UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 20-F
[ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number
SPARKLING SPRING WATER GROUP LIMITED
(Exact name of Registrant as specified in its charter)
Province of Nova Scotia, Canada
(Jurisdiction of incorporation or organization)
One Landmark Square
Stamford, CT 06901
(203) 325-0077
(Address of principal executive offices)
For information regarding Additional Registrants, see "Table
of Additional Registrants."
Securities registered or to be registered pursuant to
Section 12(b) of the Act.
None
Securities registered or to be registered pursuant to
Section 12(g) of the Act.
None
Securities for which there is a reporting obligation
pursuant to Section 15(d) of the Act.
11.5% Senior Subordinated Notes due 2007 and Guarantees
of 11.5% Senior Subordinated Notes due 2007
(Title of Class)
Indicate the number of outstanding shares of each of the
issuer's classes of capital or common stock as of the close
of the period covered by the annual report.
N/A
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days.
Yes No X
----- -----
Indicate by check mark which financial statement item the
registrant has elected to follow.
Item 17 Item 18 X
----- -----
<PAGE>
TABLE OF ADDITIONAL REGISTRANTS
Primary
State or other Standard
jurisdiction of Industrial
Exact name of registrant as specified incorporation of Classifi-
in its charter organization cation Code
Number
Sparkling Spring Water Limited Nova Scotia 5149
Spring Water, Inc. Delaware 5149
Cullyspring Water Co., Inc. Washington 5149
Crystal Springs of Seattle, Inc. Delaware 5149
Crystal Springs Drinking Water, Inc. Washington 5149
Crystal Springs Acquisition, Inc. Delaware 5149
Mountain Fresh Acquisition Corp. Delaware 5149
Water Jug Enterprises Limited Nova Scotia 5149
Withey's Water Softening & Nova Scotia 5149
Purification Ltd.
Aqua Care Water Softening & Nova Scotia 5149
Purification Inc.
High Valley Water Limited Nova Scotia 5149
3003969 Nova Scotia Limited Nova Scotia 5149
Coastal Mountain Water Corp. British Columbia 5149
Canadian Springs Water Company Limited Nova Scotia 5149
Sparkling Spring Water UK Limited UK 5149
Aquaporte (UK) Limited UK 5149
Marlborough Employment Limited Scotland 5149
Water at Work Limited Scotland 5149
Natural Water Limited Scotland 5149
The address, including zip code and telephone number,
including area code, of the principal executive offices of
each of the Additional Registrants is the same as for
Sparkling Spring Water Group Limited, as set forth on the
facing page of this Report.
Exchange Rate Data
The following table sets forth for both Canadian
dollars and British pounds sterling for the periods
indicated, the high and low exchange rates (i.e., the
highest and lowest exchange rate at which each currency was
sold), the average exchange rate (i.e., the average of each
exchange rate on the last business day of each month during
the applicable period) and the period end exchange rate of
each currency in exchange for the U.S. dollar, as calculated
from the inverse of the exchange rates reported by the
Federal Reserve Bank of New York for cable transfers payable
in Canadian dollars and British pounds sterling for customs
purposes.
Year ended December 31,
1993 1994 1995 1996 1997
Canadian Dollar
High for period 0.807 0.764 0.753 0.753 0.749
Low for period 0.742 0.710 0.710 0.721 0.695
End of period 0.757 0.713 0.733 0.730 0.700
Average for period 0.775 0.732 0.728 0.733 0.722
British Pound Sterling
High for period 1.593 1.643 1.641 1.711 1.7115
Low for period 1.418 1.460 1.527 1.497 1.5797
End of period 1.480 1.564 1.552 1.705 1.642
Average for period 1.501 1.531 1.578 1.560 1.638
<PAGE>
SPARKLING SPRING WATER GROUP LIMITED
TABLE OF CONTENTS
Page
PART I
ITEM 1. DESCRIPTION OF BUSINESS 2
ITEM 2. DESCRIPTION OF PROPERTY 17
ITEM 3. LEGAL PROCEEDINGS 18
ITEM 4. CONTROL OF REGISTRANT 18
ITEM 5. NATURE OF TRADING MARKET 19
ITEM 6. EXCHANGE CONTROLS AND OTHER 20
LIMITATIONS AFFECTING SECURITY HOLDERS
ITEM 7. TAXATION 20
ITEM 8. SELECTED FINANCIAL DATA 21
ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS 23
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
ITEM 9A. QUANTITATIVE AND QUALITATIVE 30
DISCLOSURES ABOUT MARKET RISK
ITEM 10. DIRECTORS AND OFFICERS OF REGISTRANT 31
ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS 34
ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM 34
REGISTRANT OR SUBSIDIARIES
ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN 35
TRANSACTIONS
PART II
ITEM 14. DESCRIPTION OF SECURITIES TO BE N/A
REGISTERED (INTENTIONALLY OMITTED)
PART III
ITEM 15. DEFAULTS UPON SENIOR SECURITIES 38
ITEM 16. CHANGES IN SECURITIES, CHANGES IN 38
SECURITY FOR REGISTERED SECURITIES AND
USE OF PROCEEDS
PART IV
ITEM 17. FINANCIAL STATEMENTS N/A
(INTENTIONALLY OMITTED)
ITEM 18. FINANCIAL STATEMENTS 39
ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS 39
(a) Financial Statements 39
(b) Exhibits 39
<PAGE>
PART I
Unless indicated otherwise, all references in this Report to the
Company refer collectively to Sparkling Spring Water Group Limited and
its direct and indirect subsidiaries.
For purposes of this Annual Report, all references to dollar
amounts are expressed in United States dollars unless otherwise
specified. All references in this Report to "EBITDA" mean operating
profit plus depreciation and amortization and references to "CAGR"
mean compound annual growth rate. Unless otherwise indicated, all
statistical data and information contained in this Report is as of
December 31, 1997.
Statements included in this Report that do not relate to present
or historical conditions are "forward-looking statements" within the
meaning of the Safe Harbor provisions of the Private Securities
Litigation Reform Act of 1995 (the "1995 Reform Act"). Additional
oral or written forward-looking statements may be made by the Company
from time to time and such statements may be included in documents
other than this Report that are filed with the SEC. Such forward-
looking statements involve risks and uncertainties that could cause
results or outcomes to differ materially from those expressed in such
forward-looking statements. Forward-looking statements in this Report
and elsewhere may include, without limitation, statements relating to
the Company's plans, strategies, objectives, expectations, intentions
and adequacy of resources and are intended to be made pursuant to the
Safe Harbor provisions of the 1995 Reform Act irrespective of whether
the 1995 Reform Act is applicable to the Company as a "foreign private
issuer." See Item 9 - Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Introduction
Sparkling Spring Water Group Limited ("Sparkling Spring" and
together with the Additional Registrants named herein, the "Company")
is incorporated under the laws of the Province of Nova Scotia, Canada
and provides containered water and rental water coolers to home and
office markets in British Columbia and the Maritime Provinces of
Canada, England, Scotland and the Pacific Northwestern United States.
On December 23, 1997, Sparkling Spring filed a Registration
Statement on Form F-4 (Registration No. 333-43061) (the "Registration
Statement") with the Securities and Exchange Commission (the "SEC")
with respect to the registration of its 11.5% Senior Subordinated
Notes due 2007 (the "Notes") and the registration of the Guarantees
("Guarantees") on a subordinated basis by Sparkling Springs' existing
and future subsidiaries (the "Subsidiary Guarantors"). The
Registration Statement was declared effective on April 1, 1998. The
Company is a "foreign private issuer" within the meaning of Rule 405
under the Securities Act of 1933, as amended (the "Securities Act").
ITEM 1. DESCRIPTION OF BUSINESS
Background
Sparkling Spring Water Limited ("SSWL"), a wholly-owned
subsidiary of Sparkling Spring, was founded in 1971 in Halifax, Nova
Scotia to operate in the bottled water industry. In 1988, a
controlling interest in the Company was acquired by Maritime Beverages
Limited ("MBL"), a Pepsi-Cola bottler, which was managed by G. John
Krediet, Kent Dillon Schickli, and Stephen L. Larson, principals of
C.F. Capital Corporation ("CFCC"), an investment and management
company. When MBL sold its soft drink bottling holdings to Pepsi-Cola
Canada Limited in 1992, Messrs. Krediet and Larson retained their
ownership of SSWL. Mr. Schickli left CFCC in 1992 and rejoined the
Company as Chief Financial Officer on April 3, 1998.
Sparkling Spring is one of the world's largest providers of
bottled water delivered directly to residential and commercial
markets. The Company's primary focus is on the bottling and delivery
of high quality drinking water in five-gallon and six-gallon bottles
to homes and offices, and the rental of water coolers. The Company's
strategy has been to achieve significant market positions in a number
of markets and thereby realize the operating leverage that can be
obtained once a distribution system is established. Based upon its own
internal estimates, the Company believes it has approximately 52%
market share in British Columbia, 70% in the Maritime Provinces, 22%
in the United Kingdom, 65% in Scotland, 44% in Oregon and 20% in
Washington. The Company believes it is the market share leader in each
of these markets, except in Washington where it believes it is the
second largest provider. By virtue of its leadership position in its
markets, the Company benefits from several competitive advantages over
smaller operators, including more efficient distribution operations,
purchasing synergies, quality customer service and well-established
infrastructure. Management believes the Company's leadership in each
of its served markets creates a significant barrier to entry for
prospective competitors.
Company sales by geographic market for each of the past three
fiscal years are as follows:
1995 1996 1997
Canada $ 5,061,581 $15,363,998 $19,416,108
United Kingdom 10,287,533 11,962,351 17,658,190
United States -- -- 4,999,586
$15,349,114 $27,326,349 $42,073,884
The Company delivers bottled water to a base of approximately
115,000 water coolers in its served markets consisting of
approximately 91,900 customers who rent water coolers from the Company
and 23,100 customers who own their coolers. Rental customers
typically sign a one-year contract, providing the Company with a
stream of relatively stable revenue from both a monthly cooler rental
charge and the sale of bottled water. Water only customers generate
revenue through the sale of bottled water and ancillary services such
as cooler repairs. The Company believes that direct delivery water
cooler companies enjoy several advantages over retailers of bottled
water. Customers suffer inconvenience and potentially incremental cost
if they choose to switch from one water cooler company to another. In
addition, direct delivery water cooler operators such as the Company
have made significant capital investments in inventories of water
coolers and bottles, a truck fleet and bottling facilities. Management
believes the capital intensity of the water cooler business and the
complexity of direct delivery provide a second significant barrier to
entry.
The Company has a history of completing and integrating
acquisitions, having made fifteen acquisitions since 1993. These
acquisitions have enabled the Company to rapidly expand into
attractive markets and increase production capacity. In addition to
completing the acquisitions of fast-growing bottled water companies,
management has improved the operations and profitability of each
acquired company. For four acquired companies for which the Company
has comparable full-year pre-acquisition and post-acquisition data,
revenue and EBITDA increased, on average, by 18.5% and 64.0%,
respectively, in the first year after the acquisition. Management
believes its reputation as an experienced and well-capitalized
industry consolidator facilitates its access to additional acquisition
candidates and generates unsolicited offers from prospective sellers.
Since January 1, 1997, the Company has completed ten acquisitions
through which it entered the attractive U.S. bottled water market and
expanded its leadership positions in Canada and the United Kingdom.
The results of both significant internal growth and the execution
of the Company's acquisition strategy are evidenced by the growth in
the Company's revenue and EBITDA over the past five years. Revenue
increased at a CAGR of 61.6% from $3.8 million in 1992 to $42.1
million in 1997. Over the same period, EBITDA increased at a CAGR of
83.1% from $0.5 million to $11.2 million, with EBITDA margins
increasing from 14.3% to 26.7%. See Item 9 - Management's Discussion
and Analysis of Financial Condition and Results of Operations.
The Company is led by an experienced senior management team whose
members average more than 13 years in the beverage industry. A trust
for the benefit of G. John Krediet, the Chairman of Sparkling Spring,
and his children, owns 50.9% of the common stock ("Common Stock") of
Sparkling Spring after giving effect to the Reorganization as
described later in this Report. Mr. Krediet successfully executed a
consolidation of Canadian Pepsi-Cola bottlers and, together with other
senior management, identified the bottled water consolidation
opportunity. Mr. Schickli assisted Mr. Krediet in the Canadian Pepsi-
Cola consolidation in the late 1980's and early 1990's and has
significant experience in the acquisition of beverage businesses and
as chief financial officer of mid size beverage operations. Stewart E.
Allen, President of SSWL since 1992, has managed the operations of the
business focusing on profitably increasing the penetration levels in
each of its markets. Mr. Allen previously served as Vice President of
Sales and Marketing for Maritime Beverages Limited, the Pepsi-Cola
business, prior to assuming the Presidency of SSWL. See Item 10 -
Directors and Officers of Registrant.
Industry Overview
Bottled water continues to be one of the fastest growing segments
of the U.S. beverage industry for the past ten years, generating $3.6
billion of sales in 1996. According to Beverage Marketing Corporation,
the U.S. bottled water market experienced a CAGR of 8.5% from 1986 to
1996, and is projected to grow at a slightly lower CAGR of 7.3%
between 1996 and 2001. Bottled water volume in the U.S. increased from
629.7 million gallons in 1980 to 3.1 billion gallons in 1996, and is
projected to reach 4.4 billion gallons in 2001. Furthermore, per
capita bottled water consumption quadrupled from 1980 to 1996 with
annual consumption in the U.S. increasing from 2.8 gallons per capita
in 1980 to 11.7 gallons per capita in 1996. The projected per capita
consumption is expected to reach 15.8 gallons in the U.S. by the year
2001. The water cooler segment generated approximately $1.2 billion of
sales in 1996 or 1.2 billion gallons, representing 38.5% of the total
U.S. bottled water market. The U.S. water cooler market experienced a
CAGR of 3.9% between 1990 and 1996, and is projected to grow at an
annual rate of 6.5% from 1996 to 2001, reaching 1.6 billion gallons by
2001.
According to Zenith International Ltd., the bottled water market
in the U.K. generated (pound)400.0 million of sales in 1996, experienced a
CAGR of 11.6% from 1990 to 1996, and is projected to grow at an annual
rate of 9.0% between 1996 and 2000. Bottled water volume has increased
from 111.0 million gallons in 1990 to approximately 214.0 million
gallons in 1996 and is projected to reach 302.0 million gallons by the
year 2000. Annual consumption of bottled water in the U.K. has
increased from 1.9 gallons per capita in 1990 to 3.6 gallons per
capita in 1996 and is projected to grow to 5.1 gallons per capita by
2000. The water cooler segment generated approximately (pound)65.0 million
or 25.1 million gallons, representing 11.7% of the total U.K. bottled
water market in 1996, increasing from 3.5% in 1990. In addition, the
U.K. water cooler market experienced a CAGR of 36.8% between 1990 and
1996, and is projected to grow at a CAGR of 13.9% from 1996 to 2000,
reaching 42.3 million gallons by the year 2000.
In Canada, industry figures compiled by the Canadian Bottled
Water Association indicate that bottled water consumption totaled 643
million litres in 1997. According to Hidell-Eyster Technical Services
Inc., the estimated growth in the Canadian bottled water market was
10% in 1997, with the home and office delivery business growing at 5%.
It is estimated that there are 500,000 coolers in Canada or 1.6
coolers for every 100 people. Consumption of bottled water in 1997
was estimated to be 21.2 litres per capita.
Management believes the strong industry growth has been and will
continue to be driven by: (i) concerns related to the quality of tap
water sources, (ii) consumer preferences for healthy products,
(iii) taste preferences over tap water and other refreshment beverages
and (iv) favorable demographics.
Tap Water Concerns. The aging of the tap water supply
infrastructure and the high cost of adequately maintaining or
replacing existing water delivery systems have resulted in an increase
of tap water contamination incidences in recent years. Consequently,
there has been a decrease in consumers' confidence in the quality of
tap water, accompanied by an increase in consumption of bottled water.
Management believes that this trend will continue.
Healthy Products. There is a movement toward a healthier
lifestyle and the consumption of healthy products. Within the "healthy
products" segment, clear or natural colored products are experiencing
significant growth. Bottled water is perceived as a product with
strong health and fitness appeal.
Taste Preferences. The taste of tap water is affected by
cleaning substances used to filter water. The products used to
sterilize tap water, such as chlorine, are safe but often produce an
undesirable after-taste and, consequently, many people prefer to drink
bottled water.
Favorable Demographics. Consumption of bottled water is much
more prevalent among younger consumers. According to Beverage
Marketing Corporation, adults between the ages of 25 and 34 comprise
the demographic group most likely to consume bottled water. The
Company believes that, as younger consumers age and their purchasing
power increases, sales of bottled water will continue to grow.
The bottled water industry is highly fragmented in North America.
The bottled water market is comprised of approximately 2,500 companies
generating approximately $4.0 billion of sales. Of these companies,
the five largest companies account for approximately 55% of the total
market, with the remainder comprised of hundreds of small regional
companies. Management believes that the industry will continue to
consolidate as (i) operating leverage of the larger companies makes
the smaller companies uncompetitive, (ii) succession issues at many
smaller, family owned companies lead a number of independent companies
to exit the industry, and (iii) pressure to meet improving water
quality standards eliminates low quality producers.
The Company believes that the competitive structure of the water
cooler segment favors a larger operator with a successful
consolidation track record. As a market leader in the majority of its
geographic markets, the Company believes that it is well-positioned to
benefit from the growth and consolidation trends in the industry.
Business and Products
The Company generated approximately 79.2% of its 1997 revenue
from the sale of bottled water products for water coolers and the
rental of water coolers, 6.0% of its revenue from the sale of bottled
water is smaller retailed sized packages and 14.8% of its revenue from
related activities including the sale of paper cups, coffee, water
filtration devices, water through vending machines and cooler
sanitation services.
Bottled Water. The Company generated approximately 54.6% of its
1997 revenue from the sale of bottled water used in water coolers.
Bottled water for water coolers is primarily sold in two sizes: a
five-gallon (18 litre) bottle and a six-gallon (22 litre) bottle. In
each market, a smaller package (3 gallon or 11 litre) exists for
residential customers who may not be capable of lifting the five or
six-gallon product or who may have storage constraints. The Company
offers water bottles in plastic packaging that facilitates storage,
and has non-spill caps. While its pricing varies from market to market
and the Company frequently offers promotional discounts in certain
markets, the Company charges on average approximately $7 for a
five-gallon bottle of water.
The Company also sells water in smaller retail sized containers
such as one gallon, 1.5 litre and 500 ml sizes. In 1997, the Company
generated approximately 6.0% of its total revenue from these smaller
sized packages.
The Company primarily markets four types of water: spring,
premium drinking, steam-distilled, and fluoridated. The sale of
steam-distilled water and fluoridated water accounted for less than
1.0% of the Company's revenue in 1997. Descriptions of each type of
water follow:
Spring Water. Water, which has been naturally filtered by its
passage through various geological layers, is drawn from a protected
underground reservoir called an aquifer. It can then be either bottled
at the source or transported in stainless steel tankers to a more
strategically located bottling facility.
Before bottling, spring water is passed through a micron filter
which removes sediment while retaining the natural mineral content of
the water. The water is then purified through an industry standard
purification process known as ozonation. This sterilization process is
over 400 times more effective than chlorination and does not leave a
residual taste.
Premium Drinking Water. This water is drawn from local municipal
sources. It is passed through a series of carbon and sand filters,
processed by either reverse osmosis or deionization, ozonated and then
bottled. Premium drinking water has 99.9% of all impurities removed
from it, including its natural mineral content.
Steam-Distilled Water. This water can be obtained from either a
spring or municipal source. The water is then converted to steam. Once
the steam condenses it is then ozonated and bottled. Steam-distilled
water is similar to premium drinking water since it has 99.9% of all
impurities removed.
Fluoridated Water. Fluoridated water is premium drinking water
that has one part per million of fluoride added. It is a niche market
product that appeals to families with young children.
The following table summarizes the Company's operations in its
existing markets:
Region Principal Products Brand Names
British Columbia Premium Drinking Water Canadian Springs
Spring Water
Steam-Distilled
Maritime Provinces Spring Water Sparkling Springs
Distilled Water
United Kingdom Spring Water Nature Springs
Spring Water Water At Work
United States Premium Drinking Water Crystal Springs
Fluoridated Drinking Water
Spring Water
Premium Drinking Water Cullyspring
Steam-Distilled
Water Coolers. The Company generated approximately 24.6% of its
revenue in 1997 from the rental of water coolers. The Company has a
base of approximately 115,000 water coolers in its served markets
consisting of approximately 91,900 customers who rent coolers from the
Company and 23,100 customers who own their coolers. Rental customers
typically sign a one-year contract, providing the Company with a
stream of relatively stable revenue from both a monthly cooler rental
charge and the sale of bottled water. The Company's large installed
customer base creates operating efficiencies by supporting a level of
infrastructure that can be leveraged to support incremental cooler
installations at an attractive marginal profitability rate. While its
pricing varies from market to market and depends on the water cooler
selected by the customer, the Company's current average monthly rental
charge for its coolers is approximately $12.
The following table presents management estimates of certain
information relating to the Company's cooler base as of December 31,
1997:
British Maritime United United
Columbia Provinces Kingdom States
Number of Installed 53,241 13,850 25,336 22,610
Coolers
% Residential Customers 65% 52% 2% 35%
% Commercial Customers 35% 48% 98% 65%
The Company purchases its water coolers from one of three
preferred suppliers and maintains a stock of spare parts at delivery
depots. The Company strips down, cleans, and redeploys returned water
coolers prior to all new installations. The Company's average cost per
water cooler is approximately $150, and the Company estimates that the
average life of a water cooler is ten years. The typical pay back
period on a water cooler investment (assuming only rental revenue) is
approximately 13 months. In the event of termination of the rental
agreement, water coolers can be readily redeployed at a relatively low
cost to the Company. In addition, in certain markets the Company
charges a water cooler collection fee when a customer opts to
discontinue purchasing water.
Other. The remaining 14.8% of the Company's 1997 revenue was
generated through the sale of paper cups, cooler sanitation services,
coffee delivery, the sale of water filtration devices and the sale of
water through vending machines.
Business Strategy
Bottled water continues to be the fastest growing segment of the
beverage industry, growing at a CAGR of 10.5% since 1980 according to
Beverage Marketing Corporation. Management believes this growth stems
primarily from two sources: (i) consumer dissatisfaction with tap
water and (ii) increased consumer health consciousness resulting in
the substitution of water for other less-healthy beverages. The
Company expects to benefit from the growing demand for quality
drinking water by increasing its installed base of water coolers,
increasing the water and related products offered through its
established distribution system, and continuing to be a leader in the
consolidation of the highly fragmented bottled water industry. In
particular, the Company expects to continue to pursue the following
business strategies:
Focus on the Water Cooler Segment Within the Growing "Alternative
to Tap Water" Market. Management believes that the overall growth of
the bottled water industry and the relatively low level of water
cooler penetration in Canada and the U.K., in particular, provide the
Company with significant growth opportunities. The Company believes
that health concerns and problems with the taste and odor of tap water
have generated consumer demand for an "alternative to tap water,"
driving consumers to increasingly rely on bottled water and filtration
systems in order to satisfy their drinking water needs. The Company
intends to take advantage of this growth in demand by offering a
premium product through multiple channels (i.e., direct delivery,
retail and filtration systems), with a specific focus on the "direct
delivery" water cooler segment.
Management believes that the water cooler business enjoys higher
margins, less competition and greater operating leverage than either
the retail bottled water or the water filter businesses. Sales in this
segment are generally less price sensitive than retail sales of
bottled water because the customer is generally more concerned with
service and convenience. In addition, there are inconvenience factors
and potentially increased costs associated with switching suppliers.
Furthermore, water cooler companies generally have lower advertising
costs than companies pursuing retail sales of bottled water because
consumers generally do not select a water cooler provider on the basis
of brand name. The water cooler business is also generally less
competitive than other segments of the bottled water industry due to
the relative capital intensity of the operations and direct delivery
distribution requirements for its business. Finally, the significant
growth potential in the water cooler market and the low levels of
water cooler penetration allow industry participants to focus on
attracting new customers rather than on capturing market share from
competitors.
Leverage Existing Infrastructure. Due to the significantly fixed
distribution system associated with the direct delivery of bottled
water in a geographic area, additional operating leverage can be
achieved by increasing route density through incremental market
penetration. In addition to increasing the overall customer base, the
Company expects to continue to benefit as per capita consumption
continues to climb with each existing customer consuming more water.
Finally, the Company utilizes its route systems to offer products
which are complementary to bottled water, including cups, cooler
sanitation services, coffee and related products.
In addition to benefiting from internal growth in its markets,
the Company leverages its infrastructure with each acquisition in
adjacent or overlapping territories. Specific operating initiatives
employed by the Company typically include: (i) maximizing distribution
route efficiencies, (ii) consolidating bottling facilities,
(iii) eliminating duplicative administrative costs and (iv) utilizing
favorable purchasing opportunities. The Company's existing
infrastructure and scale of operations provide an attractive
opportunity to continue to add incremental customers at a higher
marginal profitability rate. The Company has achieved significant cost
savings in its existing operations as reflected in the increase in its
EBITDA margin from 14.3% in 1993 to 25.2% in 1996 and 26.7% in 1997.
Pursue Strategic Acquisitions. The Company has pursued a
disciplined acquisition strategy to create value by taking advantage
of the consolidation of the highly fragmented bottled water industry.
The Company has developed and implemented a "hub and spoke" approach
to acquiring companies in new markets by identifying one of the
largest bottled water companies as a platform acquisition, and
complementing it with smaller fill-in acquisitions in neighboring or
overlapping geographic territories. The Company is generally unwilling
to enter a market through an acquisition unless the company being
acquired is both one of the market share leaders and provides the
critical mass and local management talent necessary to act as a
platform in that market. While the purchase price paid for a platform
company is typically higher than that for a fill-in acquisition (as
measured using multiples of first year EBITDA), the Company is able
to reduce its average acquisition multiple by opportunistically
acquiring "spoke" distribution routes. These spoke acquisitions can
be acquired at more attractive prices due to the limited strategic
options available to these smaller operators and synergies to be
gained by Sparkling Spring from consolidating these companies into the
'platform' business. The Company's recent acquisitions of Cullyspring
Water Co., Inc. ("Cullyspring") and Crystal Springs Drinking Water,
Inc. ("CSD") demonstrate its plan to continue to expand in the U.S.
Provide Outstanding Customer Service. The Company believes
quality of service and reliability of delivery are the primary
competitive factors in the water cooler business. The quality of
service is measured by the Company's ability to: (i) reliably deliver
bottled water on schedule, (ii) meet customer shortages with the quick
delivery of refills, (iii) provide regular maintenance and sanitation
of water coolers and (iv) effectively address any other needs of a
customer. Management monitors on a monthly basis the Company's
customer "churn" rate (its non-renewal rate with respect to its water
cooler rental agreements) in an effort to continually enhance customer
service. The Company's average churn rate was approximately 2.0% per
month in 1997 which management believes is significantly lower than
the industry average churn rate.
Summary of Business Strategy. All four of the above business
strategies are presently being pursued by the Company and will
continue to be pursued for the foreseeable future. The Company
believes that all four business strategies are important to its
success, but that leveraging its existing infrastructure and focusing
on the "Alternative to Tap Water" market are of the most significance.
Acquisitions
The Company has expanded its operations through a number of
acquisitions designed to consolidate existing markets or enter new
markets. The Company has been successful in integrating acquired
companies into its existing operations and increasing the
profitability of acquired companies through the elimination of
duplicative overhead functions, realization of operating and
purchasing efficiencies and implementation of the Company's management
systems. As a result of these acquisitions, the Company has expanded
its leadership position in Canada, entered the attractive U.S. water
cooler market and further bolstered its leading presence in the U.K.
On April 14, 1993, the Company acquired Crystal Springs Limited
("CSL"). CSL served the Cape Breton, Nova Scotia bottled water and
cooler rental market. CSL was subsequently merged into SSWL.
On June 8, 1994, the Company acquired the water cooler division
of Buxton Mineral Water Company Limited through Sparkling Spring Water
UK Limited ("SSWUK"), a wholly-owned subsidiary of SSWL. The water
cooler industry in the U.K. was identified as being much less
developed than the North American market and, thus, having a
significant growth potential.
On April 26, 1995, the Company acquired Aquaporte (UK) Limited
("Aquaporte UK"). Aquaporte UK had a predominantly London-based
customer list and a depot close to central London. The operation was
merged with SSWUK and the combined businesses became the largest water
cooler company serving the commercial market in the U.K.
On January 18, 1996, the Company acquired Canadian Springs Water
Company Ltd. ("Canadian Springs"). Canadian Springs is the leading
home and office water cooler company in British Columbia, with
operations in Vancouver, Victoria, Kelowna and Nanaimo. The
acquisition served to consolidate the Company's position in Canada
while providing it with access to the fastest growing bottled water
market in Canada.
On May 19, 1996, the Company acquired Water Jug Enterprises
Limited ("Water Jug"). Water Jug, which serves the Kamloops area in
British Columbia, has further solidified the Company's market position
in British Columbia.
On January 2, 1997, the Company acquired D & D and Company, Inc.,
doing business as Mountain Fresh Bottled Water Co. ("Mountain Fresh").
Mountain Fresh is headquartered in Portland, Oregon, and holds the
number three position in the Oregon market.
On January 28, 1997, the Company acquired Withey's Water
Softening & Purification Limited ("Withey's Water"). Withey's Water is
headquartered in Prince George, British Columbia, and is the dominant
supplier of bottled water and filtration systems in the rural market
of upper British Columbia. Withey's Water represents a fill-in
acquisition, strengthening the Company's already leading presence in
the home and office water cooler market in British Columbia.
On January 30, 1997, the Company acquired High Valley Water
Limited ("High Valley"). High Valley is headquartered in Kelowna,
British Columbia and is comprised of four bottled water distributors.
On February 5, 1997, the Company acquired Marlborough Employment
Agency Limited doing business as "Water At Work". Water at Work is
headquartered in Glasgow, Scotland, and is Scotland's largest water
cooler company and the fourth largest in the U.K., serving both the
Glasgow and Edinburgh markets. The acquisition of Water At Work
further bolstered the Company's leadership position in the U.K. market
and established its leading presence in the attractive Scottish
market.
On June 4, 1997, the Company acquired the water cooler operations
of Soja Enterprises, Inc. ("Soja"). Soja serves the commercial
community of Portland, Oregon.
On June 23, 1997, the Company acquired Crystal Springs Bottled
Water Co., Inc. ("Crystal Springs"). Crystal Springs is the second
largest five-gallon distributor serving Oregon and is based in
Portland. This acquisition provided the Company with greater route
density in its established Portland market.
On October 23, 1997, the Company acquired Cullyspring Water Co.,
Inc. Cullyspring is a Seattle, Washington based bottled water company
focusing on the direct delivery of five-gallon containers to homes and
offices and the rental of water coolers.
On December 17, 1997, the Company purchased all of the
outstanding capital stock of Crystal Springs Drinking Water, Inc.
("CSD"). CSD is a Seattle-based bottled water company focusing on the
direct delivery of five-gallon containers to homes and offices and the
rental of water coolers.
On February 24, 1998, the Company purchased all of the
outstanding capital stock of Coastal Mountain Water Corp. ("Coastal").
Coastal is based in Vancouver, British Columbia and focuses on the
direct delivery of eighteen litre containers of water to residential
and commercial customers and the rental of water coolers.
On May 16, 1998 the Company purchased all of the outstanding
capital stock of Krystal Fountain Water Co. Ltd. ("Krystal Fountain").
Krystal Fountain operates primarily in the M25 area in London,
England.
The Bottling Process
The Company draws its spring water from local sources. The spring
water is bottled at the source, in the case of the Maritime Provinces,
or transported to a Company bottling facility by stainless steel
tanker in other locations. Prior to final bottling, the spring water
is filtered and ozonated. Ozonation is a process whereby impurities
not removed through ordinary filtration are removed through the
injection of oxygen. The process involves a special form of oxygen,
ozone, which is the strongest disinfectant and oxidizing agent
available for water treatment. The added oxygen quickly dissipates and
results in tasteless and odorless purification as compared to
chlorination. This process is designed to prevent bacteria and other
contaminants from being transferred from the spring or the tanker to
the finished product.
In addition to spring water, the Company also produces premium
drinking water. The Company accesses local, publicly-available water
supplies and processes and purifies the product through reverse
osmosis to remove chlorine and other chemicals frequently found in tap
water. The product then goes through the ozonation process prior to
bottling as premium drinking water.
The Company has nine bottling facilities located throughout
British Columbia, the Maritime Provinces of Canada, England, Scotland
and the Pacific Northwestern United States.
British Columbia. The Company operates four bottling facilities
located in Vancouver, Victoria, Kamloops and Prince George, British
Columbia. The Vancouver and Prince George facilities produce both
premium drinking water and spring water. The Company transports the
spring water from sources located in the Coastal Mountains pursuant to
a non-exclusive contract without a fixed term. The bottling line in
Victoria is capable of producing both spring water and premium
drinking water but currently only produces premium drinking water.
Maritime Provinces. The Company's bottling line is located in
Valley, Nova Scotia, which is also the site of a spring owned by the
Company. Water is bottled at the source, processed and distributed to
the Company's four depots and distributors in Nova Scotia, New
Brunswick and Prince Edward Island.
England. The Company operates its bottling operations in a
newly-constructed production facility, adjacent to its largest
distribution depot, in Buckinghamshire, England. Completed in January
1997, the cost of construction of the new production operation was
$1.3 million. The new high speed bottling line installed at the
facility is expected to generate significant cost savings in the
future. Spring water is purchased from various sources and transported
to the bottling line for processing.
Scotland. The Company operates a bottling line which processes
water drawn from a 100-year old well in Dumfries, Scotland. The water
is processed and bottled in a bottling line operated by Natural Water
Limited, a wholly-owned subsidiary of Sparkling Spring.
United States. From its Portland, Oregon facilities, the Company
processes premium drinking water, as well as spring water shipped from
a source in the Cascade Mountains pursuant to a non-exclusive contract
without a fixed term. From its Seattle, Washington facility, the
Company processes premium drinking water.
The following table provides certain information regarding the
Company's bottling facilities:
Location Type of Water Bottling Capacity
Vancouver, British Premium Drinking 490 bottles per hour
Columbia Spring
Steam Distilled
Victoria, British Premium Drinking 225 bottles per hour
Columbia
Kamloops, British Premium Drinking 300 bottles per hour
Columbia
Prince George, British Premium Drinking 125 bottles per hour
Columbia Spring
Valley, Nova Scotia Spring 485 bottles per hour
Distilled
Buckinghamshire, England Spring 1,200 bottles per hour
Glasgow, Scotland Spring 200 bottles per hour
Portland, Oregon Premium Drinking 600 bottles per hour
Fluoridated Drinking
Spring
Seattle, Washington Premium Drinking 425 bottles per hour
Steam Distilled
Sales and Marketing
The Company markets its products principally through telephone
directory yellow page advertisements, newspaper advertisements, mall
shows, coupons, product sponsorship programs, direct mail, radio
commercials and various referral programs which are supported by the
efforts of approximately 113 salaried sales and marketing personnel.
Almost half of the Company's new customers are derived from incoming
telephone calls resulting from yellow page advertisements, the key
advertising vehicle for the Company. To supplement this effort, the
Company's marketing team solicits potential new customers in specific
geographical areas in which the Company desires to increase the
density of existing routes or in which it desires to establish new
routes. A potential new customer may be offered various introductory
promotions including a free trial offer. The Company's marketing
activity emphasizes the benefits of bottled water, the convenience of
a water cooler as well as the associated regular delivery of bottled
water and, to a lesser extent, the creation of brand awareness.
An important part of the Company's sales, marketing and customer
service strategy is its focus on retaining customers. The Company
experienced a relatively low average churn rate of its water cooler
rental agreements of 2.0% per month in 1997, which management believes
is significantly lower than the industry average. The Company has also
generally lowered the churn rate of the businesses it has acquired.
Its primary strategy for minimizing its churn rate is a focus on
outstanding customer service. In addition, the Company employs certain
strategies to retain customers who indicate they wish to discontinue
receiving bottled water. Customer service representatives are
compensated for the customers they help to retain.
Distribution
As of December 31, 1997, the Company owned or leased
approximately 150 trucks and employed 215 people in its distribution
operations. The average cost per new truck is approximately $55,000,
and the Company generally delivers to neighborhoods within a ninety
minute drive from its distribution centers. Each truck has a useful
life of 7 to 12 years and can hold 120 to 300 five- or six-gallon
bottles. The Company's drivers are generally paid on a
per-delivered-bottle basis, promoting efficiency and higher
utilization of the delivery trucks. On average, a truck driver
services approximately 1,000 customers. The average customer typically
receives delivery once every two weeks. In addition, the Company's
drivers actively generate sales and are compensated for each new
customer contract they originate.
Management believes that one of the most important success
factors in the delivered bottled water business is delivery route
efficiency. Route efficiency is the critical cost factor in the water
cooler business, as the average cost of local delivery per bottle is
over four times the cost of preparing one bottle for distribution.
However, the marginal distribution cost of an additional bottle on an
existing route is relatively low.
Competition
The Company competes in the "alternative to tap water" market in
two areas. First, it competes directly with other home and office
delivery bottled water companies in its geographic markets. This
segment is highly fragmented with the vast majority of the companies
being operated as small entrepreneurial and family-owned businesses.
The Company believes it has a leading market share position in England
and Scotland in the U.K., British Columbia and the Maritime Provinces
of Canada, and Oregon in the U.S. Furthermore, management believes it
has a second market share position in the state of Washington.
Management believes that its access to capital, professional
management, and sophisticated reporting and accounting systems are
equal to or greater than those of its local competitors in these
markets. The Company believes quality of service and reliability of
delivery are the primary competitive factors in the water cooler
business. Additionally, the Company believes that the capital
intensity of its operations creates significant barriers to entry.
The Company also competes indirectly with companies that
distribute water through retail stores and vending machines.
Management believes that the competitive advantage of water coolers
over these alternative distribution channels is primarily based on the
convenience of home or office delivery and, to a lesser extent, price.
Similarly, the Company competes with providers of on-premises water
filtration systems, including systems distributed through retail
outlets, which the Company believes are aimed at less affluent
consumers. In certain markets the Company itself markets and provides
on-premises water filtration systems.
The "alternative to tap water" industry also includes a number of
well-established, well-capitalized companies, most of which do not
currently compete directly in the Company's markets. These include
Nestle S.A., which owns Perrier and the Perrier Group of America.
Perrier Group of America operates the Arrowhead, Poland Spring,
Zephyrills, Ozarka, Oasis and Great Bear brands. Suntory owns Belmont
Springs, Hinkley & Schmitt, Crystal, Kentwood, and Polar. BSN Group
owns the Evian and Dannon brands and also operates the Crystal Spring
(Toronto), Spring Valley, and Laurentian businesses. McKesson
Corporation operates the Sparkletts business. Ionics Incorporated
operates the Aquacool businesses. In addition, United States Filter
Corp. and Culligan Water Technologies Inc. compete in the water
filtration segment.
Customers
The Company has grown from a base of approximately 8,000 water
coolers in 1991 to a base of approximately 91,900 rental and 115,000
total customers as of December 31, 1997. No customer accounted for
more than 1.0% of the Company's revenue in 1997. Approximately 65% of
the Company's revenue in 1997 was derived from sales to commercial
establishments, with the balance attributable to residential
customers. Substantially all of the Company's U.K. customers are
commercial establishments. The Company's commercial customers include
not only large established businesses, but also smaller regional and
local shops, offices, warehouses and production facilities. The
Company's customers include British Rail, British Telecom, the Bank of
Scotland, Heathrow Airport, National Westminster Bank, Nike, Toronto
Dominion Bank and the Canadian Pacific Railway. Management believes
that the diversity of its customer base protects the Company from
reliance on any one customer or a particular industry segment. In
addition, the Company has a number of short term bottling contracts
with independent beverage companies, including Sobey's and Pepsi-Cola,
as well as with supermarkets such as Fred Meyer, Inc. and Safeway,
Inc.
Employees
As of December 31, 1997, the Company had approximately 523 full-
time employees, of which 113 were in sales and services, 215 in
distribution, 114 in production and warehouse and 81 in
administration. The workforce is non-unionized and temporary workers
are used during peak demand periods. The Company believes that it
enjoys generally good relations with its employees.
Seasonality
Bottled water sales are subject to seasonal variations with
decreased sales during cold weather months and increased sales during
warm weather months. Water cooler rentals are typically paid monthly
and mitigate the seasonal effect of water sales.
Foreign Operations
For the year ended December 31, 1997, 46.2% of the Company's
revenue was generated in Canada in Canadian dollars, 42.0% of the
Company's revenue was generated in the U.K. in pounds sterling and
11.8% of the Company's revenue was generated in the U.S. in U.S.
dollars. In addition, a substantial portion of the expenses incurred
by the Company during that period were denominated in currencies other
than U.S. dollars. Foreign operations are subject to a number of
special risks, including, but not limited to, risks with respect to
fluctuations in currency exchange rates, regional and national
economic conditions, economic and political destabilization, other
disruptions of markets, restrictive actions by foreign governments
(such as restrictions on transfer of funds and unexpected changes in
regulatory environments), changes in foreign laws regarding trade and
investment and foreign tax laws.
The Company does not engage in transactions in the ordinary
course of its business to hedge itself against exposure to currency
risks. However, on December 2, 1997, the Company entered into cross
currency swap transactions in Canadian dollars ($28 million) and
British pounds sterling ($30 million) for the purpose of protecting
itself from future foreign currency fluctuations. To date, the
Company has entered into no other foreign currency swap transactions.
Regulation
The Company's operations are subject to various federal, state
and local laws and regulations, which require the Company, among other
things, to obtain licenses for its business and equipment, to pay
annual license and inspection fees, to comply with certain detailed
design and quality standards regarding the Company's bottling plant
and equipment, and to continuously control the quality and quantity of
the water dispensed. Several jurisdictions have regulations that
require the Company to obtain certification for its bottled water. The
Company believes that it is currently in substantial compliance with
these laws and regulations and has passed all regulatory inspections.
In addition, the Company does not believe that the cost of compliance
with applicable government laws and regulations is material to its
business. However, any failure by the Company to comply with existing
and future laws and regulations could subject it to significant
penalties. Further, governmental laws and regulations are subject to
change and there can be no assurance that such laws or regulations
will not be modified in a manner that imposes additional costs on the
Company or otherwise has a material adverse effect on the Company's
financial position or results of operations.
Each of the Company's operating subsidiaries employs a Quality
Control Manager and follows internal, industry and government testing
requirements. In addition, all water is ozonated to ensure purity of
the Company's product. Ozonation is the government and industry
standard for the treatment of water prior to bottling.
Canada. In Canada, bottled water is considered a food product
and, as such, is governed by the Federal Department of Health and
Welfare--Health Protection Branch under the Food and Drug Act. The
Company's production site is audited annually according to the Good
Manufacturing Practices governing such plants. This inspection is
performed by the National Sanitation Foundation ("NSF") and the Health
Protection Branch.
The Company is in good standing with the International Bottled
Water Association (the "IBWA") and the Canadian Bottled Water
Association (the "CBWA"). The IBWA mandates compliance with strict
quality control standards on a global basis. The CBWA is the Canadian
chapter of the IBWA.
United Kingdom. In the U.K., bottled water is governed by the
European Union's Mineral Water Directive and Drinking Water in
Containers Regulations. In addition, the Company is a member of the
Bottled Water Cooler Association (the "BWCA") and the IBWA, both of
which play a major role in setting industry standards. The BWCA
requires its members to adhere to a Code of Practice and pass an
annual quality inspection conducted by an independent third-party
organization. The current BWCA plant inspection program is
administered by the NSF. The Company believes that it is in good
standing with the BWCA.
United States. In the U.S., bottled water is regulated by the
Federal Food and Drug Administration (the "FDA") and follows the
Quality Standards, Standards of Identity and Current Good
Manufacturing Practices guidelines under the Code of Federal
Regulations. As in the case of Canada and the U.K., inspections of the
Company's production sites in the U.S. are conducted annually by the
NSF.
Environmental Matters
The Company's operations and properties are subject to a wide
variety of federal, state, local and international laws and
regulations, including those governing the use, storage, handling,
generation, treatment, emission, release, discharge and disposal of
certain materials, substances and wastes and the health and safety of
employees (collectively, "Environmental Laws"). Such laws, including
but not limited to, those under the Comprehensive Environmental
Response, Compensation & Liability Act may impose joint and several
liability and may apply to conditions at properties presently or
formerly owned or operated by an entity or its predecessor as well as
to conditions of properties at which wastes or other contamination
attributable to an entity or its predecessor have been sent or
otherwise come to be located. Based upon its experience to date, the
Company believes that it is in substantial compliance with existing
Environmental Laws and that any liability for known environmental
claims pursuant to such Environmental Laws will not have a material
adverse effect on the Company's financial position or results of
operations and cash flows. However, future events, such as new
information, changes in existing Environmental Laws or their
interpretation, and more vigorous enforcement policies of regulatory
agencies, may give rise to additional expenditures or liabilities.
Recent Developments
On February 24, 1998, the Company purchased all of the
outstanding capital stock of Coastal Mountain Water Corp. ("Coastal")
for approximately $4.2 million. Coastal is based in Vancouver, British
Columbia and focuses on the direct delivery of eighteen litre
containers of water to residential and commercial customers and the
rental of water coolers.
Effective April 3, 1998, Stephen L. Larson, resigned from his
positions as Vice Chairman of the Board of Directors and Chief
Financial Officer of Sparkling Spring and as an officer and director
of each of its subsidiaries to pursue other business interests.
Mr. Larson will continue to serve as a director of Sparkling Spring.
Kent Dillon Schickli replaced Mr. Larson as Chief Financial Officer of
Sparkling Spring effective April 3, 1998. See Item 10 - Directors and
Officers of Registrant.
On May 16, 1998 the Company purchased all of the outstanding
capital stock of Krystal Fountain Water Co. Ltd. ("Krystal Fountain").
Krystal Fountain operates primarily in the M25 area in London,
England.
On May 26, 1998, the Company closed a $40 million Senior Credit
Facility with The Toronto-Dominion Bank, Toronto Dominion (Texas),
Inc. and The Toronto-Dominion Bank, London Branch (collectively,
"Toronto-Dominion"). The Senior Credit Facility is for general
corporate purposes including working capital, acquisitions and
capital expenditure financing. See Item 9 - Management's Discussion
and Analysis of Financial Condition and Results of Operations - Senior
Credit Facility.
ITEM 2. DESCRIPTION OF PROPERTY
The Company maintains corporate headquarters in Dartmouth, Nova
Scotia and Stamford, Connecticut. The following table sets forth
certain information relating to each of the Company's facilities:
Size Owned/ Lease
Location sq. ft. Purpose Leased Expiration
Canada:
Dartmouth, Nova Scotia 14,000 Corporate Leased June 2002
Headquarters,
Distribution
Valley, Nova Scotia 14,500 Bottling, Owned N/A
Distribution
Sydney, Nova Scotia 4,500 Offices, Leased May 1999
Distribution
Moncton, New Brunswick 3,700 Office, Distribution Leased June 2001
Saint John, New 4,300 Offices, Leased May 2003
Brunswick Distribution
Vancouver, British 19,600 Offices, Bottling, Leased Oct. 1999
Columbia Distribution
Victoria, British 7,250 Offices, Bottling, Leased Feb. 2003
Columbia Distribution
Nanaimo, British 1,300 Distribution Leased Monthly
Columbia
Kamloops, British 10,000 Offices, Bottling, Leased Feb. 2003
Columbia Distribution
2,500 Surplus Leased May 1999
Prince George, British 7,800 Bottling, Leased June 2002
Columbia Distribution
2,500 Surplus Leased Aug. 1998
United Kingdom:
Tewkesbury, England 8,600 Offices, Leased Apr. 2008
Distribution
High Wycombe, England 18,000 Offices, Leased Dec. 2006
Distribution
High Wycombe, England 18,000 Bottling Leased Dec. 2006
Warrington, England 4,000 Offices, Leased Dec. 2002
Distribution
Arklo Road, England 8,000 Offices, Leased Oct. 2006
Distribution
Glasgow, Scotland 4,000 Offices, Leased June 2004
Distribution
Dumfries, Scotland 4,000 Bottling Leased June 2009
Dundee, Scotland 2,000 Offices, Leased Feb. 2000
Distribution
United States:
Stamford, Connecticut 675 Offices Leased Dec. 1998
Portland, Oregon 30,000 Bottling, Leased Oct. 2007
Distribution,
Offices
Portland, Oregon 10,000 Distribution Leased June 2000
7,000 Bottling, Offices Leased June 2002
Seattle, Washington 25,000 Bottling, Leased Oct. 2002
Distribution,
Offices
All of the Company's bottling and distribution facilities, in the
opinion of the Company's management, have been adequately maintained,
are in good operating condition and generally have sufficient capacity
to handle all present sales volume and all sales volume contemplated
in the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any litigation other than routine
legal proceedings incidental to its business. Management does not
expect that these proceedings will have a material adverse effect on
the Company.
ITEM 4. CONTROL OF REGISTRANT
Gaspar Limited ("Gaspar"), a Barbados corporation wholly-owned by
a trust for the benefit of Mr. Krediet and his children, owns 50.9% of
the outstanding Common Stock of Sparkling Spring. Clairvest Group,
Inc., a Canadian corporation, is the holder of 30.4% of the
outstanding Common Stock of Sparkling Spring. As far as known to the
Company, the Company is not directly or indirectly owned or controlled
by any foreign government.
Sparkling Spring, Gaspar, Clairvest, Stephen L. Larson, Lucy
Stitzer, Stewart E. Allen and certain other shareholders of the
Company are parties to a Shareholder Agreement, dated as of October
22, 1997 (the "Shareholder Agreement") which sets forth various
arrangements, the operation of which could at a subsequent date,
result in a change of control of the Company. For a more detailed
discussion of the provisions of the Shareholder Agreement, see Item 13
- - - Interest of Management in Certain Transactions - Shareholder
Agreement.
Security Ownership Of Certain Beneficial Owners And Management
The following table sets forth as at December 31, 1997 certain
information regarding the ownership of Common Stock of Sparkling
Spring after giving effect to the Reorganization and the issuance of
non-voting shares to key managers, with respect to (i) each person
known by the Company to own beneficially more than 5.0% of the
outstanding shares of Common Stock, (ii) each of Sparkling Spring's
directors, (iii) each person named in the Summary Compensation Table
and (iv) all directors and officers as a group. Except as otherwise
indicated, each of the shareholders has sole voting and investment
power with respect to the shares of Common Stock beneficially owned.
Unless otherwise indicated, the address for each shareholder is in
care of the Company, 19 Fielding Avenue, Dartmouth Nova Scotia, Canada
B3B-1C9.
After giving effect to the Reorganization and the issuance of non-
voting shares to key managers, there were outstanding an aggregate of
1,392,688 shares of Common Stock and an aggregate of 252,197 options
and warrants to purchase shares of Common Stock. All shares of Common
Stock issuable upon exercise of options and warrants are not entitled
to vote on matters submitted to a vote of the shareholders of
Sparkling Spring.
Beneficial Ownership (1)
Shares of
Name of Beneficial Owner Common Stock Percent
Gaspar Limited 713,300(2) 50.9%
Bridgetown, Barbados
Clairvest Group Inc.
Toronto, Ontario 423,190 30.4%
G. John Krediet 8,250(3) *
Stephen L. Larson 172,996(4) 12.0%
Stewart E. Allen 110,378(5) 7.4%
Lucy M. Stitzer 94,010 6.8%
Michael Bregman --(6) --
Kenneth B. Rotman --(7) --
C. Sean Day 8,994 *
All Directors and Executive 1,099,678 70.5%
Officers as a Group (8
persons)
__________________________
* Less than one percent
(1)Shares of Common Stock which an individual or group has a right to
acquire at any time pursuant to the exercise of options or
warrants, whether or not currently vested or exercisable, are
deemed to be outstanding for the purpose of computing the
percentage ownership of that individual or group, but are not
deemed to be outstanding for the purpose of computing the
percentage ownership of any other person shown in the table.
Information in this Report regarding the ownership of the Common
Stock of Sparkling Spring is calculated in accordance with the
foregoing methodology.
(2)Gaspar Limited is a Barbados corporation wholly-owned by a trust
organized for the benefit of G. John Krediet and his children.
Includes 8,250 shares of Common Stock issuable upon exercise of
options held by Mr. Krediet.
(3)Includes 8,250 shares of Common Stock issuable upon exercise of
options. Does not include shares owned by Gaspar Limited.
(4)Includes 53,787 shares of Common Stock issuable upon exercise of
options.
(5)Includes 104,706 shares of Common Stock issuable upon exercise of
options.
(6)Excludes 423,190 shares held by Clairvest Group Inc., of which
Mr. Bregman, a Director of Sparkling Spring, is the Vice Chairman
and a Director, and with respect to which Mr. Bregman disclaims
beneficial ownership.
(7)Excludes 423,190 shares held by Clairvest Group Inc., of which
Mr. Rotman, a Director of Sparkling Spring, is a Managing
Director, and with respect to which Mr. Rotman disclaims
beneficial ownership.
ITEM 5. NATURE OF TRADING MARKET
As of the date of this Report, there is no principal non-United
States or United States trading market for the Notes. As at May 31,
1998, approximately $100.0 million principal amount of the Notes were
held by approximately 13 recordholders in the United States.
ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS
AFFECTING SECURITY HOLDERS
As at the date of this Report, there are no governmental laws,
decrees or regulations in Canada that restrict the remittance of
interest or other payments to non-resident holders of the Notes.
ITEM 7. TAXATION
The following summary describes the principal Canadian federal
income tax consequences generally applicable to a holder of a Note who
for purposes of the Income Tax Act (Canada) (the "Canadian Tax Act"),
and at all relevant times, is a non-resident of Canada, deals at arm's
length with the Company, and does not use or hold and is not deemed to
use or hold the Note in the course of carrying on a business in Canada
and is not an insurer that carries on an insurance business in Canada
and elsewhere.
This summary is based on the current provisions of the Canadian
Tax Act and the regulations thereunder (the "Regulations") in force on
the date hereof, the Company's understanding of the current published
administrative and assessing practices and policies of Revenue Canada,
and all specific proposals to amend the Canadian Tax Act and the
Regulations publicly announced by the Minister of Finance (Canada)
prior to the date of this Report (the "Proposed Amendments"). This
summary is not exhaustive of all possible Canadian federal tax
consequences and, except for the Proposed Amendments, does not take
into account or anticipate changes in the law or the administrative or
assessing practices of Revenue Canada, whether by judicial,
governmental or legislative action or interpretation, nor does it take
into account provincial, territorial or foreign tax legislation or
considerations.
The payment by Sparkling Spring of interest, principal or
premium, if any, on the Notes (and payments under the Guarantees by a
Guarantor that is a resident of Canada for purposes of the Canadian
Tax Act) will be exempt from withholding tax under the Canadian Tax
Act.
No other tax on income (including taxable capital gains) will be
payable under the Canadian Tax Act in respect of the holding, sale,
redemption or other disposition of the Notes or the receipt of
interest, principal or premium, if any, thereon.
THIS SUMMARY IS OF A GENERAL NATURE ONLY AND IS NOT INTENDED TO
BE, AND SHOULD NOT BE INTERPRETED AS, LEGAL OR TAX ADVICE TO ANY
PARTICULAR HOLDER OF A NOTE. ACCORDINGLY, HOLDERS OF THE NOTES ARE
URGED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THEIR
PARTICULAR CIRCUMSTANCES.
ITEM 8. SELECTED FINANCIAL DATA
The following selected historical consolidated financial data of
the Company for the five years ended December 31, 1997 has been
derived from the consolidated financial statements of the Company
which have been audited by Ernst & Young, independent public
accountants. The information set forth below should be read in
conjunction with Item 9 -Management's Discussion and Analysis of
Financial Condition and Results of Operations, and the Consolidated
Financial Statements of the Company including the notes thereto,
included in Item 18 of this Report.
(dollars in thousands)
Year Ended December 31,
1993 1994 1995 1996 1997
Income Statement Data:
Revenue $3,867 $8,725 $15,349 $27,326 $42,074
Cost of sales 1,139 1,755 2,863 4,676 7,140
Operating expenses 2,175 5,356 9,041 15,756 23,722
Depreciation and 438 1,095 1,465 3,842 5,692
amortization
Interest expense 228 625 1,294 2,481 5,018
Net income (loss) before
extraordinary items (63) (94) 411 166 (4,525)
Net (loss) income (260) (238) 19 (307) (5,358)
Other Data:
EBITDA (1) $ 553 $ 1,614 $ 3,445 $ 6,894 $11,212
EBITDA margin 14.3% 18.5% 22.4% 25.2% 26.7%
Ratio of EBITDA to net
cash interest expense 2.43 2.58 2.66 2.78 2.21
Cash provided by (used
in) operating
activities 237 1,029 1,491 3,216 (804)
Cash used in investing 1,476 7,579 4,219 24,168 33,899
activities
Cash provided by 1,957 5,926 3,551 22,669 60,005
financing activities
Net capital expenditures 1,043 1,257 2,287 6,736 6,038
Water cooler base 11,181 23,838 30,344 68,614 115,037
Balance Sheet Data:
Cash and cash $ 731 $ 67 $ 860 $ 2,231 $ 27,507
equivalents
Total assets 5,398 13,835 18,521 44,409 106,999
Long-term debt (2) 3,227 7,623 11,309 30,474 104,799
Common shareholders' 755 2,331 2,207 6,772 (8,960)
equity (deficit)
___________________
(1) "EBITDA" means operating profit plus depreciation and
amortization. EBITDA is presented because it is a widely accepted
financial indicator of a company's ability to service and/or to
incur indebtedness. However, EBITDA should not be considered as an
alternative to net income as a measure of operating results or to
cash flow from operations as a measure of liquidity in accordance
with generally accepted accounting principles.
(2) Includes amounts due under capital lease obligations and loans
payable including current maturities and the Notes.
The above financial information includes the results of
operations of the following companies from their dates of acquisition
as follows: Crystal Springs Limited: April 14, 1993; Water Cooler
Division of Buxton Mineral Water Company Limited: June 8, 1994;
Aquarporte (UK) Ltd.: April 26, 1995; Canadian Springs Water Company
Limited: January 18, 1996; Water Jug Enterprises Limited: May 19,
1996; D&D and Company, Inc.: January 2, 1997; Withey's Water Softening
& Purification Limited: January 28, 1997; High Valley Water Limited:
January 30,1997; Marlborough Employment Agency Limited: February 5,
1997; Soja Enterprises, Inc. June 4, 1997; Crystal Springs Bottled
Water Co., Inc.: June 23, 1997; Cullyspring Water Co., Inc.: October
23, 1997; and Crystal Springs Drinking Water Inc.: December 17, 1997.
Exchange Rate Data
The following table sets forth for both Canadian dollars and
British pounds sterling for the periods indicated, the high and low
exchange rates (i.e., the highest and lowest exchange rate at which
each currency was sold), the average exchange rate (i.e., the average
of each exchange rate on the last business day of each month during
the applicable period) and the period end exchange rate of each
currency in exchange for the U.S. dollar, as calculated from the
inverse of the exchange rates reported by the Federal Reserve Bank of
New York for cable transfers payable in Canadian dollars and British
pounds sterling for customs purposes.
Year ended December 31,
1993 1994 1995 1996 1997
Canadian Dollar
High for period 0.807 0.764 0.753 0.753 0.749
Low for period 0.742 0.710 0.710 0.721 0.695
End of period 0.757 0.713 0.733 0.730 0.700
Average for period 0.775 0.732 0.728 0.733 0.722
British Pound Sterling
High for period 1.593 1.643 1.641 1.711 1.7115
Low for period 1.418 1.460 1.527 1.497 1.5797
End of period 1.480 1.564 1.552 1.705 1.642
Average for period 1.501 1.531 1.578 1.560 1.638
ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the results of
operations of the Company should be read in conjunction with Item 8 -
Selected Financial Data and the Consolidated Financial Statements of
the Company, and the notes thereto, included elsewhere in this Report.
General
The Company is one of the world's largest providers of bottled
water delivered directly to commercial and residential customers in
Canada, the United Kingdom and the United States. The Company's
revenue is primarily generated from two relatively stable and
recurring sources: bottled water sales and the rental and service of
water coolers. Additionally, the Company engages in certain related
activities. The Company's revenue growth in recent years is primarily
attributable to increased water cooler penetration, strategic
acquisitions in existing and new geographic territories and higher
sales of ancillary products sold through the Company's established
distribution channels.
In 1997, the Company generated approximately 24.6% of its total
revenue from the rental of water coolers. The Company typically
charges its customers a monthly water cooler rental charge. Total
rental revenue is a function of the size of the Company's water cooler
base and the monthly cooler rental charge. From December 31, 1995 to
December 31, 1997, the Company's water cooler base increased by 279.1%
from 30,344 to 115,037. The Company's average monthly cooler rental
charge remained relatively stable during this period.
Revenue from the sale of bottled water to commercial and
residential markets, which accounted for 60.6% of the Company's total
revenue in 1997, is driven by a number of factors, including the water
cooler base, consumption of bottled water per customer and the price
charged per bottle of water.
The remaining 14.8% of the Company's total revenue in 1997 was
generated from related activities, including the sale of paper cups,
cooler sanitation services, coffee, water filtration devices and water
through vending machines. The Company plans to continue these
ancillary activities to maximize the profitability of its established
distribution system.
Since 1994, the Company has substantially improved its sales and
profitability by increasing its base of water coolers through internal
growth and acquisitions. The Company's operations are characterized by
relatively high fixed costs due to the significant investment required
to establish a bottling and distribution infrastructure. As the
Company grows its revenue base by acquiring and consolidating new
routes within its existing route structure, operating costs decline as
a percentage of revenue. This operating leverage is driven by the
following factors: (i) improved route efficiency; (ii) consolidation
of production and distribution facilities; (iii) realization of
savings from greater purchasing volume; (iv) elimination of
duplicative administrative costs; (v) improved management control
through centralized accounting and reporting systems; and
(vi) enhanced marketing efficiency. As a result, positive changes in
revenue tend to have a larger corresponding impact on EBITDA and
operating income. The continued consolidation of production and
distribution capabilities is a key component of the Company's business
strategy both within its current markets and in any new markets it may
enter. Consequently, the Company expects operating expenses to grow at
a rate less than that of anticipated revenue growth.
For certain financial information relating to each of the
geographic regions in which the Company operates, see Note 19 to the
Notes to Consolidated Financial Statements of Sparkling Spring Water
Group Limited included in Item 18 of this Report.
Results of Operations
The following table sets forth, for the periods indicated,
certain statement of operations and other data of the Company.
Year Ended December 31
1995 1996 1997
Revenue 100% 100% 100%
Cost of sales 18.7 17.1 17.0
Operating expenses 58.9 57.7 56.4
EBITDA 22.4 25.2 26.7
Depreciation and amortization 9.5 14.1 13.5
Interest expense 8.4 9.1 11.9
Net income (loss) before
extraordinary items 2.7 0.6 (10.8)
Net income (loss) 0.1 (1.1) (12.7)
Year Ended December 31, 1997 to Year Ended December 31, 1996
Revenue. Revenue increased $14.8 million, or 54.0%, to $42.1
million in 1997 compared to $27.3 million in 1996. The water cooler
base increased by 46,423 or 67.7% to 115,037 compared to 68,614 in
1996. Acquisitions completed in fiscal 1997 provided an increase in
the water cooler base of 34,375 and accounted for approximately $11.6
million or 78.7% of the total increase in revenue. The remaining
increase in water coolers of 12,048 and revenue of $3.2 million was
primarily the result of additional water cooler rentals and bottled
water sales in the Company's existing territories and a full year of
revenue being recognized in 1997 for the 1996 acquisitions.
Cost of Sales. Cost of sales increased $2.4 million, or 52.7%,
to $7.1 million in 1997 compared to $4.7 million in 1996 largely as a
result of the acquisitions completed in 1996 and 1997. Cost of sales
as a percentage of revenue decreased slightly to 17.0% in 1997 from
17.1% in 1996.
Operating Expenses. Operating expenses increased $7.9 million or
50.6% to $23.7 million in 1997 compared to $15.8 million in 1996 as a
result of the acquisitions completed in 1996 and 1997. Operating
expenses as a percentage of revenue decreased to 56.3% in 1997 from
57.7% in 1996. This decrease as a percentage of revenue was the result
of incremental sales volumes being applied to relatively fixed
distribution costs; specifically, more efficient utilization of the
existing route fleet through increased route density.
EBITDA. For the reasons stated above, EBITDA in 1997 increased by
$4.3 million, or 62.6%, to $11.2 million from $6.9 million in 1996. As
a percentage of revenue, EBITDA in 1997 increased to 26.7% from 25.2%
in 1996.
Depreciation and Amortization. Depreciation and amortization
expense increased to $5.7 million in 1997 from $3.8 million in 1996.
This increase was due to significant increases in fixed assets as a
result of the acquisitions consummated in the period, the higher
depreciation expense associated with the increased water cooler base,
and the standard levels of capital expenditures for existing
operations.
Interest Expense. Interest expense increased $2.5 million or
102.2% to $5.0 million in 1997 from $2.5 million in 1996. This
increase was a result of increased borrowings made to fund
acquisitions and the issuance of $100 million of Senior Subordinated
Notes bearing interest at a rate of 11.5%.
Year Ended December 31, 1996 to Year Ended December 31, 1995
Revenue. Revenue increased $12.0 million, or 78.0%, to $27.3
million in 1996 compared to $15.3 million in 1995. This increase
resulted from the inclusion of approximately $9.9 million of revenue
from the following acquisitions completed in 1996: (i) Water Jug,
acquired in May 1996, contributed $0.8 million in revenue and 4,200
water cooler customers and (ii) Canadian Springs, acquired in January
1996, contributed $9.1 million in revenue and 29,000 water cooler
customers. The remaining $2.1 million, or 17.5%, was primarily the
result of 5,070 additional water coolers installed in the Company's
existing territories.
Cost of Sales. Cost of sales increased $1.8 million, or 63.3%,
to $4.7 million in 1996 compared to $2.9 million in 1995, largely as a
result of the acquisitions completed in 1995 and 1996. Cost of sales
as a percentage of revenue decreased to 17.1% in 1996 from 18.7% in
1995 based on the elimination of duplicate expenses in connection with
the Company's acquisitions and economies of scale realized from an
increase in volume.
Operating Expenses. Operating expenses increased $6.8 million,
or 74.3%, to $15.8 million in 1996 compared to $9.0 million in 1995 as
a result of acquisitions completed in 1995 and 1996. Operating costs
as a percentage of revenue decreased to 57.7% in 1996 from 58.9% in
1995. This decrease as a percentage of revenue was the result of
incremental sales volume being applied to relatively fixed
distribution costs; specifically, the Company achieved more efficient
utilization of its existing route fleet through increased route
density.
EBITDA. For the reasons stated above, EBITDA in 1996 increased by
$3.5 million, or 100.1%, to $6.9 million from $3.4 million in 1995. As
a percentage of revenue, EBITDA increased to 25.2% in 1996 from 22.4%
in 1995.
Depreciation and Amortization. Depreciation and amortization
expense increased $2.3 million to $3.8 million in 1996 from $1.5
million in 1995. This increase was due to significant increases in the
fixed assets as a result of the acquisitions consummated in such
period and the standard levels of capital expenditures for existing
operations.
Interest Expense. Interest expense increased $1.2 million, or
91.7%, to $2.5 million in 1996 from $1.3 million in 1995. This
increase was a result of increased borrowings made to fund
acquisitions, capital expenditures and working capital requirements.
Liquidity and Capital Resources
Historically, the Company has funded its capital and operating
requirements with a combination of cash flow from operations,
borrowings under bank credit facilities and equity investments from
shareholders. The Company has utilized these sources of funds to make
acquisitions, to fund significant capital expenditures at its
properties, to fund operations and to service debt. The Company
presently expects to fund its future capital and operating
requirements at its existing operations through a combination of cash
generated from operations, excess cash proceeds from the issuance of
the Notes and borrowings under the Senior Credit Facility (see below).
Excluding funds of approximately $4.6 million used to repurchase
options to acquire common shares of the Company, net cash provided by
operating activities was $3.8 million for the year ended December 31,
1997 and $3.2 million for the year ended December 31, 1996. Net cash
used in investment activities was $33.9 million for the year ended
December 31, 1997 and $24.2 million for the year ended December 31,
1996. These amounts relate primarily to eight acquisitions completed
in the year ended December 31, 1997 for $27.9 million and three
acquisitions completed in 1996 for $17.4 million. Capital expenditures
include expenditures related to the addition of bottling lines at
existing facilities, construction of new bottling facilities, and the
purchase of water bottles, water coolers and delivery trucks. The
Company made net capital expenditures of $6.0 million in the year
ended December 31, 1997 and $6.7 million in 1996. Based on the
Company's existing operations, management expects that the Company's
capital expenditures will total approximately $7.5 million in 1998.
The Company believes that the net proceeds from the sale of the
Senior Subordinated Notes together with available cash, cash generated
from operations and available borrowings under the Senior Credit
Facility will be sufficient to finance the Company's working capital
and capital expenditure requirements for 1998 as well as some
acquisitions. However, there can be no assurance that such resources
will be sufficient to meet the Company's anticipated requirements or
that the Company will not require additional financing within this
time frame.
The Notes
Pursuant to a Purchase Agreement dated November 14, 1997,
Sparkling Spring sold unregistered 11.5% Senior Subordinated Notes due
2007 (the "Private Notes") in an aggregate principal amount of $100.0
million to BT Alex. Brown Incorporated and NatWest Capital Markets
Limited (the "Initial Purchasers") in a transaction not registered
under the Securities Act in reliance upon the private offering
exemption under Section 4(2) of the Securities Act. The Initial
Purchasers subsequently placed the Private Notes with qualified
institutional buyers in reliance upon Rule 144A under the Securities
Act and with a limited number of accredited investors (as defined in
Rule 501(a)(1), (2), (3) or (7) under the Securities Act). The net
proceeds to Sparkling Spring from the sale of the Private Notes, after
deduction of discounts and offering expenses, were approximately $96.3
million. Sparkling Spring used approximately $56.5 million of the net
proceeds to repay the entire principal amount and accrued interest
owing under its existing credit facility and approximately $13.9
million was used in connection with the Reorganization (as defined).
The remaining proceeds of the sale of the Private Notes of
approximately $25.9 million, was and will be used for general
corporate purposes including repayment of some of the Company's
outstanding indebtedness and for potential acquisitions.
Pursuant to a Prospectus dated April 1, 1998, under a
Registration Statement declared effective on that date under the
Securities Act, Sparkling Spring commenced an offer (the "Exchange
Offer") to exchange $1,000 principal amount of its registered 11.5%
senior subordinated notes due 2007 (the "Exchange Notes") for each
$1,000 principal amount of the Private Notes. The form and terms of
the Exchange Notes are identical in all material respects to those of
the Private Notes, except for certain transfer restrictions and
registration rights relating to the Private Notes and except for
certain interest provisions relating to such registration rights. The
Exchange Notes also have the same redemption terms as the Private
Notes. The Exchange Notes evidence the same indebtedness as the
Private Notes and were and will be issued pursuant to, and entitled to
the benefits of, an Indenture, dated as of November 19, 1997 governing
the Private Notes and the Exchange Notes (the "Indenture").
The Notes are redeemable at Sparkling Spring's option, in whole
or in part, on and after November 15, 2002 at specified redemption
prices, plus accrued and unpaid interest to the date of redemption. In
addition, at any time on or prior to November 15, 2000, Sparkling
Spring, at its option, may redeem up to $30.0 million of the aggregate
principal amount of the Notes originally issued with the net cash
proceeds of one or more Public Equity Offerings, at a redemption price
equal to 111.50% of the principal amount thereof, plus accrued and
unpaid interest to the date of redemption, provided that at least
$70.0 million of the aggregate principal amount of the Notes
originally issued remains outstanding immediately following any such
redemption.
Upon a Change of Control (as defined in the Indenture), each
holder of the Notes will have the right to require Sparkling Spring to
repurchase such holder's Notes at a price equal to 101% of the
principal amount thereof plus accrued and unpaid interest to the date
of repurchase.
The Notes are general unsecured obligations of Sparkling Spring
and are subordinated in right of payment to all existing and future
Senior Indebtedness (as defined in the Indenture). The Notes rank pari
passu in right of payment with any future senior subordinated
indebtedness of Sparkling Spring and will rank senior in right of
payment to all other subordinated obligations of Sparkling Spring.
Under the Indenture, Sparkling Spring has the ability to incur
additional indebtedness and in May 1998, the Company entered into a
Senior Credit Agreement (the "Senior Credit Facility") with Toronto-
Dominion that provides up to $40.0 million of secured senior debt.
See - Senior Credit Facility (below).
The Notes are fully and unconditionally guaranteed on a senior
subordinated basis by the Subsidiary Guarantors. The Guarantees are
general unsecured obligations of the Subsidiary Guarantors and are
subordinated in right of payment to all existing and future Guarantor
Senior Indebtedness (as defined in the Indenture). The Guarantees rank
pari passu with any future senior subordinated indebtedness of the
Subsidiary Guarantors and rank senior in right of payment to any other
subordinated obligations of the Subsidiary Guarantors.
The Indenture contains certain covenants with respect to
Sparkling Spring and its subsidiaries that restrict, among other
things, (a) the incurrence of additional indebtedness, (b) the payment
of dividends and other restricted payments, (c) the creation of liens,
(d) the sale or other transfer of assets and subsidiary stock, (e) the
existence of limitations on distributions from subsidiaries,
(f) transactions with affiliates and (g) the issuance of preferred
stock by subsidiaries. The Indenture also restricts the ability of
Sparkling Spring and the Subsidiary Guarantors to consolidate or merge
with or into, or to transfer all or substantially all of its assets
to, another person. In addition, under certain circumstances,
Sparkling Spring will be required to offer to purchase Notes, in whole
or in part, at a purchase price equal to 100% of the principal amount
thereof plus accrued interest to the date of repurchase, with the
proceeds of certain Asset Sales (as defined in the Indenture).
Senior Credit Facility
On May 26, 1998, the Company closed a $40 million Senior Credit
Facility (the "Credit Facility") with Toronto-Dominion. The
Credit Facility will be used for general corporate purposes including
working capital, acquisitions and capital expenditure financing.
The Credit Facility is structured as a multi-currency revolving
facility having a term of approximately six and one half years. The
Company's payment obligation under the Credit Facility is secured by a
first priority security interest over substantially all of the assets
of the Company; obligations under the Credit Facility will rank senior
to the payment of the Notes.
Amounts outstanding under the Credit Facility will bear interest
at specified rates based on the Canadian prime rate in the case of
advances made in Canadian dollars, at specified rates based on the
London inter-bank market in the case of advances made in British
pounds sterling or U.S. dollars, and at specified rates based on the
U.S. prime rate in the event of advances made in U.S. dollars.
The Credit Facility contains covenants, customary for
transactions of this type, including, without limitation, (i)
restrictions on the incurrence of indebtedness, leases, liens and
contingent obligations, other than indebtedness represented by the
Notes, indebtedness under the Credit Facility and liens incurred in
the normal course of business, (ii) restrictions on mergers,
acquisitions, sales of assets, investments and transactions with
affiliates, (iii) restrictions on dividends and other payments with
respect to shares of the Company's capital stock and (iv) restrictions
on capital expenditures. Additionally, the Credit Facility contains
the following financial covenants and coverage tests: (i) the ratio of
senior debt (consisting of amounts outstanding under the Credit
Facility, vendor debt, capital leases and permitted encumbrances) to
EBITDA (on a rolling four quarter basis) shall not exceed 2.5:1.0;
(ii) EBITDA (on a rolling four quarter basis) shall not be less than
135% of total interest expense less amortization of non-cash interest
amounts and (iii) EBITDA (on a rolling four quarter basis) less
capital expenditures less income taxes paid shall not be less than
120% of the amount of interest due under the Credit Facility plus
payments of principal under the Credit Facility and permitted
encumbrances.
Events of default under the Credit Facility include, among
others, (i) failure of the Company to repay principal on advances or
interest thereon or other amounts owing under the Credit Facility
within two business days after the due date, (ii) the breach (not
cured within applicable grace or notice periods, if any) by the
Company or any of its subsidiaries of any covenants, representations
or warranties contained in the Credit Facility, (iii) any failure to
pay amounts due under other indebtedness or contingent obligations of
the Company or any of its subsidiaries or defaults that result in or
permit the acceleration of such indebtedness or contingent
obligations, if the aggregate amount of such indebtedness or
contingent obligation exceeds a specified amount, (iv) certain events
of bankruptcy, insolvency or dissolution of the Company or any of its
subsidiaries, (v) certain changes of control of the Company, (vi) a
material adverse change in the financial condition, business condition
or prospects of the Company or any of its subsidiaries and (vii) any
material judgment or award against the Company or any of its
subsidiaries. If an event of default was to occur and remain
outstanding in excess of any applicable cure period, it is expected
that all amounts outstanding under the Credit Facility would
immediately become due and payable.
Year 2000
The Year 2000 issue arises due to computer programs using two
digits rather than four to define an applicable year. Computer
programs may recognize a date using "00" as the year 1900 rather than
the year 2000. This could result in system failures or
miscalculations leading to disruptions in the Company's operations.
If the Company or its significant customers or suppliers fail to
adequately address the Year 2000 issue, such failure could have an
adverse impact on the Company's ability to operate its business.
Sparkling Spring has taken action to address and complete the
work associated with the Year 2000. Each of the Company's business
locations has established a team to identify and correct Year 2000
issues. The Company's principal financial and operational computer
systems utilize software developed and supported by an outside
computer software supplier. It is the Company's understanding that
this supplier has completed an analysis of the changes required to
accommodate the Year 2000 and that software upgrades will be completed
and tested by early 1999. In addition, the impact of Year 2000 on
manufacturing plants and building facilities is also being addressed.
The Company is also investigating the Year 2000 capabilities of
suppliers, customers and other external entities, and developing
contingency plans where necessary.
Sparkling Spring does not expect the costs associated with Year
2000 to be material to the Company's consolidated financial position,
results of operations or cash flows. This expectation is based on the
assumption that the Company has contemplated all significant actions
required and that significant costs related to Year 2000 will not be
incurred on behalf of the Company's customers or suppliers.
Impact of Inflation
The Company does not believe that inflation has had a material
impact on its revenue or results of operations.
Safe Harbor Statement Under the Private Securities Litigation Reform
Act of 1995
Statements included in this Report that do not relate to present
or historical conditions are "forward looking statements" within the
meaning of the Safe Harbor provisions of the Private Securities
Litigation Reform Act of 1995 (the "1995 Reform Act"). Additional
oral or written forward-looking statements may be made by the Company
from time to time, and such statements may be included in documents
other than this Report that are filed with the SEC. Such forward-
looking statements involve risks and uncertainties that could cause
results or outcomes to differ materially from those expressed in such
forward-looking statements. Forward-looking statements in this Report
and elsewhere may include without limitation, statements relating to
the Company's plans, strategies, objectives, expectations, intentions
and adequacy of resources and are intended to be made pursuant to the
safe harbor provisions of the 1995 Reform Act. Words such as
"believes," "forecasts," "intends," "possible," "expects,"
"estimates," "anticipates," or "plans" and similar expressions are
intended to identify forward-looking statements. Investors are
cautioned that such forward-looking statements involve risks and
uncertainties including without limitation the following: (i) the
Company's plans, strategies, objectives, expectations and intentions
are subject to change at any time at the discretion of the Company;
(ii) the Company's ability to expand by acquisitions is dependent
upon, and may be limited by, the availability of suitable acquisition
candidates and the availability of financing therefor on suitable
terms; (iii) the Company's ability to obtain financing will be
affected by restrictions contained in the Indenture and the Company's
other existing and future financing arrangements; (iv) the Company's
proposed expansion strategy will be substantially dependent upon the
Company's ability to hire and retain skilled management, financial,
marketing and other personnel; (v) the Company's plans and results of
operations will be affected by the Company's ability to successfully
manage growth (including monitoring operations, controlling costs and
maintaining effective quality and inventory controls; (vi) the market
for attractive acquisitions in the bottled water industry is becoming
increasingly competitive, which could make the Company's acquisition
strategy more difficult to achieve; (vii) the Company's operations are
subject to the jurisdiction of various governmental and regulatory
agencies which regulate the quality of drinking water and other
products and any failure by the Company to comply with existing and
future laws and regulations could subject the Company to significant
penalties or impose additional costs on the Company or otherwise have
a material adverse affect on its financial position or results of
operations; (viii) any interruption in the availability of water to
the Company from municipal sources and local natural springs could
have a material adverse affect on the Company's operations until
suitable replacement sources are located; and (ix) other risks and
uncertainties indicated from time to time in the Company's filings
with the SEC.
ITEM 9A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not engage in transactions in the ordinary
course of its business to hedge itself against exposure to currency
risks. However, on December 2, 1997, the Company entered into cross
currency swap transactions in Canadian dollars ($28 million) and
British pounds sterling ($30 million) for the purpose of protecting
itself from future foreign currency fluctuations. To date, the
Company has entered into no other foreign currency swap transactions.
ITEM 10. DIRECTORS AND OFFICERS OF REGISTRANT
The following table sets forth certain information as of May 31,
1998 with respect to each of the directors, executive officers and key
management personnel of Sparkling Spring.
Name Age Position with Sparkling Spring
G. John Krediet 47 Chairman of the Board of Directors
and Chief Executive Officer
Stewart E. Allen 39 President and Director
Kent Dillon Schickli 45 Chief Financial Officer
Stephen L. Larson 39 Director
Michael Bregman 43 Director
C. Sean Day 49 Director
Kenneth B. Rotman 31 Director
Lucy M. Stitzer 37 Director
Effective April 3, 1998, Stephen L. Larson, resigned from his
positions as Vice Chairman of the Board of Directors and Chief
Financial Officer of Sparkling Spring and as an officer and director
of each of its subsidiaries to pursue other business interests.
Mr. Larson will continue to serve as a director of Sparkling Spring.
Kent Dillon Schickli replaced Mr. Larson as Chief Financial Officer
effective April 3, 1998.
G. John Krediet has been Chairman of the Board of Directors and
Chief Executive Officer of SSWL since January 1991. From 1988 until
1992 he served as Chairman of the Board of MBL, the Pepsi-Cola
franchisee and former parent company of SSWL. From September 1988
through November 1990 he also served as Chairman of the Board of
Eastern Beverages Ltd., the Pepsi-Cola franchise for the territory in
and around Ottawa, Ontario, Canada. Mr. Krediet initiated and managed
the consolidation of the eastern Canadian Pepsi-Cola bottling business
and arranged its sale to Pepsi-Cola Corporation in 1992. Mr. Krediet
was the founder of CFCC in 1987 and, together with Mr. Larson,
obtained direct control of SSWL in 1992 to use it as an acquisition
vehicle for consolidating the bottled water industry.
Prior to 1987 Mr. Krediet was employed by General Electric Credit
Corporation, AMRO Bank and Citibank, NA. He is a citizen of the
Netherlands and received his graduate degree in economics from Erasmus
University in Rotterdam.
Kent Dillon Schickli replaced Stephen L. Larson as Chief
Financial Officer of Sparkling Spring effective April 3, 1998.
Mr. Schickli will also serve as President of CFCC and previously
served as President of CFCC from 1987 to 1992. Mr. Schickli is 45
years old and has over 12 years of beverage industry experience
including serving as a member of the board of directors and of the
executive committee of MBL from 1987 to 1992. From 1979 to 1981
Mr. Schickli worked for the Pepsi-Cola Company as a manager in the
franchise acquisition department and from 1981 through 1986 was Chief
Financial Officer of a Pepsi-Cola franchise bottling company with
annual revenues in excess of $200 million. Mr. Schickli left CFCC in
1993 to become Chief Operating Officer and a member of the board of
directors of Affinity Group, Inc., a leading database marketing and
membership management company. At Affinity Group, Inc. Mr. Schickli
lead the refinancing of that company, including the issuance of
publicly registered debt securities. In late 1995 Mr. Schickli left
Affinity Group, Inc. to pursue investments in various privately held
companies. In 1996 Mr. Schickli invested in, and served as President
and a member of the board of directors of, Ivid Communications, Inc.,
a leading multimedia training company. From 1997 to 1998 Mr. Schickli
was Chief Executive Officer and co-owner of Affinity Development
Group, Inc., a consulting firm. Mr. Schickli earned an M.B.A. in
Accounting from the University of Chicago, a B.A. from Carleton
College and received a C.P.A. from the State of Illinois.
Stephen L. Larson, prior to his resignation, had been Vice
Chairman of the Board of Directors and Chief Financial Officer of SSWL
since 1992 and had served as a managing director of CFCC since 1990.
He had been with CFCC since 1987. Mr. Larson, in conjunction with
Mr. Krediet, developed the consolidation strategy for the bottled
water industry. Mr. Larson was responsible for qualifying and
selecting acquisition candidates generated by the Company and outside
sources. Mr. Larson was also responsible for negotiating the
acquisition terms and related financing. At CFCC, Mr. Larson acted as
an intermediary arranging financing for corporations primarily
involved in the area of bottling, publishing, outdoor advertising and
other media. Mr. Larson was principally involved in the negotiations
leading to the acquisition of nine Pepsi-Cola franchisees, the related
consolidation and the ultimate sale to Pepsi-Cola Corporation.
Mr. Larson worked as a Senior Associate at Claremont Group
Limited, a management buyout firm, from 1986 to 1987. He began his
career at Arthur Andersen & Co. Mr. Larson earned an M.B.A. in Finance
from the University of Chicago and a Bachelor of Science in Accounting
from the University of Illinois. Mr. Larson is a C.P.A. and a member
of both the American Institutes of Certified Public Accountants and
the Accounting Research Association.
Stewart E. Allen has been President of SSWL since 1992. Mr. Allen
has been responsible for overseeing the daily operations of the
Company, including integrating acquired companies and corporate
strategic planning. Mr. Allen is the President of the Canadian Bottled
Water Association and a member of the International Bottled Water
Association's International Council.
Mr. Allen has over 20 years of experience in the beverage
industry. He served as Vice President of Sales and Marketing for MBL,
the Pepsi-Cola franchisee and former parent of the Company, from 1988
to 1992. Mr. Allen was primarily responsible for consolidating two
other bottlers into MBL and for major cost management initiatives,
including a reduction in salaried employees, closure of four
warehouses and three wage freezes with unionized employees. Prior to
joining MBL, Mr. Allen spent three years with Crush Canada and
Pepsi-Cola Canada. Prior to this, Mr. Allen held several operational
positions in Pepsi-Cola owned bottler operations in Toronto and
Oshawa, Ontario.
Michael Bregman has served as a member of the Board of Directors
of SSWL since October 1997. Mr. Bregman is Vice Chairman of the Board
of Directors of Clairvest, a Toronto-based, publicly traded merchant
bank with a portfolio in excess of $180 million, where his primary
responsibilities include assessing investment transactions, with an
emphasis on the retail food and beverage industries. Mr. Bregman is
the Chairman and Chief Executive Officer and a major shareholder of
The Second Cup Ltd., a coffee retailer in North America. Mr. Bregman
is also a member of the board of directors of Signature Security
Group, Inc. and Vincor International Inc. In addition, Mr. Bregman was
the founder of the now-divested Mmmuffins Inc., a specialty baking
company in Canada. Mr. Bregman received his M.B.A. degree in 1977 from
Harvard Business School and earned a B.S. in Economics from The
Wharton School at the University of Pennsylvania.
C. Sean Day has served as a member of the Board of Directors of
SSWL since March, 1997. Mr. Day is President and Chief Executive
Officer of Navios Corporation, a company engaged in the worldwide
operation of ocean going bulkships. Mr. Day has a wide range of
experience in the shipping, finance and industrial sectors. Prior to
joining Navios Corporation, Mr. Day's prior experience included
positions with Citicorp Venture Capital Ltd. in New York, Fednav Ltd.
in Montreal and Jardine, Matheson & Co., Ltd. in Hong Kong and Taiwan.
Mr. Day is also a member of the board of directors of Kirby
Corporation. Mr. Day is a graduate of University of Cape Town and
Oxford University.
Kenneth B. Rotman has served as a member of the Board of
Directors of SSWL since January 1996. Mr. Rotman is a Managing
Director of Clairvest, a Toronto-based, publicly traded merchant bank
with a portfolio in excess of $180 million. Mr. Rotman's role with
Clairvest involves the sourcing and execution of transactions and
working closely with the management of companies in which Clairvest
has invested. Mr. Rotman also serves on the board of directors of
Consoltex Group Inc., NRI Industries and Signature Security Group Inc.
Mr. Rotman is a volunteer director of The Power Plant art gallery of
Toronto and the Empire Club of Canada. Prior to joining Clairvest in
October, 1993, Mr. Rotman worked in the Venture Banking Division of
E.M. Warburg, Pincus & Co. in New York. Mr. Rotman received a B.A. in
Economics from Tufts University, an M.Sc. from the London School of
Economics, and an M.B.A. from New York University's Stern School of
Business.
Lucy M. Stitzer has served as a member of the Board of Directors
of SSWL since January 1994. Ms. Stitzer has also served on the board
of directors of Cargill Inc. since 1992. From 1990 to 1992,
Ms. Stitzer was employed as an associate at Sandler O'Neill and
Partners, an investment bank. From 1983 to 1990, Ms. Stitzer was
employed by the Consumer Banking Division of Citibank, N.A., where she
attained the position of Assistant Vice President.
ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS
Directors and Executive Compensation
The following table sets forth a summary of the compensation of
each executive officer of Sparkling Spring who earned in excess of
$100,000 in annual salary and bonus during Sparkling Spring's year
ended December 31, 1997. The Summary Compensation Table reflects all
compensation paid by Sparkling Spring to its executive officers.
Directors of Sparkling Spring receive no compensation for their
services as Directors. Messrs. Krediet, Larson and effective April 3,
1998, Mr. Schickli, are compensated for their services as executive
officers of Sparkling Spring directly by CFCC. See Item 13 - Interest
of Management in Certain Transactions - Management Agreement.
Sparkling Spring provides a defined contribution pension plan for all
of its employees, including its executive officers but no other
pension, retirement or similar benefits to its executive officers or
Directors.
Summary Compensation Table
Long-Term
Compensation
Awards
Name and Securities
Principal Annual Compensation Other Annual Underlying All Other
Position Year Salary Bonus Compensation Options/SARs Compensation
Stewart E. Allen,
President 1997 $141,744 $36,117 $18,599(1) -- $18,051(2)
(1) Includes $17,336 representing a housing allowance.
(2) Consists of a contribution of $17,109 to a defined contribution
pension plan and annual premiums of $942 in connection with a group
life insurance policy for Mr. Allen.
Employment Agreements
Stewart E. Allen, the President of Sparkling Spring, has an
employment agreement, effective January 1, 1998, with the Company
pursuant to which he is paid a base salary of $210,000. In addition,
his employment agreement provides for a bonus payment to Mr. Allen at
the end of each fiscal year based primarily upon the Company achieving
certain levels of EBITDA. The employment agreement is for a term of
three years.
ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR
SUBSIDIARIES
No options to purchase the Notes are outstanding. Options to
purchase shares of Common Stock of Sparkling Spring are outstanding.
See Item 4 - Control of Registrant - Security Ownership of Certain
Beneficial Owners and Management, and Item 13 - Interest of Management
in Certain Transactions - Reorganization.
ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
Management Agreement
Pursuant to the Management Agreement dated December 16, 1993, as
amended and restated (the "Management Agreement"), between SSWL, CFCC,
G. John Krediet and Stephen L. Larson, CFCC has agreed to perform
certain management services for the Company through December 31, 2002.
These services include managing the operations of the Company and
negotiating contracts, financial agreements and other arrangements.
The Management Agreement provides that CFCC shall not take any action
with respect to certain extraordinary transactions without the
approval of the Board of Directors of Sparkling Spring, including
material acquisitions and capital expenditures, issuances of
securities, sale or disposition of a material portion of the business
of the Company, compensation of CFCC, merger of the Company,
liquidation and declaration of dividends.
The Management Agreement provides that CFCC shall receive annual
compensation for its services in the form of a base fee of $400,000
during the fiscal year ended December 31, 1996, and in each successive
year a base fee equal to the prior year's base fee plus an amount
equal to the prior year's base fee multiplied by the percentage
increase or decrease, as the case may be, of the Company's total
annual revenue from the prior year, but the base fee may not exceed
$750,000 in any given year. An annual bonus of up to 75% of the base
fee is due to CFCC each year in the event that the Company achieves
certain targeted levels of per share earnings before depreciation and
amortization. In the event such targets are not met, lesser amounts
may be paid. The Company has also agreed to pay CFCC a fee in respect
of its investment banking advisory services rendered to the Company in
connection with successful acquisitions. The total amounts paid to
CFCC pursuant to the Management Agreement for the years 1995, 1996 and
1997 were $521,000, $769,000 and $1,548,000 respectively. The Company
may also pay to Mr. Krediet and Mr. Schickli non-cash options,
incentives or other remuneration, consistent with industry standards.
The Company is also responsible for reasonable disbursements and
office expenses incurred by CFCC.
In the opinion of management of the Company, the terms and
conditions of the Management Agreement are no less favorable to the
Company than those which could be obtained in the open market in an
arm's length transaction.
Shareholder Agreement
Sparkling Spring, Clairvest Group, Inc. ("Clairvest"), a holder
of 30.4% of the outstanding Common Stock of Sparkling Spring after
giving effect to the Reorganization, Gaspar Limited ("Gaspar"), a
Barbados corporation wholly-owned by a trust organized for the benefit
of G. John Krediet and his children, Stephen L. Larson, Lucy Stitzer,
Stewart E. Allen and certain other shareholders of the Company are
parties to a shareholder agreement, dated as of October 22, 1997 (the
"Shareholder Agreement"), which provides, among other things, for
preemptive rights in favor of the shareholders under certain
circumstances if Sparkling Spring issues additional securities and for
certain registration rights. The Shareholder Agreement also provides
restrictions on the transfer of the Company's capital stock, for
rights of first refusal and for rights of certain shareholders to
require all other shareholders to join with them in their sale of the
Company's capital stock. The Shareholder Agreement fixes the number of
directors comprising Sparkling Spring's Board of Directors at seven,
and provides that Gaspar Limited shall be entitled to nominate four
directors, Clairvest shall be entitled to nominate two directors and
Lucy Stitzer and her affiliates shall be entitled to nominate one
director. Certain actions by the Company require the approval of at
least one of the Clairvest nominees (which approval shall not be
unreasonably withheld). These actions include, among other things, any
acquisition by the Company in excess of Cdn $5.0 million, the making
of certain capital expenditures, the issuance by the Company of debt
or equity securities, the disposition by the Company of a material
part of its business, any change in management compensation, the
declaration of dividends by the Company and the approval of the
Company's annual budget. In addition, under the Shareholder Agreement,
if no liquid public market (as defined in the Shareholder Agreement)
then exists, Clairvest may, any time after March 31, 2003, offer all
of its shares of capital stock of Sparkling Spring for sale to
Sparkling Spring. If Sparkling Spring does not then repurchase those
shares, Clairvest may, under certain circumstances, require the other
parties to the Shareholder Agreement to join with Clairvest in selling
to a third party all of their shares of Common Stock of Sparkling
Spring, which could cause a change of control.
Reorganization
The shareholders of Sparkling Spring and SSWL approved a
reorganization (the "Reorganization") on November 19, 1997 which was
completed in January 1998. As part of the Reorganization, Gaspar,
Clairvest, John Krediet, Stephen Larson, Stewart Allen, Lucy M.
Stitzer (and her spouse Mark Stitzer), C. Sean Day, principal
shareholders and directors and/or executive officers of the Company,
reduced their interest in Sparkling Spring by exchanging shares and
options to acquire shares of common stock of SSWL for a combination of
shares and options to acquire shares of Common Stock of Sparkling
Spring plus cash based on a per share price of $28 as follows:
Sparkling Spring Water Limited Sparkling Spring Water Group Limited
Shares Options Shares Options Cash
Shareholder Exchanged Exchanged Received Received Received
Gaspar 833,840 -- 705,050 -- $ 3,606,120
Clairvest 588,168 -- 423,190 -- 4,619,384
John Krediet -- 154,319 -- 8,250 3,328,727
Stephen Larson 118,209 53,787 118,209 53,787 --
Stewart Allen 5,672 145,787 5,672 104,706 1,097,038
Lucy and Mark 130,659 -- 94,010 -- 1,026,172
Stitzer
C. Sean Day 12,500 -- 8,994 -- 98,168
Other 39,198 89,100 28,203 85,454 394,175
1,728,246 442,993 1,383,328 252,197 $14,169,784
Subsequent to the Reorganization, Sparkling Springs owns 100% of
the issued and outstanding shares of SSWL.
In conjunction with the Reorganization certain key managers of
the Company, subscribed for an aggregate of 9,360 non-voting shares of
Common Stock of Sparkling Spring at $28.00 per share, the same
purchase price per share used for the purpose of the Reorganization.
These managers granted an option to Sparkling Spring enabling
Sparkling Spring to repurchase those shares of Common Stock at any
time at an agreed-upon formula price. The formula price is intended to
approximate the fair market value of the shares of Common Stock at the
time of repurchase. Similarly, Sparkling Spring is obligated, under
certain circumstances, to purchase those shares for the same formula
price at the option of the key managers. The shares were issued in
January 1998.
Other Transactions
Each shareholder of Sparkling Spring pledged all of his, hers or
its outstanding shares of Common Stock as collateral in favor of the
lenders under the Company's previously outstanding credit facility. A
portion of the gross proceeds from the issuance of the Senior
Subordinated Notes was used by Sparkling Spring to repay the entire
principal amount and accrued interest outstanding on this facility.
Upon the repayment of this credit facility, the pledges were
terminated.
In connection with the purchase of shares of common stock of the
Company, promissory notes of $122,000 and $108,000 were received from
Stephen L. Larson and Stewart E. Allen respectively. The promissory
notes bore interest at a rate of 7% and were scheduled to mature on
January 31, 1998 with principal and interest due on that date. The
promissory notes were cancelled by the Company and replaced with
promissory notes to Mr. Larson and Mr. Allen of $131,600 and $116,300
respectively which bear interest at a rate of 6% and mature on January
31, 1999 with principal and interest due on that date. The common
shares purchased by the officers are pledged as security for the
promissory notes.
On June 6, 1994, trusts formed for the benefit of Lucy M.
Stitzer, a Director of Sparkling Spring, and her sister, Alexandra M.
Daitch, together with their father, W. Duncan MacMillan, loaned SSWL
an aggregate of $1,300,000. In return for the loan, SSWL issued
unsecured redeemable subordinated notes, bearing interest at a rate of
8% per annum, and warrants to purchase an aggregate of 60,099 shares
of common stock of SSWL. On January 18, 1996, the Company redeemed the
unsecured redeemable subordinated notes and the attached warrants for
cash consideration of $1,816,041.
PART II
ITEM 14. DESCRIPTION OF SECURITIES TO BE REGISTERED (INTENTIONALLY
OMITTED)
PART III
ITEM 15. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 16. CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR REGISTERED
SECURITIES AND USE OF PROCEEDS
There have been no modifications to the Exchange Notes or in the
Guarantees securing the Exchange Notes.
Sparkling Spring did not receive any cash proceeds from issuing
the Exchange Notes. In consideration for issuing the Exchange Notes
as contemplated in its Prospectus, Sparkling Spring has received in
exchange, Private Notes in like principal amounts.
Use of Proceeds
The effective date of the Registration Statement in which the
Prospectus was included was April 1, 1998 and the SEC File number
assigned to that Registration Statements is 333-43061. All of the
Exchange notes covered by the Registration Statement have been issued
and the offering thereunder has been terminated.
Sparkling Spring did not engage an underwriter or other third
party in connection with the issuance and distribution of the Exchange
Notes and as a result did not incur directly any underwriting
discounts or commissions, finders fees or other similar expenses.
However, Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer and sold by such broker-dealers
to purchasers or to or through other broker-dealers who received
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such Exchange Notes were or
could have been deemed to be "underwriters" within the meaning of the
Securities Act and any profit on any such resale of Exchange Notes and
any commissions or concessions received by any such person were or
could have been deemed to be underwriting compensation under the
Securities Act.
In connection with the issuance of the Exchange Notes, Sparkling
Spring incurred accounting, legal, printing and related expenses,
which taken together were not material. No payments were made to any
directors or officers of Sparkling Spring or their associates or to
any persons owning 10% or more of any class of equity securities of
Sparkling Spring or to any other affiliates of Sparkling Spring. None
of the expenses represents material changes in the information set
forth in the Prospectus.
PART IV
ITEM 17. FINANCIAL STATEMENTS (INTENTIONALLY OMITTED)
ITEM 18. FINANCIAL STATEMENTS
The financial statements required by Item 18 are listed in the
Index to Consolidated Financial Statements appearing on Page F-1.
ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS
a) Financial Statements
See Index to Financial Statements on page F-1 hereof.
b) Exhibits
Exhibit No.
2.(ii) Senior Credit Agreement, dated May 26, 1998 among
Sparkling Spring Water Group Limited and the Guarantors
named therein, as borrowers, and The Toronto-Dominion Bank,
Toronto Dominion (Texas), Inc. and The Toronto-Dominion
Bank, London Branch, as lenders.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this Report to be signed on its behalf by
the undersigned, thereunto duly authorized, on this 16th day of June, 1998.
SPARKLING SPRING WATER GROUP LIMITED
By: /s/ Kent Dillon Schickli
-----------------------------------
Kent Dillon Schickli
Chief Financial Officer
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this Report to be signed on its behalf by
the undersigned, thereunto duly authorized, on this 16th day of June, 1998.
SPARKLING SPRING WATER LIMITED
By: /s/ Kent Dillon Schickli
-----------------------------------
Kent Dillon Schickli
Chief Financial Officer
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this Report to be signed on its behalf by
the undersigned, thereunto duly authorized, on this 16th day of June, 1998.
SPRING WATER, INC.
By: /s/ Kent Dillon Schickli
-----------------------------------
Kent Dillon Schickli
Chief Financial Officer
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this Report to be signed on its behalf by
the undersigned, thereunto duly authorized, on this 16th day of June, 1998.
CULLYSPRING WATER CO., INC.
By: /s/ Kent Dillon Schickli
-----------------------------------
Kent Dillon Schickli
Chief Financial Officer
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this Report to be signed on its behalf by
the undersigned, thereunto duly authorized, on this 16th day of June, 1998.
MOUNTAIN FRESH ACQUISITION CORP.
By: /s/ Kent Dillon Schickli
-----------------------------------
Kent Dillon Schickli
Chief Financial Officer
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this Report to be signed on its behalf by
the undersigned, thereunto duly authorized, on this 16th day of June, 1998.
CRYSTAL SPRINGS ACQUISITION, INC.
By: /s/ Kent Dillon Schickli
-----------------------------------
Kent Dillon Schickli
Chief Financial Officer
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this Report to be signed on its behalf by
the undersigned, thereunto duly authorized, on this 16th day of June, 1998.
WATER JUG ENTERPRISES LIMITED
By: /s/ Kent Dillon Schickli
-----------------------------------
Kent Dillon Schickli
Chief Financial Officer
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this Report to be signed on its behalf by
the undersigned, thereunto duly authorized, on this 16th day of June, 1998.
WITHEY'S WATER SOFTENING &
PURIFICATION LTD.
By: /s/ Kent Dillon Schickli
-----------------------------------
Kent Dillon Schickli
Chief Financial Officer
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this Report to be signed on its behalf by
the undersigned, thereunto duly authorized, on this 16th day of June, 1998.
AQUA CARE WATER SOFTENING &
PURIFICATION, INC.
By: /s/ Kent Dillon Schickli
-----------------------------------
Kent Dillon Schickli
Chief Financial Officer
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this Report to be signed on its behalf by
the undersigned, thereunto duly authorized, on this 16th day of June, 1998.
HIGH VALLEY WATER LIMITED
By: /s/ Kent Dillon Schickli
-----------------------------------
Kent Dillon Schickli
Chief Financial Officer
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this Report to be signed on its behalf by
the undersigned, thereunto duly authorized, on this 16th day of June, 1998.
3003969 NOVA SCOTIA LIMITED
By: /s/ Kent Dillon Schickli
-----------------------------------
Kent Dillon Schickli
Chief Financial Officer
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this Report to be signed on its behalf by
the undersigned, thereunto duly authorized, on this 16th day of June, 1998.
CANADIAN SPRINGS WATER COMPANY LIMITED
By: /s/ Kent Dillon Schickli
-----------------------------------
Kent Dillon Schickli
Chief Financial Officer
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this Report to be signed on its behalf by
the undersigned, thereunto duly authorized, on this 16th day of June, 1998.
SPARKLING SPRING WATER (UK) LIMITED
By: /s/ Kent Dillon Schickli
-----------------------------------
Kent Dillon Schickli
Chief Financial Officer
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this Report to be signed on its behalf by
the undersigned, thereunto duly authorized, on this 16th day of June, 1998.
AQUAPORTE (UK) LIMITED
By: /s/ Kent Dillon Schickli
-----------------------------------
Kent Dillon Schickli
Chief Financial Officer
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this Report to be signed on its behalf by
the undersigned, thereunto duly authorized, on this 16th day of June, 1998.
MARLBOROUGH EMPLOYMENT LIMITED
By: /s/ Kent Dillon Schickli
-----------------------------------
Kent Dillon Schickli
Chief Financial Officer
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this Report to be signed on its behalf by
the undersigned, thereunto duly authorized, on this 16th day of June, 1998.
WATER AT WORK LIMITED
By: /s/ Kent Dillon Schickli
-----------------------------------
Kent Dillon Schickli
Chief Financial Officer
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this Report to be signed on its behalf by
the undersigned, thereunto duly authorized, on this 16th day of June, 1998.
NATURAL WATER LIMITED
By: /s/ Kent Dillon Schickli
-----------------------------------
Kent Dillon Schickli
Chief Financial Officer
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this Report to be signed on its behalf by
the undersigned, thereunto duly authorized, on this 16th day of June, 1998.
CRYSTAL SPRINGS OF SEATTLE, INC.
By: /s/ Kent Dillon Schickli
-----------------------------------
Kent Dillon Schickli
Chief Financial Officer
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this Report to be signed on its behalf by
the undersigned, thereunto duly authorized, on this 16th day of June, 1998.
CRYSTAL SPRINGS DRINKING WATER, INC.
By: /s/ Kent Dillon Schickli
-----------------------------------
Kent Dillon Schickli
Chief Financial Officer
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this Report to be signed on its behalf by
the undersigned, thereunto duly authorized, on this 16th day of June, 1998.
COASTAL MOUNTAIN WATER CORP.
By: /s/ Kent Dillon Schickli
-----------------------------------
Kent Dillon Schickli
Chief Financial Officer
<PAGE>
SPARKLING SPRING WATER GROUP LIMITED
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Independent Auditors' Report F-2
Consolidated Balance Sheets as at December 31, 1997 F-3
and 1996
Consolidated Statements of Operations for the years F-4
ended December 31, 1997, 1996 and 1995
Consolidated Statements of Shareholders Equity F-5
(Deficit) for the years ended December 31, 1997,
1996 and 1995
Consolidated Statements of Cash Flows for the years F-6
ended December 31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements F-7
<PAGE>
AUDITORS' REPORT
To the Shareholders of
Sparkling Spring Water Group Limited
We have audited the consolidated balance sheets of Sparkling
Spring Water Group Limited as at December 31, 1997 and 1996 and
the consolidated statements of operations, shareholders' equity
(deficit) and cash flows for each of the years in the three year
period ended December 31, 1997. 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 an audit to obtain reasonable assurance 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.
In our opinion, these consolidated financial statements
present fairly, in all material respects, the financial position
of the Company as at December 31, 1997 and 1996 and the results
of its operations and the changes in its financial position for
each of the years in the three year period ended December 31,
1997 in accordance with accounting principles generally accepted
in the United States.
Halifax, Canada Ernst & Young
April 1, 1998 Chartered Accountants
<PAGE>
SPARKLING SPRING WATER GROUP LIMITED
CONSOLIDATED BALANCE SHEETS
As at December 31
1996 1997
ASSETS [note 12]
Current
Cash and cash equivalents $ 2,230,735 $ 27,507,257
Accounts receivable (net of
allowance for doubtful
accounts of $387,247;
1996-$210,058 [note 5]) 4,799,080 8,267,315
Inventories [note 6] 866,061 1,751,562
Prepaid expenses 1,352,989 1,536,755
Current portion of deferred taxes 95,681 --
Total current assets 9,344,546 39,062,889
Deferred taxes 440,856 1,379,736
Fixed assets [note 7] 15,823,231 23,307,315
Goodwill and deferred charges
[note 8] 18,800,535 43,248,972
Total assets $44,409,168 $106,998,912
LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIT)
Current
Accounts payable and accrued $ 4,303,850 $ 6,645,552
liabilities
Income tax payable 76,890 1,042,567
Unearned revenue 161,790 75,488
Customer deposits 2,620,495 3,396,466
Debt due within one year [note 9] 1,581,036 1,189,868
Total current liabilities 8,744,061 12,349,941
Obligations under capital leases 1,926,325 2,485,204
[note 10]
Loans payable [note 11] 26,966,493 1,123,617
Subordinated notes payable [note 12] -- 100,000,000
Total long-term liabilities 28,892,818 103,608,821
Shareholders' equity (deficit)
[Notes 2 and 13]
Capital Stock
Authorized
11,383,328 Class D Voting Common
Shares, without nominal or
par value
10,000,000 Class E Non-Voting
Common Shares, without nominal or
par value
10,000,000 Special Preferred
Shares, par value Cdn $1.00,
issuable in series
Issued and outstanding:
Common shares 1,383,328
(1996-1,720,746; 1995-1,216,308) 8,295,170 6,269,204
Less: Subscriptions receivable (230,003) (230,003)
8,065,167 6,039,201
Cumulative translation adjustment (362,935) (770,729)
Deficit (929,943) (14,228,322)
Total shareholders' equity 6,772,289 (8,959,850)
(deficit)
Total liabilities and $44,409,168 $106,998,912
shareholders' equity
(deficit)
Commitments [notes 10 and 16]
See accompanying notes
<PAGE>
SPARKLING SPRING WATER GROUP LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended December 31
1995 1996 1997
Revenue:
Water $ 9,640,919 $16,809,749 $25,506,684
Rental 4,135,650 7,347,386 10,346,344
Other 1,572,545 3,169,214 6,220,856
Total revenue 15,349,114 27,326,349 42,073,884
Cost of sales:
Water 2,118,880 3,400,298 4,080,686
Other 743,867 1,275,321 3,059,061
Total cost of sales 2,862,747 4,675,619 7,139,747
Gross profit 12,486,367 22,650,730 34,934,137
Expenses:
Selling, delivery and
administrative [note 18] 9,040,529 15,756,452 23,721,678
Depreciation and amortization 1,464,668 3,841,614 5,691,609
Operating profit 1,981,170 3,052,664 5,520,850
Interest expense 1,294,371 2,481,005 5,017,631
Redemption of common stock -- -- 4,588,502
options [note 13]
(Loss) income before the 686,799 571,659 (4,085,283)
following
Provision for income taxes 299,107 398,325 439,377
[note 17]
Net (loss) income before
non-controlling interest
and extraordinary item 387,692 173,334 (4,524,660)
Non-controlling interest 22,996 (6,894) --
[note 4]
Net (loss) income before 410,688 166,440 (4,524,660)
extraordinary item
Extraordinary item [note 14] (391,626) (473,436) (833,706)
Net (loss) income $ 19,062 $ (306,996) $(5,358,366)
Basic (loss) earnings per share
before extraordinary item $ 0.338 $ 0.113 $ (2.685)
Diluted (loss) earnings per share
before extraordinary item $ 0.291 $ 0.095 $ (2.685)
Basic (loss) earnings per share $ 0.016 $ (0.209) $ (3.180)
Diluted (loss) earnings per $ 0.014 $ (0.209) $ (3.180)
share
See accompanying notes
<PAGE>
SPARKLING SPRING WATER GROUP LIMITED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
For the years ended December 31, 1997, 1996 and 1995
Common Share Cumulative
Common Stock Purchase Warrants Translation Amended
Shares Amount Warrants Amount Adjustment Deficit
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1994 1,216,308 $1,628,793 165,767 $1,135,149 $ 209,624 $ (642,009)
as restated [note 3]
Net income 19,062
Foreign currency translation (21,575) 1,581 (123,760)
Balance December 31, 1995 1,216,308 1,607,218 165,767 1,136,730 85,864 (622,947)
Net loss (306,996)
Redemption of common
share purchase warrants
[note 13] (345,878) (165,767) (1,136,730)
Shares issued for cash 504,438 7,077,716
Subscriptions receivable (230,003)
Foreign currency translation (43,886) (448,799)
Balance December 31, 1996 1,720,746 8,065,167 -- -- (362,935) (929,943)
Net Loss (5,358,366)
Redemption of common shares (344,918) (1,717,691) (7,940,013)
Shares issued for cash 7,500 32,445
Foreign currency translation (340,720) (407,794)
Balance December 31, 1997 1,383,328 $6,039,201 -- $ -- $ (770,729) $(14,228,322)
</TABLE>
See accompanying notes
<PAGE>
SPARKLING SPRING WATER GROUP LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31,
1995 1996 1997
OPERATING ACTIVITIES
Net (loss) income $ 19,062 $ (306,996) $(5,358,366)
Items not requiring cash
Depreciation and
amortization 1,464,668 3,841,614 5,691,609
Deferred taxes 85,673 (293,390) (843,199)
Non-controlling interest (22,996) 6,894 --
Amortization of deferred 460,951 -- 54,789
financing costs
Amortization of subordinated
notes payable discount 130,824 -- --
2,138,182 3,248,122 (455,167)
Net change in non-cash working
capital balances [note 15] (647,671) (32,178) (349,135)
Cash (used in) provided by
operating activities 1,490,511 3,215,944 (804,302)
INVESTING ACTIVITIES
Purchase of fixed assets (2,741,204) (7,272,814) (6,769,301)
Sale of fixed assets, net 453,927 536,627 730,898
Acquisitions [note 4] (1,932,057) (17,432,167) (27,860,306)
Cash used in investing
activities (4,219,334) (24,168,354) (33,898,709)
FINANCING ACTIVITIES
Increase in long-term debt 4,456,924 20,893,151 30,593,657
Repayment of long-term debt (868,466) (1,239,400) (57,053,075)
Issuance of common shares -- 6,847,713 32,445
Redemption of common shares -- -- (9,657,704)
Issuance of subordinated notes
payable -- -- 100,000,000
Redemption of common share warrants -- (1,482,608) --
Redemption of subordinated notes
payable -- (2,159,777) --
Increase in deferred charges (36,980) (190,462) (3,909,827)
Cash provided by financing
activities 3,551,478 22,668,617 60,005,496
Effect of foreign currency
translation on cash (29,606) (345,770) (25,963)
Increase in cash and
cash equivalents during the year 793,049 1,370,437 25,276,522
Cash and cash equivalents,
beginning of year 67,249 860,298 2,230,735
Cash and cash equivalents, end
of year $ 860,298 $ 2,230,735 $27,507,257
SUPPLEMENTAL CASH FLOW DISCLOSURE
Interest paid $ 1,138,106 $ 2,553,882 $ 3,597,458
Income taxes paid $ -- $ 32,046 $ 227,191
See accompanying notes
<PAGE>
SPARKLING SPRING WATER GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
1. Description of Business
Sparkling Spring Water Group Limited ("Sparkling Spring")
is incorporated under the laws of the Province of Nova
Scotia, Canada and provides containered water to home and
office markets in British Columbia and the Maritime
provinces of Canada, England, Scotland and the Pacific
Northwestern United States.
2. Significant Accounting Policies
These financial statements have been prepared on a
historic cost basis by management in accordance with accounting
principles generally accepted in the United States ("US GAAP"),
the more significant of which are as follows:
Basis of Presentation
As a result of significant foreign acquisitions and
growth in the Company's operations, the shareholders of
Sparkling Spring and Sparkling Spring Water Limited ("SSWL")
approved a reorganization on November 19, 1997 whereby the former
shareholders of SSWL exchanged their shares of SSWL for
shares of Sparkling Spring. This reorganization facilitated
effective income tax planning regarding corporate distributions
as described below and further facilitated credit risk
management. In order to minimize tax on corporate
distributions Sparkling Spring was created to acquire the
shares of SSWL and to acquire new debt as described in
note 12. It is anticipated that Sparkling Spring will not
be involved in carrying on any actual business operations
and that in the future the Company's various operations will
be isolated in separate corporate vehicles to achieve
certain creditor protection for the holders of the new
debt. As a part of this reorganization, certain shareholders
of SSWL, including certain principal shareholders, directors
and executive officers of the Company, reduced, at their
discretion, their interest in Sparkling Spring by exchanging
their shares of common stock and options to acquire shares
of common stock of SSWL for a combination of shares of
common stock and options to acquire shares of common stock
of Sparkling Spring plus cash. The exchange was completed
as a method of providing cash to the previous shareholders
of SSWL. The shareholders of SSWL exchanged, on an
aggregate basis, 1,728,246 shares of common stock and
442,993 options to acquire shares of common stock of SSWL
for 1,383,328 shares of common stock and 252,197 options
to acquire shares of common stock of Sparkling Spring
plus $14,169,784 in cash. Those shareholders reducing their
interest in Sparkling Spring received cash of $28 per share
for each share by which their holdings of shares of common
stock were reduced. Those shareholders surrendering options
to acquire shares of common stock received $28, less the
option's exercise price, for each option surrendered. The
amount of $28 per share was the Company's estimate of the
fair value of its shares at the time of the reorganization
as negotiated by all shareholders. Subsequent to the
reorganization, Sparkling Spring owns 100% of the issued
and outstanding shares of SSWL.
As part of the reorganization certain key managers
of the Company have subscribed for an aggregate of 9,360
shares of Common Stock of Sparkling Spring. The shares will
be recorded at their estimated fair value, as determined
by an agreed upon formula, and reflected as temporary
equity in the Company's financial statements upon issuance.
These managers have granted an option to Sparkling Spring
enabling Sparkling Spring to repurchase these shares of
Common Stock at any time at their estimated fair market
value determined in accordance with the same agreed upon
formula price. Sparkling Spring is obligated to repurchase
these shares at the option of the key managers for the
same formula price during a one month period each year,
subject to any financial covenants and financing requirements
affecting the Company. If shares are purchased by the Company,
the excess or deficiency of the cost to redeem the shares
over the carrying value of the shares will be charged
or credited to retained earnings.
Control of the Company did not change with the
reorganization. Accordingly, the reorganization has been
accounted for using the reorganization under common control
method of accounting whereby the consolidated financial
statements reflect the consolidated historical carrying value
of the assets, liabilities and shareholders' equity, and
the consolidated historical operating results of SSWL for each
of the periods presented. Sparkling Spring was incorporated
on October 22, 1997 and, accordingly, had no assets, liabilities
or shareholders' equity or historical operating results prior
to this date.
Basis of Consolidation
These consolidated financial statements include the
accounts of Sparkling Spring and its wholly-owned
subsidiaries, principally SSWL, Sparkling Spring Water U.K.
Limited ("SSWUK"), Canadian Springs Water Company Ltd.
("Canadian Springs"), Water Jug Enterprises Limited ("Water
Jug"), and the subsidiaries referred to in note 4
(collectively referred to as the "Company").
Reporting Currency
The Company uses the United States dollar as its
reporting currency and the Canadian dollar as its functional
currency. Assets and liabilities are translated into United
States dollars at the exchange rates in effect at the balance
sheet date. The revenues and expenses have been translated
into United States dollars at average exchange rates
prevailing during the year. The gains and losses on
translation are included in a separate component of
shareholders' equity titled "cumulative translation adjustment".
Foreign currency denominated assets and liabilities
of Canadian operations are translated into Canadian dollars
at exchange rates prevailing at the balance sheet date for
monetary items and at exchange rates prevailing at the
transaction date for non-monetary items. Gains or losses
on translation are recognized in the statement of operations.
Balance sheet accounts denominated in foreign currencies
and translated at year-end exchange rates have been translated
to U.S. dollars at the following rates:
1995 1996 1997
Canadian Dollars $0.733 $0.730 $0.700
U.K. Pounds Sterling $1.552 $1.705 $1.642
Cash Equivalents
The Company considers all highly-liquid investments with a
maturity of three months or less when purchased to be cash
equivalents.
Inventories
Inventories are valued at the lower of cost, determined on a
first-in, first-out basis, and net realizable value.
Fixed Assets
Fixed assets are recorded at cost less related government
grants and investment tax credits. Depreciation is provided on
the declining balance basis at the following annual rates:
Well and buildings 5%
Machinery, equipment and coolers 10-20%
Motor vehicles 30%
Roadways 8%
Returnable bottles 20%
Leasehold improvements are amortized on a straight-line
basis over the term of the related lease.
Acquisitions, Goodwill
On the acquisition of businesses, the excess of the purchase
price over the fair value of the underlying net identifiable
assets acquired is recognized as goodwill. Goodwill is amortized
on a straight-line basis over 40 years. The method used to
assess if there has been a permanent impairment in the value of
goodwill is based on projected and discounted cash flows.
Deferred Financing Costs
Deferred financing costs represent professional fees and
other related costs incurred in relation to long-term financing
agreements. These costs are amortized on a straight-line basis
over the term of the related financing and charged to interest
expense.
Unearned Revenue
Unearned revenue represents the prepayment of bottled water
charges. These amounts are recognized as revenue in the period
the product is provided.
Advertising
Advertising expenditures are expensed as incurred.
Financial Instruments
The Company's primary financial instruments consist of cash
and cash equivalents, accounts receivable, accounts payable,
customer deposits and long-term debt. The difference between the
carrying values and the fair market values of the primary
financial instruments are not material due to the short-term
maturities and, or the credit terms of those instruments.
The Company has at any one time a significant number of
commitments to extend credit. The accounts receivable are owed
from a large number of customers on normal credit terms and
therefore there is minimal customer concentration and credit
risk.
Cross Currency Swaps
The Company enters into cross currency swaps to hedge net
assets and expected future cash flows of operations denominated
in currencies other than the US dollar. To the extent cross
currency swaps hedge net assets in currencies other than the US
dollar, unrealized gains or losses arising from changes in
forward foreign exchange rates are recorded as an adjustment to
the cumulative translation adjustment account with a
corresponding entry to other assets or liabilities, as
appropriate.
To the extent cross currency swaps are entered into to hedge
future expected cash flows of subsidiaries operating outside of
the US, unrealized gains or losses resulting from changes in
forward foreign exchange rates are recognized in income and
offset with a corresponding entry to assets or liabilities, as
appropriate. The initial premium or discount associated with
cross currency swaps of this nature is recorded as an other asset
or liability, as appropriate, and amortized to income over the
life of the swap.
Earnings Per Share
Basic and diluted earnings per share is calculated using the
weighted average number of common shares outstanding during the
period adjusted for the effect of the exercise of all outstanding
options and warrants in accordance with SFAS 128 applied
retroactively. The weighted average shares calculated under this
method for basic and diluted earnings per share are 1,685,131
(1996 - 1,468,527, 1995 - 1,216,308) and 1,685,131 (1996 -
1,758,022, 1995 - 1,410,728), respectively.
Leases
Leases are classified as capital or operating leases.
Assets are recorded as capital leases when the substantial
benefits and risks of ownership have been transferred to the
Company. Obligations recorded under capital leases are reduced
by lease payments, net of imputed interest.
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 revenue and expenses during the reporting
period. Actual results could differ from these estimates.
Income Taxes
Income taxes are accounted for in accordance with SFAS 109,
"Accounting for Income Taxes". Under SFAS 109, an assets and
liability approach is required including a valuation allowance.
Such approach results in the recognition of deferred tax assets
and liabilities for the expected future tax consequences of
temporary differences between the book carrying amounts and the
tax basis of assets and liabilities.
The Company and its subsidiaries file separate federal,
state, and foreign income tax returns and, accordingly, provide
for such income taxes on a separate company basis.
3. Change in Accounting Policy
As a result of increased business activity in the United
States, the Company retroactively changed its reporting policy
from Canadian dollars and Canadian generally accepted accounting
principles to United States dollars and United States generally
accepted accounting principles, effective January 1, 1997.
In order to comply with accounting principles generally
accepted in the United States the following accounting policies
have also been changed:
Export Development Costs
Costs to develop export markets were previously deferred and
amortized over five years. The Company has changed its
accounting policy to expense these items in the period in which
the expenditures were incurred.
Foreign Currency
The Company previously deferred and amortized unrealized
foreign exchange gains and losses on long-term monetary items
over the remaining term of the item. These gains and losses are
now charged to income during the period of the unrealized gain or
loss.
Income Taxes
The Company now follows SFAS 109 for accounting for income
taxes which requires an assets and liabilities approach, subject
to a valuation allowance for deferred tax assets. The Company
previously followed the deferral method.
The effect of the changes to these accounting policies had
the following impact on net assets, net income after
extraordinary items and cumulative translation adjustment:
1995 1996
Goodwill and deferred charges $ (76,442) $ (217,280)
Deferred taxes, asset 243,147 147,530
Net assets (decrease) increase $ 166,705 $ (69,750)
Operating expenses $ 42,952 $ (406,361)
Depreciation and amortization 24,410 61,186
Provision for income taxes (299,107) (529,301)
Extraordinary item (391,626) (473,436)
Unusual items 596,541 1,111,049
Net income decrease $ (26,830) $ (236,863)
Cumulative translation adjustment $ 4,755 $ 408
increase
Unusual items include previously deferred financing costs of
$907,674 and $596,541 in the years 1996 and 1995 respectively,
which were expensed as a result of repayment of the then existing
financing facility and have been reclassified as extraordinary
items (net of applicable income taxes) as a result of the change
in accounting policy from Canadian generally accepted accounting
principles to United States generally accepted accounting
principles. Unusual items in 1996 also includes $203,375 related
to an employee buyout package.
The retroactive application of the changes in accounting
policies described above also had the effect of reducing the
deficit at January 1, 1995 from $830,789 to $642,009.
4. Acquisitions
1997
During the year the Company completed the following
acquisitions:
<TABLE>
<CAPTION
Acquisition Interest Acquisition
Company Location Date Acquired Cost
(000'S)
<S> <C> <C> <C> <C>
D&D and Company, Inc. Portland, Oregon January, 1997 100% $ 3,972
High Valley Water Limited Kelowna, January, 1997 100% 2,329
British Columbia
Withey's Water Softening and Prince George,
Purification Limited British Columbia January, 1997 100% 1,568
Marlborough Employment Glasgow, Scotland February, 1997 100% 6,878
Limited
Soja Enterprises, Inc. Portland, Oregon June, 1997 100% 252
Crystal Spring Bottled Water Portland, Oregon June, 1997 100% 4,403
Co., Inc.
Cullyspring Water Co., Inc. Seattle, Washington October, 1997 100% 7,039
Crystal Springs Drinking Seattle, Washington December, 1997 100% 1,419
Water Inc.
$27,860
</TABLE>
The following summarizes the transactions (in thousands):
Net working capital $ 196
Fixed assets 6,919
Assumption of debt obligations (1,160)
Goodwill 21,905
Total cash consideration $27,860
The acquisitions have been accounted for under the purchase
method of accounting and accordingly the results of operations
since the dates of acquisition have been included in the
consolidated statement of operations.
1996
On January 18, 1996, the Company acquired 100% of the shares
of Canadian Springs and on May 19, 1996 the Company acquired 100%
of the shares of Water Jug, companies located in British
Columbia, Canada. The acquisitions have been accounted for under
the purchase method of accounting and accordingly the results of
operations since the dates of acquisition have been included in
the consolidated statement of operations.
The following summarizes the transactions (in thousands):
Canadian Springs Water Jug
Net working capital $ 319 $ (57)
Fixed assets 2,996 341
Assumption of debt obligations (694) (155)
Goodwill 12,993 972
Total cash consideration $15,614 $1,101
During 1996, the Company also acquired the non-controlling
interest in SSWUK from the minority shareholder for cash
consideration of $717,135, including goodwill of $391,024.
1995
On April 26, 1995, SSWUK acquired 100% of the shares of
Aquaporte (UK) Limited ("Aquaporte"), a company registered in
England and Wales. The acquisition has been accounted for under
the purchase method of accounting and accordingly the results of
operations since the date of acquisition have been included in
the consolidated statement of operations.
The following summarizes the transaction (in thousands):
Net working capital $ (441)
Fixed assets 663
Goodwill 1,710
Total cash consideration $1,932
The following unaudited pro forma information presents a
summary of consolidated results of operations as if the
acquisitions of D&D and Company, Inc., High Valley Water Limited,
Withey's Water Softening and Purification Limited, Marlborough
Employment Limited, Soja Enterprises Inc., Crystal Spring Bottled
Water Co., Inc., Cullyspring Water Co., Inc. and Crystal Springs
Drinking Water Inc. had occurred at January 1, 1997 and January
1, 1996 and as if the acquisitions of Canadian Springs, Water Jug
and the non-controlling interest in SSWUK had occurred at
January 1, 1996.
For the Year Ended December 31,
1996 1997
Total revenue $45,973,741 $48,749,884
Net (loss) income 819,236 (4,439,478)
Extraordinary item (473,436) (833,706)
Basic (loss) earnings per 0.558 (2.635)
share
5. Allowance for Doubtful Accounts
Balance January 1, 1995 $316,115
Additions 175,924
Write-offs (20,215)
Balance December 31, 1995 471,824
Additions 116,444
Write-offs (378,210)
Balance December 31, 1996 210,058
Additions 267,684
Write-offs (90,495)
Balance December 31, 1997 $387,247
6. Inventories
1996 1997
Packaging materials $480,537 $ 973,583
Goods for resale 215,306 502,608
Cooler parts 77,897 151,208
Other 92,321 124,163
$866,061 $1,751,562
7. Fixed Assets
1996 1997
Accumulated Accumulated
Cost Depreciation Cost Depreciation
Land and well $ 489,670 $ 42,349 $ 312,120 $ 4,292
Buildings and roadways 745,695 142,193 792,444 198,274
Coolers 10,931,290 4,631,002 15,967,041 7,813,592
Machinery and equipment 4,395,170 1,598,854 10,947,082 4,548,844
Equipment and computer
hardware under capital 1,525,163 836,621 1,447,572 830,435
lease
Motor vehicles 911,010 705,555 1,658,382 1,057,127
Motor vehicles under 2,906,758 746,227 4,633,516 1,887,790
capital lease
Leasehold improvements 646,211 220,794 1,285,553 458,309
Returnable bottles 2,852,141 656,282 4,636,423 1,574,155
25,403,108 $9,579,877 41,680,133 $18,372,818
Accumulated depreciation 9,579,877 18,372,818
Net book value $15,823,231 $23,307,315
8. Goodwill and Deferred Charges
1996 1997
Accumulated Accumulated
Cost Depreciation Cost Depreciation
Goodwill $19,588,100 $945,502 $40,727,367 $1,487,449
Deferred financing costs 116,201 41,693 3,911,380 54,789
Other 83,429 -- 161,273 8,810
19,787,730 $987,195 44,800,020 $1,551,048
Accumulated amortization 987,195 1,551,048
Net book value $18,800,535 $43,248,972
9. Debt Due Within One Year
1996 1997
Current portion of obligations
under capital leases [note 10] $1,104,315 $ 967,467
Current portion of loans payable [note 11] 476,721 222,401
$1,581,036 $1,189,868
10. Obligations Under Capital Leases
The obligations under capital leases are recorded net of the
related imputed interest calculated at an average rate of 10%.
Total minimum annual lease commitments are as follows:
1998 $1,364,998
1999 1,092,905
2000 854,888
2001 630,774
2002 395,408
Thereafter in aggregate 335,934
4,674,907
Less imputed interest 1,222,236
3,452,671
Less current portion 967,467
$2,485,204
11. Loans Payable
1996 1997
Term loans ($17,747,328 Cdn. and (pound)8,204,760) $26,866,624 $ --
bearing interest at prime plus 1 1/4%.
Term loans bearing interest at 11 3/8% repayable in 112,812 96,018
monthly installments of principal and interest of
$2,868 maturing in varying amounts to 2001.
Unsecured loan ((pound)273,400) bearing interest at 7%, 463,778 --
interest and principal repayable upon maturity
on June 8, 1997.
Term loan bearing interest at 9%, repayable in five -- 1,250,000
equal installments of principal and interest of
$321,000, maturing 2002.
27,443,214 1,346,018
Less portion due within one year 476,721 222,401
$26,966,493 $1,123,617
On January 28, 1997, the Company replaced its $27 million
term loans with a revolving credit facility of $51.1 million
available in multiple currencies at Libor plus 2.75% and, or
prime rate plus 1.25%. In addition to refinancing the term
loans, funds were used to finance acquisitions. The total
amounts outstanding under the credit facility and other
borrowings totaling $54.7 million as at November 19, 1997 were
repaid as a result of the issuance of $100 million of Senior
Subordinated Notes Payable described in note 12.
The following repayment schedule represents the required
annual principal repayments of long-term debt.
1998 $222,401
1999 242,832
2000 265,152
2001 285,645
2002 305,840
Thereafter in aggregate 24,148
12. Subordinated Notes Payable
1996 1997
Senior subordinated notes payable maturing
November 2007, bearing interest at 11.5%,
interest payable semi-annually, principal
due at maturity $-- $100,000,000
On November 19, 1997, the Company completed a $100,000,000
private placement of 11 1/2% Senior Subordinated Notes due 2007
(the "Private Notes"). The Company used a portion of the net
proceeds of this offering to repay $54.7 million of its existing
credit facility and to pay $14.2 million to certain Company
shareholders (see note 2).
The Company offered to each holder of Private Notes
equivalent exchange notes (the "Exchange Notes"). The Exchange
Notes are identical in form and terms to the Private Notes,
except that upon the effectiveness of a registration statement
filed with the United States Securities and Exchange Commission
covering the Exchange Notes, the holders of Exchange Notes may
offer the notes for sale to the general public [see note 21 (c)].
Each of the Company's subsidiary guarantors has fully and
unconditionally guaranteed, on a senior subordinated basis,
jointly and severally, to each holder of the notes and the
trustee under the indenture pursuant to which the notes were
issued, the full and prompt performance of the Company's
obligations under the indenture and the notes, including the
payment of principal and interest on the notes. The guarantees
are subordinated to guarantor senior indebtedness (as defined in
the indenture). As of December 31, 1997, the subsidiary
guarantors had approximately $4.8 million of guarantor senior
indebtedness outstanding.
The obligations of each subsidiary guarantor will be limited
to the maximum amount which, after giving effect to all other
contingent and fixed liabilities of such subsidiary guarantor and
after giving effect to any collections from or payments made by
or on behalf of any other subsidiary guarantor in respect of the
obligations of such other subsidiary guarantor under its
guarantee or pursuant to its contribution obligations under the
indenture pursuant to which the notes are to be issued, will
result in the obligations of such subsidiary guarantor under its
guarantee not constituting a fraudulent conveyance or fraudulent
transfer under federal, state or other applicable law. In
addition, the obligations of each subsidiary guarantor organized
outside the United States will be limited to the maximum amount
permitted under applicable Canadian, English, Scottish or other
foreign law.
Separate audited financial statements of the guarantor
subsidiaries have not been provided as Sparkling Spring has no
subsidiaries which are nonguarantor subsidiaries and does not
believe that this information would be meaningful to investors.
Sparkling Spring is a holding company and has no operations or
assets independent of its investment in its subsidiaries. All of
Sparkling Spring's subsidiaries are wholly-owned. There are no
restrictions as to the payment of dividends or loans by Sparkling
Spring's subsidiaries to Sparkling Spring or as to the granting
of any upstream guarantees not constituting a fraudulent
conveyance or fraudulent transfer under applicable law.
The Company has entered into two cross currency interest
rate swaps to more closely match the interest requirements of the
above notes with the cash flows earned by the Company's Canadian
and UK subsidiaries. Under the terms of the first swap, maturing
November 15, 2002, the Company will receive 11.5%, payable
semiannually, on a $28 million US dollar notional amount in
return for paying 10.83%, payable semiannually, on a $39.872
million Canadian notional amount. The terms of the agreement
also call for the Company to receive $28 million US in exchange
for $39.872 million Canadian on November 15, 2002.
Under the terms of the second swap, maturing November 15,
2003, the Company will receive 11.5%, payable semiannually, on a
$30 million US dollar notional amount in return for paying
12.61%, payable semiannually, on a 17.857 million Great Britain
pounds notional amount. The terms of the agreement also call for
the Company to receive $30 million US in exchange for 17.857
million Great Britain pounds on November 15, 2003.
Both of the above noted swaps have been transacted with a US
bank with a counter party credit rating of "A" (Standard &
Poors). At December 31, 1997 the aggregate fair value of the two
swaps was $423,359 US dollars in favor of the Company of which
$114,556 has been recorded as a reduction in interest expense
with the remaining balance of $308,803 recorded as a decrease in
the cumulative translation adjustment.
13. Capital Stock
During 1994, the Company issued 165,767 common share
purchase warrants to the holders of subordinated notes payable.
The warrants were exercisable at $0.01 per share upon repayment
of the notes or in the event of default of interest payments
required on these notes. The warrants were assigned a value of
$1,135,149 representing the estimated fair value of the warrants
at the date of issuance. During 1996 the subordinated notes were
redeemed together with the related common share purchase warrants
for cash consideration of $4.7 million representing a $1,253,552
excess over the book value of the debt and warrants. The present
value of interest payments foregone by the noteholders of
$907,674 was expensed in 1996 as described in note 14. The
remaining excess of $345,878 was allocated to the warrants and
has been reflected as a reduction of paid in capital.
As described in note 2, the Company completed a
reorganization in 1997 whereby the shareholders of SSWL
exchanged, on an aggregate basis, 1,728,246 shares of common
stock and 442,993 options to acquire shares of common stock of
SSWL for 1,383,328 shares of common stock and 252,197 options to
acquire shares of common stock of Sparkling Spring plus
$14,169,784 in cash. A total of $4,512,080 has been expensed in
these financial statements representing cash used to repurchase
options to acquire shares of common stock. The remaining cash
paid to shareholders of $9,657,704 has been charged to share
capital and retained earnings based on the number of shares of
SSWL redeemed using the average carrying value per share. A
further $76,422 has been expensed in these financial statements
related to the repurchase of stock options from a former
employee.
The Company maintains a stock option plan for management and
directors where options to acquire Class E common shares are
issued with strike prices approximating the estimated value of
the shares at the date of issuance.
The Company accounts for stock options in accordance with
APB Opinion No. 25 and accordingly, no compensation costs have
been recognized. Had the Company determined compensation cost
based on the fair value at the grant date for its stock options
under SFAS No. 123, the Company's net income and net income per
share would have been reduced to the pro forma amounts as
follows:
1995 1996 1997
$ $ $
Net (loss) income, as reported 19,062 (306,996) (5,358,366)
Net (loss), pro forma (95,014) (415,332) (5,358,366)
Net (loss) income per share, as 0.016 (0.209) (3.180)
reported
Net (loss) per share, pro forma (0.078) (0.283) (3.180)
There were no stock options granted during 1997. The per
share weighted average fair value of stock options granted in
1996 and 1995 was $4.77 and $1.15 respectively at the date of
grant, using the minimum value approach as permitted by SFAS 123
for non-public companies, and an assumed risk free interest rate
of 5%.
The following summarizes the status of the option plan. To
the extent that options are exercisable in Canadian dollars,
exercise prices have been translated at the exchange rate as of
December 31, 1997:
Number of Range of Average
Options Exercise Price Exercise Price
Outstanding at December 31, 1994 301,298 $1.27 - 4.326 $3.33
Granted 64,595 $3.85 - 4.326 $4.30
Outstanding at December 31, 1995 365,893 $1.27 - 4.326 $3.53
Granted 53,500 $10.27 - 20.00 $18.53
Cancelled (20,000) $4.326 $4.326
Outstanding at December 31, 1996 399,393 $1.27 - 20.00 $5.50
Exercised (7,500) $4.326 $4.326
Repurchased (190,796) $1.27 - 20.00 $4.351
Outstanding at December 31, 1997 201,097 $1.27 - 20.00 $6.61
Exercisable at December 31, 1997 168,263 $1.27 - 20.00 $4.59
Information with respect to options outstanding and
exercisable at December 31, 1997 is as follows:
Options outstanding
Remaining
Number Contractual
Exercise Price Outstanding Life
$1.27 55,111 3.8 years
$3.85 5,000 3.8 years
$4.326 95,736 3.8 years
$10.27 5,000 5.0 years
$14.00 5,000 5.6 years
$20.00 35,250 3.8 years
201,097
Options Exercisable
$1.27 55,111 3.8 years
$3.85 5,000 3.8 years
$4.326 93,236 3.8 years
$10.27 1,250 5.0 years
$14.00 1,000 5.6 years
$20.00 12,666 3.8 years
168,263
At December 31, 1995 and 1996 the number of options
exercisable were 138,084 and 235,390, respectively, and the
weighted average exercise prices were $3.38 and $3.58
respectively.
Warrants for 51,100 shares have been granted and are
outstanding. The warrants are exercisable for total cash
consideration of $1.
14. Extraordinary Item
The Company restructured and replaced its long-term
financing agreements in each of the last three years. Costs
incurred related to new loan financing arrangements have been
deferred in accordance with the Company's accounting policy for
deferred financing costs. Costs, in the amount of $833,706 (1996-
$473,436; 1995-$391,626) related to debt that was restructured
have been expensed in the year, net of applicable income tax
recoveries of $398,724 (1996-$434,238; 1995-$204,915).
15. Statement of Cash Flow
1995 1996 1997
(Increase) decrease in
Accounts receivable $ (875,321) $(1,672,299) $(3,468,235)
Inventories (173,756) (313,116) (885,501)
Prepaid expenses (198,454) (759,560) (183,766)
(1,247,531) (2,744,975) (4,537,502)
Increase (decrease) in
Accounts payable and accrued 317,510 1,867,327 2,341,702
liabilities
Unearned revenue 316,146 (223,376) (86,302)
Customer deposits 380,735 742,951 775,971
Income taxes payable -- 76,890 965,677
1,014,391 2,463,792 3,997,048
Net change in non-cash working
capital balances (233,140) (281,183) (540,454)
Less net working capital acquired
on acquisitions [note 4] (441,446) 262,344 195,908
Effect of translation 26,915 (13,339) (4,589)
$ (647,671) $ (32,178) $ (349,135)
Net working capital acquired on acquisitions has been
excluded from cash flows from operations as it has been included
in investing activities in acquisitions.
16. Lease Commitments
The Company is committed under operating leases extending
for various periods to 2008. Future minimum lease payments are
as follows:
1998 $1,436,760
1999 1,281,658
2000 1,070,543
2001 860,170
2002 817,844
Thereafter in aggregate 3,205,197
$8,672,172
Lease costs of $1,291,043(1996 - $896,000; 1995 - $695,000)
have been expensed during the year.
17. Income Taxes
A reconciliation of the provision for income taxes based on
the combined federal and provincial income tax rates of 45% is as
follows:
1995 1996 1997
Provision for (recovery of) income taxes $319,408 $254,144 $(1,832,754)
at statutory rates
Non deductible amortization -- 132,910 302,059
Redemption of common stock options -- -- 2,030,436
Difference in foreign tax rates (5,640) 14,414 (62,980)
Other (14,661) (3,143) 2,616
$299,107 $398,325 $ 439,377
The provision for income
taxes includes:
1995 1996 1997
Current income taxes--Canada $ -- $ 90,000 $ 804,385
--Foreign -- -- 315,877
-- 90,000 1,120,262
Deferred income taxes-Canada 269,107 357,325 (550,968)
--Foreign 30,000 (49,000) (129,917)
299,107 308,325 (680,885)
$299,107 $398,325 $ 439,377
The deferred tax asset is comprised of the following timing
differences:
1995 1996 1997
Excess accounting expenses over tax $106,792 $561,774 $ 345,168
Non capital loss carryforwards 169,341 185,657 1,214,849
Excess of tax over book depreciation (42,743) (204,149) (177,533)
Other differences 9,757 (6,745) (2,748)
$243,147 $536,537 $1,379,736
The Company has non capital losses available for carryforward
that expire as follows:
2004 $1,451,040
2012 1,140,072
No expiry 563,224
18. Selling, Delivery and Administrative
(a) Related Party Transactions
During the year the Company paid approximately $1,029,779
(1996-$529,400; 1995-$386,000) to CF Capital Corporation (CFCC),
a company affiliated by common significant shareholdings, for
management and related services.
The Company also paid CFCC $518,700 (1996-$239,600; 1995-
$135,000) for investment banking advisory services rendered in
connection with acquisitions completed during the year which were
capitalized as part of the related acquisition costs.
The Company has entered into a Management Agreement with
CFCC and two of CFCC's shareholders who are also shareholders of
the Company. Under the terms of the Agreement, CFCC manages the
operations of the Company and negotiates contracts, financial
agreements and other arrangements. The Management Agreement
provides that CFCC shall receive a base fee which is adjusted
yearly based on annual Company revenues. An annual bonus,
calculated as a percentage of the base fee, is due to CFCC in the
event the Company achieves certain targeted levels of per share
earnings before depreciation, amortization and income taxes.
CFCC also receives fees for investment banking advisory service
rendered to the Company in connection with successful
acquisitions.
All shareholders of the Company are party to a Shareholder
Agreement which provides, among other things, for preemptive
rights in favor of the shareholders under certain circumstances
if Sparkling Spring issues additional securities and for certain
registration rights. The Shareholder Agreement also provides
restrictions on the transfer of the Company's capital stock, for
rights of first refusal and for rights of certain shareholders to
require all other shareholders to join with them in their sale of
the Company's capital stock.
In connection with the purchase of shares of common stock of
the Company, promissory notes totaling $230,003 have been received
from certain officers of the Company. The promissory notes bore
interest at a rate of 7% and were scheduled to mature on January
31, 1998 with principal and interest due on that date. The
promissory notes were cancelled by the Company and replaced with
promissory notes which bear interest at a rate of 6% and mature
on January 31, 1999 with principal and interest due on that date.
The common shares purchased by the officers are pledged as
security for the promissory notes.
(b) Advertising and Promotional Expenses
Selling, delivery and administration expenses include
advertising and promotional expenses of $1,238,000 (1996-
$1,206,000; 1995-$656,000).
19. Summary of Business Segments
1995 1996 1997
Revenue
Canada $ 5,061,581 $15,363,998 $19,416,108
United Kingdom 10,287,533 11,962,351 17,658,190
United States -- -- 4,999,586
$15,349,114 $27,326,349 $42,073,884
Net income (loss) before income
taxes, non-controlling interest
and extraordinary item
Canada $622,549 $ 726,937 $(4,391,401)
United Kingdom 64,250 (155,278) 451,400
United States -- -- (145,282)
$686,799 $ 571,659 $(4,085,283)
Identifiable assets
Canada $ 5,664,794 $27,177,107 $ 31,345,420
United Kingdom 12,856,161 17,232,061 25,866,401
United States -- -- 49,787,091
$18,520,955 $44,409,168 $106,998,912
20. Comparative Figures
Certain of the comparative figures have been reclassified to
conform with the presentation adopted in the current year.
21. Subsequent Events
(a) On February 24, 1998, the Company purchased all of the
outstanding capital stock of Coastal Mountain Water Corp. for
$4,241,000. Coastal Mountain Water Corp. is based in Vancouver,
British Columbia and focuses on the direct delivery of eighteen
litre containers of water to residential and commercial customers
and the rental of water coolers.
(b) In January, 1998 the Company issued 9,360 shares to key
managers of the Company for aggregate proceeds of $262,080 (note
2).
(c) The Registration Statement filed by the Company covering the
Exchange Notes (note 12) was declared effective by the United
States Securities and Exchange Commission on April 1, 1998.
(d) In March 1998, the Company received a loan commitment for
purposes of financing future capital investments, working capital
and general corporate purposes. The loan commitment provides for
borrowing availability of initially $40.0 million and matures in
2007. The documentation for the loan is expected to be finalized
and the loan closed by early May. The Company's payment
obligations under the credit agreement will have pledged as
collateral a first priority security interest granted in favor of
the lenders over substantially all of the assets of the Company.
The Company's obligations under the credit agreement will rank
senior to the payment of the Exchange Notes.
<PAGE>
EXHIBIT INDEX
Exhibit Sequential
Number Description Page Number
- - ------- ----------- -----------
2.(ii) Senior Credit Agreement, dated May 26, 1998 among 87
Sparkling Spring Water Group Limited and the Guarantors
named therein, as borrowers, and The Toronto-Dominion
Bank, Toronto Dominion (Texas), Inc. and The Toronto-
Dominion Bank, London Branch, as lenders.
DATE: MAY 11/98
CREDIT AGREEMENT
between
SPARKLING SPRING WATER GROUP LIMITED
SPARKLING SPRING WATER LIMITED
SPARKLING SPRING WATER UK LIMITED
and
SPRING WATER, INC.
as Borrowers
and
THE TORONTO-DOMINION BANK,
TORONTO DOMINION (TEXAS), INC.
and
THE TORONTO-DOMINION BANK, LONDON BRANCH
as Lenders
Dated as of April 30, 1998
<PAGE>
TABLE OF CONTENTS
ARTICLE 1
INTERPRETATION
1.01 Defined Terms 2
1.02 Computation of Time Periods 20
1.03 Accounting Terms 20
1.04 Incorporation of Appendices and Schedules 20
1.05 Singular, Plural, etc. 20
ARTICLE 2
CREDIT FACILITY
2.01 Credit Facility 21
2.02 Availability 21
2.03 Termination of Availability 21
2.04 Revolving Nature of Credit Facility 21
2.05 Borrowing Options 21
2.06 Repayment of Credit Facility 21
2.07 Annual Renewal of Credit Facility 22
2.08 Reduction in Commitment upon Asset Sales 23
2.09 Optional Repayment 23
2.10 Optional Reduction of Commitment 24
2.11 Repayment of Outstandings to Reflect Commitment 24
2.12 General Interest Provisions 24
2.13 Business Day Payments 25
2.14 Interest on Overdue Amounts 25
2.15 Breakage Costs 25
2.16 Application of Payments 26
2.17 Conditions Solely for the Benefit of the Lenders 26
2.18 No Waiver 26
2.19 Authorized Debit 27
2.20 Commitment Fee 27
2.21 Arrangement Fee 27
2.22 Adjustments to Interest Rates and Fees 27
ARTICLE 3
LOANS AND LETTERS OF CREDIT
3.01 Advances 28
3.02 Minimum Advances 28
3.03 Notice Requirements for Advances 28
3.04 Notices Irrevocable 28
3.05 Election of Interest Rates and Currencies 28
3.06 Circumstances Requiring Canadian Prime or
U.S. Prime Rate Pricing 29
3.07 Interest Periods 31
3.08 Interest on Advances 31
3.09 Interest Payment Dates 31
3.10 Payments 32
3.11 Letters of Credit 32
ARTICLE 4
BANKERS' ACCEPTANCES
4.01 Creation of Bankers' Acceptance 32
4.02 Drawings 32
4.03 Power of Attorney 33
4.04 Completion and Delivery of Drafts 33
4.05 Stamping Fees 33
4.06 Netting 34
4.07 Payment on Maturity 34
4.08 Custody of Drafts 34
4.09 Renewal or other Payment of Bankers' Acceptance 35
4.10 Prepayments of Bankers' Acceptances 35
4.11 No Days of Grace 35
4.12 Suspension of Bankers' Acceptance Option 35
ARTICLE 5
CLOSING CONDITIONS
5.01 Closing Conditions 35
5.02 Conditions Precedent for Acquisition of
Target Company 37
5.03 Conditions Precedent to Subsequent Borrowings 40
ARTICLE 6
REPRESENTATIONS AND WARRANTIES
6.01 Representations and Warranties by the Borrowers 40
ARTICLE 7
FINANCIAL STATEMENTS AND INFORMATION
7.01 Provision of Information 44
ARTICLE 8
POSITIVE COVENANTS
8.01 General Affirmative Covenants 47
ARTICLE 9
NEGATIVE COVENANTS
9.01 General Negative Covenants 50
ARTICLE 10
BORROWER GUARANTEE
10.01 Guarantees 54
10.02 Guarantee Absolute and Unconditional 54
10.03 Demand 56
10.04 Remedies 56
10.05 Set-Off 56
10.06 Amount of Guaranteed Obligations 56
10.07 Payment Free and Clear of Taxes 57
10.08 Subrogation and Repayment 57
10.09 Postponement and Assignment 58
10.10 Rights on Subrogation 58
10.11 Continuing Guarantee 58
10.12 Third Party Beneficiaries 58
10.13 No Modification 58
10.14 Additional Guarantee 58
10.15 Remedies Cumulative 59
10.16 No Waivers, Remedies 59
10.17 Time of Essence 59
ARTICLE 11
SECURITY
11.01 Security 59
11.02 Continued Perfection of Security 59
11.03 Set-Off 59
11.04 Conflict 60
ARTICLE 12
EVENTS OF DEFAULT
12.01 Events of Default 60
12.02 Cancellation and Acceleration 63
12.03 Remedies Cumulative 63
12.04 Waivers 63
ARTICLE 13
MISCELLANEOUS
13.01 Records 63
13.02 Amendments 63
13.03 Notices 64
13.04 No Waiver; Remedies 66
13.05 Expenses 66
13.06 Maintenance of Accounts 66
13.07 Taxes 66
13.08 Increased Costs 67
13.09 Environmental Indemnity 68
13.10 Judgment Currency 69
13.11 Governing Law 69
13.12 Consent to Jurisdiction 69
13.13 Successors and Assigns 70
13.14 Conflict 70
13.15 Severability 70
13.16 Prior Understandings 70
13.17 Time of Essence 70
13.18 Counterparts 70
Appendix 1 - Mandatory Liquid Asset Cost
Appendix 2 - Interest Rates and Fees
Schedule 1 - Borrowing Notice - Canadian Prime
Rate Advances and Bankers' Acceptances
Schedule 2 - Borrowing Notice - U.S. Prime Rate
Advances and U.S. Libor Advances
Schedule 3 - Borrowing Notice - Sterling Libor Advances
Schedule 4 - List of Wholly-Owned Subsidiaries
Schedule 5 - Bankers' Acceptance Power of Attorney
Schedule 6 - Quarterly Financial Certificate
<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT dated as of the 30th day of April, 1998
BETWEEN:
SPARKLING SPRING WATER GROUP LIMITED, a corporation
incorporated under the laws of the Province of Nova
Scotia
OF THE FIRST PART
AND:
SPARKLING SPRING WATER LIMITED, a corporation
incorporated under the laws of the Province of Nova Scotia
OF THE SECOND PART
AND:
SPARKLING SPRING WATER UK LIMITED, a company
incorporated under the laws of England and Wales
OF THE THIRD PART
AND:
SPRING WATER, INC., a corporation incorporated under
the laws of the State of Delaware
OF THE FOURTH PART
AND:
THE TORONTO-DOMINION BANK, a chartered bank of
Canada
OF THE FIFTH PART
AND:
TORONTO DOMINION (TEXAS), INC., a corporation
incorporated under the laws of the State of Delaware
OF THE SIXTH PART
AND:
THE TORONTO-DOMINION BANK, London Branch
OF THE SEVENTH PART
THIS AGREEMENT WITNESSES that in consideration of the mutual
covenants and agreements contained herein, it is agreed by and between
the parties hereto as follows:
ARTICLE 1
INTERPRETATION
1.1 Defined Terms. As used in this Agreement, the following terms have
the following meanings:
(a) "Accommodation" means the making of any Advance by the Lenders
(including any renewal of an outstanding Advance), the
creation of a Bankers' Acceptance by TD Bank and the issuance
of a Letter of Credit or Guarantee Letter by TD Bank;
(b) "Acquired Company" means a company which is, or assets of
which are, acquired by a Group Entity during any particular
period, including without limitation any Target Companies
acquired during such period;
(c) "Acquired Company EBITDA" means, for any particular period, an
amount determined for any Acquired Company and its
Subsidiaries in the same manner as the determination of
Adjusted Consolidated EBITDA for SSWG and its Subsidiaries
pursuant to this Agreement;
(d) "Actual Capital Expenditures" means, for any period, the
actual aggregate capital expenditures of all Group Entities
for that period;
(e) "Adjusted Consolidated EBITDA" means, for any particular
period, an amount determined as follows:
(i) the Consolidated Net Income of SSWG and its
Subsidiaries for that period;
plus
(ii) Total Interest for that period, to the extent such
Total Interest was deducted in determining Consolidated
Net Income of SSWG and its Subsidiaries for that period;
plus
(iii) income taxes recorded by SSWG and its
Subsidiaries for that period, to the extent such income
taxes were included in determining Consolidated Net
Income of SSWG and its Subsidiaries for that period;
plus
(iv) the amount of depreciation and amortization recorded
by SSWG and its Subsidiaries for that period, to the
extent the amount of such depreciation and amortization
was deducted in determining the Consolidated Net Income
of SSWG and its Subsidiaries for that period;
plus
(v) Acquired Company EBITDA for that period for any
Acquired Company acquired during that period;
in each case adjusted for reasonable operating expense
efficiencies, as approved by the Lenders;
(f) "Advances" means advances made by the Lenders hereunder,
including any renewal of outstanding Advances; Advances may be
denominated in Canadian Dollars (a "Canadian Dollar Advance"),
in U.S. Dollars (a "U.S. Dollar Advance") or in Sterling (a
"Sterling Advance"); a Canadian Dollar Advance shall be
designated as a "Canadian Prime Rate Advance", a U.S. Dollar
Advance may from time to time, by election of the Borrowers,
be designated as a "U.S. Prime Rate Advance" or a "U.S. Libor
Advance", and a Sterling Advance shall be designated as a
"Sterling Libor Advance"; each of a Canadian Prime Rate
Advance, a U.S. Prime Rate Advance, a U.S. Libor Advance and a
Sterling Libor Advance is a "Type" of Advance;
(g) "Affiliate" of any designated person means any other person
that, directly or indirectly, controls or is controlled by or
is under common control with such designated person; provided
that in any event any person that beneficially owns directly
or indirectly securities having 50% or more of the voting
power for the election of directors or other governing body or
50% or more of the partnership or other ownership interests of
any other person will be deemed to control such corporation or
other person; for the purposes of this definition, "control"
(including, with correlative meanings, the terms "controlled
by" and "under common control with"), as used with respect to
any person, means the possession, directly or indirectly, of
the power to direct or cause the direction of the management
and policies of such person, whether through the ownership of
voting securities or by contract or otherwise;
(h) "Alternate Sterling Rate" means the rate of interest per annum
(based on a 365 day year) as determined by TDUK as the rate it
may make available for a period equal to one month Sterling
obtained by TDUK in the London interbank market, plus the
applicable Mandatory Liquid Asset Cost;
(i) "Alternate Sterling Rate Advances" means Advances deemed to
have been made to a Borrower pursuant to Section 3.05(e) or
Section 3.06(a)(viii);
(j) "Authorized Officer" means, with respect to a Borrower, the
chairman, the president, the chief executive officer, the
chief financial officer, the secretary or the chief legal
officer of such Borrower;
(k) "Bankers' Acceptance" means a bankers' acceptance created by
acceptance of a Draft in accordance with the provisions of
this Agreement;
(l) "Beneficiary" means, in respect of any Letter of Credit or
Guarantee Letter, the beneficiary specified therein or any
other person to whom payments may be required to be made
pursuant to such Letter of Credit or Guarantee Letter;
(m) "Borrowers" means, collectively, SSWG, SSW, SSUK and SWUS and
their respective successors, and "Borrower" means any one of
them;
(n) "Borrowing" means a utilization by a Borrower of the Credit
Facility by way of Canadian Prime Rate Advances, U.S. Prime
Rate Advances, U.S. Libor Advances, Sterling Libor Advances,
Bankers' Acceptances, Letters of Credit or Guarantee Letters,
and "Borrowings" means the aggregate of such utilizations;
(o) "Borrowing Notice" means a notice by a Borrower to the
Lenders:
(i) substantially in the form attached as Schedule 1
hereto:
(1) requesting a Canadian Dollar Advance; or
(2) requesting the creation of Bankers'
Acceptances;
(ii) substantially in the form attached as Schedule 2
hereto:
(1) requesting a U.S. Dollar Advance; or
(2) requesting the continuation of a U.S.
Libor Advance for an additional Interest Period;
or
(iii) substantially in the form attached as Schedule 3
hereto:
(1) requesting a Sterling Libor Advance; or
(2) requesting the continuation of a Sterling
Libor Advance for an additional Interest Period;
(p) "Business Day" means any day of the year, other than a
Saturday, Sunday or other day on which:
(i) banks are required or authorized to close in
Vancouver;
(ii) where used in the context of a U.S. Prime Rate
Advance, banks are required or authorized to close in New
York City or Houston, Texas;
(iii) where used in the context of a U.S. Libor
Advance, banks are required or authorized to close in New
York City or Houston, Texas and dealings are not carried
on in the London interbank market; or
(iv) where used in the context of a Sterling Libor
Advance, banks are required or authorized to close in
London and dealings are not carried on in the London
interbank market;
(q) "Business Plan" means a business plan prepared by the
Borrowers in respect of the consolidated business and
financial activities of the Group Entities for the ensuing
year, containing financial forecasts, an operating budget, and
other matters typically included in an annual business plan;
(r) "Canadian Dollars" and "Cdn.$" each mean lawful money of
Canada;
(s) "Canadian Prime Rate" on any day means the greater of:
(i) the rate of interest per annum then in effect (based
on a year of 365 days or, in leap years, 366 days)
established and reported by TD Bank to the Bank of Canada
from time to time as the reference rate of interest for
the determination of interest rates that TD Bank charges
to customers of varying degrees of creditworthiness in
Canada for Canadian Dollar loans made by it in Canada and
designated by it as its "prime rate"; and
(ii) the annual rate of interest equal to the CDOR Rate
plus 0.75% per annum;
provided that each change in the Canadian Prime Rate shall be
effective from and including the date such change is made
without any requirement of notification to any Borrower or any
other person;
(t) "Canadian Prime Rate Advances" means Advances on which
interest is determined by reference to the Canadian Prime Rate
in effect from time to time;
(u) "Capex" means, for any particular period, the greater of:
(i) the actual aggregate capital expenditures of all
Group Entities for that period, as determined by the
Borrowers, for the purposes of the maintenance of the
existing business of the Group Entities;
and
(ii) 3% of the consolidated revenue for all Group
Entities for that period;
(v) "Capital Expenditure Plan" means a detailed financial plan
prepared by the Borrowers for the next ensuing fiscal year,
which plan shall be prepared on a consolidated basis covering,
inter alia, planned capital expenditures, including
maintenance capital expenditures, for the ensuing fiscal year,
together with proposed sources for financing such capital
expenditures and such additional details as the Lenders may
reasonably request;
(w) "Capital Lease Obligations" means, for any person, all
obligations of such person to pay rent or other amounts under
a lease of (or other agreement conveying the right to use)
property, to the extent such obligations are required to be
classified and accounted for as capital lease obligations or
finance lease obligations on a balance sheet of such person in
accordance with GAAP;
(x) "Cash Flow" means, for any particular period, an amount
determined as follows:
(i) Adjusted Consolidated EBITDA for that period;
less
(ii) Capex for that period;
less
(iii) current income taxes actually paid by SSWG and
its Subsidiaries during that period;
(y) "Cash Sweep" means, for any fiscal year of SSWG, an amount
determined as 50% of the following:
(i) Consolidated Net Income for that period;
plus
(ii) the amount of depreciation and amortization recorded
by SSWG and its Subsidiaries for that period, to the
extent the amount of such depreciation and amortization
was deducted in determining the Consolidated Net Income
of SSWG and its Subsidiaries for that period;
plus
(iii) the proceeds from the disposition of fixed
assets for that period;
less
(iv) Actual Capital Expenditures for that period;
less
(v) scheduled principal payments by the Borrowers in
respect of the Credit Facility for that period;
(z) "CDOR Rate" means the annual rate equal to the average "BA 1
Month" rates for bankers' acceptances in Canadian Dollars
displayed and identified as such on the "Reuters Screen CDOR
Page" (as defined in the International Swap Dealer
Association, Inc. definitions, as modified and amended from
time to time) as of 10:00 a.m. (Vancouver time) on any
particular day or, if such day is not a Business Day, then on
the immediately preceding Business Day (as adjusted by TD Bank
after 10:00 a.m. (Vancouver time) to reflect any error in a
posted rate or in the posted average annual rate); provided
that if such rates are not available on the Reuters Screen
CDOR Page on any particular day, then the CDOR Rate on that
day shall be calculated as the arithmetic mean of the 30 day
rates applicable to bankers' acceptances in Canadian Dollars
quoted by three major Canadian Schedule I chartered banks
selected by the Lenders as of 10:00 a.m. (Vancouver time) on
such day, or if such day is not a Business Day, then on the
immediately preceding Business Day;
(aa) "Change of Control" means:
(i) any person or group other than John Kredeit, Stephen
Larson, Clairvest Group Inc. or the management and
directors of the Group Entities becoming the beneficial
owner of more than 50% of the Voting Stock of SSWG; or
(ii) the transfer of all or substantially all of the
assets of SSWG or its Subsidiaries, taken as a whole, to
any person or group other than another Group Entity;
but shall not include the proposed reorganization of the Group
Entities pursuant to which SSWG will become a wholly-owned
subsidiary of Sparkling Spring Water Holdings Limited, which
in turn will be owned by the shareholders of SSWG as of the
date of this Agreement;
(ab) "Closing Conditions" means the various conditions precedent
set out in Section 5.01 hereof;
(ac) "Closing Date" means such date as the Borrowers and the
Lenders may agree upon;
(ad) "Commitment" means U.S.$40,000,000, subject to any reduction
under any provision of this Agreement;
(ae) "Commitment Fee" has the meaning ascribed to that term in
Section 2.20;
(af) "Consolidated Net Income" means, for any particular period,
the consolidated net income of SSWG and its Subsidiaries for
such period determined in accordance with GAAP; provided that
Consolidated Net Income shall not include:
(i) any loss, writedown, gain or other amount classified
as an extraordinary item in accordance with GAAP;
(ii) any portion of the net income or loss of any person
that is not a Subsidiary of SSWG, except to the extent
cash dividends received by SSWG or any Subsidiary of SSWG
in any period are included in consolidated net income of
SSWG for that period in accordance with GAAP;
(iii) any gain or loss on the disposition of fixed
assets or any income or loss attributable to discontinued
operations; or
(iv) any charges related to the acquisition in 1997 by
SSWG of the shares of SSW and the related acquisition of
stock options by SSW, or any other charges permitted
under this Agreement;
(ag) "corporation" includes a corporation incorporated under the
Canada Business Corporations Act and any other corporation
wherever or however incorporated;
(ah) "Credit Facility" means the credit facility to be made
available to the Borrowers hereunder as set out in Section
2.01;
(ai) "Credit Facility Documents" means this Agreement, the
Subsidiary Guarantees, the Security Documents and all other
documents to be executed and delivered to the Lenders by the
Group Entities or any of them pursuant to this Agreement;
(aj) "Debenture/Security Agreements" means debenture/security
agreements in the principal amount of U.S.$60,000,000 each,
executed by each of the Group Entities in a form satisfactory
to the Lenders, acting reasonably, granting to the Lenders a
first financial charge on all real property of each of the
Group Entities and a security interest in all personal
property of each of the Group Entities ranking in priority to
any other security interest (other than Permitted Liens) in
such personal property;
(ak) "Debt" means, at any particular time, all Indebtedness of SSWG
and its Subsidiaries on a consolidated basis;
(al) "Debt Service" means, for any particular period, an amount
determined as follows:
(i) Senior Interest for that period;
plus
(ii) scheduled principal payments by the Borrowers in
respect of the Credit Facility for that period;
plus
(iii) without duplication, interest and scheduled
principal payments payable by SSWG and its Subsidiaries
in respect of other Debt for that period, including
without limitation the Senior Subordinated Notes and any
Vendor Debt, provided that, for each of the fiscal
quarters ended December 31, 1997, March 31, 1998, June
30, 1998 and September 30, 1998, no scheduled principal
payments in respect of other Debt shall be included for
the period prior to January 1, 1998;
(am) "Default" means an event which, with the giving of notice or
passage of time, or both, would constitute an Event of
Default;
(an) "Dispositions" has the meaning ascribed to that term in
Section 9.01(f);
(ao) "Draft" means, at any time, a blank bill of exchange drawn by
a Borrower on TD Bank in Canadian Dollars and bearing such
distinguishing letters and numbers as TD Bank may determine,
but which has not been completed or accepted by TD Bank;
(ap) "Drawing" means the creation of Bankers' Acceptances by TD
Bank in accordance with the provisions of this Agreement;
(aq) "Drawing Date" means any Business Day fixed in accordance with
the provisions of this Agreement for a Drawing;
(ar) "Environmental Laws" means any Laws relating, in whole or in
part, to the protection and enhancement of the environment,
public health, or transportation of dangerous goods;
(as) "Equivalent Amount" means, on any particular date, the amount
of U.S. Dollars into which an amount of Canadian Dollars or
Sterling may be converted, the amount of Canadian Dollars into
which an amount of U.S. Dollars or Sterling may be converted,
or the amount of Sterling into which an amount of Canadian
Dollars or U.S. Dollars may be converted, in each case
determined on the basis of the applicable Spot Buying Rates on
the date of determination; provided that if the date of
determination is not a Business Day, the applicable Spot
Buying Rates shall be the Spot Buying Rates quoted for the
immediately preceding Business Day;
(at) "Event of Default" means any of the events specified in
Section 12.01;
(au) "Face Amount" means, in respect of:
(i) a Bankers' Acceptance, the amount payable to the
holder thereof on its maturity; and
(ii) a Letter of Credit or Guarantee Letter, the maximum
amount payable to the Beneficiary;
(av) "Federal Funds Effective Rate" means, for any day, the
weighted average of the rates on overnight federal funds
transactions with members of the Federal Reserve System
arranged by federal funds brokers, as published on the next
succeeding Business Day by the Federal Reserve Bank of New
York, or, if such rate is not so published for any day which
is a Business Day, the average of the quotations for the day
of such transactions received by the Lenders from three
federal funds brokers of recognized standing selected by them;
(aw) "GAAP" means, in relation to any person at any time,
accounting principles generally accepted in the United States
of America as set forth in the opinions and pronouncements of
the Accounting Principles Board of the American Institute of
Certified Public Accountants and the statements and
pronouncements of the Financial Accounting Standards Board, or
in such other statements by such other entities as may be
approved by a significant segment of the accounting profession
in the United States of America, applied on a basis consistent
with the most recent audited financial statements of such
person and its consolidated Subsidiaries (except for changes
accepted without qualification in an auditor's report by such
person's independent auditors and shown in such statements);
(au) "General Assignments of Book Debts" means general assignments
of book debts, or other similar security agreements in any
jurisdiction other than Canada, executed by each of the Group
Entities in favour of the Lenders, in a form satisfactory to
the Lenders, acting reasonably, ranking in priority to any
other security interest in book debts or accounts of such
Group Entity;
(ax) "Governmental Body" means any government (including without
limitation any federal, provincial, state, municipal or local
government) or political subdivision or any agency, authority,
bureau, central bank, monetary authority, commission,
department or instrumentality thereof, or any court or
tribunal, whether foreign or domestic;
(ay) "Group Entities" means, collectively, the Borrowers, Water Jug
Enterprises Limited, Withey's Water Softening & Purification
Limited, 3003969 Nova Scotia Limited, Canadian Springs Water
Company Limited, Aqua Care Water Softening & Purification
Inc., High Valley Water Limited, Coastal Mountain Water
Company Limited, Aquaporte (UK) Limited, Marlborough
Employment Limited, Water at Work Limited, Natural Water
Limited, Crystal Springs of Seattle, Inc., Crystal Springs
Drinking Water, Inc., Crystal Spring Acquisition, Inc.,
Mountain Fresh Acquisition Corp. and Cullyspring Water Co.,
Inc. and any additional Wholly-Owned Subsidiaries acquired by
the Borrowers after the date of this Agreement, and "Group
Entity" means any one of them;
(az) "guarantee" or "guaranteed", as applied to an obligation,
include:
(i) a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of
business), direct or indirect, in any manner, of any part
or all of such obligation; and
(ii) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in
any way the payment or performance (or payment of damages
in the event of non-performance) of any part or all of
such obligation;
(ba) "Guarantee Letters" means letters of guarantee issued by TD
Bank pursuant to Section 3.11;
(bb) "Guaranteeing Borrower" has the meaning ascribed to that term
in Article 10;
(bc) "Hazardous Materials" means any substance declared to be
hazardous or toxic under any Law now or hereafter enacted or
promulgated by any Governmental Body having jurisdiction over
the Group Entities or their properties or assets;
(bd) "Indebtedness" of any person means, without duplication and
without regard to any interest component with respect thereto
(whether actual or imputed) that is not due and payable:
(i) all overdrafts in accounts with banks or other
similar institutions and all obligations represented by
notes payable and drafts accepted representing extensions
of credit, including in respect of such obligation issued
at a discount from par, as at any date of determination,
any amount reasonably regarded as the amortized discount
or accrued interest for any such obligation for the 12
month period ended on such date of determination;
(ii) all obligations of such person (whether or not for
borrowed money) that are evidenced by bonds, debentures,
notes or other similar instruments or that, whether or
not so evidenced, would be considered indebtedness in
respect of borrowed money in accordance with GAAP,
including in respect of any such obligation issued at a
discount from par, as at any date of determination, any
amount reasonably regarded as the amortized discount or
accrued interest for any such obligation for the 12 month
period ended on such date of determination;
(iii) all Capital Lease Obligations of such person;
(iv) all obligations in respect of which interest charges
are customarily paid by such person;
(v) all obligations of such person for borrowed money
which are convertible into shares of stock or other
equity interests of such person (whether at the option of
such person or of the holder), until any such conversion
is actually made;
(vi) all shares of stock or other equity interests of
such person that are required to be redeemed or
repurchased by such person at the option of the holder
thereof, whether upon the happening of any event or
contingency or otherwise;
(vii) all obligations of such person for the deferred
purchase price of property or services acquired by such
person;
(viii) all obligations for borrowed money secured by
any Lien upon or in any property owned by such person
whether or not such person has assumed or become liable
for the payment of such obligations for borrowed money;
(ix) all obligations of such person in respect of letters
of credit; and
(x) all obligations of the type described in any of
clauses (i) through (ix) above that are guaranteed,
directly or indirectly, or endorsed (otherwise than for
collection or deposit in the ordinary course of business)
or discounted with recourse by such person;
provided that in determining Indebtedness of each Group Entity
the following items shall be excluded:
(xi) trade accounts payable;
(xii) accrued liabilities which would be classified as
current liabilities in accordance with GAAP (other than
indebtedness for borrowed money) and which have been
incurred in the ordinary course of business;
(xiii) unearned revenues;
(xiv) current and deferred income taxes;
(xv) accruals for pension obligations;
(xvi) minority interests; and
(xvii) indebtedness of any Group Entity to any other
Group Entity;
(be) "Interest Period" means, for each U.S. Libor Advance and each
Sterling Libor Advance, a period commencing:
(i) in the case of the initial Interest Period for such
Advance, on the date of such Advance; and
(ii) in the case of any subsequent Interest Period for
such Advance, on the last day of the immediately
preceding Interest Period;
and ending, in either case, on the last day of the period as
selected by a Borrower pursuant to this Agreement;
(bf) "Investment" means any investment (in cash or by delivery of
other property) by any Group Entity made directly or
indirectly:
(i) in any other person by stock purchase, capital
contribution, loan or advance or other credit extension
or by purchase of property from such person subject to an
understanding to resell such property to such person or
otherwise;
(ii) in any property purchased, leased pursuant to a
lease which would constitute a capital lease under GAAP,
or otherwise acquired by any Group Entity;
excluding in any case routine purchases of property to be used
or consumed in the ordinary course of business;
(bg) "Judgment Currency" means the currency in which a court of
competent jurisdiction may render judgment in connection with
any litigation relating to the repayment of Outstandings under
this Agreement;
(bh) "Law" means any law (including common law and equity),
constitution, statute, order, treaty, regulation or rule of
any Governmental Body;
(bi) "Lenders" means, collectively, TD Bank, TDUS and TDUK and
their respective successors and assigns, and "Lender" means
any one of them;
(bj) "Letters of Credit" means letters of credit issued by TD Bank
pursuant to Section 3.11;
(bk) "Lien" means, with respect to any person, any mortgage, lien,
pledge, adverse claim, charge, security interest or other
encumbrance, or any interest or title of any vendor, lessor,
lender or other secured party to or of such person under any
conditional sale or other title retention agreement or capital
lease, upon or with respect to any property or asset of such
person, or the signing or filing of a financing statement that
names such person as debtor, or the signing of any security
agreement authorizing any other person as the secured party to
file any financing statement;
(bl) "Mandatory Liquid Asset Cost" means the applicable percentage
(if any) calculated in accordance with Appendix 1 to be
included in Sterling Libor;
(bm) "Margin" means the applicable percentage (if any) set out in
Appendix 2 to be added to the Canadian Prime Rate, the U.S.
Prime Rate, U.S. Libor, Sterling Libor or the Alternate
Sterling Rate to determine the interest rate payable on
Canadian Prime Rate Advances, U.S. Prime Rate Advances, U.S.
Libor Advances, Sterling Libor Advances or Alternate Sterling
Rate Advances, respectively;
(bn) "Material Adverse Effect" means:
(i) a material adverse effect on the financial
condition, business or prospects of the Group Entities
taken as a whole;
(ii) any effect on the ability of the Borrowers to
perform their respective obligations under this
Agreement; or
(iii) any effect on the validity or enforceability of
this Agreement, any Subsidiary Guarantee or any of the
Security Documents;
(bo) "Maturity Date" means December 31, 2005, subject to any
extension under any provision of this Agreement;
(bp) "Non-Renewal Date" has the meaning ascribed to that term in
Section 2.07(d);
(bq) "Non-Resident of Canada" has the meaning assigned to the
expression "non-resident" in the Income Tax Act (Canada);
(br) "Original Currency" means the currency in respect of which any
Outstandings are owed by the Borrowers to the Lenders in
accordance with the provisions of this Agreement;
(bs) "Outstandings" means, on any day, an amount equal to:
(i) the aggregate principal amount of all Advances under
the Credit Facility;
(ii) the aggregate Face Amount of all outstanding
Bankers' Acceptances under the Credit Facility; and
(iii) the aggregate Face Amount of all issued Letters
of Credit and Guarantee Letters under the Credit
Facility;
(bt) "Permitted Capital Expenditures" means, for any fiscal year of
SSWG, an amount determined as follows:
(i) U.S.$7,000,000;
plus
(ii) 4% of the aggregate purchase price of all Acquired
Companies acquired by all Group Entities after January 1,
1998;
plus
(iii) the lesser of:
(1) U.S.$2,000,000; and
(2) the amount by which the Permitted Capital
Expenditures for the previous fiscal year exceeded
the Actual Capital Expenditures for such previous
fiscal year;
(bu) "Permitted Liens" means with respect to any Group Entity:
(i) carriers', warehousemen's, builders' and mechanics'
and other like Liens arising in the ordinary course of
business by operation of law and other Liens resulting
from judgments or awards the time for the appeal or
petition for re-hearing of which shall not have expired
or in respect of which such Group Entity shall in good
faith be prosecuting an appeal or proceeding for review
and in respect of which a stay of execution pending such
appeal or proceeding for review shall have been obtained;
(ii) Liens or trusts for taxes, assessments and other
governmental charges either not yet due and payable or,
to the extent nonpayment thereof shall be permitted by
Section 8.01(d), in respect of which enforcement
proceedings shall have been effectively stayed;
(iii) pledges or deposits made under workers'
compensation laws or similar legislation or good faith
deposits or bonds or similar instruments to secure the
performance of bids, tenders, leases, contracts (other
than for the payment of Indebtedness) or expropriation
proceedings, or deposits to secure surety and appeal
bonds or deposits as security for contested taxes or
export or import duties, levies, charges or surcharges;
(iv) the right reserved to or vested in any Governmental
Body by the terms of any lease, franchise, tenure,
contract, grant or permit acquired by the Group Entities,
or by any statutory provisions, to terminate any such
lease, license, franchise, tenure, contract, grant or
permit (provided that such right is not then being
exercised), or to require annual or other periodic
payments or the performance of obligations or imposition
of conditions, as a condition of the continuance thereof;
(v) security given to a public utility or to any
Governmental Body when required by such public utility or
Governmental Body in connection with operations in the
ordinary course of business of any of the Group Entities;
(vi) the reservations, limitations, provisos and
conditions, if any, expressed in any grants from the
Crown in the right of Canada or in the right of any
Province or Territory thereof;
(vii) minor survey exceptions, minor encumbrances,
leases, rights or options to repurchase, restrictions,
easements or reservations of or rights of others for
rights of way, sewers, electric lines, telegraph and
telephone lines and other similar purposes, title defects
or irregularities or zoning or other restrictions as to
the use of real properties or Liens incidental to the
conduct of business or the ownership of properties which
were not incurred in connection with the incurrence of
Indebtedness or other extensions of credit and which do
not in the aggregate materially detract from the value of
such properties or materially impair their use in the
operation of the business of the Group Entities;
(viii) Liens constituted by capital leases or finance
leases which create Capital Lease Obligations;
(ix) Liens on vehicles or office or computer equipment in
existence on December 31, 1997 as reflected in the
audited financial statements of SSWG;
(x) any Lien renewing, extending or refunding any Lien
permitted by paragraphs (i) through (ix); provided that
(1) the principal amount of Indebtedness
secured by such Lien immediately prior to such
extension, renewal or refunding is not increased or
the maturity thereof reduced;
(2) such Lien is not extended to any other
property; and
(3) immediately after such extension, renewal
or refunding no Default or Event of Default would
exist;
(xi) Liens created by or contained in the Security
Documents;
(bv) "person" includes an individual, partnership, corporation,
trust, unincorporated association, joint venture or other
entity, or a foreign state or political subdivision thereof or
any agency of such state or subdivision;
(bw) "Power of Attorney" has the meaning ascribed to that term in
Section 4.03;
(bx) "Purchase Money Mortgage" means:
(i) a Lien existing upon assets at the time of their
acquisition by SSWG or any of its Subsidiaries, or at the
time of acquisition by SSWG or any of its Subsidiaries of
any business entity then owning such assets, whether or
not such existing Lien was given to secure the purchase
price of the assets which are subject to such Lien; and
(ii) a Lien created by SSWG or any of its Subsidiaries to
secure all or any part of the unpaid purchase price, or
to secure Indebtedness incurred solely for the purpose of
financing all or any part of the purchase price or cost
of construction, of property or any improvement to
property acquired or constructed by SSWG or such
Subsidiary;
(by) "Quarterly Financial Certificate" means the certificate of the
chief financial officer or vice-president, finance of SSWG
required to be delivered to the Lenders following each fiscal
quarter of SSWG pursuant to Section 7.01(a)(vii),
substantially in the form attached as Schedule 6;
(bz) "Responsible Officer" means with respect to each of the
Borrowers, any Authorized Officer of such Borrower, any vice
president, treasurer or controller of such Borrower, and any
other officer of such Borrower responsible for monitoring
compliance with, or otherwise administering, this Agreement;
(ca) "Security Documents" means, collectively, the
Debenture/Security Agreements and the General Assignments of
Book Debts;
(cb) "Senior Debt" means, at any particular time:
(i) all outstanding Indebtedness under the Credit
Facility;
(ii) all outstanding Capital Lease Obligations;
(iii) all outstanding secured Vendor Debt; and
(iv) without duplication, all other outstanding
Indebtedness secured by Permitted Liens;
but, for greater certainty, excludes Purchase Money Mortgages;
(cc) "Senior Debt to Adjusted Consolidated EBITDA Ratio" means the
ratio of Senior Debt as at each fiscal quarter end to Adjusted
Consolidated EBITDA for the four fiscal quarters then ended;
(cd) "Senior Interest" means all interest, Stamping Fees and other
fees payable by the Borrowers with respect to the Credit
Facility pursuant to this Agreement other than the arrangement
fee payable pursuant to Section 2.21;
(ce) "Senior Subordinated Notes" means all notes of SSWG now or at
any time hereafter issued under the Senior Subordinated Note
Indenture;
(cf) "Senior Subordinated Note Indenture" means the note indenture
dated November 19, 1997 among SSWG, certain other Group
Entities as guarantors, and Bankers Trust Company as trustee,
providing for the issuance of unsecured subordinated notes of
SSWG;
(cg) "Spot Buying Rates" means the Bank of Canada noon spot rates
for Canadian Dollars against U.S. Dollars and Sterling, U.S.
Dollars against Canadian Dollars and Sterling against Canadian
Dollars (as quoted or published from time to time by the Bank
of Canada), or any combination thereof, as the case may be, on
the relevant date of determination;
(ch) "SSUK" means Sparkling Spring Water UK Limited, a company
incorporated under the laws of England and Wales with
registered number 2899075;
(ci) "SSW" means Sparkling Spring Water Limited, a corporation
incorporated under the laws of the Province of Nova Scotia;
(cj) "SSWG" means Sparkling Spring Water Group Limited, a
corporation incorporated under the laws of the Province of
Nova Scotia;
(ck) "Stamping Fee" has the meaning ascribed to that term in
Section 4.05;
(cl) "Sterling" and "U.K.(pound)" each mean lawful money of the United
Kingdom;
(cm) "Sterling Libor" means, with respect to any Sterling Libor
Advance for any Interest Period, the rate of interest per
annum as determined by TDUK to be the arithmetic mean (rounded
upwards, if necessary, to the nearest four decimal places) of
the offered quotations in Sterling and for the Interest Period
which appear on the display designated as page "LIBP" on the
Reuter Monitor Money Rates Service (or such other displays,
pages or service as may replace those displays, pages or
service, as the case may be, or such system for the purpose of
displaying London interbank offered rates of leading banks as
there may be from time to time) as at 11:00 a.m. (London time)
two Business Days before the first day of such Interest
Period, plus the applicable Mandatory Liquid Asset Cost;
(cn) "Sterling Libor Advances" means Advances on which interest is
determined by reference to Sterling Libor;
(co) "Subsidiary" means, with respect to any corporation, any other
corporation of which or in which such corporation (alone or
with its Subsidiaries) owns directly or indirectly more than
50% of the combined voting power of all classes of Voting
Stock;
(cp) "Subsidiary Guarantee" means a guarantee of each of the Wholly-
Owned Subsidiaries other than the Borrowers in a form
satisfactory to the Lenders, acting reasonably;
(cq) "SWUS" means Spring Water, Inc., a corporation incorporated
under the laws of the State of Delaware;
(cr) "Target Company" means a company which, or assets of which, a
Borrower proposes to acquire by means of, in whole or in part,
a Borrowing under the Credit Facility;
(cs) "Taxes" means any and all present or future taxes (including
without limitation all stamp, documentary, excise or property
taxes), levies, imposts, deductions, charges or withholdings
and liabilities with respect thereto;
(ct) "TD Bank" means The Toronto-Dominion Bank, its successors and
assigns;
(cu) "TDUK" means the London Branch of the TD Bank;
(cv) "TDUS" means Toronto Dominion (Texas), Inc., its successors
and assigns;
(cw) "this Agreement", "herein", "hereof", "hereto" and "hereunder"
and similar expressions mean and refer to this Agreement as
supplemented or amended and not to any particular Article,
Section, Schedule or other portion hereof, and the expressions
"Article", "Section" and "Schedule" followed by a number mean
and refer to the specified Article, Section or Schedule of
this Agreement;
(cx) "Total Interest" means for any particular period, all amounts
payable by SSWG and its Subsidiaries as interest, fees and
commissions in respect of Indebtedness for such period in
accordance with GAAP, net of interest income earned on cash
balances during the period, including without limitation:
(i) interest, fees and commissions payable by the
Borrowers with respect to the Credit Facility pursuant to
this Agreement, but excluding the arrangement fee payable
pursuant to Section 2.21 and amortized interest,
arrangement fees, costs and expenses incurred under this
Agreement;
(ii) interest, fees and commissions payable by SSWG in
respect of the Senior Subordinated Notes pursuant to the
Senior Subordinated Note Indenture, but excluding
amortized interest, fees, costs and expenses incurred
under the Senior Subordinated Note Indenture; and
(iii) imputed interest in respect of Capital Lease
Obligations of SSWG and its Subsidiaries;
(cy) "Treasury Contracts" means any agreement entered into by the
Borrowers to control, fix or regulate currency exchange
fluctuations or the rate or rates of interest payable on
indebtedness, and includes interest rate swaps, interest rate
agreements, caps, collars, futures or hedging agreements and
other like money market facilities;
(cz) "Treasury Contract Breakage Costs" means the aggregate of all
costs and liabilities incurred by the Lenders as a result of
the termination or cancellation of any Treasury Contract or
Treasury Contracts;
(da) "U.S. Dollars" and "U.S.$" each mean lawful money of the
United States of America;
(db) "U.S. Libor" means, with respect to any U.S. Libor Advance for
any Interest Period, the rate for deposits in U.S. Dollars for
a period comparable to such Interest Period which is quoted on
the British Bankers Association Libor Rates Telerate (Page
3750) (or such other displays, pages or service as may replace
those displays, pages or service, as the case may be, or such
system for the purpose of displaying London interbank offered
rates of leading banks as there may be from time to time) as
at 11:00 a.m. (London time) two Business Days before the first
day of such Interest Period;
(dc) "U.S. Libor Advances" means Advances on which interest is
determined by reference to U.S. Libor;
(dd) "U.S. Prime Rate" on any day means the greater of:
(i) the rate of interest per annum then in effect
established and declared by TDUS to the New York Federal
Reserve as its New York prime rate on U.S. Dollar loans;
and
(ii) the Federal Funds Effective Rate in effect on that
day, plus 0.50% per annum;
provided that each change in the U.S. Prime Rate shall be
effective from and including the date such change is made
without any requirement of notification to any Borrower or any
other person;
(de) "U.S. Prime Rate Advances" means Advances on which interest is
determined by reference to the U.S. Prime Rate in effect from
time to time;
(df) "Vendor Debt" means all Indebtedness of SSWG and its
Subsidiaries to any person from whom any Group Entity has
acquired, prior to, on, or after the date of this Agreement,
an Acquired Company;
(dg) "Voting Stock" of any designated corporation means any and all
shares of capital stock of such corporation of any class the
shareholders of which have the right (not depending upon the
happening of a contingency) to elect the members of the board
of directors of such corporation; and
(dh) "Wholly-Owned Subsidiary" means any Subsidiary of any Borrower
which is wholly-owned, directly or indirectly, by such
Borrower.
1.2 Computation of Time Periods. Where, in this Agreement, a notice
must be given a number of days prior to a specified action, the day on
which such notice is given shall be included and the day of the
specified action shall be excluded.
1.3 Accounting Terms. All accounting terms not specifically defined
herein shall be construed in accordance with GAAP.
1.4 Incorporation of Appendices and Schedules. The following
Appendices and Schedules to this Agreement shall, for all purposes
hereof, form an integral part of this Agreement:
Appendix 1 - Mandatory Liquid Asset Cost
Appendix 2 - Interest Rates and Fees
Schedule 1 - Borrowing Notice - Canadian Prime Rate Advances
and Bankers' Acceptances
Schedule 2 - Borrowing Notice - U.S. Prime Rate Advances and
U.S. Libor Advances
Schedule 3 - Borrowing Notice - Sterling Libor Advances
Schedule 4 - List of Wholly-Owned Subsidiaries
Schedule 5 - Bankers' Acceptance Power of Attorney
Schedule 6 - Quarterly Financial Certificate
1.5 Singular, Plural, etc. As used herein, each gender shall include
all genders, and the singular shall include the plural and the plural
the singular as the context shall require.
ARTICLE 2
CREDIT FACILITY
2.1 Credit Facility. The Credit Facility to be made available to the
Borrowers hereunder is a extendable revolving term facility in the
maximum principal amount of U.S.$40,000,000 (or the Equivalent Amount in
Canadian Dollars or Sterling), to be made available to the Borrowers for
the acquisition of one or more Target Companies, capital expenditures
and for general corporate purposes.
2.2 Availability. Subject to Section 2.03 and the provisions of
Article 5, the Credit Facility shall be available for drawdown
commencing on the Closing Date and terminating on the day prior to the
Maturity Date.
2.3 Termination of Availability. If the Closing Date does not occur on
or before June 30, 1998, the Credit Facility shall no longer be
available and, subject to the obligations of the Borrowers under Section
13.05 (which shall continue), this Agreement shall terminate.
2.4 Revolving Nature of Credit Facility. The Credit Facility shall
revolve and any amounts borrowed thereunder and repaid may be borrowed
again, provided that any such reborrowing would not result in the amount
of the Outstandings under the Credit Facility exceeding the then
applicable Commitment.
2.5 Borrowing Options. Subject to the provisions of this Agreement,
the Borrowers may, at their option, utilize the Credit Facility by way
of:
(a) Canadian Prime Rate Advances pursuant to Article 3 hereof, to
be made available by TD Bank to SSW and SSWG in Canada;
(b) Letters of Credit or Guarantee Letters issued by TD Bank in
Canadian Dollars, U.S. Dollars or Sterling, as requested by
SSW or SSWG pursuant to Section 3.11 hereof.
(c) U.S. Prime Rate Advances or U.S. Libor Advances pursuant to
Article 3 hereof, to be made available by TDUS to SWUS in the
United States of America;
(d) Sterling Libor Advances pursuant to Article 3 hereof, to be
made available by TDUK to SSUK in the United Kingdom; and
(e) Bankers' Acceptances for terms of one month to six months (or,
subject to availability, shorter or longer terms) created by
TD Bank in Canadian Dollars as requested by SSW and SSWG
pursuant to Article 4 hereof.
2.6 Repayment of Credit Facility. All Outstandings under the Credit
Facility shall be repaid in full on the Maturity Date.
2.7 Annual Renewal of Credit Facility.
(a) The Credit Facility shall be subject to renewal annually, in
the absolute discretion of the Lenders, on April 30 of each
year commencing in 1999 and ending on or prior to the Maturity
Date.
(b) If the Lenders do not renew the Credit Facility on April 30,
1999, the Commitment shall be permanently reduced on the dates
set out below to the following amounts, to the extent the
Commitment is greater than any such amount on any such date:
Date Commitment (U.S.$)
December 31, 1999 $38,000,000
December 31, 2000 $35,250,000
December 31, 2001 $31,750,000
December 31, 2002 $26,250,000
December 31, 2003 $18,250,000
December 31, 2004 $9,250,000
December 31, 2005 $0
and the Borrowers shall on such dates permanently repay the
Outstandings under the Credit Facility to the extent necessary
to reduce the Outstandings to an amount that is not greater
than the Commitment (as reduced pursuant to this paragraph
(b)).
(c) If the Lenders renew the Credit Facility on April 30, 1999 or
on April 30 of any subsequent year pursuant to paragraph (a),
the Maturity Date shall be extended to such date and the
schedule for the permanent reduction of the Commitment as set
out in paragraph (b) shall be adjusted accordingly, as
determined by the Lenders in their absolute discretion, and
the Outstandings permanently repaid by the Borrowers to the
extent necessary to reduce the Outstandings to an amount that
is not greater than the Commitment (as modified pursuant to
this paragraph (c)).
(d) If the Lenders do not renew the Credit Facility on April 30 of
any year from 1999 to 2005, inclusive (the date of such non-
renewal being herein called the "Non-Renewal Date"), then:
(i) the Commitment shall on the Non-Renewal Date be
permanently reduced by the Cash Sweep for the fiscal year
ending immediately prior to the Non-Renewal Date, unless
the Non-Renewal Date is April 30, 1999 (in which case the
Commitment shall not be reduced by the Cash Sweep for
fiscal year 1998);
(ii) on April 30 of each year after the year in which the Non-
Renewal Date occurs, the Commitment shall be permanently
reduced by the Cash Sweep for the fiscal year ending
immediately prior to such April 30; and
(iii) the Borrowers shall on the Non-Renewal Date and on
each subsequent April 30 permanently repay the
Outstandings under the Credit Facility to the extent
necessary to reduce the Outstandings to an amount that is
not greater than the Commitment (as reduced pursuant to
this paragraph (d)).
2.8 Reduction in Commitment upon Asset Sales. In the event that the
aggregate net proceeds from Dispositions effected by the Group Entities
exceeds U.S.$1,000,000 (or the equivalent thereof in any other currency)
in any fiscal year of SSWG:
(a) the Commitment shall be permanently reduced on the date (the
"Reduction Date") which is 180 days following the date of the
Disposition resulting in the net proceeds exceeding such
amount (the "Threshold Date"), by the difference between:
(i) the aggregate amount by which the net proceeds of
all Dispositions by the Group Entities during such fiscal
year up to and including the Threshold Date exceed U.S.
$1,000,000; and
(ii) the aggregate amount of the net proceeds of all such
Dispositions which were used by the Group Entities to
acquire, on or before the Reduction Date, assets of a
similar nature to be used in a business then being
carried on by the Group Entities;
(b) the Commitment shall be permanently reduced on the date (the
"Subsequent Reduction Date") which is 180 days following the
date of any subsequent Disposition occurring after the
Threshold Date but on or before the end of the current fiscal
year, by the difference between:
(i) the amount of the net proceeds of such Disposition;
and
(ii) the amount of the net proceeds of such Disposition
which were used by the Group Entities to acquire, on or
before the Subsequent Reduction Date, assets of a similar
nature to be used in a business then being carried on by
the Group Entities;
and the Borrowers shall on the Reduction Date or the Subsequent
Reduction Date, as the case may be, permanently repay the Outstandings
under the Credit Facility to the extent necessary to reduce the
Outstandings to an amount that is not greater than the Commitment (as
reduced pursuant to this Section 2.08).
2.9 Optional Repayment. The Borrowers may at any time repay all or any
part of the amount outstanding under the Credit Facility together with
interest thereon. Subject to Section 2.15, no repayment may be made in
respect of a U.S. Libor Advance or a Sterling Libor Advance on a day
other than the last day of an Interest Period applicable to such U.S.
Libor Advance or Sterling Libor Advance, and no repayment may be made in
respect of a Bankers' Acceptance on a date other than the maturity date
of such Bankers' Acceptance.
2.10 Optional Reduction of Commitment. The Borrowers may at any time on
30 days' notice to the Lenders permanently reduce the Commitment in
whole or in part, and upon such reduction of the Commitment the
Borrowers shall permanently repay the Outstandings to the extent
necessary to reduce the Outstandings to an amount that is not greater
than the Commitment (as reduced pursuant to this Section 2.10).
2.11 Repayment of Outstandings to Reflect Commitment. If on any date
the Outstandings under the Credit Facility exceed the then prevailing
Commitment, the Borrowers shall forthwith permanently repay such amount
as will result in the Outstandings under the Credit Facility being less
than or equal to the Commitment.
2.12 General Interest Provisions. The following provisions shall apply
in respect of interest payable under this Agreement:
(a) in the event of any dispute, disagreement or adjudication
involving or pertaining to the determination of Canadian Prime
Rate, U.S. Prime Rate, U.S. Libor or Sterling Libor in effect
at any time, the certificate of the Lenders or any of them as
to such rate shall be accepted, in the absence of demonstrable
error, as prima facie evidence thereof for all purposes of
this Agreement;
(b) each determination by the Lenders of the amount of interest,
Stamping Fees or other amounts due from the Borrowers
hereunder shall, in the absence of demonstrable error or other
error of which the Borrowers shall give notice to the Lenders
within a period of 60 days from the date of entry of the
relevant information, be prima facie evidence of the accuracy
of such determination;
(c) all interest and other amounts payable shall accrue daily, be
computed as described herein, and be payable both before and
after demand, maturity, default and judgment;
(d) to the maximum extent permitted by law, the covenant of the
Borrowers to pay interest at rates provided herein shall not
merge in any judgment relating to any obligation of the
Borrowers to the Lenders;
(e) in no event shall any interest, fees or other amounts payable
hereunder exceed the maximum permitted by law; in the event
any such interest or fee exceeds such maximum rate, such
interest or fee shall be reduced to the maximum rate
recoverable under law and the Lenders and the Borrowers shall
be deemed to have agreed to such amount by contract;
(f) for the purposes of the Interest Act (Canada):
(i) the annual rate of interest which is equivalent to
the interest rate determined by reference to U.S. Libor
or the U.S. Prime Rate shall be the determined rate
multiplied by a fraction, the numerator of which is the
total number of days in such year and the denominator of
which is 360;
(ii) the annual rate of interest which is equivalent to
the interest rate determined by reference to Sterling
Libor shall be the determined rate multiplied by a
fraction, the numerator of which is the total number of
days in such year and the denominator of which is 365;
(iii) unless otherwise stated, the rates of interest
specified in this Agreement are to be calculated on the
basis of a year of 365 days and the annual rate of
interest which is equivalent to the interest rate
determined by reference to such 365 day period hereunder
shall be the determined rate multiplied by a fraction,
the numerator of which is the total number of days in
such year and the denominator of which is 365;
(iv) the principle of deemed reinvestment of interest
shall not apply to any interest calculation under this
Agreement; and
(v) the rates of interest specified in this Agreement
are intended to be nominal rates and not effective rates.
2.13 Business Day Payments. Except as otherwise provided herein in the
case of a U.S. Libor Advance or a Sterling Libor Advance, whenever any
payment hereunder shall be stated to be due on a day other than a
Business Day, such payment shall be made on the next succeeding Business
Day, and such extension of time shall in such case be included in the
computation of interest or fees, as the case may be.
2.14 Interest on Overdue Amounts. If all or a portion of the principal
amount of any Advance, any interest payable thereon, any Stamping Fee,
Commitment Fee or other fee or any other amount payable by the Borrowers
hereunder shall not be paid when due (whether at stated maturity, by
acceleration or otherwise), such overdue amount shall bear interest at a
rate per annum equal to the Canadian Prime Rate plus 2.25% in the case
of any overdue amount in Canadian Dollars, the U.S. Prime Rate plus
2.25% in the case of any overdue amount in U.S. Dollars, and the
Alternate Sterling Rate plus 3.25% in the case of any overdue amount in
Sterling. Interest on any such overdue amount shall be computed from
and including the date the Lenders or any of them give notice to the
Borrowers that such amount is overdue to the date such amount is paid,
and shall be compounded monthly and be paid on demand both before and
after maturity, default and judgment.
2.15 Breakage Costs. The Borrowers shall promptly pay to the Lenders
any amounts required to compensate the Lenders for any loss, cost of
redeploying funds or other cost or expense suffered or incurred by the
Lenders as a result of:
(a) any payment being made by the Borrowers in respect of a U.S.
Libor Advance, Sterling Libor Advance or a Bankers' Acceptance
(due to acceleration of the maturity of the Advance hereunder
or a mandatory or optional prepayment of principal or for any
other reason) on a day other than the last day of an Interest
Period or a maturity date applicable thereto, respectively;
(b) the Borrowers' failure to give notice in the manner and at the
times required hereunder;
(c) the failure of the Borrowers to accept an Advance or make a
Drawing after delivery of a Borrowing Notice in the manner and
at the time specified in such Borrowing Notice; or
(d) the failure of the Borrowers to make a payment or a prepayment
to the Lenders in the manner and at the time specified in a
notice given to the Lenders.
A certificate of the Lenders or any of them as to the amount necessary
so to compensate the Lenders shall be prima facie evidence, absent
demonstrable error, of the amount due from the Borrowers to the Lenders.
2.16 Application of Payments. So long as no Event of Default has
occurred and is continuing, all amounts received by the Lenders from or
on behalf of the Borrowers and not previously applied in another manner
in accordance with this Agreement shall be applied by the Lenders as
follows:
(a) first, to fulfil the Borrowers' obligation to pay accrued and
unpaid interest due and owing on the principal amount of
Advances or unpaid Stamping Fees in respect of Bankers'
Acceptances;
(b) second, to fulfil the Borrowers' obligation to pay any other
fees which are due and owing, and any accrued and unpaid costs
and expenses of the Lenders in connection with any of the
Credit Facility Documents;
(c) third, to fulfil the Borrowers' obligation to pay any amounts
due and owing on account of the unpaid principal amount of
Borrowings and the Borrowers' reimbursement obligations in
respect of Bankers' Acceptances;
(d) fourth, to fulfil any other obligation of the Borrowers under
this Agreement; and
(e) fifth, to the Borrowers or as the Borrowers or any court of
competent jurisdiction may otherwise direct.
After the occurrence of an Event of Default, unless such Event of
Default is cured or waived by the Lenders, payments received by the
Lenders shall be applied to the Borrowers' obligations as the Lenders
see fit.
2.17 Conditions Solely for the Benefit of the Lenders. All conditions
to the obligations of the Lenders to make any Accommodation under the
Credit Facility are solely for the benefit of the Lenders, and no other
person shall have standing to require satisfaction of any condition and
no other person shall be deemed to be a beneficiary of any such
condition, any and all of which may be freely waived in whole or in part
by the Lenders at any time.
2.18 No Waiver. The making of an Accommodation without fulfilment of
one or more of the conditions set forth in this Agreement shall not
constitute a waiver by the Lenders of any such condition, and the
Lenders reserve the right to require the fulfilment of each condition
prior to the making of any subsequent Accommodation.
2.19 Authorized Debit. The Borrowers authorize the Lenders to debit the
Borrowers' accounts with the amounts required to pay principal,
interest, Stamping Fees, Commitment Fees and other amounts required to
be paid by the Borrowers under this Agreement.
2.20 Commitment Fee. SSW shall pay to TD Bank a fee (the "Commitment
Fee") at the rate of 0.50% per annum calculated on the amount of the
Commitment not utilized by the Borrowers. In determining the amount of
the Commitment not utilized by the Borrowers, Accommodations in Canadian
Dollars and Sterling shall be deemed to be the Equivalent Amount thereof
in U.S. Dollars. The Commitment Fee shall be paid in U.S. Dollars
calculated on a daily basis on the difference between the Commitment and
the Outstandings on such date, and shall be payable quarterly in arrears
to TD Bank at the address set out in Section 13.03(b)(i) on the first
Business Day following the notification by TD Bank to SSW of the amount
of such Commitment Fee payable for the preceding fiscal quarter.
2.21 Arrangement Fee. On the Closing Date, the Borrowers shall pay to
the Lenders a non-refundable arrangement fee in respect of the Credit
Facility in an amount separately agreed upon by the Lenders and the
Borrowers.
2.22 Adjustments to Interest Rates and Fees. Any increase or decrease
in the Margin to be added to the Canadian Prime Rate, U.S. Prime Rate,
U.S. Libor, Sterling Libor or Alternate Sterling Rate in respect of
Canadian Prime Rate Advances, U.S. Prime Rate Advances, U.S. Libor
Advances, Sterling Libor Advances or Alternate Sterling Rate Advances,
respectively, and any increase or decrease in the rate of Stamping Fees,
in each case as determined in accordance with Appendix 2, shall become
effective on or after the date (the "Adjustment Date") which is 46 days
after the end of each quarterly fiscal period in each fiscal year of
SSWG in which there is a change in the Senior Debt to Adjusted
Consolidated EBITDA Ratio giving rise to an adjustment in the applicable
Margin or the Stamping Fee, as follows:
(a) for Canadian Prime Rate Advances, U.S. Prime Rate Advances and
Alternate Sterling Rate Advances, the adjustment to the Margin
shall become effective on the Adjustment Date;
(b) for any U.S. Libor Advances or Sterling Libor Advances
requested on or before the Adjustment Date, the adjustment to
the Margin shall become effective on the first day of the
first Interest Period in respect of such U.S. Libor Advance or
Sterling Libor Advance, as the case may be, which commences
after the Adjustment Date;
(c) for any other U.S. Libor Advance or Sterling Libor Advance,
the adjustment to the Margin shall become effective on the
Adjustment Date; and
(d) for Bankers' Acceptances, the adjustment to the Stamping Fee
shall become effective in respect of any Draft which is
accepted by TD Bank after the Adjustment Date, and shall not
apply to any Draft which is accepted by TD Bank on or before
the Adjustment Date.
ARTICLE 3
LOANS AND LETTERS OF CREDIT
3.1 Advances. The Lenders agree, on the terms and conditions
hereinafter set forth, from time to time to make Canadian Prime Rate
Advances, U.S. Prime Rate Advances, U.S. Libor Advances and Sterling
Libor Advances (or any combination thereof) under the Credit Facility on
any Business Day prior to the Maturity Date.
3.2 Minimum Advances. Each Canadian Prime Rate Advance shall be in an
aggregate amount of not less than Cdn.$100,000. Each U.S. Prime Rate
Advance shall be in an aggregate amount of not less than U.S.$100,000.
Each U.S. Libor Advance shall be in an aggregate amount of not less than
U.S.$1,000,000 and in an integral multiple of U.S.$100,000. Each
Sterling Libor Advance shall be in an aggregate amount of not less than
U.K.(pound)1,000,000 and in an integral multiple of U.K.(pound)100,000.
3.3 Notice Requirements for Advances. Each Advance shall be made:
(a) on at least two Business Days' prior written notice, in the
case of Canadian Prime Rate Advances and U.S. Prime Rate
Advances for the purpose of the acquisition of a Target
Company;
(b) on at least one Business Day's prior written notice, in the
case of all other Canadian Prime Rate Advances and U.S. Prime
Rate Advances;
(c) on at least three Business Days' prior written notice, in the
case of a U.S. Libor Advance; and
(d) on at least four Business Days' prior written notice, in the
case of a Sterling Libor Advance.
Notice shall be given not later than 12:00 noon (Vancouver time) by the
Borrowers by way of a Borrowing Notice.
3.4 Notices Irrevocable. Each Borrowing Notice shall be irrevocable
and binding on the Borrowers. The Borrowers shall indemnify the Lenders
against any loss or expense (excluding loss of profit or other
consequential losses) incurred by the Lenders in reliance on a Borrowing
Notice as a result of any failure by the Borrowers to fulfil or honour
the provisions of this Agreement if the Advance, as a result of such
failure, is not made on the date specified in any Borrowing Notice.
3.5 Election of Interest Rates and Currencies.
(a) Each Advance shall be the Type of Advance specified in the
applicable Borrowing Notice and shall bear interest at the
rate applicable to such Type of Advance, determined in
accordance with the provisions of this Agreement, until:
(i) in the case of a U.S. Libor Advance or Sterling
Libor Advance, the end of the initial Interest Period
applicable thereto as specified in the applicable
Borrowing Notice; or
(ii) in the case of a Canadian Prime Rate Advance or U.S.
Prime Rate Advance, the date on which such Advance is
repaid in full.
(b) The Borrowers may from time to time, by delivering a Borrowing
Notice, elect to continue a U.S. Libor Advance or Sterling
Libor Advance for an additional Interest Period in each case
beginning on the last day of the then current Interest Period
applicable to such U.S. Libor Advance or Sterling Libor
Advance;
(c) Each election under paragraph (b) shall be made:
(i) on at least three Business Days' prior written
notice, in the case of a U.S. Libor Advance; and
(ii) on at least four Business Days' prior written
notice, in the case of a Sterling Libor Advance;
given not later than 12:00 p.m. (Vancouver time).
(d) Each Borrowing Notice delivered pursuant to paragraph (b)
above shall specify the duration of the additional Interest
Period and the date on which such Interest Period is to begin.
(e) Each Borrowing Notice delivered pursuant to paragraph (b)
above shall be irrevocable and binding upon the Borrowers. If
the Borrowers fail, in the manner required herein, to give to
the Lenders in respect of all or any part of a U.S. Libor
Advance or a Sterling Libor Advance:
(i) a Borrowing Notice pursuant to paragraph (b) above;
or
(ii) a notice of repayment;
then any such U.S. Libor Advance, or part thereof, shall
become a U.S. Prime Rate Advance, and any such Sterling Libor
Advance, or part thereof, shall become an Alternate Sterling
Rate Advance on the last day of the Interest Period applicable
thereto, and shall bear interest at the rate otherwise
applicable to such U.S. Prime Rate Advances or Alternate
Sterling Rate Advances, respectively. The Borrowers shall
also promptly pay to the Lenders any amounts required to
compensate the Lenders for any loss, cost or expense suffered
or incurred by the Lenders as a result of the Borrowers'
failure to give to the Lenders any of the notices described in
this paragraph (e).
3.6 Circumstances Requiring Canadian Prime or U.S. Prime Rate Pricing.
(a) If the Lenders determine in good faith that:
(i) by reason of circumstances affecting financial
markets inside or outside Canada, deposits of U.S.
Dollars and/or Sterling are unavailable to the Lenders;
(ii) adequate and fair means do not exist for
ascertaining the applicable interest rate on the basis
provided in the definition of U.S. Libor and/or Sterling
Libor;
(iii) the making or continuation of any U.S. Libor
Advance and/or Sterling Libor Advance has been made
impracticable by:
(1) the occurrence of a contingency which
materially and adversely affects the funding of the
Credit Facility at any interest rate computed on
the basis of U.S. Libor and/or Sterling Libor;
(2) the introduction or change in the
interpretation of any Law since the date of this
Agreement;
(3) compliance by the Lenders with any
guideline, official directive or request from any
central bank or Governmental Body (whether or not
having the force of Law); or
(4) a change since the date of this Agreement
in any relevant financial market which results in
U.S. Libor and/or Sterling Libor no longer
representing the effective cost to the Lenders of
deposits in such market for a relevant Interest
Period or other applicable period; or
(iv) any introduction or change in the interpretation of
any Law since the date of this Agreement, or any
compliance by the Lenders with any guideline, official
direction or request from any central bank or
Governmental Body (whether or not having the force of
Law) has made it unlawful for the Lenders to make or
maintain or to give effect to their obligations in
respect of U.S. Libor Advances and/or Sterling Libor
Advances as contemplated hereby;
then:
(v) the right of the Borrowers to select a U.S. Libor
Advance and/or Sterling Libor Advance, as the case may
be, shall be suspended;
(vi) if any affected U.S. Libor Advance or Sterling Libor
Advance is not yet outstanding, any applicable Borrowing
Notice shall be cancelled and the U.S. Libor Advance or
Sterling Libor Advance requested therein shall not be
made in that form, without affecting the right of the
Borrowers to request another Type of Advance (without any
additional notice period if the Borrowers request a
Canadian Prime Rate Advance or a U.S. Prime Rate
Advance);
(vii) if any U.S. Libor Advance is already outstanding
at any time when the right of the Borrowers to select a
U.S. Libor Advance is suspended, it and all other U.S.
Libor Advances shall, upon ten days' notice to the
Borrowers and subject to the Borrowers having the right
to select Canadian Prime Rate Advances or U.S. Prime Rate
Advances at such time, become U.S. Prime Rate Advances on
the last day of the then current Interest Period
applicable thereto (or on such earlier date as may be
required to comply with applicable Law); and
(viii) if any Sterling Libor Advance is already
outstanding at any time when the right of the Borrowers
to select a Sterling Libor Advance is suspended, it and
all other Sterling Libor Advances shall, upon ten days'
notice to the Borrowers, become an Alternate Sterling
Rate Advance on the last day of the then current Interest
Period applicable thereto (or on such earlier date as may
be required to comply with applicable Law), and shall
forthwith be repaid by the Borrowers and redrawn, at the
election of the Borrowers, as another Type of Advance
permitted under this Agreement.
(b) The Lenders shall promptly notify the Borrowers of the
suspension of the Borrowers' right to select U.S. Libor
Advances and/or Sterling Libor Advances and of the termination
of any such suspension.
3.7 Interest Periods. Interest Periods for U.S. Libor Advances and
Sterling Libor Advances shall be the period, as requested by the
Borrowers, from one to six months or such other period as the Lenders
may allow, provided that the Lenders may at their discretion restrict
the availability of any Interest Period, acting reasonably. No Interest
Period may be selected under the Credit Facility which would end on a
day after the Maturity Date or, in the reasonable opinion of the
Lenders, conflict with the repayment schedule for the Credit Facility
set out in this Agreement. Whenever the last day of an Interest Period
would otherwise occur on a day other than a Business Day, the last day
of such Interest Period shall be extended to occur on the next
succeeding Business Day.
3.8 Interest on Advances. The Borrowers shall pay interest on the
daily unpaid principal amount of each Advance from the date of such
Advance until such principal amount shall be repaid in full, at the
annual rate applicable to each of such days which corresponds to the
Canadian Prime Rate, U.S. Prime Rate, U.S. Libor, Sterling Libor or the
Alternate Sterling Rate, as the case may be, at the close of business on
each of such days, plus the applicable Margin.
3.9 Interest Payment Dates. Interest on U.S. Libor Advances and
Sterling Libor Advances shall be calculated and payable at the end of
the applicable Interest Period except where the Interest Period exceeds
three months in duration, in which case such interest shall be
calculated and payable at the end of each successive three month portion
thereof (determined with reference to the commencement of the Interest
Period) and, finally, at the end of such Interest Period. Interest on
Canadian Prime Rate Advances and U.S. Prime Rate Advances shall be
calculated on the daily balance up to and including the last day of each
month, and shall be payable by the Borrowers monthly in arrears.
3.10 Payments.
(a) SSWG and SSW shall make each payment to be made hereunder in
respect of Canadian Prime Rate Advances to TD Bank at the
address set out in Section 13.03(b)(i);
(b) SWUS shall make each payment to be made hereunder in respect
of U.S. Prime Rate Advances and U.S. Libor Advances to TDUS at
the address set out in Section 13.03(b)(ii) or by wire
transfer according to the following instructions:
Bank of America National Trust and Savings Assoc
ABA#026009593 (BOFAUS3N)
Acct No: 6550-6-52270
Acct Name: Toronto Dominion (Texas), Inc.
Ref: Sparkling Water, Inc.;
(c) SSUK shall make each payment to be made hereunder in respect
of Sterling Libor Advances to TDUK at the address set out in
Section 13.03(b)(iii);
in each case not later than 1:00 p.m. (local time at place of payment)
on the day when due, in same day funds.
3.11 Letters of Credit. As part of the credit available under the
Credit Facility, each of SSW and SSWG may request that TD Bank issue one
or more Letters of Credit or Guarantee Letters, subject to the execution
by SSW or SSWG, as the case may be, of TD Bank's standard documentation
then currently used in connection with such Letters of Credit or
Guarantee Letters. TD Bank shall have the right to restrict the expiry
date of any Letter of Credit or Guarantee Letter to the then applicable
Maturity Date or such other date as TD Bank may approve. SSW or SSWG,
as the case may be, shall pay letter of credit fees in respect of any
such Letters of Credit or Guarantee Letters at the applicable rate
(based on the Face Amount of such Letters of Credit or Guarantee
Letters) set out in Appendix 2 and upon other terms and conditions to be
negotiated between SSW or SSWG, as the case may be, and TD Bank.
ARTICLE 4
BANKERS' ACCEPTANCES
4.1 Creation of Bankers' Acceptance. TD Bank agrees, on the terms and
subject to the conditions herein set forth, to create Bankers'
Acceptances under the Credit Facility by accepting Drafts in Canadian
Dollars in accordance with the provisions of this Agreement, provided
that the only Borrowers that may present Drafts for acceptance are SSW
and SSWG.
4.2 Drawings.
(a) Each Draft presented by the Borrowers for acceptance shall be
in an integral multiple of Cdn.$100,000 and shall mature and
be payable on a Business Day which occurs from one month to
six months (or such other period as TD Bank may agree) after
the date thereof, provided that TD Bank may at its discretion
restrict the availability of the term or maturity date of any
Bankers' Acceptance, acting reasonably. All Drafts presented
by the Borrowers to TD Bank for acceptance on a particular day
shall aggregate at least Cdn.$1,000,000.
(b) Each Drawing shall be made on three Business Days' prior
written notice given not later than 12:00 noon (Vancouver
time) by the Borrowers to TD Bank at the address set out in
Section 13.03(b)(i) by way of a Borrowing Notice.
(c) The Borrowers shall not request in a Borrowing Notice a
maturity date for a Bankers' Acceptance which would be
subsequent to the Maturity Date or, in the reasonable opinion
of TD Bank, would conflict with the repayment schedule for the
Credit Facility set out in this Agreement.
(d) Each Borrowing Notice shall be irrevocable and binding on the
Borrowers. The Borrowers shall indemnify TD Bank against any
loss or expense (excluding loss of profits or other
consequential losses) incurred by TD Bank in reliance on a
Borrowing Notice as a result of any failure by the Borrowers
to fulfil or honour the provisions of this Agreement before
the date specified for any Drawing if the Drawing, as a result
of such failure, is not made on such date.
4.3 Power of Attorney. Each of the Borrowers shall deliver to TD Bank,
on or prior to the Closing Date, a Power of Attorney substantially in
the form of Schedule 5 (the "Power of Attorney") authorizing TD Bank to
draw Drafts on TD Bank on behalf of such Borrower and to complete such
Drafts in accordance with Borrowing Notices submitted from time to time
pursuant to Section 4.02.
4.4 Completion and Delivery of Drafts. Not later than 1:00 p.m.
(Vancouver time) on an applicable Drawing Date, TD Bank will, in
accordance with the applicable Borrowing Notice:
(a) sign each Draft on behalf of the Borrower requesting such
Draft pursuant to the Power of Attorney;
(b) complete the date, amount and maturity of each Draft to be
accepted;
(c) accept such Drafts; and
(d) upon such acceptance deliver the stamped Draft to the
applicable Borrower or, in accordance with such Borrower's
instructions, to a person designated in writing by such
Borrower.
TD Bank shall not be obligated to purchase or discount any Bankers'
Acceptances and the Borrowers shall be responsible for arranging the
purchase or discounting of any such Bankers' Acceptances by a money
market dealer.
4.5 Stamping Fees. The Borrowers shall pay to TD Bank at the time of
each acceptance of a Draft a Stamping Fee in each case calculated on the
basis of the number of days from and including the date of acceptance to
and including the date immediately preceding the date of maturity of the
applicable Bankers' Acceptance, and on the basis of a year of 365 days
or, in leap years, 366 days, determined in accordance with the
applicable percentage set out in Appendix 2.
4.6 Netting. The Borrowers authorize TD Bank to retain the amount
received by TD Bank (the "Acceptance Purchase Price") from any purchaser
of a Bankers' Acceptance created by TD Bank (including proceeds received
by TD Bank from any person to whom a Bankers' Acceptance has been
delivered pursuant to instructions of the Borrowers under Section
4.04(d)) and to apply the Acceptance Purchase Price to the reimbursement
obligations of the Borrowers in respect of any Bankers' Acceptance
created by TD Bank which matures on the date of creation of the Bankers'
Acceptance in respect of which the Acceptance Purchase Price is
received. If the Acceptance Purchase Price received by TD Bank is less
than the undiscounted Face Amount of the then maturing Bankers'
Acceptance, the Borrowers shall pay the amount of such deficiency to TD
Bank pursuant to Section 4.07.
4.7 Payment on Maturity. The Borrowers shall provide payment for any
Bankers' Acceptances issued by any of them by payment to TD Bank of the
Face Amount thereof (or alternatively any deficiency in the Acceptance
Purchase Price retained by TD Bank pursuant to Section 4.06) at the
address set out in Section 13.03(b)(i) by 1:00 p.m. (Vancouver time) on
the maturity date of the Bankers' Acceptance. If the Borrowers fail to
provide payment to TD Bank of an amount equal to the Face Amount of a
Bankers' Acceptance on its maturity, the unpaid amount due and payable
in respect thereof shall be converted as of such date, and without any
necessity for the Borrowers to give a Borrowing Notice in accordance
with this Agreement to, and thereafter be outstanding as, a Canadian
Prime Rate Advance made by, and due and payable on such date to, TD Bank
and shall bear interest for the three day period following the maturity
of such Bankers' Acceptance at a rate equal to 115% of the Margin
applicable to Canadian Prime Rate Advances, and thereafter at the rate
applicable to Canadian Prime Rate Advances. The Borrowers shall also
promptly pay to TD Bank any amounts required to compensate TD Bank for
any loss, cost or expense suffered or incurred by TD Bank as a result of
any Borrower's failure to pay any Bankers' Acceptance when due.
4.8 Custody of Drafts. If requested by TD Bank, each of the Borrowers
shall execute and deliver to TD Bank a supply of Drafts executed by such
Borrower. TD Bank shall not be responsible or liable for its failure to
accept a Draft as required hereunder if the cause of the failure is, in
whole or in part, due to the failure of the Borrowers to provide such
Drafts to TD Bank on a timely basis, nor shall TD Bank be liable for any
damage, loss or other claim arising by reason of any loss or improper
use of such Drafts except a loss or improper use arising by reason of
the negligence or wilful act of TD Bank. TD Bank agrees to use its best
efforts to advise the Borrowers in a timely manner when it requires
additional executed Drafts. In case any authorized signatory of any
Borrower whose signatures shall appear on the pre-signed Drafts shall
cease to have such authority before the creation of a Bankers'
Acceptance with respect to such Draft, such signature shall nevertheless
be valid and sufficient for all purposes as if such authority had
remained in force at the time of such creation. Drafts held by TD Bank
need only be held in safekeeping with the same degree of care as if they
were TD Bank's property. If executed but incomplete Drafts are
delivered to TD Bank, TD Bank may complete the same on behalf of the
applicable Borrower and in accordance with its instructions following a
request from such Borrower to accept a Draft. All Drafts will be
cancelled by TD Bank upon payment thereof.
4.9 Renewal or other Payment of Bankers' Acceptance. Not later than
12:00 noon (Vancouver time) three Business Days prior to the maturity of
a Bankers' Acceptance, the Borrowers shall:
(a) request, by way of a Borrowing Notice, the issuance of further
Bankers' Acceptances in an amount sufficient, upon receipt of
the Acceptance Purchase Price by TD Bank, to pay the Face
Amount of the maturing Bankers' Acceptance; or
(b) give written notice to TD Bank that they will pay the maturing
Bankers' Acceptance.
If the Borrowers fail to give any of the notices required under this
Section, the amount due and payable in respect of such Bankers'
Acceptances on the maturity date thereof shall be converted as of such
date, and thereafter be outstanding as, a Canadian Prime Rate Advance
made by and due and payable on such date to the Lenders, and shall bear
interest for the three day period following the maturity of such
Bankers' Acceptance at a rate equal to 115% of the Margin applicable to
Canadian Prime Rate Advances, and thereafter at the rate applicable to
Canadian Prime Rate Advances.
4.10 Prepayments of Bankers' Acceptances. If for whatever reason a
Bankers' Acceptance becomes due and payable on a date which is not its
maturity date, such Bankers' Acceptance shall be paid by the Borrowers
paying the face amount of the maturing Bankers' Acceptance to TD Bank,
which amount shall be held in an interest bearing trust account for
future set-off against such maturing Bankers' Acceptance. Interest
accrued on the amount so held shall be for the account of the Borrowers.
4.11 No Days of Grace. The Borrowers shall not claim any days of grace
from TD Bank for the payment at maturity of any Bankers' Acceptances.
4.12 Suspension of Bankers' Acceptance Option. If at any time or from
time to time there no longer exists a market for Bankers' Acceptances,
or if as a result of a change in any law, regulation or guideline
(whether or not having the force of law) it is not practical or becomes
more expensive for TD Bank to create or commit to create Bankers'
Acceptances, TD Bank shall so advise the Borrowers. After such notice,
TD Bank shall not be obliged to accept Drafts of the Borrowers presented
to TD Bank pursuant to the provisions of this Agreement and the option
of the Borrowers to request the creation of Bankers' Acceptances shall
be suspended until such time as TD Bank has determined that the
circumstances giving rise to such suspension no longer exist.
ARTICLE 5
CLOSING CONDITIONS
5.1 Closing Conditions. The Borrowers shall only be entitled to an
initial Borrowing under the Credit Facility if, on the Closing Date, the
following Closing Conditions have been fulfilled to the reasonable
satisfaction of the Lenders:
(a) the Credit Facility Documents shall have been executed and
delivered to the Lenders by the Group Entities, and all
registrations, filings and recordings necessary or desirable
to preserve, protect or perfect the enforceability of the
security created by the Security Documents shall have been
completed;
(b) all of the representations and warranties of the Borrowers
contained in this Agreement are true and correct as of the
Closing Date as though made on and as of such date, and the
Borrowers shall have delivered to the Lenders a certificate
executed by an Authorized Officer of each of the Borrowers to
that effect;
(c) no event has occurred and is continuing which constitutes a
Default or an Event of Default, and the Borrowers shall have
delivered to the Lenders a certificate executed by an
Authorized Officer of each of the Borrowers to that effect;
(d) the Lenders shall have received copies certified by the
Secretary or an Assistant Secretary of each of the Group
Entities of the charter documents of such Group Entity,
resolutions of the board of directors of such Group Entity
approving the Credit Facility Documents to which it is a party
and all documents evidencing any other necessary corporate
action of such Group Entity with respect to the Credit
Facility Documents;
(e) the Lenders shall have received a certificate of the Secretary
or an Assistant Secretary of each of the Group Entities
certifying the names and true signatures of its officers
authorized to sign the Credit Facility Documents to which it
is a party and any other documents to be delivered by it
hereunder;
(f) the Lenders shall have received a recently-dated certificate
of good standing or like certificate for each of the Group
Entities issued by appropriate government officials of the
jurisdiction of formation of such Group Entity;
(g) since the date of the most recent consolidated financial
statements prepared by SSWG and received by the Lenders, there
shall have occurred no Material Adverse Effect, as determined
by the Lenders acting reasonably;
(h) the Lenders shall have received a certificate of the chief
financial officer or vice-president, finance of SSWG
calculating and setting forth the ratios referred to in
Sections 8.01(l), (m), (n) and (o) hereof as at the fiscal
quarter of SSWG ended December 31, 1997;
(i) the Lenders shall have received satisfactory certificates of
insurance issued by the relevant insurer or its agent in
respect of all insurance maintained by the Group Entities,
showing, in the case of property insurance, the Lenders as
first loss payees with a mortgage endorsement satisfactory to
the Lenders, acting reasonably, and, in the case of liability
insurance, the Lenders as additional named insureds;
(j) the Lenders shall have received an opinion of the counsel for
the Borrowers, addressed to the Lenders and counsel for the
Lenders, in a form satisfactory to counsel for the Lenders;
(k) all fees required to be paid by the Borrowers pursuant to
Sections 2.20, 2.21 or 13.05 on or before the Closing Date
shall have been paid;
(l) the Lenders shall have received a certificate of the
Borrowers, executed by an Authorized Officer of each of the
Borrowers, confirming that all conditions precedent to the
making of an initial Advance to the Borrowers under the Credit
Facility have been satisfied, including, in the event that the
initial Advance is for the purpose of the acquisition of a
Target Company, all conditions precedent set out in Section
5.02; and
(m) the Lenders shall have received such other certificates and
documentation as the Lenders may reasonably request.
If all of the Closing Conditions set forth above have not been satisfied
by the Borrowers or waived by the Lenders on or before the Closing Date,
the obligations of the Lenders to make any Advance or any other
Accommodation and all other obligations of the Lenders hereunder shall,
at the option of the Lenders, terminate without prejudice to any rights
or remedies available to the Lenders under this Agreement or otherwise.
5.2 Conditions Precedent for Acquisition of Target Company. The
Borrowers shall only be entitled to a Borrowing under the Credit
Facility in accordance with the provisions of this Agreement for the
purpose of the acquisition of a Target Company if the following
conditions have been fulfilled to the reasonable satisfaction of the
Lenders:
(a) the principal business of the Target Company shall be the
delivery, distribution, rental or provision of water cooler
and water delivery services in Canada, the United Kingdom, the
United States of America or Europe;
(b) the Lenders shall have received copies certified by the
Secretary or an Assistant Secretary of each Borrower acquiring
an interest in the Target Company of resolutions of the board
of directors of such Borrower approving the acquisition of the
Target Company and all documents evidencing any other
necessary corporate action of such Borrower with respect to
the acquisition of the Target Company;
(c) the Lenders shall have received a certificate of the Secretary
or an Assistant Secretary of each Borrower acquiring an
interest in the Target Company certifying the names and true
signatures of its officers authorized to sign the documents to
be delivered by it hereunder;
(d) the Lenders shall have received a recently-dated certificate
of good standing or like certificate for the Target Company
and a certified copy of the charter documents of the Target
Company, each issued by appropriate government officials of
the jurisdiction of formation of the Target Company;
(e) the Lenders shall have received detailed financial and
business projections for the Target Company, and shall be
satisfied, acting reasonably, with such projections;
(f) the Lenders shall have received a certificate of the chief
financial officer or vice-president, finance of the Borrower
requesting the Advance calculating and setting forth the
Acquired Company EBITDA for the Target Company's most recent
fiscal year or preceding four quarters, which Acquired Company
EBITDA shall be greater than U.S.$1;
(g) the Lenders shall have received a certificate of the chief
financial officer or vice-president, finance of SSWG setting
forth computations in reasonable detail showing that the
Borrowers are prior to the Advance, and will be following the
Advance and after giving effect to the acquisition of the
Target Company, in full compliance with Sections 8.01(l), (m),
(n), (o) and (p) hereof;
(h) the Lenders shall have received an undertaking of the
Borrowers to provide to the Lenders within 30 days of the
making of the Advance satisfactory certificates of insurance
issued by the relevant insurer or its agent in respect of all
insurance maintained by the Target Company, showing, in the
case of property insurance, the Lenders as first loss payees
with a mortgage endorsement satisfactory to the Lenders,
acting reasonably, and, in the case of liability insurance,
the Lenders as additional named insureds;
(i) in the event the acquisition is an acquisition of assets of
the Target Company (the "Acquired Assets"), then prior to the
completion of the acquisition:
(i) all registrations, filings and recordings necessary
or desirable to preserve, protect or perfect the
enforceability of the security interest over the Acquired
Assets constituted by the Security Documents executed by
the acquiring Borrower shall have been completed in all
necessary jurisdictions; and
(ii) the Lenders shall have received an opinion of
counsel for the Borrowers in form and content
satisfactory to the Lenders (including without limitation
an opinion that all registrations, filings and recordings
in respect of the security interest in favour of the
Lenders over the Acquired Assets, as described in
subparagraph (i) above, have been completed) on escrow
conditions satisfactory to the Lenders, providing for
delivery of the opinion to the Lenders immediately upon
the completion of the acquisition of the Acquired Assets
by the acquiring Borrower;
(j) in the event the acquisition is an acquisition of shares of
the Target Company (the "Acquired Shares"):
(i) the Lenders shall prior to the completion of the
acquisition of the Acquired Shares have been provided
with:
(A) a pledge of the Acquired Shares, in form
satisfactory to the Lenders, executed by the
acquiring Borrower;
(B) an undertaking by the acquiring Borrower,
in form satisfactory to the Lenders, to deliver to
the Lenders immediately after the completion of the
acquisition of the Acquired Shares share
certificates representing the Acquired Shares duly
endorsed for transfer in blank or, if requested by
the Lenders, registered in the name of a nominee of
the Lenders; and
(C) an opinion of counsel for the Borrowers in
form and content satisfactory to the Lenders as to
the due authorization, execution and delivery of
the pledge of the Acquired Shares, the
registration, filing or recording of the pledge of
the Acquired Shares in all places necessary to
preserve, protect or perfect the security interest
of the Lenders in the Acquired Shares, and as to
such other matters as the Lenders may reasonably
require, on escrow conditions satisfactory to the
Lenders providing for delivery of the opinion to
the Lenders immediately upon the completion of the
acquisition of the Acquired Shares;
(ii) the Lenders shall prior to completion of the
acquisition of the Acquired Shares have been provided
with:
(A) satisfactory evidence that the Target
Company has no Indebtedness for borrowed money, or
(B) a plan by the Borrowers to cause the
Target Company to repay such Indebtedness at or
within a reasonably short period following
completion of the acquisition of the Acquired
Shares, either by means of advances by the
Borrowers to the Target Company or by other means
satisfactory to the Lenders;
and if repayment of Indebtedness of the Target Company is
to be funded by advances from the Borrowers, the
Borrowers shall if requested by the Lenders require
security for such advances to be granted by the Target
Company and shall assign such security to the Lenders;
(iii) the Lenders shall prior to the completion of the
acquisition of the Acquired Shares have been provided
with:
(A) an undertaking by the Borrowers to cause
the Target Company to execute and deliver to the
Lenders, within 30 days after the completion of the
acquisition, a Subsidiary Guarantee,
Debenture/Security Agreement and General Assignment
of Book Debts together with an opinion of counsel
for the Lenders in all material respects in the
form provided pursuant to clause (B) below; and
(B) the form of opinion of counsel for the
Borrowers to be delivered pursuant to clause (A),
such form to be satisfactory to the Lenders and to
include, without limitation, an opinion that the
Subsidiary Guarantee, Debenture/Security Agreement
and General Assignment of Book Debts executed by
the Target Company are legal, valid, binding and
enforceable against the Target Company and that all
registrations, filings and recordings necessary or
desirable to preserve, protect or perfect the
enforceability of the security thereby created have
been completed;
(k) the Lenders shall have received a certificate of the
Borrowers, executed by an Authorized Officer of each of the
Borrowers confirming that all conditions precedent to the
making of an Advance to the Borrowers under the Credit
Facility have been satisfied, other than the completion of the
acquisition of the Target Company;
(l) the Lenders shall have received such other certificates and
documentation as the Lenders may reasonably request; and
(m) the acquisition of the Target Company shall be completed
concurrently with the making of the Advance to such Borrower
under this Agreement.
5.3 Conditions Precedent to Subsequent Borrowings. It shall be a
condition of each Borrowing that the representations and warranties
contained in Article 6 hereof shall be true on and as of the date of
each Borrowing and that no Default or Event of Default shall exist on
the date of the Borrowing or be created by such Borrowing. The
Borrowers will, at the request of the Lenders, deliver to the Lenders a
certificate or certificates of a Responsible Officer of each of the
Borrowers to that effect and confirming whether the purpose of such
Borrowing is the acquisition of a Target Company.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES
6.1 Representations and Warranties by the Borrowers. The Borrowers
represent and warrant to the Lenders (and acknowledge that the Lenders
are relying thereon without independent inquiry in entering into this
Agreement and providing Accommodations from time to time) as follows:
(a) Organization and Qualification. Each of the Group Entities is
a corporation duly incorporated and organized, is validly
subsisting and is in good standing under the laws of its
jurisdiction of incorporation.
(b) Corporate Power. Each of the Group Entities has full
corporate right, power and authority to enter into and perform
its obligations under each of the Credit Facility Documents to
which it is or will be a party and has full corporate power
and authority to own and operate its properties and to carry
on its business as now conducted or as herein contemplated.
(c) Wholly-Owned Subsidiaries. Attached hereto as Schedule 4 is a
complete list, as at the date hereof, of all Wholly-Owned
Subsidiaries, setting out in respect of each such Wholly-Owned
Subsidiary:
(i) its jurisdiction of incorporation;
(ii) the number of shares of each class issued and
outstanding, and the registered holders of all such
shares; and
(iii) each jurisdiction in which such Wholly-Owned
Subsidiary carries on business or owns or leases property
or assets.
(d) Conflict with Other Instruments. The execution and delivery
by each of the Group Entities of each of the Credit Facility
Documents and the performance by each of the Group Entities of
its obligations thereunder, do not and will not:
(i) conflict with or result in a breach of any of the
terms, conditions or provisions of:
(1) the charter documents of such Group
Entity;
(2) any Law applicable to such Group Entity;
(3) any contractual restriction binding on or
affecting such Group Entity or its properties; or
(4) any writ, judgment, injunction,
determination or award which is binding on such
Group Entity; or
(ii) result in, require or permit:
(1) the imposition of any Lien other than as
provided for herein; or
(2) the acceleration of the maturity of any
Indebtedness of such Group Entity under any
contractual provision binding on or affecting such
Group Entity.
(e) Authorization and Governmental Approvals. The execution and
delivery of each of the Credit Facility Documents and the
performance by each of the Group Entities of its obligations
thereunder have been duly authorized by all necessary
corporate action on the part of each of the Group Entities and
no permit, licence or approval under any applicable Law, and
no registration, qualification, designation, declaration or
filing with any Governmental Body having jurisdiction over the
Group Entities, is or was necessary therefor or to preserve
the benefit thereof to the Lenders.
(f) Execution and Binding Obligation. This Agreement has been
duly executed and delivered by each of the Borrowers, and this
Agreement constitutes, and the remaining Credit Facility
Documents when duly executed by the Group Entities pursuant to
and in accordance with this Agreement and delivered will
constitute, legal, valid and binding obligations of the Group
Entities enforceable against them in accordance with their
respective terms, subject to Laws relating to bankruptcy,
insolvency and the enforcement of creditors' rights generally
and to the qualification that equitable remedies are in the
discretion of a court.
(g) Permits. All permits, licences and approvals which are
necessary in connection with the business, properties or
assets of the Group Entities have been issued and are in full
force and effect except where the failure so to possess any
such permit, licence or approval would not in the aggregate
have a Material Adverse Effect, and there is no default
thereunder or any failure to observe or perform any condition
thereof which would have or result in a Material Adverse
Effect. No action is pending or, to the knowledge of the
Borrowers, threatened which has as its object the revocation
or amendment of any such permit, licence or approval which
would have or result in a Material Adverse Effect.
(h) Material Disclosure. The Borrowers have not failed to
disclose to the Lenders in writing any fact (other than facts
which are a matter of public knowledge or record) of which the
Borrowers are aware which will result in a Material Adverse
Effect, or so far as it can now reasonably foresee may result
in a Material Adverse Effect. None of the Credit Facility
Documents contained at the time furnished any untrue statement
of a material fact.
(i) Title to Assets. The Group Entities have good and marketable
title to or the right to use all of the assets necessary for
the operation of their businesses, free and clear of any Liens
other than Permitted Liens, and no person has any agreement or
right to acquire any of such properties out of the ordinary
course of business.
(j) No Defaults. None of the Group Entities is in breach of or in
default under:
(i) its charter documents;
(ii) any applicable Law;
(iii) any contract or agreement binding on or
affecting it or its assets (including without limitation
the Credit Facility Documents); or
(iv) any writ, judgment, injunction, determination or
award binding on or affecting it;
which breach or default would, either alone or in aggregate,
have a Material Adverse Effect.
(k) Financial Statements. SSWG has delivered to the Lenders a
copy of the audited consolidated balance sheet of SSWG as of
December 31, 1997 and the related consolidated statements of
earnings and retained earnings and changes in financial
position of SSWG for the fiscal year then ended. Each of the
other Group Entities has delivered to the Lenders copies of
the unaudited unconsolidated balance sheet of such Group
Entity as of the fiscal year most recently ended, and the
related unconsolidated statements of earnings and retained
earnings and changes in financial position of such Group
Entity for the fiscal year so ended, and the most recent
unaudited interim unconsolidated balance sheet of such Group
Entity and the related statements of earnings and retained
earnings and changes in financial position.
Such financial statements (including in each case any related
schedules and notes) have been prepared in accordance with
GAAP consistently applied throughout the periods involved,
except as set forth in any notes thereto, and fairly present
the consolidated financial position of each of the Group
Entities as of the respective dates of such balance sheets and
the consolidated results of their operations for the
respective periods covered by such statements of earnings and
retained earnings and changes in financial position.
There are no material liabilities, contingent or otherwise, of
any Group Entity as of December 31, 1997 not reflected in the
consolidated balance sheet of SSWG as of such date. Since
December 31, 1997, there have been no changes in the
consolidated assets, liabilities or financial position of any
Group Entity from that set forth in the consolidated balance
sheet of SSWG as of that date, except such changes in the
ordinary course of business that have not, in the aggregate,
had a Material Adverse Effect.
(l) Litigation. There are no actions, suits or proceedings
(including counterclaims) pending or, to the knowledge of the
Borrowers, threatened against or affecting any of the Group
Entities or any property of any of the Group Entities in any
court or before any arbitrator of any kind or before or by any
Governmental Body which, if adversely determined, would, in
the aggregate, have a Material Adverse Effect (taking into
account applicable insurance coverage and related deductibles
with respect to such matters).
(m) Taxes. Each of the Group Entities has filed all tax returns
which are required to have been filed in any jurisdiction,
except for tax returns the failure of which to file would not,
in the aggregate, have a Material Adverse Effect. Each of the
Group Entities has paid all taxes shown to be due and payable
on any tax return filed by it and all other taxes and
assessments payable by it, to the extent the same have become
due and payable and before they have become delinquent, except
for any taxes or assessments the failure of which to pay would
not, in the aggregate, have a Material Adverse Effect, and
except for any taxes or assessments:
(i) the amount, applicability or validity of which is
currently being contested in good faith by appropriate
proceedings,
(ii) the execution of any judgment with respect thereto
has been stayed, and
(iii) with respect to which such Group Entity has set
aside on its books reserves (segregated to the extent
required by GAAP) deemed by it to be adequate.
The Borrowers are not aware of any proposed material tax
assessment against any of the Group Entities except as
disclosed in writing by the Borrowers to the Lenders, and in
the opinion of the Borrowers all tax liabilities likely to be
due and payable in the current fiscal year are adequately
provided for on the books of the Group Entities in accordance
with GAAP.
(n) Indebtedness of Wholly-Owned Subsidiaries. None of the Wholly-
Owned Subsidiaries has any Indebtedness, other than
Indebtedness permitted under Section 9.01(c).
(o) Compliance with Environmental Laws. Each of the Group
Entities is in compliance with all Environmental Laws
applicable to its respective businesses and operations in all
jurisdictions in which it is presently doing business, except
for any failure to so comply which would not, in the
aggregate, have a Material Adverse Effect. Each of the Group
Entities makes all reasonable efforts to manage its business
so that it will not incur or be subject to any liability or
penalty under such Environmental Laws.
(p) Representations of Wholly-Owned Subsidiaries. The
representations and warranties of each Wholly-Owned Subsidiary
contained in the Subsidiary Guarantee of such Wholly-Owned
Subsidiary are true and correct.
(q) Solvency. The Borrowers represent and warrant to and in
favour of the Lenders that the Group Entities, in the
aggregate, are not and, after entering into the Credit
Facility Documents or performing any of their respective
obligations thereunder, would not be unable to pay any of
their respective liabilities as they become due, and the
realizable value of all assets of the Group Entities, after
entering into the Credit Facility Documents or performing any
of their respective obligations thereunder, would not be less
than the aggregate of the Group Entities' liabilities and
stated capital of all classes.
ARTICLE 7
FINANCIAL STATEMENTS AND INFORMATION
7.1 Provision of Information. The Borrowers covenant and agree to and
with the Lenders that so long as an Advance, Bankers' Acceptance or any
other obligation of the Borrowers under this Agreement is outstanding or
the Commitment has not been wholly terminated:
(a) Financial Statements and Information. The Borrowers shall
furnish to the Lenders:
(i) within five Business Days after approval by the
Board of Directors of SSWG and in any event within 120
days after the end of each fiscal year of SSWG, copies of
the comparative financial statements of SSWG as of the
end of such fiscal year, prepared in accordance with
GAAP, accompanied by a report thereon of independent
chartered accountants or certified public accountants of
recognized national standing in Canada or the United
States to the effect that the consolidated statements
present fairly, in all material respects, the
consolidated financial position of SSWG as of the end of
such fiscal year and the consolidated results of the
operations and changes in financial position for such
year in conformity with GAAP;
(ii) if differences between GAAP as at the date of the
financial statements referred to in subparagraph (i) and
GAAP as at December 31, 1997 result in the calculation of
any amount or financial ratio under this Agreement being
different than if calculated using GAAP as at the date of
such financial statements, a reconciliation of the
differing calculations of such amounts and a report on
such reconciliation by the independent accountants
reporting on the financial statements;
(iii) within five Business Days after approval by the
Board of Directors of each Group Entity other than SSWG
and in any event within 120 days after the end of each
fiscal year of such Group Entity, copies of the unaudited
unconsolidated financial statements of such Group Entity
as of the end of such fiscal year;
(iv) as soon as available and in any event within 45 days
after the end of each of the first three quarterly fiscal
periods in each fiscal year of SSWG, copies of the
comparative consolidated financial statements of SSWG as
of the end of such period, all prepared in accordance
with GAAP, and certified by a senior financial officer of
SSWG to the effect that the statements present fairly, in
all material respects, the consolidated financial
position of SSWG as of the end of such period and the
related consolidated results of operations and changes in
financial position for such period in accordance with
GAAP consistently applied;
(v) if differences between GAAP as at the date of the
financial statements referred to in subparagraph (iv) and
GAAP as at December 31, 1997 result in the calculation of
any amount or financial ratio under this Agreement being
different than if calculated using GAAP as at the date of
such financial statements, a reconciliation of the
differing calculations of such amounts and a report on
such reconciliation by a senior financial officer of
SSWG;
(vi) as soon as available and in any event within 45 days
after the end of each of the first three quarterly fiscal
periods in each fiscal year of each Group Entity other
than SSWG, copies of the unaudited unconsolidated
financial statements of such Group Entity as of the end
of such period;
(vii) concurrently with the financial statements
furnished pursuant to subparagraphs (i), (iii), (iv) and
(vi) above, a Quarterly Financial Certificate duly
executed by the chief financial officer or vice-
president, finance of SSWG:
(1) stating that, based upon such examination
or investigation and review of this Agreement as in
the opinion of the signer is necessary to enable
the signer to express an informed opinion with
respect thereto, no Default or Event of Default has
occurred during such period or as at the date of
such certificate or, if any Default or Event of
Default shall have occurred, specifying all such
Defaults and Events of Default, the nature and
period of existence thereof and what action the
Borrowers have taken, are taking or propose to take
with respect thereto; and
(2) setting forth computations in reasonable
detail showing as of the end of the period covered
by such financial statements whether the Borrowers
were in compliance with Sections 8.01(l), (m), (n)
and (o) and reporting any transaction under Section
9.01(f);
(viii) not less than 45 days prior to the commencement
of each fiscal year of SSWG, a preliminary Business Plan
and Capital Expenditure Plan for the ensuing fiscal year;
(ix) not less than 30 days after the commencement of each
fiscal year of SSWG, the final Business Plan and Capital
Expenditure Plan for such fiscal year;
(x) promptly after the Borrowers become aware thereof,
written notice of any material change to any Business
Plan or Capital Expenditure Plan previously provided to
the Lenders, and as soon as reasonably practicable an
updated Business Plan or Capital Expenditure Plan, as the
case may be;
(xi) promptly and in any event within four Business Days
after a Responsible Officer of any of the Borrowers
becomes aware of the existence of a Default or Event of
Default, a certificate duly executed by an Authorized
Officer of such Borrower specifying the nature and period
of existence thereof and what action the Borrowers have
taken, are taking or propose to take with respect
thereto;
(xii) with reasonable promptness:
(A) written notice specifying any change in
the maximum amount available to or in the
outstanding amount borrowed by any Group Entity
under any other agreement or arrangement relating
to borrowed money (excluding regularly scheduled
payments of principal and interest in respect of
Indebtedness), or of any demand for payment or
other action taken by the holder of any other
Indebtedness of any Group Entity to recover such
Indebtedness;
(B) written notice of any actual or probable
material litigation or other legal proceedings
affecting any of the Group Entities (including any
proceeding before an arbitrator, quasi-judicial
tribunal or other Governmental Body) involving a
potential liability of more than U.S.$1,000,000 (or
the equivalent thereof in any other currency),
including copies of relevant legal documentation;
(C) written notice of any taxes or other
amounts the validity of which is disputed by any
Group Entity pursuant to Section 8.01(d) or any
other claim or matter in respect of which a Group
Entity would be required to reserve an amount in
accordance with GAAP;
(D) written notice of any occurrence,
including without limitation any third party claim
or liability, of which any Borrower becomes aware
which may prevent such Borrower or any of the other
Group Entities from performing any of its
obligations under this Agreement or any of the
other Credit Facility Documents; and
(E) such other information, including
financial statements and computations, relating to
the performance of the provisions of this Agreement
and the affairs of the Group Entities as the
Lenders may from time to time reasonably request.
(b) Inspection of Properties and Books. The Lenders shall have
the right to visit and inspect any of the properties of the
Group Entities, to examine the books of account and records of
the Group Entities, to make or be provided with copies and
extracts therefrom, to discuss the affairs, finances and
accounts of the Group Entities with, and to be advised as to
the same by, the officers, employees and independent
accountants of the Group Entities (and by this provision the
Borrowers authorize such accountants to discuss such affairs,
finances and accounts, whether or not a representative of any
Borrower is present), all upon reasonable notice and at such
reasonable times and intervals and to such reasonable extent
as the Lenders may desire. The Borrowers agree to pay all out
-of-pocket expenses incurred by the Lenders in connection with
the exercise of rights pursuant to this paragraph (b) at any
time when a Default or Event of Default has occurred and is
continuing.
ARTICLE 8
POSITIVE COVENANTS
8.1 General Affirmative Covenants. The Borrowers covenant and agree to
and with the Lenders that so long as an Advance, Bankers' Acceptance or
other obligation of the Borrowers under this Agreement is outstanding or
the Commitment of the Lenders has not been wholly terminated:
(a) Payment when Due. The Borrowers will duly and punctually pay
or cause to be paid all amounts required to be paid by them to
the Lenders pursuant to this Agreement or any of the other
Credit Facility Documents or any Treasury Contract, including
principal, interest, Stamping Fees, other fees and expenses
and any other amounts, at the times, in the currencies and in
the manner set forth herein or therein.
(b) Observance of Covenants. The Borrowers will observe and
perform all of the covenants, agreements, terms and conditions
to be observed and performed by them in this Agreement and
other Credit Facility Documents.
(c) Conduct of Business. The Group Entities will continue to
carry on the business of the delivery, distribution and rental
of water coolers and water delivery services in Canada, the
United Kingdom, the United States of America and Europe, will
keep all of their assets in a good state of repair and in
proper working condition, and will keep or cause to be kept
proper books of account and set aside appropriate reserves in
accordance with GAAP.
(d) Payment of Taxes. Each of the Group Entities will from time
to time pay or cause to be paid all rents, taxes, rates,
levies or assessments, ordinary or extraordinary, and
governmental fees or dues levied, assessed or imposed upon any
of the Group Entities or their assets capable of forming a
Lien on any of the assets of the Group Entities, as and when
the same become due and payable, unless their validity is
disputed in good faith by such Group Entity and the Lenders
are provided security acceptable to them, acting reasonably,
for the payment of the same.
(e) Maintenance of Corporate Existence. The Group Entities will
maintain their corporate existence and all registrations in
those jurisdictions in which they carry on business, provided
that a Group Entity may make such changes in corporate
existence and registrations as may be required in connection
with an arrangement or reorganization of the Group Entities
and any holding companies thereof permitted under this
Agreement.
(f) Maintenance of Licences and Permits. The Group Entities will
maintain all licences and permits required to carry on their
respective businesses and will not transfer, surrender or
otherwise dispose of any such licences or permits, except
pursuant to a Disposition permitted under Section 9.01(f).
(g) Compliance with Laws. The Group Entities will comply with all
Laws (including Environmental Laws), non-compliance with which
could have a Material Adverse Effect.
(h) Maintenance of Property Insurance. The Group Entities will
cause all the property and assets of the Group Entities which
are of a character usually insured by companies operating like
businesses to be insured and kept insured against loss or
damage from any cause which is customarily insured against
(including business interruption) by companies carrying on
like businesses, in such amounts and with such deductibles as
are in accordance with good business practice and with
financially sound and reputable insurers. The Group Entities
will pay all premiums necessary for such purpose as the same
shall become due and will provide particulars of all such
policies and all renewals thereof to the Lenders upon request;
and, at the request of the Lenders, will add the Lenders as
first loss payees to such policies, together with a mortgage
endorsement on terms satisfactory to the Lenders, acting
reasonably.
(i) Maintenance of Liability Insurance. The Group Entities will
maintain public liability and other liability insurance in
such amounts as are in accordance with good business practice
and with financially sound and reputable insurers, will pay
all premiums necessary for such purpose as the same shall
become due and will provide particulars of all such policies
and all renewals thereof to the Lenders.
(j) Use of Proceeds. All Borrowings by the Borrowers will be used
for the purposes described in Section 2.01 and for no other
purposes. Without limiting the foregoing, the Borrowers will
not borrow any amount by way of an Advance for the purpose of
investing such amount directly or indirectly in bankers'
acceptances (whether or not such bankers' acceptances have
been issued or accepted by the Lenders).
(k) Operating Accounts. The Borrowers shall maintain, and shall
cause the Wholly-Owned Subsidiaries to maintain, with TD Bank
the operating accounts of all Group Entities incorporated in
Canada.
(l) Ratio of Adjusted Consolidated EBITDA to Senior Interest. The
Borrowers shall maintain the ratio of Adjusted Consolidated
EBITDA to Senior Interest for the four fiscal quarters ending
at each fiscal quarter end at no less than 3.0 to 1.
(m) Ratio of Adjusted Consolidated EBITDA to Total Interest. The
Borrowers shall maintain the ratio of Adjusted Consolidated
EBITDA to Total Interest for the four fiscal quarters ending
at each fiscal quarter end at no less than:
(i) 1.35 to 1 for each fiscal quarter ending on or
before September 30, 1999;
(ii) 1.5 to 1 for each fiscal quarter ending after
September 30, 1999 and on or before September 30, 2000;
(iii) 1.75 to 1 for each fiscal quarter ending after
September 30, 2000 and on or before September 30, 2001;
and
(iv) 2.0 to 1 for each fiscal quarter ending after
September 30, 2001 and on or before the Maturity Date.
(n) Senior Debt to Adjusted Consolidated EBITDA Ratio. The
Borrowers shall maintain the Senior Debt to Adjusted
Consolidated EBITDA Ratio as at each fiscal quarter end at no
more than 2.5 to 1.
(o) Ratio of Cash Flow to Debt Service. The Borrowers shall
maintain the ratio of Cash Flow for the four quarters ending
at each fiscal quarter end to Debt Service for such four
quarters at no less than 1.2 to 1.
(p) Capital Expenditures. The Actual Capital Expenditures for
each fiscal year of SSWG, not including the value of property,
plant and equipment owned by an Acquired Company as at the
date of the Acquired Company's acquisition by a Borrower,
shall be less than or equal to the Permitted Capital
Expenditures for such fiscal year.
ARTICLE 9
NEGATIVE COVENANTS
9.1 General Negative Covenants. The Borrowers covenant and agree to
and with the Lenders that, unless the Lenders consent in writing, so
long as an Advance, Bankers' Acceptance or other obligation of the
Borrowers is outstanding or the Commitment of the Lenders has not been
wholly terminated:
(a) Restriction on Liens. The Borrowers will not grant, create,
assume or permit to exist, or permit any Wholly-Owned
Subsidiary to grant, create, assume or permit to exist, any
Lien upon any of the properties or assets of any Group Entity,
other than the security constituted by the Security Documents
and Permitted Liens.
(b) Restriction on Indebtedness. The Borrowers will not have or
incur any Indebtedness, except:
(i) Indebtedness under this Agreement;
(ii) Indebtedness in existence as at the date of this
Agreement, as reflected in the audited consolidated
financial statements of SSWG dated December 31, 1997;
(iii) Indebtedness under the Senior Subordinated Note
Indenture;
(iv) Indebtedness of SSWG under the Cross Currency Swap
Transaction dated December 2, 1997 with Bankers Trust
Company;
(v) Vendor Debt permitted under this Agreement; and
(vi) other Indebtedness which has the benefit of a
Permitted Lien securing the payment thereof (but only to
the extent of such Permitted Lien).
(c) Restriction on Subsidiary Indebtedness. No Wholly-Owned
Subsidiary will have or incur, and the Borrowers shall ensure
that no Wholly-Owned Subsidiary has or incurs, any
Indebtedness other than:
(i) Indebtedness under this Agreement;
(ii) Indebtedness in existence as at the date of this
Agreement, as reflected in the audited consolidated
financial statements of SSWG dated December 31, 1997;
(iii) Indebtedness to any other Group Entity;
(iv) Indebtedness constituted by a Subsidiary Guarantee;
(v) Vendor Debt permitted under this Agreement; and
(vi) other Indebtedness which has the benefit of a
Permitted Lien securing the payment thereof (but only to
the extent of such Permitted Lien).
(d) Restriction on Guarantees. None of the Group Entities shall
enter into any Guarantee of, or any indemnity or suretyship
arrangement relating to, or any other transaction intended to
assure the repayment or satisfaction of, any Indebtedness or
other liabilities or obligations of any other person, other
than the Guarantees of the Borrowers contained in this
Agreement, the Subsidiary Guarantees executed by the Wholly-
Owned Subsidiaries pursuant to this Agreement, the Guarantees
of the Group Entities in respect of the obligations of SSWG
under the Senior Subordinated Note Indenture, or indemnities
contained in any operating lease or other agreement entered
into by any Group Entity in the ordinary course of business
(excluding any agreement relating to Indebtedness for borrowed
money).
(e) Restriction on Amalgamations and Reorganizations. Without the
Lenders' prior written consent, the Borrowers will not, and
will not permit any Wholly-Owned Subsidiary to, directly or
indirectly, consolidate, amalgamate or merge with, or sell,
lease or otherwise dispose of all or substantially all of its
respective assets, or alter its capital structure, or enter
into any arrangement or reorganization having a similar
effect, other than with one or more other Group Entities or
holding companies thereof.
(f) Restriction on Dispositions. The Borrowers will not, and will
not permit any Wholly-Owned Subsidiary to, directly or
indirectly, sell, lease, assign, transfer, abandon, convey or
otherwise dispose of (any such action being herein called a
"Disposition") any of its assets (including any capital stock
of any Subsidiary or other corporation and any Investment by
any Group Entity, other than an Investment permitted under
paragraphs (g) or (h) below), except as follows:
(i) any Group Entity may, in the ordinary course of
business, sell any inventory or other assets that are
customarily sold by such Group Entity on an on-going
basis as part of the normal operation of its respective
business;
(ii) any Group Entity may, in the ordinary course of
business, sell equipment, fixtures, materials or supplies
that are no longer required in the business of such Group
Entity or that are worn-out or obsolete;
(iii) any Group Entity may effect a Disposition of its
assets on arms' length terms and for the lower of fair
market value and book value if, after giving effect to
such Disposition, the aggregate net proceeds of all
assets disposed of by all Group Entities pursuant to this
subparagraph (iii) in any one fiscal year would not
exceed U.S.$500,000 (or the equivalent thereof in any
other currency);
(iv) provided that no Default or Event of Default has
occurred and is continuing as at the date of such
Disposition, any Group Entity may effect a Disposition of
all or any portion of its assets to any other Group
Entity; and
(v) any Group Entity may effect a Disposition of its
assets on arms' length terms and for fair market value
not otherwise permitted under subparagraphs (i) to (iv)
above, provided that, after giving effect to the
Disposition:
(A) the aggregate net proceeds of all
Dispositions in the current fiscal year is less
than U.S.$1,000,000 (or the equivalent thereof in
any other currency); or
(B) the aggregate net proceeds of all
Dispositions in the current fiscal year is greater
than or equal to U.S.$1,000,000 (or the equivalent
thereof in any other currency) and the amount, if
any, of the excess of such aggregate net proceeds
over U.S.$1,000,000 (or the equivalent amount in
any other currency) either is used by the Group
Entities to acquire assets of a similar nature to
be used in a business then being carried on by the
Group Entities within 180 days of the completion of
the Disposition, or is repaid by the Borrowers to
the Lenders in accordance with Section 2.08 as a
permanent reduction of the Outstandings under the
Credit Facility.
(g) Restriction on Distributions. Other than the proposed payment
or Investment of up to U.S.$1,500,000 to or in Sparkling
Spring Water Holdings Limited for the acquisition of share
options in connection with the proposed reorganization of the
Group Entities pursuant to which SSWG will become a wholly-
owned subsidiary of Sparkling Spring Water Holdings Limited,
which in turn will be owned by the shareholders of SSWG as of
the date of this Agreement, the Borrowers will not, and will
not permit any Wholly-Owned Subsidiary to, pay dividends on
any capital stock, or pay any amount to redeem, reduce,
purchase or retire in any manner any capital stock:
(i) in an aggregate amount of more than U.S.$500,000 (or
the equivalent thereof in any other currency) over the
term of this Agreement; and
(ii) in an aggregate amount of less than or equal to
U.S.$500,000 (or the equivalent thereof in any other
currency) over the term of this Agreement, without the
Lenders' prior written consent and unless:
(A) the Borrowers shall be in compliance with
all terms and conditions of this Agreement both
before and after any such payment, including in
particular the financial covenants set out in
Sections 8.01(l), (m), (n), (o) and (p); and
(B) no Default or Event of Default has
occurred and is continuing or would result from any
such payment.
(h) Restriction on Loans. The Borrowers will not, and will not
permit any Wholly-Owned Subsidiary to, make any loans or grant
any credit to or for the benefit of any other person except
for:
(i) amounts of credit allowed by any Group Entity in the
normal course of the trading activities of such Group
Entity;
(ii) loans made by one Group Entity to another Group
Entity;
(iii) a loan made to Sparkling Spring Water Holdings
Limited in an amount not to exceed U.S. $1,500,000 as
described in paragraph (g) above; and
(iv) loans made by a Group Entity to employees of such
Group Entity, provided that the aggregate outstanding
amount of such loans made by Group Entities does not
exceed U.S.$1,500,000, and provided that the Group
Entities shall be in compliance with all terms and
conditions of this Agreement and the other Credit
Facility Documents both before and after the making of
such loans.
(i) Restriction on Acquisition of Wholly-Owned Subsidiaries. The
Borrowers will not incorporate or acquire any additional
Wholly-Owned Subsidiaries unless such Wholly-Owned Subsidiary
executes a Subsidiary Guarantee in favour of the Lenders and
provides such Security Documents, certificates and legal
opinions as may be requested by the Lenders.
(j) Restriction on Partially-Owned Subsidiaries. The Borrowers
will not create or acquire any Subsidiary which is not a
Wholly-Owned Subsidiary, or permit any Wholly-Owned Subsidiary
to issue shares with the result that it would cease to be a
Wholly-Owned Subsidiary, without the prior written approval of
the Lenders, which approval shall not be unreasonably
withheld.
(k) Restriction on Other Activities. The Borrowers will not carry
on in any fiscal year any activities materially different from
those activities anticipated and described in the Business
Plan for such fiscal year.
(l) Payment of Fees and Commissions. The Borrowers will not pay
any fees or commissions to any person other than on open
market terms and for the purpose of and in the ordinary course
of business of the business carried on by the Group Entities.
(m) Payment of Management Charge. The Borrowers will not pay any
management charge to C.F. Capital Corporation other than in
accordance with the terms of the Management Agreement dated
December 16, 1993 made between SSW, C.F. Capital Corporation,
John Kredeit and Stephen Larson, as amended and restated on
January 12, 1996 and on October 27, 1997.
(n) Change in Fiscal Year. SSWG will not change its fiscal year
without the prior written consent of the Bank.
ARTICLE 10
BORROWER GUARANTEES
10.1 Guarantees. Each of the Borrowers (each called a "Guaranteeing
Borrower" in this Article 10) hereby absolutely, unconditionally and
irrevocably guarantees to the Lenders the due and punctual performance,
satisfaction, payment and discharge of the following (the "Guaranteed
Obligations"):
(a) all payment obligations (whether at stated maturity, by
acceleration or otherwise) of each of the other Borrowers
hereunder (each an "Other Borrower") under the Credit
Facility, whether for principal, interest, fees, expenses,
indemnity or otherwise;
(b) all covenants and other obligations of each Other Borrower on
its part to be performed or observed under this Agreement; and
(c) all obligations of each Other Borrower to the Lenders under
Treasury Contracts.
10.2 Guarantee Absolute and Unconditional. The obligations of each
Guaranteeing Borrower under this Guarantee shall be absolute and
unconditional, shall not be subject to any counterclaim, set-off,
deduction or defence based upon any claim such Guaranteeing Borrower may
have against either Other Borrower or any other person, whether in
connection with this Guarantee or any other transaction, and shall
remain in full force and effect without regard to, and shall not be
released, discharged or in any way affected or impaired by any
occurrence, matter, circumstance or condition whatsoever (whether or not
such Guaranteeing Borrower has any knowledge or notice thereof or has
consented thereto), other than the complete performance of the
Guaranteed Obligations, including without limitation:
(a) any amendment or modification of any provision of this
Agreement, any of the other Credit Facility Documents, the
Security Documents or any of the Guaranteed Obligations or any
assignment or transfer thereof, including without limitation
any extension of the time for payment of or compliance with
any of the Guaranteed Obligations;
(b) any waiver, consent, extension, granting of time, forbearance,
indulgence, renewal or other action or inaction under or in
respect of this Agreement, the other Credit Facility
Documents, the Security Documents or any of the Guaranteed
Obligations, or any exercise or nonexercise of any right,
remedy or power in respect thereof;
(c) any dealings with any security or other guarantee which the
Lenders hold or may hold pursuant to this Agreement or
otherwise, including the taking and giving up of security or
any other guarantee, the accepting of compositions and the
granting of releases and discharges;
(d) any bankruptcy, receivership, insolvency, reorganization,
amalgamation, arrangement, readjustment, composition,
liquidation or similar proceedings with respect to any
Borrower or any other person or the properties or creditors of
any of them;
(e) any informality in, omission from, invalidity or
unenforceability of, or any misrepresentation, irregularity or
other defect in, this Agreement, the other Credit Facility
Documents, the Security Documents, any of the Guaranteed
Obligations or any other agreement or instrument;
(f) any lack or limitation of capacity, status, power or authority
of any Borrower or any of their respective directors,
officers, employees, partners or agents acting or purporting
to act on their behalf, and any defect or any failure to
comply with a formal legal requirement in the execution or
delivery of any document;
(g) any transfer of any assets to or from any Borrower to any
Other Borrower, any consolidation, amalgamation or merger of
any of the Borrowers with or into any person, or any change
whatsoever in the name, objects, capital structure, corporate
existence, membership, constitution or business of any
Borrower;
(h) any failure on the part of any Other Borrower or any other
person to perform or comply with any term of this Agreement,
the other Credit Facility Documents, the Security Documents,
any of the Guaranteed Obligations or any other agreement or
instrument;
(i) any action or other proceeding brought by any beneficiaries or
creditors of, or by, any Other Borrower or any other person
for any reason whatsoever, including without limitation any
action or proceeding in any way attacking or involving any
issue in respect of this Agreement, the other Credit Facility
Documents, the Security Documents, any of the Guaranteed
Obligations or any other agreement or instrument;
(j) any lack or limitation of status or of power of any Other
Borrower or any incapacity or disability of any Other
Borrower; or
(k) the assignment of all or any part of the benefits of this
Guarantee in accordance with the terms of this Agreement, any
other agreement in respect of the Guaranteed Obligations, or
any other agreement or instrument.
10.3 Demand. If any Other Borrower shall fail to pay or cause to be
paid all or any portion of the Guaranteed Obligations as and when the
same shall become due and payable pursuant to this Agreement or
otherwise, then the Lenders shall be entitled, by notice to a
Guaranteeing Borrower, to make a demand upon such Guaranteeing Borrower
for the payment of the Guaranteed Obligations or that portion thereof
which any Other Borrower has failed to pay. The Guaranteed Obligations
or any portion thereof in respect of which demand shall have been made
pursuant hereto shall become immediately due and payable by such
Guaranteeing Borrower under this Guarantee upon such demand for payment
being made, and shall bear interest from the date of such demand at the
rate or rates provided in this Agreement or otherwise in respect of the
Guaranteed Obligations or that portion thereof which the Other Borrower
has failed to pay.
10.4 Remedies. The Lenders may, at their option, proceed against any
Guaranteeing Borrower under this Guarantee to enforce any of the
Guaranteed Obligations when due without first proceeding against any
Other Borrower or any other person and without first resorting to any
direct or indirect security, any Subsidiary Guarantee or any other
remedy. Each Guaranteeing Borrower hereby unconditionally waives
diligence, presentment, demand for payment, protest and all notices
whatsoever, renounces the benefit of division and discussion, and
unconditionally waives any requirement that the Lenders exhaust any
right, power or remedy against any Other Borrower under this Agreement,
the other Credit Facility Documents, any Security Document, any
Subsidiary Guarantee, any other Guaranteed Obligations or any other
agreement or instrument referred to herein or therein, or against any
other person under any other guarantee of, or security for, any of the
Guaranteed Obligations, before proceeding against such Guaranteeing
Borrower under this Guarantee. Each Guaranteeing Borrower hereby waives
any duty on the part of the Lenders to disclose to such Borrower
anything which the Lenders may now or hereafter know concerning any
Other Borrower, any other person or any other matter whatsoever, even if
the Lenders have reason to believe any such information materially
increases the risk beyond that which such Guaranteeing Borrower intends
to assume hereunder.
10.5 Set-Off. The Lenders may at any time setoff and apply any deposits
(general or special, time or demand, provisional or final) or other
indebtedness owing by any Lender to or for the credit of any
Guaranteeing Borrower against that portion of the Guaranteed Obligations
comprising principal, interest or fees, or, following the occurrence of
an Event of Default, any and all of the Guaranteed Obligations, and the
Lenders shall promptly notify such Guaranteeing Borrower of any such set-
off or application, provided that the failure to do so shall not affect
the validity thereof. The rights of the Lenders under this Section
10.05 are in addition to any other rights and remedies, including any
other rights of set-off, that they may have.
10.6 Amount of Guaranteed Obligations. Any account settled or stated by
or between the Lenders and any Other Borrower or, if any such account
has not been so settled or stated immediately before demand for payment
under this Guarantee, any account thereafter stated by the Lenders
shall, in the absence of demonstrable error, fraud, dishonesty or
improper conduct, be accepted by each Guaranteeing Borrower as prima
facie evidence of the amount of the Guaranteed Obligations which at the
date of the account so settled or stated is due by such Other Borrower
to the Lenders or remains unpaid by such Other Borrower to the Lenders.
10.7 Payment Free and Clear of Taxes. Any and all payments by each
Guaranteeing Borrower under this Guarantee shall be made free and clear
of and without deduction or withholding for Taxes unless such Taxes are
required by applicable Law to be deducted or withheld. If a
Guaranteeing Borrower shall be required by applicable Law to deduct or
withhold any Taxes from or in respect of any sum payable under this
Guarantee:
(a) the sum payable shall be increased as may be necessary so that
after making all required deductions or withholdings
(including deductions or withholdings applicable to additional
amounts paid under this Section 10.07) the Lenders receive an
amount equal to the sum they would have received if no
deduction or withholding had been made;
(b) such Guaranteeing Borrower shall make such deductions or
withholdings; and
(c) such Guaranteeing Borrower shall pay the full amount deducted
or withheld to the relevant taxation or other authority in
accordance with applicable Law.
Each Guaranteeing Borrower shall indemnify and save harmless the Lenders
for the full amount of Taxes levied by any jurisdiction in Canada, the
United States of America or the United Kingdom on, or in relation to,
any amount payable by such Guaranteeing Borrower hereunder (other than
Taxes imposed on the income or capital of the Lenders). Payment under
this indemnity shall be made within 30 days from the date the Lenders
make written demand therefor. A certificate as to the amount of such
Taxes submitted to such Guaranteeing Borrower by the Lenders or any of
them shall be prima facie evidence, absent demonstrable error, of the
amount due from such Borrower to the Lenders. The Lenders shall provide
each Guaranteeing Borrower the benefit of any tax credit received by the
Lenders as a result of such Guaranteeing Borrower indemnifying the
Lenders for Taxes levied on or in relation to any amount received or
receivable by the Lenders under this Guarantee, or as a result of such
Guaranteeing Borrower withholding any amount for Taxes in accordance
with applicable law and increasing the amount payable to the Lenders in
accordance with paragraph (a) above, provided that the amount of such
credit is reasonably possible to calculate and that a certificate of the
Lenders or any of them as to the amount of any such credit shall be
prima facie evidence of such amount.
Notwithstanding the foregoing, no Guaranteeing Borrower shall be
required to pay any Taxes or indemnify the Lenders in respect of Taxes
payable to any Governmental Body in Canada which are levied, withheld,
deducted or paid on payments to the Lenders by reason of the fact that
any Lender is a Non-Resident of Canada.
10.8 Subrogation and Repayment. Upon receipt by the Lenders of any
payments by any Guaranteeing Borrower on account of its liability under
this Guarantee, such Guaranteeing Borrower shall not be entitled to
claim repayment of such amount against any Other Borrower until the
Guaranteed Obligations and all other amounts due to the Lenders under
this Agreement have been paid or repaid in full. In the case of the
liquidation, winding-up or bankruptcy of any Other Borrower (whether
voluntary or compulsory) or in the event that any Other Borrower shall
make a bulk sale of any of its assets within the provisions of any bulk
sales legislation or any composition with creditors or scheme of
arrangement, the Lenders shall have the right to rank in priority to
each Guaranteeing Borrower for the full claims of the Lenders in respect
of the Guaranteed Obligations and receive all dividends or other
payments in respect thereof until the Guaranteed Obligations have been
paid in full, and the Guaranteeing Borrowers shall continue to be liable
for any balance of the Guaranteed Obligations which may be owing to the
Lenders by any Other Borrower. If any amount shall be paid to any
Guaranteeing Borrower on account of any subrogation rights at any time
when all the Guaranteed Obligations have not been paid in full, such
amount shall be held in trust for the benefit of the Lenders and shall
forthwith be paid to the Lenders to be credited and applied against the
Guaranteed Obligations, whether matured or unmatured.
10.9 Postponement and Assignment. As security for the performance of
its obligations hereunder, each Guaranteeing Borrower assigns to the
Lenders all claims of such Guaranteeing Borrower against any Other
Borrower and any other guarantors, and, except as otherwise expressly
permitted under this Agreement, subordinates and postpones the payment
of all such claims to the payment of the Guaranteed Obligations. Each
Guaranteeing Borrower shall hold all of its claims against each Other
Borrower and any other guarantors as agent and trustee of the Lenders
and shall collect, enforce and prove all such claims in accordance with
this Agreement and this Guarantee. Any monies received by any
Guaranteeing Borrower in respect thereof shall, upon the occurrence of
any Event of Default, be paid over to the Lenders. Without the prior
written consent of the Lenders, no Guaranteeing Borrower shall release
or discharge any of its claims against any Other Borrower or any other
guarantor, permit the prescription of any such claims pursuant to any
Law, assign any such claims to any person other than the Lenders, or ask
for or obtain any security or negotiable paper for or other evidence of
any such claims except for the purpose of delivering the same to the
Lenders.
10.10 Rights on Subrogation. If any Guaranteeing Borrower acquires
any right of subrogation by reason of a payment under or pursuant to
this Guarantee, such Guaranteeing Borrower shall not be entitled to vote
as a Lender under the provisions of this Agreement or otherwise until
the Guaranteed Obligations and all other amounts due to the Lenders
under this Agreement have been paid or repaid in full to the Lenders.
10.11 Continuing Guarantee. The obligations of each Guaranteeing
Borrower under this Guarantee constitute a continuing guarantee and
shall remain in full force and effect until payment in full of all of
the Guaranteed Obligations. The obligations of any Guaranteeing
Borrower shall be reinstated if at any time any payment of any of the
Guaranteed Obligations is rescinded or must otherwise be returned by the
Lenders upon the insolvency, bankruptcy or reorganization of any Other
Borrower or otherwise, all as though such payment had not been made.
10.12 Third Party Beneficiaries. Except as otherwise expressly set
forth in this Guarantee, nothing herein is intended or shall be
construed to confer upon or to give any person other than the Lenders
any right, remedy or claim under or by reason of the obligations of the
Guaranteeing Borrowers under this Guarantee.
10.13 No Modification. No amendment or other modification of this
Guarantee shall be effective unless in writing and signed by the Lenders
in accordance with the provisions of this Agreement.
10.14 Additional Guarantee. This Guarantee is in addition and
supplemental to, and not in substitution for, all other guarantees,
assignments and postponement agreements, whether or not in the same form
as this Guarantee, now or hereafter held by the Lenders.
10.15 Remedies Cumulative. The rights, remedies and recourses of
the Lenders under this Guarantee and any other Credit Facility Documents
are cumulative and do not exclude any other rights, remedies and
recourses that they may have.
10.16 No Waivers, Remedies. No failure on the part of the Lenders
to exercise, and no delay in exercising, any right under this Guarantee
shall operate as a waiver thereof, nor shall any single or partial
exercise of any right under this Guarantee preclude any other or further
exercise thereof or the exercise of any other right, nor shall any
waiver of one provision be deemed to constitute a waiver of any other
provision (whether or not similar). No waiver of any of the provisions
of this Guarantee shall be effective unless it is in writing duly
executed by the waiving party. The remedies herein provided are
cumulative and not exclusive of any other remedies provided by law.
10.17 Time of Essence. Time shall be of the essence of this
Guarantee.
ARTICLE 11
SECURITY
11.1 Security. As continuing collateral security for the performance of
all obligations of the Borrowers to the Lenders under this Agreement and
the payment when due of all Outstandings under the Credit Facility and
all other amounts from time to time owing to the Lenders by the
Borrowers, including interest, interest on overdue interest, Stamping
Fees and other fees and expenses, as continuing collateral security for
the obligations of the Guaranteeing Borrowers to the Lenders under
Article 10, and as continuing collateral security for the performance of
all obligations of the Borrowers to the Lenders under Treasury Contracts
(including Treasury Contract Breakage Costs), the Group Entities shall
execute and deliver to the Lenders the following documents:
(a) the Security Documents; and
(b) such other agreements, assignments, certificates,
undertakings, declarations and other supporting documentation
(including consents of third parties to any hypothec,
assignment, mortgage, charge or security interest) as the
Lenders may reasonably require in furtherance of the above.
11.2 Continued Perfection of Security. The Group Entities shall take
such action and execute and deliver to the Lenders such agreements,
conveyances, deeds and other documents and instruments as the Lenders
may reasonably request for the purpose of establishing, perfecting,
preserving and protecting the Security Documents, in each case forthwith
upon request by the Lenders and in form and substance satisfactory to
the Lenders, acting reasonably.
11.3 Set-Off. In addition to any rights now or hereafter available
under applicable Law and not by way of limitation of any such rights,
the Lenders are authorized at any time or from time to time after a
declaration of acceleration under Section 12.02, without notice to the
Borrowers, to set-off, compensate and to appropriate and to apply any
and all money deposits, matured or unmatured, general or special, held
for or in the name of any Borrower and any other indebtedness or
liability at any time owing or payable by any Lender to or for the
credit of or the account of any Borrower against and on account of the
obligations and liabilities of the Borrowers due and payable to the
Lenders under this Agreement, irrespective of currency and whether or
not obligations, liabilities or claims of any Borrower are contingent or
unmatured.
11.4 Conflict. In the event of a conflict between the provisions of
this Agreement and the provisions of any Security Document, the
provisions of this Agreement shall prevail.
ARTICLE 12
EVENTS OF DEFAULT
12.1 Events of Default. An Event of Default shall have occurred and be
continuing (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or by operation of law or otherwise)
if:
(a) Payment of Principal. The Borrowers shall fail to pay all or
any part of any Borrowing under this Agreement as and when the
same shall become due and payable, whether at stated maturity,
by acceleration or otherwise, and such default shall have
continued for a period of five Business Days after written
notice from the Lenders or any of them specifying such
default;
(b) Payment of Interest and Other Amounts. The Borrowers shall
fail to pay any interest, Stamping Fee or any other amount due
under this Agreement (other than a Borrowing described in
paragraph (a)) as and when the same shall become due and
payable, and such default shall have continued for a period of
five Business Days after written notice from the Lenders or
any of them specifying such default;
(c) Failure to Observe Financial Covenants. The Borrowers shall
fail to perform or observe any of their obligations or
undertakings contained in Sections 8.01(l), (m), (n), (o) and
(p) hereof;
(d) Failure to Observe other Covenants. Any of the Group Entities
shall fail to perform or observe any of its other obligations
or undertakings under this Agreement or any of the other
Credit Facility Documents and such default shall have
continued for a period of at least 30 days after a Responsible
Officer of a Borrower knows or should have known of such
default;
(e) Incorrect Representation or Warranty. Any representation or
warranty made by any of the Group Entities in this Agreement
or in any certificate or other instrument delivered hereunder
or pursuant hereto or in connection with any provision hereof
shall prove to be false or incorrect in any material respect
on the date as of which made;
(f) Cross-Default. A default or event of default occurs under any
agreement, indenture or other instrument relating to other
Indebtedness of any of the Group Entities exceeding
U.S.$500,000 (or the equivalent thereof in any other currency)
or under any foreign exchange, currency or interest rate swap
agreement having a notional principal amount exceeding
U.S.$500,000 (or the equivalent thereof in any other currency)
beyond any applicable grace period contained in the agreement,
indenture or other instrument relating to such Indebtedness;
(g) Dissolution Proceedings. Proceedings are commenced for the
dissolution, liquidation or winding-up of any of the Group
Entities, other than a dissolution, liquidation or winding-up
required in connection with an arrangement or reorganization
of the Group Entities and holding companies thereof permitted
under this Agreement, unless such proceedings are being
actively and diligently contested in good faith by such Group
Entity and such proceedings are stayed within 30 days of being
commenced;
(h) Bankruptcy or Insolvency. Any of the Group Entities is
adjudged or declared bankrupt or becomes insolvent or makes an
assignment for the benefit of creditors, or admits in writing
its inability to pay its debts generally as they become due,
or petitions or applies to any tribunal for the appointment of
a receiver or trustee for it or for any substantial part of
its property, or commences any proceedings relating to it
under any reorganization, arrangement, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction
whether now or hereafter in effect, or by any act indicates
its consent to, approval of, or acquiescence in, any such
proceeding for it or for any substantial part of its property;
(i) Appointment of Receiver. A receiver, receiver and manager,
receiver-manager, custodian, liquidator or trustee (or any
person with like powers) shall be appointed for all or any
substantial part of the property of any of the Group Entities,
provided that such appointment shall not constitute an Event
of Default if and for so long as:
(i) such Group Entity obtains within two Business Days
of such appointment an order of a court of competent
jurisdiction staying such appointment and such order (or
a replacement thereof to similar effect) remains in full
force and effect; or
(ii) such Group Entity forthwith bona fide disputes and
continues to dispute such appointment and provides or
causes to be provided to the Lenders such security as the
Lenders shall reasonably require, and such appointment is
stayed or vacated within 30 days;
(j) Issuance of Execution. A writ, execution or attachment or
similar process is issued or levied against all or a
substantial portion of the property of any of the Group
Entities in connection with any judgment against such Group
Entity in an amount in excess of U.S.$1,000,000 (or the
equivalent thereof in any other currency), unless being
actively and diligently contested by such Group Entity in good
faith and such Group Entity has provided such security to the
Lenders as the Lenders may reasonably require and such writ,
execution, attachment or similar process is released, bonded,
satisfied, discharged, vacated or stayed within 60 days after
its entry, commencement or levy;
(k) Action by Encumbrancer. An encumbrancer or lienor takes
possession of any substantial part of the properties or assets
of any Group Entity, unless such Group Entity disputes and
continues to dispute such possession in good faith and
provides to the Lenders such security for the payment of such
encumbrance or lien as the Lenders shall reasonably require;
(l) Expropriation. An order is made or legislation enacted by any
competent body having authority for the expropriation,
confiscation, forfeiture, escheating, other taking or
compulsory divestiture, whether or not with compensation, of
all or a significant portion of the consolidated assets of the
Group Entities and such order or legislation remains in effect
and has not been stayed by a court of competent jurisdiction
for a period of more than 30 days from the date of
pronouncement of the order or enactment of the legislation, as
the case may be;
(m) Unsatisfied Judgments or Tax Assessments. Judgment in excess
of U.S.$1,000,000 (or the equivalent thereof in any other
currency) is rendered against a Group Entity in respect of
which such Group Entity does not have insurance coverage or
any income tax reassessment in excess of U.S.$1,000,000 (or
the equivalent thereof in any other currency) is made against
a Group Entity, and any such judgment or tax reassessment
remains undischarged or unsatisfied after the time for appeal
has expired without such Group Entity having appealed the
judgment or reassessment and obtained a stay of execution of
the judgment, provided that such judgment or reassessment
shall not constitute an Event of Default if such Group Entity
provides or causes to be provided to the Lenders such security
as the Lenders shall require for the payment of such judgment
or reassessment;
(n) Unenforceable Obligation. Any material obligation or other
provision of any Group Entity in this Agreement or in any of
the other Credit Facility Documents terminates or ceases to be
or is declared by a court of competent jurisdiction not to be
a legally binding or enforceable obligation of such Group
Entity;
(o) Suspension of Business. Any voluntary or involuntary
suspension of the business of any Group Entity, or any
substantial part thereof, shall occur, other than temporary
weather-related suspensions;
(p) Repayment of Senior Subordinated Notes. SSWG repays all or
any portion of the Senior Subordinated Notes and such
repayment is not offset in its entirety by the issuance of
equity or other subordinated Debt by SSWG on terms and
conditions satisfactory to the Lenders, acting reasonably;
(q) Change having Material Adverse Effect. There shall occur, in
the determination of the Lenders, acting reasonably, a change
having a Material Adverse Effect, written notice of which has
been given by the Lenders or any of them to the Borrower; or
(r) Change of Control. There shall occur a Change of Control.
12.2 Cancellation and Acceleration. Upon the occurrence of an Event of
Default and for so long as such Event of Default shall continue, the
Lenders may, by notice to the Borrowers:
(a) cancel the Credit Facility and terminate the obligations of
the Lenders to make any further Accommodations;
(b) declare the principal amount of all outstanding Accommodations
made to the Borrowers and all interest and fees accrued
thereon and all other amounts payable under this Agreement and
the other Credit Facility Documents (including liabilities for
Bankers' Acceptances which have not yet matured) to be
forthwith due and payable, without presentment, demand,
protest or further notice of any kind, all of which are hereby
expressly waived by the Borrowers; and
(c) enforce all rights and remedies provided in the Security
Documents.
12.3 Remedies Cumulative. For greater certainty, it is expressly
understood and agreed that the respective rights and remedies of the
Lenders under this Agreement are cumulative and are in addition to and
not in substitution for any rights or remedies provided by law or by
equity; and any single or partial exercise by the Lenders of any right
or remedy for a default or breach of any term, covenant, condition or
agreement contained in this Agreement shall not be deemed to be a waiver
of or to alter, affect or prejudice any other right or remedy to which
the Lenders may be lawfully entitled for such default or breach.
12.4 Waivers. The Lenders may, by written instrument, at any time and
from time to time waive any breach by the Borrowers of any of the
covenants or Events of Default herein. No course of dealing between the
Borrowers and the Lenders nor any delay in exercising any rights under
this Agreement, the Security Documents or any of the other Credit
Facility Documents shall operate as a waiver of any rights of the
Lenders.
ARTICLE 13
MISCELLANEOUS
13.1 Records. The unpaid principal amount of the Accommodations, the
unpaid interest accrued thereon, the interest rate or rates applicable
to any unpaid principal amounts, the duration of such applicability, the
date of any Advance or repayment, the date of issue, Face Amount and
maturity of all Bankers' Acceptances and the Commitment shall at all
times be ascertained from the records of the Lenders, which shall be
prima facie evidence, absent demonstrable error, fraud, dishonesty or
improper conduct, and a certificate of any officer of any of the Lenders
as to such records shall be prima facie evidence of such records.
13.2 Amendments. Any amendment or waiver of any provision of this
Agreement or of any of the other Credit Facility Documents, any consent
to any departure by the Borrowers therefrom, and any consent or approval
contemplated to be given by the Lenders under this Agreement, shall be
effective and binding on the Lenders only if in writing and signed by
the Lenders.
13.3 Notices. All notices and other communications provided for
hereunder or under any Credit Facility Document shall, except as
otherwise permitted hereunder, be in writing personally delivered:
(a) if to the Borrowers:
(i) if to SSWG or SSW at the following address:
Sparkling Spring Water Group Limited
Sparkling Spring Water Limited
19 Fielding Avenue
Dartmouth, Nova Scotia
B3B 1C9
Fax no.: (902) 468-2751
Attention: President
(ii) if to SSUK at the following address:
Sparkling Spring Water UK Limited
Unit 5, Alexandra Way
Ashchurch Business Centre
Tewkesbury, Gloucestershire
UK GL20 8NB
Fax no.: 011-44-1684-290378
Attention: Vice-Chairman
(iii) if to SWUS at the following address:
Spring Water, Inc.
c/o Mountain Fresh Bottled Water
9065 South East Jansen
P.O. Box 2590
Clackamas, Oregon
U.S.A. 97015
Fax no.: (503) 657-0527
Attention: President
with a copy to:
CF Capital Corporation
One Landmark Square, 11th Floor
Stamford, Connecticut
U.S.A. 06901
Fax no.: (203) 325-1057
Attention: Managing Director
and with an additional copy to:
Stewart McKelvey Stirling Scales
Purdy's Wharf Tower One
1959 Upper Water Street, P.O. Box 997
Halifax, Nova Scotia
B3J 2X2
Fax no.: (902) 420-1417
Attention: L.J. Stordy
(b) if to the Lenders:
(i) if to TD Bank at the following address:
The Toronto-Dominion Bank
Toronto Dominion Tower Branch
700 West Georgia Street, Pacific Centre
P.O. Box 10001
Vancouver, British Columbia
V7Y 1A2
Fax no.: (604) 654-3489
Attention: Vice President
(ii) if to TDUS at the following address:
Toronto Dominion (Texas), Inc.
Suite 1700, 909 Fannin Street
Houston, Texas
U.S.A. 77010
Fax no.: (713) 951-9921
Attention: Jimmy Simien
(iii) if to TDUK at the following address:
The Toronto-Dominion Bank, London Branch
Triton Court, 14/18 Finsbury Square
London, England
EC2A 1DB
Fax no.: 011-44-171-638-0006
Attention: Denise Payne
or sent by facsimile transmission or similar means of recorded
communication to the applicable address or to such other address as a
party hereto may from time to time designate to the other parties hereto
in such manner. All such notices and communications shall, when
required or permitted to be delivered or confirmed hereunder by
facsimile transmission, be effective when so delivered or confirmed.
13.4 No Waiver; Remedies. No failure on the part of the Lenders or the
Borrowers to exercise, and no delay in exercising, any right under any
of the Credit Facility Documents shall operate as a waiver thereof; nor
shall any single or partial exercise of any right under any of the
Credit Facility Documents preclude any other or further exercise thereof
or the exercise of any other right. The remedies herein provided are
cumulative and not exclusive of any remedies provided by Law.
13.5 Expenses. The Borrowers shall promptly pay all costs and expenses
of the Lenders, including, without limitation, all reasonable out-
of-pocket expenses, disbursements and the fees and expenses of counsel
for the Lenders, incurred in connection with:
(a) the preparation, negotiation, execution, registration and
administration of this Agreement, the Security Documents, the
other Credit Facility Documents or any agreement or instrument
contemplated hereby or thereby;
(b) the enforcement or preservation of rights under this
Agreement, the Security Documents, the other Credit Facility
Documents or any agreement or instrument contemplated hereby
or thereby;
(c) any requested amendments, waivers or consents or matters
initiated by the Borrowers pursuant to or in respect of the
provisions hereof; and
(d) the collection of Advances or Bankers' Acceptances or any
litigation, proceeding or dispute in any way relating to the
Advances or Bankers' Acceptances.
The Borrowers shall pay interest on any amount due under this Section
13.05 that remains unpaid more than two Business Days after the Lenders
or any of them notify the Borrowers of such amount, at the U.S. Prime
Rate plus 2.25% per annum until such amount is paid.
13.6 Maintenance of Accounts. The Borrowers will maintain all of their
operating accounts with branches of the Lenders, and the Lenders shall
have the right to provide all of the ancillary non-credit banking
services, such as cash management and payroll services, to the extent
the Borrowers require such services from a third party, provided the
fees payable for, and the quality and scope of, such services are
competitive.
13.7 Taxes. Any and all payments by the Borrowers under this Agreement
and the other Credit Facility Documents shall be made free and clear of
and without deduction or withholding for Taxes unless such Taxes are
required by Law to be deducted or withheld. If the Borrowers are
required by Law to deduct or withhold any Taxes from or in respect of
any sum payable under this Agreement or the other Credit Facility
Documents:
(a) the sum payable shall be increased as may be necessary so that
after making all required deductions or withholdings
(including deductions or withholdings applicable to additional
amounts paid under this Section) the Lenders receive an amount
equal to the sum they would have received if no deduction or
withholding had been made;
(b) the Borrowers shall make such deductions or withholdings; and
(c) the Borrowers shall pay the full amount deducted or withheld
to the relevant taxation or other authority in accordance with
applicable Law.
The Borrowers shall indemnify and save harmless the Lenders for the full
amount of Taxes levied by any jurisdiction in Canada, the United States
of America or the United Kingdom on, or in relation to, any sum received
or receivable hereunder by the Lenders (other than taxes imposed on the
income or capital of the Lenders). Payment under this indemnification
shall be made within 30 days from the date the Lenders or any of them
make written demand therefor. A certificate as to the amount of such
Taxes submitted to the Borrowers by the Lenders or any of them shall be
prima facie evidence, absent demonstrable error, of the amount due from
the Borrowers to the Lenders. Any such certificate shall refer to the
provision of Law under which such Taxes are levied and shall contain an
explanation relating to and a calculation of the amount due from the
Borrowers. The Lenders shall provide to the Borrowers the benefit of
any tax credit received by the Lenders as a result of the Borrowers
indemnifying the Lenders for Taxes levied on or in relation to any
amount received or receivable by the Lenders hereunder, or as a result
of the Borrowers withholding any amount for Taxes in accordance with
applicable law and increasing the amount payable to the Lenders in
accordance with paragraph (a) above, provided that the amount of such
credit is reasonably possible to calculate and that a certificate of the
Lenders or any of them as to the amount of any such credit shall be
prima facie evidence of such amount.
Notwithstanding the foregoing, no Borrower shall be required to pay any
Taxes or indemnify the Lenders in respect of Taxes payable to any
Governmental Body in Canada which are levied, withheld, deducted or paid
on payments to the Lenders by reason of the fact that any Lender is a
Non-Resident of Canada.
The obligations of the Borrowers under this Section 13.07 shall survive
the payment in full of the Outstandings and interest thereon.
13.8 Increased Costs. If the introduction of or any change in any Law,
regulation, treaty, official directive or regulatory requirement now or
hereafter in effect (whether or not having the force of law) on in the
interpretation or application thereof by any court or by any judicial,
governmental or administrative authority charged with the interpretation
or administration thereof, or if compliance by the Lenders with any
request from the Bank of Canada or any other central bank or fiscal,
monetary or other authority (whether or not having the force of law):
(a) subjects any of the Lenders to any tax, or causes the
withdrawal or termination of a previously granted exemption
with respect to any tax, or changes the basis of taxation of
payments due to any of the Lenders, or increases any existing
tax on payments of principal, interest or other amounts
payable by the Borrowers to any of the Lenders under this
Agreement (other than taxes of application to the general
income of the Lenders and taxes on capital);
(b) imposes, modifies or deems applicable any reserve, special
deposit, regulatory or similar requirement against assets held
by, or deposits in or for the account of, or loans by, or any
other acquisition of funds for loans made by any of the
Lenders or Bankers' Acceptances created by the Lenders;
(c) imposes on any of the Lenders or expects there to be
maintained by any of the Lenders any capital adequacy or
additional capital requirement (including, without limiting
the generality of the foregoing, a requirement which affects
any of the Lenders' allocation of capital resources to its
obligations) in respect of the obligations of any of the
Lenders hereunder or, without limiting the generality of the
foregoing, imposes any other condition or requirement with
respect to this Agreement or to the maintenance by any of the
Lenders of a contingent liability with respect to Bankers'
Acceptances created by the Lenders pursuant to this Agreement.
and the result of such occurrence is, in the sole determination of any
Lender, acting reasonably, to increase the cost to such Lender or to
reduce the income received by such Lender in respect of any portion of
the Advances or Bankers' Acceptances, the Borrowers shall pay to such
Lender that amount which such Lender, acting reasonably, estimates will
compensate it for such additional cost or reduction in income (the
"Compensation"). Upon such Lender having determined that it is entitled
to Compensation, and provided that such Lender has made or proposes to
make similar requests of other borrowers in the same situation, such
Lender shall promptly notify the Borrowers and shall provide the
Borrowers with a certificate of such Lender setting forth the amount of
the Compensation and the basis for it. In preparing such certificate
the Lender shall not be required to "match" or isolate particular
transactions or credit facilities and shall be entitled to use estimates
and averages. Absent demonstrable error such certificate shall be prima
facie evidence of the amount of the Compensation and shall be binding on
the Borrowers, and if the amount of Compensation set forth therein shall
not be paid by the Borrowers to such Lender within seven Business Days
after notice thereof, such amount shall be deemed to be a U.S. Prime
Rate Advance and shall bear interest calculated and payable as provided
in this Agreement. If, as a result of events (other than the receipt of
Compensation) occurring subsequent to the receipt by such Lender of any
Compensation, the additional cost or the reduction in income was not
suffered by such Lender, such Lender will forthwith refund to the
Borrowers the Compensation and any interest paid thereon.
13.9 Environmental Indemnity. The Borrowers will protect, indemnify and
hold the Lenders and all directors, officers, employees and agents of
each of the Lenders harmless from and against any and all actual or
potential claims, liabilities, damages (including consequential
damages), losses, fines, penalties, sanctions, judgments, awards, costs
and expenses whatsoever (including, without limitation, costs and
expenses of investigating, denying or defending any of the foregoing and
costs and expenses for preparing any necessary environmental assessment
report or other such reports) which arise out of or relate in any way
to:
(a) the presence, use, handling, production, transportation,
storage, release, deposit, discharge or disposal of any
Hazardous Materials, contaminants, wastes or other substances
in, on or about any properties or assets owned, operated or
occupied by SSWG and its Subsidiaries, whether by SSWG, its
Subsidiaries or any other person;
(b) any remedial action taken by the Lenders in connection with
any matter referred to in paragraph (a), including without
limitation any repair, clean-up, remediation or detoxification
of any of such properties or assets and the preparation of any
closure or other required plans; and
(c) any breach by SSWG or any of its Subsidiaries under any
Environmental Law.
If any Hazardous Materials are caused to be removed by SSWG or any of
its Subsidiaries, the Lenders or any other indemnified party, then such
Hazardous Materials will be and remain the property of SSWG or such
Subsidiary, as the case may be, and the Borrowers will assume any and
all liability for such removed Hazardous Materials. The Borrowers
understand that their liability to the indemnified parties under this
Section will survive the full payment and satisfaction of all amounts
owing under this Agreement as if this indemnity were separate and
distinct from this Agreement.
13.10 Judgment Currency. If, for the purposes of obtaining judgment
in any court, it is necessary to convert a sum due hereunder to any
Lender from the Original Currency into the Judgment Currency, the
parties hereto agree, to the fullest extent that they may effectively do
so, that the rate of exchange used shall be that at which in accordance
with normal banking procedures such Lender could purchase the Original
Currency with the Judgment Currency on the Business Day preceding that
on which final judgment is paid or satisfied. The obligations of the
Borrowers in respect of any sum due in the Original Currency to a Lender
under any of the Credit Facility Documents shall, notwithstanding any
judgment in any Judgment Currency, be discharged only to the extent that
on the Business Day following receipt by such Lender of any sum adjudged
to be so due in such Judgment Currency, such Lender may in accordance
with normal banking procedures purchase the Original Currency with such
Judgment Currency. If the amount of the Original Currency so purchased
is less than the sum originally due to such Lender in the Original
Currency, the Borrowers agree, as a separate obligation and
notwithstanding any such judgment, to indemnify such Lender against such
loss, and if the amount of the Original Currency so purchased exceeds
the sum originally due to such Lender in the Original Currency such
Lender agrees to remit such excess to the Borrowers.
If any Group Entity that is resident in the United States is
required to pay an amount to any Lender that is not resident in the
United States (whether pursuant to this Agreement or any guarantee
executed by such Group Entity), the Lender shall provide the Group
Entity with such forms or other documents as the Group Entity may
reasonably request to reduce or eliminate withholding tax in the United
States otherwise applicable to such payment.
13.11 Governing Law. This Agreement and the Credit Facility
Documents shall be governed by, and construed in accordance with, the
laws of the Province of British Columbia and of Canada applicable
therein and shall be treated in all respects as British Columbia
contracts.
13.12 Consent to Jurisdiction. The Borrowers and the Lenders hereby
irrevocably submit to the jurisdiction of any British Columbia court
sitting in Vancouver, British Columbia, in any action or proceeding
arising out of or relating to this Agreement or any other Credit
Facility Document, and each of them hereby irrevocably agrees that all
claims in respect of any such action or proceeding may be heard and
determined in such British Columbia court. Each of them hereby
irrevocably waives, to the fullest extent each may effectively do so,
the defence of an inconvenient forum to the maintenance of such action
or proceeding. Nothing in this Section shall affect the right of the
Lenders to serve legal process in any other manner permitted by Law or
affect the right of the Lenders to bring any action or proceeding
against the Borrowers or their property in the courts of other
jurisdictions.
13.13 Successors and Assigns. This Agreement shall become effective
when it has been executed by the Borrowers and the Lenders and
thereafter shall be binding upon and enure to the benefit of the
Borrowers, the Lenders and their respective successors and permitted
assigns. The Borrowers shall not have the right to assign their rights
or obligations hereunder or any interest herein without the prior
consent of the Lenders. The Lenders may assign all or any part of the
Commitment and the Outstandings under this Agreement upon notice to the
Borrowers, provided that:
(a) TD Bank shall not assign its interest in this Agreement to any
person that is a Non-Resident of Canada;
(b) TDUS shall not assign its interest in this Agreement to any
person that is not a resident of the United States; and
(c) TDUK shall not assign its interest in this Agreement to any
person that is not:
(i) a "bank" within the meaning of section 840(a) Income
and Corporations Taxes Act 1998; and
(ii) within the charge to United Kingdom corporation tax;
and the Borrowers shall not be responsible for any stamp duty
payable on an assignment by TDUK.
13.14 Conflict. In the event of a conflict between the provisions of
this Agreement and the provisions of any other Credit Facility Document,
the provisions of this Agreement shall prevail.
13.15 Severability. The provisions of this Agreement are intended to
be severable. If any provision of this Agreement shall be held invalid
or unenforceable in whole or in part in any jurisdiction, such provision
shall, as to such jurisdiction, be ineffective to the extent of such
invalidity or unenforceability without in any manner affecting the
validity or enforceability thereof in any other jurisdiction or the
remaining provisions hereof in any jurisdiction.
13.16 Prior Understandings. This Agreement supersedes all prior
understandings and agreements, whether written or oral, among the
parties hereto relating to the transactions provided for herein.
13.17 Time of Essence. Time shall be of the essence hereof.
13.18 Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original and which, taken together,
shall constitute one and the same instrument, and any executed
counterpart may be delivered by facsimile.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed by their respective authorized officers, as of the date
first above written.
SPARKLING SPRING WATER GROUP LIMITED
Per: ______________________________
Authorized Signatory
SPARKLING SPRING WATER LIMITED
Per: ______________________________
Authorized Signatory
SPARKLING SPRING WATER UK LIMITED
Per: ______________________________
Authorized Signatory
SPRING WATER, INC.
Per: ______________________________
Authorized Signatory
THE TORONTO-DOMINION BANK
Per: ______________________________
Authorized Signatory
TORONTO DOMINION (TEXAS), INC.
Per: ______________________________
Authorized Signatory
THE TORONTO-DOMINION BANK, LONDON BRANCH
Per: ______________________________
Authorized Signatory
<PAGE>
APPENDIX 1
MANDATORY LIQUID ASSET COST
1. The Mandatory Liquid Asset Cost to be included in Sterling Libor
with respect to a Sterling Libor Advance shall, subject to the
following, be the percentage per annum calculated in accordance with the
following formula:
BY + L(Y-X) + S(Y-Z)
100 - (B + S)
where, as of the day of the calculation:
B = The percentage of TDUK's eligible liabilities which the
Bank of England then requires TDUK to hold on a non-interest
bearing deposit account in accordance with its cash ratio
requirements.
Y = The rate at which Sterling deposits in an amount
comparable with such Sterling Libor Advance are offered by
TDUK to leading banks in the London interbank market at or
about 11:00 a.m. (London time) on such day for the relevant
period.
L = The percentage of eligible liabilities which (as a result
of the requirements of the Bank of England) TDUK maintains as
secured money with members of the London Discount Market
Association or in certain marketable or callable securities
approved by the Bank of England, which percentage shall (in
the absence of evidence that any other figure is appropriate)
be conclusively presumed to be 5%.
X = The rate at which secured Sterling deposits in an amount
comparable to such Sterling Libor Advance may be placed by
TDUK with members of the London Discount Market Association at
or about 11:00 a.m. (London time) on such date for the
relevant period or, if greater, the rate at which Sterling
bills of exchange (of an amount comparable to such Sterling
Libor Advance and of a tenor equal to the relevant period)
eligible for rediscounting at the Bank of England can be
discounted in the London Discount Market at or about 11:00
a.m. (London time) on that date.
S = The percentage of TDUK's eligible liabilities which the
Bank of England required TDUK to place as a special deposit.
Z = The percentage interest rate per annum allowed by the Bank
of England on special deposits.
2. For the purposes of this Appendix 1:
(a) "eligible liabilities" and "special deposits" shall bear the
meanings ascribed to such terms from time to time by the Bank
of England;
(b) "relevant period" in relation to each Interest Period means:
(i) if it is three months or less, that Interest Period; or
(ii) if it is more than three months, three months;
3. In the application of the above formula, B, Y, L, X, S and Z will
be included in this formula as figures and not as percentages, e.g. if B
= 0.5% and Y = 15%, BY will be calculated as 0.5 x 15 and not as 0.5% x
15%.
4. The additional rate computed by TDUK in accordance with this
Appendix 1 shall, if not so already, be rounded upward to four decimal
places.
5. In the event of a change in circumstances (including the imposition
of alternative or additional official requirements) which renders the
above formula inapplicable, TDUK shall notify the Borrowers of the
manner in which the additional rate shall thereafter be determined,
which shall reflect the additional costs following such change incurred
by TDUK at such time and from time to time.
<PAGE>
APPENDIX 2
INTEREST RATES AND FEES
The Margin applicable to Canadian Prime Rate Advances, U.S. Prime
Rate Advances, U.S. Libor Advances, Sterling Libor Advances, Alternate
Sterling Rate Advances, the Stamping Fees applicable to Bankers'
Acceptances and the fees payable on Letters of Credit and Guarantee
Letters shall be determined based on the Senior Debt to Adjusted
Consolidated EBITDA Ratio as at each fiscal quarter end of the Borrower
as follows:
1. If the Senior Debt to Adjusted Consolidated EBITDA Ratio is greater
than or equal to 2.0 to 1:
Margin for Canadian Prime Rate 1.25% per annum
Advances
Margin for U.S. Prime Rate 1.25% per annum
Advances
Margin for U.S. Libor Advances 2.25% per annum
Margin for Sterling Libor Advances 2.25% per annum
Margin for Alternate Sterling Rate 2.25% per annum
Advances
Stamping Fee 2.25% per annum
Letter of Credit/Guarantee Letter 1.25% per annum
Fee
2. If the Senior Debt to Adjusted Consolidated EBITDA Ratio is less
than 2.0 to 1:
Margin for Canadian Prime Rate 1.00% per annum
Advances
Margin for U.S. Prime Rate 1.00% per annum
Advances
Margin for U.S. Libor Advances 2.00% per annum
Margin for Sterling Libor Advances 2.00% per annum
Margin for Alternate Sterling Rate 2.00% per annum
Advances
Stamping Fee 2.00% per annum
Letter of Credit/Guarantee Letter 1.00% per annum
Fee
