subject to U.S. federal withholding tax, provided that, in the case of
interest, (i) such holder does not own, actually or constructively, 10% or
more of the total combined voting power of all classes of stock of NEHC
entitled to vote, (ii) such Holder is not, for U.S. federal income tax
purposes, a controlled foreign corporation related, directly or indirectly,
to NEHC through stock ownership, (iii) such Holder is not a bank receiving
interest described in Section 881(c)(3)(A) of the Code, and (iv) the
certification requirements under Section 871(h) or Section 881(c) of the
Code and Treasury Regulations thereunder (summarized below) are met;
(b) a U.S. Alien Holder of a New Note will not be subject to U.S.
federal income tax on gains realized on the sale, exchange or other
disposition of such New Note, unless (i) such Holder is an individual who
is present in the U.S. for 183 days or more in the taxable year of sale,
exchange or other disposition, and certain other conditions are met; (ii)
such gain is effectively connected with the conduct by such Holder of a
trade or business in the U.S. and, if certain tax treaties apply, is
attributable to a U.S. permanent establishment maintained by the U.S. Alien
Holder or (iii) the U.S. Alien Holder is subject to tax pursuant to the
Code provisions applicable to certain U.S. expatriates; and
(c) a New Note held by an individual who is not a citizen or resident
of the U.S. at the time of his death will not be subject to U.S. federal
estate tax as a result of such individual's death, provided that, at the
time of such individual's death, the individual does not own, actually or
constructively, 10% or more of the total combined voting power of all
classes of stock of the Company entitled to vote and payments with respect
to such New Note would not have been effectively connected with the conduct
by such individual of a trade or business in the U.S.
Sections 871(b) and 881(c) of the Code and currently effective Treasury
Regulations thereunder require that, in order to obtain the exemption from
withholding tax described in paragraph (a) above, either (i) the beneficial
owner of a New Note must certify, under penalties of perjury, to the Company or
paying agent, as the case may be, that such owner is a U.S. Alien Holder and
must provide such owner's name and address, and U.S. taxpayer identification
number, if any, or (ii) a securities clearing organization, bank or other
financial institution that holds customers securities in the ordinary course of
its trade or business (a "Financial Institution") and holds the New Note on
behalf of the beneficial owner thereof must certify, under penalties of perjury,
to NEHC or paying agent, as the case may be, that such certificate has been
received from the beneficial owner by it or by a Financial Institution between
it and the beneficial owner and must furnish the payor with a copy thereof. A
certificate described in this paragraph is effective only with respect to
payments of interest made to the certifying U.S. Alien Holder after delivery of
the certificate in the calendar year of its delivery and the two immediately
succeeding calendar years. Under currently effective U.S. Treasury Regulations,
such requirement will be fulfilled if the beneficial owner of a New Note
certifies on Internal
81
<PAGE> 82
Revenue Service Form W-8, under penalties of perjury, that it is a U.S. Alien
Holder and provides its name and address, and any Financial Institution holding
the New Note on behalf of the beneficial owner files a statement with the
withholding agent to the effect that it has received such a statement from the
beneficial owner (and furnishes the withholding agent with a copy thereof).
Treasury Regulations released on October 6, 1997 (the "New Regulations")
and effective for payments made after December 31, 1998, will provide
alternative methods for satisfying the certificate requirement described above.
The New Regulations also will require, in the case of New Notes held by a
foreign partnership, that (x) the certification be provided by the partners
rather than by the foreign partnership and (y) the partnership provide certain
information, including a United States taxpayer identification number. A
look-through rule will apply in the case of tiered partnerships.
If a U.S. Alien Holder of a New Note is engaged in a trade or business in
the U.S., and if interest on the New Note, or gain realized on the sale,
exchange or other disposition of the New Note, is effectively connected with the
conduct of such trade or business and, if certain tax treaties apply, is
attributable to a U.S. permanent establishment maintained by the U.S. Alien
Holder, the U.S. Alien Holder, although exempt from U.S. withholding tax, will
generally be subject to regular U.S. income tax on such interest or gain in the
same manner as if it were a U.S. Holder. In lieu of the certificate described in
the preceding paragraph, such a holder will be required to provide NEHC a
properly executed Internal Revenue Service Form 4224 in order to claim an
exemption from withholding tax. In addition, if such U.S. Alien Holder is a
foreign corporation, it may be subject to an additional branch profits tax equal
to 30% (or such lower rate provided by an applicable treaty) of its effectively
connected earnings and profits for the taxable year, subject to certain
adjustments. For purposes of the branch profits tax, interest on and any gain
recognized on the sale, exchange or other disposition of a New Note will be
included in the earnings and profits of such U.S. Alien Holder if such interest
or gain is effectively connected with the conduct by the U.S. Alien Holder of a
trade or business in the U.S. The New Regulations will change some of the
withholding reporting requirements described above, effective for payments made
after December 31, 1998, subject to certain grandfathering provisions.
BACKUP WITHHOLDING
Under current U.S. federal income tax law, a 31% backup withholding tax
requirement applies to certain payments of interest on, and the proceeds of a
sale, exchange or redemption of, the New Notes.
Backup withholding will generally not apply with respect to payments made
to certain exempt recipients, such as corporations or other tax-exempt entities.
In the case of a non-corporate U.S. Holder, backup withholding will apply only
if such holder (i) fails to furnish its TIN, which, for an individual, would be
his Social Security number, (ii) furnishes an incorrect TIN, (iii) is notified
by the Internal Revenue Service that it has failed to properly report payments
of interest and dividends or (iv) under certain circumstances, fails to certify,
under penalties of perjury, that it has furnished a correct TIN and has not been
notified by the Internal Revenue Service that it is subject to backup
withholding for failure to report interest and dividend payments.
In the case of a U.S. Alien Holder, under currently effective Treasury
Regulations, backup withholding will not apply to payments made by NEHC or any
paying agent thereof on a New Note if such holder has provided the required
certification under penalties of perjury that it is not a U.S. Holder (as
defined above) or has otherwise established an exemption, provided in each case
that NEHC or such paying agent, as the case may be, does not have actual
knowledge that the payee is a U.S. Holder.
Under currently effective Treasury Regulations, if payments on a New Note
are made to or through a foreign office of a custodian, nominee or other agent
acting on behalf of a beneficial owner of a New Note, such custodian, nominee or
other agent acting will not be required to apply backup withholding to such
payments made to such beneficial owner. However, under the New Regulations,
backup withholding may apply to payments made after December 31, 1998 if such
custodian, nominee or other agent has actual knowledge that the payee is a U.S.
Holder.
Under currently effective Treasury Regulations, payments on the sale,
exchange or other disposition of a New Note made to or through a foreign office
of a broker generally will not be subject to backup withholding.
82
<PAGE> 83
However, under the New Regulations, backup withholding may apply to payments
made after December 31, 1998 if such broker has actual knowledge that the payee
is a U.S. Holder. In the case of proceeds from a sale of a New Note by a U.S.
Alien Holder paid to or through the foreign office of a U.S. broker or a foreign
office of a foreign broker that is (i) a controlled foreign corporation for U.S.
tax purposes or (ii) a person 50% or more of whose gross income for the
three-year period ending with the close of the taxable year preceding the year
of payment (or for the part of that period that the broker has been in
existence) is effectively connected with the conduct of a trade or business
within the U.S., information reporting is required unless the broker has
documentary evidence in its files that the payee is not a U.S. person and
certain other conditions are met, or the payee otherwise establishes an
exemption. Payments to or through the U.S. office of a broker will be subject to
backup withholding and information reporting unless the holder certifies, under
penalties of perjury, that it is not a U.S. Holder and that certain other
conditions are met or otherwise establishes an exemption.
Holders of New Notes should consult their tax advisors regarding the
application of backup withholding in their particular situations, the
availability of an exemption therefrom, and the procedure for obtaining such an
exemption, if available, and the impact of the New Regulations on payments made
with respect to New Notes after December 31, 1998. Any amounts withheld from
payment under the backup withholding rules will be allowed as a credit against a
Holder's U.S. federal income tax liability and may entitle such holder to a
refund; provided that the required information is furnished to the Internal
Revenue Service.
THE FOREGOING DISCUSSION IS FOR GENERAL INFORMATION AND IS NOT TAX ADVICE.
ACCORDINGLY, EACH PROSPECTIVE HOLDER OF NEW NOTES SHOULD CONSULT ITS OWN TAX
ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO THE PROSPECTIVE HOLDER OF THE
NEW NOTES, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL, OR
NON-U.S. INCOME TAX LAWS AND ANY RECENT OR PROSPECTIVE CHANGES IN APPLICABLE TAX
LAWS AND THE EFFECT OF THE NEW REGULATIONS WITH RESPECT TO PAYMENTS MADE AFTER
DECEMBER 31, 1998.
PLAN OF DISTRIBUTION
This Prospectus is to be used by DLJ in connection with offers and sales of
the New Notes in market-making transactions effected from time to time. DLJ may
act as a principal or agent in such transactions, including as agent for the
counterparty when acting as principal or as agent for both counterparties, and
may receive compensation in the form of discounts and commissions, including
from both counterparties when it acts as agent for both. Such sales will be made
at prevailing market prices at the time of sale, at prices related thereto or at
negotiated prices.
DLJMB, an affiliate of DLJ, and certain of its affiliates beneficially own
approximately 36.1% of the common stock of NEHC. Peter T. Grauer, a principal of
DLJ, is a member of the Board of Directors of NEHC and the Company; Benoit
Jamar, a principal of DLJ, is a member of the Board of Directors of NEHC and the
Company. Further, DLJ Capital Funding, Inc., an affiliate of DLJ, is acting as
documentation agent in connection with the New Credit Facility for which it
received certain customary fees and expenses. In addition, DLJ received a merger
advisory fee of $4.0 million in cash from the Company after consummation of the
Transactions. DLJ has informed NEHC that it does not intend to confirm sales of
the New Notes to any accounts over which it exercises discretionary authority
without the prior specific written approval of such transactions by the
customer.
NEHC has been advised by DLJ that, subject to applicable laws and
regulations, DLJ currently intend to make a market in the New Notes following
completion of the Exchange Offer. However, DLJ is not obligated to do so and any
such market-making may be interrupted or discontinued at any time without
notice. In addition, such market-making activity will be subject to the limits
imposed by the Securities Act and the Exchange Act. There can be no assurance
that an active trading market will develop or be sustained. See "Risk
Factors -- Trading Market for the New Notes."
DLJ has, from time to time, provided investment banking and other financial
advisory services to the Company in the past for which they have received
customary compensation, including fees received in
83
<PAGE> 84
connection with the Offering of the Senior Discount Notes, and may provide such
services and financial advisory services to the Company in the future. DLJ acted
as purchasers in connection with the initial sale of the Notes and received an
underwriting discount of approximately $2.2 million in connection therewith. See
"Certain Relationships and Related Party Transactions."
DLJ and NEHC have entered into the Registration Rights Agreement with
respect to the use by DLJ of this Prospectus. Pursuant to such agreement, NEHC
agreed to bear all registration expenses incurred under such agreement, and NEHC
agreed to indemnify the Initial Purchasers against certain liabilities,
including liabilities under the Securities Act.
LEGAL MATTERS
Certain legal matters in connection with the New Notes offered hereby will
be passed upon for NEHC by Wachtell, Lipton, Rosen & Katz, New York, New York.
EXPERTS
The consolidated financial statements of NEHC at December 30, 1995 and
December 28, 1996 and for each of the three years in the period ended December
28, 1996 appearing in this Prospectus and in the Registration Statement, and the
financial statement schedule for each of the three years in the period ended
December 28, 1996 included in the Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their reports thereon
appearing elsewhere herein and in the Registration Statement, and are included
herein in reliance upon such reports given upon the authority of such firm as
experts in accounting and auditing.
The financial statements of PFS (A Division of PepsiCo, Inc. Held For Sale)
as of December 27, 1995 and December 25, 1996 and for each of the years in the
three-year period ended December 25, 1996 appearing in this Prospectus and in
the Registration Statement have been audited by KPMG Peat Marwick LLP,
independent auditors, as set forth in their report thereon appearing elsewhere
herein, and are included herein in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
The consolidated statements of operations, stockholders' equity, and cash
flows of AmeriServ Food Company for each of the two years in the period ended
December 30, 1995 appearing in this Prospectus and in the Registration Statement
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon appearing elsewhere herein, and are included herein in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
CHANGE IN COMPANY'S ACCOUNTANT
Prior to the acquisition by the Company of AmeriServ, the Company's
principal independent auditors were Deloitte & Touche LLP ("Deloitte & Touche").
At the time of its acquisition by the Company the principal independent auditors
for AmeriServ were Ernst & Young LLP ("Ernst & Young"). In July 1996 the Company
invited both Deloitte & Touche and Ernst & Young to submit proposals to act as
principal independent auditors to the Company. On or about October 1, 1996, the
Company notified Deloitte & Touche that Deloitte & Touche had been dismissed as
the Company's principal accountants. On October 1, 1996, the Company selected
and retained Ernst & Young as the Company's principal independent auditors for
the Company's 1996 fiscal year. The Company's Board of Directors approved of
this change.
Deloitte & Touche's reports on the Company's financial statements, which
financial statements were prepared on a private entity basis and not in
accordance with the requirements of Regulation S-X, for the fiscal years ended
December 31, 1994 and December 30, 1995 did not contain an adverse opinion or a
disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope or procedure, or accounting principles. During the fiscal years
ended December 31, 1994 and December 30, 1995 and through October 1, 1996 there
were no disagreements with Deloitte & Touche, as described in Item
304(a)(1)(iv),
84
<PAGE> 85
nor were there any events that would be "reportable events" pursuant to Item
304(a)(1)(v) of Regulation S-K.
The Company's financial statements, which financial statements have been
presented on a basis which will comply with the requirements of Regulation S-X
for the fiscal years ended December 31, 1994 and December 30, 1995 included in
this Prospectus have been audited by Ernst & Young.
As required pursuant to Item 304 of Regulation S-K, filed as Exhibit 16.1
hereto is a letter from Deloitte & Touche addressed to the Securities and
Exchange Commission (the "SEC") stating that Deloitte & Touche agrees with the
statements in the first and fourth sentences of the first paragraph and the
statements in the second paragraph (and has no basis to agree or disagree with
the other statements) of this section.
85
<PAGE> 86
INDEX OF CERTAIN DEFINED TERMS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Accounts Receivable Program............ 32
Acquisition............................ 5
Administrative Agent................... 31
Affiliate Transaction.................. 73
Agents................................. 31
AmeriServ.............................. 18
AmeriServe............................. 5
AmeriServe Funding..................... 61
AmeriServe Transactions................ 7
Applicable Reserve Ratio............... 61
Asset Purchase Agreement............... 28
BancAmerica Securities................. 31
Bank of America NT&SA.................. 31
Banks.................................. 62
Base Amount............................ 62
Base Rate.............................. 63
CAGR................................... 5
Calculation Date....................... 86
Carrying Cost Receivables Reserve...... 62
Certificate of Incorporation........... 18
Change of circumstances................ 93
Change of Control Offer................ 66
Change of Control Payment.............. 66
Change of Control Payment Date......... 66
Code................................... 91
Commission............................. 4
Company................................ 5
Covenant Defeasance.................... 76
Depository............................. 3
Distribution Agreement................. 55
DLJ.................................... 3
DLJMB.................................. 28
DLJMB Equity Investment................ 29
DLJMBII................................ 29
DTC.................................... 3
EBITDA................................. 14
Effectiveness Target Date.............. 81
Equity Contribution.................... 29
Evans.................................. 18
Exchange Act........................... 4
Exchange Offer......................... 1
Financial Institution.................. 94
Global Notes........................... 86
Guarantors............................. 63
Holberg................................ 18
HWPI................................... 5
IDA.................................... 56
Indebtedness........................... 86
Indenture.............................. 1
Indirect Participants.................. 79
Initial Purchaser...................... 3
<CAPTION>
PAGE NO.
--------
<S> <C>
Invested Amount........................ 62
Junior Preferred Stock................. 29
Junior Securities...................... 29
Legal Defeasance....................... 76
Lenders................................ 16
Named Executive Officers............... 58
NEBCO.................................. 18
NEBCO EVANS............................ 18
NED.................................... 59
NEHC................................... 1
NEHC Subsidiaries...................... 5
NEHC Transactions...................... 7
Net Eligible Receivables............... 62
New Credit Facility.................... 31
New Notes.............................. 1
New Regulations........................ 94
New Warrants........................... 29
Notes.................................. 1
Offering............................... 2
Old NEHC Notes......................... 28
Orkla.................................. 28
Participants........................... 79
Payment Default........................ 75
PepsiCo................................ 6
PepsiCo Chains......................... 55
PFS.................................... 6
Post................................... 5
Post Contribution...................... 30
Post Holdings.......................... 29
Preferred Stock Contribution........... 30
Receivables............................ 62
Reference rate......................... 63
Registration Default................... 81
Registration Rights Agreement.......... 1
Regulation S Permanent Global Notes.... 89
Revolving Credit Facility ............. 31
Rule 144A Global Note.................. 89
SEC.................................... 4
Securities Act......................... 1
Senior Preferred Stock................. 29
Shelf Registration Statement........... 11
Subordinated Notes Offering............ 7
Term Loans............................. 31
Transactions........................... 7
Transactions Closings.................. 28
Trust.................................. 62
Trustee................................ 65
U.S. Alien Holder...................... 91
U.S. Holder............................ 91
Warrant Shares......................... 29
</TABLE>
86
<PAGE> 87
INDEX TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
NEBCO EVANS HOLDING COMPANY
Unaudited Pro Forma Consolidated Balance Sheet as of June 28, 1997.................. P-2
Notes to Unaudited Pro Forma Consolidated Balance Sheet as of June 28, 1997......... P-3
Unaudited Pro Forma Consolidated Statement of Income for the Fiscal Year 1996....... P-5
Unaudited Pro Forma Consolidated Statement of Income for the Six Months Ended June
28, 1997......................................................................... P-6
Notes to Unaudited Pro Forma Consolidated Statements of Income for Fiscal Year 1996
and the Six Months Ended June 28, 1997........................................... P-7
</TABLE>
P-1
<PAGE> 88
NEBCO EVANS HOLDING COMPANY
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following sets forth the Unaudited Pro Forma Consolidated Balance Sheet
and the Unaudited Pro Forma Consolidated Statements of Income of Nebco Evans
Holding Company in each case giving effect to the Transactions and the
Refinancing as if such Transactions and Refinancing had been consummated on June
28, 1997 (in the case of the Unaudited Pro Forma Consolidated Balance Sheet) and
at the beginning of the earliest period presented (in the case of the Unaudited
Pro Forma Consolidated Statements of Income). The Unaudited Pro Forma
Consolidated Financial Statements of the Company do not purport to present the
financial position or results of operations of the Company had the transactions
assumed herein occurred on the dates indicated, nor are they necessarily
indicative of the results of operations which may be expected to occur in the
future.
NEBCO EVANS HOLDING COMPANY
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF JUNE 28, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA FOR
PRO FORMA PRO FORMA ADJUSTMENTS TRANSACTIONS
HISTORICAL HISTORICAL ADJUSTMENTS FOR FOR FOR AND
NEHC HWPI TRANSACTIONS TRANSACTIONS REFINANCING REFINANCING
----------- ---------- --------------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents... $ 3,474 $ -- $ 24,692(1) $ 28,166 $ 134,000(5) $ 162,166
Accounts receivable......... 424,579 -- (378,821)(2) 45,758 -- 45,758
Undivided interest in
accounts receivable
trust..................... -- -- 153,821(2) 153,821 -- 153,821
Inventories................. 157,403 -- -- 157,403 -- 157,403
Other current assets........ 17,482 1,054 (4,700)(4) 13,836 -- 13,836
---------- ------- --------- ---------- ------- ----------
Total current assets...... 602,938 1,054 (205,008) 398,984 134,000 532,984
Property and equipment, net... 125,657 11,467 -- 137,124 -- 137,124
Other assets:
Goodwill.................... 688,648 -- -- 688,648 -- 688,648
Other....................... 29,269 -- 26,600(1) 51,144 11,000(5) 55,044
(2,000)(2) (7,100)(6)
(225)(1,3)
(2,500)(4)
---------- ------- --------- ---------- ------- ----------
$ 1,446,512 $ 12,521 $ (183,133) $ 1,275,900 $ 137,900 $ 1,413,800
========== ======= ========= ========== ======= ==========
LIABILITIES & STOCKHOLDER'S EQUITY
Current liabilities:
Current maturities of
long-term debt............ $ 6,029 $ 99 $ (1,958)(1) $ 4,170 $ -- $ 4,170
Accounts payable............ 304,506 36 -- 304,542 -- 304,542
Accrued liabilities......... 69,934 -- (12,800)(1) 57,134 -- 57,134
---------- ------- --------- ---------- ------- ----------
Total current
liabilities............. 380,469 135 (14,758) 365,846 -- 365,846
Non-current liabilities....... 21,019 750 -- 21,769 -- 21,769
Long-term debt:
Existing credit
facilities................ 148,292 -- (148,292)(1) -- -- --
Note payable to PepsiCo,
Inc. ..................... 830,000 -- (830,000)(1,2) -- -- --
Term Loans.................. -- -- 205,000(1) 205,000 (205,000)(5) --
Senior Notes................ 27,174 -- (27,174)(1) -- 350,000(5) 350,000
Senior Discount Notes....... -- -- 55,000(1) 55,000 -- 55,000
Senior Subordinated Notes... -- -- 500,000(1) 500,000 -- 500,000
Other....................... 24,767 11,213 (4,768)(1) 31,212 -- 31,212
---------- ------- --------- ---------- ------- ----------
Total long-term debt...... 1,030,233 11,213 (250,234) 791,212 145,000 936,212
---------- ------- --------- ---------- ------- ----------
Total liabilities....... 1,431,721 12,098 (264,992) 1,178,827 145,000 1,323,827
---------- ------- --------- ---------- ------- ----------
Stockholder's equity:
Preferred................... 17,350 -- 115,000(3) 132,350 -- 132,350
Common...................... (2,559) 423 (1,725)(3) (35,277) (7,100)(6) (42,377)
(13,700)(1)
(2,000)(3)
(8,516)(3)
(7,200)(4)
---------- ------- --------- ---------- ------- ----------
Total stockholder's
equity.................. 14,791 423 81,859 97,073 (7,100) 89,973
---------- ------- --------- ---------- ------- ----------
$ 1,446,512 $ 12,521 $ (183,133) $ 1,275,900 $ 137,900 $ 1,413,800
========== ======= ========= ========== ======= ==========
</TABLE>
See accompanying notes to unaudited pro forma consolidated balance sheet.
P-2
<PAGE> 89
NEBCO EVANS HOLDING COMPANY
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF JUNE 28, 1997
(IN THOUSANDS)
(1) Represents the following:
<TABLE>
<S> <C>
Sources of funds:
Proceeds under the New Credit Facility............................ $205,000
Proceeds from the Senior Discount Notes Offering.................. 55,000
Proceeds from the Senior Subordinated Notes Offering.............. 500,000
Proceeds from DLJMB Equity Investment............................. 115,000
--------
$875,000
========
Use of Proceeds:
Reduction of existing indebtedness:
Current maturities of long-term debt............................ $ 1,958
Existing credit facilities...................................... 148,292
Senior notes.................................................... 35,690
Other........................................................... 4,768
Equity Contribution to AmeriServe to partially repay the PepsiCo,
Inc. note payable............................................... 130,000
Deferred financing fees and offering costs........................ 26,600
One time commitment and securitization fees and other costs
expensed at closing............................................. 13,700
Acquisition of remaining 55% interest in HWPI..................... 1,500
Partially repay PepsiCo, Inc. note payable (excludes $11 million
payable
subsequent to closing).......................................... 475,000
Payment of accrued transaction costs at closing................... 12,800
Cash for working capital.......................................... 24,692
--------
$875,000
========
</TABLE>
In connection with the reduction of existing indebtedness, $2,000 of
deferred financing costs were written off.
(2) Represents the transfer of accounts receivable ($378,821) to AmeriServe
Funding Corporation (Funding), a wholly-owned, special purpose, bankruptcy
remote subsidiary of the Company, for $225,000 in cash (which was used to
partially repay the PepsiCo, Inc. note payable), and a $153,821 undivided
interest in the AmeriServe Master Trust (Trust). Under the Accounts
Receivable Program, all of the trade receivables generated by the Company
and its subsidiaries will be transferred on a daily basis to Funding.
Funding will then sell the receivables to the Trust, which will issue a
series of short-term notes to investors, currently yielding 6.875%,
representing undivided interests in the assets of the Trust. Currently,
$225,000 under the Accounts Receivable Program is available to Funding for a
period of five years. Under the provisions of Statement of Financial
Accounting Standards No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities," the transaction has
been recorded as a transfer of receivables to an unconsolidated, special
purpose entity. The Company intends to hold to maturity the retained
interest in the transferred receivables and, therefore, will carry the
investment on the cost basis in accordance with Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt
and Equity Securities."
P-3
<PAGE> 90
NEBCO EVANS HOLDING COMPANY
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET -- (CONTINUED)
AS OF JUNE 28, 1997
(IN THOUSANDS)
(3) Adjustments to stockholder's equity:
<TABLE>
<S> <C>
Sale of NEHC Senior Preferred Stock............................... $ 60,000
Sale of NEHC Junior Preferred Stock............................... 55,000
Extraordinary loss on redemption of senior notes.................. (8,516)
Non-capitalized expenses associated with the Transactions......... (13,700)
Write-off of deferred financing costs............................. (2,000)
Acquisition of HWPI............................................... (1,725)
--------
Increase in stockholder's equity................................ $ 89,059
========
</TABLE>
(4) To eliminate the intercompany balance.
(5) Represents the following:
<TABLE>
<S> <C>
Proceeds from the Senior Notes Offering........................... $350,000
========
Use of Proceeds:
Repay Term Loans.................................................. $205,000
Deferred financing fees and offering costs........................ 8,750
Payment of accrued transaction costs at closing................... 2,250
Cash for working capital.......................................... 134,000
--------
$350,000
========
</TABLE>
(6) Represents write-off of the deferred financing costs of $7,100 related to
the Term Loans.
P-4
<PAGE> 91
NEBCO EVANS HOLDING COMPANY
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE FISCAL YEAR 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ACQUISITION PRO FORMA PRO FORMA
HISTORICAL HISTORICAL HISTORICAL OF ADJUSTMENTS FOR FOR
NEHC PFS HWPI AMERISERV(9) TRANSACTIONS TRANSACTIONS
---------- ---------- ---------- ------------ --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales(11)........................... $1,389,601 $3,422,086 $ 500 $ 63,292 $ -- $ 4,875,479
Cost of goods sold...................... 1,249,135 3,080,602 -- 57,190 -- 4,386,927
---------- ---------- -------- ------- -------- ----------
Gross profit............................ 140,466 341,484 500 6,102 -- 488,552
---------- ---------- -------- ------- -------- ----------
Operating expenses:
Distribution, selling and
administrative...................... 112,541 241,911 (831) 6,660 (11,100)(1) 360,550
(8,100)(2)
15,469(6)
4,000(4)
Depreciation.......................... 5,523 19,830 331 158 (1,000)(3) 24,842
Amortization.......................... 4,849 -- 31 507 14,721(7) 20,108
Other -- net.......................... (483) -- -- -- (483)
---------- ---------- -------- ------- -------- ----------
Total operating expenses................ 122,430 261,741 (469) 7,325 13,990 405,017
---------- ---------- -------- ------- -------- ----------
Operating income........................ 18,036 79,743 969 (1,223) (13,990) 83,535
Interest expense........................ 15,895 15,566 1,182 846 47,499(5) 80,988
Minority interest....................... 2,345 -- -- -- -- 2,345
---------- ---------- -------- ------- -------- ----------
Income (loss) before income taxes....... (204) 64,177 (213) (2,069) (61,489) 202
Provision (credit) for income taxes..... 1,300 24,597 -- 17 (25,835)(8) 79
---------- ---------- -------- ------- -------- ----------
Net income (loss)....................... $ (1,504) $ 39,580 $ (213) $ (2,086) $ (35,654) $ 123
========== ========== ======== ======= ======== ==========
<CAPTION>
PRO FORMA
PRO FORMA FOR
ADJUSTMENTS TRANSACTIONS
FOR REFINANCING AND REFINANCING
--------------- ---------------
<S> <C><C> <C>
INCOME STATEMENT DATA:
Net sales(11)........................... $ -- $ 4,875,479
Cost of goods sold...................... -- 4,386,927
------- ----------
Gross profit............................ -- 488,552
------- ----------
Operating expenses:
Distribution, selling and
administrative...................... -- 360,550
Depreciation.......................... -- 24,842
Amortization.......................... -- 20,108
Other -- net.......................... -- (483)
------- ----------
Total operating expenses................ -- 405,017
------- ----------
Operating income........................ -- 83,535
Interest expense........................ 13,080(10) 94,068
Minority interest....................... -- 2,345
------- ----------
Income (loss) before income taxes....... (13,080) (12,878)
Provision (credit) for income taxes..... (5,101)(8) (5,022)
------- ----------
Net income (loss)....................... $ (7,979) $ (7,856)
======= ==========
</TABLE>
See accompanying notes to unaudited pro forma consolidated statements of income.
P-5
<PAGE> 92
NEBCO EVANS HOLDING COMPANY
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 28, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA PRO FORMA FOR
ADJUSTMENTS PRO FORMA ADJUSTMENTS TRANSACTIONS
HISTORICAL HISTORICAL HISTORICAL FOR FOR FOR AND
NEHC PFS HWPI TRANSACTIONS TRANSACTIONS REFINANCING REFINANCING
---------- ---------- ---------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales(11)............. $802,900 $1,498,345 $ 250 $ -- $2,301,495 $ -- $2,301,495
Cost of goods sold........ 723,889 1,342,659 -- -- 2,066,548 -- 2,066,548
-------- ---------- ------- -------- ---------- ------- ----------
Gross profit.............. 79,011 155,686 250 -- 234,947 -- 234,947
-------- ---------- ------- -------- ---------- ------- ----------
Operating expenses:
Distribution, selling
and administrative.... 66,294 112,131 (415) (5,550)(1) 178,144 -- 178,144
(4,050)(2)
7,734(6)
2,000(4)
Depreciation............ 4,406 8,814 186 (500)(3) 12,906 -- 12,906
Amortization............ 2,385 -- 3 7,361(7) 9,749 -- 9,749
-------- ---------- ------- -------- ---------- ------- ----------
Total operating
expenses................ 73,085 120,945 (226) 6,995 200,799 -- 200,799
-------- ---------- ------- -------- ---------- ------- ----------
Operating income.......... 5,926 34,741 476 (6,995) 34,148 -- 34,148
Interest expense.......... 10,283 8,041 587 22,303(5) 41,214 6,540(10) 47,754
-------- ---------- ------- -------- ---------- ------- ----------
Income (loss) before
income taxes............ (4,357) 26,700 (111) (29,298) (7,066) (6,540) (13,606)
Provision (credit) for
income taxes............ (629) 9,924 -- (12,051)(8) (2,756) (2,550)(8) (5,306)
-------- ---------- ------- -------- ---------- ------- ----------
Net income (loss)......... $ (3,728) $ 16,776 $ (111) $(17,247) $ (4,310) $(3,990) $ (8,300)
======== ========== ======= ======== ========== ======= ==========
</TABLE>
See accompanying notes to unaudited pro forma consolidated statements of income.
P-6
<PAGE> 93
NEBCO EVANS HOLDING COMPANY
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
(1) Represents net cost reductions in accordance with the terms of the Asset
Purchase Agreement for the following items:
<TABLE>
<CAPTION>
SIX
MONTHS
FISCAL ENDED
1996 1997
------- ------
<S> <C> <C>
Reduction in lease expense for existing PFS facilities being
retained by PepsiCo, Inc. .................................... $ 4,100 $2,050
Net reduction in data processing costs charged by
PepsiCo, Inc. to PFS under the terms of a one year data
processing service contract................................... 4,100 2,050
Reduction of employee retirement expense due to the termination
of pension and retirement plans of PepsiCo, Inc.,
net of amounts to be paid under AmeriServe's plans............ 1,900 950
Compensation of certain PFS employees retained by
PepsiCo, Inc. ................................................ 1,000 500
------- ------
Net cost savings................................................ $11,100 $5,550
======= ======
</TABLE>
Management Information System (MIS) costs for fiscal 1996 for PFS
aggregated $13,700, which included $5,100 of allocated costs for use of the
PepsiCo, Inc. data processing facilities. The Company plans to integrate
the MIS Systems of both businesses, which will eliminate PFS's reliance on
the PepsiCo, Inc. data processing facilities and result in all of the
Company's distribution centers operating under the same computer systems
and operating policies and practices. Annual MIS cost savings are expected
to be $6,600, which includes $2,500 due to the reduction of MIS personnel
as discussed in Note (2) below.
(2) Represents the net reduction in costs in accordance with the Company's
business plan to integrate PFS:
<TABLE>
<CAPTION>
SIX
MONTHS
FISCAL ENDED
1996 1997
------ ------
<S> <C> <C>
Payroll reductions for the elimination of duplicative
administrative personnel....................................... $3,800 $1,900
Reduction in warehouse facilities and operating personnel........ 1,800 900
Reduction of MIS costs........................................... 2,500 1,250
------ ------
Net cost savings................................................. $8,100 $4,050
====== ======
</TABLE>
In addition, there are $7,900 of anticipated cost savings that have not
been reflected in the pro forma statements of income because they are not
directly attributable to the acquisition of the PFS business but result
from actions taken by the Company in the third quarter of 1997 to
restructure existing AmeriServe operations. The restructuring charge taken
by the Company in the third quarter of 1997 is $31,000 (composed of $18,000
related to impairment of assets, $9,000 related to future lease
terminations and employee displacements and $4,000 related to current
integration costs associated with a previous acquisition). The Company has
also identified $28,800 of synergistic cost savings related primarily to
transportation and insurance which also are not included in the pro forma
statements of income.
(3) Represents reduction of $1,000 annually in depreciation expense as a result
of the closure of certain distribution centers.
(4) Represents an annual management fee of $4,000 to be paid by the Company to
Holberg Industries, Inc. in accordance with the management agreement.
P-7
<PAGE> 94
NEBCO EVANS HOLDING COMPANY
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
(5) Represents the change in interest expense related to the Transactions:
<TABLE>
<CAPTION>
SIX
PRINCIPAL MONTHS
AMOUNT FISCAL ENDED
OF DEBT 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Recording of pro forma interest:
Term Loans at rates from 8.375% to 9.375%...... $205,000 $ 18,124 $ 9,062
Revolving Credit Facility...................... -- -- --
Senior Discount Notes due 2007 at 12.375%...... 55,000 7,017 3,508
Senior Subordinated Notes due 2007 at
10.125%..................................... 500,000 50,625 25,313
Letters of credit.............................. 12,000 300 150
Other debt..................................... 346 173
Capital leases at 9.0%......................... 1,606 1,523
------- -------
Cash interest expense.......................... 78,018 39,729
Amortization of deferred financing costs....... 2,970 1,485
------- -------
Total interest expense........................... 80,988 41,214
Less: historical interest........................ (33,489) (18,911)
------- -------
Pro forma interest adjustment.................... $ 47,499 $ 22,303
======= =======
</TABLE>
(6) Represents the discount of $15,469 annually and $7,734 for six months on
the sale of accounts receivable pursuant to the Accounts Receivable Program
($225,000 at a rate of 6.875%).
(7) Represents the amortization of goodwill incurred in connection with the
Acquisition of $14,721 annually and $7,361 for six months, assuming a
40-year amortization period.
(8) Represents adjustments to reconcile income taxes to an effective income tax
rate of 39%.
(9) Represents AmeriServ net sales and expenses for the month of January 1996
prior to its acquisition by AmeriServe on January 26, 1996.
(10) Represents adjustment to record interest expense and amortization of
deferred financing costs on the Senior Notes incurred to repay the Term
Loans, calculated as follows:
<TABLE>
<CAPTION>
SIX
MONTHS
FISCAL ENDED
1996 1997
-------- -------
<S> <C> <C>
Senior Notes ($350,000 at 8 7/8%)............................... $ 31,062 $15,531
Eliminate interest on Term Loans................................ (18,124) (9,062)
-------- -------
12,938 6,469
Amortization of deferred financing costs........................ 1,222 611
Elimination of amortization of deferred financing costs on Term
Loans......................................................... (1,080) (540)
-------- -------
$ 13,080 $ 6,540
======== =======
</TABLE>
(11) PFS sales are reported net of $5,694 and $4,957, for the fiscal year 1996
and the six months ended June 28, 1997, respectively, as a result of profit
limitation agreements with Pizza Hut, Inc. and its franchisees. Such profit
limitation agreements continue after the Transactions Closing.
P-8
<PAGE> 95
INDEX TO HISTORICAL FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
NEBCO EVANS HOLDING COMPANY
Report of Ernst & Young LLP, Independent Auditors.................................. F-2
Consolidated Balance Sheets as of December 30, 1995 and December 28, 1996, and as
of June 28, 1997 (unaudited).................................................... F-3
Consolidated Statements of Income for each of the three fiscal years in the period
ended December 28, 1996, and for the six month periods ended June 29, 1996 and
June 28, 1997 (unaudited)....................................................... F-4
Consolidated Statements of Stockholder's Equity for each of the three fiscal years
in the period ended December 28, 1996, and for the six month period ended June
28, 1997 (unaudited)............................................................ F-5
Consolidated Statements of Cash Flows for each of the three fiscal years in the
period ended December 28, 1996, and for the six month periods ended June 29,
1996 and June 28, 1997 (unaudited).............................................. F-6
Notes to Consolidated Financial Statements......................................... F-7
PFS
Report of KPMG Peat Marwick LLP, Independent Auditors.............................. F-19
Balance Sheets as of December 27, 1995 and December 25, 1996, and as of June 11,
1997 (unaudited)................................................................ F-20
Statements of Income for each of the years in the three year period ended December
25, 1996, and for the six month periods ended June 12, 1996 and June 11, 1997
(unaudited)..................................................................... F-21
Statements of Divisional Equity for each of the years in the three year period
ended December 25, 1996, and for the six month period ended June 11, 1997
(unaudited)..................................................................... F-22
Statements of Cash Flows for each of the years in the three year period ended
December 25, 1996, and for the six month periods ended June 12, 1996 and
June 11, 1997 (unaudited)....................................................... F-23
Notes to Financial Statements...................................................... F-24
AMERISERV FOOD COMPANY
Report of Ernst & Young LLP, Independent Auditors.................................. F-29
Consolidated Statements of Operations for each of the two fiscal years in the
period ended December 30, 1995.................................................. F-30
Consolidated Statements of Stockholders' Equity (Deficit) for each of the two
fiscal years in the period ended December 30, 1995.............................. F-31
Consolidated Statements of Cash Flows for each of the two fiscal years in the
period ended December 30, 1995.................................................. F-32
Notes to Consolidated Financial Statements......................................... F-33
</TABLE>
F-1
<PAGE> 96
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
Nebco Evans Holding Company
We have audited the accompanying consolidated balance sheets of Nebco Evans
Holding Company (the Company) as of December 30, 1995 and December 28, 1996, and
the related consolidated statements of income, stockholder's equity and cash
flows for each of the three years in the period ended December 28, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of the Company at
December 30, 1995 and December 28, 1996, and consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 28, 1996 in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Milwaukee, Wisconsin
August 6, 1997
F-2
<PAGE> 97
NEBCO EVANS HOLDING COMPANY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28, JUNE 28,
1995 1996 1997
------------ ------------ ----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash.................................................... $ 575 $ 2,224 $ 3,474
Accounts receivable, less allowance for doubtful
accounts of $1,170, $5,336 and $5,276,
respectively......................................... 25,127 80,474 424,579
Other receivables....................................... 2,234 4,104 5,363
Inventories............................................. 15,230 52,246 157,403
Due from Holberg........................................ 623 3,793 5,356
Prepaid expenses and other current assets............... 707 4,333 6,763
------- -------- --------
Total current assets............................ 44,496 147,174 602,938
Property and equipment, net............................... 6,912 35,772 125,657
Other assets:
Intangible assets, net.................................. 20,189 126,212 710,773
Note receivable from Holberg............................ 3,516 3,516 3,516
Other noncurrent assets................................. 2,390 2,272 3,628
------- -------- --------
$ 77,503 $314,946 $1,446,512
======= ======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current maturities of long-term debt.................... $ -- $ 3,389 $ 6,029
Accounts payable........................................ 32,751 98,700 304,506
Accrued liabilities..................................... 1,232 19,276 69,934
------- -------- --------
Total current liabilities....................... 33,983 121,365 380,469
Noncurrent liabilities.................................... 584 14,007 21,019
Note payable to PepsiCo, Inc.............................. -- -- 830,000
Long-term debt............................................ 32,779 136,196 173,059
Subordinated loans........................................ -- 24,859 27,174
Commitments
Stockholder's equity:
Senior preferred stock, $.01 par value; 600 shares
authorized and outstanding, $15,872 liquidation
value................................................ -- 15,000 15,000
8% Senior preferred stock, $.01 par value; 300 shares
authorized, 235 shares outstanding, $2,374
liquidation value.................................... -- 2,350 2,350
Preferred stock, $50,000 par value; 150 shares
authorized and outstanding at December 30, 1995...... 7,500 -- --
Preferred stock, $25,000 par value; 400 shares
authorized, 300 shares outstanding at December 30,
1995................................................. 7,500 -- --
Common stock, $10 par value; 2,000 shares authorized,
600 shares outstanding at December 30, 1995.......... 6 -- --
Class A voting common stock, $.01 par value; 30,000
shares authorized, 6,508 shares outstanding.......... -- -- --
Class B nonvoting common stock, $.01 par value; 20,000
shares authorized, 1,733 shares outstanding.......... -- -- --
Additional paid-in capital.............................. -- 7,522 7,522
Accumulated deficit..................................... (4,849) (6,353) (10,081)
------- -------- --------
Total stockholder's equity...................... 10,157 18,519 14,791
------- -------- --------
$ 77,503 $314,946 $1,446,512
======= ======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE> 98
NEBCO EVANS HOLDING COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
------------------------------------------ -----------------------
DECEMBER 31, DECEMBER 30, DECEMBER 28, JUNE 29, JUNE 28,
1994 1995 1996 1996 1997
------------ ------------ ------------ --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales............................ $358,516 $400,017 $1,389,601 $ 636,167 $ 802,900
Cost of goods sold................... 320,602 359,046 1,249,135 571,753 723,889
-------- -------- ---------- -------- --------
Gross profit......................... 37,914 40,971 140,466 64,414 79,011
Distribution, selling and
administrative expenses............ 34,488 36,695 122,430 57,914 73,085
-------- -------- ---------- -------- --------
Operating income..................... 3,426 4,276 18,036 6,500 5,926
Other income (expense):
Interest expense................... (3,294) (3,936) (16,423) (7,694) (10,520)
Interest income -- Holberg and
affiliate....................... 533 749 528 215 237
Minority interest.................. -- -- (2,345) 100 --
-------- -------- ---------- -------- --------
(2,761) (3,187) (18,240) (7,379) (10,283)
-------- -------- ---------- -------- --------
Income (loss) before income taxes.... 665 1,089 (204) (879) (4,357)
Provision (credit) for income
taxes.............................. 523 583 1,300 340 (629)
-------- -------- ---------- -------- --------
Net income (loss).................... $ 142 $ 506 $ (1,504) $ (1,219) $ (3,728)
======== ======== ========== ======== ========
</TABLE>
See accompanying notes.
F-4
<PAGE> 99
NEBCO EVANS HOLDING COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SENIOR SENIOR
PREFERRED PREFERRED PREFERRED PREFERRED ADDITIONAL
STOCK, STOCK, STOCK, STOCK, COMMON PAID-IN ACCUMULATED
$25,000 SERIES $10,000 SERIES $50,000 SERIES $25,000 SERIES STOCK CAPITAL DEFICIT TOTAL
-------------- -------------- -------------- -------------- ------ ---------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January
2, 1994........ $ -- $ -- $ 7,500 $ 5,000 $ 6 $ 5,068 $ (2,795) $14,779
Issuance of 100
shares of
preferred
stock........ -- -- -- 2,500 -- -- -- 2,500
Dividends on
preferred
stock........ -- -- -- -- -- (1,200) -- (1,200)
Contribution of
capital...... -- -- -- -- -- 984 -- 984
Net income..... -- -- -- -- -- -- 142 142
------- ------ ------- ------- --- ------- -------- -------
Balance, December
31, 1994....... -- -- 7,500 7,500 6 4,852 (2,653) 17,205
Dividends:
Preferred
stock...... -- -- -- -- -- -- (2,494) (2,494)
Common
stock...... -- -- -- -- -- (6,086) (208) (6,294)
Contribution of
capital...... -- -- -- -- -- 1,234 -- 1,234
Net income..... -- -- -- -- -- -- 506 506
------- ------ ------- ------- --- ------- -------- -------
Balance, December
30, 1995....... -- -- 7,500 7,500 6 -- (4,849) 10,157
Formation of
NEHC......... 15,000 -- (7,500) (7,500) (6) 6 -- --
Issuance of 235
shares of
preferred
stock........ -- 2,350 -- -- -- -- -- 2,350
Issuance of
common stock
warrants..... -- -- -- -- -- 7,516 -- 7,516
Net loss....... -- -- -- -- -- -- (1,504) (1,504)
------- ------ ------- ------- --- ------- -------- -------
Balance, December
28, 1996....... 15,000 2,350 -- -- -- 7,522 (6,353) 18,519
Net loss
(unaudited)... -- -- -- -- -- -- (3,728) (3,728)
------- ------ ------- ------- --- ------- -------- -------
Balance, June 28,
1997
(unaudited).... $ 15,000 $2,350 $ -- $ -- $ -- $ 7,522 $ (10,081) $14,791
======= ====== ======= ======= === ======= ======== =======
</TABLE>
See accompanying notes.
F-5
<PAGE> 100
NEBCO EVANS HOLDING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
------------------------------------------ ----------------------
DECEMBER 31, DECEMBER 30, DECEMBER 28, JUNE 29, JUNE 28,
1994 1995 1996 1996 1997
------------ ------------ ------------ --------- ----------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)..................................... $ 142 $ 506 $ (1,504) $ (1,219) $ (3,728)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of property and
equipment......................................... 1,786 1,463 5,523 2,255 4,406
Amortization of intangible assets................... 1,498 1,299 4,849 2,120 2,385
Deferred income taxes............................... (465) 48 -- -- --
Contribution of capital............................. 984 1,234 -- -- --
Other............................................... 83 131 -- -- --
Minority interest in subsidiary..................... -- -- 2,345 (100) --
Gain on sale of property............................ -- -- (4,652) -- --
Interest accreted on subordinated loans............. -- -- 4,193 1,898 2,428
Changes in assets and liabilities, net of effect of
businesses acquired:
Accounts receivable............................... (3,567) (1,645) (5,510) (13,937) (20,356)
Other receivables................................. (69) (645) (350) (215) (1,844)
Inventories....................................... 237 (5) (5,657) (11,982) (19,047)
Prepaid expenses and other assets................. (261) (2,425) 1,173 (200) 352
Accounts payable.................................. 2,831 5,035 7,030 23,619 33,337
Accrued liabilities............................... 1,077 (393) (7,083) 1,052 3,827
Noncurrent liabilities............................ -- -- 1,669 (6,961) (22,888)
Other............................................. -- (98) 2,125 1,903 7,337
------- ------- -------- -------- --------
Net cash provided by (used in) operating activities... 4,276 4,505 4,151 (1,767) (13,791)
------- ------- -------- -------- --------
INVESTING ACTIVITIES
Businesses acquired, net of cash acquired............. -- -- (96,765) (94,411) --
Expenditures for property and equipment............... (1,331) (2,496) (12,701) (2,821) (6,737)
Proceeds from disposals of property and equipment..... 14 22 9,699 -- --
Amounts received from Holberg......................... 6,432 28,969 11,121 4,616 14,315
Amounts paid to Holberg............................... (7,797) (30,659) (14,291) (6,201) (15,878)
Net increase in deposits with affiliates.............. (2,720) (315) (2,480) (1,880) (1,150)
Expenditures for intangible and other assets.......... (20) (1,095) -- -- --
------- ------- -------- -------- --------
Net cash used in investing activities................. (5,422) (5,574) (105,417) (100,697) (9,450)
------- ------- -------- -------- --------
FINANCING ACTIVITIES
Proceeds from issuance of subordinated loans.......... -- -- 22,484 22,484 --
Proceeds from issuance of warrants.................... -- -- 7,516 7,516 --
Proceeds from issuance of preferred stock............. 2,500 -- -- -- --
Net increase in borrowings under revolving line of
credit.............................................. 15 4,635 116,708 116,106 25,523
Repayments of long-term debt.......................... (2,025) (4,016) (43,793) (42,860) (1,032)
------- ------- -------- -------- --------
Net cash provided by financing activities............. 490 619 102,915 103,246 24,491
------- ------- -------- -------- --------
Net increase (decrease) in cash....................... (656) (450) 1,649 782 1,250
Cash at beginning of period........................... 1,681 1,025 575 575 2,224
------- ------- -------- -------- --------
Cash at end of period................................. $ 1,025 $ 575 $ 2,224 $ 1,357 $ 3,474
======= ======= ======== ======== ========
Supplemental cash flow information:
Cash paid during the period for:
Interest.......................................... $ 3,100 $ 3,622 $ 10,683 $ 5,239 $ 7,933
Income taxes, net of refunds...................... 406 332 1,256 733 2,443
Businesses acquired:
Fair value of assets acquired..................... $ -- $ -- $ 210,357 $187,907 $1,069,117
Cash paid/note payable issued..................... -- -- (96,765) (94,411) (830,000)
------- ------- -------- -------- --------
Liabilities assumed............................... $ -- $ -- $ 113,592 $ 93,496 $ 23,917
======= ======= ======== ======== ========
Supplemental noncash investing and financing
activities:
Payment of dividends to reduce deposits and advances
with Holberg and affiliate........................ $ 1,200 $ 8,788 $ -- $ -- $ --
Property and equipment purchased with capital leases
(included in long-term debt)...................... -- -- 13,363 3,112 15,012
</TABLE>
See accompanying notes.
F-6
<PAGE> 101
NEBCO EVANS HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 28, 1996
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Nebco Evans Holding Company (NEHC) was formed on January 25, 1996 as a
result of NEBCO EVANS Distributors, Inc. (NEDI) contributing all of its common
and preferred stock in NEBCO EVANS Distribution, Inc. to NEHC. NEDI was created
as a result of the shareholders of NEBCO EVANS Distribution, Inc. contributing
all their ownership interest to NEDI during December 1995.
Nature of Operations
NEHC has two subsidiaries: AmeriServe Food Distribution, Inc. (AmeriServe)
(formerly known as NEBCO EVANS Distribution, Inc.) (100% owned) and Harry H.
Post, Inc. (Post) (93.6% owned) (collectively, the Company). The Company,
through its subsidiaries, is a system foodservice distributor specializing in
distribution to chain restaurants. The Company distributes a wide variety of
items, including fresh and frozen meat and poultry, frozen foods, canned and dry
goods, fresh and pre-processed produce, beverages, dairy products, paper goods,
cleaning and other supplies and small equipment.
The majority of revenues arise from sales to franchisees and/or franchisers
of several national limited-menu restaurant concepts. One customer represented
approximately 10% of consolidated net sales for the year ended December 28,
1996. The Company's accounts receivable generally are unsecured.
The Company is a wholly owned subsidiary of NEDI, which is a majority owned
subsidiary (92.9%) of Holberg Industries, Inc. (Holberg). Holberg Industries,
Inc., is a diversified service company with subsidiaries operating within the
food distribution and parking services industries in North America.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany accounts and transactions
have been eliminated in consolidation.
Fiscal Year
The Company has elected a 52-53-week fiscal year ending on the Saturday
nearest to December 31. The fiscal years ended December 31, 1994 (fiscal 1994),
December 30, 1995 (fiscal 1995) and December 28, 1996 (fiscal 1996) are 52-week
periods.
Inventories
Inventories, which consist of purchased goods held for sale, are stated at
the lower of cost (determined on a first-in, first-out basis) or market.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed over
the estimated useful lives of the assets, using either the straight-line or
double-declining balance method. Amortization of leasehold improvements is
recorded over the respective lease terms or useful lives of the assets,
whichever is shorter.
F-7
<PAGE> 102
NEBCO EVANS HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Amortization of assets under capital leases is included in depreciation expense.
Useful lives for amortization and depreciation calculations are as follows:
<TABLE>
<CAPTION>
DESCRIPTION LIFE
-------------------------------------------------------------- -------------
<S> <C>
Buildings and improvements.................................... 5 -- 40 years
Delivery and automotive equipment............................. 3 -- 9 years
Warehouse equipment........................................... 5 -- 12 years
Furniture, fixtures and equipment............................. 5 -- 10 years
</TABLE>
During 1995, the Company completed a review of the estimated useful lives
of its property and equipment. The Company determined that, as a result of
preventative maintenance programs and improved product quality, actual useful
lives for certain assets were generally longer than the useful lives originally
estimated. Therefore, the Company extended the estimated useful lives of certain
categories of equipment, effective January 1, 1995. The effect of this change in
estimate reduced depreciation expense for the year ended December 30, 1995 by
$514,000 and increased net income by $308,000.
Goodwill and Other Intangibles
Costs in excess of the net identifiable assets of businesses acquired are
amortized on a straight line basis over periods not to exceed 40 years. Customer
lists and other intangible assets acquired in business acquisitions, deferred
financing costs and other intangibles are being amortized using primarily the
straight-line method over their respective estimated useful lives, which
generally range from 3 to 40 years. The Company periodically reviews the
carrying value of goodwill and other intangibles to assess recoverability and
other than temporary impairments by comparing the estimated future undiscounted
cash flows associated with the asset to the asset's carrying amount.
Group Insurance
The Company participates in a self-insured group casualty risk program with
an affiliate, which determines the insurance expenses to be allocated to the
Company. The Company accrues for incurred but not yet reported or settled
claims.
Revenue Recognition
Revenue from the sale of the Company's products is recognized upon shipment
to the customer.
Income Taxes and Tax Sharing Agreement
The Company is part of a consolidated group for income tax purposes and,
accordingly, has a tax-sharing agreement with Holberg which requires the Company
to make tax sharing payments to Holberg for those entities within the Company's
consolidated subgroup that have taxable income. Income taxes have been provided
as if the Company were a separate taxpayer.
Deferred income tax assets or liabilities are recognized for the estimated
future tax effects attributable to temporary differences, including operating
loss carryforwards. The currently enacted statutory rate is used to estimate
differences between the financial statement and income tax bases of inventories,
property and equipment, intangible assets, certain accrued liabilities and
allowances and net operating losses. Because of the Company's prior operating
losses in certain of the Company's taxable entities, a valuation allowance has
been established to offset the entire amount of the net deferred tax assets.
F-8
<PAGE> 103
NEBCO EVANS HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Fair Value Information
The Company believes the carrying value of its financial instruments
(notes, accounts and other receivables, accounts payable and long-term debt) are
a reasonable estimate of the fair value of these instruments. Related party
financial instruments are recorded at cost.
Reclassifications
Certain reclassifications have been made to the 1994 and 1995 financial
statements to conform to the 1996 presentation. In addition, the 1994 and 1995
financial statements have been restated to conform to the requirements of the
Securities and Exchange Commission Staff Accounting Bulletin Number 55 (SAB 55).
SAB 55 requires the historical financial statements of the Company to
reflect all of its costs of doing business. Accordingly, the financial
statements have been revised to include expenses incurred by Holberg or
affiliates on the Company's behalf. The expenses that have been included in the
Company's financial statements are described in Note 11.
Interim Financial Data
The unaudited consolidated balance sheet as of June 28, 1997, and the
related consolidated statements of income and cash flows for the six-month
periods ended June 29, 1996 and June 28, 1997 and the consolidated statement of
stockholder's equity for the six months ended June 28, 1997, have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and notes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting only of adjustments of a normal and
recurring nature) considered necessary for a fair presentation of the financial
position and results of operations have been included. Operating results for the
six-month period ended June 28, 1997, are not necessarily indicative of the
results that might be expected for the year ending January 3, 1998.
2. ACQUISITIONS AND DISPOSITIONS
On January 25, 1996, AmeriServe acquired the common and preferred stock of
AmeriServ Food Company (AmeriServ), a system foodservice distributor
specializing in distribution of food and supplies to chain restaurants. The
total cash outlay for the acquisition, including all direct costs, was $92.9
million. Of this amount, $44 million related to the retirement of all of
AmeriServ's existing bank debt and accrued interest, which occurred concurrently
with the closing of the purchase transaction. The transaction was financed
through the issuance of $22.5 million of subordinated notes and $7.5 million of
warrants by NEHC (see Note 6), as well as borrowings under a new Credit
Agreement.
The acquisition has been accounted for under the purchase method;
accordingly, its results are included in the consolidated financial statements
from the acquisition date. The purchase price was allocated based on the
estimated fair values of identifiable intangible and tangible assets acquired
and liabilities assumed at the acquisition date. The excess of the purchase
price over the net assets acquired was $85 million and has been recorded as
goodwill, which is being amortized on a straight-line basis over 40 years.
F-9
<PAGE> 104
NEBCO EVANS HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following unaudited pro forma results of operations for the years ended
December 30, 1995 and December 28, 1996 assume the acquisition of AmeriServ
occurred at the beginning of each fiscal year (in thousands):
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Net sales..................................................... $1,224,200 $1,445,000
Net loss...................................................... 7,134 3,400
</TABLE>
This pro forma information does not purport to be indicative of the results
that actually would have been obtained if the combined operations had been
conducted during the periods presented and is not intended to be a projection of
future results.
At the time of the acquisition, AmeriServe and AmeriServ held ownership
interests of 20% and 18%, respectively, in the outstanding common stock of
Chicago Consolidated Corporation (CCC). CCC operates redistribution facilities
that sell dry goods to independent wholesale distributors. In March 1996,
AmeriServe acquired 49% of CCC's outstanding common stock for $1.5 million in
cash, bringing the consolidated ownership interest in CCC to approximately 87%.
The acquisition has been accounted for under the purchase method. AmeriServe had
accounted for its original 20% investment in CCC under the cost method. The
operating results of CCC are not significant to the consolidated results of the
Company.
At the time of the acquisition, AmeriServ effectively owned approximately
50% of the outstanding common stock of Post. AmeriServ controlled the operations
of Post and accordingly, included the accounts of Post in its consolidated
financial statements. In November 1996, NEHC issued 235 shares of 8% senior
preferred stock, par value $0.01 per share, and $2,012,500 of cash to the
minority owner of Post and increased its ownership interest to 93.6%.
At the time of the acquisition, both AmeriServe and AmeriServ owned
minority interests in the common stock of Independent Distributors of America
(IDA), a nonprofit cooperative providing purchasing services to AmeriServe and
AmeriServ as well as other foodservice distributors. As a result of the
acquisition, on a consolidated basis, the Company owns 40% of the outstanding
stock of IDA and accounts for approximately 75% of IDA's purchasing activity.
IDA arranges large-quantity pricing from food and supply vendors on behalf of
its stockholders. As part of their cooperative function, IDA receives volume
rebates from vendors for purchases made by the stockholders of IDA. IDA remits
those rebates to its stockholders, net of administrative fees, in proportion to
each stockholder's purchases from each vendor. The investment in IDA is
accounted for using the equity method. Volume rebates received from IDA are
accounted for on the accrual basis. IDA volume rebates recognized by the Company
for the years ended December 31, 1994, December 30, 1995 and December 28, 1996
were $403, $488 and $1,761, respectively. The operating results of IDA are not
significant to the consolidated results of the Company.
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28,
1995 1996
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Land........................................................ $ -- $ 1,479
Buildings and improvements.................................. 2,379 10,115
Delivery and automotive equipment........................... 6,322 17,422
Warehouse equipment......................................... 2,604 4,803
Furniture, fixtures and equipment........................... 3,413 12,213
Construction in progress.................................... -- 2,412
------- -------
14,718 48,444
Less accumulated depreciation and amortization.............. 7,806 12,672
------- -------
$ 6,912 $35,772
======= =======
</TABLE>
F-10
<PAGE> 105
NEBCO EVANS HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28,
1995 1996
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Goodwill, less accumulated amortization of $2,823
and $5,341........................................ $17,187 $ 103,877
Customer lists, deferred financing costs and other
intangibles, less accumulated amortization of
$6,076 and $8,371................................. 3,002 22,335
------- --------
$20,189 $ 126,212
======= ========
</TABLE>
5. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28,
1995 1996
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Revolving credit facility under Bank Credit
Agreement......................................... $21,779 $ 77,374
Term loans under Credit Agreement................... 11,000 45,000
Other notes payable................................. -- 6,034
------- --------
32,779 128,408
Capital lease obligations (see Note 8).............. -- 11,177
------- --------
32,779 139,585
Less current maturities............................. -- 3,389
------- --------
$32,779 $ 136,196
======= ========
</TABLE>
The weighted average interest rates on the outstanding bank borrowings at
December 30, 1995 and December 28, 1996, were 8.61% and 7.99%, respectively.
AmeriServe paid Holberg a guarantee fee of $180,000, $180,000 and $14,000 in
1994, 1995 and 1996, respectively.
In January 1996, in connection with the AmeriServ acquisition (see Note 2),
AmeriServe refinanced its borrowings under a new Credit Agreement. The new
credit facility provided for borrowings of $25,000,000 and $20,000,000 under a
Term A and Term B loan, respectively, and up to $85,000,000 under a revolving
credit facility.
In March 1997, the Credit Agreement was amended. The Amended and Restated
Credit Agreement (Current Agreement), provides for borrowings of $20,000,000 and
$30,000,000 under a Term A and Term B loan, respectively. The amount available
under the revolving credit facility was increased to $100,000,000. Borrowings
under the revolving credit facility are limited to percentages of eligible
accounts receivable and inventories, as defined, and are reduced for letters of
credit outstanding ($8,536,000 outstanding at December 28, 1996). The revolving
credit facility expires on January 25, 2001. The term loans mature in annual
installments through 2002. In addition, mandatory prepayments are required based
on excess cash flow, as defined, and proceeds from sales of assets or issuances
of shares of equity.
Depending on leverage ratios, as defined in the Current Agreement, interest
on the revolving credit facility and the Term A loan is payable at LIBOR plus
.75% to 2.5% or an alternate reference rate plus 0% to 1.25% as selected by
AmeriServe. Interest on the Term B loan is payable at LIBOR plus 2.75% to 3.00%
or an alternate reference rate plus 1.5% to 1.75%, as selected by AmeriServe.
The alternate rate is the higher of the
F-11
<PAGE> 106
NEBCO EVANS HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
federal funds rate plus .50% and the prime rate, as defined. A commitment fee of
.25% to .50% is payable on the unutilized revolving line of credit.
Borrowings under the Current Agreement are collateralized by substantially
all the assets of AmeriServe. The Current Agreement contains various restrictive
covenants with respect to additional borrowings, acquisitions and dispositions
of assets, rental liabilities, dividends, transactions with affiliates and
certain financial ratios and requirements.
Other notes payable represent indebtedness assumed in the acquisition of
AmeriServ and consist primarily of subordinated term notes payable to former
stockholders of companies acquired by AmeriServ. These notes mature in 1999 and
bear interest ranging from 8.5% to 10.0%.
In February 1996, AmeriServe entered into an interest rate swap agreement
under which AmeriServe receives a variable rate on a notional amount of
$30,000,000 based on three-month LIBOR and pays a fixed rate of 5.05% through
March 1, 1999. In March 1996, AmeriServe entered into two additional interest
rate swap agreements under which AmeriServe receives a variable rate on a
notional amount of $30,000,000 based on three-month LIBOR and pays a fixed rate
of 5.995% through March 26, 1999. The swap agreements effectively change a
portion of AmeriServe's interest rate exposure from a floating rate to a fixed
rate. In August 1996, the Company entered into an interest rate cap agreement on
a notional amount of $5,000,000. The interest rate cap sets the maximum LIBOR
rate at 9% through August 1999. The initial cost of the interest rate cap
agreement is amortized over the term of the agreement. The counterparties to the
interest rate swap agreements are large financial institutions. Credit loss from
counterparty nonperformance is not anticipated. Net settlements are accrued over
the term of the swap agreements as an adjustment to interest expense.
Post has a revolving line of credit agreement with a financial institution
limited to the lesser of $12,650,000 or an amount based upon eligible
receivables and inventory, as defined. Amounts outstanding are secured by Post's
receivables, inventory, property and equipment and general intangibles. The
amount outstanding at December 31, 1996 under the revolving line of credit was
$8,274,000. Outstanding amounts on the revolving line of credit are due January
26, 1999 and bear interest at either 1.5% above the base rate, equal to the
higher of the prime rate or the latest published annualized rate on 90-day
dealer commercial paper, or 3.75% above the three or six month LIBOR rate, as
chosen by Post. The effective interest rate was 9.75% at December 28, 1996.
Amounts outstanding under the revolving line of credit have been excluded from
current liabilities at December 28, 1996 as Post intends that at least that
amount will remain outstanding during 1997.
Post is required to meet various financial and non-financial covenants
under the credit agreement, including capital expenditures, interest, fixed
charge, net worth, working capital ratio and EBITDA covenants.
In May 1997, the revolving line of credit agreement was amended whereby the
maximum commitment was increased from $12,650,000 to $20,000,000 and the LIBOR
rate option was decreased to 3.5% above the three or six month LIBOR rate.
F-12
<PAGE> 107
NEBCO EVANS HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Aggregate annual principal payments (excluding capital leases) required as
of December 28, 1996, are as follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDING
------------------------------------------------------------------
<S> <C>
1997.............................................................. $ 933
1998.............................................................. 7,968
1999.............................................................. 17,107
2000.............................................................. 6,450
2001.............................................................. 80,625
Thereafter........................................................ 15,325
--------
$128,408
========
</TABLE>
6. SUBORDINATED LOANS
In connection with the AmeriServ acquisition, NEHC received $30 million in
exchange for $22.5 million of 12.5% subordinated notes and warrants, valued at
$7.5 million, to purchase up to an aggregate of 1,389 shares of Class A common
stock and 370 shares of Class B common stock. The face value of the subordinated
notes is $30 million and the interest is accreted to increase the purchase price
of the notes to the stated principal. In addition, interest on the notes is paid
in kind by increasing the face amounts of the notes. The notes are due January
26, 2006 or upon an initial public offering of common stock, whichever comes
first. The warrants expire January 26, 2006.
7. STOCKHOLDERS' EQUITY
The authorized capital of NEHC consists of 600 shares of senior
nonconvertible preferred stock with a liquidation preference of $25,000 per
share and cumulative dividends at a rate of $1,563 per share; 300 shares of 8%
senior convertible, nonvoting preferred stock with a liquidation preference of
$10,000 per share and cumulative dividends at a rate of $800 per share; 30,000
shares of Class A voting common stock at a par value of $.01 per share; and
20,000 shares of Class B nonvoting common stock at a par value of $.01 per
share. Accumulated dividends in arrears at December 28, 1996 are $896,000.
In connection with the formation of NEHC on January 25, 1996, the Company
issued the Class A and Class B common stock and the senior preferred stock. The
8% senior preferred stock was issued in November 1996 to the minority owner of
Post to increase NEHC's ownership interest in Post (see Note 2). In connection
with the AmeriServ acquisition in January 1996 and the issuance of the
subordinated notes (see Note 6), NEHC issued warrants, valued at $7.5 million,
to purchase up to an aggregate of 1,389 shares of Class A common stock and 370
shares of Class B common stock.
8. LEASE COMMITMENTS
The Company has noncancelable commitments under both capital and long-term
operating leases, primarily for office and warehouse facilities, transportation
and office equipment. The leases often contain fixed escalation features,
purchase and renewal options and provisions for payment of certain expenses by
the Company. Rent expense was approximately $5,408,000, $5,709,000 and
$15,384,000 (including contingent rentals based on miles driven) for the years
ended December 31, 1994, December 30, 1995 and December 28, 1996, respectively.
The Company leases a warehouse and office facility in Waukesha, Wisconsin
from an affiliated partnership owned by certain former shareholders of an
acquired Company for approximately $810,000 per year through May 31, 2008.
F-13
<PAGE> 108
NEBCO EVANS HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On February 9, 1995, Holberg Warehouse Properties, Inc. (HWPI), an
affiliate of Holberg, exercised AmeriServe's option to purchase a leased
warehouse and office facility in Omaha, Nebraska. AmeriServe will lease the
facility from HWPI for a fixed term of 13 years. Under the terms of the lease,
rent is $500,000 for the first 5-year period of the lease, and includes fixed
escalation provisions for the 8 years thereafter. The lease contains no renewal
or purchase options and AmeriServe is responsible for all facility expenses. In
connection with the lease, AmeriServe paid HWPI a security deposit of $750,000,
which is included in other noncurrent assets in the accompanying consolidated
balance sheets.
Property and equipment include the following amounts under capital leases
at December 28, 1996 (in thousands):
<TABLE>
<S> <C>
Delivery and automotive equipment.................................. $ 9,876
Furniture, fixtures and equipment.................................. 3,487
-------
13,363
Less accumulated amortization...................................... 1,831
-------
Property and equipment under capital leases, net................... $11,532
=======
</TABLE>
The following is a schedule of aggregate future minimum lease payments
(excluding contingent rentals) required under terms of the aforementioned leases
at December 28, 1996 (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
FISCAL YEAR ENDING LEASES LEASES
---------------------------------------------------------------- ------- ---------
<S> <C> <C>
1997............................................................ $ 3,764 $ 9,873
1998............................................................ 2,815 10,326
1999............................................................ 2,481 10,316
2000............................................................ 2,073 9,098
2001............................................................ 1,663 8,070
Thereafter...................................................... 3,683 69,724
------- --------
Total........................................................... 16,479 $ 117,407
========
Less amount representing interest............................... 5,302
-------
Present value of net minimum lease commitments.................. $11,177
=======
</TABLE>
9. INCOME TAXES
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------------
DECEMBER 31, DECEMBER 30, DECEMBER 28,
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Current:
Federal..................................... $ 908 $437 $1,100
State....................................... 80 98 200
------ ------ ------
988 535 1,300
Deferred...................................... (465) 48 --
------ ------ ------
$ 523 $583 $1,300
====== ====== ======
</TABLE>
F-14
<PAGE> 109
NEBCO EVANS HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The provision for income taxes differs from the amount computed by applying
the federal statutory rate of 34% to income (loss) before income taxes, as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------------
DECEMBER 31, DECEMBER 30, DECEMBER 28,
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Provision (credit) at statutory rate.......... $226 $370 $ (69)
State income taxes, net of federal tax
benefit..................................... 53 66 129
Nondeductible goodwill........................ 167 167 758
Other, net.................................... 77 (20) 482
------ ----- - ------
Provision for income taxes.................... $523 $583 $1,300
====== ====== ======
</TABLE>
The components of the Company's deferred income tax assets and liabilities
are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28,
1995 1996
------------ ------------
<S> <C> <C>
Deferred income tax liabilities:
Property and equipment................................... $ 380 $ 369
Intangible assets other than nondeductible goodwill...... 582 8,499
Other.................................................... 38 --
------ --------
Total deferred tax liabilities................... 1,000 8,868
Deferred income tax assets:
Allowances and reserves.................................. 682 3,516
Accrued liabilities...................................... 321 10,521
Federal net operating loss carryforwards................. -- 10,971
Other.................................................... 136 --
------ --------
1,139 25,008
Valuation allowance for deferred tax assets.............. (139) (16,140)
------ --------
Total deferred tax assets........................ 1,000 8,868
------ --------
Net deferred tax asset..................................... $ -- $ --
====== ========
</TABLE>
Under the Company's tax sharing agreement with Holberg, no current tax
benefit is provided for those entities within the Company with current operating
losses. As of December 28, 1996, the Company has net operating loss
carryforwards of $28,000,000, including $11,000,000 of losses incurred by
AmeriServ prior to its acquisition, which are subject to limitation under
Sections 382 and 1504 of the Internal Revenue Code. Under those Sections, after
a change of control, which occurred on January 25, 1996, with respect to
AmeriServ, no more than approximately $2,000,000 of operating loss carryforwards
incurred by AmeriServ prior to that date will be available annually and only to
the extent of future separate taxable income of AmeriServ during the permitted
carryover period.
The $11,000,000 separate return net operating loss carryforwards of
AmeriServ will expire in 2007 to 2010. The $17,000,000 balance of net operating
loss carryforwards of the Company will expire in 2011. As of its acquisition by
the Company, AmeriServ had net operating losses and other deferred tax benefits
(the Acquired Tax Attributes) of $46,000,000, which was entirely offset by a
valuation reserve. Goodwill will be reduced to the extent of any tax benefit
realized from the Acquired Tax Attributes.
F-15
<PAGE> 110
NEBCO EVANS HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. BENEFIT PLANS
AmeriServe and its subsidiaries have four 401(k) retirement savings plans
covering substantially all union and nonunion employees under which eligible
participants may elect to contribute a specified percentage of their earnings,
subject to certain limitations. AmeriServe matches the contributions of
participating employees on the basis of percentages specified in the respective
plans. At its discretion, AmeriServe may also elect to make a profit-sharing
contribution to the nonunion plans. AmeriServe contributions charged to
operations under the plans was approximately $67,000, $109,000 and $515,000 for
the years ended December 31, 1994, December 30, 1995 and December 28, 1996,
respectively.
Post has developed a defined contribution plan under Section 401(k) of the
Internal Revenue Code utilizing the multiemployer 401(k) savings plan of
AmeriServe. Employees age twenty one or older are eligible to participate in the
plan. Post matches employee contributions quarterly, at the target rate of 50%
on the first 2% and 25% on the next 2% of employee contributions. Post
contributed $36,000 to the plan for the period from January 26, 1996 through
December 28, 1996.
11. OTHER RELATED-PARTY TRANSACTIONS
The current amounts due from/to Holberg represent interest-bearing advances
which are made in the normal course of business as part of the cash management
strategy of Holberg. The note receivable from Holberg bears interest at 5% and
is due January 1, 2007.
AmeriServe participates in a self-insured group casualty (including
workers' compensation and auto liability) risk program with an affiliate, which
determines the insurance expenses to be allocated to AmeriServe. In fiscal year
1994 and 1995, the affiliate paid $1,694,000 and $1,128,000 of AmeriServe's
casualty insurance expense, respectively. In addition, the affiliate paid
$378,000 of the health insurance expenses of AmeriServe in 1995. These payments
have been charged to operations and reflected as contributed capital in the
accompanying consolidated financial statements. In connection with the insurance
program, AmeriServe placed a deposit with an affiliate for insurance collateral
purposes of $2,480,000 as of December 28, 1996, which is included in prepaid
expenses and other current assets in the accompanying 1996 consolidated balance
sheet.
During 1995, distribution, selling and administrative expenses included
$554,000 for certain expenses, including salary, severance, relocation and
computer systems costs, which arose as a result of initiatives directed by
Holberg.
Interest income from Holberg and an affiliate of approximately $533,000,
$749,000 and $528,000 in fiscal 1994, 1995 and 1996, respectively, represents
interest on the advances and note receivable from Holberg and interest on the
insurance deposits with an affiliate, less the guarantee fee to Holberg.
12. SUBSEQUENT EVENT (UNAUDITED)
On May 23, 1997, NEHC entered into a definitive agreement to acquire, in an
asset purchase transaction, the U.S. and Canadian operations of the PFS division
of PepsiCo, Inc. for $830 million in cash, subject to adjustment, and assumption
of certain liabilities (the Acquisition). PFS is engaged in the distribution of
food products and supplies to franchised and company-owned restaurants in
PepsiCo, Inc.'s Pizza Hut, Taco Bell and KFC systems. PepsiCo has announced its
intentions to pursue a spin-off of its restaurant operations. The U.S. and
Canadian operations of PFS posted revenues of $3.4 billion for the fiscal year
ended December 28, 1996. The effective date of the Acquisition was June 11,
1997, the end of PFS's second quarter. The table
F-16
<PAGE> 111
NEBCO EVANS HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
below reflects the estimated current value of the net assets acquired from PFS
(the final purchase price allocation will be based upon a final determination of
the fair value of the net assets acquired) (in thousands):
<TABLE>
<S> <C>
Accounts receivable.............................. $ 323,750
Inventories...................................... 86,110
Property and equipment........................... 72,542
Goodwill......................................... 585,300
Other assets..................................... 1,415
Accounts payable................................. (172,502)
Accrued liabilities.............................. (46,615)
Restructuring reserves........................... (20,000)
--------
Note payable to PepsiCo, Inc. ................... $ 830,000
========
</TABLE>
The consolidated balance sheet of the Company as of June 28, 1997 includes
the current value of the net assets acquired from PFS as of June 11, 1997. The
restructuring reserves of $20,000,000 were included in the acquisition cost
allocation in connection with the Company's business plan to integrate the
operations of PFS. The reserves represent the accruals for costs to be incurred
by the Company related to the termination of redundant administrative and
operating employees ($4,000,000); lease termination costs in connection with the
closing of duplicative distribution centers and administrative facilities which
will not be used by the Company ($15,000,000) and certain other costs to exit
PFS activities ($1,000,000). It is anticipated that the integration activities
will be substantially completed during 1998. The final purchase price is subject
to a negotiated price adjustment for working capital. The operations of PFS for
the period from June 12, 1997 through June 28, 1997 will be included in the
third quarter results of operations of the Company.
In connection with the Acquisition, on July 11, 1997, NEHC (i) issued
$100,387,000 principal amount of 12 3/8% Senior Discount Notes due 2007 in a
Rule 144A private placement, and (ii) purchased Holberg's interest in HWPI.
Concurrently, AmeriServe (i) issued $500 million principal amount of 10 1/8%
Senior Subordinated Notes due 2007 in a Rule 144A private placement, (ii)
entered into a $355 million senior credit facility, (iii) entered into a $250
million accounts receivable program, whereby the Company transfers, on a daily
basis, all trade receivables generated by the Company to a wholly-owned, special
purpose bankruptcy-remote subsidiary, (iv) received an equity contribution of
$130 million from NEHC, and (v) acquired the remaining 6.4% of the outstanding
common stock of Post from the minority stockholder and the capital stock of Post
was transferred to AmeriServe from NEHC, and (vi) paid in full the $830 million
note payable to PepsiCo, Inc. In addition, on October 15, 1997 AmeriServe issued
$350 million principal amount of 8 7/8% Senior Notes due 2006 in a Rule 144A
private placement. The Company used the proceeds to repay term loans of $205
million outstanding under the senior credit facility, to pay expenses of the
offering and to provide additional working capital of approximately $134
million.
The following unaudited pro forma results of operations for the year ended
December 28, 1996 and the six months ended June 29, 1996 and June 28, 1997,
respectively, assume the acquisition of PFS and the related transactions
discussed above occurred at the beginning of each period presented (in
thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
------------------------
YEAR ENDED JUNE 29, JUNE 28,
1996 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Net sales............................... $4,875,479 $2,244,001 $2,301,495
Net loss................................ (7,856) (9,426) (8,300)
</TABLE>
This pro forma information does not purport to be indicative of the results
that actually would have been obtained if the combined operations had been
conducted during the periods presented and is not intended to be a projection of
future results.
F-17
<PAGE> 112
NEBCO EVANS HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. SUBSIDIARY GUARANTORS
AmeriServe's subsidiaries fully, unconditionally, jointly and severally
guarantee the notes issued in the AmeriServe private placements discussed in
Note 12. The guarantor subsidiaries are direct or indirect wholly owned
subsidiaries of AmeriServe, and AmeriServe and the guarantor subsidiaries
conduct substantially all of the operations of AmeriServe and its subsidiaries
on a consolidated basis. Separate financial statements of the guarantor
subsidiaries are not separately presented because, in the opinion of management,
such financial statements are not material to investors.
The following is summarized combined financial information (in accordance
with Rule 1-02(bb) of Regulation S-X) for the guarantor subsidiaries of
AmeriServe (in thousands):
<TABLE>
<CAPTION>
DECEMBER 28, JUNE 29, JUNE 28,
1996 1996 1997
------------ -------- --------
(UNAUDITED)
<S> <C> <C> <C>
Current assets......................... $ 63,910 $ 78,232 $ 80,527
Current liabilities.................... 78,961 94,159 92,807
Non current assets..................... 31,772 33,695 37,357
Non current liabilities................ 5,495 14,272 7,740
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-----------------------
YEAR ENDED JUNE 29, JUNE 28,
1996 1996 1997
---------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
Net sales................................ $820,882 $364,981 $468,445
Gross profit............................. 90,175 36,941 45,478
Net income (loss)........................ 956 127 (452)
</TABLE>
Summarized combined financial information for the years ended December 31,
1994 and December 30, 1995 are not presented because there were no guarantor or
non-guarantor subsidiaries of AmeriServe in those periods.
On July 11, 1997 AmeriServe established an unconsolidated special purpose
bankruptcy-remote subsidiary which purchases on a revolving basis substantially
all trade receivables generated by AmeriServe. The subsidiary is not a guarantor
of the notes issued in either of the AmeriServe private placements described in
Note 12. AmeriServe sold trade receivables of approximately $380 million to this
non-guarantor subsidiary on July 11, 1997.
F-18
<PAGE> 113
REPORT OF KPMG PEAT MARWICK LLP, INDEPENDENT AUDITORS
The Management of PFS
(A Division of PepsiCo, Inc. Held for Sale):
We have audited the accompanying balance sheets of PFS (A Division of
PepsiCo, Inc. Held for Sale) as of December 27, 1995 and December 25, 1996, and
the related statements of income, divisional equity, and cash flows for each of
the years in the three-year period ended December 25, 1996. These financial
statements are the responsibility of the management of PFS. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 PFS as of December 27, 1995
and December 25, 1996, and the results of its operations and its cash flows for
each of the years in the three-year period ended December 25, 1996, in
conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Dallas, Texas
April 18, 1997
F-19
<PAGE> 114
PFS (A DIVISION OF PEPSICO, INC. HELD FOR SALE)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 27, DECEMBER 25, JUNE 11,
1995 1996 1997
------------ ------------ ---------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash.................................................. $ 203 $ 1,625 $ 32
Receivables:
Franchisees and licensees, net of allowance for
doubtful accounts of $11,941 in 1995 and $7,733 in
1996............................................... 115,004 117,729 132,679
Affiliates............................................ 206,658 162,485 191,006
Inventories........................................... 101,767 94,418 86,068
Prepaid expenses and other current assets............. 1,877 4,690 5,915
Deferred income taxes (note 7)........................ 10,105 10,629 9,975
-------- -------- --------
Total current assets............................... 435,614 391,576 425,675
Property and equipment, net (notes 3 and 6)............. 80,351 87,017 82,460
Other assets............................................ 323 328 320
-------- -------- --------
$516,288 $478,921 $ 508,455
======== ======== ========
LIABILITIES AND DIVISIONAL EQUITY
Current liabilities:
Accounts payable -- trade............................. $196,695 $170,611 $ 200,026
Accrued liabilities (note 7).......................... 79,512 79,728 71,395
Advances from Parent and affiliates, net (note 4)..... 122,957 108,257 125,282
-------- -------- --------
Total current liabilities.......................... 399,164 358,596 396,703
Other liabilities and deferred credits (notes 6 and
9).................................................... 23,449 22,400 20,568
Deferred income taxes (note 7).......................... 5,096 4,520 3,545
Divisional equity (note 4).............................. 88,579 93,405 87,639
Commitments (note 6)....................................
-------- -------- --------
$516,288 $478,921 $ 508,455
======== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-20
<PAGE> 115
PFS
(A DIVISION OF PEPSICO, INC. HELD FOR SALE)
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED TWENTY-FOUR WEEKS ENDED
------------------------------------------ -----------------------
DECEMBER 28, DECEMBER 27, DECEMBER 25, JUNE 12, JUNE 11,
1994 1995 1996 1996 1997
------------ ------------ ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
(53 WEEKS) (52 WEEKS) (52 WEEKS) (UNAUDITED)
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Sales:
Affiliates (note 4)............... $2,378,963 $2,463,464 $2,292,423 $1,058,666 $ 957,528
Franchisees and licensees......... 905,874 999,988 1,136,201 497,003 544,425
---------- ---------- ---------- -------- --------
3,284,837 3,463,452 3,428,624 1,555,669 1,501,953
Less discounts and allowances..... 5,000 4,508 6,538 3,194 3,608
---------- ---------- ---------- -------- --------
Net sales...................... 3,279,837 3,458,944 3,422,086 1,552,475 1,498,345
---------- ---------- ---------- -------- --------
Costs and expenses:
Cost of sales and operating....... 3,155,422 3,331,866 3,297,381 1,498,587 1,443,274
General and administrative (notes
4, 6 and 8).................... 37,515 47,606 44,962 21,564 20,330
---------- ---------- ---------- -------- --------
3,192,937 3,379,472 3,342,343 1,520,151 1,463,604
---------- ---------- ---------- -------- --------
Income from operations......... 86,900 79,472 79,743 32,324 34,741
Interest expense to Parent (note
4)................................ 12,934 17,613 15,566 7,102 8,041
---------- ---------- ---------- -------- --------
Income before income taxes..... 73,966 61,859 64,177 25,222 26,700
Provision for income taxes (note
7)................................ 28,874 23,844 24,597 9,928 9,924
---------- ---------- ---------- -------- --------
Net income..................... $ 45,092 $ 38,015 $ 39,580 $ 15,294 $ 16,776
========== ========== ========== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-21
<PAGE> 116
PFS
(A DIVISION OF PEPSICO, INC. HELD FOR SALE)
STATEMENTS OF DIVISIONAL EQUITY
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
Divisional equity at December 29, 1993......................................... $100,146
Transfers to Advances from Parent and affiliates, net (note 4)................. (59,531)
Net income..................................................................... 45,092
--------
Divisional equity at December 28, 1994......................................... 85,707
Transfers to Advances from Parent and affiliates, net (note 4)................. (35,143)
Net income..................................................................... 38,015
--------
Divisional equity at December 27, 1995......................................... 88,579
Transfers to Advances from Parent and affiliates, net (note 4)................. (34,754)
Net income..................................................................... 39,580
--------
Divisional equity at December 25, 1996......................................... 93,405
Transfers to Advances from Parent and affiliates, net (note 4) (unaudited)..... (22,542)
Net income (unaudited)......................................................... 16,776
--------
Divisional equity at June 11, 1997 (unaudited)................................. $ 87,639
========
</TABLE>
See accompanying notes to financial statements.
F-22
<PAGE> 117
PFS
(A DIVISION OF PEPSICO, INC. HELD FOR SALE)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
TWENTY-FOUR WEEKS
YEARS ENDED ENDED
-------------------------------------------- --------------------
DECEMBER 28, DECEMBER 27, DECEMBER 25, JUNE 12, JUNE 11,
1994 1995 1996 1996 1997
------------ ------------ ------------ -------- --------
<S> <C> <C> <C> <C> <C>
(53 WEEKS) (52 WEEKS) (52 WEEKS) (UNAUDITED)
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash flows -- operating activities:
Net income....................... $ 45,092 $ 38,015 $ 39,580 $ 15,294 $ 16,776
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and
amortization................ 17,053 18,764 19,830 8,819 8,814
Loss on sale of property and
equipment................... 1,788 2,324 1,065 72 (209)
Deferred income taxes......... (6,800) (3,075) (1,100) (274) (321)
Change in assets and
liabilities:
Receivables................. (22,614) (22,051) 41,448 (6,769) (43,471)
Inventories................. 4,839 (5,046) 7,349 8,429 8,350
Accounts payable............ 9,524 (2,347) (26,084) (8,519) 29,415
Accrued liabilities......... 13,105 (4,672) 216 (11,278) (8,333)
Other....................... 2,730 7,668 (3,867) (4,877) (3,049)
-------- -------- -------- -------- --------
Net cash provided by
operating activities... 64,717 29,580 78,437 897 7,972
-------- -------- -------- -------- --------
Cash flows -- investing activities:
Additions to property and
equipment..................... (21,310) (25,245) (28,771) (14,214) (12,291)
Transfers of property and
equipment to affiliates....... -- -- -- -- 7,338
Proceeds from sale of property
and equipment................. 1,047 857 1,210 1,032 905
-------- -------- -------- -------- --------
Net cash used for
investing activities... (20,263) (24,388) (27,561) (13,182) (4,048)
-------- -------- -------- -------- --------
Cash flows -- financing activities
-- (repayment of)/ additions to
advances from Parent and
affiliates, net.................. (44,360) (5,163) (49,454) 12,661 (5,517)
-------- -------- -------- -------- --------
Net increase (decrease) in cash.... 94 29 1,422 376 (1,593)
Cash at beginning of period........ 80 174 203 203 1,625
-------- -------- -------- -------- --------
Cash at end of period.............. $ 174 $ 203 $ 1,625 $ 579 $ 32
======== ======== ======== ======== ========
</TABLE>
During 1994, 1995, and 1996 PFS made the following transfers to Parent
through the intercompany account:
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
State income tax.............................. $ 4,135 $ 3,808 $ 3,475
======= ======= =======
Federal income tax............................ $18,876 $19,887 $18,800
======= ======= =======
Interest on advances.......................... $12,994 $17,613 $15,566
======= ======= =======
Divisional equity reclassifications........... $59,531 $35,143 $34,754
======= ======= =======
</TABLE>
See accompanying notes to financial statements.
F-23
<PAGE> 118
PFS
(A DIVISION OF PEPSICO, INC. HELD FOR SALE)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 27, 1995 AND DECEMBER 25, 1996
(IN THOUSANDS)
(1) GENERAL AND BASIS OF PRESENTATION
PFS (A Division of PepsiCo, Inc. Held for Sale) ("PFS") operates as a
division of PepsiCo, Inc. ("Parent") and has no separate legal status or
existence. In January 1997, the Parent announced its intent to spin off its
restaurant business. Concurrent with this announcement, the Parent also
announced that it would explore the possible sale of PFS. The accompanying
financial statements present the business of PFS which is being held for sale.
Accordingly, they include only the assets, liabilities and results of operations
of the PFS business to be sold. The principal nature of this business is to
provide food, equipment, and supply items primarily to Taco Bell, Pizza Hut and
KFC restaurants, which restaurants are either owned or franchised by the Parent
in both the United States and Canada. The Division also has other transactions
with the Parent and affiliates of the Parent ("Affiliates") (notes 4, 5, 7, 8
and 9). PFS' fiscal year ends on the last Wednesday in December and, as a
result, a fifty-third week is added every five or six years. The fiscal year
ended December 28, 1994 consisted of 53 weeks.
The financial statements of the Company as of June 11, 1997 and for the
periods ended June 12, 1996 and June 11, 1997 are unaudited, but in the opinion
of management reflect all adjustments (consisting only of normal recurring
accruals) which are necessary for a fair statement of the results of the interim
periods presented. Results for interim periods are not necessarily indicative of
the results to be expected for a full year or for periods which have been
previously reported.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Inventories
Inventories are valued at the lower of cost, as determined by the first-in,
first-out ("FIFO") method, or net realizable value.
(b) Income Taxes
PFS is included in the consolidated federal income tax return of the
Parent. For financial reporting purposes, federal income taxes are computed on a
separate return basis. State income taxes are computed at a composite rate (6.3%
in 1994 and 5.8% in 1995 and 1996) based upon actual taxes incurred by the
Parent on behalf of the Division.
PFS accounts for income taxes using the asset and liability method. Under
the asset and liability method of accounting for income taxes, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
(c) Property and Equipment
Property and equipment are stated at cost less accumulated depreciation.
Depreciation and amortization are calculated on a straight-line basis over the
estimated useful lives of the assets, generally 3 to 10 years.
F-24
<PAGE> 119
PFS
(A DIVISION OF PEPSICO, INC. HELD FOR SALE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(d) Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(3) PROPERTY AND EQUIPMENT
Property and equipment at December 27, 1995 and December 25, 1996 is
summarized as follows:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Land................................................... $ 756 $ 756
Transportation equipment............................... 81,741 87,039
Warehouse and office equipment......................... 33,654 38,916
Buildings and leasehold improvements................... 38,490 46,651
Construction in progress............................... 2,656 2,937
Leased computer and material handling equipment........ 5,712 5,750
-------- --------
163,009 182,049
Less accumulated depreciation and amortization......... 82,658 95,032
-------- --------
$ 80,351 $ 87,017
======== ========
</TABLE>
(4) RELATED PARTY TRANSACTIONS
The Parent provides certain corporate general and administrative services
to PFS, including legal, treasury and benefits administration, among others. The
Company estimates the costs of these services to be approximately $1,100 based
on management's assessment of the relative benefit received from the Parent for
each of the years 1994, 1995 and 1996. The Company believes this method is
reasonable and inclusion of such costs would not have material impact on the
accompanying financial statements.
Transactions with the Parent include utilization of cash management
services under which net cash balances of PFS are transferred to or provided by
the Parent daily. In addition, the Parent provides payments under its incentive
compensation plans to certain key employees of PFS.
In 1994, 1995 and 1996, respectively, approximately 29%, 28% and 27% of the
gross sales of PFS were to restaurants owned by Pizza Hut, Inc., 31%, 31% and
28% of gross sales were to restaurants owned by Taco Bell Corp., and 13%, 11%
and 12% of gross sales were to restaurants owned by KFC Corporation.
PFS and the Parent have agreed to reclassify amounts between advances and
divisional equity in order to maintain a preestablished debt to equity ratio, as
defined, as part of the agreements between PFS and Pizza Hut, Inc. and its
franchisees.
Advances from Parent and Affiliates bear interest at the prime rate (8.25%
at December 25, 1996) and are not subject to stated repayment terms.
Accordingly, such advances are classified as current liabilities in the
accompanying balance sheets. The carrying amount of Advances from the Parent and
Affiliates at December 27, 1995 and December 25, 1996 approximates the fair
value since the borrowings bear interest at current market rates.
F-25
<PAGE> 120
PFS
(A DIVISION OF PEPSICO, INC. HELD FOR SALE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(5) PROFIT LIMITATION
"Gross profit" and "net pretax profit" on certain sales of PFS to Pizza Hut
restaurants, as defined in the agreements with Pizza Hut, Inc. and its
franchisees, are limited to amounts not to exceed 14% and 2.5% of sales,
respectively. Such limitations apply only to sales of food, paper products, and
similar restaurant supplies and exclude other nonfood items such as furnishings,
interior and exterior decor items, and equipment. As a result of the profit
limitation, sales are reported net of $3,039, $4,449 and $5,249 in 1994, 1995
and 1996, respectively, for distributions to Pizza Hut, Inc. and its
franchisees.
(6) LEASE COMMITMENTS
PFS occupies warehouse and office facilities under noncancellable operating
lease agreements expiring at various dates through 2006. Most of the leases
contain renewal options for periods ranging from one to five years, with rentals
generally equal to those stated for the initial term of the lease.
PFS also rents transportation equipment under operating leases which
provide for both short-term and long-term rentals.
Rental expense for the years ended December 28, 1994, December 27, 1995 and
December 25, 1996 is summarized as follows:
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Transportation equipment:
Fixed rentals............................... $ 336 $ 409 $ 442
Variable rentals............................ 2,173 1,776 1,059
Warehouse and office space.................... 8,110 8,531 10,252
Equipment..................................... 3,993 2,773 2,947
------- ------- -------
$14,612 $13,489 $14,700
======= ======= =======
</TABLE>
The future minimum rental commitments as of December 25, 1996 for all
noncancellable operating transportation, warehouse, office, and other equipment
leases are as follows:
<TABLE>
<S> <C>
1997............................................................. $10,783
1998............................................................. 9,493
1999............................................................. 8,110
2000............................................................. 6,986
2001............................................................. 7,020
Thereafter....................................................... 17,027
-------
$59,419
=======
</TABLE>
F-26
<PAGE> 121
PFS
(A DIVISION OF PEPSICO, INC. HELD FOR SALE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
PFS leases computer equipment and material handling equipment under capital
lease arrangements. The minimum lease payments as of December 25, 1996 for the
remainder of the lease periods are as follows:
<TABLE>
<S> <C>
1997................................................................ $692
1998................................................................ 118
-----
--
Total minimum lease payments........................................ 810
Less amount representing interest................................... 22
-----
--
Present value of net minimum lease payments......................... 788
Less current obligations............................................ 673
-----
--
Long-term obligations............................................... $115
=======
</TABLE>
Included in property and equipment as of December 25, 1996 are assets
recorded under capital leases as follows:
<TABLE>
<S> <C>
Computer and material handling equipment......................... $ 5,750
Less accumulated amortization.................................... 5,114
-------
$ 636
=======
</TABLE>
(7) INCOME TAXES
The provision for income taxes is comprised of the following:
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Current:
Federal..................................... $29,875 $24,227 $23,127
State....................................... 5,799 2,692 2,570
Deferred:
Federal..................................... (5,780) (2,639) (846)
State....................................... (1,020) (436) (254)
------- ------- -------
$28,874 $23,844 $24,597
======= ======= =======
</TABLE>
The differences between the statutory and effective federal income tax
rates are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Statutory federal rate........................ 35% 35% 35%
State income tax, net of federal benefit...... 4 4 4
-- -- --
Effective rate........................... 39% 39% 39%
== == ==
</TABLE>
Federal income taxes currently payable to the Parent of $35,714 at December
27, 1995 and $36,441 at December 25, 1996 are included in accrued liabilities in
the accompanying balance sheets.
The primary components of deferred taxes result from accelerated
depreciation methods, bad debt provisions and the deferral of certain expenses
related to postretirement benefits for tax purposes.
(8) RETIREMENT PLANS
PFS participates in two defined benefit noncontributory pension plans for
salaried and nonsalaried employees (the "Plans") which are administered directly
or indirectly by the Parent. Substantially all
F-27
<PAGE> 122
PFS
(A DIVISION OF PEPSICO, INC. HELD FOR SALE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
employees of the Division are covered by these Plans. PFS's participation is
accounted for as a multiemployer plan.
Generally, benefits for salaried and nonsalaried employees are based on
years of service and the employees' highest consecutive five-year average annual
earnings. The Parent funds the Plans in amounts not less than the minimum
statutory funding requirements nor more than the maximum amount which can be
deducted for federal income tax purposes by the Parent. The Plans' assets
consist principally of equity securities, government and corporate debt
securities, and other fixed income obligations. Capital stock of the Parent
accounted for approximately 24% and 22% of the total market value of the
domestic Parent sponsored Plans' assets for 1995 and 1996.
PFS was allocated pension expense of $1,211, $1,174 and $2,374 in 1994,
1995 and 1996, respectively.
(9) POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
PFS participates in a postretirement benefit plan administered by the
Parent. The plan provides postretirement health care and life insurance benefits
to eligible retired U.S. employees. Employees who have 10 years of service and
attain age 55 while in service with the Division are eligible to participate in
the postretirement benefit plan. The plan in effect through 1994 was largely
noncontributory and was not funded. PFS accrues the cost of postretirement
benefits over the years employees provide services to the date of their full
eligibility for such benefits.
Postretirement benefit expense amounted to $919, $481 and $1,047 in 1994,
1995 and 1996, respectively. The liability for postretirement benefits of $8,967
at December 25, 1995 and $9,962 at December 27, 1996 is included in other
liabilities and deferred credits in the accompanying balance sheets.
Effective in 1994, certain features of the plan were amended to expand
retiree cost-sharing provisions and limit the Division's share of future
increases in health care costs.
F-28
<PAGE> 123
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
AmeriServ Food Company
We have audited the accompanying consolidated statements of operations,
stockholders' equity, and cash flows of AmeriServ Food Company (the Company) for
the years ended December 31, 1994 and December 30, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated results of operations and cash flows
of the Company for the years ended December 31, 1994 and December 30, 1995, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Dallas, Texas
March 22, 1996
F-29
<PAGE> 124
AMERISERV FOOD COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------
DECEMBER 31, DECEMBER 30,
1994 1995
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Net sales.......................................................... $873,309 $939,096
Operating expenses:
Cost of sales, including delivery and warehouse expenses......... 841,408 907,597
Selling, general, and administrative............................. 19,314 20,209
Depreciation..................................................... 2,778 2,768
Amortization of goodwill and covenants not to compete............ 888 677
Losses of divested operations.................................... 313 --
-------- --------
Total operating expenses................................. 864,701 931,251
-------- --------
Income from operations............................................. 8,608 7,845
Other expense:
Interest expense................................................. 6,442 7,465
Interest expense, related parties................................ 226 216
Amortization of financing costs.................................. 236 302
Other expense, net............................................... 28 1,472
-------- --------
Income (loss) before minority interest............................. 1,676 (1,610)
Minority interest.................................................. 4 (2)
-------- --------
Income (loss) before income taxes.................................. 1,680 (1,612)
Income tax provision............................................... 108 270
-------- --------
Income (loss) before extraordinary items........................... 1,572 (1,882)
Extraordinary gain on early extinguishment of debt................. 312 --
-------- --------
Net income (loss).................................................. $ 1,884 $ (1,882)
======== ========
</TABLE>
See accompanying notes.
F-30
<PAGE> 125
AMERISERV FOOD COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON ADDITIONAL
STOCK PAID-IN ACCUMULATED
PAR VALUE CAPITAL DEFICIT TOTAL
--------- ---------- ----------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance at January 1, 1994...................... $25 $ 8,742 $ (17,032) $(8,265)
Contribution of dividend promissory notes and
accrued interest to equity................. -- 5,678 -- 5,678
Accretion of redemption value of Series A
Redeemable Preferred Stock................. -- -- (1,125) (1,125)
Net income.................................... -- -- 1,884 1,884
--- ------- -------- -------
Balance at December 31, 1994.................... 25 14,420 (16,273) (1,828)
One for ten reverse stock split............... (22) 22 -- --
Accretion of redemption value of Series A
Redeemable Preferred Stock................. -- -- (675) (675)
Net loss...................................... -- -- (1,882) (1,882)
--- ------- -------- -------
Balance at December 30, 1995.................... $ 3 $ 14,442 $ (18,830) $(4,385)
=== ======= ======== =======
</TABLE>
See accompanying notes.
F-31
<PAGE> 126
AMERISERV FOOD COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------
DECEMBER 31, DECEMBER 30,
1994 1995
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss).................................................. $ 1,884 $ (1,882)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation..................................................... 2,778 2,768
Amortization of goodwill and covenants not to compete............ 888 677
Amortization of financing costs.................................. 236 302
Other non-cash expenses.......................................... -- 1,079
Deferred income tax provision.................................... (347) 45
Provision for doubtful accounts.................................. 410 181
Minority interest................................................ (4) 2
Extraordinary gain............................................... (312) --
Changes in operating assets and liabilities:
Accounts and other receivables................................ (3,116) (664)
Inventories................................................... (5,929) (2,880)
Prepaid expenses and other.................................... (1,272) (730)
Accounts payable.............................................. 10,143 7,228
Accrued liabilities........................................... 67 (844)
--------- ---------
Net cash provided by operating activities.......................... 5,426 5,282
INVESTING ACTIVITIES
Acquisitions of businesses......................................... (1,625) --
Capital expenditures for property, plant, and equipment............ (1,263) (3,030)
Proceeds from sale of property, plant, and equipment............... 71 112
Other.............................................................. 190 (229)
--------- ---------
Net cash used in investing activities.............................. (2,627) (3,147)
FINANCING ACTIVITIES
Borrowings under line of credit agreements......................... 929,724 960,744
Repayments under line of credit agreements......................... (933,505) (958,785)
Proceeds from long-term debt....................................... 5,896 --
Repayments of long-term debt....................................... (6,855) (3,617)
Maturity of certificates of deposit................................ 1,620 --
Proceeds from issuance of Series A Redeemable Preferred Stock...... 2,000 --
Other.............................................................. (1,335) (490)
--------- ---------
Net cash used in financing activities.............................. (2,455) (2,148)
--------- ---------
Net increase (decrease) in cash.................................... 344 (13)
Cash at beginning of year.......................................... 502 846
--------- ---------
Cash at end of year................................................ $ 846 $ 833
========= =========
Supplemental disclosure of cash flow information -- Cash paid for
interest......................................................... $ 6,526 $ 7,097
</TABLE>
See accompanying notes.
F-32
<PAGE> 127
AMERISERV FOOD COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER 31, 1994 AND DECEMBER 30, 1995
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Disposition
AmeriServ Food Company (the Company or AmeriServ) was formed in September
1989 and was majority owned by J. Lewis Partners, L.P. (Lewis Partners). On
January 26, 1996, all of the Company's outstanding stock (common and preferred)
was acquired by AmeriServe Food Distribution, Inc. (formerly NEBCO EVANS
Distribution, Inc.) (NEBCO). In conjunction with the acquisition, the Company's
revolving line of credit, its term notes payable to five co-lenders, and its
note to Signal Capital Corporation were paid off. The Company continues to
operate as a wholly-owned subsidiary of NEBCO with NEBCO providing any working
capital needed for the Company's operations.
The consolidated financial statements of the Company include the accounts
of the Company and the following subsidiaries:
<TABLE>
<CAPTION>
SUBSIDIARY OWNERSHIP
------------------------------------------------------------------ ---------
<S> <C>
Post Holding Company and subsidiary (Post)........................ 50%
Delta Transportation, Ltd. (Delta)................................ 100%
</TABLE>
The Company was formed through a series of acquisitions. Interstate
Distributors, Inc. (IDI), and The Sonneveldt Company (Sonneveldt) represent
holding companies formed for the purpose of acquiring the respective operating
subsidiaries. Lewis Partners acquired a 70% ownership interest in Sonneveldt and
an 81% ownership interest in IDI on December 19, 1988, and August 1, 1989,
respectively. In 1989, Lewis Partners transferred its ownership interests in
these two entities to the Company in exchange for shares of the Company's common
stock. Concurrent with the transfer of Lewis Partners' ownership interests in
the subsidiaries to the Company, the Company acquired the remaining 30% minority
interest in Sonneveldt by exchanging shares of the Company's common stock for
the minority interest holders' shares of Sonneveldt. The Company acquired Post
Holding Company (Post) in 1989, First Choice Food Distributors, Inc. (FCF), in
1990, Alpha Distributors, Ltd., Delta Transportation, Ltd., and Omega
Distributions Services, Ltd. (collectively Alpha), and Food Service Systems
(FSS) in 1991. The Company merged FSS into IDI in December 1992.
On January 11, 1994, the Company completed a series of transactions
including a private equity offering, a corporate restructuring, and a
refinancing of the majority of the Company's debt. As a part of these
transactions, the Company purchased the 19% minority interest in IDI, and
simultaneously merged all of its subsidiaries into AmeriServ, except Post and
Delta Transportation, Ltd. (Delta), which were not merged for regulatory
reasons.
Nature of Operations
The Company, through its divisions and subsidiaries, is a system
foodservice distributor specializing in distribution to chain restaurants. The
Company distributes a wide variety of items, including fresh and frozen meat and
poultry, frozen foods, canned and dry goods, fresh and pre-processed produce,
beverages, dairy products, paper goods, cleaning and other supplies and small
equipment. At December 30, 1995, the Company served approximately 4,300
restaurant locations within 38 different restaurant chains (or "concepts") in 38
states, Mexico and the Caribbean from 14 distribution centers in the United
States.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
F-33
<PAGE> 128
AMERISERV FOOD COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. Upon consolidation, all intercompany accounts,
transactions, and profits have been eliminated.
Fiscal Year
The Company's fiscal year is the 52- or 53-week period ending on the
Saturday closest to December 31. The fiscal years ended December 31, 1994
(fiscal 1994) and December 30, 1995 (fiscal 1995) are 52-week periods.
Inventories
Merchandise inventories are valued at the lower of cost (first-in,
first-out method) or market.
Property, Plant, and Equipment
Property, plant, and equipment are stated at cost. Depreciation is computed
over the estimated useful lives of the assets, using either the straight-line or
double-declining balance method. Amortization of leasehold improvements is
recorded over the respective lease terms or useful lives, whichever are shorter;
and assets recorded under capital leases are amortized over the respective lease
terms. Amortization of capital leases is included in depreciation expense.
Useful lives for amortization and depreciation calculations are as follows:
<TABLE>
<S> <C>
5 -- 40
Buildings and improvements.................................... years
5 -- 9
Delivery and automotive equipment............................. years
5 -- 12
Warehouse equipment........................................... years
5 -- 10
Furniture, fixtures, and equipment............................ years
</TABLE>
Other Assets
Goodwill represents the excess of the purchase prices over the fair values
of net assets of acquired businesses and is amortized over 40 years using the
straight-line method. On January 11, 1994, the Company purchased the remaining
minority interest in IDI resulting in additional goodwill of $1,160. The
carrying value of goodwill is reviewed if the facts and circumstances suggest it
may be impaired. If this review indicates that goodwill may not be recoverable,
as determined based on the estimated future undiscounted cash flows of the
entity acquired over the remaining amortization period, the Company's carrying
value of the goodwill is reduced by the estimated shortfall.
The costs of covenants not to compete, incurred in connection with
acquisitions, are being amortized over the lives of the respective covenants
(three to five years) using the straight-line method. Deferred financing costs
are being amortized over the terms of the respective agreements, generally three
to five years, using the straight-line method, which does not differ
significantly from the interest method.
Federal Income Taxes
The Company and its subsidiaries (excluding Post) file a consolidated
federal income tax return. Under federal tax regulations, Post is required to
file a separate consolidated federal income tax return.
Losses of Divested Operations
In fiscal 1994, the Company incurred losses of $313, consisting of costs
incurred to close the two remaining FSS distribution facilities. The majority of
these expenses were related to operating, legal,
F-34
<PAGE> 129
AMERISERV FOOD COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
severance, and shut-down costs associated with the decision to close these
facilities. The closing and divesting of these operations was deemed necessary
due to continued operating losses with respect to these two facilities.
Other Expenses, Net
In fiscal 1995, other expense, net, of $1,472 in the consolidated statement
of operations, included expenses of $827 related to an attempted public offering
of the Company's common stock, and an accrual of $600 representing payments due
under contract to two former owners of a company acquired by AmeriServ in 1988.
As the two former owners are no longer involved in the business, these amounts
have been written off.
2. LEASES
The Company leases warehouse facilities and certain transportation
equipment under operating leases expiring at various dates through 1999. Minimum
annual rental commitments under noncancelable operating leases are as follows at
December 30, 1995:
<TABLE>
<S> <C>
1996............................................................... $ 8,233
1997............................................................... 7,509
1998............................................................... 6,604
1999............................................................... 5,134
2000............................................................... 3,700
Thereafter 5,887
-------
$37,067
=======
</TABLE>
Rent expense for fiscal 1994 and 1995 was approximately $9,363 and $11,243,
respectively. Under certain truck leases, various subsidiaries of the Company
are obligated to pay contingent rentals based on miles driven each period.
The Madison, Wisconsin, warehouse facility lease grants the Company an
option to purchase the warehouse facility at any time during the initial or
extended lease terms for $6,000. Additionally, the lease grants the lessors a
put option to require the Company to purchase the warehouse facility for $6,000
should the Company either default on future monthly rental payments or fail to
exercise, or not be entitled under the terms of the lease to exercise, any of
its options to extend the initial 10-year term of the lease.
The Company leases operating facilities and certain delivery and warehouse
equipment under capital lease agreements. The leases are for various terms
through 2002, with interest payable at rates ranging from 10 to 12.75%. The
facilities are leased from a partnership, which is partially owned by
stockholders of the Company. Payments representing principal on the facility
leases totaled $133 and $150 in fiscal 1994 and 1995, respectively. The Company
is required to pay real estate and other occupancy costs under the leases.
3. STOCK COMPENSATION PLAN
In 1991, the Company adopted a Stock Compensation Plan (the Plan), which
became effective on December 31, 1991. The Plan covers the issuance of incentive
and nonqualified stock options and restricted stock grants to directors and key
employees of the Company and its subsidiaries. The Plan is administered by a
committee (the Committee) appointed by the Company's Board of Directors. The
Committee generally has the authority to fix the terms and numbers of options to
be granted and to determine the employees or other parties who will receive the
options and the grants. The number of shares that may be issued under the Plan
shall not exceed 56. Incentive stock options granted by the Committee shall
expire on the date determined by the Committee, but in no event shall any
incentive stock option expire later than 10 years after the grant date. The
exercise price per share for shares issued pursuant to the exercise of incentive
stock options shall not be
F-35
<PAGE> 130
AMERISERV FOOD COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
less than the fair market value of common stock at the time of the grant of the
option. All options granted will expire between January 1, 2002, and January 11,
2004.
Common share stock options outstanding at December 31, 1994, and December
30, 1995, are as follows adjusted for a 1 for 10 reverse stock split effective
September 1, 1995 (in thousands except per share data):
<TABLE>
<CAPTION>
NUMBER OF PRICE PER OPTIONS
SHARES SHARE EXERCISABLE
--------- --------------- -----------
<S> <C> <C> <C>
Outstanding at December 31, 1994.... 23 $53.33 -- $93.33 23
Outstanding at December 30, 1995.... 24 $53.33 -- $93.33 24
</TABLE>
4. INCOME TAXES
Significant components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------
DECEMBER 31, DECEMBER 30,
1994 1995
------------ ------------
<S> <C> <C>
Current:
Federal.......................................... $ 72 $ --
State............................................ 383 289
---- ---
Total current...................................... 455 289
Deferred:
Federal.......................................... (347) (19)
---- ---
Total deferred..................................... (347) (19)
---- ---
$ 108 $270
==== ===
</TABLE>
A reconciliation of the Company's income tax provision calculated at
federal statutory rates to the provision for income taxes reported is as
follows:
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------
DECEMBER 31, DECEMBER 30,
1994 1995
------------ ------------
<S> <C> <C>
Federal statutory tax rate (34%) applied to income
(loss) before taxes.............................. $ 571 $ (548)
Net operating losses not benefited................. -- 267
Benefit of net operating loss carryovers........... (827) --
AMT credit not benefited........................... 72 --
State income taxes................................. 383 289
Tax return settlements............................. (347) --
Amortization of goodwill........................... 124 124
Meals and entertainment............................ 97 119
Other.............................................. 35 19
----- -----
$ 108 $ 270
===== =====
</TABLE>
At December 30, 1995, the Company has consolidated net operating loss
carryforwards of $8,707 for federal income tax purposes that expire in years
2004 through 2009. Additionally, at December 30, 1995, Post has net operating
loss carryforwards of $1,360, which are available to offset Post's separate
taxable income. The Company establishes a valuation allowance for its deferred
tax assets until, based on available evidence, it is more likely than not that a
portion or all of the deferred tax assets will be realized.
F-36
<PAGE> 131
AMERISERV FOOD COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Section 382 of the 1986 Internal Revenue Code provides for limitations on
the utilization of net operating loss carryovers subsequent to certain ownership
changes. If the Company experiences an ownership change, as defined under
Section 382, the availability of its net operating loss carryovers may be
limited.
5. OTHER RELATED PARTY TRANSACTIONS
The Company and its subsidiaries incurred monitoring and acquisition fees
of $415 to Lewis Partners for management advisory, investment banking, and
acquisition services during both fiscal 1994 and 1995.
6. CAPITAL STOCK
Effective November 10, 1994, the Board of Directors approved a
three-for-four reverse stock split and effective September 1, 1995, the Board of
Directors approved a one-for-ten reverse stock split. All references to stock
related data has been restated to reflect the effect of the splits.
The Board of Directors of the Company is authorized, without action by the
stockholders, to divide authorized preferred stock into one or more series and
to fix, for each series, the number of shares, powers, designations,
preferences, relative rights, qualifications, limitations, and restrictions. The
Company is authorized to issue 500 shares of Preferred Stock with a par value of
$0.01. The Company issued 45 shares of $.01 par value non-voting preferred
shares designated as Series A Redeemable Preferred Stock for $4,500. The
Preferred Stock is convertible into shares of common stock at a rate of 2.5
shares of common for each share of Series A Redeemable Preferred Stock. The
holders of shares of Series A Redeemable Preferred Stock are entitled to receive
dividends as declared by the Board of Directors from time to time. The Series A
Redeemable Preferred Stock is redeemable in whole at any time or from time to
time in part, at the option of the Company, at a redemption price of $125.00 per
share, with such redemption price increasing by 12% per year commencing on
January 1, 1995, and being increased by a per share amount equal to any then
declared but unpaid dividends. The redemption of the Series A Redeemable
Preferred Stock is mandatory on December 31, 2003, or earlier in the event of an
initial public offering, sale of the Company or merger, consolidation, or other
form of business combination in which the Company is not the surviving entity.
In the event of any form of liquidation of the Company, the holders of the
Series A Redeemable Preferred Stock hold preference over all other forms of
capital stock at an amount equal to $100.00 per share with the amount increasing
by 12% per year compounded annually. Commencing on January 1, 1995, this amount
is further increased by a per share amount equal to any then declared but unpaid
dividends.
Under the terms of an agreement with two of the Company's stockholders, the
Company must obtain an affirmative vote by at least one of the directors, if
any, nominated by each of the two stockholders and Lewis Partners, prior to the
consummation of any of the following events: (i) the issuance by the Company or
any subsidiary of any shares of its capital stock or other equity securities or
options, rights, or warrants; (ii) a transfer, as defined, by the Company of any
of the shares of capital stock of Post currently owned by it; (iii) the approval
of any amendments to the Certificate of Incorporation of the Company or its
subsidiaries; (iv) the merger, consolidation, liquidation, or dissolution of the
Company or any of its subsidiaries or the sale or other disposition of all, or
substantially all, of the assets of the Company or its subsidiaries; (v) the
declaration or payment of any dividend on or distribution to holders of the
common equity stock of the Company or any subsidiary that is not wholly owned by
the Company; or (vi) the amendment, modification, supplementation, or
termination of various agreements currently in effect or hereinafter to be
executed by the stockholders.
In connection with the acquisition of Sonneveldt and the related financing
obtained, a warrant was issued to Signal Capital Corporation to purchase 25% of
the common stock of the Company's former subsidiary for an aggregate exercise
price of $0.25. The warrant was exercisable upon issuance. As a part of the
refinancing and restructuring completed January 11, 1994 (Note 9), the warrant
was purchased by the Company for $100.
F-37
<PAGE> 132
AMERISERV FOOD COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. CONCENTRATIONS OF CREDIT RISK
The Company and its subsidiaries perform periodic credit evaluations of its
customers' financial conditions and generally do not require collateral.
Franchiser-owned and franchisee-owned stores of three national limited-menu
concepts accounted for approximately 40%, 10%, and 10% in 1994 and 40%, 11%, and
10% in fiscal 1995 of the Company's consolidated revenues. One customer
represented approximately 15% and 14% of consolidated revenues for fiscal 1994
and 1995, respectively.
8. EMPLOYEE BENEFIT PLANS
The Company and its subsidiaries have two benefit plans, the AmeriServ
401(k) Savings Plan and The Sonneveldt Company 401(k) Plan. The AmeriServ 401(k)
Plan covers all hourly and salaried employees of AmeriServ and its subsidiaries,
except those covered in The Sonneveldt Plan. The Sonneveldt Company 401(k) Plan
covers all hourly warehouse and transportation employees of a former subsidiary,
The Sonneveldt Company. Under the plans, participants may elect to defer up to
15% of compensation, and the Company matches a portion of the participant's
salary deferral, up to plan-specified maximums. The Company's contributions to
the plans totaled $389 and $323 in fiscal 1994 and 1995, respectively.
9. REFINANCING
On January 11, 1994, the Company entered into a series of transactions that
resulted in capital contributions of $10,178, the refinancing of a majority of
the Company's debt, and the restructuring of the Company's corporate
organization.
The Company issued 45 shares of Series A Redeemable Preferred Stock for
$4,500 (Note 6). The consideration for these shares was a combination of cash
and the contribution of the Company's $2,500 promissory note payable to Lewis
Partners. Additionally, the stockholders of the Company, as a group, contributed
the $5,000 balance of the dividend promissory notes, together with accrued
interest of $678 thereon, to the Company in the form of additional paid-in
capital.
In fiscal 1994, the Company recognized a $313 extraordinary gain as a
result of the refinancing of its revolving credit notes payable and certain term
notes payable. The Company purchased the warrants in a subsidiary from one
lender for less than book value, generating a $275 gain, prepaid a note
obtaining a $263 discount in exchange for early extinguishment, and repaid
several issues of debt before the due date resulting in $225 in prepayment
penalties.
The corporate structure of the Company was also simplified with the merger
of all the Company's subsidiaries, except Post and Delta, into the Company. The
mergers were also consummated on January 11, 1994.
F-38
<PAGE> 133
======================================================
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY NEHC OR THE INITIAL PURCHASER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE
SECURITIES TO WHICH IT RELATES, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF NEHC SINCE THE
DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
The Company........................... 3
Risk Factors.......................... 11
The Transactions...................... 16
Use of Proceeds....................... 19
Capitalization........................ 20
Selected NEHC Historical Financial
Data................................ 21
Selected PFS Historical Financial
Data................................ 23
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 25
The Business.......................... 32
The Acquisition....................... 42
Management............................ 43
Security Ownership of Certain
Beneficial Holders and Management... 46
Certain Relationships and Related
Party Transactions.................. 47
Description of Indebtedness........... 48
Description of New Notes.............. 53
Description of Certain Federal Income
Tax Consequences.................... 79
Plan of Distribution.................. 83
Legal Matters......................... 84
Experts............................... 84
Change in Company's Accountant........ 84
Index of Certain Defined Terms........ 86
Index to Unaudited Pro Forma Financial
Statements.......................... P-1
Index to Historical Financial
Statements.......................... F-1
</TABLE>
======================================================
======================================================
[AMERISERVE LOGO]
NEBCO EVANS HOLDING COMPANY
12 3/8% NEW SENIOR DISCOUNT NOTES
DUE 2007
--------------------
PROSPECTUS
--------------------
DECEMBER 11, 1997
======================================================
