<PAGE> 1
REGISTRATION NO. 333-43061
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2 TO
FORM F-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SPARKLING SPRING WATER GROUP LIMITED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
NOVA SCOTIA, CANADA 5149
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
------------------------
FOR INFORMATION REGARDING ADDITIONAL REGISTRANTS, SEE "TABLE OF ADDITIONAL
REGISTRANTS."
------------------------
<TABLE>
<S> <C>
ONE LANDMARK SQUARE STEPHEN L. LARSON
STAMFORD, CT 06901 VICE CHAIRMAN AND CHIEF FINANCIAL OFFICER
(203) 325-0077 SPARKLING SPRING WATER GROUP LIMITED
(ADDRESS, INCLUDING ZIP CODE, TELEPHONE ONE LANDMARK SQUARE
NUMBER, INCLUDING AREA CODE, OR REGISTRANT'S STAMFORD, CT 06901
PRINCIPAL EXECUTIVE OFFICES) (203) 325-0077
(NAME, ADDRESS, INCLUDING ZIP CODE, AND
TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
</TABLE>
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COPIES OF COMMUNICATIONS TO:
RICHARD A. KRANTZ, ESQ.
ROBINSON & COLE LLP
FINANCIAL CENTRE
P.O. BOX 10305
STAMFORD, CT 06904-2305
(203) 462-7500
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
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<CAPTION>
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PROPOSED PROPOSED
TITLE OF EACH CLASS OF SECURITIES TO BE AMOUNT TO BE MAXIMUM OFFERING MAXIMUM AGGREGATE AMOUNT OF
REGISTERED REGISTERED PRICE PER SECURITY OFFERING PRICE(1) REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
11 1/2% Senior Subordinated Notes due
2007.............................. $100,000,000 100% $100,000,000 $29,500
- -----------------------------------------------------------------------------------------------------------------------------------
Guarantees of 11 1/2% Senior
Subordinated Notes due 2007....... -- -- -- (2)
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</TABLE>
(1) Estimated pursuant to Rule 457(f) solely for the purpose of calculating the
registration fee.
(2) Pursuant to Rule 457(n), no additional registration fee is payable with
respect to the Guarantees of the Additional Registrants.
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
TABLE OF ADDITIONAL REGISTRANTS
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<TABLE>
<S> <C> <C>
STATE OR OTHER PRIMARY STANDARD
JURISDICTION OF INDUSTRIAL
EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS INCORPORATION OF CLASSIFICATION
CHARTER ORGANIZATION CODE NUMBER
- ------------------------------------------------------------------------------------------------------
Sparkling Spring Water Limited.................... Nova Scotia 5149
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Spring Water, Inc................................. Delaware 5149
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Cullyspring Water Co., Inc. ...................... Washington 5149
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Crystal Springs of Seattle, Inc. ................. Delaware 5149
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Crystal Springs Drinking Water, Inc. ............. Washington 5149
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Crystal Spring Acquisition, Inc. ................. Delaware 5149
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Mountain Fresh Acquisition Corp. ................. Delaware 5149
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Water Jug Enterprises Limited..................... Nova Scotia 5149
- ------------------------------------------------------------------------------------------------------
Withey's Water Softening & Purification Ltd. ..... Nova Scotia 5149
- ------------------------------------------------------------------------------------------------------
Aqua Care Water Softening & Purification Inc. .... Nova Scotia 5149
- ------------------------------------------------------------------------------------------------------
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
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Marlborough Employment Limited.................... Scotland 5149
- ------------------------------------------------------------------------------------------------------
Water at Work Limited............................. Scotland 5149
- ------------------------------------------------------------------------------------------------------
Natural Water Limited............................. Scotland 5149
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</TABLE>
The address, including zip code, and telephone number, including area code,
of the principal executive offices of, the name, address, including zip code,
and telephone number, including area code, of agent for service for, each of
Additional Registrants is the same as for Sparkling Spring Water Group Limited,
as set forth on the facing page of Registration Statement. Copies of
communications to any Additional Registrant should be sent to Richard A. Krantz,
Esq., Robinson & Cole LLP, Financial Center, P.O. Box 10305, 695 East Main
Street, Stamford, CT 06904-2305 (telephone number (203)462-7505).
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MARCH 18, 1998
PRELIMINARY PROSPECTUS
[SPARKLING SPRINGS LOGO]
SPARKLING SPRING WATER GROUP LIMITED
OFFER TO EXCHANGE $1,000 IN PRINCIPAL AMOUNT OF ITS
11 1/2% SENIOR SUBORDINATED NOTES DUE 2007
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES
ACT FOR EACH $1,000 IN PRINCIPAL AMOUNT OF ITS
OUTSTANDING 11 1/2% SENIOR SUBORDINATED NOTES
DUE 2007, OF WHICH $100,000,000 PRINCIPAL
AMOUNT IS OUTSTANDING
------------------------
THE NOTES OFFERED HEREBY ARE FULLY AND UNCONDITIONALLY GUARANTEED ON A
SENIOR SUBORDINATED BASIS BY THE SUBSIDIARY GUARANTORS NAMED HEREIN. 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
OFFERED HEREBY 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.
------------------------
Sparkling Spring Water Group Limited, a corporation organized under the laws
of the Province of Nova Scotia, Canada ("Sparkling Spring" and, together with
its subsidiaries, the "Company") is hereby offering (the "Exchange Offer"), upon
the terms and subject to the conditions set forth in this Prospectus and the
accompanying Letter of Transmittal (the "Letter of Transmittal"), to exchange
$1,000 principal amount of its registered 11 1/2% Senior Subordinated Notes due
2007 (the "Exchange Notes"), for each $1,000 principal amount of its outstanding
unregistered 11 1/2% Senior Subordinated Notes due 2007 (the "Private Notes"),
of which $100,000,000 in aggregate principal amount was issued on November 19,
1997 and is outstanding as of the date hereof. The form and the 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 will evidence the same indebtedness as the
Private Notes (which they replace) 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 Private Notes and
the Exchange Notes are sometimes referred to herein, collectively, as the
"Notes". See "The Exchange Offer" and "Description of Notes".
Interest on the Notes will be payable semi-annually on May 15 and November
15 of each year, commencing May 15, 1998, at the rate of 11 1/2% per annum. The
Notes will be redeemable, in whole or in part, at the option of Sparkling Spring
on or after November 15, 2002 at the redemption prices set forth herein plus
accrued and unpaid interest, if any, 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 aggregate principal amount of the Notes originally
issued with the net cash proceeds of one or more Public Equity Offerings (as
defined) at a redemption price equal to 111.50% of the principal amount thereof,
plus accrued and unpaid interest, if any, to the date of redemption, provided
that at least $70.0 million in aggregate principal amount of the Notes
originally issued remains outstanding immediately following such redemption.
Upon a Change of Control (as defined), 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. In addition, Sparkling Spring will be obligated to
offer to repurchase Notes at 100% of the principal amount thereof plus accrued
and unpaid interest to the date of repurchase in the event of certain Asset
Sales (as defined). See "Description of the Notes." No assurance can be given
that, in the event of a Change of Control or certain Asset Sales, Sparkling
Spring will have, or will have access to, sufficient funds to repurchase Notes.
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). The Notes will 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. As
of December 31, 1997, Sparkling Spring had no Senior Indebtedness outstanding
and had no indebtedness outstanding that ranks pari passu with the Exchange
Notes. The Exchange Notes will rank senior in right of payment to all other
subordinated obligations of Sparkling Spring. As of December 31, 1997, Sparkling
Spring had no outstanding indebtedness that is subordinated in right of payment
to the Exchange Notes. Sparkling Spring has no present intention of incurring in
the immediate future any indebtedness to which the Exchange Notes will rank
senior. The Notes are fully and unconditionally guaranteed (the "Guarantees") on
a senior subordinated basis by Sparkling Spring's existing subsidiaries and will
be so guaranteed by those formed or acquired in the future (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) on the same basis as the Exchange
Notes are subordinated to Senior Indebtedness (as defined). The Guarantees will
rank pari passu with any future senior subordinated indebtedness of the
Subsidiary Guarantors and will rank senior in right of payment to all other
subordinated obligations of the Subsidiary Guarantors. As of September 30, 1997,
on a pro forma basis after giving effect to the Offering and the application of
the net proceeds therefrom as described herein, Sparkling Spring would have had
no Senior Indebtedness outstanding and the Subsidiary Guarantors would have had
approximately $1.5 million of Guarantor Senior Indebtedness outstanding. See
"Use of Proceeds," "Unaudited Pro Forma Consolidated Financial Data" and
"Description of the Credit Agreement."
The Notes are eligible for trading in the Private Offering, Resales and
Trading through Automated Linkages ("PORTAL") Market of the National Association
of Securities Dealers, Inc.
SEE "RISK FACTORS" BEGINNING ON PAGE 13 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN EVALUATING AN INVESTMENT IN THE NOTES.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
The date of this Prospectus is , 1998.
<PAGE> 4
The Private Notes were sold in an aggregate principal amount of $100.0
million by Sparking Spring on November 19, 1997 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
("QIBS") 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). Accordingly, the Private Notes may not be reoffered,
resold or otherwise transferred in the United States unless registered under the
Securities Act or unless an applicable exemption from the registration
requirements of the Securities Act is available.
The Exchange Notes are being offered hereunder in order to satisfy certain
obligations of Sparkling Spring and the Subsidiary Guarantors contained in the
Registration Rights Agreement, dated as of November 19, 1997 (the "Registration
Rights Agreement"), among Sparkling Spring, the Subsidiary Guarantors, and the
Initial Purchasers.
Based upon interpretations by the staff of the Securities and Exchange
Commission (the "Commission") set forth in no-action letters issued to third
parties unrelated to Sparkling Spring, Sparkling Spring believes that the
Exchange Notes issued pursuant to the Exchange Offer in exchange for Private
Notes may be offered for sale, sold and otherwise transferred by a holder
thereof (other than (i) any person who is an "affiliate" of Sparkling Spring
within the meaning of Rule 405 under the Securities Act of 1933, as amended (the
"Securities Act"), or (ii) a broker-dealer who purchases Notes from Sparkling
Spring to resell pursuant to Rule 144A under the Securities Act or any other
available exemption under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act; provided
that such holder is acquiring the Exchange Notes in the ordinary course of its
business and such holder is not engaging, and has no intention to engage, and
has no arrangement or understanding with any person to participate, in the
distribution of the Exchange Notes. Holders of Private Notes wishing to accept
the Exchange Offer must represent to Sparkling Spring that such conditions have
been met. Each broker-dealer that will receive Exchange Notes for its own
account in exchange for Private Notes must acknowledge that it will deliver a
Prospectus in connection with any resale of such Exchange Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by such a broker-dealer in
connection with resales of Exchange Notes received in exchange for Private
Notes, where such Private Notes were acquired by such broker-dealer as a result
of market-making or other trading activities. Sparkling Spring has agreed to
make this Prospectus, as it may be amended or supplemented from time to time,
available to any such broker-dealer that requests copies of such Prospectus in
the Letter of Transmittal for use in connection with any such resale for a
period of up to 90 days after the Expiration Date (as defined herein). See "The
Exchange Offer" and "Plan of Distribution."
Sparkling Spring will not receive any proceeds from, and has agreed to bear
the expenses of, the Exchange Offer. No underwriter is being used in connection
with the Exchange Offer.
The Exchange Offer will expire at 5:00 p.m. New York City time, on
, 1998 unless the Exchange Offer is extended by Sparkling Spring
in its sole discretion. The Exchange Offer is not conditioned upon any minimum
aggregate principal amount of Private Notes being tendered for exchange.
The National Association of Securities Dealers, Inc. ("NASD") has
designated the Private Notes as securities eligible for trading in the Private
Offerings, Resales and Trading through Automated Linkages ("PORTAL") market of
the NASD, and Sparkling Spring has been advised that the Initial Purchasers or
their affiliates have heretofore acted as market makers for the Private Notes.
Holders of the Private Notes whose Private Notes were not tendered and accepted
in the Exchange Offer will continue to hold such Private Notes and will be
entitled to all the rights and preferences and will be
i
<PAGE> 5
subject to the limitations applicable thereto under the Indenture. Following
consummation of the Exchange Offer, the holders of Private Notes will continue
to be subject to the existing restrictions upon transfer thereof and Sparkling
Spring, subject to limited exceptions, will have no further obligation to such
holders to provide for the registration under the Securities Act of the Private
Notes held by them. To the extent that any Private Notes are tendered and
accepted in the Exchange Offer, a holder's ability to sell untendered Private
Notes could be adversely affected. No assurances can be given as to the
liquidity of the trading market for the Private Notes. See "Risk Factors --
Consequences of Failure to Exchange Private Notes."
Prior to the Exchange Offer, there has been no public market for the
Exchange Notes. There can be no assurance as to the liquidity of any market that
may develop for the Exchange Notes, the ability of holders to sell the Exchange
Notes, or the price at which holders would be able to sell the Exchange Notes.
The Initial Purchasers have advised Sparkling Spring that they or their
affiliates currently intend to make a market in the Exchange Notes. The Initial
Purchasers are not obligated to do so, however, and any market-making activities
with respect to the Exchange Notes may be discontinued at any time without
notice. Future trading prices of the Exchange Notes will depend upon many
factors, including among other things, prevailing interest rates, Sparkling
Spring's and the Subsidiary Guarantors' operating results and the market for
similar securities. Historically, the market for securities similar to the
Exchange Notes, including non-investment grade debt, has been subject to
disruptions that have caused substantial volatility in the prices of such
securities. There can be no assurance that any market for the Exchange Notes, if
such a market develops, will not be subject to similar disruptions. See "Risk
Factors -- Lack of Public Market for the Notes."
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL SPARKLING SPRING ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF PRIVATE NOTES IN ANY JURISDICTION IN
WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE
WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND THE LETTER OF
TRANSMITTAL IN CONNECTION WITH THE EXCHANGE OFFER, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY SPARKLING SPRING OR ANY OF THE SUBSIDIARY GUARANTORS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY
SECURITY OTHER THAN THOSE TO WHICH IT RELATES, NOR DOES IT CONSTITUTE AN OFFER
TO SELL, OR THE SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO
ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR THE EXCHANGE PROPOSED TO BE MADE HEREUNDER
SHALL UNDER ANY CIRCUMSTANCE CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF SPARKLING SPRING OR ANY OF THE SUBSIDIARY GUARANTORS
SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF.
ENFORCEABILITY OF CERTAIN CIVIL LIABILITIES
Sparkling Spring is incorporated under the laws of the Province of Nova
Scotia, Canada. The majority of its directors and officers, and certain experts
named herein, are residents of Canada, and all or a portion of the assets of
such persons and of the Company are located outside of the United States. In
addition, certain of the Subsidiary Guarantors are incorporated in jurisdictions
outside the United States. Although each of Sparkling Spring and the Subsidiary
Guarantors has agreed, in accordance with the terms of the indenture pursuant to
which the Notes will be issued (the "Indenture"), to accept service in the
United States by its agent designated for such purpose, it may be difficult or
impossible for holders of the Notes to effect service upon certain of the
directors and officers of Sparkling Spring and the Subsidiary Guarantors and
certain experts named herein and to
ii
<PAGE> 6
realize in the United States upon judgments of courts of the United States
predicated upon the civil liability of such persons under the United States
federal securities laws. There is doubt as to the enforceability in Canada and
in other foreign jurisdictions against any of these persons, in original actions
or in actions for enforcement of judgments of United States courts, of
liabilities predicated solely on the United States federal securities laws.
------------------------
EXCHANGE RATE DATA
The Company publishes its consolidated financial statements in U.S.
dollars. All dollar amounts set forth in this Prospectus are expressed in U.S.
dollars unless otherwise specifically indicated. 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.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------ ----------------
1992 1993 1994 1995 1996 1996 1997
------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
CANADIAN DOLLAR
High for period.................... 0.877 0.807 0.764 0.753 0.753 0.740 0.748
Low for period..................... 0.773 0.742 0.710 0.710 0.721 0.721 0.715
End of period...................... 0.787 0.757 0.713 0.733 0.730 0.735 0.725
Average for period................. 0.828 0.775 0.732 0.728 0.733 0.735 0.726
BRITISH POUND STERLING
High for period.................... 2.004 1.593 1.643 1.641 1.711 1.567 1.711
Low for period..................... 1.502 1.418 1.460 1.527 1.497 1.407 1.578
End of period...................... 1.513 1.480 1.564 1.552 1.705 1.563 1.616
Average for period................. 1.755 1.501 1.531 1.578 1.560 1.537 1.650
</TABLE>
iii
<PAGE> 7
SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements (including the notes thereto)
appearing elsewhere in this Prospectus. Unless the context otherwise requires,
the information contained in this Prospectus gives effect to the Reorganization
(as defined) and all references to the Company refer collectively to Sparkling
Spring Water Group Limited and its direct and indirect subsidiaries. All
references in this Prospectus to "EBITDA" mean 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 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. All references in this Prospectus to "CAGR" mean compound annual
growth rate. Unless otherwise indicated, all statistical data and information
contained in this Prospectus is as of September 30, 1997. Pro forma information
contained in this Prospectus gives effect to the Pro Forma Transactions (as
defined).
THE COMPANY
The Company is one of the world's largest providers of bottled water
delivered directly to the residential and commercial markets. Presently, the
Company has the leading market share position in British Columbia and the
Maritime Provinces of Canada, England and Scotland in the United Kingdom, and
the State of Oregon in the United States. In addition, the Company has the
second largest market share in the State of Washington. The Company's strategy
has been to achieve strong market positions in a number of attractive markets
and thereby realize the operating leverage that can be obtained once a
distribution system is established. 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 has grown through both strong internal growth and the execution
of a proven acquisition strategy. The Company's revenue and EBITDA have
increased from $3.8 million and $0.5 million, respectively, in 1992, to $27.3
million and $6.9 million, respectively, in 1996, representing a CAGR of 63.6%
and 88.6%, respectively. On a pro forma basis, revenue and EBITDA for the nine
months ended September 30, 1997 of $38.6 million and $10.5 million,
respectively, increased by 9.4% and 32.6% compared to the prior year period,
reflecting the significant internal growth of the Company's operations.
The Company has been a leader in the consolidation of the highly fragmented
bottled water industry by executing a disciplined acquisition strategy. In
addition, the Company has significantly improved the operations and
profitability of each company it has acquired. For the 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 that it has realized similar improved performance in its other
acquisitions for which sufficient post-acquisition information is available.
Since January 1, 1997, the Company has completed nine acquisitions through which
it entered the attractive U.S. bottled water market and expanded its leadership
positions in Canada and the United Kingdom.
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
1
<PAGE> 8
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.
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 incremental cost and
inconvenience factors 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. 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 1992 to 25.2% in
1996 and 28.7% in the nine months ended September 30, 1997.
Pursue Strategic Acquisitions. The Company has successfully 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 successfully 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, the Company is able to reduce its average
acquisition multiple by opportunistically acquiring "spoke" distribution routes
at more attractive prices due to the limited strategic
2
<PAGE> 9
options available to these smaller operators. In addition to buying companies at
relatively low multiples of EBITDA, management has been able to create value by
improving the operations of acquired entities and by realizing operating
synergies. 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. Cullyspring is the second largest water
cooler provider in Washington, and management believes it has the opportunity to
enhance its market position through fill-in acquisitions. See "Recent
Developments."
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
churn rate was approximately 2.0% per month in 1996 and 1.6% per month for the
nine months ended September 30, 1997, which management believes is significantly
lower than the industry average churn rate.
INVESTMENT HIGHLIGHTS
Attractive Industry Fundamentals. The Company believes that the
"alternative to tap water" market represents an attractive industry opportunity
due to the strong growth in demand for bottled water in the Company's primary
markets and the ability to enhance profit margins as revenue grows. In the U.S.,
bottled water continues to be the fastest growing segment of the beverage
industry, according to a study prepared by Beverage Marketing Corporation. Total
bottled water consumption in the U.S. increased from 2.8 gallons per capita in
1980 to 11.7 gallons per capita in 1996. According to Zenith International Ltd.,
in the U. K., total bottled water consumption increased at a CAGR of 11.2% from
1990 to 1996, with annual consumption increasing from 1.9 gallons per capita in
1990 to 3.6 gallons per capita in 1996.
Management believes the strong industry growth will continue to be driven
by: (i) concerns related to the quality of tap water, (ii) trends in consumer
selection of healthy products, (iii) taste preferences over tap water and other
refreshment beverages and (iv) favorable demographics.
Leading Market Share. The Company holds leading market share positions in
the water cooler markets which it serves. Based upon its own internal estimates,
the Company believes it has approximately 45% market share in British Columbia,
70% in the Maritime Provinces, 22% in the United Kingdom, 40% 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, superior 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.
Significant Installed Cooler Base. The Company delivers bottled water to a
significant installed base of approximately 115,000 water coolers in its served
markets. Customers typically sign a one-year contract, providing the Company
with a dual stream of relatively stable and recurring revenue from both a
monthly cooler rental charge and the sale of bottled water. The Company believes
that direct delivery water cooler companies enjoy several advantages over
retailers of bottled water. Customers suffer both incremental cost and
inconvenience 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
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<PAGE> 10
and bottling facilities. Management believes the capital intensity of the water
cooler business provides a second significant barrier to entry.
Proven Beverage Industry Consolidation Track Record. The Company has a
successful record of completing and integrating acquisitions, having made 14
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 at
attractive purchase price multiples, management has dramatically improved the
operations and profitability of each acquired company. For the 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 a proven and well-capitalized industry consolidator
facilitates its access to additional acquisition candidates and generates
unsolicited offers from prospective sellers.
Experienced Management Team with Significant Equity Ownership. 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). Mr. Krediet successfully executed a consolidation of Canadian
Pepsi-Cola bottlers and, together with Stephen L. Larson, identified the bottled
water consolidation opportunity. Stephen L. Larson, Vice Chairman and chief
financial officer of Sparkling Spring, has led the Company's successful
acquisition strategy. In addition to identifying new acquisition targets, Mr.
Larson has been responsible for the negotiation, financing, consummation and
integration of each of the Company's acquisitions. Stewart E. Allen, President
of Sparkling Spring, has managed the operations of the business focusing on
profitably increasing the penetration levels in each of its markets. The senior
management team is strongly motivated through its equity ownership of 63.9% of
the Common Stock of Sparkling Spring (including shares beneficially owned by a
trust for the benefit of the family of one senior manager), after giving effect
to the Reorganization. Management has successfully consolidated both water
cooler companies and Pepsi-Cola bottlers, and has consistently demonstrated an
ability to achieve strong internal growth and to identify, acquire, integrate
and improve the performance of acquired companies. Effective April 3, 1998,
Stephen L. Larson, will resign from his positions as an 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 will replace Mr. Larson as chief
financial officer of Sparkling Spring effective April 3, 1998. See "Management."
Strong Financial Performance. The success of the Company's operating
strategy is evidenced by its growth in revenue and EBITDA over the past five
years. Revenue increased at a CAGR of 63.6% from $3.8 million in 1992 to $27.3
million in 1996. Over the same period, EBITDA increased at a CAGR of 88.6% from
$0.5 million to $6.9 million, with EBITDA margins increasing from 14.3% to
25.2%. In addition to expansion through acquisitions, the Company's operations
exhibit significant internal growth. On a pro forma basis, revenue and EBITDA of
$38.6 million and $10.5 million, respectively, increased 9.4% and 32.6%,
respectively, in the nine months ended September 30, 1997 over the comparable
period in the prior year. See "Unaudited Pro Forma Consolidated Financial Data"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The principal executive offices of Sparkling Spring are located at 19
Fielding Avenue, Dartmouth, Nova Scotia, Canada B3B-1C9, and its telephone
number at that address is (902) 468-8430. The Company also maintains executive
offices in the U.S. at One Landmark Square, Stamford, CT 06901, and its
telephone number at that address is (203) 325-0077.
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<PAGE> 11
HISTORY
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 and Stephen L. Larson, principals of C.F. Capital
Corporation, an investment and management company ("CFCC"). When MBL sold its
soft drink bottling holdings to Pepsi-Cola Canada Limited in 1992, Messrs.
Krediet and Larson retained their ownership of SSWL. Recognizing the growth
opportunities in the bottled water industry, Messrs. Krediet and Larson
identified SSWL as their platform for consolidation and recruited Stewart E.
Allen from the MBL operation. Messrs. Krediet, Larson and Allen have managed the
Company since late 1992, when they began to grow the water cooler business in
Nova Scotia and New Brunswick. Since 1993, the Company has successfully
completed 14 acquisitions. These acquisitions have enabled the Company to
rapidly expand into attractive markets and increase production capacity.
Additionally, the management team has been responsible for introducing new
investors to the Company, including Clairvest Group Inc. ("Clairvest"), a
merchant bank listed on the Toronto Stock Exchange and now a principal
shareholder of the Company, and certain members of the MacMillan family. See
"Security Ownership of Certain Beneficial Owners and Management."
THE REORGANIZATION
In January 1998, the Company completed the Reorganization. Under the
Reorganization, shareholders of SSWL transferred their shares of SSWL to
Sparkling Spring. As part of the Reorganization, certain shareholders, including
certain principal shareholders, directors and executive officers of the Company,
have reduced their interest in Sparkling Spring by exchanging their shares
and/or options to purchase shares of common stock of SSWL for Common Stock of
Sparkling Spring and cash or for cash only. Other shareholders simply exchanged
their shares of common stock of SSWL for Common Stock of Sparkling Spring on a
one-for-one basis. Additionally, certain key managers of the Company have
subscribed for shares of Common Stock of Sparkling Spring. See "The Offering"
and "Certain Relationships and Related Transactions -- Reorganization."
RECENT DEVELOPMENTS
On October 23, 1997, the Company acquired all of the issued and outstanding
shares of capital stock of Cullyspring for approximately $7.0 million, including
transaction costs. Cullyspring 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, Sparkling Spring Water Limited, a
wholly-owned subsidiary of Sparkling Spring, purchased all of the outstanding
capital stock of Coastal Mountain Water Corp. ("Coastal") for approximately $4.2
million. Coastal is based in Vancouver and focuses on the direct delivery of
eighteen litre containers of water to residential and commercial customers and
the rental of water coolers.
These acquisitions represent a continuation of the Company's consolidation
activities in the Pacific Northwest market. In this market, the Company now
services territories from Eugene, Oregon through British Columbia, with primary
markets in Portland, Oregon; Seattle, Washington; and Vancouver, British
Columbia.
Effective April 3, 1998, Stephen L. Larson, the Vice Chairman of the Board
of Directors and Chief Financial Officer of Sparkling Spring, will resign from
his positions as an 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. Kurt Dillon Schickli will
replace Mr. Larson as Chief Financial Officer of Sparkling Spring effective
April 3, 1998. See "Management."
5
<PAGE> 12
THE OFFERING
Pursuant to a Purchase Agreement dated as of November 14 1997 (the
"Purchase Agreement"), Sparkling Spring sold Private Notes in an aggregate
principal amount of $100.0 million to the Initial Purchasers on November 19,
1997. The Initial Purchasers subsequently resold the Private Notes purchased
from Sparkling Spring to QIBs pursuant to Rule 144A under the Securities Act and
to certain accredited investors (as defined in Rule 501(A)(1) (2) or (4) under
the Securities Act). The net proceeds to Sparkling Spring from the Offering,
after deduction of discounts and offering expenses, was approximately $96.5
million. Sparkling Spring used $56.5 million of the net proceeds to repay the
entire principal amount and accrued interest owing under the Existing Credit
Facility, approximately $13.9 million was used in connection with the
Reorganization and, approximately $3.6 million will be used to repay amounts
outstanding under certain capitalized leases. The remaining proceeds of the
Offering, approximately $22.5 million, will be used for general corporate
purposes, including potential acquisitions.
THE EXCHANGE OFFER
The Exchange Offer......... Sparkling Spring is hereby offering to exchange
$1,000 principal amount of Exchange Notes for each
$1,000 principal amount of Private Notes that are
properly tendered and accepted. Sparkling Spring
will issue Exchange Notes on or as promptly as
practicable after the Expiration Date. As of the
date hereof, there is $100,000,000 aggregate
principal amount of Private Notes outstanding. See
"The Exchange Offer." The Exchange Offer is not
conditioned upon any minimum aggregate principal
amount of Private Notes being tendered for
exchange. Based upon interpretations of the staff
of the Commission set forth in no-action letters
issued to third parties unrelated to Sparkling
Spring, Sparkling Spring believes that the Exchange
Notes issued pursuant to the Exchange Offer in
exchange for Private Notes may be offered for
resale, resold and otherwise transferred by a
holder thereof (other than (i) any person who is an
"affiliate" of Sparkling Spring within the meaning
of Rule 405 under the Securities Act or (ii) a
broker-dealer who purchases Notes from Sparkling
Spring to resell pursuant to Rule 144A under the
Securities Act or any other available exemption
under the Securities Act) without compliance with
the registration and prospectus delivery provisions
of the Securities Act; provided that such holder is
acquiring the Exchange Notes in the ordinary course
of its business and such holder is not engaging and
has no intention to engage, and has no arrangement
or understanding with any person to participate, in
the distribution of the Exchange Notes. Holders of
Private Notes wishing to accept the Exchange Offer
must represent to Sparkling Spring that such
conditions have been met. Each broker-dealer that
will receive Exchange Notes for its own account in
exchange for Private Notes where such Private Notes
were acquired by such broker-dealer as a result of
market-making or other trading activities, must
acknowledge in the Letter of Transmittal that it
will deliver a prospectus in connection with any
resale of such Exchange Notes; however, by so
acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be
amended or supplemented from time to time, may be
used by such a broker-dealer in connection with
resales of Exchange Notes received in exchange for
Private Notes
6
<PAGE> 13
acquired by such broker-dealer as a result of
market-making or other trading activities. See "The
Exchange Offer -- Resale of the Exchange Notes" and
"Plan of Distribution". In addition, to comply with
the securities laws in certain jurisdictions, if
applicable, the Exchange Notes may not be offered
or sold unless they have been registered or
qualified for sale in such jurisdictions or an
exemption from registration or qualification is
available and complied with. Sparkling Spring and
the Subsidiary Guarantors have agreed, pursuant to
the Registration Rights Agreement (subject to
certain specified limitations set forth therein),
to use their reasonable best efforts to register or
qualify the Exchange Notes for offer or sale under
the Securities or Blue Sky laws of such
jurisdictions as any holder to the Notes reasonably
requests in writing.
Registration Rights
Agreement................ The Private Notes and the related Guarantees were
sold by Sparkling Spring and the Subsidiary
Guarantors to the Initial Purchasers in a
transaction exempt from the registration
requirements of the Securities Act on November 19,
1997 pursuant to a Purchase Agreement, dated
November 14, 1997, by and among Sparkling Spring,
the Guarantors and the Initial Purchasers. Pursuant
to the Purchase Agreement, Sparkling Spring, the
Subsidiary Guarantors and the Initial Purchasers
entered into a Registration Rights Agreement, dated
November 19, 1997, which grants the holders of the
Private Notes certain exchange and registration
rights. The Exchange Offer is intended to satisfy
such rights, which terminate upon consummation of
the Exchange Offer. The holders of Exchange Notes
will not be entitled to any exchange or
registration rights with respect to the Exchange
Notes. See "The Exchange Offer -- Termination of
Certain Rights."
Expiration Date............ The Exchange Offer will expire at 5:00 p.m., New
York City Time, on , 1998, unless
the Exchange Offer is extended by Sparkling Spring
in its sole discretion, in which case the term
"Expiration Date" shall mean the latest date and
time to which the Exchange Offer is extended. See
"The Exchange Offer -- Expiration Date; Extensions;
Termination."
Conditions to the Exchange
Offer.................... The Exchange Offer is subject to certain customary
conditions, certain of which may be waived by
Sparkling Spring. See "The Exchange
Offer -- Expiration Date; Extensions; Termination."
Sparkling Spring reserves the right to terminate or
amend the Exchange Offer at any time prior to the
Expiration date upon the occurrence of any such
conditions.
Procedures for Tendering
Private Notes............ Each holder of Private Notes wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver such
Letter of Transmittal, or such facsimile, together
with the Private Notes and any other required
documentation to Bankers Trust Company, as exchange
agent (the "Exchange Agent"), at the address set
forth herein. Private Notes may be physically
delivered, but physical delivery is not required if
a confirmation of a book-entry transfer of
7
<PAGE> 14
such Private Notes to the Exchange Agent's account
at The Depository Trust Company ("DTC" or the
"Depository") is delivered in a timely fashion. By
executing the Letter of Transmittal, each holder of
Private Notes will represent to and agree with
Sparkling Spring that, among other things, (i) the
Exchange Notes to be acquire pursuant to the
Exchange Offer are being acquired in the ordinary
course of business of the person receiving such
Exchange Notes, whether or not such person is the
holder, (ii) that neither the holder nor any such
other person is engaged in, or intends to engage
in, or has any arrangement or understanding with
any person to participate in, the distribution of
the Exchange Notes, and (iii) that neither the
holder nor any such other person is an "affiliate"
of Sparkling Spring within the meaning of Rule 405
under the Securities Act (or, if such holder or
other person is an affiliate, that it will comply
with the registration and prospectus delivery
requirements of the Securities Act to the extent
applicable). Each broker-dealer that will receive
Exchange Notes for its own account in exchange for
Private Notes, where such Private Notes were
acquired by such broker-dealer as a result of
market-making or other trading activities, must
acknowledge in the Letter of Transmittal that it
will deliver a prospectus in connection with any
resale of such Exchange Notes; however, by so
acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the
Securities Act. See "The Exchange
Offer -- Procedures for Tendering" and "Plan of
Distribution."
Untendered Private Notes... Following the consummation of the Exchange Offer,
holders of Private Notes eligible to participate
but who do not tender their Private Notes will not
have any further exchange rights and such Private
Notes will continue to be subject to certain
restrictions on transfer. Accordingly, the
liquidity of the market for such Private Notes
could be adversely affected.
Consequences of Failure
to Exchange.............. The Private Notes that are not exchanged pursuant
to the Exchange Offer will remain restricted
securities. Accordingly such Private Notes may be
resold only (i) to the Company, (ii) pursuant to
Rule 144A or Rule 144 under the Securities Act or
pursuant to some other exemption under the
Securities Act, (iii) outside the United States to
a non-U.S. person pursuant to the requirements of
Rule 904 under the Securities Act, or (iv) pursuant
to an effective registration statement under the
Securities Act. See "The Exchange
Offer-Consequences of Failure to Exchange."
Special Procedures for
Beneficial Owner......... Any beneficial owner whose Private Notes are held
through a broker, dealer, commercial bank, trust
company or other nominee and who wishes to tender
such Private Notes in the Exchange Offer should
contact such intermediary promptly and instruct
such intermediary to tender on such beneficial
owner's behalf. See "The Exchange
Offer -- Procedures for Tendering.
Guaranteed Delivery
Procedures............... Holders of Private Notes who wish to tender their
Private Notes and whose Private Notes are not
immediately available or who cannot deliver their
Private Notes, the Letter of Transmittal or any
8
<PAGE> 15
other documentation required by the Letter of
Transmittal to the Exchange Agent prior to the
Expiration Date, must tender their Private Notes
according to the guaranteed delivery procedures set
forth under "The Exchange Offer -- Guaranteed
Delivery Procedures."
Acceptance of the Private
Notes and Delivery of the
Exchange Notes........... Subject to the satisfaction or waiver of the
conditions to the Exchange Offer, Sparkling Spring
will accept for exchange any and all Private Notes
that are properly tendered in the Exchange Offer
prior to the Expiration Date. The Exchange Notes
issued pursuant to the Exchange Offer will be
delivered on the earliest practicable date
following the Expiration Date. See "The Exchange
Offer -- Terms of the Exchange Offer."
Withdrawal Rights.......... Tenders of Private Notes may be withdrawn at any
time prior to the Expiration Date. See "The
Exchange Offer -- Withdrawal of Tenders."
Certain Federal Income Tax
Considerations........... The exchange of the Exchange Notes for the Private
Notes pursuant to the Exchange Offer should not be
treated as an "exchange" for federal income tax
purposes because Exchange Notes should not be
considered to differ materially in kind or extent
from Private Notes. Rather, Exchange Notes received
by a holder should be treated as a continuation of
Private Notes in the hand of such holder. As a
result, there should be no federal income tax
consequences to holders exchanging Private Notes
for the Exchange Notes pursuant to the Exchange
Offer. See "Certain Federal Income Tax
considerations -- Tax Consequences of the Exchange
Offer."
Exchange Agent............. Bankers Trust Company is serving as the Exchange
Agent in connection with the Exchange Offer. See
"The Exchange Offer -- Exchange Agent."
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<PAGE> 16
THE NOTES
The Exchange Offer applies to $100,000,000 aggregate principal amount of
the Private Notes. The form and terms of the Exchange Notes are identical in all
material respects to the form and terms of the Private Notes except that the
Exchange Notes will have been registered under the Securities Act and,
therefore, the Exchange Notes will not bear legends restricting the transfer
thereof and holders of the Exchange Notes will not be entitled to any of the
registration rights of holders of the Private Notes under the Registration
Rights Agreement (or related rights to certain interest payments upon the
failure of Sparkling Spring to fulfill certain conditions set forth in the
Registration Rights Agreement), which rights will terminate upon consummation of
the Exchange Offer. The Exchange Notes will evidence the same indebtedness as
the Private Notes (which they replace), and will be issued under, and be
entitled to the benefits of, the Indenture. The Private Notes and the Exchange
Notes will be considered collectively to be a single class for all purposes
under the Indenture. See "Description of Notes."
Notes Offered.............. $100,000,000 aggregate principal amount of 11 1/2%
Senior Subordinated Notes due 2007.
Maturity Date.............. November 15, 2007.
Interest Payment Dates..... Interest on the Notes will accrue from the date of
original issuance (the "Issue Date") and will be
payable semi-annually on each May 15 and November
15, commencing on May 15, 1998.
Optional Redemption........ The Notes will be redeemable at Sparkling Spring's
option, in whole or in part, on and after November
15, 2002 at the redemption prices set forth herein,
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. See "Description of
the Notes -- Redemption."
Change of Control.......... Upon a Change of Control, 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.
Redemption for Tax
Reasons.................... In the event the Company is obligated to pay
Additional Amounts (as defined) in respect of the
Notes and otherwise satisfies certain conditions,
the Company may redeem the Notes, in whole but not
in part, upon giving not less than 30 or more than
60 days notice, at 100% of the principal amount
thereof plus accrued and unpaid interest, if any,
to the date of redemption. See "Description of the
Notes -- Redemption -- Optional Redemption upon the
Occurrence of Certain Tax Events" and "-- Taxation;
Redemption for Taxation Reasons."
Ranking.................... The Notes are general unsecured obligations of
Sparkling Spring and are subordinated in right of
payment to all existing and future Senior
Indebtedness. The Notes will rank pari passu in
right of payment with any future senior
subordinated indebtedness of
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<PAGE> 17
Sparkling Spring and will rank senior in right of
payment to all other subordinated obligations of
Sparkling Spring. As of September 30, 1997, on a
pro forma basis after giving effect to the Offering
and the application of the net proceeds therefrom
as described herein, Sparkling Spring would have
had no Senior Indebtedness outstanding. However,
under the Indenture, Sparkling Spring will have the
ability to incur Indebtedness in the future,
including Indebtedness under the Credit Agreement,
which constitutes Senior Indebtedness. See "Use of
Proceeds," "Unaudited Pro Forma Consolidated
Financial Data" and "Description of the Credit
Agreement."
Guarantees................. 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. The
Guarantees will rank pari passu with any future
senior subordinated indebtedness of the Subsidiary
Guarantors and will rank senior in right of payment
to any other subordinated obligations of the
Subsidiary Guarantors. As of September 30, 1997, on
a pro forma basis after giving effect to the
Offering and the application of the net proceeds
therefrom as described herein, the Subsidiary
Guarantors collectively would have had
approximately $1.5 million of Guarantor Senior
Indebtedness outstanding. See "Description of the
Notes -- Guarantees."
Certain Covenants.......... 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. These restrictions and requirements are
subject to a number of important qualifications and
exceptions. See "Description of the
Notes -- Certain Covenants."
USE OF PROCEEDS
Sparkling Spring will not receive any proceeds from, and has agreed to bear
the expenses of, the Exchange Offer.
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered in evaluating an investment in the Notes.
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<PAGE> 18
SUMMARY HISTORICAL AND UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL DATA
The following table sets forth certain summary historical and unaudited pro
forma consolidated financial data of the Company. The historical data as of
December 31, 1994, 1995 and 1996 has been derived from the consolidated
financial statements of the Company. The pro forma data has been derived from
the Unaudited Pro Forma Consolidated Financial Data of the Company included
elsewhere in this Prospectus. The Unaudited Pro Forma Consolidated Financial
Data does not purport to represent what the Company's results of operations
actually would have been if the transactions referred to therein had been
consummated on the date or for the periods indicated, or what such results will
be for any future date or for any future period. The information below should be
read in conjunction with the consolidated financial statements of the Company
and the other historical financial statements, including the notes thereto,
included elsewhere in the Prospectus and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, NINE MONTHS SEPTEMBER 30,
(dollars in thousands) ---------------------------------------------- ENDED -----------------
SEPTEMBER 30,
PRO FORMA ----------------- PRO FORMA
1994 1995 1996 1996 1996 1997 1996 1997
--------- --------- ---------- --------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenue........................... $8,725 $15,349 $27,326 $46,106 $21,064 $31,798 $35,320 $38,628
Cost of sales..................... 1,755 2,863 4,676 10,691 3,403 5,864 7,689 8,294
Operating expenses................ 5,356 9,041 15,756 25,617 12,636 16,818 19,721 19,845
Depreciation and amortization..... 1,095 1,465 3,842 6,151 2,752 3,918 4,440 4,624
Interest expense.................. 625 1,294 2,481 11,850 1,703 2,901 8,888 8,888
Net income (loss) before
extraordinary items............. (94) 411 166 (5,040) 216 1,234 (3,272) (1,758)
Net (loss) income................. (238) 19 (307) (5,513) (253) 1,234 (3,741) (1,758)
OTHER DATA:
EBITDA(1)......................... $1,614 $3,445 $6,894 $9,798 $5,025 $9,116 $7,910 $10,489
EBITDA margin..................... 18.5% 22.4% 25.2% 21.3% 23.8% 28.7% 22.4% 27.2%
Ratio of EBITDA to net cash
interest expense................ 2.58x 2.66x 2.78x .89x 2.95x 3.14x .96x 1.27x
Cash provided by operating
activities...................... 1,029 1,491 3,216 -- 2,866 3,540 -- --
Cash used in investing
activities...................... 7,579 4,219 24,168 -- 22,953 25,585 -- --
Cash provided by financing
activities...................... 5,926 3,551 22,669 -- 19,946 20,895 -- --
Net capital expenditures.......... 1,257 2,287 6,736 7,427 5,475 5,750 5,993 5,918
Installed cooler base............. 23,838 30,344 74,160 102,500 67,090 114,971 99,500 115,000
Net debt(2)....................... -- -- -- -- -- -- -- $82,609
Ratio of net debt to LTM
EBITDA(3)....................... -- -- -- -- -- -- -- 6.7x
Ratio (deficiency) of earnings to
fixed charges(4)................ -- 1.4x 1.2x -- 1.3x 1.7x -- --
BALANCE SHEET DATA:
Cash and cash equivalents......... $67 $860 $2,231 -- $577 $898 $-- $18,891
Total assets...................... 13,835 18,521 44,409 -- 41,905 69,852 -- 103,335
Long-term debt(5)................. 7,623 11,309 30,474 -- 28,906 52,283 -- 101,500
Common shareholders' equity
(deficit)....................... 2,331 2,207 6,772 -- 5,134 7,895 -- (6,764)
</TABLE>
- ---------------
(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 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) Net debt is defined as total debt less cash and cash equivalents.
(3) LTM EBITDA represents EBITDA calculated for the twelve months ended
September 30, 1997, which is $12.4 million.
(4) For the purpose of determining the ratio of earnings to fixed charges
"earnings" consist of net income before provision for corporate income
taxes, non-controlling interest, extraordinary items and fixed charges.
Fixed charges consist of interest expense and the interest portion of the
Company's rent expense (assumed to be one-third of rent expense). Earnings
were inadequate to cover fixed charges by approximately $104,000 and
$8,203,000 in the year ended December 31, 1994 and the pro forma year ended
December 31, 1996 respectively. Earnings were inadequate the cover fixed
charges by approximately $5,418,000 and $3,023,000 for the pro forma nine
months ended September 30, 1996 and 1997 respectively.
(5) Includes amounts due under capital lease obligations, seller note and
current maturities.
The above financial information includes the results of operations of the
following companies from their dates of acquisition as follows: Water Cooler
Division of Buxton Mineral Water Company Limited: June 7, 1994; Aquarporte (UK)
Ltd.: April 26, 1995; Canadian Springs Water Company Limited: January 18, 1996;
Water Jug Enterprises Limited: May 10, 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 4, 1997; Soja Enterprises, Inc.: June 4, 1997; and Crystal Springs
Bottled Water Co., Inc: June 23, 1997.
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<PAGE> 19
RISK FACTORS
The risk factors set forth below, as well as the other information set
forth in this Prospectus should be carefully considered before deciding to
surrender the Private Notes in exchange for Exchange Notes pursuant to the
Exchange Offer.
SUBSTANTIAL LEVERAGE; DEBT SERVICE OBLIGATIONS
The Company is highly leveraged. At September 30, 1997, on a pro forma
basis after giving effect to the Offering and the application of the net
proceeds therefrom as contemplated in "Use of Proceeds," the Company would have
had an aggregate of approximately $101.5 million of outstanding indebtedness and
a shareholders' deficit of $6.8 million. In addition, the Indenture permits
Sparkling Spring and the Subsidiary Guarantors to incur substantial additional
indebtedness, including Senior Indebtedness and Guarantor Senior Indebtedness,
respectively, subject to certain limitations. See "Capitalization" and
"Description of the Notes -- Certain Covenants."
The Company's high degree of leverage could have important consequences to
the holders of the Notes, including the following: (i) the Company's ability to
obtain additional financing for working capital, capital expenditures,
acquisitions, general corporate purposes or other purposes may be impaired in
the future; (ii) a substantial portion of the Company's cash flow from
operations must be dedicated to service its indebtedness, thereby reducing the
funds available to the Company for other purposes; (iii) certain of the
Company's borrowings are expected to be at variable rates of interest (including
borrowings under the Credit Agreement), which will expose the Company to the
risk of increased interest rates; (iv) the Company is substantially more
leveraged than certain of its competitors, which may place the Company at a
competitive disadvantage; and (v) the Company's substantial degree of leverage
may limit its flexibility to adjust to changing market conditions, reduce its
ability to withstand competitive pressures and make it more vulnerable to a
downturn in general economic conditions or in its business. See "Description of
the Credit Agreement" and "Description of the Notes."
The Company's ability to make scheduled payments or to refinance its
obligations with respect to indebtedness (including the Notes) will depend on
its financial and operating performance, which, in turn, is subject to general
economic and market conditions and to financial, competitive, business and other
factors, including factors beyond the Company's control. If the Company's cash
flow and capital resources are insufficient to fund its debt service
obligations, the Company may be forced to reduce or delay planned expansion and
capital expenditures, sell assets, obtain additional equity capital or
restructure its debt. There can be no assurance that the Company's operating
results, cash flow and capital resources will be sufficient for payment of its
indebtedness in the future. In the absence of such operating results and
resources, the Company could face substantial liquidity problems and might be
required to dispose of material assets or operations to meet its debt service
and other obligations, and there can be no assurance as to the timing of such
sales or the proceeds that the Company could realize therefrom. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
HOLDING COMPANY STRUCTURE; DEPENDENCE ON SUBSIDIARY CASH FLOW
Sparkling Spring is a holding company with no independent operations.
Sparkling Spring relies entirely on its direct and indirect subsidiaries for
funds to meet its debt service obligations and for payments in respect of other
corporate expenses. Sparkling Spring's cash flow and, consequently, its ability
to service debt, including the Notes, is dependent upon the cash flow of its
subsidiaries and the payment of funds by those subsidiaries to Sparkling Spring
in the form of loans, dividends or otherwise. The Indenture limits the ability
of Sparkling Spring to create or permit restrictions on dividends and other
payments by its subsidiaries to Sparkling Spring or any other subsidiaries of
Sparkling Spring. However, there can be no assurance that Sparkling Spring's
subsidiaries will generate sufficient cash flow to loan, dividend or otherwise
advance funds to Sparkling Spring in an amount sufficient for Sparkling Spring
to make required payments of principal of and interest on the Notes. Should
Sparkling Spring fail to satisfy any payment obligation under the Notes, the
holders
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<PAGE> 20
thereof would have a direct claim therefor against the Subsidiary Guarantors
pursuant to the Guarantees. However, the Guarantees are subordinated in right of
payment to all Guarantor Senior Indebtedness and effectively subordinated to all
secured indebtedness of the Subsidiary Guarantors. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Description
of the Notes -- Certain Covenants -- Limitation on Dividend and Other Payment
Restrictions Affecting Subsidiaries."
RANKING OF NOTES AND GUARANTEES; SUBORDINATION OF NOTES AND GUARANTEES
The Notes are subordinated in right of payment to all existing and future
Senior Indebtedness of Sparkling Spring, including Indebtedness under the Credit
Agreement, and the Guarantees are subordinated to all existing and future
Guarantor Senior Indebtedness of the Subsidiary Guarantors. In addition, the
Notes and the Guarantees are effectively subordinated to all existing and future
secured indebtedness of Sparkling Spring and the Subsidiary Guarantors,
respectively. Under the terms of the Indenture, the Company and the Subsidiary
Guarantors are restricted, but not prohibited, from incurring additional
Indebtedness, including Senior Indebtedness, Guarantor Senior Indebtedness and
additional secured indebtedness. See "Description of the Credit Agreement," and
"Description of the Notes -- Subordination" and "-- Certain Covenants." As of
September 30, 1997, on a pro forma basis, after giving effect to the Offering
and the application of the net proceeds therefrom, Sparkling Spring would have
had no Senior Indebtedness outstanding and the Subsidiary Guarantors would have
had approximately $1.5 million of Guarantor Senior Indebtedness outstanding.
Management expects that, subject to the restrictions contained in the Company's
debt agreements, Sparkling Spring and the Subsidiary Guarantors will incur
additional Senior Indebtedness and Guarantor Senior Indebtedness, respectively,
including indebtedness under the Credit Agreement, in connection with the
implementation of the Company's business strategy.
By reason of the subordination described in the preceding paragraph, in the
event of the insolvency, liquidation, reorganization, dissolution or other
winding up of Sparkling Spring, creditors of Sparkling Spring who are not
holders of Senior Indebtedness, including holders of the Notes, may recover
less, ratably, than holders of Senior Indebtedness. Similarly, the creditors of
a Subsidiary Guarantor who are not holders of Guarantor Senior Indebtedness,
including holders of the Notes, may also recover less, ratably, than holders of
Guarantor Senior Indebtedness. In addition, the holders of any secured
indebtedness of the Company will be entitled to a claim on the assets securing
such indebtedness which is prior to any claim of the holders of the Notes or the
Guarantees, as the case may be. If Sparkling Spring or a Subsidiary Guarantor
incurs additional pari passu unsecured indebtedness, the holders of such debt
would be entitled to share ratably with the holders of the Notes in any proceeds
distributed in connection with any insolvency, liquidation, reorganization,
dissolution or other winding up of the Company. This may have the effect of
reducing the amount of proceeds paid to holders of the Notes. In addition, no
payments may be made with respect to the principal of or interest on the Notes
if a payment default exists with respect to Designated Senior Indebtedness (as
defined) and, under certain circumstances, no payments may be made with respect
to the principal of or interest on the Notes for certain periods of time if a
non-payment default exists with respect to Designated Senior Indebtedness. See
"Description of the Notes -- Subordination."
RESTRICTIONS IMPOSED BY DEBT AGREEMENTS
The Indenture restricts, among other things, the ability of Sparkling
Spring and its subsidiaries to: incur additional indebtedness; create liens; pay
dividends or make certain other restricted payments; sell or otherwise transfer
assets; create restrictions on distributions from subsidiaries; enter into
certain transactions with affiliates; incur indebtedness that is subordinate in
right of payment to any Senior Indebtedness or Guarantor Senior Indebtedness and
senior in right of payment to the Notes or the Guarantees, as the case may be;
or consolidate or merge with or into, or transfer all or substantially all of
its assets to, another person. The Indenture also prohibits subsidiaries of
Sparkling Spring from issuing preferred stock other than to Sparkling Spring or
its
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<PAGE> 21
wholly-owned subsidiaries. See "Description of the Notes -- Certain Covenants."
If the Company fails to comply with these covenants, it would be in default
under the Indenture and the principal and accrued interest on the Notes may
become due and payable. In addition, the Credit Agreement will contain
restrictive covenants and require the Company to maintain specified financial
ratios and satisfy certain financial tests. See "Description of the Credit
Agreement." The Company's ability to meet such financial ratios and tests may be
affected by events beyond its control, and there can be no assurance that the
Company will satisfy such tests. A breach of any of these covenants could result
in an event of default under the Credit Agreement. If an event of default under
the Credit Agreement were to occur, the lenders thereunder could elect to
declare all amounts borrowed, together with accrued interest, to be immediately
due and payable and the lenders under the Credit Agreement could terminate all
commitments thereunder. If any such indebtedness were to be accelerated, there
can be no assurance that the assets of the Company would be sufficient to repay
in full such indebtedness and the other indebtedness of the Company, including
the Notes. In addition, a default under the Credit Agreement or the instruments
governing the Company's other indebtedness could constitute a cross-default
under the Indenture and any instruments governing the Company's other
indebtedness, and a default under the Indenture could constitute a cross-default
under the Credit Agreement and instruments governing the Company's other
indebtedness. See "Description of the Notes -- Certain Covenants" and
"Description of the Credit Agreement."
FRAUDULENT CONVEYANCE RISKS
In the event of a bankruptcy proceeding or a lawsuit by or on behalf of
creditors of Sparkling Spring, the incurrence by Sparkling Spring of the
indebtedness evidenced by the Notes would be subject to review under relevant
United States federal and state fraudulent conveyance statutes and similar laws
of certain other jurisdictions ("Fraudulent Conveyance Statutes"). Generally,
under these statutes, if at the time the Notes were issued and the proceeds
applied, (i) Sparkling Spring issued the Notes and applied the proceeds with the
intent of hindering, delaying or defrauding creditors or (ii) Sparkling Spring
received less than a reasonably equivalent value or fair consideration for
issuing the Notes and, after so applying the proceeds, Sparkling Spring (a) was
insolvent or rendered insolvent by reason of such transactions, (b) was engaged
in a business or transaction for which its assets constituted unreasonably small
capital or (c) intended to incur, or believed that it would incur, debts beyond
its ability to pay as they matured (as the foregoing terms are defined in or
interpreted under Fraudulent Conveyance Statutes), such court could subordinate
all or a part of the Notes to existing and future indebtedness of the Company,
recover any payments made on the Notes or take other action detrimental to the
holders of the Notes, including, under certain circumstances, invalidating the
Notes.
In the event that under relevant state or federal law a Subsidiary
Guarantor is determined, at the time it executed its Guarantee, to have come
within clauses (i) and (ii) of the first paragraph of this subsection, the
Guarantee by such Subsidiary Guarantor may be voidable (in whole or in part) or
the claim of the holders of the Notes in respect of such Guarantee may be
subordinated (in whole or in part) to other obligations and liabilities of such
Subsidiary Guarantor, in each case based on the theory that such Guarantee
constituted a fraudulent conveyance under applicable Fraudulent Conveyance
Statutes. In the event that such claims are asserted after any payments are made
by a Subsidiary Guarantor under its Guarantee, there is a risk that persons who
received such payments will be ordered by a court to return to such Subsidiary
Guarantor's creditors or its trustee in bankruptcy all or a portion of such
payments.
Under Canadian provincial fraudulent conveyance laws, a court could set
aside the Notes or the Guarantees, on the application of or on behalf of the
creditors or by the trustee in bankruptcy of Sparkling Spring or a Subsidiary
Guarantor, as the case may be, if it were found that the Notes had been issued
or the proceeds of the Notes applied by Sparkling Spring, or the indebtedness
represented by the obligations under the Guarantee incurred by such Subsidiary
Guarantor, with the intent to defeat, hinder, delay or defraud their respective
creditors. In making any such determination, the court would consider factors
such as whether (i) after the transactions Sparkling Spring was
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<PAGE> 22
insolvent or rendered insolvent by reason of the transactions and (ii) Sparkling
Spring received less than a reasonably equivalent value or fair consideration in
determining whether the Notes were issued with a fraudulent intent. Similarly,
factors such as whether (i) a Guarantor was insolvent or rendered insolvent as a
result of giving its Guarantee or (ii) if Sparkling Spring received less than a
reasonably equivalent value or fair consideration for the Notes would be taken
into account in determining whether the Guarantees were issued with a fraudulent
intent. Under the Canadian Federal Bankruptcy and Insolvency Act, Notes issued
to purchasers who do not deal at arms' length with Sparkling Spring for less
than fair market value may be reviewable by the trustee in bankruptcy and may be
set aside.
The measure of insolvency for the foregoing purposes will vary depending
upon the law of the jurisdiction being applied. Generally, a company will be
considered insolvent for the foregoing purposes if it is unable to pay its debts
as they become due in the usual course of its business or the sum of its debts
is greater than all the company's property at a fair valuation or if the present
fair saleable value of its assets is less than the amount that will be required
to pay its probable liability on its existing debts as they become absolute and
mature.
Based upon the financial and other information currently available to it,
the Company believes that the indebtedness and obligations evidenced by the
Notes and the Guarantees will be incurred and proceeds of the Notes will be used
for proper purposes and in good faith. The Company believes that at the time of,
and after giving effect to, the incurrence of the indebtedness and obligations
evidenced by the Notes and the Guarantees, it will be solvent and will have
sufficient capital to carry on its business and pay its debt obligations as they
mature. No assurance can be given, however, that a court would concur with such
beliefs and positions.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, 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. See "Description of the Notes -- Change of
Control." If a Change of Control were to occur and any holders were to exercise
their right to require Sparkling Spring to repurchase such holders' Notes, there
can be no assurance that Sparkling Spring would have sufficient financial
resources, or would be able to arrange financing, to pay the repurchase price
for all Notes tendered by the holders thereof. Further, the provisions of the
Indenture may not afford holders of Notes protection in the event of a highly
leveraged transaction, reorganization, restructuring, merger or similar
transaction involving the Company that may adversely affect holders of Notes, if
such transaction does not result in a Change of Control. In addition, the terms
of the Credit Agreement are expected to limit Sparkling Spring's ability to
purchase any Notes and are also expected to identify certain events that would
constitute a change of control, as well as certain other events with respect to
Sparkling Spring or its subsidiaries, that would constitute an event of default
under the Credit Agreement. See "Description of the Credit Agreement." Any
future credit agreements or other agreements relating to other indebtedness to
which the Company becomes a party may contain similar restrictions and
provisions. In the event a Change of Control occurs at a time when Sparkling
Spring is prohibited from purchasing Notes, Sparkling Spring could seek the
consent of its lenders to the purchase of Notes or could attempt to refinance
the borrowings that contain such prohibition. If Sparkling Spring does not
obtain such consent or repay such borrowing, Sparkling Spring would remain
prohibited from purchasing Notes. In such case, Sparkling Spring's failure to
purchase validly tendered Notes would constitute an Event of Default under the
Indenture, which would, in turn, constitute a further default under certain of
the Company's other agreements and may constitute a default under the terms of
other debt agreements that the Company may enter into from time to time. See
"Description of the Notes -- Change of Control."
Any offer made by Sparkling Spring to repurchase a holder's Notes pursuant
to the Change of Control provisions of the Indenture will comply with all
applicable regulations of the U.S. securities
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<PAGE> 23
laws, including Rules 13e-4 and 14e-1 under the Securities Exchange Act of 1934,
as amended (the "Exchange Act").
DEPENDENCE ON FINANCING FOR EXPANSION; ACQUISITION STRATEGY
A key element of the Company's business strategy has been, and will
continue to be, growth through the acquisition of similar and complementary
businesses. See "The Company -- Acquisition Strategy." The Company's ability to
expand through acquisitions is dependent upon, and may be limited by, the
availability of suitable acquisition candidates, the availability of financing
therefor on suitable terms, and by restrictions contained in the Indenture, the
Credit Agreement and the Company's other existing and future financing
arrangements. Management believes that 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. Certain of
the Company's competitors for attractive acquisition candidates may have greater
financial resources than the Company. Further, growth through acquisitions
involves risks that could adversely affect the Company's operating results,
including difficulties in integrating the operations and personnel of acquired
companies and the potential loss of key employees of acquired companies.
In addition, implementation of the Company's proposed expansion strategy
will be substantially dependent upon, among other things, the Company's ability
to hire and retain skilled management, financial, marketing and other personnel,
and successfully manage growth (including monitoring operations, controlling
costs and maintaining effective quality and inventory controls). See
"-- Dependence on Key Personnel," below. The Company's growth strategy and plans
may be affected by a number of factors, including delays in the Company's
marketing efforts, changes in economic or market conditions, its ability to make
capital expenditures, competition and other factors, some of which are beyond
management's control. There can be no assurance that the Company will be able to
successfully implement its acquisition strategy or otherwise expand its
operations.
The Company anticipates, based on currently proposed plans and assumptions
relating to its operations (including the costs associated with its proposed
expansion), that the net proceeds of the Offering and cash generated from
operations will be sufficient to satisfy its anticipated cash requirements for
the foreseeable future, which includes the next twelve months. In the event that
the Company's plans change, its assumptions change or prove to be inaccurate or
the proceeds of the Offering prove to be insufficient to fund the Company's
operations (due to unanticipated expenses, delays, difficulties or more
acquisition opportunities than presently expected or otherwise), the Company
would be required to seek additional financing sooner than anticipated.
The Company may determine, depending upon the opportunities available to
it, to seek additional debt or equity financing to fund the cost of further
expansion. To the extent that the Company incurs additional indebtedness, the
Company will be subject to risks associated with incurring substantial
indebtedness, including the risks that interest rates may fluctuate and cash
flow may be insufficient to pay principal and interest on any such indebtedness.
The Company has no current arrangements with respect to, or sources of,
additional financing, other than the Credit Agreement. There can be no assurance
that additional financing will be available to the Company on commercially
reasonable terms or at all. The inability to obtain additional financing on
commercially reasonable terms, or at all, could have a material adverse effect
on the Company's plan for expansion. See "Use of Proceeds" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
RISKS OF FOREIGN OPERATIONS
For the nine months ended September 30, 1997, after giving effect to the
Pro Forma Transactions, 42.6% of the Company's revenue would have been generated
in Canada in Canadian dollars, 35.8% of the Company's revenue would have been
generated in the U.K. in pounds sterling and 21.6% of the Company's revenue
would have been generated in the U.S. in U.S. dollars. In addition, a
substantial portion of the expenses incurred by the Company during that period
was denominated
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<PAGE> 24
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. There can be
no assurance that one or a combination of these factors will not have a material
adverse effect on the Company's financial position or results of operations. In
addition, the Trustee under the Indenture and the holders of the Notes may be
limited in their ability to enforce judgments against Sparkling Spring and the
Subsidiary Guarantors outside the United States. See "Description of the
Notes -- Enforceability of Judgments."
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 and has
no present intention to enter into any additional foreign currency swap
transactions.
GOVERNMENT REGULATION
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, including the United States Federal Food and Drug
Administration (the "FDA") and the Canadian Federal Department of Health and
Welfare. In the United Kingdom, bottled water is governed by the European
Union's Mineral Water Directive and Drinking Water in Containers Regulations.
The Company believes that it is in substantial compliance with all applicable
laws and regulations and has all required permits and licenses to conduct its
business. However, any failure by the Company to comply with existing and future
laws and regulations could subject it to significant penalties. In addition,
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. See "The Company -- Regulation."
INTERRUPTION OF WATER SOURCES
The Company obtains its water from municipal sources and local natural
springs. Any interruption in the availability of water to the Company from these
sources could have a material adverse effect on the Company's operations until a
suitable replacement source is located. No assurances can be given that any such
interruption would not have a material adverse effect on the Company's financial
position or results of operations. See "The Company -- The Bottling Process."
COMPETITION
The beverage industry in general, and the bottled water market in
particular, are competitive. The Company competes with other national and
regional bottled water companies as well as other beverage companies. Certain of
the Company's competitors possess substantially greater financial, personnel,
marketing and other resources, and are less leveraged, than the Company and may
be better able to withstand market conditions within the beverage industry.
There can be no assurance that the Company will not encounter increased
competition in the future, which could have a material adverse effect on the
Company's business. In addition, the future success of the Company is highly
dependent on consumer tastes and preferences. There can be no assurance that a
change in consumer preferences from bottled water to other forms of purified
water or other beverages will not have a material adverse effect on the
Company's financial position or results of operations. See "The
Company -- Competition."
DEPENDENCE ON KEY PERSONNEL
The Company is dependent on the continued services of certain members of
its senior management team, which consists of G. John Krediet, Stewart E. Allen,
Stephen L. Larson until
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<PAGE> 25
April 3, 1998, and effective April 3, 1998, Kent Dillon Schickli. The loss of,
and inability to attract replacements for, any of such key personnel could have
a material adverse effect on the Company's financial position or results of
operations. See "Management." The Company does not have non-competition
agreements or key-man life insurance policies with respect to Messrs. Krediet,
Larson, Allen or Schickli.
CONTROL BY PRINCIPAL SHAREHOLDERS
Messrs. Larson and Allen and Gaspar Limited ("Gaspar"), a Barbados
corporation wholly-owned by a trust for the benefit of Mr. Krediet and his
children, beneficially own 63.9% of the outstanding Common Stock of Sparkling
Spring on a pro forma basis after giving effect to the Reorganization and an
additional investment made by Mr. Larson in Sparkling Spring in connection with
the Offering, and collectively control the affairs and policies of the Company.
See "Use of Proceeds," "Certain Relationships and Related
Transactions -- Reorganization" and "Security Ownership of Certain Beneficial
Owners and Management." Circumstances may occur in which the interests of these
shareholders could conflict with the interests of the holders of the Notes. In
addition, these shareholders may have an interest in pursuing acquisitions,
divestitures or other transactions that, in their judgment, could enhance their
equity investment, even though such transactions might involve risks to the
holders of the Notes.
Pursuant to the Shareholder Agreement (as defined), Clairvest, a holder of
30.4% of the outstanding Common Stock of Sparkling Spring on a pro forma basis
after giving effect to the Reorganization, has the right to appoint two of
Sparkling Spring's seven directors. In addition, certain actions by the Company
require the approval of at least one of the Clairvest nominees. These actions
include, among other things, any acquisition by Sparkling Spring involving
consideration in excess of Cdn. $5.0 million, the making of certain capital
expenditures, the issuance by Sparkling Spring of debt or equity securities, the
disposition by the Company of a material part of its business, any changes in
management compensation, the declaration of dividends by Sparkling Spring and
the approval of Sparkling Spring'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 Common 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. See "Certain Relationships and Related
Transactions -- Shareholder Agreement."
POTENTIAL LIABILITY; INSURANCE
The Company is engaged in a business which could expose it to possible
liability claims from others, including personal injury claims. The Company
maintains third party insurance coverage that it believes is typical for
companies in its industry. There can be no assurance, however, that the
Company's insurance will be sufficient to cover potential claims or that an
adequate level of coverage will be available in the future on acceptable terms.
A partially insured or completely uninsured successful claim against the Company
could have a material adverse effect on the Company's financial position and
results of operations.
LACK OF PUBLIC MARKET FOR THE NOTES
The Exchange Notes are a new issue of securities for which there is
currently no market. There can be no assurance regarding the future development
of a market for the Exchange Notes, or the ability of holders of the Exchange
Notes to sell their Exchange Notes or the price at which such holders may be
able to sell their Exchange Notes. If such a market were to develop, the
Exchange Notes could trade at prices that may be higher or lower than their
principal amount depending on many factors, including prevailing interest rates,
Sparkling Spring's and the Subsidiary Guarantors' operating results and the
market for similar securities. The Initial Purchasers have advised Sparkling
Spring that they or their affiliates currently intend to make a market in the
Exchange Notes. The Initial Purchasers are not obligated to do so, however, and
any market-making activities with respect
19
<PAGE> 26
to the Exchange Notes may be discontinued at any time without notice. Therefore,
there is no assurance as to the liquidity of any trading market for the Exchange
Notes or that an active public market for the Exchange Notes will develop.
Sparkling Spring does not intend to apply for listing or quotation of the
Exchange Notes on any securities exchange or stock market.
Historically, the market for noninvestment grade debt has been subject to
disruptions that have caused substantial volatility in the prices of such
securities. There is no assurance that the market for the Exchange Notes will
not be subject to similar disruptions. Any such disruption may have an adverse
effect on holders of the Exchange Notes.
PROCEDURES FOR TENDER OF PRIVATE NOTES
The Exchange Notes will be issued in exchange for the Private Notes only
after timely receipt by the Exchange Agent of such Private Notes, a properly
completed and duly executed Letter of Transmittal and all other required
documentation. Therefore, holders of Private Notes desiring to tender such
Private Notes in exchange for Exchange Notes should allow sufficient time to
ensure timely delivery. Neither the Exchange Agent nor Sparkling Spring is under
any duty to give notification of defects or irregularities with respect to
tenders of Private Notes for exchange. Private Notes that are not tendered or
are tendered but not accepted will, following consummation of the Exchange
Offer, continue to be subject to the existing restrictions upon transfer
thereof. In addition, any holder of Private Notes who tenders in the Exchange
Offer for the purpose of participating in a distribution of the Exchange Notes
will be required to comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
See "The Exchange Offer" and "Plan of Distribution."
CONSEQUENCES OF FAILURE TO EXCHANGE PRIVATE NOTES
The Private Notes have not been registered under the Securities Act and are
subject to substantial restrictions on transfer. Private Notes that are not
tendered in exchange for Exchange Notes or are tendered but not accepted will,
following consummation of the Exchange Offer, continue to be subject to the
existing restrictions upon transfer thereof. Sparkling Spring does not currently
anticipate that it will register the Private Notes under the Securities Act. To
the extent that Private Notes are tendered and accepted in the Exchange Offer,
the trading market for untendered and tendered but unaccepted Private Notes
could be adversely affected due to the limited amount, or "float," of the
Private Notes that are expected to remain outstanding following the Exchange
Offer. Generally, a lower "float" of a security could result in less demand to
purchase such security and could, therefore, result in lower prices for such
security. For the same reason, to the extent that a large amount of Private
Notes are not tendered or are tendered and not accepted in the Exchange Offer,
the trading market for the Exchange Notes could be adversely affected. See "Plan
of Distribution" and "The Exchange Offer."
20
<PAGE> 27
USE OF PROCEEDS
This Exchange Offer is intended to satisfy certain obligations of Sparkling
Spring and the Subsidiary Guarantors under the Registration Rights Agreement.
Sparkling Spring will not receive any cash proceeds from, and has agreed to bear
the expenses of, the Exchange Offer. In consideration for issuing the Exchange
Notes as contemplated in this Prospectus, Sparkling Spring will receive, in
exchange, Private Notes in like principal amount. The Private Notes surrendered
in exchange for the Exchange Notes will be retired and canceled. Accordingly,
issuance of the Exchange Notes will not result in any increase in the
outstanding indebtedness of Sparkling Spring and the Subsidiary Guarantors.
THE OFFERING
On November 19, 1997, Sparkling Spring and the Subsidiary Guarantors
consummated the Offering in a transaction exempt from the registration
requirements of the Securities Act. The price to investors and the principal
amount of the Private Notes was $100.0 million in the aggregate.
The net proceeds to Sparkling Spring from the Offering, after deduction of
discounts and offering expenses, were approximately $96.5 million. Sparkling
Spring used $56.5 million of the net proceeds to repay and retire all of its
outstanding indebtedness under the Existing Credit Facility. The indebtedness of
Sparkling Spring under the Existing Credit Facility which was repaid matured on
December 31, 2002 and accrued interest at fluctuating rates (an average blended
weighted rate of 8.5% per year at September 30, 1997). Sparkling Spring also
used approximately $14.2 million in connection with the Reorganization to
purchase shares and/or options to purchase shares of SSWL from Gaspar, Clairvest
and certain directors and executive officers of the Company. and approximately
$3.6 million will be used to repay amounts outstanding under certain capitalized
leases. The remaining proceeds of the Offering, approximately $22.2 million,
will be used for general corporate purposes, including potential acquisitions.
See "Certain Relationships and Related Transactions -- Reorganization."
21
<PAGE> 28
CAPITALIZATION
The following table sets forth the consolidated cash position and
capitalization of the Company as of September 30, 1997, and as adjusted to give
effect to the acquisition of Cullyspring and Coastal for a total purchase price
of $11.2 million, the Offering and the Reorganization. On November 19, 1997,
Sparkling Spring and the Subsidiary Guarantors consummated the Offering of
$100.0 million of the Private Notes to investors in a transaction exempt from
the registration requirements of the Securities Act. The net proceeds to
Sparkling Spring from the Offering, after deduction of discounts and offering
expenses, were approximately $96.5 million.
In January 1998, the Company completed the Reorganization. Under the
Reorganization, shareholders of SSWL transferred their shares of SSWL and/or
options to acquire such shares to Sparkling Spring. As part of the
Reorganization, certain shareholders including Gaspar, Clairvest and certain
directors and executive officers of the Company reduced their interest in
Sparkling Spring by exchanging their shares of common stock and/or options to
purchase common stock of SSWL for an aggregate of 1,383,328 shares and options
to purchase an aggregate of 252,197 shares of Common Stock of Sparkling Spring
and cash or for cash only. Other shareholders simply exchanged their shares of
common stock of SSWL for Common Stock of Sparkling Spring on a one-for-one
basis. Additionally, certain key managers of the Company have subscribed for
shares of Common Stock of Sparkling Spring. These transactions were based on a
value of $28 per share of Common Stock. See "The Offering" and "Certain
Relationships and Related Transactions -- Reorganization. See Note 2 to the
Company's Consolidated Financial Statements appears elsewhere in the
Prospectus."
The table should be read in conjunction with "The Offering," "Selected
Historical Consolidated Financial Data," "Unaudited Pro Forma Consolidated
Financial Data" and the consolidated financial statements of the Company and the
related notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS AT
SEPTEMBER 30,
AS AT 1997
SEPTEMBER 30, -------------
1997 PRO FORMA
------------- -------------
(dollars in thousands) (UNAUDITED) (UNAUDITED)
<S> <C> <C>
Cash and cash equivalents................................... $898 $18,891
======= ========
Long-term debt (including current maturities):
Capitalized lease obligations............................. $3,538 $--
Existing Credit Facility.................................. 47,245 --
Seller note............................................... 1,500 1,500
The Notes................................................. -- 100,000
------- --------
Total long-term debt................................... 52,283 101,500
Shareholders' equity (deficit).............................. 7,895 (6,764)
------- --------
Total capitalization........................................ $60,178 $94,736
======= ========
</TABLE>
- ---------------
The pro forma balances reflect (a) net proceeds from the Offering, after
deduction of discounts and offering expenses, of $96.5 million, (b) repayment of
outstanding indebtedness and accrued interest under the Existing Credit Facility
of $61.9 million, including approximately $11.2 million related to the
acquisitions of Cullyspring and Coastal, (c) repayment of outstanding capital
leases of $3.6 million, (d) the net acquisition of $13.9 million of Common Stock
(approximately $14.2 million cash less cash of $262,000 allocated to shares
issued) in connection with the Reorganization and (e) an increase in the deficit
of $0.8 million representing the after-tax impact of the write-off of deferred
financing fees. See "Notes to Unaudited Pro Forma Consolidated Financial
Statements," and "Certain Relationships and Related
Transactions -- Reorganization."
22
<PAGE> 29
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma consolidated financial data of the
Company present the Company's unaudited pro forma consolidated statements of
operations for the year ended December 31, 1996 and the nine months ended
September 30, 1996 and 1997 and the unaudited pro forma consolidated balance
sheet of the Company as of September 30, 1997. These pro forma consolidated
financial statements give effect to the Pro Forma Transactions (as defined in
Note 1 of the "Notes to Unaudited Pro Forma Consolidated Financial Statements")
as if they had occurred on January 1, 1996 with respect to the unaudited pro
forma consolidated statements of operations and as of September 30, 1997 with
respect to the unaudited pro forma consolidated balance sheet. The unaudited pro
forma consolidated statements of operations and the unaudited pro forma
consolidated balance sheet (and the notes thereto) are based, in part, upon the
Company's consolidated financial statements and the other historical financial
statements, and the notes thereto, appearing elsewhere in this Prospectus and
should be read in conjunction therewith. The unaudited pro forma consolidated
financial information appearing herein does not purport to represent what the
Company's results of operations or financial position would have been had such
transactions in fact occurred on the dates indicated or to project the financial
position or results of operations of the Company for the present year or for any
future period.
23
<PAGE> 30
SPARKLING SPRING WATER GROUP LIMITED
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
(dollars in thousands) -----------------------------------------------------------------------------------------------
PRO FORMA ADJUSTMENTS
--------------------------------------------------------------
SPARKLING SPRING ACQUIRED ACQUISITION TOTAL FINANCING
WATER GROUP LIMITED(1) COMPANIES(1) ADJUSTMENTS(2) PRE-FINANCING ADJUSTMENTS(3)(4)(5) PRO FORMA
---------------------- ------------ -------------- ------------- -------------------- ---------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenue:
Water................. $16,810 $11,444 $-- $28,254 $-- $28,254
Rental................ 7,347 3,942 -- 11,289 -- 11,289
Other................. 3,169 3,394 -- 6,563 -- 6,563
------- ------- ------- ------- ------- -------
Total revenue..... 27,326 18,780 -- 46,106 -- 46,106
Cost of sales......... 4,675 6,016 -- 10,691 -- 10,691
------- ------- ------- ------- ------- -------
Gross profit.......... 22,651 12,764 -- 35,415 -- 35,415
Expenses:
Operating expenses.... 15,756 9,861 -- 25,617 -- 25,617
Depreciation and
amortization........ 3,842 1,271 1,038 (A) 6,151 -- 6,151
------- ------- ------- ------- ------- -------
Operating profit...... 3,053 1,632 (1,038) 3,647 -- 3,647
Interest expense...... 2,481 383 2,069 (B) 4,933 6,917 (A) 11,850
------- ------- ------- ------- ------- -------
Income before the
following........... 572 1,249 (3,107) (1,286) (6,917) (8,203)
Provision for
(recovery of) income
taxes............... 399 101 (558)(C) (58) (3,112)(B) (3,170)
------- ------- ------- ------- ------- -------
Net income (loss)
before non-
controlling interest
and extraordinary
item................ 173 1,148 (2,549) (1,228) (3,805) (5,033)
Non-controlling
interest............ (7) -- -- (7) -- (7)
------- ------- ------- ------- ------- -------
Net income (loss)
before extraordinary
item................ $166 $1,148 $(2,549) $(1,235) $(3,805) $(5,040)
======= ======= ======= ======= ======= =======
</TABLE>
A breakdown of the historical operating results of the acquired companies
is as follows:
<TABLE>
<CAPTION>
WITHEY'S
CRYSTAL WATER
SPRING SOFTENING
COASTAL CULLYSPRING BOTTLED AND MARLBOROUGH D&D AND
MOUNTAIN WATER CO., WATER PURIFICATION EMPLOYMENT COMPANY,
WATER CORP. INC. CO., INC. LIMITED LIMITED INC. OTHER TOTAL
(dollars in thousands) ----------- ----------- --------- ------------ ----------- -------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenue................. $1,512 $4,030 $2,910 $1,773 $4,034 $2,233 $2,288 $18,780
Cost of sales................. 256 1,998 622 823 1,247 425 645 6,016
------ ------ ------ ------ ------ ------ ------ -------
Gross profit.................. 1,256 2,032 2,288 950 2,787 1,808 1,643 12,764
Expenses
Operating expenses.......... 1,056 1,190 2,044 794 2,325 1,309 1,143 9,861
Depreciation and
amortization.............. 152 376 83 94 60 237 269 1,271
------ ------ ------ ------ ------ ------ ------ -------
Operating profit.............. 48 466 161 62 402 262 231 1,632
Interest expense.............. 63 (12) 77 41 60 53 101 383
------ ------ ------ ------ ------ ------ ------ -------
Income before the following... (15) 478 84 21 342 209 130 1,249
Provision for income taxes.... -- -- 25 (17) 116 -- (23) 101
------ ------ ------ ------ ------ ------ ------ -------
Net income.................... $ (15) $ 478 $ 59 $ 38 $ 226 $ 209 $ 153 $ 1,148
====== ====== ====== ====== ====== ====== ====== =======
</TABLE>
See accompanying notes
24
<PAGE> 31
SPARKLING SPRING WATER GROUP LIMITED
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1996
(dollars in thousands) ------------------------------------------------------
PRO FORMA ADJUSTMENTS
-----------------------------
SPARKLING SPRING ACQUIRED ACQUISITION
WATER GROUP LIMITED(1) COMPANIES(1) ADJUSTMENTS(2)
---------------------- ------------ --------------
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Revenue:
Water.......................... $13,392 $8,807 $--
Rental......................... 5,604 2,921 --
Other.......................... 2,068 2,528 --
------- ------- -------
Total revenue.............. 21,064 14,256 --
Cost of sales.................. 3,403 4,286 --
------- ------- -------
Gross profit................... 17,661 9,970 --
Expenses:
Operating expenses............. 12,636 7,085
Depreciation and
amortization................. 2,752 932 756(A)
------- ------- -------
Operating profit............... 2,273 1,953 (756)
Interest expense............... 1,703 289 1,533(B)
------- ------- -------
Income before the following.... 570 1,664 (2,289)
Provision for (recovery of)
income taxes................. 348 (8) (80) (C)
------- ------- -------
Net income (loss) before non-
controlling interest and
extraordinary item........... 222 1,672 (2,209)
Non-controlling interest....... (7) -- --
------- ------- -------
Net income (loss) before
extraordinary item........... $215 $1,672 $(2,209)
======= ======= =======
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1996
(dollars in thousands) ------------------------------------------------
PRO FORMA ADJUSTMENTS
------------------------------------
TOTAL FINANCING
PRE-FINANCING ADJUSTMENTS(3)(4)(5) PRO FORMA
------------- -------------------- ---------
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Revenue:
Water.......................... $22,199 $-- $22,199
Rental......................... 8,525 -- 8,525
Other.......................... 4,596 -- 4,596
------- ------- -------
Total revenue.............. 35,320 -- 35,320
Cost of sales.................. 7,689 -- 7,689
------- ------- -------
Gross profit................... 27,631 -- 27,631
Expenses:
Operating expenses............. 19,721 -- 19,721
Depreciation and
amortization................. 4,440 -- 4,440
------- ------- -------
Operating profit............... 3,470 -- 3,470
Interest expense............... 3,525 5,363(A) 8,888
------- ------- -------
Income before the following.... (55) (5,363) (5,418)
Provision for (recovery of)
income taxes................. 260 (2,413)(B) (2,153)
------- ------- -------
Net income (loss) before non-
controlling interest and
extraordinary item........... (315) (2,950) (3,265)
Non-controlling interest....... (7) -- (7)
------- ------- -------
Net income (loss) before
extraordinary item........... (322) $(2,950) $(3,272)
======= ======= =======
</TABLE>
A breakdown of the historical operating results of the acquired companies
is as follows:
<TABLE>
<CAPTION>
WITHEY'S
CRYSTAL WATER
SPRING SOFTENING
COASTAL CULLYSPRING BOTTLED AND MARLBOROUGH D&D AND
MOUNTAIN WATER CO., WATER PURIFICATION EMPLOYMENT COMPANY,
WATER CORP. INC. CO., INC. LIMITED LIMITED INC. OTHER TOTAL
(dollars in thousands) ----------- ----------- --------- ------------ ----------- -------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenue.................. $1,161 $3,077 $2,255 $1,324 $2,950 $1,650 $1,839 $14,256
Cost of sales.................. 199 1,529 485 614 665 318 476 4,286
------ ------ ------ ------ ------ ------ ------ -------
Gross profit................... 962 1,548 1,770 710 2,285 1,332 1,363 9,970
Expenses
Operating expenses........... 784 841 1,518 593 1,450 926 973 7,085
Depreciation and
amortization............... 110 262 42 70 44 173 231 932
------ ------ ------ ------ ------ ------ ------ -------
Operating profit............... 68 445 210 47 791 233 159 1,953
Interest expense............... 47 (9) 57 30 27 42 95 289
------ ------ ------ ------ ------ ------ ------ -------
Income before the following.... 21 454 153 17 764 191 64 1,664
Provision for income taxes..... -- -- 40 (12) -- -- (36) (8)
------ ------ ------ ------ ------ ------ ------ -------
Net income..................... $ 21 $ 454 $ 113 $ 29 $ 764 $ 191 $ 100 $ 1,672
====== ====== ====== ====== ====== ====== ====== =======
</TABLE>
See accompanying notes
25
<PAGE> 32
SPARKLING SPRING WATER GROUP LIMITED
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997
(dollars in thousands) ------------------------------------------------------
PRO FORMA ADJUSTMENTS
-----------------------------
SPARKLING SPRING ACQUIRED ACQUISITION
WATER GROUP LIMITED(1) COMPANIES(1) ADJUSTMENTS(2)
INCOME STATEMENT DATA: ---------------------- ------------ --------------
<S> <C> <C> <C>
Revenue:
Water...................... $19,537 $4,940 $ --
Rental..................... 7,777 1,292 --
Other...................... 4,484 598 --
------- ------ -----
Total revenue............ 31,798 6,830 --
Cost of sales.............. 5,864 2,430 --
------- ------ -----
Gross profit............... 25,934 4,400 --
Expenses:
Operating expenses......... 16,818 3,027 --
Depreciation and
amortization............. 3,918 436 270(A)
------- ------ -----
Operating profit........... 5,198 937 (270)
Interest expense........... 2,901 44 612(B)
------- ------ -----
Income before the
following................ 2,297 893 (882)
Provision for (recovery of)
income taxes............. 1,063 -- 65(C)
------- ------ -----
Net income (loss) before
non-controlling interest
and extraordinary item... $ 1,234 $ 893 $(947)
======= ====== =====
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997
(dollars in thousands) ------------------------------------------------
PRO FORMA ADJUSTMENTS
------------------------------------
TOTAL FINANCING
PRE-FINANCING ADJUSTMENTS(3)(4)(5) PRO FORMA
INCOME STATEMENT DATA: ------------- -------------------- ---------
<S> <C> <C> <C>
Revenue:
Water...................... $24,477 $ -- $24,477
Rental..................... 9,069 -- 9,069
Other...................... 5,082 -- 5,082
------- ------- -------
Total revenue............ 38,628 -- 38,628
Cost of sales.............. 8,294 -- 8,294
------- ------- -------
Gross profit............... 30,334 -- 30,334
Expenses:
Operating expenses......... 19,845 -- 19,845
Depreciation and
amortization............. 4,624 -- 4,624
------- ------- -------
Operating profit........... 5,865 -- 5,865
Interest expense........... 3,557 5,331(A) 8,888
------- ------- -------
Income before the
following................ 2,308 (5,331) (3,023)
Provision for (recovery of)
income taxes............. 1,128 (2,393)(B) (1,265)
------- ------- -------
Net income (loss) before
non-controlling interest
and extraordinary item... $ 1,180 $(2,938) $(1,758)
======= ======= =======
</TABLE>
A breakdown of the historical operating results of the acquired companies
is as follows:
<TABLE>
<CAPTION>
CRYSTAL SPRING
COASTAL MOUNTAIN CULLYSPRING BOTTLED WATER
WATER CORP. WATER CO., INC. CO., INC. OTHER TOTAL
(dollars in thousands) ---------------- --------------- -------------- ----- -----
<S> <C> <C> <C> <C> <C>
Total revenue..................... 1,299 $ 3,184 $ 1,582 $ 765 $6,830
Cost of sales..................... 217 1,607 383 223 2,430
------ ----------- ----------- ----------- ------
Gross profit...................... 1,082 1,577 1,199 542 4,400
Expenses
Operating expenses.............. 1,009 893 830 295 3,027
Depreciation and amortization... 137 263 -- 36 436
------ ----------- ----------- ----------- ------
Operating profit.................. (64) 421 369 211 937
Interest expense.................. 49 (7) -- 2 44
------ ----------- ----------- ----------- ------
Income before the following....... (113) 428 369 209 893
Provision for income taxes........ -- -- -- -- --
------ ----------- ----------- ----------- ------
Net income........................ (113) $ 428 $ 369 $ 209 $ 893
====== =========== =========== =========== ======
</TABLE>
See accompanying notes
26
<PAGE> 33
SPARKLING SPRING WATER GROUP LIMITED
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997
-------------------------------------------------------------------------
PRO FORMA ADJUSTMENTS
(dollars in thousands) Sparkling ----------------------------------
SPRING WATER COASTAL MOUNTAIN CULLYSPRING ACQUISITION
GROUP LIMITED(1) WATER CORP(1) WATER CO., INC.(1) ADJUSTMENTS*
---------------- ---------------- ------------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash
equivalents............. $898 (29) $892 --
Accounts receivable...... 8,940 225 372 --
Inventories.............. 1,409 15 90 --
Prepaid expenses......... 1,511 13 1 --
------- ----- ------ ------
Total current
assets.......... 12,758 224 1,355 --
Deferred taxes........... 232 -- -- --
Fixed assets............. 21,524 829 936 --
Goodwill and deferred
charges................. 35,338 -- -- 10,261
------- ----- ------ ------
Total assets...... $69,852 1,053 $2,291 10,261
======= ===== ====== ======
LIABILITIES AND
SHAREHOLDERS' EQUITY
(DEFICIT)
Accounts payable and
accrued liabilities..... $4,875 162 $61 --
Income tax payable....... 988 -- -- --
Unearned revenue......... 327 100 -- --
Customer deposits........ 3,483 95 189 --
Debt due within one
year.................... 958 946 38 --
------- ----- ------ ------
Total current
liabilities..... 10,631 1,303 288 --
------- ----- ------ ------
Capitalized lease
obligations............. 2,580 -- -- --
Existing Credit
Facility................ 47,246 714 55 11,245
Seller note.............. 1,500 -- -- --
The Notes................ -- -- -- --
------- ----- ------ ------
Total long-term
liabilities..... 51,326 714 55 11,245
------- ----- ------ ------
Shareholders' equity
(deficit)
Capital stock............ 8,025 -- 88 (88)
Retained earnings
(deficit)............... 304 (964) 1,860 (896)
Cumulative translation
adjustment.............. (434) -- -- --
------- ----- ------ ------
Total
shareholders'
equity
(deficit)....... 7,895 (964) 1,948 (984)
------- ----- ------ ------
Total liabilities
and
shareholders'
equity
(deficit)....... $69,852 1,053 $2,291 10,261
======= ===== ====== ======
<CAPTION>
AS OF SEPTEMBER 30, 1997
---------------------------------
PRO FORMA ADJUSTMENTS
(dollars in thousands) ---------------------------------
FINANCING
ADJUSTMENTS(3) PRO FORMA(1)
-------------- ------------
<S> <C> <C>
ASSETS
Cash and cash
equivalents............. $17,130(C) $18,891
Accounts receivable...... -- 9,537
Inventories.............. -- 1,514
Prepaid expenses......... -- 1,525
-------- --------
Total current
assets.......... 17,130 31,467
Deferred taxes........... 615(D) 847
Fixed assets............. -- 23,289
Goodwill and deferred
charges................. 2,133 (D)(E 47,732
-------- --------
Total assets...... $19,878 $103,335
======== ========
LIABILITIES AND
SHAREHOLDERS' EQUITY
(DEFICIT)
Accounts payable and
accrued liabilities..... $(1,681)(F) $3,417
Income tax payable....... -- 988
Unearned revenue......... -- 427
Customer deposits........ -- 3,767
Debt due within one
year.................... (1,942)(F) --
-------- --------
Total current
liabilities..... (3,623) 8,599
-------- --------
Capitalized lease
obligations............. (2,580)(F) --
Existing Credit
Facility................ (59,260)(F) --
Seller note.............. -- 1,500
The Notes................ 100,000(E) 100,000
-------- --------
Total long-term
liabilities..... 38,160 101,500
-------- --------
Shareholders' equity
(deficit)
Capital stock............ (1,455)(G) 6,570
Retained earnings
(deficit)............... (13,204)(D)(G) (12,900)
Cumulative translation
adjustment.............. -- (434)
-------- --------
Total
shareholders'
equity
(deficit)....... (14,659) (6,764)
-------- --------
Total liabilities
and
shareholders'
equity
(deficit)....... $19,878 $103,335
======== ========
</TABLE>
See accompanying notes
27
<PAGE> 34
SPARKLING SPRING WATER GROUP LIMITED
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The unaudited pro forma consolidated financial statements have been
prepared by management from the historical financial statements of the
respective companies included elsewhere in this document as appropriate. In the
opinion of Sparkling Spring Water Group Limited's management, these unaudited
pro forma consolidated financial statements contain all adjustments required for
fair presentation.
The unaudited pro forma consolidated statements of operations reflect the
Reorganization discussed below. In addition, the unaudited pro forma
consolidated statements of operations reflect the acquisitions, using the
purchase method of accounting, as if they occurred on January 1, 1996, of D&D
and Company, Inc.(operating as Mountain Fresh Bottled Water), High Valley Water
Limited, Withey's Water Softening & Purification Limited, Marlborough Employment
Limited (operating as Water At Work Limited), Crystal Springs Bottled Water Co.,
Inc., Soja Enterprises Inc., Cullyspring Water Co., Inc. and Coastal Mountain
Water Corp. discussed in note 21 to the consolidated financial statements of
Sparkling Spring Water Group Limited included elsewhere in this Prospectus (the
"Consolidated Financial Statements"). They also reflect the acquisition of
Canadian Springs Water Company Ltd. and Water Jug Enterprises Limited as
described in note 4 to the Consolidated Financial Statements, as if they
occurred on January 1, 1996.
On November 19, 1997, Sparkling Spring and the Subsidiary Guarantors
consummated the Offering of $100.0 million of the Private Notes to investors in
a transaction exempt from the registration requirements of the Securities Act.
The net proceeds to Sparkling Spring from the Offering, after deduction of
discounts and offering expenses, were approximately $96.5 million.
In January 1998, the Company completed the Reorganization. Under the
Reorganization, shareholders of SSWL transferred their shares of SSWL and/or
options to acquire such shares to Sparkling Spring. As part of the
Reorganization, certain shareholders including Gaspar, Clairvest and certain
directors and executive officers of the Company reduced their interest in
Sparkling Spring by exchanging their shares of common stock and/or options to
purchase common stock of SSWL for an aggregate of 1,383,328 shares and options
to purchase an aggregate of 252,197 shares of Common Stock of Sparkling Spring
and cash or for cash only. Other shareholders simply exchanged their shares of
common stock of SSWL for Common Stock of Sparkling Spring on a one-for-one
basis. Additionally, certain key managers of the Company have subscribed for
shares of Common Stock of Sparkling Spring. See "The Offering" and "Certain
Relationships and Related Transactions -- Reorganization."
The acquisition transactions described above, the Reorganization, the
Offering and the application of the net proceeds to the Company therefrom as
described in "The Offering" are collectively hereinafter referred to as the "Pro
Forma Transactions."
The unaudited pro forma consolidated balance sheet of the Company as of
September 30, 1997 reflects the historical consolidated balance sheet of
Sparkling Spring Water Group Limited as of September 30, 1997, after giving
effect to the Pro Forma Transactions as if they had occurred on September 30,
1997. The unaudited pro forma consolidated balance sheet of the Company also
gives effect to the acquisition of Cullyspring on October 23, 1997 and the
acquisition of Coastal Mountain
28
<PAGE> 35
SPARKLING SPRING WATER GROUP LIMITED
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Water Corp. on February 24, 1998. The following summarizes the purchase price of
the acquisitions and the assets and liabilities obtained in the acquisition
transaction (in thousands):
<TABLE>
<CAPTION>
CULLYSPRING COASTAL TOTAL
----------- ------- -------
<S> <C> <C> <C>
Net working capital............................... $1,105 $(1,079) $ 26
Fixed assets...................................... 936 829 1,765
Long term debt.................................... (93) (714) (807)
Goodwill.......................................... 5,056 5,205 10,261
------ ------- -------
Total cash consideration................ $7,004 $ 4,241 $11,245
====== ======= =======
</TABLE>
References to dollar amounts in the "Notes to Unaudited Pro Forma
Consolidated Financial Statements" are to actual dollars.
2. ACQUISITION ADJUSTMENTS
The following adjustments reflect the effects of the acquisitions included
in the Pro Forma Transactions on the unaudited pro forma consolidated statements
of operations:
(A) Increase in depreciation and amortization of $1,038,00 for the
year ended December 31, 1996, $756,000 for the nine months ended September
30, 1996 and $270,000 for the nine months ended September 30, 1997 for
amortization of goodwill on acquired businesses. Goodwill recorded in
connection with the businesses acquired is amortized on a straight line
basis over 40 years.
(B) Increase in interest expense of $2,069,000 for the year ended
December 31, 1996, $1,533,000 for the nine months ended September 30, 1996
and $612,000 for the nine months ended September 30, 1997, reflecting
additional borrowings required to fund the acquisitions included in the Pro
Forma Transactions.
Total debt incurred to fund the acquisition transactions was $32.4
million. Pro forma interest expense is calculated at 7% for the nine months
ended September 30, 1996 and the twelve months ended December 31, 1996, and
6% for the nine months ended September 30, 1997 representing the Company's
historical borrowing rate for each of these periods.
(C) Decrease in the provision for income taxes of $558,000 for the
year ended December 31, 1996, $80,000 for the nine months ended September
30, 1996 and an increase in the provision for income taxes of $65,000 for
the nine months ended September 30, 1997, reflecting the following:
(i) a decrease in the provision for income taxes of $888,000 for
the year ended December 31, 1996, $660,000 for the nine months ended
September 30, 1996 and $307,000 for the nine months ended September 30,
1997 reflecting the tax effect of the pro forma statement of operations
adjustments related to the acquisitions included in the Pro Forma
Transactions, excluding non-deductible amortization of goodwill, using
the basic statutory income tax rate of 34% for those companies in the
United States and the United Kingdom and 45% for those companies in
Canada; and
29
<PAGE> 36
SPARKLING SPRING WATER GROUP LIMITED
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(ii) an increase in the provision for income taxes of $330,000 for
the year ended December 31, 1996, $580,000 for the nine months ended
September 30, 1996 and $372,000 for the nine months ended September 30,
1997 due to the tax effect of certain acquired companies losing
eligibility for reduced tax rates upon acquisition by the Company, using
the basic statutory income tax rate of 34% for those companies in the
United States and the United Kingdom and 45% for those companies in
Canada.
3. FINANCING ADJUSTMENTS
The effects of the Offering and the application of the net proceeds
therefrom on the unaudited pro forma consolidated financial statements are as
follows:
(A) An increase in interest expense of $6,917,000 for the year ended
December 31, 1996, $5,363,000 for the nine months ended September 30, 1996
and $5,331,000 for the nine months ended September 30, 1997, reflecting the
net of the following:
(i) related interest expense of $11,500,000 for the year ended
December 31, 1996 and $8,625,000 for each of the nine months ended
September 30, 1996 and 1997 on the Notes using an interest rate of
11.5%;
(ii) reduction of the "Total Pre-Financing" balance of interest of
$4,933,000 for the year ended December 31, 1996, $3,525,000 for the nine
months ended September 30, 1996 and $3,570,000 for the nine months ended
September 30, 1997, resulting from the repayment of all of the Company's
previously outstanding indebtedness as a result of the application of a
portion of the proceeds of the Offering to the repayment of all
outstanding amounts under the Existing Credit Facility and capital
leases; and
(iii) increase in interest expense of $350,000 for the year ended
December 31, 1996 and $263,000 for each of the nine months ended
September 30, 1996 and 1997 relating to the amortization of estimated
expenses of the Offering of $3.5 million amortized over a period of ten
years.
(B) A recovery of income taxes of $3,112,000 for the year ended
December 31, 1996, $2,413,000 for the nine months ended September 30, 1996
and $2,393,000 for the nine months ended September 30, 1997, representing
the tax savings associated with the above increase in net interest expense.
The effective income tax rate used to calculate the tax savings is 45%.
(C) An increase in cash of $17,130,000 reflecting the net of items (E)
through (G) below.
(D) Goodwill and deferred charges have been reduced in the amount of
$1,367,000, deferred taxes have been increased by $615,000 and the deficit
has been increased by $752,000, representing the write-off of deferred
financing fees.
(E) Reflects receipt of net proceeds of the Offering of $96,500,000,
comprised of gross proceeds of $100,000,000 and estimated expenses of
$3,500,000.
(F) Reflects utilization of $65,463,000 of the proceeds of the
Offering to retire the Existing Credit Facility, current maturities and
capitalized lease obligations.
(G) Reflects utilization of $14,169,000 of the proceeds of the
Offering to acquire shares from Gaspar, Clairvest, certain directors and
executive officers of the Company and certain other shareholders in
connection with the Reorganization. In addition, the Company intends to
sell
30
<PAGE> 37
SPARKLING SPRING WATER GROUP LIMITED
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
9,360 shares of Common Stock to certain members of management for aggregate
gross proceeds of approximately $262,000.
4. INTEREST ON SURPLUS CASH
The unaudited pro forma consolidated financial statements do not include
the potential earnings resulting from the investment of surplus cash. Had this
surplus cash been invested (assuming a 5.0% per annum rate of return), net
income would increase by approximately $471,000 for the year ended December 31,
1996 and $353,000 for each of the nine months ended September 30, 1996 and 1997.
5. RESTRUCTURING COSTS
The unaudited pro forma consolidated statements of operations do not
include the effect of expensing previously deferred costs of $752,000, net of
applicable taxes which were incurred in connection with the Company's Existing
Credit Facility or the effect of expensing $4,511,000 related to the repurchase
of previously issued compensatory stock options. Upon completion of the Offering
and repayment of amounts outstanding under the Existing Credit Facility, and
completion of the Reorganization, including the acquisition of Common Stock and
the repurchase of previously issued compensatory stock options, these deferred
costs and compensatory stock option amounts will be expensed in the financial
statements of the Company. The unaudited pro forma deficit as of September 30,
1997 includes the effect of both of these amounts.
31
<PAGE> 38
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following selected historical consolidated financial data of the
Company for the five years ended December 31, 1996 have been derived from the
consolidated financial statements of the Company which have been audited by
Ernst & Young, independent public accountants. The financial data for the nine
months ended September 30, 1996 and September 30, 1997 have been derived from
the Company's unaudited financial statements, which in the opinion of management
include all adjustments necessary for a fair presentation of the data for
interim periods. The results of operations for the nine months ended September
30, 1997 are not necessarily indicative of the results that may be expected for
the full fiscal year. The information set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the consolidated financial statements of the
Company, including the notes thereto, and "Unaudited Pro Forma Consolidated
Financial Data" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
(dollars in thousands) -------------------------------------------- -----------------
1992 1993 1994 1995 1996 1996 1997
------ ------ ------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenue............................................ $3,814 $3,867 $8,725 $15,349 $27,326 $21,064 $31,798
Cost of sales...................................... 1,430 1,139 1,755 2,863 4,676 3,403 5,864
Operating expenses................................. 1,839 2,175 5,356 9,041 15,756 12,636 16,818
Depreciation and amortization...................... 333 438 1,095 1,465 3,842 2,752 3,918
Interest expense................................... 228 228 625 1,294 2,481 1,703 2,901
Net income (loss) before extraordinary items....... (8) (63) (94) 411 166 216 1,234
Net (loss) income.................................. (8) (260) (238) 19 (307) (253) 1,234
OTHER DATA:
EBITDA(1).......................................... $545 $553 $1,614 $3,445 $6,894 $5,025 $9,116
EBITDA margin...................................... 14.3% 14.3% 18.5% 22.4% 25.2% 23.8% 28.7%
Ratio of EBITDA to interest expense................ 2.39 2.43 2.58 2.66 2.78 2.95 3.14
Cash provided by operating activities.............. (2) 237 1,029 1,491 3,216 2,866 3,540
Cash used in investing activities.................. 1,018 1,476 7,579 4,219 24,168 22,953 25,585
Cash provided by financing activities.............. 982 1,957 5,926 3,551 22,669 19,946 20,895
Net capital expenditures........................... 898 1,043 1,257 2,287 6,736 5,475 5,750
Installed cooler base(2)........................... 8,321 11,181 23,838 30,344 74,160 67,090 114,971
Ratio (deficiency) of earnings to fixed
charges(3)....................................... -- -- -- 1.4x 1.2x 1.3x 1.7x
BALANCE SHEET DATA:
Cash and cash equivalents.......................... $31 $731 $67 $860 $2,231 $577 $898
Total assets....................................... 3,895 5,398 13,835 18,521 44,409 41,905 69,852
Long-term debt(4).................................. 2,470 3,227 7,623 11,309 30,474 28,906 52,283
Common shareholders' equity (deficiency)........... 49 755 2,331 2,207 6,772 5,134 7,895
</TABLE>
- ---------------
(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 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) Installed cooler base information as of September 30, 1997 is adjusted to
reflect the acquisition of Cullyspring, which was completed on October 23,
1997.
(3) For the purpose of determining the ratio of earnings to fixed charges
"earnings" consist of net income before provision for corporate income
taxes, non-controlling interest, extraordinary items and fixed charges.
Fixed charges consist of interest expense and the interest portion of the
Company's rent expense (assumed to be one third of rent expense). Earnings
were inadequate to cover fixed charges by approximately $12,000, $95,000 and
$104,000 in the years ended December 31, 1992, 1993 and 1994, respectively.
(4) Includes amounts due under capital lease obligations, seller note and
current maturities.
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 7, 1994; Aquarporte (UK) Ltd.: April 26, 1995; Canadian Springs
Water Company Limited: January 18, 1996; Water Jug Enterprises Limited: May 10,
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 4, 1997; Soja Enterprises,
Inc.: June 4, 1997; and Crystal Springs Bottled Water Co., Inc: June 23, 1997.
32
<PAGE> 39
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 "Selected Historical Consolidated
Financial Data," "Unaudited Pro Forma Consolidated Financial Data" and the
consolidated financial statements of the Company and the other historical
financial statements, and the notes thereto, included elsewhere in this
Prospectus. This Prospectus contains, in addition to historical information,
forward-looking statements that include risks and uncertainties. The Company's
actual results may differ materially from those anticipated in these
forward-looking statements.
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 1996, the Company generated approximately 26.9% 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 installed base of water coolers and the monthly cooler rental
charge. From December 31, 1994 to December 31, 1996, the Company's installed
base of water coolers increased by 211.1% from 23,838 to 74,160. 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 61.5% of the Company's total revenue in 1996, is
driven by a number of factors, including the installed base of water coolers,
consumption of bottled water per customer and the price charged per bottle of
water.
The remaining 11.6% of the Company's total revenue in 1996 was generated
from related activities, including the sale of paper cups, coffee, water
filtration devices and water through vending machines. In addition, the Company
provides cooler sanitation services and bottles water for independent beverage
companies and supermarkets. 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 installed 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 elsewhere
in this Prospectus.
33
<PAGE> 40
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
statement of operations and other data of the Company.
NINE MONTHS ENDED SEPTEMBER 30, 1997 TO NINE MONTHS ENDED SEPTEMBER 30, 1996
Revenue. Revenue increased $10.7 million, or 51.0%, to $31.8 million in the
nine months ended September 30, 1997 compared to $21.1 million in the nine
months ended September 30, 1996. This increase resulted from the inclusion of
approximately $8.1 million in revenue from the following acquisitions completed
in fiscal 1996: (i) Mountain Fresh, acquired January 2, 1997, contributed
approximately $2.0 million in revenue and 4,600 water cooler customers; (ii)
Withey's Water, acquired January 28, 1997, contributed approximately $1.2
million in revenue and 3,000 water cooler customers; (iii) High Valley, acquired
January 30, 1997, contributed $0.6 million in revenue and 6,000 water cooler
customers; (iv) Water at Work, acquired February 5, 1997, contributed $3.4
million in revenue and 4,500 water cooler customers; and (v) Crystal Springs of
Portland, Oregon, acquired June 23, 1997, contributed $0.9 million in revenue
and 5,900 water cooler customers. The remaining $2.6 million, or 24.3%, was
primarily the result of additional water coolers installed in the Company's
existing territories and a full nine months being recognized in 1997 for the
1996 acquisitions.
After giving effect to the Pro Forma Transactions, the Company's revenue
would have increased $3.3 million, or 9.4%, to $38.6 million in the nine months
ended September 30, 1997 compared to $35.3 million in the nine months ended
September 30, 1996, primarily as a result of an increase in the installed cooler
base from approximately 99,500 to approximately 115,000.
Cost of Sales. Cost of sales increased $2.5 million, or 72.3%, to $5.9
million for the nine months ended September 30, 1997 compared to $3.4 million
for the nine months ended September 30, 1996 largely as a result of the
acquisitions completed in 1996 and 1997. Cost of sales as a percentage of
revenue increased to 18.4% in the nine months ended September 30, 1997 from
16.2% in the nine months ended September 30, 1996 based on faster growth in
revenue derived from ancillary activities, including retail sales of bottled
water and the provision of cooler sanitation services, which typically generate
lower margins.
After giving effect to the Pro Forma Transactions, cost of sales would have
increased $0.6 million, or 7.9%, to $8.3 million for the nine months ended
September 30, 1997 compared to $7.7 million for the nine months ended September
30, 1996 largely as a result of the increase in the installed cooler base. Cost
of sales as a percentage of revenue would have decreased slightly to 21.5% in
the nine months ended September 30, 1997 from 21.8% in the nine months ended
September 30, 1996.
Operating Expenses. Operating expenses increased $4.2 million or 33.1% to
$16.8 million in the nine months ended September 30, 1997 compared to $12.6
million in the nine months ended September 30, 1996 as a result of the
acquisitions completed in 1996 and 1997. Operating expenses as a percentage of
revenue decreased to 52.9% in the nine months ended September 30, 1997 from
60.0% in the nine months ended September 30, 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.
After giving effect to the Pro Forma Transactions, operating expenses would
have increased $0.2 million, or 1.1%, to $19.9 million in the nine months ended
September 30, 1997 compared to $19.7 million in the nine months ended September
30, 1996, as a result of the increase in the installed cooler base. Operating
expenses as a percentage of revenue would have decreased to 51.4% in the nine
months ended September 30, 1997 from 55.8% in the nine months ended September
30, 1996, primarily as a result of incremental sales volume being applied to
relatively fixed distribution costs.
EBITDA. For the reasons stated above, EBITDA for the nine months ended
September 30, 1997 increased by $4.1 million, or 81.4%, to $9.1 million from
$5.0 million for the nine months
34
<PAGE> 41
ended September 30, 1996. As a percentage of revenue, EBITDA for the nine months
ended September 30, 1997 increased to 28.7% from 23.8% for the nine months ended
September 30, 1996.
After giving effect to the Pro Forma Transactions, EBITDA would have
increased $2.6 million, or 32.6%, to $10.5 million for the nine months ended
September 30, 1997 compared to $7.9 million for the nine months ended September
30, 1996. As a percentage of revenue, EBITDA would have increased to 27.2% for
the nine months ended September 30, 1997 from 22.4% in the nine months ended
September 30, 1996.
Depreciation and Amortization. Depreciation and amortization expense
increased to $3.9 million in the nine months ended September 30, 1997 from $2.8
million in the nine months ended September 30, 1996. This increase was due to
significant increases in fixed assets as a result of the acquisitions
consummated in the period and the standard levels of capital expenditures for
existing operations.
After giving effect to the Pro Forma Transactions, depreciation and
amortization expense would have increased $0.1 million to $4.5 million in the
nine months ended September 30, 1997 from $4.4 million in the nine months ended
September 30, 1996 due to the higher depreciation expense associated with the
increased installed cooler base.
Interest Expense. Interest expense increased $1.2 million or 70.3% to $2.9
million in the nine months ended September 30, 1997 from $1.7 million in the
nine months ended September 30, 1996. This increase was a result of increased
borrowings made to fund acquisitions.
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 2,700 water cooler customers and (ii) Canadian
Springs, acquired in January 1996, contributed $9.1 million in revenue and
26,000 water cooler customers. The remaining $2.1 million, or 17.5%, was
primarily the result of 5,055 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 (selling, delivery and
administrative) increased $6.7 million, or 74.3%, to $15.7 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 59.0% 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 $2.4 million to $3.8 million in 1996 from $1.4 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 and to repay a portion of the
Company's existing indebtedness.
35
<PAGE> 42
YEAR ENDED DECEMBER 31, 1995 TO YEAR ENDED DECEMBER 31, 1994
Revenue. Revenue increased $6.6 million, or 75.9%, to $15.3 million in 1995
compared to $8.7 million in 1994. This increase resulted from the inclusion of
approximately $1.6 million of revenue from the acquisition of Aquaporte UK in
April 1995, which contributed 2,800 water cooler customers to the Company's
operations in the United Kingdom. The remaining $5.0 million was primarily the
result of additional water coolers installed in the Company's Canadian and U.K.
operations and the full year impact of acquisitions made in 1994.
Cost of Sales. Cost of sales increased $1.1 million, or 63.1%, to $2.9
million in 1995 compared to $1.8 million in 1994. Cost of sales as a percentage
of sales decreased to 18.7% in 1995 from 20.1% in 1994. This decrease as a
percentage of revenue was due to the newly acquired businesses, which were
mainly involved in the five- and six-gallon bottled water segment, generating
higher margins.
Operating Expenses. Operating expense (selling, delivery and
administrative) increased $3.7 million, or 68.8%, to $9.0 million in 1995
compared to $5.3 million in 1994, primarily as a result of the acquisitions
completed in 1994 and 1995. Selling, delivery and administrative costs as a
percentage of revenue decreased to 59.0% in 1995 from 61.4% in 1994. Delivery
costs declined as a percentage of revenue as increased sales volumes were
applied to relatively fixed distribution costs. This factor was offset by
administration costs increasing as a percentage of revenue as the Company
incurred additional expenses associated with managing the Company's U.K.
operations.
EBITDA. For the reasons stated above, EBITDA in 1995 increased by $1.8
million, or 113.4%, to $3.4 million from $1.6 million in 1995. As a percentage
of revenue, EBITDA increased to 22.4% in 1995 from 18.5% in 1994.
Depreciation and Amortization. Depreciation and amortization expense
increased $0.4 million to $1.5 million in 1995 from $1.1 million in 1994. This
increase was due to significant increases in 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 $0.7 million, or 107.0%, to
$1.3 million in 1995 from $0.6 million in 1994. This increase was primarily the
result of increased borrowings made to fund acquisitions.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has funded its capital and operating requirements
with a combination of cash flow from operations, borrowings under the Existing
Credit Facility 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 Offering and borrowings under the
Credit Agreement.
Net cash provided by operating activities was $3.5 million for the nine
months ended September 30, 1997 and $3.2 million in the year ended December 31,
1996. Net cash used in investment activities was $25.6 million for the nine
months ended September 30, 1997 and $24.2 million in the year ended December 31,
1996. These amounts related primarily to six acquisitions completed in the nine
months ended September 30, 1997 for $19.8 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 capital expenditures of $5.7 million in the
nine months ended September 30, 1997 and $6.7 million in 1996. Based on the
Company's existing operations, management expects that the Company's capital
expenditure requirements will total approximately $5.0 million from October 1,
1997 through 1998.
Borrowings under the Existing Credit Facility were secured by substantially
all of the Company's assets. At September 30, 1997, borrowings under the
Existing Credit Facility bore interest at a
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blended rate of 8.5% per annum. Borrowings under the Existing Credit Facility as
of September 30, 1997 were $47.3 million, and the Company borrowed an additional
$7.0 million under the Existing Credit Facility in connection with the
Cullyspring acquisition. The Company used a portion of the net proceeds from the
Offering to repay all amounts outstanding under the Existing Credit Facility and
expects to enter into the Credit Agreement. The Indenture specifically permits
the Company to enter into a senior credit facility providing borrowing
availability of up to $30.0 million and also provides for additional general
borrowing capacity of $10.0 million, all or a portion of which may be incurred
under such credit facility. See "Description of the Credit Agreement."
The Company believes that the net proceeds from the Offering, together with
available cash, cash generated from operations and available borrowings under
the Credit Agreement will be sufficient to finance the Company's working capital
and capital expenditure requirements as well as acquisitions for the foreseeable
future, which includes the next twelve months. 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. In addition, while the Company has received
proposals from certain prospective lenders with respect to the Credit Agreement,
such proposals are non-binding and no assurances can be given that the Company
will enter into the Credit Agreement on the terms currently contemplated or at
all. If the Company is unable to secure financing pursuant to the Credit
Agreement on satisfactory terms, it may be required to seek alternative sources
of financing, which may not be available to the Company on commercially
reasonable terms. The inability of the Company to consummate the Credit
Agreement or obtain other acceptable financing could have a material adverse
effect on the Company's plans for expansion. See "Risk Factors -- Dependence on
Financing for Expansion; Acquisition Strategy" and "Description of the Credit
Agreement."
YEAR 2000
The Company's 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 over the next six months. The Company does not expect the costs
associated with this upgrade to be material to the Company's consolidated
financial position, results of operations or cash flows.
GOVERNMENT REGULATION
The Company's operations are subject to the jurisdiction of the various
governmental and regulatory agencies which regulate the quality of drinking
water and other products, including the FDA in the United States, and the
Federal Department of Health and Welfare in Canada. In the United Kingdom,
bottled water is governed by the European Union's Mineral Water Directive and
Drinking Water in Containers Regulations. The Company believes that it is in
substantial compliance with all applicable laws and regulations and has all
required permits and licenses to conduct its business. Any failure by the
Company to comply with existing and future laws and regulations could subject it
to significant penalties. In addition, 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. See "Risk Factors -- Government
Regulation."
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The Private Notes were sold by Sparkling Spring on November 19, 1997 (the
"Issue Date") to the Initial Purchasers pursuant to the Purchase Agreement. The
Initial Purchasers subsequently sold the Private Notes in the United States to
QIBs, in reliance on Rule 144A and to a limited number of accredited investors
(as defined in Rule 501(A)(1), (2), (3) or (7), and outside the United States
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<PAGE> 44
in compliance with Regulation S under the Securities Act. As a condition to the
sale of the Private Notes, Sparkling Spring, the Subsidiary Guarantors and the
Initial Purchasers entered into the Registration Rights Agreement on the Issue
Date. Pursuant to the Registration Rights Agreement, each of Sparkling Spring
and the Subsidiary Guarantors agreed that they would, at their cost, to the
extent not prohibited by any applicable law or applicable interpretation of the
staff of the Commission, (i) prepare and, on or prior to 45 days after the Issue
Date, file with the Commission a Registration Statement under the Securities Act
with respect to the Exchange Offer, (ii) use their reasonable best efforts to
cause the Registration Statement relating to the Exchange Offer to be declared
effective by the Commission under the Securities Act on or prior to 150 days
after the Issue Date, and (iii) commence the Exchange Offer and use their
reasonable best efforts to issue, on or prior to 195 days after the Issue Date,
the Exchange Notes. A copy of the Registration Rights Agreement has been filed
as an exhibit to the Registration Statement of which this Prospectus is a part.
The Registration Statement is intended to satisfy certain of Sparkling Spring's
and the Subsidiary Guarantors' obligations under the Registration Rights
Agreement and the Purchase Agreement. See "-- Resale of the Exchange Notes."
Pursuant to the Registration Rights Agreement, if (i), because of any
change in law or in currently prevailing interpretations of the staff of the
Commission, Sparkling Spring and the Subsidiary Guarantors are not permitted to
effect the Exchange Offer, (ii) the Exchange Offer is not consummated within 195
days of the Issue Date, (iii) in certain circumstances, certain holders of
unregistered Exchange Notes so request, or (iv) in the case of any holder of
Private Notes that participates in the Exchange Offer, such holder does not
receive Exchange Notes on the date of the exchange that may be sold without
restriction under state and federal securities laws (other than due solely to
the status of such holder as an affiliate of Sparkling Spring within the meaning
of the Securities Act), then in each case, Sparkling Spring and the Subsidiary
Guarantors will (x) promptly deliver to the holders of Private Notes and the
Trustee under the Indenture written notice thereof and (y) at their sole
expense, (a) file a shelf registration statement covering resales of the Private
Notes (the "Shelf Registration Statement"), (b) use their reasonable best
efforts to cause the Shelf Registration Statement to be declared effective under
the Securities Act and (c) use their reasonable best efforts to, subject to
certain exceptions, keep effective the Shelf Registration Statement until the
earlier of two years after the Issue Date or such time all of the applicable
Private Notes have been sold thereunder. Pursuant to the Registration Rights
Agreement, Sparkling Spring will, in the event that a Shelf Registration
Statement is filed, provide to each holder of Private Notes copies of the
prospectus that is a part of the Shelf Registration Statement, notify each such
holder when the Shelf Registration Statement for the Private Notes has become
effective and take certain other actions as are required to permit unrestricted
resales of the Private Notes. A holder of Private Notes that sells Private Notes
pursuant to the Shelf Registration Statement will be required to be named as a
selling security holder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
Securities Act in connection with such sales and will be bound by the provisions
of the Registration Rights Agreement that are applicable to such a holder
(including certain indemnification rights and obligations). Additional interest
(the "Additional Interest") shall become payable by Sparkling Spring and the
Subsidiary Guarantors in respect of the Private Notes:
(i) if (A) neither the Registration Statement relating to the Exchange
Offer (the "Exchange Offer Registration Statement") nor the Shelf
Registration Statement is filed with the Commission on or prior to the date
required by the Registration Rights Agreement or (B) notwithstanding that
Sparkling Spring and the Subsidiary Guarantors have consummated or will
consummate an Exchange Offer, Sparkling Spring and the Subsidiary
Guarantors are required to file a Shelf Registration Statement and such
Shelf Registration Statement is not filed on or prior to the date required
by the Registration Rights Agreement, then commencing on the day after
either such required filing date, Additional Interest shall accrue on the
principal amount of the Private Notes at a rate of 0.50% per annum for the
first 90 days immediately
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following each such filing date, such Additional Interest rate increasing
by an additional 0.50% per annum at the beginning of each subsequent 90-day
period; or
(ii) if (A) the Exchange Offer Registration Statement is not declared
effective within 150 days after the Issue Date or (B) notwithstanding that
Sparkling Spring and the Subsidiary Guarantors have consummated or will
consummate an Exchange Offer, Sparkling Spring and the Subsidiary
Guarantors are required to file a Shelf Registration Statement and such
Shelf Registration Statement is not declared effective by the Commission on
or prior to the 75th day following the date such Shelf Registration
Statement was filed, then, commencing on the day after the date on which
the applicable Registration Statement was required to be declared
effective, Additional Interest shall accrue on the principal amount of the
Private Notes at a rate of 0.50% per annum for the first 90 days
immediately following such date, such Additional Interest rate increasing
by an additional 0.50% per annum at the beginning of each subsequent 90-day
period; or
(iii) if (A) Sparkling Spring and the Subsidiary Guarantors have not
exchanged Exchange Notes for all Private Notes validly tendered in
accordance with the terms of the Exchange Offer on or prior to the 45th day
after the date of this Prospectus or (B) if applicable, the Shelf
Registration Statement has been declared effective and such Shelf
Registration Statement ceases to be effective at any time prior to the
second anniversary of the Issue Date (other than as permitted by the
Registration Rights Agreement or after such time as all Private Notes have
been disposed of thereunder), then Additional Interest shall accrue on the
principal amount of the Private Notes at a rate of 0.50% per annum for the
first 90 days commencing on (x) the 46th day after such effective Date, in
the case of (A) above, or (y) the day such Shelf Registration Statement
ceases to be effective in the case of (B) above (other than as permitted by
the Registration Rights Agreement), such Additional Interest rate
increasing by an additional 0.50% per annum at the beginning of each
subsequent 90-day period;
provided, however, that the Additional Interest rate on the Private Notes may
not exceed at any one time in the aggregate 2.00% per annum; and provided,
further, that (1) upon the filing of the Exchange Offer Registration Statement
or a Shelf Registration Statement (in the case of clause (i) above), (2) upon
the effectiveness of the Exchange Offer Registration Statement or a Shelf
Registration Statement (in the case of clause (ii) above), or (3) upon the
exchange of Exchange Notes for all Private Notes tendered (in the case of clause
(iii)(A) above), or upon the effectiveness of the Shelf Registration Statement
which had ceased to remain effective (in the case of clause (iii)(B) above),
Additional Interest on the Private Notes as a result of such clause (or the
relevant subclause thereof), as the case may be, shall cease to accrue and, in
any case, such Additional Interest shall not be payable in respect of more than
one of the preceding provisions at any one time.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and the Letter of Transmittal, Sparkling Spring will accept any and all Private
Notes validly tendered and not withdrawn prior to the Expiration Date.
Sparkling Spring will issue $1,000 principal amount of Exchange Notes in
exchange for each $1,000 principal amount of outstanding Private Notes validly
tendered pursuant to the Exchange Offer and not withdrawn prior to the
Expiration Date. Holders may tender some or all of their Private Notes pursuant
to the Exchange Offer; provided, however, that Private Notes may be tendered
only in integral multiples of $1,000. The Exchange Offer is not conditioned upon
any minimum aggregate principal amount of Private Notes being tendered for
exchange.
The form and terms of the Exchange Notes are identical in all material
respects to the form and terms of the Private Notes except that the Exchange
Notes will have been registered under the Securities Act and, therefore, the
Exchange Notes will not bear legends restricting the transfer thereof and
holders of the Exchange Notes will not be entitled to any of the registration
rights of
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<PAGE> 46
holders of Private Notes under the Registration Rights Agreement (or related
rights to certain interest payments upon the failure of Sparkling Spring to
fulfill certain conditions set forth in the Registration Rights Agreement),
which rights will terminate upon the consummation of the Exchange Offer. The
Exchange Notes will evidence the same indebtedness as the Private Notes (which
they replace), and will be issued under, and be entitled to the benefits of, the
Indenture, which also authorized the issuance of the Private Notes, such that
both series of Notes will be treated as a single class of debt securities under
the Indenture. See "-- Resale of the Exchange Notes."
Interest on each Exchange Note will accrue (A) from the later of (i) the
last interest payment date on which interest was paid on the Private Note
surrendered in exchange therefor or (ii) if the Private Note is surrendered for
exchange on a date in a period on or after the record date for an interest
payment date to occur on or after the date of such exchange and as to which
interest will be paid, the date of such interest payment date or (B) if no
interest has been paid on the Private Notes, from the Issue Date.
As of the date of this Prospectus, $100,000,000 aggregate principal amount
of the Private Notes is outstanding, all of which is registered in the name of
Cede & Co., as nominee of the Depositary. Only a registered holder of the
Private Notes (or such holder's legal representative or attorney-in-fact) as
reflected on the records of DTC or the Trustee under the Indenture may
participate in the Exchange Offer. Solely for reasons of administration,
Sparkling Spring has fixed the close of business on , 1998 as
the record date for the Exchange Offer for purposes of determining the persons
to whom this Prospectus and the Letter of Transmittal will be mailed initially.
There will be no fixed record date for determining registered holders of the
Private Notes entitled to participate in the Exchange Offer.
Holders of the Private Notes do not have any appraisal or dissenters'
rights in connection with the Exchange Offer. Sparkling Spring intends to
conduct the Exchange Offer in accordance with the provisions of the Registration
Rights Agreement and the applicable requirements of the Securities Act, the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules
and regulations of the Commission thereunder.
Sparkling Spring shall be deemed to have accepted validly tendered Private
Notes when, as and if Sparkling Spring has given oral or written notice thereof
to the Exchange Agent. The Exchange Agent will act as agent for the tendering
holders of Private Notes for the purposes of receiving the Exchange Notes from
Sparkling Spring.
Holders who tender Private Notes in the Exchange Offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Private
Notes pursuant to the Exchange Offer. Sparkling Spring will pay all charges and
expenses, other than certain applicable taxes described below, in connection
with the Exchange Offer. See "-- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; TERMINATION
The term "Expiration Date" shall mean 5:00 p.m., New York City time on
, 1998, unless Sparkling Spring, in its sole discretion,
extends the Exchange Offer, in which case the term "Expiration Date" shall mean
the latest date and time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, Sparkling Spring will (i) notify the
Exchange Agent of any extension by oral or written notice and (ii) will make a
public announcement thereof (which shall include disclosure of the approximate
number of Private Notes deposited to date), each prior to 9:00 a.m., New York
City time, on the next business day after the previously scheduled Expiration
Date.
Sparkling Spring expressly reserves the right, in its sole discretion, (i)
to delay accepting any Private Notes, (ii) to extend the Exchange Offer, (iii)
if any conditions set forth below under "-- Certain Conditions to the Exchange
Offer" shall not have been satisfied (or shall occur), to terminate the Exchange
Offer by giving oral or written notice of such delay, extension or termination
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<PAGE> 47
to the Exchange Agent or (iv) to amend the terms of the Exchange Offer in any
manner. Any such delay in acceptance, extension, termination or amendment will
be followed as promptly as practicable by a press release or other public
announcement thereof. If the Exchange Offer is amended in a manner determined by
Sparkling Spring to constitute a material change, Sparkling Spring will promptly
disclose such amendment by means of a prospectus supplement that will be
distributed to the registered holders of Private Notes, and Sparkling Spring
will extend the Exchange Offer for a period of five to ten business days,
depending upon the significance of the amendment and the manner of disclosure to
such registered holders, if the Exchange Offer would otherwise expire during
such five to ten business day period. The rights reserved by Sparkling Spring in
this paragraph are in addition to Sparkling Spring's rights set forth below
under the caption "-- Certain Conditions to the Exchange Offer."
Without limiting the manner in which Sparkling Spring may choose to make a
public announcement of any delay, extension, amendment or termination of the
Exchange Offer, Sparkling Spring shall have no obligation to publish, advertise
or otherwise communicate any such public announcement, other than by making a
timely release to an appropriate news agency.
If Sparkling Spring extends the period of time during which the Exchange
Offer is open, or if it is delayed in accepting for exchange of, or in issuing
and exchanging the Exchange Notes for, any Private Notes, or is unable to accept
for exchange of, or issue Exchange Notes for, any Private Notes pursuant to the
Exchange Offer for any reason, then, without prejudice to Sparkling Spring's
rights under the Exchange Offer, the Exchange Agent may, on behalf of Sparkling
Spring, retain all Private Notes tendered, and such Private Notes may not be
withdrawn except as otherwise provided below in "-- Withdrawal of Tenders." The
adoption by Sparkling Spring of the right to delay acceptance for exchange of,
or the issuance and the exchange of the Exchange Notes for, any Private Notes is
subject to applicable law, including Rule 14e-1(c) under the Exchange Act, which
requires that Sparkling Spring pay the consideration offered or return the
Private Notes deposited by or on behalf of the holders thereof promptly after
the termination or withdrawal of the Exchange Offer.
RESALE OF THE EXCHANGE NOTES
Sparkling Spring is making the Exchange Offer in reliance on the
interpretations of the staff of the Commission as set forth in no-action letters
issued to third parties unrelated to Sparkling Spring. However, Sparkling Spring
has not sought its own no-action letter and there can be no assurance that the
staff of the Commission would make a similar determination with respect to the
Exchange Offer as it has in such no-action letters issued to such third parties.
With respect to the Exchange Notes, based upon these interpretations by the
staff of the Commission, Sparkling Spring believes that a holder (other than (i)
any person who is an "affiliate" of Sparkling Spring within the meaning of Rule
405 under the Securities Act or (ii) a broker-dealer that purchases Notes from
Sparkling Spring to resell pursuant to Rule 144A under the Securities Act or any
other available exemption under the Securities Act) who exchanges Private Notes
for Exchange Notes in the ordinary course of its business and is not engaging,
and has no intention to engage, and has no arrangement or understanding with any
person to participate, in the distribution of the Exchange Notes, will be
allowed to resell the Exchange Notes without further registration under the
Securities Act and without delivering to the purchasers of the Exchange Notes a
prospectus that satisfies the requirements of Section 10 of the Securities Act.
However, if any holder acquires Exchange Notes in the Exchange Offer for the
purpose of distributing or participating in the distribution of the Exchange
Notes or is a broker-dealer, such holder cannot rely on the position of the
staff of the Commission described above and must comply with the registration
and prospectus delivery requirements of the Securities Act in connection with
any resale transaction, unless an exemption from registration is otherwise
available. A broker-dealer that will receive Exchange Notes for its own account
in exchange for Private Notes, where such Private Notes were acquired by such
broker-dealer as a result of market-making or other trading activities, may be
deemed to be an "underwriter" within the meaning of the Securities Act and must
therefore deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such Exchange Notes. Each such broker-dealer
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that receives Exchange Notes for its own account in exchange for Private Notes,
where such Private Notes were acquired by such broker-dealer as a result of
market-making or other trading activities, must acknowledge in the Letter of
Transmittal that it will deliver a prospectus in connection with any resale of
such Exchange Notes. The Letter of Transmittal states that by so acknowledging
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by such a broker-dealer in connection with resales of any Exchange Notes
received in exchange for Private Notes acquired by such a broker-dealer for its
own account, as a result of market-making or other trading activities. Pursuant
to the Registration Rights Agreement, Sparkling Spring has agreed to make this
Prospectus, as it may be amended or supplemented from time to time, available to
any such broker-dealer that requests copies of such Prospectus in the Letter of
Transmittal for use in connection with any such resale for a period of up to 90
days after the Expiration Date. See "Plan of Distribution."
In addition, to comply with the securities laws of certain jurisdictions,
if applicable, the Exchange Notes may not be offered or sold unless they have
been registered or qualified for sale in such jurisdictions or an exemption from
registration or qualification is available and complied with. Sparkling Spring
and the Subsidiary Guarantors have agreed, pursuant to the Registration Rights
Agreement (subject to certain specified limitations set forth therein), to use
their reasonable best efforts to register or qualify the Exchange Notes for
offer or sale under the securities or blue sky laws of such jurisdictions as any
holder of the Notes reasonably requests in writing.
PROCEDURES FOR TENDERING
To tender in the Exchange Offer, a holder must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by the Letter of Transmittal, and mail or otherwise
deliver such Letter of Transmittal or such facsimile, or an Agent's Message (as
defined below), together with the Private Notes and any other required
documents, to the Exchange Agent prior to 5:00 p.m., New York City time, on the
Expiration Date. In addition, either (i) the certificates for such Private Notes
must be received by the Exchange Agent along with the Letter of Transmittal or
(ii) a timely confirmation of a book-entry transfer (a "Book-Entry
Confirmation") of such Private Notes, if such procedure is available, into the
Exchange Agent's account at The Depository Trust Company (the "Book-Entry
Transfer Facility") pursuant to the procedure for book-entry transfer described
below, must be received by the Exchange Agent prior to the Expiration Date or
(iii) the holder must comply with the guaranteed delivery procedures described
below. The tender by a holder of Private Notes will constitute an agreement
between such holder and Sparkling Spring in accordance with the terms and
subject to the conditions set forth herein and in the Letter of Transmittal.
Delivery of all documents must be made to the Exchange Agent at its address set
forth herein. Holders may also request that their respective brokers, dealers,
commercial banks, trust companies or nominees effect such tender for such
folders.
The term "Agent's Message" means a message, transmitted by the Book-Entry
Transfer Facility to, and received by, the Exchange Agent and forming a part of
a Book-Entry Confirmation, which states that such Book-Entry Transfer Facility
has received an express acknowledgment from the participant in such Book-Entry
Transfer Facility tendering Private Notes which are the subject of such
Book-Entry Confirmation that such participant has received and agrees to be
bound by the terms of the Letter of Transmittal, and that Sparkling Spring may
enforce such agreement against such participant.
The method of delivery of Private Notes and the Letter of Transmittal and
all other required documents to the Exchange Agent is at the election and risk
of the holders. Instead of delivery by mail, it is recommended that holders use
an overnight or hand delivery service. In all cases, sufficient time should be
allowed to assure timely delivery. No Letter of Transmittal or Private Notes
should be sent to Sparkling Spring. Only a holder of Private Notes may tender
such Private Notes in the Exchange Offer. The term "holder" with respect to the
Exchange Offer means any person in
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whose name Private Notes are registered on the books of Sparkling Spring or any
other person who has obtained a properly completed stock power from the
registered holder.
Any beneficial holder whose Private Notes are registered in the name of
such holder's broker, dealer, commercial bank, trust company or other nominee
and who wishes to tender should contact such registered holder promptly and
instruct such registered holder to tender on behalf of the registered holder. If
such beneficial holder wishes to tender directly, such beneficial holder must,
prior to completing and executing the Letter of Transmittal and delivering his
Private Notes, either make appropriate arrangements to register ownership of the
Private Notes in such holder's name or obtain a properly completed bond power
from the registered holder. The transfer of record ownership may take
considerable time. If the Letter of Transmittal is signed by the record
holder(s) of the Private Notes tendered thereby, the signature must correspond
with the name(s) written on the face of the Private Notes without alteration,
enlargement or any change whatsoever. If the Letter of Transmittal is signed by
a participant in Depositary Trust Company (the "DTC"), the signature must
correspond with the name as it appears on the security position listing as the
holder of the Private Notes. Signatures on a Letter of Transmittal or a notice
of withdrawal, as the case may be, must be guaranteed by a member firm of a
registered national securities exchange or of the National Association of
Securities Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or an "eligible guarantor institution" within
the meaning of Rule 17Ad-15 under the Exchange Act (an "Eligible Institution")
unless the Private Notes tendered pursuant thereto are tendered (i) by a
registered holder (or by a participant in DTC whose name appears on a security
position listing as the owner) who has not completed the box entitled "Special
Issuance Instructions" or "Special Delivery Instructions" on the Letter of
Transmittal and the Exchange Notes are being issued directly to such registered
holder (or deposited into the participant's account at DTC) or (ii) for the
account of an Eligible Institution. If the Letter of Transmittal is signed by a
person other than the registered holder of any Private Notes listed therein,
such Private Notes must be endorsed or accompanied by appropriate bond powers
which authorize such person to tender the Private Notes on behalf of the
registered holder, in either case signed as the name of the registered holder or
holders appears on the Private Notes. If the Letter of Transmittal or any
Private Notes or bond powers are signed by trustees, executors, administrators,
guardians, attorneys-in-fact, officers of corporations or others acting in a
fiduciary or representative capacity, such persons should so indicate when
signing, and unless waived by Sparkling Spring, evidence satisfactory to
Sparkling Spring of their authority to so act must be submitted with the Letter
of Transmittal.
A tender will be deemed to have been received as of the date when the
tendering holder's duly signed Letter of Transmittal accompanied by Private
Notes (or a timely confirmation received of a book-entry transfer of Private
Notes into the Exchange Agent's account at DTC with an Agent's Message) or a
Notice of Guaranteed Delivery from an Eligible Institution is received by the
Exchange Agent. Issuances of Exchange Notes in exchange for Private Notes
tendered pursuant to a Notice of Guaranteed Delivery by an Eligible Institution
will be made only against delivery of the Letter of Transmittal (and any other
required documents) and the tendered Private Notes (or a timely confirmation
received of a book-entry transfer of Private Notes into the Exchange Agent's
account at DTC) with the Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of the tendered Private Notes will be
determined by Sparkling Spring in its sole discretion, which determination will
be final and binding. The Company reserves the absolute right to reject any and
all Private Notes not properly tendered or any Private Notes Sparkling Spring's
acceptance of which would, in the opinion of Sparkling Spring or its counsel, be
unlawful. The Company also reserves the absolute right to waive any conditions
of the Exchange Offer or defects or irregularities in tender as to particular
Private Notes. The Company's interpretation of the terms and conditions of the
Exchange Offer (including the instructions in the Letter of Transmittal) shall
be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Private Notes must be cured within
such time as Sparkling Spring shall determine. Neither
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Sparkling Spring, the Exchange Agent nor any other person shall be under any
duty to give notification of defects or irregularities with respect to tenders
of Private Notes nor shall any of them incur any liability for failure to give
such notification. Tenders of Private Notes will not be deemed to have been made
until such irregularities have been cured or waived. Any Private Notes received
by the Exchange Agent that are not properly tendered and as to which the defects
or irregularities have not been cured or waived will be returned without cost by
the Exchange Agent to the tendering holder of such Private Notes unless
otherwise provided in the Letter of Transmittal, as soon as practicable
following the Expiration Date. In addition, Sparkling Spring reserves the right
in its sole discretion to (i) purchase or make offers for any Private Notes that
remain outstanding subsequent to the Expiration Date, or, as set forth under
"-- Termination," to terminate the Exchange Offer and (ii) to the extent
permitted by applicable law, purchase Private Notes in the open market, in
privately negotiated transactions or otherwise. The terms of any such purchases
or offers may differ from the terms of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will establish an account with respect to the Private
Notes at DTC within two business days after the date of this Prospectus, and any
financial institution which is a participant in DTC may make book-entry delivery
of the Private Notes by causing DTC to transfer such Private Notes into the
Exchange Agent's account in accordance with DTC's procedure for such transfer.
Although delivery of Private Notes may be effected through book-entry transfer
into the Exchange Agent's account at DTC, an Agent's Message must be transmitted
to and received by the Exchange Agent on or prior to the Expiration Date at one
of its addresses set forth below under "-- Exchange Agent," or the guaranteed
delivery procedure described below must be complied with. DELIVERY OF DOCUMENTS
TO DTC DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT. All references in
this Prospectus to deposit or delivery of Private Notes shall be deemed to
include DTC's book-entry delivery method.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Private Notes and whose Private Notes are
not immediately available or who cannot deliver their Private Notes, the Letter
of Transmittal or any other required documents to the Exchange Agent prior to
the Expiration Date, or who cannot complete the procedure for book-entry
transfer on a timely basis and deliver an Agent's Message, may effect a tender
if: (i) the tender is made by or through an Eligible Institution; (ii) prior to
the Expiration Date, the Exchange Agent receives from such Eligible Institution
a properly completed and duly executed Notice of Guaranteed Delivery (by
facsimile transmission, mail or hand delivery) setting forth the name and
address of the holder of the Private Notes, the registration number or numbers
of such Private Notes (if applicable), and the total principal amount of Private
Notes tendered, stating that the tender is being made thereby and guaranteeing
that, within five business days after the Expiration Date, the Letter of
Transmittal, together with the Private Notes in proper form for transfer (or a
confirmation of a book-entry transfer into the Exchange Agent's account at DTC)
and any other documents required by the Letter of Transmittal, will be deposited
by the Eligible Institution with the Exchange Agent; and (iii) such properly
completed and executed Letter of Transmittal, together with the certificate(s)
representing all tendered Private Notes in proper form for transfer (or a
confirmation of such a book-entry transfer) and all other documents required by
the Letter of Transmittal are received by the Exchange Agent within five
business days after the Expiration Date.
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The Letter of Transmittal contains terms and conditions which are
summarized below and are part of the Exchange Offer.
Each holder who participates in the Exchange Offer will be required to
represent that any Exchange Notes received by it will be acquired in the
ordinary course of its business, that such holder is not participating in, and
has no arrangement with any person to participate in, the
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<PAGE> 51
distribution (within the meaning of the Securities Act) of the Exchange Notes,
and that such holder is not a restricted holder.
Private Notes tendered in exchange for Exchange Notes (or a timely
confirmation of a book-entry transfer of such Private Notes into the Exchange
Agent's account at DTC) must be received by the Exchange Agent, with the Letter
of Transmittal or an Agent's Message and any other required documents, by the
Expiration Date or within the time periods set forth above pursuant to a Notice
of Guaranteed Delivery from an Eligible Institution. Each holder tendering the
Private Notes for exchange sells, assigns and transfers the Private Notes to the
Exchange Agent, as agent of Sparkling Spring, and irrevocably constitutes and
appoints the Exchange Agent as the holder's agent and attorney-in-fact to cause
the Private Notes to be transferred and exchanged. The holder warrants that it
has full power and authority to tender, exchange, sell, assign and transfer the
Private Notes and to acquire the Exchange Notes issuable upon the exchange of
such tendered Private Notes, that the Exchange Agent, as agent of Sparkling
Spring, will acquire good and unencumbered title to the tendered Private Notes,
free and clear of all liens, restrictions, charges and encumbrances, and that
the Private Notes tendered for exchange are not subject to any adverse claims
when accepted by the Exchange Agent, as agent of Sparkling Spring. The holder
also warrants and agrees that it will, upon request, execute and deliver any
additional documents deemed by Sparkling Spring or the Exchange Agent to be
necessary or desirable to complete the exchange, sale, assignment and transfer
of the Private Notes. All authority conferred or agreed to be conferred in the
Letter of Transmittal by the holder will survive the death, incapacity or
dissolution of the holder and any obligation of the holder shall be binding upon
the heirs, personal representatives, successors and assigns of such holder.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Private Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the business
day prior to the Expiration Date, unless previously accepted for exchange. To
withdraw a tender of Private Notes in the Exchange Offer, a written or facsimile
transmission notice of withdrawal must be received by the Exchange Agent at its
address set forth herein prior to 5:00 p.m., New York City time, on the business
day prior to the Expiration Date and prior to acceptance for exchange thereof by
Sparkling Spring. Any such notice of withdrawal must (i) specify the name of the
person having deposited the Private Notes to be withdrawn (the "Depositor"),
(ii) identify the Private Notes to be withdrawn (including, if applicable, the
registration number or numbers and total principal amount of such Private
Notes), (iii) be signed by the Depositor in the same manner as the original
signature on the Letter of Transmittal by which such Private Notes were tendered
(including any required signature guarantees) or be accompanied by documents of
transfer sufficient to permit the Trustee with respect to the Private Notes to
register the transfer of such Private Notes into the name of the Depositor
withdrawing the tender, (iv) specify the name in which any such Private Notes
are to be registered, if different from that of the Depositor and (v) if
applicable because the Private Notes have been tendered pursuant to the
book-entry procedures, specify the name and number of the participant's account
at DTC to be credited, if different than that of the Depositor. All questions as
to the validity, form and eligibility (including time of receipt) of such
withdrawal notices will be determined by Sparkling Spring, whose determination
shall be final and binding on all parties. Any Private Notes so withdrawn will
be deemed not to have been validly tendered for purposes of the Exchange Offer
and no Exchange Notes will be issued with respect thereto unless the Private
Notes so withdrawn are validly retendered. Any Private Notes which have been
tendered but which are not accepted for exchange will be returned to the holder
thereof without cost to such holder as soon as practicable after withdrawal,
rejection of tender or termination of the Exchange Offer. Properly withdrawn
Private Notes may be retendered by following one of the procedures described
above under "-- Procedures for Tendering" at any time prior to the Expiration
Date.
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CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other term of the Exchange Offer, Sparkling Spring
shall not be required to accept for exchange, or exchange the Exchange Notes
for, any Private Notes not theretofore accepted for exchange, and may terminate
the Exchange Offer as provided herein before the acceptance of such Private
Notes, if any of the following shall occur:
(a) any action or proceeding is instituted or threatened in any court or by
or before any governmental agency which would be reasonably likely to materially
impair the ability of Sparkling Spring to proceed with the Exchange Offer or
there shall have occurred any material adverse development in any existing
action or proceeding with respect to Sparkling Spring or any of its
subsidiaries; or
(b) the Exchange Offer shall violate any applicable law, rule, regulation
or interpretation of the staff of the Commission; or
(c) any governmental approval which Sparkling Spring shall deem necessary
for the consummation of the Exchange Offer as contemplated hereby shall not have
been obtained.
If Sparkling Spring determines in its reasonable discretion that any of
these conditions are not satisfied (or any of such events shall have occurred),
Sparkling Spring may (i) refuse to accept any Private Notes and return all
tendered Private Notes to the tendering holders and/or terminate the Exchange
Offer, (ii) extend the Exchange Offer and retain all Private Notes tendered
prior to the expiration of the Exchange Offer, subject, however, to the rights
of holders to withdraw such Private Notes (see "-- Withdrawal of Tenders") or
(iii) waive such unsatisfied conditions with respect to the Exchange Offer and
accept all properly tendered Private Notes which have not been withdrawn. If
such waiver constitutes a material change to the Exchange Offer, Sparkling
Spring will promptly disclose such waiver by means of a prospectus supplement
that will be distributed to the registered holders of the Private Notes, and
Sparkling Spring will extend the Exchange Offer for a period of five to business
days, depending upon the significance of the waiver and the manner of disclosure
to the registered holders, if the Exchange Offer would otherwise expire during
such five to ten business day period.
Holders may have certain rights and remedies against Sparkling Spring under
the Registration Rights Agreement should Sparkling Spring fail to consummate the
Exchange Offer, notwithstanding a failure of the conditions stated above. Such
conditions are not intended to modify those rights or remedies in any respect.
The foregoing conditions are for the sole benefit of Sparkling Spring and
may be asserted by Sparkling Spring regardless of the circumstances giving rise
to such condition or may be waived by Sparkling Spring in whole or in part at
any time and from time to time in Sparkling Spring's reasonable discretion. The
failure by Sparkling Spring at any time to exercise the foregoing rights shall
not be deemed a waiver of any such right and each such right shall be deemed an
ongoing right which may be asserted at any time and from time to time.
TERMINATION
Notwithstanding any other term of the Exchange Offer, Sparkling Spring will
not be required to accept for exchange any Private Notes not theretofore
accepted for exchange, and may terminate the Exchange Offer if it determines
that the Exchange Offer violates any applicable law or interpretation of the
staff of the Commission.
If Sparkling Spring determines that it may terminate the Exchange Offer, as
set forth above, Sparkling Spring may (i) refuse to accept any Private Notes and
return any Private Notes that have been tendered to the holders thereof, (ii)
extend the Exchange Offer and retain all Private Notes tendered prior to the
Expiration of the Exchange Offer, subject to the rights of such holders of
tendered Private Notes to withdraw their tendered Private Notes or (iii) waive
such termination event with respect to the Exchange Offer and accept all
properly tendered Private Notes that have not been withdrawn. If such waiver
constitutes a material change in the Exchange Offer, Sparkling
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Spring will disclose such change by means of a supplement to this Prospectus
that will be distributed to each registered holder of Private Notes, and
Sparkling Spring will extend the Exchange Offer for a period of five to ten
business days, depending upon the significance of the waiver and the manner of
disclosure to the registered holders of the Private Notes, if the Exchange Offer
would otherwise expire during such period.
EXCHANGE AGENT
Bankers Trust Company, the trustee under the Indenture, has been appointed
as Exchange Agent for the Exchange Offer. Questions and requests for assistance
and requests for additional copies of this Prospectus or of the Letter of
Transmittal should be directed to the Exchange Agent addressed as follows:
<TABLE>
<S> <C>
By Mail: By Hand or Overnight Courier:
BT Services Tennessee, Inc. BT Services Tennessee, Inc.
Reorganization Unit Corporate Trust and Agency Group
P.O. Box 292737 Reorganization Unit
Nashville, TN 37229-2737 648 Grassmere Park Road
Nashville, TX 37211
</TABLE>
Facsimile Transmission: (615) 835-3701
Confirm by Telephone: (615) 835-3572
FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by Sparkling Spring. The principal solicitation for tenders pursuant to
the Exchange Offer is being made by mail. Additional solicitations may be made
by officers and regular employees of Sparkling Spring and its affiliates in
person, by telegraph or telephone. The Company will not make any payments to
brokers, dealers or other persons soliciting acceptance of the Exchange Offer.
The Company, however, will pay the Exchange Agent reasonable and customary fees
for its services and will reimburse the Exchange Agent for its reasonable
out-of-pocket expenses in connection therewith. The Company may also pay
brokerage houses and other custodians, nominees and fiduciaries the reasonable
out-of-pocket expenses incurred by them in forwarding copies of this Prospectus,
Letters of Transmittal and related documents to the beneficial owners of the
Private Notes and in handling or forwarding tenders for exchange.
The other expenses incurred in connection with the Exchange Offer,
including fees and expenses of the Exchange Agent and Trustee and accounting and
legal fees, will be paid by Sparkling Spring. The Company will pay all transfer
taxes, if any, applicable to the exchange of Private Notes pursuant to the
Exchange Offer. If, however, Exchange Notes or Private Notes not tendered or
accepted for exchange are to be delivered to, or are to be registered or issued
in the name of, any person other than the registered holder of the Private Notes
tendered, or if tendered Private Notes are registered in the name of any person
other than the person signing the Letter of Transmittal, or if a transfer tax is
imposed for any reason other than the exchange of Private Notes pursuant to the
Exchange Offer, then the amount of any such transfer taxes (whether imposed on
the registered holder or any other persons) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption therefrom
is not submitted with the Letter of Transmittal, the amount of such transfer
taxes will be billed directly to such tendering holder.
TERMINATION OF CERTAIN RIGHTS
All registration rights under the Registration Rights Agreement of holders
of the Private Notes eligible to participate in the Exchange Offer (and all
rights to receive Additional Interest as described under "-- Purpose of the
Exchange Offer") will terminate upon consummation of the Exchange Offer except
with respect to Sparkling Spring's continuing obligations (i) to indemnify the
holders (including any broker-dealers) and certain parties related to the
holders against certain
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liabilities (including liabilities under the Securities Act), and (ii) for a
period of up to 90 days after the Expiration Date, to use its reasonable best
efforts to keep the Registration Statement effective and to provide copies of
the latest version of the Prospectus to any broker-dealer that requests copies
of such Prospectus in the Letter of Transmittal for use in connection with any
resale by such broker-dealer of Exchange Notes received for its own account
pursuant to the Exchange Offer. Insofar as indemnification for liabilities
arising under the Securities Act may be permitted pursuant to the foregoing
provisions, Sparkling Spring has been informed that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the
Private Notes as reflected in Sparkling Spring's accounting records on the date
of the exchange. Accordingly, no gain or loss for accounting purposes will be
recognized. The expenses of the Exchange Offer will be amortized over the term
of the Exchange Notes.
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THE COMPANY
The Company believes it is one of the world's largest providers of bottled
water delivered directly to the residential and commercial markets. Presently,
the Company believes it has the leading market share position in British
Columbia and the Maritime Provinces of Canada, England and Scotland in the
United Kingdom, and the State of Oregon in the United States. In addition, the
Company believes it has the second largest market share in the State of
Washington.
Company sales by geographic market for each of the past three fiscal years
are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---------- ----------- -----------
<S> <C> <C> <C>
Canada................................... $4,478,547 $ 5,061,581 $15,363,998
United Kingdom........................... 4,246,757 10,287,533 11,962,351
---------- ----------- -----------
$8,725,306 $15,349,114 $27,326,349
========== =========== ===========
</TABLE>
The Company's strategy has been to achieve strong market positions in a
number of attractive markets and thereby realize the operating leverage that can
be obtained once a distribution system is established. 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 has grown through both strong internal growth and the execution
of a proven acquisition strategy. The Company's revenue and EBITDA have
increased from $3.8 million and $0.5 million, respectively, in 1992, to $27.3
million and $6.9 million, respectively, in 1996, representing a CAGR of 63.6%
and 88.6%, respectively. On a pro forma basis, revenue and EBITDA for the nine
months ended September 30, 1997 of $38.6 million and $10.5 million,
respectively, increased by 9.4% and 32.6% compared to the prior year period,
reflecting the significant internal growth of the Company's operations.
The Company has been successful in the consolidation of the highly
fragmented bottled water industry by executing a disciplined acquisition
strategy. In addition, the Company has significantly improved the operations and
profitability of each company it has acquired. For the 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 that it has realized similar improved performance in its other
acquisitions for which post-acquisition information is available. Since January
1, 1997, the Company has completed nine acquisitions through which it entered
the attractive U.S. bottled water market and expanded its leadership positions
in Canada and the United Kingdom. See "Unaudited Pro Forma Consolidated
Financial Data" and "Management's Discussion and Analysis of Financial Audits
and Results of Operations."
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 its consolidation efforts in the highly fragmented bottled water
industry. In particular, the Company expects to continue to pursue the following
four 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, will provide the Company with significant growth
opportunities for the foreseeable future. The Company believes that health
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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 and that 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 incremental cost and inconvenience factors 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.
Management believes the water cooler business is less competitive than other
segments of the bottled water industry due to the relative capital intensity of
the operations. 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 is expected 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 1992 to 25.2% in
1996 and 28.7% in the nine months ended September 30, 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 new 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, the Company is able to reduce its average acquisition
multiple by opportunistically acquiring "spoke" distribution routes at more
attractive prices due to the limited strategic options available to these
smaller operators. In addition to buying companies at lower multiples of EBITDA,
management believes that it has been able to create value by improving the
operations of acquired entities and by realizing operating synergies. The
Company's recent acquisitions of Cullyspring and CSD demonstrate its plan to
continue to expand in the U.S. Cullyspring is the second largest water cooler
provider in Washington, and management believes it has the opportunity to
enhance its market position through fill-in acquisitions. See "Recent
Developments." The Company will continue to pursue strategic acquisitions,
subject to their availability on favorable terms. Acquisitions by the
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Company in its existing geographic markets are preferred, but acquisitions in
other geographic markets will also be considered.
Provide Outstanding Customer Service. The Company believes quality of
service and reliability of delivery are and will continue to be 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 churn rate was approximately 2.0% per month in 1996 and
1.6% per month for the nine months ended September 30, 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.
INVESTMENT HIGHLIGHTS
Attractive Industry Fundamentals. The Company believes that the
"alternative to tap water" market represents an attractive industry opportunity
due to the strong growth in demand for bottled water in the Company's primary
markets and the ability to enhance profit margins as revenue grows. In the U.S.,
bottled water continues to be the fastest growing segment of the beverage
industry, according to a study prepared by Beverage Marketing Corporation. Total
bottled water consumption in the U.S. increased from 2.8 gallons per capita in
1980 to 11.7 gallons per capita in 1996. According to Zenith International Ltd.,
in the U. K., total bottled water consumption increased at a CAGR of 11.2% from
1990 to 1996, with annual consumption increasing from 1.9 gallons per capita in
1990 to 3.6 gallons per capita in 1996.
Management believes the strong industry growth will continue to be driven
by: (i) concerns related to the quality of tap water, (ii) trends in consumer
selection of healthy products, (iii) taste preferences over tap water and other
refreshment beverages and (iv) favorable demographics.
Leading Market Share. The Company believes it holds leading market share
positions in the water cooler markets which it serves. Based upon its own
internal estimates, the Company believes it has approximately 45% market share
in British Columbia, 70% in the Maritime Provinces, 22% in the United Kingdom,
40% 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 estimated leadership position in
its markets, the Company benefits from several competitive advantages over
smaller operators, including more efficient distribution operations, purchasing
synergies, superior 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.
Significant Installed Cooler Base. The Company delivers bottled water to a
significant installed base of approximately 115,000 water coolers in its served
markets. Customers typically sign a one-year contract, providing the Company
with a dual stream of relatively stable and recurring revenue from both a
monthly cooler rental charge and the sale of bottled water. The Company believes
that direct delivery water cooler companies enjoy several advantages over
retailers of bottled water. Customers suffer both incremental cost and
inconvenience 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 provides a second significant barrier to
entry.
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Proven Beverage Industry Consolidation Track Record. The Company has a
successful record of completing and integrating acquisitions, having made 14
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 at what it
believes to be attractive purchase price multiples, management has dramatically
improved the operations and profitability of each acquired company. For the four
acquired companies for which the Company has comparable full-year
pre-acquisition and post-acquisition data, revenues and EBITDA increased, on
average, by 18.5% and 64.0%, respectively, in the first year after the
acquisition. Management believes its reputation as a proven and well-capitalized
industry consolidator facilitates its access to additional acquisition
candidates and generates unsolicited offers from prospective sellers.
Experienced Management Team with Significant Equity Ownership. 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 of Sparkling Spring (after giving effect to the Reorganization). Mr.
Krediet successfully executed a consolidation of Canadian Pepsi-Cola bottlers
and, together with Stephen L. Larson, identified the bottled water consolidation
opportunity. Stephen L. Larson, Vice Chairman and chief financial officer of
Sparkling Spring, has led the Company's successful acquisition strategy. In
addition to identifying new acquisition targets, Mr. Larson has been responsible
for the negotiation, financing, consummation and integration of each of the
Company's acquisitions. Stewart E. Allen, President of Sparkling Spring, has
managed the operations of the business focusing on profitably increasing the
penetration levels in each of its markets. The senior management team is
strongly motivated through its equity ownership of 63.9% of the Common Stock of
Sparkling Spring (including shares beneficially owned by a trust for the benefit
of the family of one senior manager), after giving effect to the Reorganization.
Management has successfully consolidated both water cooler companies and
Pepsi-Cola bottlers, and has consistently demonstrated an ability to achieve
strong internal growth and to identify, acquire, integrate and improve the
performance of acquired companies. Effective April 3, 1998, Stephen L. Larson,
will resign from his positions as an officer of Sparkling Spring and as an
officer and director of each of its subsidiaries to pursue other business
interest. Mr. Larson will continue to serve as a director of Sparkling Spring.
Kent Dillon Schickli will replace Mr. Larson as chief financial officer of
Sparkling Spring effective April 3, 1998. See "Management."
Strong Financial Performance. The success of the Company's operating
strategy is evidenced by its growth in revenue and EBITDA over the past five
years. Revenue increased at a CAGR of 63.6% from $3.8 million in 1992 to $27.3
million in 1996. Over the same period, EBITDA increased at a CAGR of 88.6% from
$0.5 million to $6.9 million, with EBITDA margins increasing from 14.3% to
25.2%. In addition to expansion through acquisitions, the Company's operations
exhibit significant internal growth. On a pro forma basis, revenue and EBITDA of
$38.6 million and $10.5 million, respectively, increased 9.4% and 32.6%,
respectively, in the nine months ended September 30, 1997 over the comparable
period in the prior year.
The principal executive offices of Sparkling Spring are located at 19
Fielding Avenue, Dartmouth, Nova Scotia, Canada B3B-1C9, and its telephone
number at that address is (902) 468-8430. The Company also maintains executive
offices in the U.S. at One Landmark Square, Stamford, CT 06901, and its
telephone number at that address is (203) 325-0077.
HISTORY
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 MBL, a Pepsi-Cola bottler,
which was managed by G. John Krediet and Stephen L. Larson, principals of CFCC.
When MBL sold its soft drink bottling holdings to Pepsi-Cola Canada Limited in
1992, Messrs. Krediet and Larson retained their ownership of SSWL. Recognizing
the
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growth opportunities in the bottled water industry, Messrs. Krediet and Larson
identified SSWL as their platform for consolidation and recruited Stewart E.
Allen from MBL to manage the day-to-day operations of the Company. Messrs.
Krediet, Larson and Allen have managed the Company since late 1992, when they
began to grow the water cooler business in Nova Scotia and New Brunswick. Since
1993, the Company has successfully completed 14 acquisitions. These acquisitions
have enabled the Company to rapidly expand into attractive markets and increase
production capacity. Additionally, the management team has been responsible for
introducing new investors to the Company, including Clairvest and certain
members of the MacMillan family.
In connection with the Offering, Sparkling Spring was formed as a holding
company and the shareholders of SSWL received either an equivalent number of
shares of Common Stock of Sparkling Spring or a combination of Common Stock and
cash. The total cash payments to shareholders of SSWL in connection with the
Reorganization, including Gaspar, Clairvest and certain directors and executive
officers of the Company, were funded with a portion of the net proceeds to the
Company from the Offering. In addition, in connection with the Reorganization
and the Offering, the Company sold shares of Common Stock to certain members of
management for aggregate gross proceeds to the Company of approximately
$262,000. See "Capitalization" and "Certain Relationships and Related
Transactions -- Reaquisitions."
RECENT DEVELOPMENTS
On October 23, 1997, the Company acquired all of the issued and outstanding
shares of capital stock of Cullyspring for $7.0 million, including transaction
expenses. Cullyspring 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, Sparkling Spring Water Limited, a
wholly-owned subsidiary of Sparkling Spring, purchased all of the outstanding
capital stock of Coastal Mountain Water Corp. for approximately $4.2 million.
Coastal is based in Vancouver and focuses on the direct delivery of eighteen
litre containers of water to residential and commercial customers and the rental
of water coolers.
These acquisitions represent a continuation of the Company's consolidation
activities in the attractive Pacific Northwest market. In this market, the
Company now services territories from Eugene, Oregon through British Columbia,
with primary markets in Portland, Oregon; Seattle, Washington; and Vancouver,
British Columbia.
Effective April 3, 1998, Stephen L. Larson, the Vice Chairman of the Board
of Directors and Chief Financial Officer of Sparkling Spring, will resign from
his positions as an 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 will
replace Mr. Larson as Chief Financial Officer effective April 3, 1998. See
"Management."
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 L400.0 million of sales in 1996, experienced a CAGR of 11.6% from
1990 to 1996, and is projected to grow
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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 L65.0 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.
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 each 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 88.4% of its 1996 revenue from the sale
of bottled water products for water coolers and the rental of water coolers. The
remaining 11.6% of revenue in 1996 was generated from related activities
including the sale of paper cups, coffee, water filtration devices and water
through vending machines. In addition, the Company provides cooler sanitation
services and bottles water for independent beverage companies and supermarkets.
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<PAGE> 61
Bottled Water. The Company generated approximately 61.5% of its 1996
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 (19 liter) bottle
and a six-gallon (22 liter) bottle. In each market, a smaller package 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 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
1996. 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:
<TABLE>
<CAPTION>
REGION PRINCIPAL PRODUCTS BRAND NAMES
------ ------------------ -----------
<S> <C> <C>
British Columbia Premium Drinking Water Canadian Springs
Premium Drinking Water Water Jug
Spring Water Withey's Canadian Springs
Maritime
Provinces Spring Water Sparkling Springs
United Kingdom Spring Water Nature Springs
Spring Water Galloway
Spring Water Water At Work
United States Premium Drinking Water Crystal Springs
Premium Drinking Water Mountain Fresh
Premium Drinking Water Cullyspring
</TABLE>
Water Coolers. The Company generated approximately 26.9% of its revenue in
1996 from the rental of water coolers. The Company enjoys a significant
installed base of approximately 115,000 water coolers in its served markets.
Customers typically sign a one-year contract, providing the Company with a dual
stream of relatively stable and recurring revenue from both a monthly cooler
rental charge and the sale of bottled water. In addition, the Company's large
installed customer base creates operating efficiencies by supporting a level of
infrastructure that can be leveraged to support
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<PAGE> 62
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 $11.
The following table presents management estimates of certain information
relating to the Company's installed cooler base as of September 30, 1997, after
giving effect to the acquisition of Cullyspring:
<TABLE>
<CAPTION>
BRITISH COLUMBIA MARITIME PROVINCES UNITED KINGDOM UNITED STATES
---------------- ------------------ -------------- -------------
<S> <C> <C> <C> <C>
Number of Installed Coolers 54,596 14,436 25,906 20,033
% Residential Customers 65% 52% 2% 35%
% Commercial Customers 35% 48% 98% 65%
</TABLE>
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 15 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. The
Company believes that it could support an additional 20,000 coolers without a
significant increase to its overhead costs.
Other. The remaining 11.6% of the Company's 1996 revenue was generated
through the sale of bottled water in retail sizes, the sale of paper cups,
cooler sanitation services, coffee delivery, the sale of water filtration
devices and the sale of water through vending machines. The Company has a number
of bottling contracts, including Sobey's Own brand spring water and Pepsi-Cola's
Aquafina brand, as well as bottling contracts with supermarkets such as Fred
Meyer, Inc. and Safeway, Inc.
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 ten 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.
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<PAGE> 63
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 facility 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 Ltd., 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:
<TABLE>
<CAPTION>
LOCATION TYPE OF WATER BOTTLING CAPACITY
-------- ------------- -----------------
<S> <C> <C>
Vancouver, British Premium Drinking 490 bottles per hour
Columbia Spring
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
Buckinghamshire, England Spring 1,250 bottles per hour
Glasgow, Scotland Spring 200 bottles per hour
Portland, Oregon Premium Drinking 300 bottles per hour
Spring 450 bottles per hour
Seattle, Washington Premium Drinking 425 bottles per hour
</TABLE>
SEASONALITY
Bottled water sales have been 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.
CUSTOMERS
The Company has grown from an installed base of approximately 8,000 water
coolers in 1991 to an installed base of approximately 115,000 water coolers as
of September 30, 1997 (after giving effect to the acquisition of Cullyspring).
Customers typically sign a one-year contract providing the Company with a dual
stream of relatively stable and recurring revenue from both a monthly cooler
rental charge and the sale of bottled water. No customer accounted for more than
1.0% of the Company's revenue in 1996 or in the nine months ended September 30,
1997. Approximately 65% of the Company's revenue in 1996 was derived from sales
to commercial establishments, with the balance attributable to residential
customers. Substantially all of the Company's U.K. customers are
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<PAGE> 64
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, the Canadian Department of National Defense, 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 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.
SALES AND MARKETING
The Company markets its products principally through 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 75 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 churn rate of its water cooler rental agreements of 2.0% per
month in 1996, 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 September 30, 1997, the Company owned or leased approximately 100
trucks and employed 190 people in its distribution operations. The average cost
per new truck is approximately $80,000, 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.
ACQUISITION STRATEGY
The Company has successfully pursued a disciplined acquisition strategy to
create value by actively participating in the consolidation of the highly
fragmented bottled water industry. The
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<PAGE> 65
Company perceives two separate segments in its acquisition strategy: larger
entities with more sophisticated management and financing alternatives, or
"platforms," and smaller, less sophisticated entities known as "fill-ins" or
"spokes" which can be consolidated with platforms. Accordingly, the Company's
approach to acquiring companies in new markets is to identify one of the largest
bottled water companies in a market as a platform acquisition, and complement it
with smaller fill-in acquisitions in neighboring or overlapping geographic
territories. The Company is generally unwilling to enter a new market through
acquisition unless the company being acquired is both one of the market share
leaders and provides the critical mass necessary to act as a platform in that
market. The acquisition of Cullyspring as a platform is an example of this
strategy. While the purchase price paid for a platform company is higher than
that for a fill-in acquisition, the Company believes it is able to reduce its
average acquisition multiple by opportunistically acquiring the "spoke"
distribution routes at more attractive prices due to the limited strategic
options available to these smaller operators. In addition to buying companies at
relatively low multiples of EBITDA, management has been able to create value by
improving the operations of acquired entities and realizing operating synergies.
The Company anticipates that, for the foreseeable future, attractive acquisition
opportunities will exist both in the U.S. and in the other markets served by the
Company. The Company also expects that more acquisition opportunities will exist
in the U.S. than elsewhere. See "Risk Factors -- Dependence on Financing for
Expansion; Acquisition Strategy."
Platform Acquisitions. The Company faces more competition in the
marketplace for platform acquisitions resulting in the necessity to pay
relatively high multiples of pre-acquisition EBITDA. The Company believes that
its size, management infrastructure and ability to consummate future "spoke"
acquisitions enable it to significantly reduce the purchase price multiple on a
post-acquisition EBITDA basis. For the 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. As a large buyer of water coolers, water
bottles and delivery trucks, the Company can factor into its acquisition
valuations significant purchasing cost savings. Additionally, its management
infrastructure can be leveraged to run a substantially larger organization,
thereby resulting in significant general and administrative cost savings.
Finally, the Company eliminates the significant cash and non-cash compensation
paid to the owner/operators of the companies it acquires. As noted above, the
Company seeks to purchase the leader in each market it enters, although in
certain markets it has acquired the second largest bottled water company where
it has seen opportunities to make further consolidating acquisitions.
The market for smaller acquisitions is significantly less competitive than
the market for larger acquisitions. Smaller acquisitions are typically not
brokered (i.e. auctioned) transactions, and to date the Company has sourced 10
of its 12 acquisitions on a privately negotiated basis.
Fill-in Acquisitions. Smaller fill-in acquisitions are consolidated with
larger platform acquisitions to achieve the following cost savings and
synergies:
- Decreased operating costs through elimination of duplicative
administrative costs.
- Decreased production and distribution costs through integration with a
larger, geographically adjacent entity, and the resulting achievement of
greater delivery route density.
- Decreased purchasing costs through realization of economies of scale.
- Improved management control through centralized accounting and reporting
systems.
- Improved marketing efficiency.
The Company seeks to increase the sales and profitability of acquired
companies by implementing the Company's sales and delivery programs and by
improving operating efficiencies of the acquired businesses. Consistent with the
Company's management approach, integration of a platform acquisition involves
creating a new division. The Company centralizes many of the
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<PAGE> 66
acquired company's functions including purchasing, accounting, benefits, sales
and marketing programs and general administrative functions. Integration of a
fill-in acquisition generally involves a fundamental change in the operations of
the acquired company, including the consolidation of its distribution and
production operations to maximize operating efficiencies.
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 24, 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 17, 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 9, 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 held the number three position in the
Oregon market. The acquisition of Mountain Fresh was designed to fulfill the
Company's strategic objective of establishing a platform company in the U.S.
market. The Company believes that the Portland market represents an attractive
water cooler market, sharing many of the same characteristics as the British
Columbia market, where the Company has extensive operations. The Company
believes that this market is experiencing strong economic growth, has strong
consumer awareness about drinking water and has experienced difficulties with
respect to the quality of its municipal water supply. Mountain Fresh is operated
as a small hub and will benefit from its proximity to the Company's Vancouver,
British Columbia operations.
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.
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<PAGE> 67
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 Water At Work Limited ("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
bolsters the Company's leadership position in the U.K. market and establishes
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. Cullyspring 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. See
"The Company -- Recent Developments."
On December 17, 1997, Crystal Springs of Seattle, Inc., a wholly-owned
subsidiary of Sparkling Spring, purchased all of the outstanding capital stock
of Crystal Springs Drinking Water, Inc. ("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, Sparkling Spring Water Limited, a wholly-owned
subsidiary of Sparkling Spring, purchased all of the outstanding capital stock
of Coastal Mountain Water Corp. Coastal is based in Vancouver and focuses on the
direct delivery of eighteen litre containers of water to residential and
commercial customers and the rental of water coolers.
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
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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.
PROPERTIES
The Company maintains its corporate headquarters in Dartmouth, Nova Scotia.
The following table sets forth certain information relating to each of the
Company's facilities:
<TABLE>
<CAPTION>
SIZE OWNED/ LEASE
LOCATION SQ. FT. PURPOSE LEASED EXPIRATION
-------- ------- ------- ------ ----------
<S> <C> <C> <C> <C>
CANADA:
Dartmouth, Nova Scotia 14,000 Corporate Headquarters, Leased June 2002
Distribution
Valley, Nova Scotia 14,500 Bottling, Distribution Owned N/A
Sydney, Nova Scotia 4,500 Offices, Distribution Leased June 1998
Moncton, New Brunswick 3,700 Offices, Distribution Leased May 1998
Saint John, New Brunswick 4,300 Offices, Distribution Leased Oct. 1998
Vancouver, British Columbia 19,600 Offices, Bottling, Distribution Leased Feb. 1998
Victoria, British Columbia 7,250 Offices, Bottling, Distribution Leased July 1998
Nanaimo, British Columbia 1,300 Distribution Leased May 1998
Kamloops, British Columbia 4,000 Offices, Bottling, Distribution Leased May 2000
Prince George, British Columbia 7,000 Bottling, Distribution Leased June 2002
UNITED KINGDOM:
Tewkesbury, England 8,600 Offices, Distribution Leased Apr. 2008
High Wycombe, England 18,000 Offices, Distribution Leased Dec. 2006
High Wycombe, England 18,000 Bottling Leased Dec. 2006
Arklo Road, England 8,000 Offices, Distribution Leased Mar. 1998
Glasgow, Scotland 4,000 Offices, Distribution Leased Monthly
Dumfries, Scotland 4,000 Bottling Leased June 2009
Dundee, Scotland 2,000 Offices, Distribution Leased Feb. 2000
UNITED STATES:
Stamford, Connecticut 675 Offices Leased June 2000
Portland, Oregon 30,000 Bottling, Distribution, Offices Leased Oct. 2007
Portland, Oregon 6,000 Bottling, Distribution, Offices Leased June 2000, 2002
Seattle, Washington 25,000 Bottling, Distribution, Offices Leased Oct. 2002
</TABLE>
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.
EMPLOYEES
As of September 30, 1997, the Company had approximately 464 full-time
employees, of which 95 were in sales and services, 190 in distribution, 24 in
maintenance and service, 67 in production and warehouse and 88 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.
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<PAGE> 69
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, governmental laws and
regulations are subject to change, and no assurance can be given that future
actions by governmental authorities will not have an adverse effect on the
Company's business. See "Risk Factors -- Government Regulation."
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 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.
LITIGATION
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.
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 &
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<PAGE> 70
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 that could be material.
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<PAGE> 71
MANAGEMENT
The following table sets forth certain information as of March 15, 1998
with respect to each of the directors, executive officers and key management
personnel of Sparkling Spring. The individuals listed below hold the same
positions with Sparkling Spring as they hold in SSWL and have held these
positions since the formation of Sparkling Spring.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH SPARKLING SPRING
---- --- ------------------------------
<S> <C> <C>
G. John Krediet...................... 46 Chairman of the Board of Directors and
Chief Executive Officer
Stephen L. Larson.................... 39 Vice Chairman of the Board of Directors
and Chief Financial Officer
Stewart E. Allen..................... 38 President and Director
Michael Bregman...................... 43 Director
C. Sean Day.......................... 48 Director
Kenneth B. Rotman.................... 31 Director
Lucy M. Stitzer...................... 36 Director
</TABLE>
Effective April 3, 1998, Stephen L. Larson, the Vice Chairman of the Board
of Directors and Chief Financial Officer of Sparkling Spring, will resign from
his positions as an 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 will
replace 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.
STEPHEN L. LARSON has been Vice Chairman of the Board of Directors and
Chief Financial Officer of SSWL since 1992. In addition, he has served as a
managing director of CFCC since 1990 and he has been with CFCC since 1987. Mr.
Larson, in conjunction with Mr. Krediet, developed the consolidation strategy
for the bottled water industry. Mr. Larson has been responsible for qualifying
and selecting acquisition candidates generated by the Company and outside
sources. Mr. Larson is responsible for negotiating the acquisition terms and
related financing. He also oversees consolidation into the Company as well as
the larger capital expenditures. 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
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<PAGE> 72
University of Illinois. Mr. Larson is a C.P.A. and a member of both the American
Institute of Certified Public Accountants and the Accounting Research
Association.
KENT DILLON SCHICKLI will replace Stephen L. Larson as Chief Financial
Officer of SSWI 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 44 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 $250
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 a
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.
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 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.
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<PAGE> 73
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.
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, 1996, for
services rendered in all capacities to the Company in the years ended December
31, 1996, 1995 and 1994. 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. Larson and Krediet are compensated for their services as executive
officers of Sparkling Spring directly by CFCC. See "Certain Relationships and
Related 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
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
---------------------------------------- SECURITIES
OTHER UNDERLYING ALL
NAME AND PRINCIPAL ANNUAL OPTIONS/ OTHER
POSITION YEAR SALARY BONUS COMPENSATION SARS COMPENSATION
------------------ ---- ------ ----- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Stewart E. Allen, 1996 $129,070 -- $15,576(1) -- $16,957(2)
President 1995 94,122 $36,427 -- 39,595 10,905(2)
1994 76,158 18,330 -- 96,192 6,509(2)
</TABLE>
- ---------------
(1) Includes $13,926 representing a housing allowance.
(2) Consists of contributions of $16,015, $9,530 and $5,568 to a defined
contribution pension plan in 1996, 1995 and 1994, respectively, 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 with the Company pursuant to which he is paid a base salary of
$219,000. 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 does not have a
specified term.
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<PAGE> 74
CERTAIN RELATIONSHIPS AND RELATED 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 1994,
1995 and 1996 and the nine months ended September 30, 1997 were $277,000,
$521,000, $769,000 and $1,032,500, respectively. The Company may also pay to
Messrs. Krediet and Larson 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, Gaspar Limited (a 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
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<PAGE> 75
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. See "Risk
Factors -- Change of Control."
REORGANIZATION
The shareholders of Sparkling Spring have approved a reorganization (the
"Reorganization"), which was completed in January 1998. Under the
Reorganization, the former shareholders of SSWL transferred their shares of SSWL
and/or options to acquire such shares to Sparkling Spring. As a part of the
Reorganization, Gaspar, Clairvest, John Krediet, Stephen Larson, Stewart Allen,
Lucy M. (and her spouse Mark Stitzer) Stitzer, C. Sean Day, principal
shareholders, directors and/or executive officers of the Company (see "Security
Ownership of Certain Beneficial Owners and Management"), exchanged shares and/or
options of SSWL for shares and/or option of and/or cash from the Company as
follows:
<TABLE>
<CAPTION>
SPARKLING SPRING WATER GROUP
SPARKLING SPRING WATER LIMITED LIMITED
- ------------------------------------------------------- ----------------------------------
SHARES OPTIONS SHARES OPTIONS CASH
SHAREHOLDER EXCHANGED EXCHANGED RECEIVED RECEIVED RECEIVED
----------- --------- --------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Gaspar....................... 833,840 -- 705,050 -- $3,606,120
Clairvest.................... 588,168 -- 423,190 -- 4,619,384
John Krediet................. -- 154,319 -- 8,250 3,228,727
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 Stitzer........ 130,659 -- 94,010 -- 1,026,172
C. Sean Day.................. 12,500 -- 8,994 -- 98,168
</TABLE>
See "The Offering."
Certain key managers of the Company, consisting of John Stiles, Tom
Ferries, Helen Martin, Stephen L. Larson, Tim Dougherty, Larry Brookes and
Arthur Goodick, have subscribed for an aggregate of 9,360 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 have 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.
OTHER TRANSACTIONS
Each shareholder of Sparkling Spring pledged all of his or its outstanding
shares of Common Stock as collateral in favor of the lenders under the Existing
Credit Facility. A portion of the gross proceeds from the Offering was used by
Sparkling Spring to repay the entire principal amount and accrued interest
outstanding under the Existing Credit Facility. See "The Offering." Upon the
repayment of the Existing Credit Facility, the pledges were terminated.
In connection with their purchase of shares of common stock of SSWL,
Stephen L. Larson and Stewart E. Allen incurred indebtedness to the Company in
the amounts of $122,000 and $108,000, respectively. In connection with the
Reorganization, the shares were subsequently exchanged for shares of Common
Stock of Sparkling Spring. See "-- Reorganization." The loans bear interest at a
rate of 7% per annum and mature on January 31, 1999. Each of the borrowers has
pledged his shares of Common Stock to the Company to secure his loan.
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 its 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 a cash consideration of $1,816,041.
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<PAGE> 76
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership
of Common Stock of Sparkling Spring after giving effect to the Reorganization,
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 the 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, 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.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP(1)
-----------------------
SHARES OF
NAME OF BENEFICIAL OWNER COMMON STOCK PERCENT
------------------------ ------------ -------
<S> <C> <C>
Gaspar Limited.............................................. 713,300(2) 50.9%
c/o Cartrust Corporated Limited
White Park House
White Park Road
Bridgetown, Barbados
Clairvest Group Inc......................................... 423,190 30.4%
22 St. Clair Avenue East
Toronto, Ontario
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 Officers as a Group (7
persons).................................................. 1,099,678 70.5%
</TABLE>
- ---------------
* 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 Prospectus 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
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
is a Managing Director, and with respect to which Mr. Rotman disclaims
beneficial ownership.
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DESCRIPTION OF THE CREDIT AGREEMENT
The Company intends to enter into a credit agreement (the "Credit
Agreement") for the purposes of financing its future acquisitions and providing
for its ongoing working capital requirements. The Company has received a
proposal from Toronto Dominion Bank with respect to the terms and conditions of
a proposed Credit Agreement; however, as of the date hereof no definitive
documentation has been prepared or executed.
The proposed Credit Agreement is anticipated to be structured as a
multi-currency revolving credit facility having a term of five years. The
Indenture specifically permits the Company to enter into a senior credit
facility providing borrowing availability of up to $30.0 million and also
provides for additional general borrowing capacity of $10.0 million, all or a
portion of which may be incurred under such credit facility. The Company's
payment obligations under the proposed Credit Agreement would be secured by a
first priority security interest granted in favor of the lenders in
substantially all of the assets of the Company. The Company's obligations under
the Credit Agreement will rank senior to the payment of the Notes.
It is expected that amounts outstanding under the Credit Agreement 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 Company would be required to prepay its
outstanding loans from: (i) the cash proceeds derived from the sale or other
disposition of any of its properties or assets other than in the ordinary course
of its business; (ii) the net cash proceeds received from its issuance of debt
or equity securities; or (iii) a portion of its excess cash flow (as defined)
for each year.
It is expected that the Credit Agreement will contain 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
Agreement, liens incurred in the normal course of business and rights of set-off
arising by operation of law, (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, (iv) restrictions on capital expenditures and (v) restrictions on
engaging in businesses unrelated to the business currently conducted by the
Company. Additionally, it is expected that the Credit Agreement will contain the
following financial covenants and coverage tests: (i) the ratio of senior debt
(consisting of amounts outstanding under the Credit Agreement, vendor debt,
capital leases and permitted encumbrances) to earnings before interest, taxes,
depreciation and amortization (on a rolling four quarter basis) shall not exceed
3.0:1.0; (ii) the amount of earnings before interest, taxes, depreciation and
amortization (on a rolling four quarter basis) shall not be less than 175% of
the amount of interest on senior debt; (iii) the amount of earnings before
interest, taxes, depreciation and amortization (on a rolling four quarter basis)
shall not be less than 100% of the amount of interest, fees and commissions
under the Credit Agreement, capital leases and the Notes (125% after December
31, 2000); and (iv) the amount of earnings before interest, taxes, depreciation
and amortization (on a rolling four quarter basis) less capital expenditures
less taxes shall not be less than 125% of the amount of interest under the
Credit Agreement plus payments of principal under permitted encumbrances plus
payments of principal under financial leases.
Events of default under the Credit Agreement are expected to include, among
others, (i) failure of the Company to pay principal on advances or interest
thereon or other amounts owing under the Credit Agreement 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 Agreement,
(iii) any failure to pay amounts due under other indebtedness or contingent
obligations of the Company or any of its
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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 Agreement would
immediately become due and payable.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
TAX CONSEQUENCES OF THE EXCHANGE OFFER
The following paragraph sets forth the opinion of Robinson & Cole LLP,
special tax counsel to the Company, as to the material Federal income tax
consequences of the Exchange Offer based upon the provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), the final, temporary and proposed
regulations promulgated thereunder, and administrative rulings and judicial
decisions now in effect, all of which are subject to change (possibly with
retroactive effect) or different interpretations. Holders of Notes should note
the following opinion is not binding on the Internal Revenue Service (the
"Service") and there can be no assurance that the Service will take a similar
view with respect to the tax consequences described below. No ruling has been or
will be requested by Sparkling Spring from the Service on any tax matters
relating to the Notes. This opinion is not intended to be applicable to all
categories of investors, some of which, such as dealers in securities, financial
institutions, insurance companies and tax-exempt organizations may be subject to
special rules. ALL HOLDERS OF NOTES ARE ADVISED TO CONSULT THEIR OWN TAX
ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES OF EXCHANGING PRIVATE NOTES FOR
EXCHANGE NOTES, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR
FOREIGN LAWS.
It is more likely than not that the exchange of the Private Notes for the
Exchange Notes pursuant to the Exchange Offer will not be treated as an
"exchange" for United States federal income tax purposes because the Exchange
Notes are not considered to differ materially in kind or extent from the Private
Notes. Rather, the Exchange Notes received by a holder will be treated as a
continuation of the Private Notes in the hands of such holder. As a result,
there are no United States federal income tax consequences to holders exchanging
Private Notes for the Exchange Notes pursuant to the Exchange Offer. The
adjusted basis and holding period of the Exchange Notes for any Holder will be
the same as the adjusted basis and holding period of the Private Notes. There
will be no United States federal income tax consequences to a Holder of Private
Notes that does not participate in the Exchange Offer.
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DESCRIPTION OF THE NOTES
The Notes were issued under an indenture (the "Indenture"), dated November
19, 1997, among the Company, the Subsidiary Guarantors and Bankers Trust
Company, as Trustee (the "Trustee"). The following summary of certain provisions
of the Indenture does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, the Trust Indenture Act of 1939, as
amended (the "TIA"), and to all of the provisions of the Indenture, including
the definitions of certain terms therein and those terms made a part of the
Indenture by reference to the TIA as in effect on the date of the Indenture. A
copy of the Indenture may be obtained from the Company or the Initial
Purchasers.
The definitions of certain capitalized terms used in the following summary
are set forth below under "-- Certain Definitions." For purposes of this
section, references to the "Company" include only Sparkling Spring and not its
Subsidiaries.
The Notes are unsecured obligations of the Company, ranking subordinate in
right of payment to all Senior Indebtedness of the Company.
The Notes are issued in fully registered form only, without coupons, in
denominations of $1,000 and integral multiples thereof. Initially, the Trustee
will act as Paying Agent and Registrar for the Notes. The Notes may be presented
for registration or transfer and exchange at the offices of the Registrar, which
initially will be the Trustee's corporate trust office. The Company may change
any Paying Agent and Registrar without notice to holders of the Notes (the
"Holders"). The Company will pay principal (and premium, if any) on the Notes at
the Trustee's corporate office in New York, New York. At the Company's option,
interest may be paid at the Trustee's corporate trust office or by check mailed
to the registered address of Holders. Any Notes that remain outstanding after
the completion of the Exchange Offer, together with the Exchange Notes issued in
connection with the Exchange Offer, shall constitute a single class of
securities under the Indenture.
The terms of the Exchange Notes are substantially similar in all material
respects to the terms of the Private Notes for which they may be exchanged
pursuant to the Exchange Offer.
PRINCIPAL, MATURITY AND INTEREST
The Notes are limited in aggregate principal amount to $100,000,000 and
will mature on November 15, 2007. Interest on the Notes will accrue at the rate
of 11 1/2% per annum and will be payable semiannually in cash on each May 15 and
November 15, commencing on May 15, 1998, to the persons who are registered
Holders at the close of business on the May 1 and November 1 immediately
preceding the applicable interest payment date. Interest on the Notes will
accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from and including the date of issuance.
The Notes will not be entitled to the benefit of any mandatory sinking
fund.
REDEMPTION
Optional Redemption. The Notes will be redeemable at the Company's option,
in whole at any time or in part from time to time, on and after November 15,
2002, upon not less than 30 nor more than 60 days' notice, at the following
redemption prices (expressed as percentages of the principal amount thereof) if
redeemed during the twelve-month period commencing on November 15 of the
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<PAGE> 81
year set forth below, plus, in each case, accrued and unpaid interest thereon,
if any, to the date of redemption:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2002........................................................ 105.750%
2003........................................................ 103.833%
2004........................................................ 101.917%
2005 and thereafter......................................... 100.000%
</TABLE>
Optional Redemption upon Public Equity Offerings. Notwithstanding the
foregoing, at any time, or from time to time, on or prior to November 15, 2000,
the Company may, at its option, redeem up to $30.0 million aggregate principal
amount of the Notes originally issued with the net cash proceeds of one or more
Public Equity Offerings (as defined below) by the Company at a redemption price
equal to 111.50% of the principal amount thereof, plus accrued interest to the
date of redemption, provided that at least $70.0 million in aggregate principal
amount of the Notes originally issued remains outstanding immediately following
such redemption. In order to effect the foregoing redemption with the proceeds
of any Public Equity Offering, the Company shall make such redemption not more
than 60 days after the consummation of any such Public Equity Offering.
As used in the preceding paragraph, "Public Equity Offering" means an
underwritten public offering of Qualified Capital Stock of the Company pursuant
to a registration statement filed with the Commission in accordance with the
Securities Act, or a comparable filing under the laws of any province of Canada,
in either case yielding gross proceeds to the Company of at least $35.0 million.
Optional Redemption upon the Occurrence of Certain Tax Events. In addition
to the foregoing, the Notes are redeemable, in whole but not in part, at the
option of the Company upon not less than 30 nor more than 60 days' notice mailed
to each Holder at a redemption price equal to 100% of the principal amount
thereof, plus accrued and unpaid interest, if any, to the date of redemption in
the event the Company has become obligated to pay Additional Amounts in respect
of the Notes pursuant to the provisions set forth in "-- Taxation; Redemption
for Tax Reasons," and such obligation cannot be avoided by the Company taking
reasonable measures available to it, such obligation did not arise, directly or
indirectly, from any transaction, action or omission by the Company (whether or
not such transaction, action or omission is otherwise permitted under the terms
of the Indenture) and certain other conditions are satisfied. See "-- Taxation;
Redemption for Taxation Reasons."
SELECTION AND NOTICE OF REDEMPTION
In the event that less than all of the Notes are to be redeemed at any
time, selection of such Notes for redemption will be made by the Trustee in
compliance with the requirements of the principal national securities exchange,
if any, on which such Notes are listed or, if such Notes are not then listed on
a national securities exchange, on a pro rata basis, by lot or by such method as
the Trustee shall deem fair and appropriate; provided, however, that no Notes of
a principal amount of $1,000 or less shall be redeemed in part; provided
further, however, that if a partial redemption is made with the proceeds of a
Public Equity Offering, selection of the Notes or portions thereof for
redemption shall be made by the Trustee only on a pro rata basis or on as nearly
a pro rata basis as is practicable (subject to DTC procedures), unless such
method is otherwise prohibited. Notice of redemption shall be mailed by
first-class mail at least 30 but not more than 60 days before the redemption
date to each Holder of Notes to be redeemed at its registered address. If any
Note is to be redeemed in part only, the notice of redemption that relates to
such Note shall state the portion of the principal amount thereof to be
redeemed. A new Note in a principal amount equal to the unredeemed portion
thereof will be issued in the name of the Holder thereof upon cancellation of
the original Note. On and after the redemption date, interest will cease to
accrue on Notes or
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portions thereof called for redemption as long as the Company has deposited with
the Paying Agent funds in satisfaction of the applicable redemption price
pursuant to the Indenture.
SUBORDINATION
The payment of all Obligations on the Notes is subordinated in right of
payment to the prior payment in full in cash or Cash Equivalents of all
Obligations on Senior Indebtedness whether outstanding on the Issue Date, or
thereafter incurred including, without limitation, the Company's obligations
under the Credit Agreement. Upon any payment or distribution of assets of the
Company of any kind or character, whether in cash, property or securities, to
creditors upon any liquidation, dissolution, winding up, reorganization,
assignment for the benefit of creditors or marshaling of assets of the Company
or in a bankruptcy, reorganization, insolvency, receivership or other similar
proceeding relating to the Company or its property, whether voluntary or
involuntary, all Obligations due or to become due upon all Senior Indebtedness
shall first be paid in full in cash or Cash Equivalents, or such payment duly
provided for to the satisfaction of the holders of Senior Indebtedness, before
any payment or distribution of any kind or character is made on account of any
Obligations on the Notes, or for the acquisition of any of the Notes for cash or
property or otherwise.
No direct or indirect payment by or on behalf of the Company of principal
of, premium, if any, or interest on, the Notes whether pursuant to the terms of
the Notes or upon acceleration or otherwise shall be made if, at the time of
such payment, there exists a default in the payment of all or any portion of
principal of, premium, if any, or interest on, any Designated Senior
Indebtedness (and the Trustee has received written notice thereof), and such
default shall not have been cured or waived or the benefits of this sentence
waived by or on behalf of the holders of such Designated Senior Indebtedness. In
addition, if any other event of default occurs and is continuing with respect to
any Designated Senior Indebtedness, as such event of default is defined in the
instrument creating or evidencing such Designated Senior Indebtedness,
permitting the holders of such Designated Senior Indebtedness then outstanding
to accelerate the maturity thereof and if the Representative for the respective
issue of Designated Senior Indebtedness gives written notice of the event of
default to the Trustee (a "Default Notice"), then, unless and until all events
of default have been cured or waived or have ceased to exist or the Trustee
receives notice from the Representative for the respective issue of Designated
Senior Indebtedness terminating the Blockage Period (as defined below), during
the 179 days after the delivery of such Default Notice (the "Blockage Period"),
neither the Company nor any other Person on its behalf shall (x) make any
payment of any kind or character with respect to any Obligations on the Notes or
(y) acquire any of the Notes for cash or property or otherwise. Notwithstanding
anything herein to the contrary, in no event will a Blockage Period extend
beyond 179 days from the date the payment on the Notes was due and only one such
Blockage Period may be commenced within any 360 consecutive days. No event of
default which existed or was continuing on the date of the commencement of any
Blockage Period with respect to the Designated Senior Indebtedness shall be, or
be made, the basis for commencement of a second Blockage Period by the
Representative of such Designated Senior Indebtedness whether or not within a
period of 360 consecutive days, unless such event of default shall have been
cured or waived for a period of not less than 90 consecutive days (it being
acknowledged that any subsequent action, or any breach of any financial
covenants for a period commencing after the date of commencement of such
Blockage Period that, in either case, would give rise to an event of default
pursuant to any provisions under which an event of default previously existed or
was continuing shall constitute a new event of default for this purpose).
By reason of such subordination, in the event of the insolvency of the
Company, creditors of the Company who are not holders of Senior Indebtedness,
including the Holders of the Notes, may recover less, ratably, than holders of
Senior Indebtedness.
As of September 30, 1997, on a pro forma basis, after giving effect to the
Offering and the application of the net proceeds therefrom, the Company would
have had no Senior Indebtedness outstanding. However, the Indenture permits the
Company to enter into a senior credit facility
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providing borrowing availability of up to $30.0 million and also provides for
additional borrowing capacity of $10.0 million, all or a portion of which may be
incurred under such credit facility and which would constitute Senior
Indebtedness or Guarantor Senior Indebtedness.
GUARANTEES
Each Subsidiary Guarantor has fully and unconditionally guaranteed, on a
senior subordinated basis, jointly and severally, to each Holder and the
Trustee, the full and prompt performance of the Company's obligations under the
Indenture and the Notes, including the payment of principal of and interest on
the Notes. The Guarantees are subordinated to Guarantor Senior Indebtedness on
the same basis as the Notes are subordinated to Senior Indebtedness. As of
September 30, 1997, on a pro forma basis after giving effect to the Offering and
the application of the net proceeds therefrom, the Subsidiary Guarantors would
have had approximately $1.5 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, 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.
Each Subsidiary Guarantor that makes a payment or distribution under its
Guarantee shall be entitled to a contribution from each other Subsidiary
Guarantor in an amount pro rata, based on the net assets of each Subsidiary
Guarantor, determined in accordance with GAAP.
Each Subsidiary Guarantor may consolidate with or merge into or sell its
assets to the Company or another Subsidiary Guarantor that is a Wholly Owned
Subsidiary without limitation, or with or to the Persons upon the terms and
conditions set forth in the Indenture. See "-- Certain Covenants -- Merger,
Consolidation and Sale of Assets." In the event all of the Capital Stock of a
Subsidiary Guarantor is sold by the Company and/or one or more of its
Subsidiaries and the sale complies with the provisions set forth in "-- Certain
Covenants -- Limitation on Asset Sales," such Subsidiary Guarantor will be
released from all of its obligations under its Guarantee.
The Subsidiary Guarantors are Wholly Owned Subsidiaries of the Company and
are jointly and severally liable with respect to the Company's Obligations
pursuant to the Notes. In addition, the aggregate assets, liabilities, earnings
and equity of the Subsidiary Guarantors are substantially equivalent to the
assets, liabilities, earnings and equity of the Company on a consolidated basis.
Accordingly, the separate financial statements of the Subsidiary Guarantors are
not included herein because the Company has determined that they would not be
material to investors.
CHANGE OF CONTROL
The Indenture provides that upon the occurrence of a Change of Control,
each Holder will have the right to require that the Company purchase all or a
portion of such Holder's Notes pursuant to the offer described below (the
"Change of Control Offer"), at a purchase price equal to 101% of the principal
amount thereof plus accrued and unpaid interest to the date of purchase.
The Indenture provides that, prior to the mailing of the notice referred to
below, but in any event within 30 days following any Change of Control, the
Company covenants to (i) repay in full all indebtedness, and terminate all
commitments, under the Credit Agreement and all other Senior Indebtedness the
terms of which require repayment upon a Change of Control or offer to repay in
full all indebtedness, and terminate all commitments, under the Credit Agreement
and all other such Senior Indebtedness and to repay the Indebtedness owed to
each lender which has accepted
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such offer or (ii) obtain the requisite consents under the Credit Agreement and
all other Senior Indebtedness to permit the repurchase of the Notes as provided
below. The Company shall first comply with the covenant in the immediately
preceding sentence before it shall be required to repurchase Notes pursuant to
the provisions described below. The Company's failure to comply with the second
preceding sentence shall be governed by clause (iii), and not clause (iv), of
"Events of Default" below.
Within 30 days following the date upon which a Change of Control occurs,
the Company must send, by first class mail, a notice to each Holder, with a copy
to the Trustee, which notice shall govern the terms of the Change of Control
Offer. Such notice shall state, among other things, the purchase date, which
must be no earlier than 30 days nor later than 45 days from the date such notice
is mailed, other than as may be required by law (the "Change of Control Payment
Date"). Holders electing to have a Note purchased pursuant to a Change of
Control Offer will be required to surrender the Note, with the form entitled
"Option of Holder to Elect Purchase" on the reverse of the Note completed, to
the Paying Agent at the address specified in the notice prior to the close of
business on the third business day prior to the Change of Control Payment Date.
If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the Change of Control
purchase price for all the Notes that might be delivered by Holders seeking to
accept the Change of Control Offer. In the event the Company is required to
purchase outstanding Notes pursuant to a Change of Control Offer, the Company
expects that it would need to seek third party financing to the extent it does
not have available funds to meet its purchase obligations. However, there can be
no assurance that the Company would be able to obtain any such financing.
Neither the Board of Directors of the Company nor the Trustee may waive the
covenant relating to a Holder's right to redemption upon a Change of Control.
Restrictions in the Indenture described herein on the ability of the Company and
its Subsidiaries to incur additional Indebtedness, to grant liens on its
property, to make Restricted Payments and to make Asset Sales may also make more
difficult or discourage a takeover of the Company, whether favored or opposed by
the management of the Company. Consummation of any such transaction in certain
circumstances may require redemption or repurchase of the Notes, and there can
be no assurance that the Company or the acquiring party will have sufficient
financial resources to effect such redemption or repurchase. Such restrictions
and the restrictions on transactions with Affiliates may, in certain
circumstances, make more difficult or discourage any leveraged buyout of the
Company or any of its Subsidiaries by the management of the Company. While such
restrictions cover a wide variety of arrangements which have traditionally been
used to effect highly leveraged transactions, the Indenture may not afford the
Holders of Notes protection in all circumstances from the adverse aspects of a
highly leveraged transaction, reorganization, restructuring, merger or similar
transaction.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Change of Control Offer. To the extent that
the provisions of any securities laws or regulations conflict with the "Change
of Control" provisions of the Indenture, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under the "Change of Control" provisions of the
Indenture by virtue thereof.
The definition of the term "Change of Control" includes a phrase relating
to the sale, lease, exchange, transfer or other disposition of "all or
substantially all" of the assets of the Company and its Subsidiaries taken as a
whole. Although there is a developing body of case law interpreting the phrase
"substantially all," there is no precise established definition of the phrase
under applicable law. Accordingly, the ability of a Holder to require the
Company to repurchase its Notes as a result of a sale, lease, exchange, transfer
or other disposition of less than all of the assets of the Company and its
Subsidiaries to another Person or Group may be uncertain.
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Any offer made by Sparkling Spring to repurchase a holder's Notes pursuant
to the Change of Control provisions of the Indenture will comply with all
applicable regulations of the U.S. securities laws, including Rules 13e-4 and
14e-1 under the Exchange Act.
CERTAIN COVENANTS
The Indenture will contain the following material covenants:
Limitation on Incurrence of Additional Indebtedness. The Company will not,
and will not cause or permit any of its Subsidiaries to, directly or indirectly,
create, incur, assume, guarantee, acquire, become liable, contingently or
otherwise, with respect to, or otherwise become responsible for payment of
(collectively, "incur"), any Indebtedness (including, without limitation,
Acquired Indebtedness) other than Permitted Indebtedness. Notwithstanding the
foregoing, if no Default or Event of Default shall have occurred and be
continuing at the time of or as a consequence of the incurrence of any such
Indebtedness, (x) the Company may incur Senior Indebtedness (including, without
limitation, Acquired Indebtedness) if on the date of the incurrence of such
Indebtedness, after giving effect to the incurrence thereof, the Consolidated
Fixed Charge Coverage Ratio of the Company is greater than 2.25 to 1.0 if such
incurrence occurs on or prior to December 31, 1999 and 2.50 to 1.0 if such
incurrence occurs thereafter and (y) the Company may otherwise incur
Indebtedness (which does not constitute Senior Indebtedness) if on the date of
the incurrence of such Indebtedness, after giving effect to the incurrence
thereof, the Consolidated Fixed Charge Coverage Ratio of the Company is greater
than 2.0 to 1.0 if such incurrence occurs on or prior to December 31, 1999 and
2.25 to 1.0 if such incurrence occurs thereafter.
Prior to any incurrence of Indebtedness pursuant to the last sentence of
the preceding paragraph (other than Permitted Indebtedness), the Company shall
deliver to the Trustee an Officer's Certificate setting forth the calculations
by which such incurrence was determined to be permitted.
Limitation on Restricted Payments. The Company will not, and will not cause
or permit any of its Subsidiaries to, directly or indirectly, (a) declare or pay
any dividend or make any distribution (other than dividends or distributions
made to the Company or any Wholly-Owned Subsidiary of the Company and other than
any dividend or distribution payable solely in Qualified Capital Stock of the
Company) on or in respect of shares of the Company's Capital Stock to holders of
such Capital Stock, (b) purchase, redeem or otherwise acquire or retire for
value any Capital Stock of the Company or any warrants, rights or options to
purchase or acquire shares of any class of such Capital Stock (other than the
exchange of such Capital Stock or any warrants, rights or options to acquire
shares of any class of Capital Stock of the Company for Qualified Capital Stock
of the Company), (c) make any principal payment on, purchase, defease, redeem,
prepay, decrease or otherwise acquire or retire for value, prior to any
scheduled final maturity, scheduled repayment or scheduled sinking fund payment,
any Indebtedness of the Company or a Subsidiary Guarantor that is subordinate or
junior in right of payment to the Notes or such Subsidiary Guarantor's Guarantee
or (d) make any Investment (other than Permitted Investments) (each of the
foregoing actions set forth in clauses (a), (b), (c) and (d) being referred to
as a "Restricted Payment"), if at the time of such Restricted Payment or
immediately after giving effect thereto, (i) a Default or an Event of Default
shall have occurred and be continuing, or (ii) the Company is not able to incur
at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) in
compliance with the "Limitation on Incurrence of Additional Indebtedness"
covenant above, or (iii) the aggregate amount of all Restricted Payments
(including such proposed Restricted Payment) made subsequent to the Issue Date
(the amount expended for such purposes, if other than in cash, being the fair
market value of such property as determined reasonably and in good faith by the
Board of Directors of the Company) shall exceed the sum of: (v) 50% of the
cumulative Consolidated Net Income (or if cumulative Consolidated Net Income
shall be a loss, minus 100% of such loss) of the Company earned during the
period beginning on the first day of the fiscal quarter including the Issue Date
and ending on the last day of the fiscal quarter ending at least 30 days prior
to the date the Restricted Payment occurs (the
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"Reference Date") (treating such period as a single accounting period); plus (w)
100% of the aggregate net cash proceeds received by the Company from any Person
(other than a Subsidiary of the Company) from the issuance and sale subsequent
to the Issue Date and on or prior to the Reference Date of Qualified Capital
Stock of the Company, including treasury stock; plus (x) without duplication of
any amounts included in clause (iii) (w) above, 100% of the aggregate net cash
proceeds of any equity contribution received by the Company from a holder of the
Company's Capital Stock (excluding, in the case of clauses (iii) (w) and (x),
any net cash proceeds from a Public Equity Offering to the extent used to redeem
the Notes and any net cash proceeds received by the Company from the sale of
Qualified Capital Stock of the Company or equity contribution which has been
financed, directly or indirectly, using funds (1) borrowed from the Company or
any of its Subsidiaries, unless and until and to the extent such borrowing is
repaid or (2) contributed, extended, guaranteed or advanced by the Company or by
any of its Subsidiaries); plus (y) to the extent that any Investment made after
the Issue Date has been treated as a Restricted Payment and such Investment is
sold for cash or otherwise liquidated or repaid for cash, the lesser of (A) the
cash return of capital with respect to such Investment (less the cost of
disposition, if any) (but only to the extent not included in clause (iii)(v)
above), and (B) the initial amount of such Investment.
Notwithstanding the foregoing, the provisions set forth in the immediately
preceding paragraph shall not prohibit: (1) the payment of any dividend or
consummation of irrevocable redemption within 60 days after the date of
declaration of such dividend or giving of irrevocable redemption notice if the
dividend or redemption would have been permitted on the date of declaration or
giving of irrevocable redemption notice; (2) if no Default or Event of Default
shall have occurred and be continuing, the acquisition of any shares of Capital
Stock of the Company, either (i) solely in exchange for shares of Qualified
Capital Stock of the Company or (ii) through the application of net proceeds of
a substantially concurrent sale for cash (other than to a Subsidiary of the
Company) of shares of Qualified Capital Stock of the Company; (3) if no Default
or Event of Default shall have occurred and be continuing, the acquisition of
any Indebtedness of the Company that is subordinate or junior in right of
payment to the Notes either (i) solely in exchange for shares of Qualified
Capital Stock of the Company, or (ii) through the application of net proceeds of
a substantially concurrent sale for cash (other than to a Subsidiary of the
Company) of (A) shares of Qualified Capital Stock of the Company or (B)
Refinancing Indebtedness; (4) if no Default or Event of Default shall have
occurred and be continuing, payments by the Company to repurchase Capital Stock
or other securities of the Company from shareholders of the Company (other than
Permitted Holders) in an aggregate amount not to exceed $500,000 in any calendar
year and $2,500,000 in the aggregate; and (5) during the period ending 60 days
after the Issue Date, the application of the proceeds of the Offering to fund
the Reorganization in an amount not to exceed the amount set forth in "Use of
Proceeds" above. In determining the aggregate amount of Restricted Payments made
subsequent to the Issue Date in accordance with clause (iii) of the immediately
preceding paragraph, amounts expended pursuant to clauses (1), (2) (ii), and (3)
(ii) (A) shall be included in such calculation.
Not later than the date of making any Restricted Payment, the Company shall
deliver to the Trustee an Officer's Certificate stating that such Restricted
Payment complies with the Indenture and setting forth in reasonable detail the
basis upon which the required calculations were computed, which calculations may
be based upon the Company's latest available internal quarterly financial
statements.
Limitation on Asset Sales. The Company will not, and will not cause or
permit any of its Subsidiaries to, consummate an Asset Sale unless (i) the
Company or the applicable Subsidiary, as the case may be, receives consideration
at the time of such Asset Sale at least equal to the fair market value of the
assets sold or otherwise disposed of (as determined in good faith by the
Company's Board of Directors); (ii) at least 75% of the consideration received
by the Company or the Subsidiary, as the case may be, from such Asset Sale shall
be in the form of cash or Cash Equivalents
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and is received at the time of such disposition; and (iii) upon the consummation
of an Asset Sale, the Company shall apply, or cause such Subsidiary to apply,
the Net Cash Proceeds relating to such Asset Sale within 360 days of receipt
thereof either (A) to prepay any Senior Indebtedness or Guarantor Senior
Indebtedness and, in the case of any Senior Indebtedness or Guarantor Senior
Indebtedness under any revolving credit facility, effect a permanent reduction
in the commitment available under such revolving credit facility, (B) to make an
investment in properties and assets that replace the properties and assets that
were the subject of such Asset Sale or in properties and assets that will be
used in the business of the Company and its Subsidiaries as existing on the
Issue Date or in businesses reasonably related thereto (as determined in good
faith by the Company's Board of Directors) ("Replacement Assets"), or (C) a
combination of prepayment and investment permitted by the foregoing clauses
(iii) (A) and (iii) (B). Pending final application, the Company or the
applicable Subsidiary may temporarily reduce Indebtedness under any revolving
credit facility or invest in cash or Cash Equivalents. On the 361st day after an
Asset Sale or such earlier date, if any, as the Board of Directors of the
Company or of such Subsidiary determines not to apply the Net Cash Proceeds
relating to such Asset Sale as set forth in clauses (iii) (A), (iii) (B) and
(iii) (C) of the next preceding sentence (each, a "Net Proceeds Offer Trigger
Date"), such aggregate amount of Net Cash Proceeds which the Company or such
Subsidiary has failed to apply on or before such Net Proceeds Offer Trigger Date
as permitted in clauses (iii) (A), (iii) (B) and (iii) (C) of the next preceding
sentence (each, a "Net Proceeds Offer Amount") shall be applied by the Company
or such Subsidiary to make an offer to purchase (the "Net Proceeds Offer") on a
date (the "Net Proceeds Offer Payment Date") not less than 30 nor more than 45
days following the applicable Net Proceeds Offer Trigger Date, from all Holders
on a pro rata basis, that amount of Notes equal to the Net Proceeds Offer Amount
at a price equal to 100% of the principal amount of the Notes to be purchased,
plus accrued and unpaid interest thereon, if any, to the date of purchase;
provided, however, that if at any time any non-cash consideration received by
the Company or any Subsidiary of the Company, as the case may be, in connection
with any Asset Sale is converted into or sold or otherwise disposed of for cash
(other than interest received with respect to any such non-cash consideration),
then such conversion or disposition shall be deemed to constitute an Asset Sale
hereunder and the Net Cash Proceeds thereof shall be applied in accordance with
this covenant. The Company or any such Subsidiary of the Company, as the case
may be, may defer the Net Proceeds Offer until there is an aggregate unutilized
Net Proceeds Offer Amount equal to or in excess of $5.0 million resulting from
one or more Asset Sales (at which time, the entire unutilized Net Proceeds Offer
Amount, and not just the amount in excess of $5.0 million, shall be applied as
required pursuant to this paragraph).
Notwithstanding the immediately preceding paragraph, the Company and its
Subsidiaries will be permitted to consummate an Asset Sale without complying
with such paragraphs to the extent (i) at least 75% of the consideration for
such Asset Sale constitutes Replacement Assets and/or Cash Equivalents and (ii)
such Asset Sale is for fair market value; provided, however, that any
consideration not constituting Replacement Assets received by the Company or any
of its Subsidiaries in connection with any Asset Sale permitted to be
consummated under this paragraph shall constitute Net Cash Proceeds subject to
the provisions of the preceding paragraph.
Notice of each Net Proceeds Offer will be mailed to the record Holders as
shown on the register of Holders within 25 days following the Net Proceeds Offer
Trigger Date, with a copy to the Trustee, and shall comply with the procedures
set forth in the Indenture. Upon receiving notice of the Net Proceeds Offer,
Holders may elect to tender their Notes in whole or in part in integral
multiples of $1,000 in exchange for cash. To the extent Holders properly tender
Notes in an amount exceeding the Net Proceeds Offer Amount, Notes of tendering
Holders will be purchased on a pro rata basis (based on amounts tendered). A Net
Proceeds Offer shall remain open for a period of 20 business days or such longer
period as may be required by law. To the extent the amount of Notes tendered is
less than the offer amount, the Company may use the remaining Net Proceeds Offer
Amount for general corporate purposes and such Net Proceeds Offer Amount shall
be reset to zero.
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The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Net Proceeds Offer. To the extent that the
provisions of any securities laws or regulations conflict with the "Asset Sale"
provisions of the Indenture, the Company shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under the "Asset Sale" provisions of the Indenture by virtue
thereof.
Limitation on Dividend and Other Payment Restrictions Affecting
Subsidiaries. The Company will not, and will not cause or permit any of its
Subsidiaries to, directly or indirectly, create or otherwise cause or permit to
exist or become effective any encumbrance or restriction on the ability of any
Subsidiary of the Company to (a) pay dividends or make any other distributions
on or in respect of its Capital Stock; (b) make loans or advances or to pay any
Indebtedness or other obligation owed to the Company or any other Subsidiary of
the Company; or (c) transfer any of its property or assets to the Company or any
other Subsidiary of the Company, except for such encumbrances or restrictions
existing under or by reason of: (1) applicable law; (2) the Indenture; (3) the
Credit Agreement; (4) non-assignment provisions of any contract or any lease
governing a leasehold interest of any Subsidiary of the Company; (5) any
instrument governing Acquired Indebtedness, which encumbrance or restriction is
not applicable to any Person, or the properties or assets of any Person, other
than the Person or the properties or assets of the Person so acquired; (6)
agreements existing on the Issue Date to the extent and in the manner such
agreements are in effect on the Issue Date; or (7) an agreement governing
Indebtedness incurred to Refinance the Indebtedness issued, assumed or incurred
pursuant to an agreement referred to in clause (2), (3), (5) or (6) above;
provided, however, that the provisions relating to such encumbrance or
restriction contained in any such Indebtedness are no less favorable to the
Company or to the Holders in any material respect as determined by the Board of
Directors of the Company in its reasonable and good faith judgment than the
provisions relating to such encumbrance or restriction contained in agreements
referred to in such clause (2), (3), (5) or (6), respectively.
Limitation on Preferred Stock of Subsidiaries. The Company will not permit
any of its Subsidiaries to issue any Preferred Stock (other than to the Company
or to a Wholly Owned Subsidiary of the Company) or permit any Person (other than
the Company or a Wholly Owned Subsidiary of the Company) to own any Preferred
Stock of any Subsidiary of the Company.
Limitation on Liens. The Company will not, and will not cause or permit any
of its Subsidiaries to, directly or indirectly, create, incur, assume or permit
or suffer to exist any Liens of any kind against or upon any property or assets
of the Company or any of its Subsidiaries whether owned on the Issue Date or
acquired after the Issue Date, or any proceeds therefrom, or assign or otherwise
convey any right to receive income or profits therefrom unless (i) in the case
of Liens securing Indebtedness that is expressly subordinate or junior in right
of payment to the Notes or any Guarantee, the Notes and such Guarantee, as the
case may be, are secured by a Lien on such property, assets or proceeds that is
senior in priority to such Liens and (ii) in all other cases, the Notes and the
Guarantees are equally and ratably secured, except for (A) Liens existing as of
the Issue Date to the extent and in the manner such Liens are in effect on the
Issue Date; (B) Liens securing Senior Indebtedness; (C) Liens securing the Notes
and the Guarantees; (D) Liens of the Company or a Wholly Owned Subsidiary of the
Company on assets of any Subsidiary of the Company; (E) Liens securing
Refinancing Indebtedness which is incurred to Refinance any Indebtedness which
has been secured by a Lien permitted under the Indenture and which has been
incurred in accordance with the provisions of the Indenture; provided, however,
that such Liens (1) are no less favorable to the Holders and are not more
favorable to the lienholders with respect to such Liens than the Liens in
respect of the Indebtedness being Refinanced and (2) do not extend to or cover
any property or assets of the Company or any of its Subsidiaries not securing
the Indebtedness so Refinanced (other than property or assets subject to Liens
under clause (B) above); and (F) Permitted Liens.
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Prohibition on Incurrence of Senior Subordinated Debt. The Company will not
incur or suffer to exist Indebtedness that by its terms is senior in right of
payment to the Notes and subordinate in right of payment to any other
Indebtedness of the Company. No Subsidiary Guarantor shall incur or suffer to
exist Indebtedness that by its terms is senior in right of payment to the
Guarantees and subordinate in right of payment to any other Indebtedness of such
Subsidiary Guarantor.
Merger, Consolidation and Sale of Assets. The Company will not, in a single
transaction or series of related transactions, consolidate or merge with or into
any Person, or sell, assign, transfer, lease, convey or otherwise dispose of (or
cause or permit any Subsidiary of the Company to sell, assign, transfer, lease,
convey or otherwise dispose of) all or substantially all of the Company's assets
(determined on a consolidated basis for the Company and its Subsidiaries)
unless: (i) either (1) the Company shall be the surviving or continuing
corporation or (2) the Person (if other than the Company) formed by such
consolidation or into which the Company is merged or the Person which acquires
by sale, assignment, transfer, lease, conveyance or other disposition the
properties and assets of the Company and of the Company's Subsidiaries
substantially as an entirety (the "Surviving Entity") (x) shall be a corporation
organized and validly existing under the laws of the United States or any State
thereof or the District of Columbia or the federal laws of Canada or any
province thereof and (y) shall expressly assume as primary obligor, by
supplemental indenture (in form and substance satisfactory to the Trustee),
executed and delivered to the Trustee, the due and punctual payment of the
principal of, and premium, if any, and interest on all of the Notes and the
performance of every covenant of the Notes, the Indenture and the Registration
Rights Agreement on the part of the Company to be performed or observed, as the
case may be; (ii) immediately after giving effect to such transaction and the
assumption contemplated by clause (i) (2) (y) above (including giving effect to
any Indebtedness and Acquired Indebtedness incurred or anticipated to be
incurred in connection with or in respect of such transaction), the Company or
such Surviving Entity, as the case may be, (1) shall have a Consolidated Net
Worth equal to or greater than the Consolidated Net Worth of the Company
immediately prior to such transaction and (2) shall be able to incur at least
$1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to
the "-- Limitation on Incurrence of Additional Indebtedness" covenant; (iii)
immediately before and immediately after giving effect to such transaction and
the assumption contemplated by clause (i) (2) (y) above (including, without
limitation, giving effect to any Indebtedness and Acquired Indebtedness incurred
or anticipated to be incurred and any Lien granted in connection with or in
respect of the transaction), no Default or Event of Default shall have occurred
or be continuing; and (iv) the Company or the Surviving Entity, as the case may
be, shall have delivered to the Trustee an officer's certificate and an opinion
of counsel, each stating that such consolidation, merger, sale, assignment,
transfer, lease, conveyance or other disposition and, if a supplemental
indenture is required in connection with such transaction, such supplemental
indenture comply with the applicable provisions of the Indenture and that all
conditions precedent in the Indenture relating to such transaction have been
satisfied.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Subsidiaries of the
Company the Capital Stock of which constitutes all or substantially all of the
properties and assets of the Company shall be deemed to be the transfer of all
or substantially all of the properties and assets of the Company.
The Indenture provides that upon any consolidation, combination or merger
or any transfer of all or substantially all of the assets of the Company in
accordance with the foregoing, in which the Company is not the continuing
corporation, the successor Person formed by such consolidation or into which the
Company is merged or to which such conveyance, lease or transfer is made shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under the Indenture and the Notes with the same effect as if such
surviving entity had been named as such.
Each Subsidiary Guarantor (other than any Subsidiary Guarantor whose
Guarantee is to be released in accordance with the terms of the Guarantee and
the Indenture in connection with any
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transaction complying with the provisions of the Indenture described under
"-- Limitation on Asset Sales") will not, and the Company will not cause or
permit any Subsidiary Guarantor to, consolidate with or merge with or into any
Person other than the Company or another Subsidiary Guarantor that is a Wholly
Owned Subsidiary unless: (a) the entity formed by or surviving any such
consolidation or merger (if other than the Subsidiary Guarantor) or to which
such sale, lease, conveyance or other disposition shall have been made is a
corporation organized and existing under the laws of the United States or any
state thereof or the District of Columbia or the federal laws of Canada or any
province thereof; (b) such entity assumes by execution of a supplemental
indenture all of the obligations of the Subsidiary Guarantor under its
Guarantee; (c) immediately after giving effect to such transaction, no Default
or Event of Default shall have occurred and be continuing; and (d) immediately
after giving effect to such transaction and the use of any net proceeds
therefrom on a pro forma basis, the Company could satisfy the provisions of
clause (ii) of the first paragraph of this covenant. Any merger or consolidation
of a Subsidiary Guarantor with and into the Company (with the Company being the
surviving entity) or another Subsidiary Guarantor that is a Wholly Owned
Subsidiary need only comply with clause (iv) of the first paragraph of this
covenant.
Limitations on Transactions with Affiliates. (a) The Company will not, and
will not cause or permit any of its Subsidiaries to, directly or indirectly,
enter into or permit to exist any transaction or series of related transactions
(including, without limitation, the purchase, sale, lease or exchange of any
property or the rendering of any service) with, or for the benefit of, any of
its Affiliates (each an "Affiliate Transaction"), other than (x) Affiliate
Transactions permitted under paragraph (b) below and (y) Affiliate Transactions
on terms that are no less favorable than those that might reasonably have been
obtained or are obtainable in a comparable transaction at such time on an
arm's-length basis from a Person that is not an Affiliate of the Company or such
Subsidiary. All Affiliate Transactions (and each series of related Affiliate
Transactions which are similar or part of a common plan) involving aggregate
payments or other property with a fair market value in excess of $1.0 million
shall be evidenced by an Officer's Certificate certifying that such transaction
complies with the foregoing provisions. If the Company or any Subsidiary of the
Company enters into an Affiliate Transaction (or a series of related Affiliate
Transactions which are similar or part of a common plan) involving aggregate
payments or other property with a fair market value in excess of $10.0 million,
the Company or such Subsidiary, as the case may be, shall, prior to the
consummation thereof, obtain a favorable opinion as to the fairness of such
transaction or series of related transactions to the Company or the relevant
Subsidiary, as the case may be, from a financial point of view, from an
Independent Financial Advisor and file the same with the Trustee.
(b) The restrictions set forth in clause (a) shall not apply to (i)
reasonable fees and compensation paid to and indemnity provided on behalf of,
officers, directors, employees, consultants or agents of the Company or any
Subsidiary of the Company as determined in good faith by the Company's Board of
Directors or senior management; (ii) transactions exclusively between or among
the Company and any of its Wholly Owned Subsidiaries or exclusively between or
among such Wholly Owned Subsidiaries, provided such transactions are not
otherwise prohibited by the Indenture; (iii) any agreement as in effect as of
the Issue Date (including, without limitation, the Management Agreement and the
Shareholder Agreement) or any amendment thereto or any transaction contemplated
thereby (including pursuant to any amendment thereto) or in any replacement
agreement thereto so long as any such amendment or replacement agreement is not
more disadvantageous to the Holders in any material respect than the original
agreement as in effect on the Issue Date; and (iv) Restricted Payments permitted
by the Indenture.
Additional Subsidiary Guarantees. If the Company or any of its Subsidiaries
transfers or causes to be transferred, in one transaction or a series of related
transactions, any property to any Subsidiary that is not a Subsidiary Guarantor,
or if the Company or any of its Subsidiaries shall organize, acquire or
otherwise invest in another Subsidiary, then such transferee or acquired or
other Subsidiary shall (a) execute and deliver to the Trustee a supplemental
indenture in form reasonably satisfactory to the Trustee pursuant to which such
Subsidiary shall unconditionally guarantee all of the Company's
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obligations under the Notes and the Indenture on the terms set forth in the
Indenture and (b) deliver to the Trustee an opinion of counsel that such
supplemental indenture has been duly authorized, executed and delivered by such
Subsidiary and constitutes a legal, valid, binding and enforceable obligation of
such Subsidiary. After the execution and delivery of such supplemental
indenture, such Subsidiary shall be a Subsidiary Guarantor for all purposes of
the Indenture.
Conduct of Business. The Company will not and will not cause or permit any
of its Subsidiaries to engage in any businesses other than the businesses in
which the Company is engaged on the Issue Date, and any businesses reasonably
related thereto (as determined in good faith by the Company's Board of
Directors).
Reports to Holders. The Company will file with the Commission all
information, documents and reports required to be filed with the Commission
pursuant to Section 13 or 15(d) of the Exchange Act, whether or not the Company
is then subject to such filing requirements. The Company will file with the
Trustee, within 15 days after it files them with the Commission, copies of the
annual reports and of the information, documents and other reports (or copies of
such portions of any of the foregoing as the Commission may by rules and
regulations prescribe) which the Company files with the Commission pursuant to
Section 13 or 15(d) of the Exchange Act. Regardless of whether the Company is
required to furnish such reports to its stockholders pursuant to the Exchange
Act, the Company will cause its consolidated financial statements, comparable to
that which would have been required to appear in annual or quarterly reports, to
be delivered to the Trustee and the Holders. The Company will also make such
reports available to prospective purchasers of the Notes or the Exchange Notes,
as applicable, securities analysts and broker-dealers upon their request. In
addition, the Indenture will require that for so long as of the Notes remain
outstanding the Company will make available to any prospective purchaser of the
Notes or beneficial owner of the Notes in connection with any sale thereof the
information required by Rule 144A(d)(4) under the Securities Act, until such
time as the Company has either exchanged the Notes for securities identical in
all material respects which have been registered under the Securities Act or
until such time as the holders thereof have disposed of such Notes pursuant to
an effective registration statement filed by the Company. The Company will also
comply with the other provisions of TIA sec. 314(a).
EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of Default":
(i) the failure to pay interest (including Additional Interest, if
any) on any Notes when the same becomes due and payable and the default
continues for a period of 30 days (whether or not such payment shall be
prohibited by the subordination provisions of the Indenture);
(ii) the failure to pay the principal on any Notes, when such
principal becomes due and payable, at maturity, upon acceleration, upon
redemption or otherwise (including the failure to make a payment to
purchase Notes tendered pursuant to a Change of Control Offer or a Net
Proceeds Offer) (whether or not such payment shall be prohibited by the
subordination provisions of the Indenture);
(iii) a default in the observance or performance of any other
covenant or agreement contained in the Indenture which default continues
for a period of 30 days after the Company receives written notice
specifying the default (and demanding that such default be remedied) from
the Trustee or the Holders of at least 25% of the outstanding principal
amount of the Notes (except in the case of a default with respect to the
"Merger, Consolidation and Sale of Assets" covenant, which will constitute
an Event of Default with such notice requirement but without such passage
of time requirement);
(iv) the failure to pay at final maturity (giving effect to any
applicable grace periods and any extensions thereof) the principal amount
of any Indebtedness of the Company or any Subsidiary of the Company, or the
acceleration of the final stated maturity of any such
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Indebtedness if the aggregate principal amount of such Indebtedness,
together with the principal amount of any other such Indebtedness in
default for failure to pay principal at final maturity or which has been
accelerated, aggregates $10.0 million or more at any time;
(v) one or more judgments in an aggregate amount in excess of $10.0
million shall have been rendered against the Company or any of its
Subsidiaries and such judgments remain undischarged, unpaid or unstayed for
a period of 60 days after such judgment or judgments become final and
non-appealable;
(vi) certain events of bankruptcy affecting the Company or any of its
Significant Subsidiaries;
(vii) any of the Guarantees cease to be in full force and effect or
any of the Guarantees are declared to be null and void or invalid and
unenforceable or any of the Subsidiary Guarantors denies or disaffirms its
liability under its Guarantee (other than by reason of the release of a
Subsidiary Guarantor in accordance with the terms of the Indenture).
If an Event of Default (other than an Event of Default specified in clause
(vi) above) shall occur and be continuing, the Trustee or the Holders of at
least 25% in principal amount of outstanding Notes may declare the principal of
and accrued interest on all the Notes to be due and payable by notice in writing
to the Company and the Trustee specifying the respective Event of Default and
that it is a "notice of acceleration" (the "Acceleration Notice"), and the same
(i) shall become immediately due and payable or (ii) if there are any amounts
outstanding under the Credit Agreement, shall become due and payable upon the
first to occur of an acceleration under the Credit Agreement, or five business
days after receipt by the Company and the Representative under the Credit
Agreement of such Acceleration Notice, unless all Events of Default specified in
such Acceleration Notice (other than any Event of Default in respect of
non-payment of principal) shall have been cured or waived. In the event of a
declaration because an Event of Default set forth in clause (iv) of the
preceding paragraph has occurred and is continuing, such declaration of
acceleration shall be automatically annulled if the missed payments in respect
of such Indebtedness have been paid or if the holders of the Indebtedness that
is subject to acceleration have rescinded their declaration of acceleration and
the Trustee has received written notice of such Indebtedness having been repaid
in full, in each case within 60 days thereof and if (i) the annulment of such
acceleration would not conflict with any judgment or decree of a court of
competent jurisdiction, (ii) all existing Events of Default, except non-payment
of principal or interest which have become due solely because of the
acceleration, have been cured or waived and (iii) the Company has delivered an
Officer's Certificate to the Trustee to the effect of clauses (i) and (ii)
above. If an Event of Default specified in clause (vi) above occurs and is
continuing, then all unpaid principal of, and premium, if any, and accrued and
unpaid interest on all of the outstanding Notes shall ipso facto become and be
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holder.
The Indenture provides that, at any time after a declaration of
acceleration with respect to the Notes as described in the preceding paragraph,
the Holders of a majority in principal amount of the Notes may rescind and
cancel such declaration and its consequences (i) if the rescission would not
conflict with any judgment or decree, (ii) if all existing Events of Default
have been cured or waived except nonpayment of principal or interest that has
become due solely because of the acceleration, (iii) to the extent the payment
of such interest is lawful, interest on overdue installments of interest and
overdue principal, which has become due otherwise than by such declaration of
acceleration, has been paid, (iv) if the Company has paid the Trustee its
reasonable compensation and reimbursed the Trustee for its expenses,
disbursements and advances and (v) in the event of the cure or waiver of an
Event of Default of the type described in clause (vi) of the description above
of Events of Default, the Trustee shall have received an officers' certificate
and an opinion of counsel that such Event of Default has been cured or waived.
No such rescission shall affect any subsequent Default or impair any right
consequent thereto.
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The Holders of a majority in principal amount of the Notes may waive any
existing Default or Event of Default under the Indenture, and its consequences,
except a default in the payment of the principal of or interest on any Notes.
Holders of the Notes may not enforce the Indenture or the Notes except as
provided in the Indenture and under the TIA. Subject to the provisions of the
Indenture relating to the duties of the Trustee, the Trustee is under no
obligation to exercise any of its rights or powers under the Indenture at the
request, order or direction of any of the Holders, unless such Holders have
offered to the Trustee reasonable indemnity. Subject to all provisions of the
Indenture and applicable law, the Holders of a majority in aggregate principal
amount of the then outstanding Notes have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or exercising any trust or power conferred on the Trustee.
Under the Indenture, the Company is required to provide an officers'
certificate to the Trustee promptly upon any such officer obtaining knowledge of
any Default or Event of Default (provided that such officers shall provide such
certification at least annually whether or not they know of any Default or Event
of Default) that has occurred and, if applicable, describe such Default or Event
of Default and the status thereof.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have its
obligations and the corresponding obligations of the Subsidiary Guarantors
discharged with respect to the outstanding Notes ("Legal Defeasance"). Such
Legal Defeasance means that the Company shall be deemed to have paid and
discharged the entire indebtedness represented by the outstanding Notes, except
for (i) the rights of Holders to receive payments in respect of the principal
of, premium, if any, and interest on the Notes when such payments are due, (ii)
the Company's obligations with respect to the Notes concerning issuing temporary
Notes, registration of Notes, mutilated, destroyed, lost or stolen Notes and the
maintenance of an office or agency for payments, (iii) the rights, powers,
trust, duties and immunities of the Trustee and the Company's obligations in
connection therewith and (iv) the Legal Defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time, elect to have the
obligations of the Company and its Subsidiaries released with respect to certain
covenants that are described in the Indenture ("Covenant Defeasance") and
thereafter any omission to comply with such obligations shall not constitute a
Default or Event of Default with respect to the Notes. In the event Covenant
Defeasance occurs, certain events (not including nonpayment, bankruptcy,
receivership, reorganization and insolvency events) described under "Events of
Default" will no longer constitute an Event of Default with respect to the
Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders cash in United States dollars, non-callable United States
government obligations, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, premium, if any, and interest on the Notes
on the stated date for payment thereof or on the applicable redemption date, as
the case may be; (ii) in the case of Legal Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that (A) (w) the Company has received from,
or there has been published by, the Internal Revenue Service a ruling or (x)
since the date of the Indenture, there has been a change in the applicable
federal income tax law, in either case to the effect that, and based thereon
such opinion of counsel shall confirm that, the Holders will not recognize
income, gain or loss for federal income tax purposes as a result of such Legal
Defeasance and, in either case, that the Holders will be subjected to U.S.
federal income tax on the same amounts, in the same manner and at the same times
as would have been the case if such Legal Defeasance had not occurred and (B) an
opinion of counsel in Canada reasonably acceptable to the Trustee confirming
that the Holders will not recognize income, gain or loss for Canadian federal
income tax purposes as a result of such Legal Defeasance and will be subject to
Canadian federal
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income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Legal Defeasance had not occurred; (iii) in the
case of Covenant Defeasance, the Company shall have delivered to the Trustee (A)
an opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that the Holders will not recognize income, gain or loss for U.S.
federal income tax purposes as a result of such Covenant Defeasance and will be
subject to U.S. federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such Covenant Defeasance had
not occurred and (B) an opinion of counsel in Canada reasonably acceptable to
the Trustee confirming that the Holders will not recognize income, gain or loss
for Canadian federal income tax purposes as a result of such Covenant Defeasance
and will be subject to Canadian federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Covenant
Defeasance had not occurred; (iv) no Default or Event of Default shall have
occurred and be continuing on the date of such deposit or insofar as Events of
Default from bankruptcy or insolvency events are concerned, at any time in the
period ending on the 91st day after the date of deposit (other than a Default or
Event of Default resulting from the incurrence of Indebtedness all or a portion
of the proceeds of which will be used to defease the Notes concurrently with
such incurrence); (v) such Legal Defeasance or Covenant Defeasance shall not
result in a breach or violation of, or constitute a default under, the Indenture
or any other material agreement or instrument to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries is
bound; (vi) the Company shall have delivered to the Trustee an officers'
certificate stating that the deposit was not made by the Company with the intent
of preferring the Holders over any other creditors of the Company or with the
intent of defeating, hindering, delaying or defrauding any other creditors of
the Company or others; (vii)the Company shall have delivered to the Trustee an
officers' certificate and an opinion of counsel, each stating that all
conditions precedent provided for or relating to the Legal Defeasance or the
Covenant Defeasance have been complied with; (viii) the Company shall have
delivered to the Trustee an opinion of counsel to the effect that (A) the trust
funds will not be subject to any rights of holders of Indebtedness of the
Company other than the Notes and (B) after the 91st day following the deposit,
the trust funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally; and (ix) certain other customary conditions precedent are satisfied.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of the
Notes, as expressly provided for in the Indenture) as to all outstanding Notes
when (i) either (a) all the Notes theretofore authenticated and delivered
(except lost, stolen or destroyed Notes which have been replaced or paid and
Notes for whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to the Company
or discharged from such trust) have been delivered to the Trustee for
cancellation or (b) all Notes not theretofore delivered to the Trustee for
cancellation have become due and payable and the Company has irrevocably
deposited or caused to be deposited with the Trustee funds in an amount
sufficient to pay and discharge the entire Indebtedness on the Notes not
theretofore delivered to the Trustee for cancellation, for principal of,
premium, if any, and interest on the Notes to the date of deposit together with
irrevocable instructions from the Company directing the Trustee to apply such
funds to the payment thereof at maturity or redemption, as the case may be; (ii)
the Company has paid all other sums payable under the Indenture by the Company;
and (iii) the Company has delivered to the Trustee an officers' certificate and
an opinion of counsel stating that all conditions precedent under the Indenture
relating to the satisfaction and discharge of the Indenture have been complied
with.
MODIFICATION OF THE INDENTURE
From time to time, the Company, the Subsidiary Guarantors and the Trustee,
without the consent of the Holders, may amend the Indenture for certain
specified purposes, including curing
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ambiguities, defects or inconsistencies, so long as such change does not, in the
opinion of the Trustee, adversely affect the rights of any of the Holders in any
material respect. In formulating its opinion on such matters, the Trustee will
be entitled to rely on such evidence as it deems appropriate, including, without
limitation, solely on an opinion of counsel. Other modifications, waivers and
amendments of the Indenture may be made with the consent of the Holders of a
majority in principal amount of the then outstanding Notes issued under the
Indenture, except that, without the consent of each Holder affected thereby, no
amendment or waiver may: (i) reduce the amount of Notes whose Holders must
consent to an amendment; (ii) reduce the rate of or change or have the effect of
changing the time for payment of interest, including defaulted interest, on any
Notes; (iii) reduce the principal of or change or have the effect of changing
the fixed maturity of any Notes, or change the date on which any Notes may be
subject to redemption or repurchase, or reduce the redemption or repurchase
price therefor; (iv) make any Notes payable in money other than that stated in
the Notes; (v) make any change in provisions of the Indenture protecting the
right of each Holder to receive payment of principal of and interest on such
Note on or after the due date thereof or to bring suit to enforce such payment,
or permitting Holders of a majority in principal amount of Notes to waive
Defaults or Events of Default; (vi) amend, change or modify in any material
respect the obligation of the Company to make and consummate a Change of Control
Offer in the event of a Change of Control or make and consummate a Net Proceeds
Offer with respect to any Asset Sale that has been consummated or modify any of
the provisions or definitions with respect thereto; (vii) modify or change any
provision of the Indenture or the related definitions affecting the
subordination or ranking of the Notes or any Guarantee in a manner which
adversely affects the Holders; (viii) modify or amend the obligation of the
Company to pay Additional Amounts; or (ix) release any Subsidiary Guarantor from
any of its obligations under its Guarantee or the Indenture other than in
accordance with the terms of the Indenture.
TAXATION; REDEMPTION FOR TAXATION REASONS
All payments by the Company in respect of the Notes or any Subsidiary
Guarantor in respect of its Guarantee shall be made free and clear of and
without withholding or deduction for or on account of any present or future
taxes, duties, assessments or other governmental charges of whatever nature,
including penalties, interest and any other liabilities related thereto
("Taxes"), imposed or levied by or on behalf of Canada or any relevant
jurisdiction or any political subdivision or authority thereof or therein having
power to tax. The Indenture provides that if the Company or any Subsidiary
Guarantor is required to make any withholding or deduction for or on account of
any Taxes from any payment made under or with respect to the Notes or the
Guarantees, the Company or such Subsidiary Guarantor, as the case may be, will
pay such additional amounts ("Additional Amounts") as may be necessary so that
the net amount received by each Holder (including Additional Amounts) after such
withholding or deduction will not be less than the amount the Holder would have
received had such Taxes not been withheld or deducted; provided, that no
Additional Amounts will be payable to a Holder (an "Excluded Holder") (i) with
which the Company does not deal at arm's length (within the meaning of the
Income Tax Act (Canada)) at the time of making such payment, (ii) which is
subject to such Taxes by reason of its being connected with the jurisdiction
imposing such tax or authority thereof otherwise than by the mere holding of the
Notes or the receipt of payments thereunder, (iii) which presents any Note for
payment of principal more than 60 days after the later of (x) the date on which
payment first became due and (y) if the full amount payable has not been
received by the Trustee on or prior to such due date, the date on which, the
full amount payable having been so received, notice to that effect shall have
been given to the Holders by the Trustee, except to the extent that the Holder
would have been entitled to such Additional Amounts on presenting such Note for
payment on the last day of the applicable 60-day period, (iv) which failed to
duly and timely comply with a timely request of the Company to provide
information, documents or other evidence concerning the Holder's nationality,
residence, entitlement to treaty benefits, identity or connection with the
jurisdiction imposing such tax, if and to the extent that due and timely
compliance with such request would have reduced or eliminated
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any Taxes as to which Additional Amounts would have otherwise been payable to
such Holder but for this clause (iv), (v) on account of any estate, inheritance,
gift, sale, transfer, personal property or other similar Tax, (vi) which is a
fiduciary, a partnership or not the beneficial owner of any payment on a Note,
if and to the extent that any beneficiary or settlor of such fiduciary, any
partner in such partnership or the beneficial owner of such payment (as the case
may be) would not have been entitled to receive Additional Amounts with respect
to such payment if such beneficiary, settlor, partner or beneficial owner had
been the Holder of such Note or (vii) any combination of the foregoing numbered
clauses of this proviso.
The Company and each Subsidiary Guarantor will also (i) make such
withholding or deduction as required by applicable law and (ii) remit the full
amount deducted or withheld to the relevant authority in accordance with
applicable law. The Company or any Subsidiary Guarantor, as the case may be,
will furnish to the Trustee, within 60 days after the date the payment of any
Taxes is due pursuant to applicable law, copies of tax receipts evidencing that
such payment has been made by the Company or such Subsidiary Guarantor, in such
form as provided in the normal course by the taxing authority imposing such
Taxes and as is reasonably available to the Company or such Subsidiary
Guarantor. The Trustee shall make such evidence available to the Holders of
Notes upon request.
The Company and each Subsidiary Guarantor, jointly and severally, will
indemnify and hold harmless each Holder of Notes that are outstanding on the
date that withholding or deduction was required pursuant to applicable law
(other than an Excluded Holder) and upon written notice reimburse each such
Holder for the amount of (i) any taxes so levied or imposed and paid by such
Holder as a result of payments made under or with respect to the Notes or the
Guarantees, (ii) any liability (including penalties, interest and expenses)
arising therefrom or with respect thereto and (iii) any taxes imposed with
respect to any reimbursement under clause (i) or (ii) above.
Whenever in the Indenture there is mentioned, in any context, (a) the
payment of principal (and premium, if any), (b) purchase prices in connection
with a repurchase of Notes, (c) interest or (d) any other amount payable on or
with respect to any of the Notes, such mention shall be deemed to include
mention of the payment of Additional Amounts provided for in this section to the
extent that, in such context, Additional Amounts are, were or would be payable
in respect thereof. The foregoing obligations shall survive any termination of
the Indenture or the defeasance of any obligations pursuant to the Indenture.
The Company may redeem, at its option, all, but not less than all, the
Notes at a redemption price equal to 100% of the principal amount so redeemed,
plus accrued and unpaid interest, if any, thereon to the date of redemption if
the Company determines and certifies to the Trustee immediately prior to the
giving of the notice of redemption that (i) it has or will become obligated to
pay any Additional Amounts in respect of the Notes as a result of any change in
or amendment to the laws (or any regulations or rulings promulgated thereunder)
of Canada or any relevant jurisdiction or any political subdivision or taxing
authority thereof or therein affecting taxation, or any change in any official
position regarding the application or interpretation of such laws, regulations
or rulings (including a holding by a court of competent jurisdiction) which
change, amendment, application or interpretation is announced or becomes
effective on or after the Issue Date, (ii) such obligation cannot be avoided by
the Company taking reasonable measures available to it, (iii) such obligation
did not arise, directly or indirectly, from any transaction, action or omission
by the Company (whether or not such transaction, action or omission is otherwise
permitted under the terms of the Indenture) and (iv) certain other conditions
set forth in the Indenture are satisfied. Notice of redemption shall be mailed
by first-class mail at least 30 but not more than 60 days before the redemption
date to each Holder of Notes to be redeemed at its registered address.
The Company will pay any present or future stamp, court or documentary
taxes or any other excise or property taxes, charges or similar levies that
arise in any jurisdiction from the execution,
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delivery or registration of the Notes or the Guarantees or any other document or
instrument referred to in the Indenture or the Notes.
GOVERNING LAW
The Indenture provides that it, the Notes and the Guarantees will be
governed by, and construed in accordance with, the laws of the State of New York
but without giving effect to applicable principles of conflicts of law to the
extent that the application of the law of another jurisdiction would be required
thereby.
ENFORCEABILITY OF JUDGMENTS
Since a substantial portion of the assets of the Company and the Subsidiary
Guarantors are outside the United States, any judgment obtained in the United
States against them, including judgments with respect to the payment of
principal, premium, if any, or interest on the Notes, may not be collectible
within the United States.
The Company has been informed by its counsel, Stewart McKelvey Stirling
Scales, that the laws of the province of Nova Scotia permit an action to be
brought in a court of competent jurisdiction in the province of Nova Scotia (a
"Canadian Court") on any final and conclusive judgment in personam of any
federal or state court located in the Borough of Manhattan in the City of New
York (a "New York Court") that is not impeachable as void or voidable under the
internal laws of the State of New York for a sum certain if (i) the court
rendering such judgment had jurisdiction over the judgment debtor, as recognized
by a Canadian Court (and submission by the Company in the Indenture to the
jurisdiction of the New York Court will be sufficient for the purpose); (ii)
such judgment was not obtained by fraud or in a manner contrary to natural
justice and the enforcement thereof would not be inconsistent with public
policy, as such term is understood under the laws of the province of Nova
Scotia; (iii) the enforcement of such judgment does not constitute, directly or
indirectly, the enforcement of foreign revenue, expropriatory or penal laws;
(iv) the action to enforce such judgment is commenced within six years of the
date of such judgment; and (v) certain other conditions are satisfied. In the
opinion of such counsel, a Canadian Court would not avoid enforcement of
judgments of a New York Court respecting the Indenture, the Notes or the
Guarantees on the basis of public policy, as that term is understood under the
laws of the province of Nova Scotia and the federal laws of Canada applicable
therein.
Certain of the existing Subsidiary Guarantors are organized or operate
outside the United States and Canada. In addition, the Company may form or
acquire additional subsidiaries after the Issue Date that become Subsidiary
Guarantors which are organized or conduct operations outside the United States
or Canada. The ability of the Trustee or the holders of the Notes to enforce
judgments against such Subsidiary Guarantors may be significantly limited by the
application of foreign law.
CONSENT TO JURISDICTION AND SERVICE
The Indenture provides that each of the Company and the Subsidiary
Guarantors will appoint CT Corporation System, 1633 Broadway, New York, New York
10019 as its agent for service of process in any suit, action or proceeding with
respect to the Indenture, the Notes or the Guarantees and for actions brought
under Federal or state securities laws brought in any Federal or state court
located in the borough of Manhattan in the City of New York and will submit to
such jurisdiction.
THE TRUSTEE
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set forth
in the Indenture. During the existence of an Event of Default, the Trustee will
exercise such rights and powers vested in it by the Indenture, and use the same
degree of care and skill in its exercise as a prudent man or woman would
exercise or use under the circumstances in the conduct of his own affairs.
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The Indenture and the provisions of the TIA contain certain limitations on
the rights of the Trustee, should it become a creditor of the Company, to obtain
payments of claims in certain cases or to realize on certain property received
in respect of any such claim as security or otherwise. Subject to the TIA, the
Trustee will be permitted to engage in other transactions; provided, however,
that if the Trustee acquires any conflicting interest as described in the TIA,
it must eliminate such conflict or resign.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.
"Acquired Indebtedness" of a Person means Indebtedness of another Person or
any of its Subsidiaries existing at the time such other Person becomes a
Subsidiary of the referent Person or at the time it merges or consolidates with
the referent Person or any of the referent Person's Subsidiaries or is assumed
by the referent Person or any Subsidiary of the referent Person in connection
with the acquisition of assets from such other Person and in each case not
incurred by such other Person in connection with, or in anticipation or
contemplation of, such Person becoming a Subsidiary of the referent Person or
such acquisition, merger or consolidation.
"Affiliate" means, with respect to any specified Person, any other Person
who directly or indirectly through one or more intermediaries controls or is
controlled by, or is under common control with, such specified Person. The term
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise (and the
terms "controlling" and "controlled" have meanings correlative of the
foregoing); provided, however, that beneficial ownership of 10% or more of the
voting securities of a Person shall be deemed to constitute control.
"Asset Acquisition" means (a) an Investment by the Company or any
Subsidiary of the Company in any other Person pursuant to which such Person
shall become a Subsidiary of the Company or any Subsidiary of the Company, or
shall be merged with or into the Company or any Subsidiary of the Company, or
(b) the acquisition by the Company or any Subsidiary of the Company of the
assets of any Person (other than a Subsidiary of the Company) which constitute
all or substantially all of the assets of such Person or comprises any division
or line of business of such Person or any other properties or assets of such
Person.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, lease (other than operating leases entered into in the ordinary course
of business), assignment or other transfer for value by the Company or any of
its Subsidiaries (including any Sale and Leaseback Transaction) to any Person
other than the Company or a Wholly Owned Subsidiary of the Company of (a) any
Capital Stock of any Subsidiary of the Company; or (b) any other property or
assets of the Company or any Subsidiary of the Company other than in the
ordinary course of business; provided, however, that Asset Sale shall not
include (i) any transaction or series of related transactions for which the
Company or its Subsidiaries receive aggregate consideration of less than $2.0
million in any twelve-month period, (ii) the sale, lease, conveyance,
disposition or other transfer of all or substantially all of the assets of the
Company as permitted under "Merger, Consolidation and Sale of Assets" or any
disposition that constitutes a Change of Control, and (iii) the sale, lease,
conveyance, disposition or other transfer by the Company or any Subsidiary of
assets or property to one or more Wholly Owned Subsidiaries in connection with
Investments permitted under the "Limitation on Restricted Payments" covenant.
"Board of Directors" means, as to any Person, the board of directors of
such Person or any duly authorized committee thereof.
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"Board Resolution" means, with respect to any Person, a copy of a
resolution certified by the Secretary or an Assistant Secretary of such Person
to have been duly adopted by the Board of Directors of such Person and to be in
full force and effect on the date of such certification, and delivered to the
Trustee.
"Capital Stock" means (i) with respect to any Person that is a corporation,
any and all shares, interests, participations or other equivalents (however
designated and whether or not voting) of corporate stock, including each class
of Common Stock and Preferred Stock of such Person and (ii) with respect to any
Person that is not a corporation, any and all partnership or other equity
interests of such Person.
"Capitalized Lease Obligation" means, as to any Person, the obligations of
such Person under a lease that are required to be classified and accounted for
as capital lease obligations under GAAP and, for purposes of this definition,
the amount of such obligations at any date shall be the capitalized amount of
such obligations at such date, determined in accordance with GAAP.
"Cash Equivalents" means (i) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or the Canadian
Government or issued by any agency thereof and backed by the full faith and
credit of the United States or Canada, in each case maturing within one year
from the date of acquisition thereof; (ii) marketable direct obligations issued
by any state of the United States of America or province of Canada or any
political subdivision of any such state or province or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor's Corporation ("S&P") or Moody's
Investors Service, Inc. ("Moody's"); (iii) commercial paper maturing no more
than one year from the date of creation thereof and, at the time of acquisition,
having a rating of at least A-1 from S&P or at least P-1 from Moody's; (iv)
certificates of deposit or bankers' acceptances maturing within one year from
the date of acquisition thereof issued by any bank organized under the laws of
the United States of America or any state thereof or the District of Columbia or
Canada or any province thereof or any U.S. branch of a foreign bank having at
the date of acquisition thereof combined capital and surplus of not less than
$250,000,000; (v) repurchase obligations with a term of not more than seven days
for underlying securities of the types described in clause (i) above entered
into with any bank meeting the qualifications specified in clause (iv) above;
and (vi) investments in money market funds which invest substantially all their
assets in securities of the types described in clauses (i) through (v) above.
"Change of Control" means (i) any sale, lease, exchange, transfer or other
disposition (in one transaction or a series of related transactions) of all or
substantially all of the assets of the Company and its Subsidiaries taken as a
whole to any Person or group of related Persons for purposes of Section 13(d) of
the Exchange Act (a "Group"), together with any Affiliates thereof (whether or
not otherwise in compliance with the provisions of the Indenture); (ii) the
approval by the holders of Capital Stock of the Company of any plan or proposal
for the liquidation or dissolution of the Company (whether or not otherwise in
compliance with the provisions of the Indenture); (iii) any Person or Group
other than the Permitted Holders or a Group controlled by the Permitted Holders
shall become the owner, directly or indirectly, beneficially or of record, of
shares representing more than 50% of the aggregate ordinary voting power
represented by the issued and outstanding Capital Stock of the Company; or (iv)
the replacement of a majority of the Board of Directors of the Company from the
directors who constituted the Board of Directors of the Company on the Issue
Date, and such replacement shall not have been approved by a vote of at least a
majority of the Board of Directors of the Company then still in office who
either were members of such Board of Directors on the Issue Date or whose
election as a member of such Board of Directors was previously so approved.
"Common Stock" of any Person means any and all shares, interests or other
participations in, and other equivalents (however designated and whether voting
or non-voting) of such Person's
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common stock, whether outstanding on the Issue Date or issued after the Issue
Date, and includes, without limitation, all series and classes of such common
stock.
"Consolidated EBITDA" means, with respect to any Person, for any period,
the sum (without duplication) of (i) Consolidated Net Income and (ii) to the
extent Consolidated Net Income has been reduced thereby, (A) all income taxes of
such Person and its Subsidiaries paid or accrued in accordance with GAAP for
such period (other than income taxes attributable to extraordinary, unusual or
nonrecurring gains or losses or taxes attributable to sales or dispositions
outside the ordinary course of business), (B) Consolidated Interest Expense and
(C) Consolidated Non-cash Charges less any non-cash items increasing
Consolidated Net Income for such period, all as determined on a consolidated
basis for such Person and its Subsidiaries in accordance with GAAP.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to any
Person, the ratio of Consolidated EBITDA of such Person during the four full
fiscal quarters (the "Four Quarter Period") ending on or prior to the date of
the transaction giving rise to the need to calculate the Consolidated Fixed
Charge Coverage Ratio (the "Transaction Date") to Consolidated Fixed Charges of
such Person for the Four Quarter Period. In addition to and without limitation
of the foregoing, for purposes of this definition, "Consolidated EBITDA" and
"Consolidated Fixed Charges" shall be calculated after giving effect on a pro
forma basis for the period of such calculation to (i) the incurrence or
repayment of any Indebtedness of such Person or any of its Subsidiaries (and the
application of the proceeds thereof) giving rise to the need to make such
calculation and any incurrence or repayment of other Indebtedness (and the
application of the proceeds thereof), other than the incurrence or repayment of
Indebtedness in the ordinary course of business for working capital purposes
pursuant to working capital facilities, occurring during the Four Quarter Period
or at any time subsequent to the last day of the Four Quarter Period and on or
prior to the Transaction Date, as if such incurrence or repayment, as the case
may be (and the application of the proceeds thereof), occurred on the first day
of the Four Quarter Period and (ii) any Asset Sales or Asset Acquisitions
(including, without limitation, any Asset Acquisition giving rise to the need to
make such calculation as a result of such Person or one of its Subsidiaries
(including any Person who becomes a Subsidiary as a result of the Asset
Acquisition) incurring, assuming or otherwise being liable for Acquired
Indebtedness and also including any Consolidated EBITDA (including any pro forma
expense and cost reductions calculated on a basis consistent with Regulation S-X
under the Securities Act as in effect on the Issue Date) (provided that such
Consolidated EBITDA shall be included only to the extent includable pursuant to
the definition of "Consolidated Net Income") attributable to the assets which
are the subject of the Asset Acquisition or Asset Sale during the Four Quarter
Period) occurring during the Four Quarter Period or at any time subsequent to
the last day of the Four Quarter Period and on or prior to the Transaction Date,
as if such Asset Sale or Asset Acquisition (including the incurrence, assumption
or, liability for any such Acquired Indebtedness) occurred on the first day of
the Four Quarter Period. If such Person or any of its Subsidiaries directly or
indirectly guarantees Indebtedness of a third Person, the preceding sentence
shall give effect to the incurrence of such guaranteed Indebtedness as if such
Person or any Subsidiary of such Person had directly incurred or otherwise
assumed such guaranteed Indebtedness. Furthermore, in calculating "Consolidated
Fixed Charges" for purposes of determining the denominator (but not the
numerator) of this "Consolidated Fixed Charge Coverage Ratio," (1) interest on
outstanding Indebtedness determined on a fluctuating basis as of the Transaction
Date and which will continue to be so determined thereafter shall be deemed to
have accrued at a fixed rate per annum equal to the rate of interest on such
Indebtedness in effect on the Transaction Date; (2) if interest on any
Indebtedness actually incurred on the Transaction Date may optionally be
determined at an interest rate based upon a factor of a prime or similar rate, a
eurocurrency interbank offered rate, or other rates, then the interest rate in
effect on the Transaction Date will be deemed to have been in effect during the
Four Quarter Period; and (3) notwithstanding clause (1) above, interest on
Indebtedness determined on a fluctuating basis, to the extent such interest is
covered by agreements relating to Interest Swap Obligations shall be deemed to
accrue at the rate per annum resulting after giving effect to the operation of
such agreements.
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"Consolidated Fixed Charges" means, with respect to any Person for any
period, the sum, without duplication, of (i) Consolidated Interest Expense, plus
(ii) the product of (x) the amount of all dividend payments on any series of
Preferred Stock of such Person (other than dividends paid in Qualified Capital
Stock) paid, accrued or scheduled to be paid or accrued during such period times
(y) a fraction, the numerator of which is one and the denominator of which is
one minus the then current effective consolidated federal, state and local tax
rate of such Person, expressed as a decimal.
"Consolidated Interest Expense" means, with respect to any Person for any
period, the sum of, without duplication: (i) the aggregate of the interest
expense of such Person and its Subsidiaries for such period determined on a
consolidated basis in accordance with GAAP, including without limitation, (a)
any amortization of debt discount, (b) the net costs under Interest Swap
Obligations, (c) all capitalized interest and (d) the interest portion of any
deferred payment obligation; and (ii) the interest component of Capitalized
Lease Obligations paid, accrued and/or scheduled to be paid or accrued by such
Person and its Subsidiaries during such period as determined on a consolidated
basis in accordance with GAAP, minus amortization or write off of deferred
financing costs.
"Consolidated Net Income" means, with respect to any Person, for any
period, the aggregate net income (or loss) of such Person and its Subsidiaries
for such period on a consolidated basis, determined in accordance with GAAP;
provided, however, that there shall be excluded therefrom (a) gains (and losses)
on an after tax effected basis from asset sales or abandonments or reserves
relating thereto, (b) items classified as extraordinary or nonrecurring gains or
losses on an after tax effected basis, (c) the net income or loss of any Person
acquired in a "pooling of interests" transaction accrued prior to the date it
becomes a Subsidiary of the referent Person or is merged or consolidated with
the referent Person or any Subsidiary of the referent Person, (d) the net income
(but not loss) of any Subsidiary of the referent Person for such period to the
extent that the declaration of dividends or similar distributions by that
Subsidiary to the referent Person or any Subsidiary thereof of that income is
restricted, directly or indirectly, by operation of the terms of its charter or
constituent documents or any agreement, instrument, judgment, decree, law,
order, statute, rule, governmental regulation or for any other reason
whatsoever, (e) the net income or loss of any other Person, other than a
Subsidiary of the referent Person, except to the extent (in the case of net
income) of cash dividends or distributions paid to the referent Person, or to a
Wholly Owned Subsidiary of the referent Person, by such other Person, (f) any
restoration to income of any contingency reserve of an extraordinary,
nonrecurring or unusual nature, except to the extent that provision for such
reserve was made out of Consolidated Net Income accrued at any time following
the Issue Date, (g) income or loss attributable to discontinued operations
(including, without limitation, operations disposed of during such period
whether or not such operations were classified as discontinued), and (h) in the
case of a successor to the referent Person by consolidation or merger or as a
transferee of the referent Person's assets, any earnings of the successor
corporation prior to such consolidation, merger or transfer of assets.
"Consolidated Net Worth" of any Person means the consolidated stockholders'
equity of such Person, determined on a consolidated basis in accordance with
GAAP, less (without duplication) amounts attributable to Disqualified Capital
Stock of such Person.
"Consolidated Non-cash Charges" means, with respect to any Person, for any
period, the aggregate depreciation, amortization and other non-cash expenses of
such Person and its Subsidiaries reducing Consolidated Net Income of such Person
and its Subsidiaries for such period, determined on a consolidated basis in
accordance with GAAP (excluding any such charge which requires an accrual of or
a reserve for cash charges for any future period).
"Credit Agreement" means any credit agreement or facility entered into on
or after the Issue Date between the Company and/or any Subsidiary of the Company
and one or more financial institutions that provides borrowing availability to
the Company and its Subsidiaries on a senior
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secured basis, as any such agreement or facility may be amended (including any
amendment and restatement thereof), supplemented or otherwise modified from time
to time, including any agreement extending the maturity of, refinancing,
replacing or otherwise restructuring (including increasing the amount of
available borrowings thereunder (provided, however, that such increase in
borrowings is permitted by the "Limitation on Incurrence of Additional
Indebtedness" covenant above) or adding Subsidiaries of the Company as
additional borrowers or guarantors thereunder) all or any portion of the
Indebtedness under such agreement or any successor or replacement agreement and
whether by the same or any other agent, lender or group of lenders.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any Subsidiary of the Company against fluctuations in currency
values.
"Default" means an event or condition the occurrence of which is, or with
the lapse of time or the giving of notice or both would be, an Event of Default.
"Designated Senior Indebtedness" means (i) Indebtedness under or in respect
of the Credit Agreement and (ii) any other Indebtedness constituting Senior
Indebtedness or Guarantor Senior Indebtedness which, at the time of
determination, has an aggregate principal amount of at least $5.0 million and is
specifically designated in the instrument evidencing such Senior Indebtedness or
Guarantor Senior Indebtedness as "Designated Senior Indebtedness" by the Company
or the applicable Subsidiary Guarantor, as the case may be.
"Disqualified Capital Stock" means that portion of any Capital Stock which,
by its terms (or by the terms of any security into which it is convertible or
for which it is exchangeable), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the sole option of the holder thereof on or prior to the final
maturity date of the Notes.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or
any successor statute or statutes thereto.
"fair market value" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length, free market transaction, for cash,
between a willing seller and a willing and able buyer, neither of whom is under
undue pressure or compulsion to complete the transaction. Except as otherwise
specified in the Indenture, fair market value shall be determined by the Board
of Directors of the Company acting reasonably and in good faith and shall be
evidenced by a Board Resolution of the Board of Directors of the Company.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect on the Issue Date.
"Guarantor Senior Indebtedness" means, with respect to any Subsidiary
Guarantor, the principal of, premium, if any, and interest (including any
interest accruing subsequent to the filing of a petition of bankruptcy at the
rate provided for in the documentation with respect thereto, whether or not such
interest is an allowed claim under applicable law) on any Indebtedness of such
Subsidiary Guarantor, whether outstanding on the Issue Date or thereafter
created, incurred or assumed, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness shall
not be senior in right of payment to the Guarantees. Without limiting the
generality of the foregoing, "Guarantor Senior Indebtedness" shall also include
the principal of, premium, if any, interest (including any interest accruing
subsequent to the filing of a petition of bankruptcy at the rate provided for in
the documentation with respect thereto, to the extent such interest is an
allowed claim under applicable law) on, and all other amounts owing in respect
of, (x) all monetary
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obligations of every nature of a Subsidiary Guarantor under the Credit
Agreement, including, without limitation, obligations to pay principal and
interest, reimbursement obligations under letters of credit, fees, expenses and
indemnities, (y) all Interest Swap Obligations and (z) all obligations under
Currency Agreements, in each case whether outstanding on the Issue Date or
thereafter incurred. Notwithstanding the foregoing, "Guarantor Senior
Indebtedness" shall not include (i) any Indebtedness of a Subsidiary Guarantor
to a Subsidiary of such Subsidiary Guarantor or any Affiliate of such Subsidiary
Guarantor or any of such Affiliate's Subsidiaries, (ii) Indebtedness to, or
guaranteed on behalf of, any shareholder, director, officer or employee of the
Company or any Subsidiary of the Company (including, without limitation, amounts
owed for compensation), (iii) Indebtedness to trade creditors and other amounts
incurred in connection with obtaining goods, materials or services, (iv)
Indebtedness represented by Disqualified Capital Stock, (v) any liability for
federal, state, local or other taxes owed or owing by a Subsidiary Guarantor,
(vi) Indebtedness incurred in violation of the Indenture provisions set forth
under "Limitation on Incurrence of Additional Indebtedness," (vii) Indebtedness
which, when incurred and without respect to any election under Section 1111 (b)
of Title 11, United States Code is without recourse to a Subsidiary Guarantor
and (viii) any Indebtedness which is, by its express terms, subordinated in
right of payment to any other Indebtedness of a Subsidiary Guarantor.
"Holder" means any holder of Notes.
"Indebtedness" means with respect to any Person, without duplication, (i)
all Obligations of such Person for borrowed money, (ii) all Obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (iii)
all Capitalized Lease Obligations of such Person, (iv) all Obligations of such
Person issued or assumed as the deferred purchase price of property, all
conditional sale obligations and all Obligations under any title retention
agreement (but excluding trade accounts payable and other accrued liabilities
arising in the ordinary course of business that are not overdue by 60 days or
more or are being contested in good faith by appropriate proceedings promptly
instituted and diligently conducted), (v) all Obligations for the reimbursement
of any obligor on any letter of credit, banker's acceptance or similar credit
transaction, (vi) guarantees and other contingent obligations in respect of
Indebtedness referred to in clauses (i) through (v) above and clause (viii)
below, (vii) all Obligations of any other Person of the type referred to in
clauses (i) through (vi) which are secured by any lien on any property or asset
of such Person, the amount of such Obligation being deemed to be the lesser of
the fair market value of such property or asset or the amount of the Obligation
so secured, (viii) all Obligations under currency agreements and interest swap
agreements of such Person and (ix) all Disqualified Capital Stock issued by such
Person with the amount of Indebtedness represented by such Disqualified Capital
Stock being equal to the greater of its voluntary or involuntary liquidation
preference and its maximum fixed repurchase price, but excluding accrued
dividends, if any. For purposes hereof, the "maximum fixed repurchase price" of
any Disqualified Capital Stock which does not have a fixed repurchase price
shall be calculated in accordance with the terms of such Disqualified Capital
Stock as if such Disqualified Capital Stock were purchased on any date on which
Indebtedness shall be required to be determined pursuant to the Indenture, and
if such price is based upon, or measured by, the fair market value of such
Disqualified Capital Stock, such fair market value shall be determined
reasonably and in good faith by the Board of Directors of the issuer of such
Disqualified Capital Stock.
"Independent Financial Advisor" means a firm (i) which does not, and whose
directors, officers and employees or Affiliates do not, have a direct or
indirect financial interest in the Company and (ii) which, in the judgment of
the Board of Directors of the Company, is otherwise independent and qualified to
perform the task for which it is to be engaged.
"Interest Swap Obligations" means the obligations of any Person pursuant to
any arrangement with any other Person, whereby, directly or indirectly, such
Person is entitled to receive from time to time periodic payments calculated by
applying either a floating or a fixed rate of interest on a stated notional
amount in exchange for periodic payments made by such other Person calculated by
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applying a fixed or a floating rate of interest on the same notional amount and
shall include, without limitation, interest rate swaps, caps, floors, collars
and similar agreements.
"Investment" means, with respect to any Person, any direct or indirect loan
or other extension of credit (including, without limitation, a guarantee) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition by such Person of any Capital Stock,
bonds, notes, debentures or other securities or evidences of Indebtedness issued
by, any Person. "Investment" shall exclude extensions of trade credit by the
Company and its Subsidiaries on commercially reasonable terms in accordance with
normal trade practices of the Company or such Subsidiary, as the case may be.
For the purposes of the "Limitation on Restricted Payments" covenant, the amount
of any Investment shall be the original cost of such Investment plus the cost of
all additional Investments by the Company or any of its Subsidiaries, without
any adjustments for increases or decreases in value, or write-ups, write-downs
or writeoffs with respect to such Investment, reduced by the payment of
dividends or distributions in connection with such Investment or any other
amounts received in respect of such Investment; provided, however, that no such
payment of dividends or distributions or receipt of any such other amounts shall
reduce the amount of any Investment if such payment of dividends or
distributions or receipt of any such amounts would be included in Consolidated
Net Income. If the Company or any Subsidiary of the Company sells or otherwise
disposes of any Common Stock of any direct or indirect Subsidiary of the Company
such that, after giving effect to any such sale or disposition, the Company no
longer owns, directly or indirectly, greater than 50% of the outstanding Common
Stock of such Subsidiary, the Company shall be deemed to have made an Investment
on the date of any such sale or disposition equal to the fair market value of
the Common Stock of such former Subsidiary not sold or disposed of.
"Issue Date" means the date of original issuance of the Notes.
"Lien" means any lien, mortgage, deed of trust, pledge, security interest,
charge or encumbrance of any kind (including any conditional sale or other title
retention agreement, any lease in the nature thereof and any agreement to give
any security interest).
"Management Agreement" means the Management Agreement, dated December 16,
1993, as amended on October 22, 1997, among the Company, C.F. Capital
Corporation, G. John Krediet and Stephen L. Larson.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds in
the form of cash or Cash Equivalents including payments in respect of deferred
payment obligations when received in the form of cash or Cash Equivalents (other
than the portion of any such deferred payment constituting interest) received by
the Company or any of its Subsidiaries from such Asset Sale net of (a)
reasonable out-of-pocket expenses and fees relating to such Asset Sale
(including, without limitation, legal, accounting and investment banking fees
and sales commissions), (b) taxes paid or payable after taking into account any
reduction in consolidated tax liability due to available tax credits or
deductions and any tax sharing arrangements, (c)repayment of Indebtedness that
is required to be repaid in connection with such Asset Sale and (d) appropriate
amounts to be provided by the Company or any Subsidiary, as the case may be, as
a reserve, in accordance with GAAP, against any liabilities associated with such
Asset Sale and retained by the Company or any Subsidiary, as the case may be,
after such Asset Sale, including, without limitation, pension and other
post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated with
such Asset Sale.
"Obligations" means all obligations for principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other liabilities
payable under the documentation governing any Indebtedness.
"Officer's Certificate" means, with respect to any Person, a certificate
signed by the Chairman, Chief Executive Officer, the President or any Vice
President and the Chief Financial Officer,
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Controller or any Treasurer of such Person that shall comply with applicable
provisions of the Indenture.
"Permitted Holders" means: (i) G. John Krediet, Stephen L. Larson, Stewart
E. Allen, any trust solely for the benefit of G. John Krediet, Stephen L. Larson
or Stewart E. Allen or any of their respective immediate family members, and any
partnership all the partnership interests in which are, or holding company all
the Capital Stock of which is, beneficially owned by any of the foregoing
(including, without limitation, Gaspar Limited); provided that with respect to
(a) any such partnership or holding company, G. John Krediet, Stephen L. Larson
or Stewart E. Allen, as applicable, shall at all times have the exclusive power
to direct, directly or indirectly, the voting of the Capital Stock of the
Company held by such partnership or holding company and (b) any such trust, G.
John Kredict, Stephen L. Larson or Stewart E. Allen or their immediate family
members shall at all times either have the exclusive power to direct, directly
or indirectly, the voting of the Capital Stock of the Company held by such trust
or be the sole beneficiaries of such trust; and (ii) Clairvest Group Inc.
("Clairvest").
"Permitted Indebtedness" means, without duplication, each of the
following:
(i) Indebtedness under the Notes, the Indenture and the Guarantees;
(ii) Indebtedness of the Company or any of its Subsidiaries incurred
pursuant to the Credit Agreement in an aggregate principal amount at any
time outstanding not to exceed $30.0 million in the aggregate reduced by
any required permanent repayments pursuant to the provisions set forth
under "Certain Covenants -- Limitation on Asset Sales" (which are
accompanied by a corresponding permanent commitment reduction) thereunder
(it being recognized that a reduction in the borrowing base in and of
itself shall not be deemed a required permanent repayment);
(iii) Interest Swap Obligations of the Company covering Indebtedness
of the Company or any of its Subsidiaries; provided, however, that such
Interest Swap Obligations are entered into to protect the Company and its
Subsidiaries from fluctuations in interest rates on Indebtedness incurred
in accordance with the Indenture to the extent the notional principal
amount of such Interest Swap Obligation does not exceed the principal
amount of the Indebtedness to which such Interest Swap Obligation relates;
(iv) Indebtedness under Currency Agreements; provided, however, that
in the case of Currency Agreements which relate to Indebtedness, such
Currency Agreements do not increase the Indebtedness of the Company and its
Subsidiaries outstanding other than as a result of fluctuations in foreign
currency exchange rates or by reason of fees, indemnities and compensation
payable thereunder;
(v) Indebtedness of a Subsidiary to the Company or to a Wholly Owned
Subsidiary of the Company for so long as such Indebtedness is held by the
Company or a Wholly Owned Subsidiary of the Company, in each case subject
to no Liens held by any Person other than the Company or a Wholly Owned
Subsidiary of the Company; provided, however, that if as of any date any
Person other than the Company or a Wholly Owned Subsidiary of the Company
owns or holds any such Indebtedness or holds a Lien in respect of such
Indebtedness, such date shall be deemed the incurrence of Indebtedness not
constituting Permitted Indebtedness by the issuer of such Indebtedness;
(vi) Indebtedness of the Company to a Wholly Owned Subsidiary of the
Company for so long as such Indebtedness is held by a Wholly Owned
Subsidiary of the Company, in each case subject to no Lien; provided,
however, that (a) any Indebtedness of the Company to any Wholly Owned
Subsidiary of the Company is unsecured and subordinated, pursuant to a
written agreement, to the Company's obligations under the Indenture and the
Notes and (b) if as of any date any Person other than a Wholly Owned
Subsidiary of the Company owns or holds any such
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Indebtedness or a Lien in respect of such Indebtedness, such date shall be
deemed the incurrence of Indebtedness not constituting Permitted
Indebtedness by the Company;
(vii) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument inadvertently
(except in the case of daylight overdrafts) drawn against insufficient
funds in the ordinary course of business; provided, however, that such
Indebtedness is extinguished within two business days of incurrence;
(viii) Indebtedness of the Company or any of its Subsidiaries
represented by letters of credit for the account of the Company or such
Subsidiary, as the case may be, in order to provide security for workers'
compensation claims, payment obligations in connection with self-insurance
or similar requirements in the ordinary course of business;
(ix) Indebtedness existing on the date hereof;
(x) Refinancing Indebtedness;
(xi) Indebtedness permitted by clause (viii) of the definition of
"Permitted Investments"; and
(xii) additional Indebtedness of the Company or any of its
Subsidiaries in an aggregate principal amount not to exceed $10.0 million
at any one time outstanding.
"Permitted Investments" means (i) Investments by the Company or any
Subsidiary of the Company in any Person that is or will become immediately after
such Investment a Wholly-Owned Subsidiary of the Company or that will merge or
consolidate into the Company or a Wholly-Owned Subsidiary of the Company; (ii)
Investments in the Company by any Subsidiary of the Company; provided, however,
that any Indebtedness evidencing such Investment by a Subsidiary is unsecured
and subordinated, pursuant to a written agreement, to the Company's obligations
under the Notes and the Indenture; (iii) Investments in cash and Cash
Equivalents; (iv) loans and advances to employees and officers of the Company
and its Subsidiaries in the ordinary course of business for bona fide business
purposes not in excess of $500,000 at any one time outstanding; (v) Currency
Agreements and Interest Swap Obligations entered into in the ordinary course of
the Company's or its Subsidiaries' businesses and otherwise in compliance with
the Indenture; (vi) Investments in securities of trade creditors or customers
received pursuant to any plan of reorganization or similar arrangement upon the
bankruptcy or insolvency of such trade creditors or customers; (vii) Investments
made by the Company or its Subsidiaries as a result of non-cash consideration
received in connection with an Asset Sale made in compliance with the
"Limitation on Asset Sales" covenant; and (viii) additional Investments in an
amount outstanding at any one time not to exceed $2.5 million.
"Permitted Liens" means the following types of Liens:
(i) Liens in favor of the Trustee in its capacity as trustee for the
Holders;
(ii) Liens securing Indebtedness outstanding under the Credit
Agreement;
(iii) Liens for taxes, assessments or governmental charges or claims
either (a) not delinquent or (b) contested in good faith by appropriate
proceedings and as to which the Company or its Subsidiaries shall have set
aside on its books such reserves as may be required pursuant to GAAP;
(iv) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for sums not yet delinquent or
being contested in good faith, if such reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made in
respect thereof;
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(v) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
types of social security, including any Lien securing letters of credit
issued in the ordinary course of business consistent with past practice in
connection therewith, or to secure the performance of tenders, statutory
obligations, surety and appeal bonds, bids, leases, government contracts,
performance and return-of-money bonds and other similar obligations
(exclusive of obligations for the payment of borrowed money);
(vi) judgment Liens not giving rise to an Event of Default so long as
such Lien is adequately bonded and any appropriate legal proceedings which
may have been duly initiated for the review of such judgment shall not have
been finally terminated or the period within which such proceedings may be
initiated shall not have expired;
(vii) easements, rights-of-way, zoning restrictions and other similar
charges or encumbrances in respect of real property not interfering in any
material respect with the ordinary conduct of the business of the Company
or any of its Subsidiaries;
(viii) any interest or title of a lessor under any Capitalized Lease
Obligation; provided, however, that such Liens do not extend to any
property or assets which is not leased property subject to such Capitalized
Lease Obligation;
(ix) Liens to secure Purchase Money Indebtedness of the Company or any
Subsidiary not to exceed $5.0 million in the aggregate at any one time
outstanding; provided, however, that (A) the related Purchase Money
Indebtedness is permitted to be incurred in accordance with the "Limitation
on Incurrence of Additional Indebtedness" covenant, (B) the related
Purchase Money Indebtedness shall not exceed the cost of such property or
assets and shall not be secured by any property or assets of the Company or
any Subsidiary of the Company other than the property and assets so
acquired and (C) the Lien securing such Indebtedness shall be created
within 90 days of such acquisition;
(x) Liens upon specific items of inventory or other goods and proceeds
of any Person securing such Person's obligations in respect of bankers'
acceptances issued or created for the account of such Person to facilitate
the purchase, shipment or storage of such inventory or other goods;
(xi) Liens securing reimbursement obligations with respect to
commercial letters of credit which encumber documents and other property
relating to such letters of credit and products and proceeds thereof;
(xii) Liens encumbering deposits made to secure obligations arising
from statutory, regulatory, contractual or warranty requirements of the
Company or any of its Subsidiaries, including rights of offset and set-off;
(xiii) Liens securing Interest Swap Obligations which Interest Swap
Obligations relate to Indebtedness that is otherwise permitted under the
Indenture;
(xiv) Liens securing Indebtedness under Currency Agreements; and
(xv) Liens securing Acquired Indebtedness incurred in accordance with
the "Limitation on Incurrence of Additional Indebtedness" covenant;
provided, however, that (A) such Liens secured such Acquired Indebtedness
at the time of and prior to the incurrence of such Acquired Indebtedness by
the Company or a Subsidiary of the Company and were not granted in
connection with, or in anticipation of, the incurrence of such Acquired
Indebtedness by the Company or a Subsidiary of the Company and (B) such
Liens do not extend to or cover any property or assets of the Company or of
any of its Subsidiaries other than the property or assets that secured the
Acquired Indebtedness prior to the time such Indebtedness became Acquired
Indebtedness of the Company or a Subsidiary of the Company and are no more
favorable to the
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lienholders than those securing the Acquired Indebtedness prior to the
incurrence of such Acquired Indebtedness by the Company or a Subsidiary of
the Company.
"Person" means an individual, partnership, corporation, unincorporated
organization, trust or joint venture, or a governmental agency or political
subdivision thereof.
"Preferred Stock" of any Person means any Capital Stock of such Person that
has preferential rights to any other Capital Stock of such Person with respect
to dividends or redemptions or upon liquidation.
"Purchase Money Indebtedness" means Indebtedness the net proceeds of which
are used to finance the cost (including the cost of construction) of property or
assets acquired in the normal course of business by the Person incurring such
Indebtedness.
"Qualified Capital Stock" means any Capital Stock that is not Disqualified
Capital Stock.
"Receivables" means any right of payment from or on behalf of any obligor,
whether constituting an account, chattel paper, instrument, general intangible
or otherwise, arising from the financing by the Company or any Subsidiary of the
Company of merchandise or services, and monies due thereunder, security in the
merchandise and services financed thereby, records related thereto, and the
right to payment of any interest or finance charges and other obligations with
respect thereto, proceeds from claims on insurance policies related thereto, any
other proceeds related thereto, and any other related rights.
"Refinance" means, in respect of any security or Indebtedness, to
refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or
to issue a security or Indebtedness in exchange or replacement for, such
security or Indebtedness in whole or in part. "Refinanced" and "Refinancing"
shall have correlative meanings.
"Refinancing Indebtedness" means any Refinancing by the Company or any
Subsidiary of the Company of Indebtedness incurred in accordance with the
"Limitation on Incurrence of Additional Indebtedness" covenant (provided that
Refinancing Indebtedness shall not include Indebtedness described in clauses
(ii), (iii), (iv), (v), (vi), (vii), (viii), (x), (xi) or (xii) of the
definition of Permitted Indebtedness), in each case that does not (1) result in
an increase in the aggregate principal amount of Indebtedness of such Person as
of the date of such proposed Refinancing (plus the amount of any premium
required to be paid under the terms of the instrument governing such
Indebtedness and plus the amount of reasonable expenses incurred by the Company
or such Subsidiary, as the case may be, in connection with such Refinancing),
except to the extent that any such increase in Indebtedness is otherwise
permitted by the Indenture or (2) create Indebtedness with (A) a Weighted
Average Life to Maturity that is less than the Weighted Average Life to Maturity
of the Indebtedness being Refinanced or (B) a final maturity earlier than the
final maturity of the Indebtedness being Refinanced; provided, however, that (x)
if such Indebtedness being Refinanced is Indebtedness of the Company, then such
Refinancing Indebtedness shall be Indebtedness solely of the Company and (y) if
such Indebtedness being Refinanced is subordinate or junior to the Notes or the
Guarantees, then such Refinancing Indebtedness shall be subordinate to the Notes
or the Guarantees, as the case may be, at least to the same extent and in the
same manner as the Indebtedness being Refinanced.
"Registration Rights Agreement" means the Registration Rights Agreement
dated the Issue Date among the Company, the Subsidiary Guarantors and the
Initial Purchasers.
"Representative" means the indenture trustee or other trustee, agent or
representative in respect of any Designated Senior Indebtedness; provided,
however, that if, and for so long as, any Designated Senior Indebtedness lacks
such a representative, then the Representative for such Designated Senior
Indebtedness shall at all times constitute the holders of a majority in
outstanding
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principal amount of such Designated Senior Indebtedness in respect of any
Designated Senior Indebtedness.
"Sale and Leaseback Transaction" means any direct or indirect arrangement
with any Person or to which any such Person is a party, providing for the
leasing to the Company or a Subsidiary of the Company of any property, whether
owned by the Company or any Subsidiary of the Company at the Issue Date or later
acquired, which has been or is to be sold or transferred by the Company or such
Subsidiary to such Person or to any other Person from whom funds have been or
are to be advanced by such Person on the security of such Property.
"Senior Indebtedness" means, the principal of, premium, if any, and
interest (including any interest accruing subsequent to the filing of a petition
of bankruptcy at the rate provided for in the documentation with respect
thereto, whether or not such interest is an allowed claim under applicable law)
on any Indebtedness of the Company, whether outstanding on the Issue Date or
thereafter created, incurred or assumed, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness shall
not be senior in right of payment to the Notes. Without limiting the generality
of the foregoing, "Senior Indebtedness" shall also include the principal of,
premium, if any, interest (including any interest accruing subsequent to the
filing of a petition of bankruptcy at the rate provided for in the documentation
with respect thereto, to the extent such interest is an allowed claim under
applicable law) on, and all other amounts owing in respect of, (x) all monetary
obligations of every nature of the Company under the Credit Agreement,
including, without limitation, obligations to pay principal and interest,
reimbursement obligations under letters of credit, fees, expenses and
indemnities, (y) all Interest Swap Obligations and (z) all obligations under
Currency Agreements, in each case whether outstanding on the Issue Date or
thereafter incurred. Notwithstanding the foregoing, "Senior Indebtedness" shall
not include (i) any Indebtedness of the Company to a Subsidiary of the Company
or any Affiliate of the Company or any of such Affiliate's Subsidiaries, (ii)
Indebtedness to, or guaranteed on behalf of, any shareholder, director, officer
or employee of the Company or any Subsidiary of the Company (including, without
limitation, amounts owed for compensation), (iii) Indebtedness to trade
creditors and other amounts incurred in connection with obtaining goods,
materials or services, (iv) Indebtedness represented by Disqualified Capital
Stock, (v) any liability for federal, state, local or other taxes owed or owing
by the Company, (vi) Indebtedness incurred in violation of the Indenture
provisions set forth under "Limitation on Incurrence of Additional
Indebtedness," (vii) Indebtedness which, when incurred and without respect to
any election under Section 1111 (b) of Title 11, United States Code is without
recourse to the Company and (viii) any Indebtedness which is, by its express
terms, subordinated in right of payment to any other Indebtedness of the
Company.
"Shareholder Agreement" means the Shareholder Agreement, dated as of
October 22, 1997, among Sparkling Spring, SSWL, Clairvest, Gaspar Limited, C.
Sean Day, Stephen L. Larson, Kevin Newman, Mark Stitzer, Lucy Stitzer, and
Stewart E. Allen.
"Significant Subsidiary" shall have the meaning set forth in Rule 1.02(w)
of Regulation S-X under the Securities Act.
"Subsidiary", with respect to any Person, means (i) any corporation of
which the outstanding Capital Stock having at least a majority of the votes
entitled to be cast in the election of directors under ordinary circumstances
shall at the time be owned, directly or indirectly, by such Person or (ii) any
other Person of which at least a majority of the voting interest under ordinary
circumstances is at the time, directly or indirectly, owned by such Person.
"Subsidiary Guarantor" means (a) each of the Company's Subsidiaries as of
the Issue Date and (b) each of the Company's Subsidiaries that in the future
executes a supplemental indenture in which such Subsidiary agrees to be bound by
the terms of the Indenture as a Subsidiary Guarantor;
103
<PAGE> 110
provided, however, that any Person constituting a Subsidiary Guarantor as
described above shall cease to constitute a Subsidiary Guarantor when its
Guarantee is released in accordance with the terms of the Indenture.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the then outstanding
aggregate principal amount of such Indebtedness into (b) the sum of the total of
the products obtained by multiplying (i) the amount of each then remaining
installment, sinking, fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (ii) the
number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
"Wholly Owned Subsidiary" of any Person means any Subsidiary of such Person
of which all the outstanding voting securities normally entitled to vote in the
election of directors are owned by such Person or any Wholly Owned Subsidiary of
such Person.
104
<PAGE> 111
BOOK ENTRY; DELIVERY AND FORM
Except as described in the next paragraph, the Exchange Notes (and the
related Guarantees) initially will be represented by one or more permanent
global certificates in definitive, fully registered form (the "Global Notes").
The Global Notes will be deposited with, or on behalf of, The Depository Trust
Company, New York, New York ("DTC") and registered in the name of a nominee of
DTC. Except as set forth below, each Global Note may be transferred, in whole
and not in part, only to another nominee of the Depositary or to a successor of
the Depositary or its nominee.
THE GLOBAL NOTES
The Company expects that pursuant to procedures established by DTC (i) upon
the issuance of the Global Notes, DTC or its custodian will credit, on its
internal system, the principal amount of Exchange Notes of the individual
beneficial interests represented by such Global Notes to the respective accounts
of persons who have accounts with such depositary and (ii) ownership of
beneficial interests in the Global Notes will be shown on, and the transfer of
such ownership will be effected only through, records maintained by DTC or its
nominee (with respect to interests of participants) and the records of
participants (with respect to interests of persons other than participants).
Ownership of beneficial interest in the Global Notes will be limited to persons
who have accounts with DTC ("participants") or persons who hold interests
through participants.
So long as DTC, or its nominee, is the registered owner or holder of the
Exchange Notes, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the Exchange Notes represented by such Global Notes for
all purposes under the Indenture. No beneficial owner of an interest in the
Global Notes will be able to transfer that interest except in accordance with
DTC's procedures, in addition to those provided for under the Indenture with
respect to the Exchange Notes.
Payments of the principal of, premium (if any) and interest (including
Additional Interest) on the Global Notes will be made to DTC or its nominee, as
the case may be, as the registered owner thereof. None of the Company, the
Trustee or any Paying Agent will have any responsibility or liability for any
aspect of the records relating to or payments made on account of beneficial
ownership interests in the Global Notes or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interest.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal, premium, if any, and interest (including Additional Interest) on the
Global Notes, will credit participants' accounts with payments in amounts
proportionate to their respective beneficial interests in the principal amount
of the Global Notes as shown on the records of DTC or its nominee. The Company
also expects that payments by participants to owners of beneficial interests in
the Global Notes held through such participants will be governed by standing
instructions and customary practice, as is now the case with securities held for
the accounts of customers registered in the names of nominees for such
customers. Such payments will be the responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way
through DTC's same-day funds system in accordance with DTC rules and will be
settled in same day funds. If a holder requires physical delivery of
certificates for Exchange Notes for any reason, including to sell Exchange Notes
to persons in states that require physical delivery of the Exchange Notes, or to
pledge such securities, such holder must transfer its interest in the Global
Notes, in accordance with the normal procedures of DTC and with the procedures
set forth in the Indenture.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Exchange Notes (including the presentation of Notes for
exchange as described below) only at the direction of one or more participants
to whose account the DTC interests in the Global Notes are credited and only in
respect of such portion of the aggregate principal amount of Exchange Notes as
105
<PAGE> 112
to which such participant or participants has or have given such direction.
However, if there is an Event of Default under the Indenture, DTC will exchange
the Global Notes for Certificated Securities, which it will distribute to its
participants.
DTC has advised the Company as follows: DTC is a limited-purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the New
York Uniform Commercial Code and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its participants and facilitate the clearance and settlement of
securities transactions between participants through electronic book-entry
changes in accounts of its participants, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations and certain other
organizations. Indirect access to the DTC system is available to others such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly
("indirect participants").
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Notes among participants of DTC, it is
under no obligation to perform such procedures and such procedures may be
discontinued at any time. Neither the Company nor the Trustee will have any
responsibility for the performance by DTC or its participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
CERTIFICATED SECURITIES
If DTC is at any time unwilling or unable to continue as a depositary for
the Global Notes and a successor depositary is not appointed by the Company
within 90 days, Certificated Securities will be issued in exchange for the
Global Notes.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Private Notes must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of Exchange Notes received in exchange for Private
Notes, where such Private Notes were acquired by such broker-dealer as a result
of market-making or other trading activities. Sparkling Spring has agreed to
make this Prospectus, as it may be amended or supplemented from time to time,
available to any such broker-dealer that requests copies of this Prospectus in
the Letter of Transmittal for use in connection with any such resale for a
period of up to 90 days after the Expiration Date. In addition, until
1998, all dealers effecting transactions in the Exchange Notes may
be required to deliver a prospectus.
Sparkling Spring will not receive any proceeds from any sale of Exchange
Notes by broker-dealers or any other persons. Exchange Notes received by
broker-dealers for their own account pursuant to the Exchange Offer may be sold
from time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the Exchange Notes,
or a combination of such methods of resale, at market prices prevailing at the
time of resale, at prices related to such prevailing market prices or at
negotiated prices. Any such resale may be made directly to purchasers or to or
through brokers or dealers who may receive compensation in the form of
commissions or concessions from any such broker-dealer and/or the purchasers of
any such Exchange Notes. Any broker-dealer that resells Exchange Notes that were
received by it for its own account pursuant to the Exchange Offer and any broker
that participates in a distribution of such Exchange Notes may be deemed to be
an "underwriter" within the meaning of the Securities Act and any profit on any
such resale of Exchange Notes and any commissions or concessions received by any
such person may be deemed to be underwriting compensation under the Securities
Act. The Letter of Transmittal states that by acknowledging that it will deliver
and by delivering a
106
<PAGE> 113
prospectus a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 90 days after the Expiration Date, Sparkling Spring will
promptly send additional copies of this Prospectus or any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. Sparkling Spring and the Subsidiary Guarantors
have agreed to pay all expenses incident to Sparkling Spring's and the
Subsidiary Guarantors' performance of, or compliance with, the Registration
Rights Agreement and will indemnify the holders of Private Notes (including any
broker-dealers), and certain parties related to such holders, against certain
liabilities, including liabilities under the Securities Act.
See "The Exchange Offer" for additional information concerning the Exchange
Offer and interpretations of the staff of the Commission with respect to
prospectus delivery obligations of broker-dealers.
LEGAL MATTERS
The validity of the Notes and the Guarantees offered hereby will be passed
upon for Sparkling Spring and the Subsidiary Guarantors by Robinson & Cole LLP,
Stamford, Connecticut. Certain legal matters governed by Canadian law will be
passed upon for Sparkling Spring and the Subsidiary Guarantors by Stewart
McKelvey Stirling Scales, Halifax, Nova Scotia. Robinson & Cole LLP may rely (i)
as to matters governed by Canadian law, on the opinions of Stewart McKelvey
Stirling Scales, (ii) as to matters of United Kingdom law, on the opinions of
Norton Rose, London, England, (iii) as to matters of Scottish law, on the
opinions of Dundas & Wilson Edinburgh, Scotland, and (iv) as to matters of
Washington law, on the opinions of Lane Powell Spears Lubersky LLP, Seattle,
Washington.
INDEPENDENT AUDITORS
The consolidated financial statements of Sparkling Spring Water Limited as
of December 31, 1996 and 1995 and for each of the years in the three year period
ended December 31, 1996 included in this Prospectus have been audited by Ernst &
Young, independent auditors, as stated in their report appearing herein.
The financial statements of Canadian Springs Water Company Ltd. as of
January 17, 1996 and for the 292 days then ended and as of March 31, 1995 and
for the year then ended included in this Prospectus have been audited by Ernst &
Young, independent auditors, as stated in their report appearing herein.
The financial statements of Cullyspring Water Co., Inc. as of December 31,
1996 and 1995 and for the years then ended included in this Prospectus have been
audited by Ernst & Young, independent auditors, as stated in their report
appearing herein.
The financial statements of D & D and Company, Inc. as of December 31, 1996
and for the year then ended included in this Prospectus have been audited by
Ernst & Young, independent auditors, as stated in their report appearing herein.
The financial statements of Marlborough Employment Limited and Subsidiaries
as of January 31, 1997 and 1996 and for the years then ended included in this
Prospectus have been audited by Kidsons Impey, independent auditors, as stated
in their report appearing herein.
The financial statements of Coastal Mountain Water Corp. as of October 31,
1997 and for the year then ended included in this Prospectus have been audited
by Ernst & Young, independent auditors, as stated in their report appearing
herein.
107
<PAGE> 114
ADDITIONAL INFORMATION
Sparkling Spring and the Subsidiary Guarantors have filed with the
Commission a Registration Statement on Form F-4 (which together with any
amendments thereto is referred to as the "Registration Statement") under the
Securities Act with respect to the Exchange Notes and Guarantees offered hereby.
As permitted by the rules and regulations of the Commission, this Prospectus,
which is part of the Registration Statement, omits certain information, exhibits
and undertakings contained in the Registration Statement. For further
information with respect to Sparkling Spring, the Subsidiary Guarantors and the
Exchange Notes and Guarantees offered hereby, reference is made to the
Registration Statement, including the exhibits thereto and the financial
statements, notes and schedules filed as a part thereof. Statements made in this
Prospectus as to the contents of any contract, agreement or other document
referred to herein are not necessarily complete. With respect to each such
contract, agreement or other document filed as an exhibit to the Registration
Statement, reference is made to the exhibit for a more complete description of
the matter involved, and each such statement shall be deemed qualified in its
entirety by such reference.
Sparkling Spring will provide without charge to each person to whom this
Prospectus is delivered, upon the written or oral request of such person, a copy
of any or all of the documents incorporated by reference herein (not including
the exhibits to such documents, unless such exhibits are specifically
incorporated by reference in such documents). Requests for such copies should be
directed to Sparkling Spring at One Landmark Square, Stamford, Connecticut
06901, telephone number (203) 325-0077, attention: Stephen L. Larson. After
April 3, 1998, requests for such copies should be directed to the attention of
Kent Dillon Schickli at the same address.
Following the effectiveness of the Registration Statement covering the
Exchange Offer, the Company will be subject to certain of the informational
requirements of the Exchange Act, and, in accordance therewith, will file
certain reports and other information with the Commission. Such reports, other
information and the Registration Statement (and the exhibits and schedules
thereto) may be inspected and copies at the public reference section of the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the regional offices of the Commission located at 7 World
Trade Center, Suite 1300, New York, New York 10048 and 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such material can be obtained
from the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Registration Statement (and the
exhibits and schedules thereto) can also be reviewed through the Commission's
Electronic Data Gathering, Analysis and Retrieval System, which is publicly
available through the Commission's Web Site (http://www.sec.gov).
The Indenture provides that Sparkling Spring will deliver to the Trustee
under the Indenture within 15 days after the filing of the same with the
Commission, copies of the quarterly and annual reports and of the information,
documents and other reports, if any, which it is required to file with the
Commission pursuant to Section 13 or 15(d) of the Exchange Act. The Indenture
further provides that, notwithstanding that Sparkling Spring may not be subject
to the reporting requirements of Section 13 or 15(d) of the Exchange Act,
Sparkling Spring will provide the Trustee under the Indenture, holders of Notes
and QIBs which request such information from Sparkling Spring and indicate a
bona fide interest in purchasing Notes, with consolidated financial statements
of Sparkling Spring and a related "Management's Discussion and Analysis of
Financial Condition and Results of Operations" comparable to those which would
have been required to appear in quarterly or annual reports of Sparkling Spring
and, to holders of Private Notes, any other information required under Rule 144A
(d) (4) or any successor provision under the Securities Act. In addition,
Sparkling Spring will provide the Trustee under the Indenture and holders of
Notes with unaudited combined financial data of Sparkling Spring and the
Subsidiary Guarantors, substantially in the form provided under the caption
"Summary -- Summary Historical and Unaudited Pro Forma Consolidated Financial
Data" in this Prospectus, for each fiscal year of Sparkling Spring and for the
first three fiscal quarters of each fiscal year of Sparkling Spring. Sparkling
Spring will also comply with the other provisions of TIA sec. 314(a).
Sparkling Spring and the Subsidiary Guarantors are "private issuers", as
such term is defined in the Exchange Act, and as such are exempt from the proxy
rules and short-swing trading provisions of the Exchange Act.
108
<PAGE> 115
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
SPARKLING SPRING WATER GROUP LIMITED
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SPARKLING SPRING WATER GROUP LIMITED
Auditors' Report to the Directors........................... F-4
Consolidated Balance Sheets as at December 31, 1996 and
1995...................................................... F-5
Consolidated Statements of Operations for the years ended
December 31, 1996, 1995 and 1994.......................... F-6
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1996, 1995 and 1994.............. F-7
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994.......................... F-8
Notes to Consolidated Financial Statements.................. F-9
Unaudited Consolidated Balance Sheet as at September 30,
1997 and Comparative Balance Sheet as at December 31,
1996...................................................... F-25
Unaudited Consolidated Statement of Operations and Deficit
for the nine months ended September 30, 1997 and 1996..... F-26
Unaudited Consolidated Statement of Cash Flows for the nine
months ended September 30, 1997 and 1996.................. F-27
Notes to Unaudited Consolidated Financial Statements........ F-28
CANADIAN SPRINGS WATER COMPANY LTD.
Auditors' Report to the Directors........................... F-32
Balance Sheets as at January 17, 1996 and March 31, 1995.... F-33
Statements of Income and Retained Earnings for the 292 days
ended January 17, 1996 and the year ended March 31,
1995...................................................... F-34
Statements of Cash Flows for the 292 days ended January 17,
1996 and year ended March 31, 1995........................ F-35
Notes to Financial Statements............................... F-36
CULLYSPRING WATER CO., INC.
Auditors' Report to the Directors........................... F-42
Balance Sheets as at December 31, 1996 and December 31,
1995...................................................... F-43
Statements of Income for the years ended December 31, 1996
and 1995.................................................. F-44
Statements of Shareholders' Equity for the years ended
December 31, 1996 and 1995................................ F-45
Statements of Cash Flows for the years ended December 31,
1996 and 1995............................................. F-46
Notes to Financial Statements............................... F-47
Unaudited Balance Sheet as at September 30, 1997 with
comparative figures as at December 31, 1996............... F-50
Unaudited Statements of Income and Retained Earnings for the
nine months ended September 30, 1997 and 1996............. F-51
Unaudited Statements of Cash Flows for the nine months ended
September 30, 1997 and 1996............................... F-52
Notes to Unaudited Financial Statements..................... F-53
</TABLE>
F-1
<PAGE> 116
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
D & D AND COMPANY, INC. (Operating as Mountain Fresh Bottled
Water)
Auditors' Report to the Directors........................... F-55
Balance Sheet as at December 31, 1996....................... F-56
Statement of Income for the year ended December 31, 1996.... F-57
Statement of Shareholders' Equity for the year ended
December 31, 1996......................................... F-58
Statement of Cash Flows for the year ended December 31,
1996...................................................... F-59
Notes to Financial Statements............................... F-60
MARLBOROUGH EMPLOYMENT LIMITED AND SUBSIDIARIES (Operating
as Water At Work Limited)
Company Information......................................... F-66
Director's Report........................................... F-67
Statement of Director's Responsibilities.................... F-68
Auditors' Report to the Members of Marlborough Employment
Limited and Subsidiaries.................................. F-69
Profit and Loss Account for the years ended 31 January 1997
and 1996.................................................. F-70
Balance Sheets as at 31 January 1997 and 1996............... F-71
Cash Flow Statement for the years ended 31 January 1997 and
1996...................................................... F-72
Notes on Financial Statements............................... F-73
COASTAL MOUNTAIN WATER CORP.
Auditors' Report to the Directors........................... F-81
Balance Sheet as at October 31, 1997........................ F-82
Statement of Deficit for the year ended October 31, 1997.... F-83
Statement of (Loss) Income for the year ended October 31,
1997...................................................... F-84
Statement of Cash Flows for the year ended October 31,
1997...................................................... F-85
Notes to Financial Statements............................... F-86
</TABLE>
F-2
<PAGE> 117
CONSOLIDATED FINANCIAL STATEMENTS
SPARKLING SPRING
WATER GROUP LIMITED
F-3
<PAGE> 118
AUDITORS' REPORT
To the Directors of
Sparkling Spring Water Group Limited
We have audited the consolidated balance sheets of Sparkling Spring Water
Group Limited as at December 31, 1996 and 1995 and the consolidated statements
of operations, shareholders' equity and cash flows for each of the years in the
three year period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform 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,
1996 and 1995 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, 1996
in accordance with accounting principles generally accepted in the United
States.
<TABLE>
<S> <C>
Halifax, Canada ERNST & YOUNG
November 19, 1997 Chartered Accountants
</TABLE>
(except notes 20 and 21 which are as
of February 24, 1998)
F-4
<PAGE> 119
SPARKLING SPRING WATER GROUP LIMITED
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS AT DECEMBER 31,
1995 1996
----------- -----------
<S> <C> <C>
ASSETS [note 11]
Current
Cash and cash equivalents................................... $ 860,298 $ 2,230,735
Accounts receivable (net of allowance for doubtful accounts
of $210,058, 1995 -- $471,824 [note 5])................... 3,126,781 4,799,080
Inventories [note 6]........................................ 552,945 866,061
Prepaid expenses............................................ 593,429 1,352,989
Current portion of deferred taxes........................... -- 95,681
----------- -----------
Total current assets............................... 5,133,453 9,344,546
Deferred taxes.............................................. 243,147 440,856
Fixed assets [note 7]....................................... 8,545,403 15,823,231
Goodwill and deferred charges [note 8]...................... 4,598,952 18,800,535
----------- -----------
Total assets....................................... $18,520,955 $44,409,168
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Accounts payable and accrued liabilities.................... $ 2,436,523 $ 4,303,850
Income tax payable.......................................... -- 76,890
Unearned revenue............................................ 385,166 161,790
Customer deposits........................................... 1,890,526 2,620,495
Debt due within one year [note 9]........................... 2,236,816 1,581,036
----------- -----------
Total current liabilities.......................... 6,949,031 8,744,061
----------- -----------
Obligations under capital leases [note 10].................. 814,685 1,926,325
Loans payable [note 11]..................................... 5,904,841 26,966,493
Subordinated notes payable [note 12]........................ 2,353,068 --
----------- -----------
Total long-term liabilities........................ 9,072,594 28,892,818
----------- -----------
Non-controlling interest [note 4]........................... 292,465 --
----------- -----------
Shareholders' equity [Notes 2 and 13]
Capital Stock
Authorized
1,000,000 Class A Voting Common Shares, par value Cdn
$0.0001...................................................
1,000,000 Class B Voting Common Shares, par value Cdn
$6.779....................................................
1,000,000 Class C Voting Common Shares, par value Cdn
$13.4699..................................................
10,000,000 Class D Voting Common Shares, without nominal or
par value.................................................
10,000,000 Class E Non-Voting Common Shares, without nominal
or par value..............................................
1,000,000 Class F Voting Common Shares, par value Cdn
$0.9401...................................................
10,000,000 Special Preferred Shares, par value Cdn $1.00,
issuable in series........................................
Issued and outstanding:
Common shares 1,720,746 (1995 and 1994 -- 1,216,308)........ 1,607,218 8,295,170
Less: Subscriptions receivable.............................. -- (230,003)
----------- -----------
1,607,218 8,065,167
Common share warrants, (1995 and 1994 -- 165,767)........... 1,136,730 --
----------- -----------
2,743,948 8,065,167
Cumulative translation adjustment........................... 85,864 (362,935)
Deficit..................................................... (622,947) (929,943)
----------- -----------
Total shareholders' equity......................... 2,206,865 6,772,289
----------- -----------
Total liabilities and shareholders' equity......... $18,520,955 $44,409,168
=========== ===========
Commitments [note 10 and 16]
</TABLE>
See accompanying notes
F-5
<PAGE> 120
SPARKLING SPRING WATER GROUP LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
AMENDED
(SEE NOTE 20)
YEAR ENDED DECEMBER 31,
------------------------------------------
1994 1995 1996
---------- ----------- -------------
<S> <C> <C> <C>
Revenue:
Water............................................ $5,594,853 $ 9,640,919 $16,809,749
Rental........................................... 2,202,941 4,135,650 7,347,386
Other............................................ 927,512 1,572,545 3,169,214
---------- ----------- -----------
Total revenue.......................... 8,725,306 15,349,114 27,326,349
---------- ----------- -----------
Cost of sales:
Water............................................ 1,200,176 2,118,880 3,400,298
Other............................................ 554,375 743,867 1,275,321
---------- ----------- -----------
Total cost of sales.................... 1,754,551 2,862,747 4,675,619
---------- ----------- -----------
Gross profit..................................... 6,970,755 12,486,367 22,650,730
Expenses:
Selling, delivery and administrative [note 18]... 5,355,969 9,040,529 15,756,452
Depreciation and amortization.................... 1,094,538 1,464,668 3,841,614
---------- ----------- -----------
Operating profit................................. 520,248 1,981,170 3,052,664
Interest expense................................. 624,532 1,294,371 2,481,005
---------- ----------- -----------
Income (loss) before the following............... (104,284) 686,799 571,659
Provision for (recovery of) income taxes [note
17]............................................ (6,943) 299,107 398,325
---------- ----------- -----------
Net (loss) income before non-controlling interest
and extraordinary item......................... (97,341) 387,692 173,334
Non-controlling interest [note 4]................ 3,358 22,996 (6,894)
---------- ----------- -----------
Net (loss) income before extraordinary items..... (93,983) 410,688 166,440
Extraordinary item [note 14]..................... (143,732) (391,626) (473,436)
---------- ----------- -----------
Net (loss) income................................ $ (237,715) $ 19,062 $ (306,996)
========== =========== ===========
Primary (loss) earnings per share before
extraordinary item............................. $ (0.081) $ 0.291 $ 0.097
========== =========== ===========
Fully diluted earnings (loss) per share before
extraordinary item............................. $ (0.081) $ 0.291 $ 0.095
========== =========== ===========
Primary (loss) earnings per share................ $ (0.206) $ 0.014 $ (0.209)
========== =========== ===========
</TABLE>
See accompanying notes
F-6
<PAGE> 121
SPARKLING SPRING WATER GROUP LIMITED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
--------------------------------------------------------------------------------
COMMON SHARE
PURCHASE WARRANTS
AMENDED ----------------------
(SEE NOTE 20)
-------------
COMMON STOCK
------------------------- CUMULATIVE AMENDED
TRANSLATION (SEE NOTE 20)
SHARES AMOUNT WARRANTS AMOUNT ADJUSTMENT DEFICIT
--------- ------------- -------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1993 as
restated [note 3]......... 1,096,116 $1,136,034 -- $ -- $ 207,022 $ (404,294)
Net loss.................... (237,715)
Shares issued for cash...... 120,192 492,759
Common share purchase
warrants issued in
connection with
subordinated notes [notes
12 and 13]................ 165,767 1,135,149
Foreign currency translation
adjustments............... 2,602
--------- ---------- -------- ----------- --------- -----------
Balance December 31, 1994... 1,216,308 1,628,793 165,767 1,135,149 209,624 (642,009)
Net income.................. 19,062
Foreign currency translation
adjustments............... (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)
========= ========== ======== =========== ========= ===========
</TABLE>
See accompanying notes
F-7
<PAGE> 122
SPARKLING SPRING WATER GROUP LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
AMENDED (SEE
NOTE 20)
1994 1995 1996
----------- ----------- ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net (loss) income.............................. $ (237,715) $ 19,062 $ (306,996)
Items not requiring cash
Depreciation and amortization................ 1,094,538 1,464,668 3,841,614
Deferred taxes............................... (57,439) 85,673 (293,390)
Non-controlling interest..................... (3,358) (22,996) 6,894
Amortization of deferred financing costs..... 38,113 460,951 --
Amortization of subordinated notes payable
discount.................................. 57,238 130,824 --
----------- ----------- ------------
891,377 2,138,182 3,248,122
Net change in non-cash working capital balances
[note 15].................................... 137,764 (647,671) (32,178)
----------- ----------- ------------
Cash provided by operating activities.......... 1,029,141 1,490,511 3,215,944
----------- ----------- ------------
INVESTING ACTIVITIES
Purchase of fixed assets....................... (1,437,435) (2,741,204) (7,272,814)
Sale of fixed assets, net...................... 180,695 453,927 536,627
Acquisitions [note 4].......................... (6,322,571) (1,932,057) (17,432,167)
----------- ----------- ------------
Cash used in investing activities.............. (7,579,311) (4,219,334) (24,168,354)
----------- ----------- ------------
FINANCING ACTIVITIES
Increase in long-term debt..................... 5,300,176 4,456,924 20,893,151
Repayment of long-term debt.................... (3,019,277) (868,466) (1,239,400)
Issuance of common shares...................... 492,759 -- 6,847,713
Issue of common shares by subsidiary to
minority shareholders........................ 309,686 -- --
Issue (redemption) of common share warrants.... 1,135,149 -- (1,482,608)
Issue (redemption) of subordinated notes
payable...................................... 2,159,777 -- (2,159,777)
Increase in deferred charges................... (451,737) (36,980) (190,462)
----------- ----------- ------------
Cash provided by financing activities.......... 5,926,533 3,551,478 22,668,617
----------- ----------- ------------
Effect of translation on cash.................. (39,639) (29,606) (345,770)
----------- ----------- ------------
Increase (decrease) in cash and cash
equivalents during the year.................. (663,276) 793,049 1,370,437
Cash and cash equivalents, beginning of year... 730,525 67,249 860,298
----------- ----------- ------------
Cash and cash equivalents, end of year......... $ 67,249 $ 860,298 $ 2,230,735
=========== =========== ============
</TABLE>
See accompanying notes
F-8
<PAGE> 123
SPARKLING SPRING WATER GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. DESCRIPTION OF BUSINESS
Sparkling Spring Water Group Limited ("Sparkling Spring") provides
containered water to home and office markets in British Columbia and the
Maritime provinces of Canada, England and Scotland.
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 and the flexibility provided for future financing transactions, 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. As a part
of this reorganization, certain shareholders of SSWL, including certain
principal shareholders, directors and executive officers of the Company, reduced
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 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 is 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. Authorized share capital is presented
after giving effect to the reorganization.
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 fair value 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 an 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 for the periods presented.
F-9
<PAGE> 124
SPARKLING SPRING WATER GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
BASIS OF CONSOLIDATION
These consolidated financial statements include the accounts of Sparkling
Spring and its subsidiaries, principally SSWL, Sparkling Spring Water U.K.
Limited ("SSWUK"), Canadian Springs Water Company Ltd. ("Canadian Springs") and
Water Jug Enterprises Limited ("Water Jug") (collectively referred to as the
"Company") (see note 4).
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:
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Canadian Dollars............................... $0.713 $0.733 $0.730
U.K. Pounds Sterling........................... $1.564 $1.552 $1.705
</TABLE>
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:
<TABLE>
<S> <C>
Well and buildings.......................................... 5%
Machinery, equipment and coolers............................ 10-20%
Motor vehicles.............................................. 30%
Roadways.................................................... 8%
Returnable bottles.......................................... 20%
</TABLE>
Equipment, computer hardware and motor vehicles under capital lease and
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 periods of 20 to
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.
F-10
<PAGE> 125
SPARKLING SPRING WATER GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
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 the interest method over the term of the related financing.
DEBT DISCOUNT COSTS
Debt discount costs are amortized to income under the interest method over
the term of the related debt.
UNEARNED REVENUE
Unearned revenue represents the prepayment of cooler leases and bottled
water charges. These amounts are recognized as revenue in the period to which
the lease relates or the product is provided.
ADVERTISING
Advertising expenditures are expensed as incurred.
FINANCIAL INSTRUMENTS
The Company's primary financial instruments consist of 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.
The Company does not have any exposure relating to derivative instruments.
EARNINGS PER SHARE
Primary and fully 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 APB 15.
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.
F-11
<PAGE> 126
SPARKLING SPRING WATER GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
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.
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 separate
company basis.
3. CHANGE IN ACCOUNTING POLICY
As a result of increased business activity in the United States, the
Company has retroactively changed its reporting policy from Canadian dollars and
Canadian generally accepted accounting principles to United States dollars and
United Stated generally accepted accounting principles, effective January 1,
1997.
The historical financial statements have been translated to U.S. dollars at
the exchange rates in effect at the balance sheet dates and the revenue and
expenses have been translated into U.S. dollars at average exchange rates
prevailing during the year.
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.
F-12
<PAGE> 127
SPARKLING SPRING WATER GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
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:
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ----------
<S> <C> <C> <C>
Goodwill and deferred charges................ $(140,340) $ (76,442) $ (217,280)
Deferred taxes, asset........................ 328,820 243,147 147,530
--------- --------- ----------
NET ASSETS (DECREASE) INCREASE............... $ 188,480 $ 166,705 $ (69,750)
========= ========= ==========
Operating expenses........................... (167,873) 42,952 (406,361)
Depreciation and amortization................ 23,844 24,410 61,186
Provision for income taxes................... 6,943 (299,107) (529,301)
Extraordinary item........................... (143,732) (391,626) (819,314)
Unusual items................................ 211,652 596,541 1,456,927
--------- --------- ----------
NET INCOME DECREASE.......................... $ (69,166) $ (26,830) $ (236,863)
========= ========= ==========
CUMULATIVE TRANSLATION ADJUSTMENT INCREASE
(DECREASE)................................. $ (30,587) $ 4,755 $ 408
========= ========= ==========
</TABLE>
Unusual items include previously deferred financing costs of $211,652,
$596,541 and $1,253,014 in the years 1994, 1995 and 1996 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 $203,913 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, 1994 from
$692,527 to $404,294.
4. ACQUISITIONS
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 (loss) income.
The following summarizes the transactions (in thousands):
<TABLE>
<CAPTION>
CANADIAN SPRINGS WATER JUG
---------------- ---------
<S> <C> <C>
Net working capital............................. $ 778 $ 29
Fixed assets.................................... 2,996 341
Customer deposits............................... (459) (86)
Assumption of debt obligations.................. (694) (155)
Goodwill........................................ 12,993 972
------- ------
Total cash consideration........................ $15,614 $1,101
======= ======
</TABLE>
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.
F-13
<PAGE> 128
SPARKLING SPRING WATER GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
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 (loss) income.
The following summarizes the transaction (in thousands):
<TABLE>
<S> <C>
Net working capital......................................... $ (179)
Fixed assets................................................ 663
Customer deposits........................................... (262)
Goodwill.................................................... 1,710
------
Total cash consideration.................................... $1,932
======
</TABLE>
1994
On June 7, 1994, a newly formed subsidiary of the Company, SSWUK, acquired
the assets of the cooler division of Buxton Mineral Water Company Limited
("Buxton"), a company registered in Hertfordshire, England and a wholly-owned
subsidiary of Perrier (UK) Limited. 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 (loss) income.
The following summarizes the transaction (in thousands):
<TABLE>
<S> <C>
Net working capital......................................... $ 481
Fixed assets................................................ 3,907
Customer deposits........................................... (743)
Goodwill.................................................... 2,677
------
Total acquisition........................................... $6,322
======
</TABLE>
The following unaudited pro forma information presents a summary of
consolidated results of operations as if the acquisitions of Canadian Springs,
Water Jug and the non-controlling interest in SSWUK had occurred at January 1,
1996 and January 1, 1995, the acquisition of Aquaporte had occurred at January
1, 1995 and January 1, 1994 and the acquisition of Buxton had occurred at
January 1, 1994.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Total revenue........................... $13,128,851 $23,715,444 $27,986,741
Net (loss) income....................... 141,974 1,644,798 (350,764)
Extraordinary item...................... (143,732) (391,626) (473,436)
Primary (loss) earnings per share....... $ 0.115 $ 1.17 $ (0.239)
</TABLE>
F-14
<PAGE> 129
SPARKLING SPRING WATER GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
5. ALLOWANCE FOR DOUBTFUL ACCOUNTS
<TABLE>
<S> <C>
Balance January 1, 1994..................................... $ 19,672
Additions................................................... 320,713
Write-offs.................................................. (24,270)
---------
Balance December 31, 1994................................... 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
</TABLE>
6. INVENTORIES
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Packaging -- materials............................... $388,664 $480,537
Goods for resale..................................... 103,472 215,306
Cooler parts......................................... 26,007 77,897
Other................................................ 34,802 92,321
-------- --------
$552,945 $866,061
======== ========
</TABLE>
7. FIXED ASSETS
<TABLE>
<CAPTION>
1995 1996
--------------------------- ---------------------------
ACCUMULATED ACCUMULATED
COST DEPRECIATION COST DEPRECIATION
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Land and well................ $ 68,130 $ 3,533 $ 489,670 $ 42,349
Buildings and roadways....... 897,521 135,399 745,695 142,193
Coolers...................... 5,872,847 1,600,496 10,931,290 4,631,002
Machinery and equipment...... 1,260,055 501,692 4,395,170 1,598,854
Equipment and computer
hardware under capital
lease...................... 977,514 298,916 1,525,163 836,621
Motor vehicles............... 618,082 300,404 911,010 705,555
Motor vehicles under capital
lease...................... 733,824 252,325 2,906,758 746,227
Leasehold improvements....... 141,419 66,361 646,211 220,794
Returnable bottles........... 1,381,945 246,808 2,852,141 656,282
----------- ---------- ----------- ----------
11,951,337 $3,405,934 25,403,108 $9,579,877
Accumulated depreciation..... 3,405,934 9,579,877
----------- -----------
Net book value............... $ 8,545,403 $15,823,231
=========== ===========
</TABLE>
F-15
<PAGE> 130
SPARKLING SPRING WATER GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
8. GOODWILL AND DEFERRED CHARGES
<TABLE>
<CAPTION>
1995 1996
-------------------------- ---------------------------
ACCUMULATED ACCUMULATED
COST DEPRECIATION COST DEPRECIATION
---------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Goodwill...................... $4,900,882 $312,251 $19,588,100 $945,502
Deferred financing costs...... -- -- 116,201 41,693
Other......................... 10,321 -- 83,429 --
---------- -------- ----------- --------
4,911,203 $312,251 19,787,730 $987,195
Accumulated amortization...... 312,251 987,195
---------- -----------
Net book value................ $4,598,952 $18,800,535
========== ===========
</TABLE>
9. DEBT DUE WITHIN ONE YEAR
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Current portion of obligations under capital leases [note
9]...................................................... $ 580,096 $1,104,315
Current portion of loans payable [note 10]................ 1,656,720 476,721
---------- ----------
$2,236,816 $1,581,036
========== ==========
</TABLE>
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:
<TABLE>
<S> <C>
1997............................................... $1,363,727
1998............................................... 808,614
1999............................................... 595,889
2000............................................... 474,125
2001............................................... 373,771
Thereafter in aggregate............................ 450,608
----------
4,066,734
Less imputed interest.............................. 1,036,094
----------
3,030,640
Less current portion............................... 1,104,315
----------
$1,926,325
==========
</TABLE>
F-16
<PAGE> 131
SPARKLING SPRING WATER GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
11. LOANS PAYABLE
<TABLE>
<CAPTION>
1995 1996
---------- -----------
<S> <C> <C>
Term loans ($17,747,328 Cdn. and L8,204,760) bearing
interest at prime plus 1 1/4%............................. $7,136,588 $26,866,624
Term loans bearing interest at prime plus 2% repayable in
monthly installments of principal and interest of $2,093
maturing in varying amounts to 2004....................... -- 112,812
Unsecured loan (L273,400) bearing interest at 7%, interest
and principal repayable upon maturity on June 8, 1997..... 424,973 463,778
---------- -----------
7,561,561 27,443,214
Less portion due within one year............................ 1,656,720 476,721
---------- -----------
$5,904,841 $26,966,493
========== ===========
</TABLE>
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. Terms of the January 28,
1997 revolving credit facility provide for the drawn portion of the loan to
convert into a term loan after two years and to mature on December 31, 2002.
A general assignment of book debts and a floating charge demand debenture
in the amount of $36.5 million over essentially all of the Company's other
assets have been pledged as collateral for the term loans.
The following repayment schedule represents the required annual principal
repayments of long-term debt for each of the next five years based upon debt
payment terms negotiated subsequent to year end:
<TABLE>
<S> <C>
1997.................................................... $ 476,721
1998.................................................... 14,494
1999.................................................... 4,314,891
2000.................................................... 6,466,167
2001.................................................... 6,464,288
Thereafter in aggregate................................. 9,706,653
</TABLE>
12. SUBORDINATED NOTES PAYABLE
<TABLE>
<CAPTION>
1995 1996
---------- ----
<S> <C> <C>
Unsecured redeemable subordinated notes payable bearing
interest at 8%, interest payable semi-annually............ $3,300,000 $--
Less unamortized discount value............................. (946,932) --
---------- ---
$2,353,068 $--
========== ===
</TABLE>
The subordinated noteholders held as additional consideration common share
warrants which were assigned a value of $1,136,730 as described in note 13.
During 1996, the Company redeemed its subordinated notes payable and all
attached common share warrants for cash consideration of
F-17
<PAGE> 132
SPARKLING SPRING WATER GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
$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 has been expensed in these statements as described in note 14. The
remaining excess, $345,878, has been allocated to the warrants and has been
reflected as a reduction of paid in capital.
13. CAPITAL STOCK
During 1994, the Company issued 165,767 common share purchase warrants to
the holders of subordinated notes payable. The warrants were detachable and
exercisable at $1 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
$1,136,730 representing the estimated fair value of the warrants at the date of
issuance. The estimated fair value of the warrants has been calculated as the
difference between the total consideration received for the notes and warrants
and the estimated fair value of the notes calculated using a yield to maturity
for the notes and related interest payments of 17 1/2%. During 1996 the
subordinated notes were redeemed together with the related common share purchase
warrants (note 12).
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:
<TABLE>
<CAPTION>
1994 1995 1996
$ $ $
-------- ------- --------
<S> <C> <C> <C>
Net (loss) income -- as reported.......................... (237,715) 19,062 (306,996)
Net (loss) -- pro forma................................... (263,251) (95,014) (415,332)
Net (loss) income per share -- as reported................ (0.206) 0.014 (0.209)
Net (loss) per share -- pro forma......................... (0.228) (0.078) (0.283)
</TABLE>
The per share weighted-average fair value of stock options generated during
1996 was $4.77 (1995 -- $1.15, 1994 -- $1.30) 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, 1996.
<TABLE>
<CAPTION>
NUMBER OF RANGE OF AVERAGE
OPTIONS EXERCISE PRICE EXERCISE PRICE
--------- -------------- --------------
<S> <C> <C> <C>
OUTSTANDING AT DECEMBER 31, 1993................ 96,192 $1.33 $1.33
Granted......................................... 205,106 $3.92 - 4.326 $4.31
- -----------------------------------------------------------------------------------------------
OUTSTANDING AT DECEMBER 31, 1994................ 301,298 $1.33 - 4.326 $3.33
Granted......................................... 64,595 $3.92 - 4.326 $4.30
- -----------------------------------------------------------------------------------------------
</TABLE>
F-18
<PAGE> 133
SPARKLING SPRING WATER GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
NUMBER OF RANGE OF AVERAGE
OPTIONS EXERCISE PRICE EXERCISE PRICE
--------- -------------- --------------
<S> <C> <C> <C>
OUTSTANDING AT DECEMBER 31, 1995................ 365,893 $1.33 - 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 $1.33 - 20.00 $5.50
======= ============== ======
EXERCISABLE AT DECEMBER 31, 1996................ 235,390 $1.33 - 4.326 $3.58
</TABLE>
Information with respect to options outstanding and exercisable at December
31, 1996 is as follows:
Options outstanding
<TABLE>
<CAPTION>
REMAINING
EXERCISE NUMBER CONTRACTUAL
PRICE OUTSTANDING LIFE
- -------- ----------- ------------
<S> <C> <C>
$1.33 96,192 3.8 years
$4.01 5,000 3.8 years
$4.326 244,701 3.8 years
$10.27 5,000 3.8 years
$14.00 5,000 3.8 years
$20.00 43,500 3.8 years
-------
399,393
=======
<CAPTION>
Options Exercisable
<S> <C> <C>
$1.33 76,953 3.8 years
$4.01 5,000 3.8 years
$4.326 153,437 3.8 years
-------
235,390
=======
</TABLE>
At December 31, 1994 and 1995 the number of options exercisable were 43,477
and 138,084, respectively, and the weighted average exercise prices were $1.64
and $3.38, respectively.
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 $473,436
(1995 -- $391,626; 1994 -- $143,732) related to debt that was restructured have
been expensed in the year, net of applicable income tax recoveries of $434,238
(1995 -- $204,915; 1994 -- $67,920).
F-19
<PAGE> 134
SPARKLING SPRING WATER GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
15. STATEMENT OF CASH FLOW
<TABLE>
<CAPTION>
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
(Increase) decrease in
Accounts receivable........... $(1,419,369) $ (875,321) $(1,672,299)
Inventories................... (139,275) (173,756) (313,116)
Prepaid expenses.............. (269,993) (198,454) (759,560)
----------- ----------- -----------
(1,828,637) (1,247,531) (2,744,975)
----------- ----------- -----------
Increase (decrease) in
Accounts payable and accrued
liabilities................ 1,367,091 317,510 1,867,327
Unearned revenue.............. (16,479) 316,146 (223,376)
Customer deposits............. 168,457 118,735 197,951
Income taxes payable.......... -- -- 76,890
----------- ----------- -----------
1,519,069 752,391 1,918,792
----------- ----------- -----------
Net change in non-cash working
capital balances.............. (309,568) (495,140) (826,183)
Less net working capital
acquired on acquisitions [note
4]............................ 480,983 (179,446) 803,344
Effect of translation........... (33,651) 26,915 (9,339)
----------- ----------- -----------
$ 137,764 $ (647,671) $ (32,178)
=========== =========== ===========
</TABLE>
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:
<TABLE>
<S> <C>
1997............................................ $ 697,746
1998............................................ 592,826
1999............................................ 525,457
2000............................................ 494,002
2001............................................ 390,195
Thereafter in aggregate......................... 1,398,445
</TABLE>
Lease costs of $896,000 (1995 -- $695,000; 1994 -- $559,000) have been
expensed during the year.
F-20
<PAGE> 135
SPARKLING SPRING WATER GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
17. INCOME TAXES
A reconciliation of the provision for income taxes based on the combined
federal and provincial income tax rates of 45% (1995 -- 45%; 1994 -- 44%) is as
follows:
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Provision for (recovery of) income
taxes at statutory rates........... $ (44,409) $ 319,408 $ 254,144
Non deductible amortization.......... -- -- 132,910
Difference in foreign tax rates...... 27,026 (5,640) 14,414
Other................................ 10,440 (14,661) (3,143)
--------- --------- ---------
$ (6,943) $ 299,107 $ 398,325
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
The provision for (recovery of)
income taxes includes:
Current income taxes -- Canada....... $ -- $ -- $ 90,000
--------- --------- ---------
Deferred income taxes -- Canada...... 67,378 269,107 357,325
-- Foreign..... (74,321) 30,000 (49,000)
--------- --------- ---------
(6,943) 299,107 308,325
--------- --------- ---------
$ (6,943) $ 299,107 $ 398,325
========= ========= =========
</TABLE>
The deferred tax asset is comprised of the following timing differences:
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Excess accounting expenses over
tax................................ $ 151,060 $ 106,792 $ 561,774
Non capital loss carryforwards....... 176,475 169,341 185,657
Excess of tax over book
depreciation....................... -- (42,743) (204,149)
Other differences.................... 1,285 9,757 (6,745)
--------- --------- ---------
$ 328,820 $ 243,147 $ 536,537
========= ========= =========
</TABLE>
The non capital loss carryforwards at December 31, 1996 of approximately
$560,000 have no expiry.
18. SELLING, DELIVERY AND ADMINISTRATIVE EXPENSES
(a) During the year the Company paid approximately $529,400
(1995 -- $386,000; 1994 -- $215,460) to CF Capital (CFCC), an affiliated
company, for management and related services.
The Company also paid CFCC $239,600 (1995 -- $135,000; 1994 -- $61,540) for
investment banking advisory services rendered in connection with acquisitions
completed during the year.
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
F-21
<PAGE> 136
SPARKLING SPRING WATER GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
earnings before depreciation, amortization and income taxes. CFCC also receives
fees for investment banking advisory services 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 totalling $230,003 have been issued to certain of officers of
the Company. The promissory notes bear interest at a rate of 7% and mature on
January 31, 1998 with principal and interest due on that date. The common shares
purchased by the officers are pledged as security for the promissory notes.
(b) Selling, delivery and administration expenses include advertising and
promotional expenses of $1,206,000 (1995 -- $656,000; 1994 -- $342,000).
19. SUMMARY OF BUSINESS SEGMENTS
<TABLE>
<CAPTION>
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Revenue
Canada.......................... $ 4,478,547 $ 5,061,581 $15,363,998
United Kingdom.................. 4,246,757 10,287,533 11,962,351
----------- ----------- -----------
8,725,306 15,349,114 27,326,349
=========== =========== ===========
Net income (loss) before income
taxes, Non-controlling
interest and extraordinary
item
Canada.......................... 124,292 622,549 726,937
United Kingdom.................. (228,576) 64,250 (155,278)
----------- ----------- -----------
(104,284) 686,799 571,659
=========== =========== ===========
Identifiable Assets
Canada.......................... 5,475,904 5,664,794 27,177,107
United Kingdom.................. 8,358,856 12,856,161 17,232,061
----------- ----------- -----------
$13,834,760 $18,520,955 $44,409,168
=========== =========== ===========
</TABLE>
20. AMENDMENT AND RECLASSIFICATION OF CERTAIN FINANCIAL STATEMENT AMOUNTS
These financial statements have been amended to record $345,878 relating to
the Company's 1996 redemption of subordinated notes and warrants as a reduction
of paid in capital. This amount was previously expensed as an extraordinary item
in the 1996 statement of operations.
These financial statements have also been amended to reclassify certain
items between current assets and shareholders' equity and current and long-term
liabilities.
F-22
<PAGE> 137
SPARKLING SPRING WATER GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
21. SUBSEQUENT EVENTS
(a) Subsequent to year end, the Company completed the following
acquisitions:
<TABLE>
<CAPTION>
ACQUISITION
ACQUISITION INTEREST COST
COMPANY LOCATION DATE ACQUIRED (000'S)
- ----------------------------- -------------------- --------------- -------- -----------
<S> <C> <C> <C> <C>
D&D and Company, Inc......... Portland, Oregon January, 1997 100% $4,012
High Valley Water Limited.... Kelowna, BC January, 1997 100% 1,824
Withey's Water Softening and
Purification Limited....... Prince George, BC January, 1997 100% 1,386
Marlborough Employment
Limited.................... Glasgow, Scotland February, 1997 100% 8,230
Soja Enterprises, Inc........ Portland, Oregon June, 1997 100% 150
Crystal Spring Bottled Water
Co. Inc.................... Portland, Oregon June, 1997 100% 4,501
Cullyspring Water Co.,
Inc. ...................... Seattle, Washington October, 1997 100% 7,004
Crystal Springs Drinking
Water Inc.................. Seattle, Washington December, 1997 100% 1,400
Coastal Mountain Water
Corp....................... Vancouver, BC February, 1998 100% 4,241
</TABLE>
The transactions were funded from working capital and approximately $25
million of proceeds from the issuance of long-term debt. The acquisitions will
be accounted for under the purchase method of accounting.
(b) 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 the net proceeds of this offering to repay $60.1 million of its
existing credit facility and capitalized leases and to pay $13.9 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.
Each of the Subsidiary Guarantors has fully and unconditionally guaranteed,
on a senior subordinated basis, jointly and severally, to each holder of 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 September 30, 1997, on a pro forma basis after giving effect
to the issuance of the Private Notes and the application of the net proceeds
therefrom, the Subsidiary Guarantors would have had approximately $1.5 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 constitut-
F-23
<PAGE> 138
SPARKLING SPRING WATER GROUP LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
ing 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.
F-24
<PAGE> 139
SPARKLING SPRING WATER GROUP LIMITED
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
AS AT SEPTEMBER 30
(UNAUDITED) PRO FORMA
(WITH COMPARATIVE FIGURES AS SHAREHOLDERS
AT DECEMBER 31) EQUITY AS AT
----------------------------- SEPTEMBER 30,
1996 1997 1997
------------- ------------- -------------
[NOTE 2]
<S> <C> <C> <C>
ASSETS
Current
Cash and cash equivalents.......................... $ 2,230,735 $ 897,869
Accounts receivable................................ 4,799,080 8,939,785
Inventories........................................ 866,061 1,408,681
Prepaid expenses................................... 1,352,989 1,511,572
Current portion of deferred taxes.................. 95,681 --
----------- -----------
Total current assets.......................... 9,344,546 12,757,907
Deferred taxes..................................... 440,856 231,963
Fixed assets....................................... 15,823,231 21,524,242
Goodwill and deferred charges...................... 18,800,535 35,338,105
----------- -----------
Total assets.................................. $44,409,168 $69,852,217
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Accounts payable and accrued liabilities........... $ 4,303,850 $ 4,874,588
Income tax payable................................. 76,890 988,353
Unearned revenue................................... 161,790 327,389
Customer deposits.................................. 2,620,495 3,483,330
Debt due within one year........................... 1,581,036 957,942
----------- -----------
Total current liabilities..................... 8,744,061 10,631,602
----------- -----------
Obligations under capital leases................... 1,926,325 2,580,013
Loans payable...................................... 26,966,493 47,245,425
Seller note........................................ -- 1,500,000
----------- -----------
Total long-term liabilities................... 28,892,818 51,325,438
----------- -----------
Shareholders' equity
Capital stock...................................... 8,295,170 8,255,408 6,537,717
Less: subscriptions receivable..................... (230,003) (230,003) (230,003)
----------- ----------- -----------
8,065,167 8,025,405 6,307,714
Temporary equity................................... -- -- 262,000
Deficit............................................ (929,943) 303,756 (12,900,337)
Cumulative translation adjustment.................. (362,935) (433,984) (433,984)
----------- ----------- -----------
Total shareholders' equity............... 6,772,289 7,895,177 (6,764,607)
----------- ----------- -----------
Total liabilities and shareholders'
equity................................. $44,409,168 $69,852,217
=========== =========== ===========
</TABLE>
See accompanying notes
F-25
<PAGE> 140
SPARKLING SPRING WATER GROUP LIMITED
CONSOLIDATED STATEMENT OF OPERATIONS AND DEFICIT
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30
(UNAUDITED)
1996 1997
$ $
------------ ------------
<S> <C> <C>
Revenue:
Water....................................................... $13,391,893 $19,536,818
Rental...................................................... 5,604,317 7,776,599
Other....................................................... 2,067,630 4,484,361
----------- -----------
Total revenue............................................... 21,063,840 31,797,778
Cost of sales............................................... 3,403,176 5,863,637
----------- -----------
Gross profit................................................ 17,660,664 25,934,141
Expenses:
Operating................................................... 12,635,503 16,817,876
Depreciation and amortization............................... 2,751,599 3,918,398
----------- -----------
Operating profit............................................ 2,273,562 5,197,867
Interest expense............................................ 1,702,781 2,900,528
----------- -----------
Income before the following................................. 570,781 2,297,339
Provision for income taxes.................................. 347,634 1,063,640
----------- -----------
Net income before non-controlling interest and extraordinary
item...................................................... 223,147 1,233,699
Non-controlling interest.................................... (6,912) --
----------- -----------
Net income before extraordinary item........................ 216,235 1,233,699
Extraordinary item.......................................... (469,303) --
----------- -----------
Net income (loss)........................................... (253,068) 1,233,699
Deficit, beginning of period................................ (622,947) (929,943)
----------- -----------
Deficit, end of period...................................... $ (876,015) $ 303,756
----------- -----------
Primary earnings per share before extraordinary item........ $ .13 $ .63
----------- -----------
Fully diluted earnings per share before extraordinary
item...................................................... $ .13 $ .61
----------- -----------
Primary earnings (loss) per share........................... $ (0.18) $ .63
----------- -----------
Fully diluted earnings (loss) per share..................... $ (0.18) $ .61
----------- -----------
</TABLE>
See accompanying notes
F-26
<PAGE> 141
SPARKLING SPRING WATER GROUP LIMITED
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30 (UNAUDITED)
---------------------------
1996 1997
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss)........................................... $ (253,068) $ 1,233,699
Items not requiring cash
Depreciation and amortization............................. 2,751,599 3,918,398
Deferred taxes............................................ (146,974) 301,794
Minority interest......................................... 6,912 --
------------ ------------
2,358,469 5,453,891
Net change in non-cash working capital balances............. 507,097 (1,913,872)
------------ ------------
Cash provided by operating activities....................... 2,865,566 3,540,019
------------ ------------
INVESTING ACTIVITIES
Purchase of fixed assets.................................... (5,909,161) (5,935,130)
Sale of fixed assets, net................................... 434,612 185,369
Acquisitions (Increase)..................................... (17,478,311) (19,835,497)
------------ ------------
Cash used in investing activities........................... (22,952,860) (25,585,258)
------------ ------------
FINANCING ACTIVITIES
Increase in long-term debt.................................. 20,021,054 24,048,786
Repayment of long-term debt................................. (1,023,835) (1,998,069)
Issuance of common shares................................... 4,529,056 19,153
Redemption of subordinated notes payable.................... (2,159,777) --
Redemption of common share warrants......................... (1,482,608) --
(Increase) decrease in deferred charges..................... 61,810 (1,174,907)
------------ ------------
Cash provided by financing activities....................... 19,945,700 20,894,963
------------ ------------
Effect of translation on cash............................... (141,344) (182,590)
Decrease in cash and cash equivalents during the period..... (282,938) (1,332,866)
Cash and cash equivalents, beginning of period.............. 860,298 2,230,735
------------ ------------
Cash and cash equivalents, end of period.................... $ 577,360 $ 897,869
============ ============
</TABLE>
See accompanying notes
F-27
<PAGE> 142
SPARKLING SPRING WATER GROUP LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
Sparkling Spring Water Group Limited ("Sparkling Spring") 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. BASIS OF PRESENTATION
As a result of significant foreign acquisitions and growth in the Company's
operations and the flexibility provided for future financing transactions, 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. As part
of this reorganization, certain shareholders of SSWL, including certain
principal shareholders, directors and executive officers of the Company, reduced
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 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 is 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 fair value 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 an 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 for the periods presented.
The pro forma shareholders' equity at September 30, 1997 gives effect to
the reduction in shareholders equity resulting from the reorganization of
Sparkling Spring discussed above.
3. SIGNIFICANT ACCOUNTING POLICIES
These consolidated financial statements include the accounts of Sparkling
Spring and its subsidiaries, SSWL, Sparkling Spring Water U.K. Limited, Canadian
Springs Water Company Ltd.,
F-28
<PAGE> 143
Water Jug Enterprises Limited and Spring Water Inc. and the subsidiaries
referred to in note 4 (collectively referred to as the "Company"), in accordance
with accounting principles generally accepted in the United States.
These unaudited interim consolidated financial statements reflect all
adjustments which are, in the opinion of management, necessary for a fair
presentation of the results for the interim periods presented. The adjustments
are of a normal recurring nature.
4. ACQUISITIONS
(a) During 1996 and 1997 the Company completed a number of acquisitions.
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 income (loss) and deficit.
<TABLE>
<CAPTION>
BUSINESS ACQUIRED LOCATION DATE OF ACQUISITION
- ---------------------------------- ----------------- --------------------
<S> <C> <C>
Canadian Springs Water Company
Ltd............................. Vancouver, BC January 1996
Water Jug Enterprises Limited..... Kamloops, BC May 1996
Sparkling Spring U.K.
Limited(remaining 10%).......... London, England March 1996
D&D and Company, Inc.............. Portland, Oregon January 1997
High Valley Water Limited......... Kelowna, BC January 1997
Withey's Water Softening and
Purification Limited............ Prince George, BC January 1997
Marlborough Employment Limited.... Glasgow, Scotland February 1997
Soja Enterprises, Inc............. Portland, Oregon June 1997
Crystal Springs Bottled Water Co.,
Inc............................. Portland, Oregon June 1997
</TABLE>
The following summarizes the transactions:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Net working capital............................... $ 809,606 $ 706,472
Fixed assets...................................... 3,672,515 3,655,741
Customer deposit.................................. (546,358) (281,714)
Assumption of debt obligations.................... (851,365) (849,619)
Goodwill.......................................... 14,393,913 16,604,617
----------- -----------
Total cash consideration.......................... $17,478,311 $19,835,497
=========== ===========
</TABLE>
The following unaudited pro forma information presents a summary of
consolidated results of operations as if the above acquisitions had occurred on
January 1, 1997 and January 1, 1996.
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED (IN THOUSANDS)
----------------------------------------
SEPTEMBER 30, 1996 SEPTEMBER 30, 1997
------------------ ------------------
<S> <C> <C>
Revenue................................. $35,320 $38,628
Net loss before extraordinary item...... $(3,272) $(1,758)
</TABLE>
5. EXTRAORDINARY ITEM
The Company restructured and replaced its long-term financing agreements
during the nine months ended September 30, 1996. 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 $469,303
related to debt that was restructured have been expensed during the period, net
of applicable income tax recoveries of $434,238.
F-29
<PAGE> 144
6. SUBSEQUENT EVENT
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 the net proceeds of this offering to repay $60.1 million of its
existing credit facility and capitalized leases and to pay $13.9 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.
Each of the Subsidiary Guarantors has unconditionally guaranteed, on a
senior subordinated basis, jointly and severally, to each holder of 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 September 30, 1997, on a pro forma basis after giving effect
to the issuance of the Private Notes and the application of the net proceeds
therefrom, the Subsidiary Guarantors would have had approximately $1.5 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. Sparkling Spring is a holding company and has no operations or
assets independent of its investment in its subsidiaries.
F-30
<PAGE> 145
FINANCIAL STATEMENTS
CANADIAN SPRINGS WATER
COMPANY LTD.
JANUARY 17, 1996 AND MARCH 31, 1995
F-31
<PAGE> 146
AUDITORS' REPORT
To the Directors of
Sparkling Spring Water Limited
We have audited the balance sheet of Canadian Springs Water Company Ltd. as
at January 17, 1996 and March 31, 1995 and the statements of income and retained
earnings and cash flows for the 292 days ended January 17, 1996 and the year
ended March 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform 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 financial statements present fairly, in all material
respects, the financial position of the Company as at January 17, 1996 and March
31, 1995 and the results of its operations and the changes in its financial
position for the periods then ended in accordance with accounting principles
generally accepted in Canada.
Halifax, Canada ERNST & YOUNG
July 11, 1997 Chartered Accountants
F-32
<PAGE> 147
CANADIAN SPRINGS WATER COMPANY LTD.
INCORPORATED UNDER THE LAWS OF BRITISH COLUMBIA
BALANCE SHEET
<TABLE>
<CAPTION>
AS AT JANUARY 17, 1996
(WITH COMPARATIVE FIGURES AS
AT MARCH 31, 1995)
(IN CDN DOLLARS)
----------------------------
1995 1996
------------ ------------
<S> <C> <C>
ASSETS [Note 3]
Current
Accounts receivable......................................... $1,475,228 $1,708,888
Inventory................................................... 227,480 325,861
Prepaid expenses............................................ 212,883 191,406
---------- ----------
Total current assets.............................. 1,915,591 2,226,155
Deferred income taxes....................................... 11,340 17,340
Fixed assets [note 2]....................................... 3,298,167 2,872,967
---------- ----------
Total assets...................................... $5,225,098 $5,116,462
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Bank indebtedness........................................... $ 288,278 $ 838,143
Accounts payable and accrued liabilities.................... 1,482,464 1,195,979
Income taxes payable........................................ 11,456 14,036
Deposits payable............................................ -- 11,361
Dividends payable........................................... -- 923,500
Debt due within one year [note 3]........................... 624,542 202,305
Due to shareholders and related parties [note 4]............ 1,681,907 1,735,979
---------- ----------
Total current liabilities......................... 4,088,647 4,921,303
---------- ----------
Long-term debt [note 3]..................................... 307,242 146,212
---------- ----------
Shareholders' equity
Share capital [note 5]...................................... 18 18
Retained earnings........................................... 829,191 48,929
---------- ----------
Total shareholders' equity........................ 829,209 48,947
---------- ----------
Total liabilities and shareholders' equity........ $5,225,098 $5,116,462
========== ==========
Commitments [Note 8 and 9]
</TABLE>
See accompanying notes
F-33
<PAGE> 148
CANADIAN SPRINGS WATER COMPANY LTD.
STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
292 DAYS ENDED
JANUARY 17, 1996
(WITH COMPARATIVE FIGURES FOR
THE YEAR ENDED MARCH 31)
(IN CDN DOLLARS)
------------------------------
1995 1996
------------- -------------
<S> <C> <C>
Revenue..................................................... $10,401,440 $10,154,150
Cost of sales............................................... 4,880,620 5,272,844
----------- -----------
Gross profit................................................ 5,520,820 4,881,306
----------- -----------
Expenses
Wages and benefits.......................................... 2,711,797 1,882,134
Advertising and selling..................................... 489,864 693,779
Depreciation................................................ 727,986 572,519
Professional fees........................................... 70,105 368,673
Office supplies and stationery.............................. 284,105 285,935
Promotion, travel and entertainment......................... 242,786 212,838
Interest on long-term debt.................................. 258,787 152,577
Postage..................................................... 158,640 136,252
Bank charges and interest on short-term debt................ 96,655 130,567
Bad debts and collection fees............................... 77,184 111,408
Telephone................................................... 98,311 95,899
Rent and property taxes..................................... 44,540 40,462
Corporation capital tax..................................... 9,900 9,025
----------- -----------
5,270,660 4,692,068
----------- -----------
Net income before income taxes.............................. 250,160 189,238
----------- -----------
Income taxes
Current................................................... 45,500 52,000
Deferred.................................................. 20,360 (6,000)
----------- -----------
65,860 46,000
----------- -----------
Net income.................................................. 184,300 143,238
Dividends................................................... -- (923,500)
Retained earnings, beginning of year........................ 644,891 829,191
----------- -----------
Retained earnings, end of year.............................. $ 829,191 $ 48,929
=========== ===========
</TABLE>
See accompanying notes
F-34
<PAGE> 149
CANADIAN SPRINGS WATER COMPANY LTD.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
292 DAYS ENDED
JANUARY 17, 1996
(WITH COMPARATIVE FIGURES FOR
THE YEAR ENDED MARCH 31)
(IN CDN DOLLARS)
------------------------------
1995 1996
-------------- ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 184,300 $ 143,238
Add items not involving a flow of cash
Depreciation.............................................. 727,986 572,519
Deferred income taxes..................................... 20,360 (6,000)
Net change in non-cash working capital balances [note 6].... 148,002 (583,108)
----------- ---------
Cash provided by operating activities....................... 1,080,648 126,649
----------- ---------
INVESTING ACTIVITIES
Additions to fixed assets (net)............................. (1,281,567) (147,319)
----------- ---------
Cash used in investing activities........................... (1,281,567) (147,319)
----------- ---------
FINANCING ACTIVITIES
Issuance of long-term debt.................................. 894,327 --
Repayment of long-term debt................................. (536,145) (583,267)
Increase (decrease) in due to shareholders and related
parties................................................... (45,739) 54,072
----------- ---------
Cash (used in) provided by financing activities............. 312,443 (529,195)
----------- ---------
(Decrease) increase in cash................................. 111,524 (549,865)
Bank indebtedness, beginning of year........................ (399,802) (288,278)
----------- ---------
Bank indebtedness, end of year.............................. $ (288,278) $(838,143)
=========== =========
</TABLE>
See accompanying notes
F-35
<PAGE> 150
CANADIAN SPRINGS WATER COMPANY LTD.
NOTES TO FINANCIAL STATEMENTS
JANUARY 17, 1996
(WITH COMPARATIVE FIGURES AS AT MARCH 31, 1995)
(IN CDN DOLLARS)
1. SIGNIFICANT ACCOUNTING POLICIES
These financial statements have been prepared by management in accordance
with accounting principles generally accepted in Canada, the more significant of
which are as follows:
FIXED ASSETS
Fixed assets are valued at cost. Depreciation is provided on the declining
balance basis over the expected useful lives of the assets at the following
rates:
<TABLE>
<S> <C>
Rental equipment -- dispensers.............................. 20%
Furniture, fixtures and equipment........................... 20%
Purification equipment...................................... 50%
Vehicles.................................................... 30%
Buildings................................................... 4%
Computer.................................................... 30%-100%
</TABLE>
Leasehold improvements are amortized on a straight line basis over the term
of the related lease.
Depreciation is reduced to one-half the normal rate in the year of
acquisition for the respective assets.
INVENTORY
Inventory is value at the lower of cost determined on a first-in, first-out
basis, and net realizable value.
LEASES
Leases which transfer substantially all of the benefits and risks of
ownership are recorded as acquisition of assets and incurrence of obligations.
Under this method of accounting, assets are amortized over their expected useful
lives and interest arising from the obligations is expensed over the life of the
lease. Rents on operating leases are expensed as incurred.
INCOME TAXES
In accounting for income taxes, the company follows the tax allocation
method. The major timing differences relate to fixed assets and lease
obligations.
F-36
<PAGE> 151
CANADIAN SPRINGS WATER COMPANY LTD.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
JANUARY 17, 1996
(WITH COMPARATIVE FIGURES AS AT MARCH 31, 1995)
(IN CDN DOLLARS)
2. FIXED ASSETS
<TABLE>
<CAPTION>
1995 1996
-------------------------- --------------------------
ACCUMULATED ACCUMULATED
COST DEPRECIATION COST DEPRECIATION
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Rental equipment --
dispensers................ $4,234,322 $1,987,590 $4,648,585 $2,568,516
Purification equipment...... 845,178 609,291 147,146 135,913
Vehicles.................... 737,764 581,920 731,476 618,468
Furniture, fixtures and
equipment................. 385,962 130,893 653,889 428,483
Computer.................... 360,494 234,863 505,817 340,175
Leasehold improvements...... 241,655 101,806 265,781 126,046
Buildings................... 42,222 2,067 42,222 3,348
Land........................ 99,000 -- 99,000 --
---------- ---------- ---------- ----------
6,946,597 3,648,430 7,093,916 4,220,949
Accumulated depreciation.... 3,648,430 4,220,949
---------- ----------
Net book value.............. $3,298,167 $2,872,967
========== ==========
</TABLE>
3. LONG-TERM DEBT
<TABLE>
<CAPTION>
1995 1996
-------- -----------
<S> <C> <C>
Demand term loan.......................................... $ 26,644 $ --
Demand term loan.......................................... 270,015 --
Capital lease obligations [note 8]........................ 635,125 348,517
-------- --------
931,784.. 348,517
Less portion due within one year.......................... 624,542 202,305
-------- --------
$307,242 $146,212
======== ========
</TABLE>
The following has been pledged as collateral for bank indebtedness and the
term loans:
a) General security agreement over all existing and subsequently acquired
assets;
b) General assignment of book debts; and
c) Postponement of shareholder loans.
F-37
<PAGE> 152
CANADIAN SPRINGS WATER COMPANY LTD.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
JANUARY 17, 1996
(WITH COMPARATIVE FIGURES AS AT MARCH 31, 1995)
(IN CDN DOLLARS)
4. DUE TO SHAREHOLDERS AND RELATED PARTIES
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Due to shareholders, no interest or specific terms of
repayment............................................... $ 756,907 $1,699,679
Due to related parties, interest only payable at prime
plus 2% per annum with no specific terms of repayment... 100,000 36,300
Due to shareholder, interest only payable at $5,000 per
month with no specific terms of repayment............... 430,000 --
Due to shareholder, interest only payable at $8,667 per
month with no specific terms of repayment............... 395,000 --
---------- ----------
$1,681,907 $1,735,979
========== ==========
</TABLE>
5. SHARE CAPITAL
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Authorized
10,000 Class A voting shares without par value
100 Class B non-voting shares without par value
100 Class C voting shares without par value
1,000 Class D non-voting redeemable and retractable shares
without par value
Issued and outstanding
6 Class B shares...................................... $ 6 $ 6
6 Class C shares...................................... 6 6
996 Class D shares....................................... 6 6
--- ---
$18 $18
=== ===
</TABLE>
F-38
<PAGE> 153
CANADIAN SPRINGS WATER COMPANY LTD.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
JANUARY 17, 1996
(WITH COMPARATIVE FIGURES AS AT MARCH 31, 1995)
(IN CDN DOLLARS)
6. STATEMENT OF CASH FLOW
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
(Increase) decrease in
Accounts receivable...................................... $(334,110) $(233,660)
Inventory................................................ (70,456) (98,381)
Prepaid expenses......................................... (37,268) 21,477
--------- ---------
(441,834) (310,564)
--------- ---------
Increase (decrease) in
Accounts payable and accrued liabilities................. 564,710 (286,485)
Income taxes payable..................................... 25,126 2,580
Deposits payable......................................... -- 11,361
--------- ---------
589,836 (272,544)
--------- ---------
Net change in non-cash working capital balances............ $ 148,002 $(583,108)
========= =========
</TABLE>
7. RELATED PARTY TRANSACTIONS
During the year, the company had the following transactions with related
parties:
a) Interest of $98,644 (1995 -- $154,750) was paid to shareholders.
b) Interest of nil (1995 -- $14,584) was paid to related parties.
c) Management and consulting fees of $183,622 (1995 -- nil) were paid to
related parties.
8. CAPITAL LEASE OBLIGATIONS
The company has lease commitments with respect to capital lease obligations
as follows:
<TABLE>
<S> <C>
1997........................................................ $214,800
1998........................................................ 150,570
--------
Total minimum lease payments................................ 365,370
Less imputed interest....................................... 16,853
--------
Present value of minimum lease payments..................... 348,517
Less current portion........................................ 202,305
--------
$146,212
========
</TABLE>
F-39
<PAGE> 154
CANADIAN SPRINGS WATER COMPANY LTD.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
JANUARY 17, 1996
(WITH COMPARATIVE FIGURES AS AT MARCH 31, 1995)
(IN CDN DOLLARS)
9. COMMITMENTS
The company has certain minimum operating lease commitments with respect to
premises and delivery trucks over the next five years as follows:
<TABLE>
<S> <C>
1996................................................ $276,000
1997................................................ 199,000
1998................................................ 193,000
1999................................................ 124,000
2000................................................ 100,000
</TABLE>
10. UNITED STATES ACCOUNTING PRINCIPLES
These financial statements are expressed in Canadian dollars and are
prepared in accordance with generally accepted accounting principles in Canada
("Canadian GAAP") which, for the purposes of these financial statements, conform
in all material respects with those in the United States ("U.S. GAAP"), with the
exception of the statement of cash flow where bank indebtedness is treated as a
cash equivalent. Under US GAAP this would be treated as a financing activity
which would increase cash provided by financing activities for the 292 days
ended January 17, 1996 by $549,865 and decrease cash provided by financing
activities for the year ended March 31, 1995 by $111,524.
The company follows the tax allocation method of accounting for income
taxes under Canadian generally accepted accounting principles which differs from
the requirements of SFAS 109 "Accounting for Income Taxes". However, for
purposes of those financial statements, any difference in the deferred income
taxes balance or the provision for income taxes as a result of applying SFAS 109
would not be material.
11. COMPARATIVE FIGURES
Certain of the 1995 financial statement figures have been reclassified to
conform with the 1996 presentation.
F-40
<PAGE> 155
FINANCIAL STATEMENTS
CULLYSPRING WATER CO., INC.
DECEMBER 31, 1996 AND 1995
F-41
<PAGE> 156
AUDITORS' REPORT
To the Directors of
Sparkling Spring Water Limited
We have audited the balance sheets of Cullyspring Water Co., Inc. as of
December 31, 1996 and 1995 and the statements of income, shareholders' equity
and cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1996 and 1995
and the results of its operations and the changes in its financial position for
the years then ended in accordance with accounting principles generally accepted
in the United States.
Halifax, Canada Ernst & Young
October 10, 1997 Chartered Accountants
F-42
<PAGE> 157
CULLYSPRING WATER CO., INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
AS AT DECEMBER 31
------------------------
1995 1996
---------- ----------
<S> <C> <C>
ASSETS
Current
Cash and cash equivalents................................... $ 681,970 $ 769,185
Accounts receivable......................................... 323,263 300,258
Inventories................................................. 64,534 90,648
Refundable deposits......................................... 575 575
---------- ----------
Total current assets................................... 1,070,342 1,160,666
Fixed assets [note 3]....................................... 866,046 982,230
---------- ----------
Total assets........................................... 1,936,388 2,142,896
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Accounts payable and accrued liabilities.................... 100,073 65,236
Debt due within one year [note 4]........................... 20,518 38,351
Current portion of obligations under capital leases [note
5]........................................................ 24,521 --
---------- ----------
Total current liabilities.............................. 145,112 103,587
---------- ----------
Long-term debt [note 4]..................................... 21,516 38,226
Obligations under capital lease [note 5].................... 18,060 --
Customer deposits........................................... 175,079 176,644
---------- ----------
Total long-term liabilities............................ 214,655 214,870
---------- ----------
Shareholders' equity
Common stock (no par value, 50,000 shares authorized, 1,000
shares issued and outstanding)............................ 50,000 50,000
Contributed surplus......................................... 37,866 37,866
Retained earnings........................................... 1,488,755 1,736,573
---------- ----------
Total shareholders equity.............................. 1,576,621 1,824,439
---------- ----------
Total liabilities and shareholders' equity............. $1,936,388 $2,142,896
========== ==========
</TABLE>
See accompanying notes
F-43
<PAGE> 158
CULLYSPRING WATER CO., INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------
1995 1996
----------- -----------
<S> <C> <C>
Revenue..................................................... $3,753,611 $4,029,591
Cost of sales............................................... 2,019,019 2,104,283
---------- ----------
Gross profit................................................ 1,734,592 1,925,308
---------- ----------
Expenses
Corporate and administrative................................ 1,045,172 1,084,148
Depreciation and amortization............................... 341,800 375,942
Interest and bank charges................................... 17,052 7,140
---------- ----------
1,404,024 1,467,230
---------- ----------
Income before the following................................. 330,568 458,078
Interest income............................................. 15,388 18,700
Gain on sale of fixed assets................................ 15,000 2,150
---------- ----------
Net income before income taxes.............................. 360,956 478,928
Income tax expense.......................................... 33,451 --
---------- ----------
Net income.................................................. $ 327,505 $ 478,928
========== ==========
Net income -- pro forma (note 2)............................ $ 214,305 $ 313,328
========== ==========
</TABLE>
See accompanying notes
F-44
<PAGE> 159
CULLYSPRING WATER CO., INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------------------
COMMON STOCK
------------------- CONTRIBUTED RETAINED
SHARES AMOUNT SURPLUS EARNINGS
-------- ------- ----------- ----------
<S> <C> <C> <C> <C>
Balance December 31, 1994................ 50,000 $50,000 $37,866 $1,165,750
Shares surrendered....................... (50,000)
Issuance of shares....................... 1,000
Net income............................... 327,505
Dividends................................ (4,500)
-------- ------- ------- ----------
Balance December 31, 1995................ 1,000 50,000 37,866 1,488,755
Net income............................... 478,928
Dividends................................ (231,110)
-------- ------- ------- ----------
Balance December 31, 1996................ 1,000 $50,000 $37,866 $1,736,573
======== ======= ======= ==========
</TABLE>
See accompanying notes
F-45
<PAGE> 160
CULLYSPRING WATER CO., INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------
1995 1996
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 327,505 $ 478,928
Items not requiring cash
Depreciation and amortization............................. 341,800 375,942
Gain on sale of fixed assets.............................. (15,000) (2,150)
Net change in non-cash working capital balances [note 6].... (61,490) (37,946)
--------- ---------
Cash provided by operating activities....................... 592,815 814,774
--------- ---------
INVESTING ACTIVITIES
Purchase of fixed assets.................................... (370,455) (531,973)
Sale of fixed assets........................................ 15,000 41,997
--------- ---------
Cash used in investing activities........................... (355,455) (489,976)
--------- ---------
FINANCING ACTIVITIES
Dividends................................................... (4,500) (231,110)
Issuance of long-term debt.................................. 24,597 55,061
Repayment of long-term debt................................. (129,691) (20,518)
Repayment of obligations under capital lease................ (22,629) (42,581)
Increase in customer deposits............................... 13,651 1,565
--------- ---------
Cash used in financing activities........................... (118,572) (237,583)
--------- ---------
Increase in cash during the year............................ 118,788 87,215
Cash and cash equivalents, beginning of year................ 563,182 681,970
--------- ---------
Cash and cash equivalents, end of year...................... $ 681,970 $ 769,185
========= =========
</TABLE>
See accompanying notes
F-46
<PAGE> 161
CULLYSPRING WATER CO., INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. NATURE OF OPERATIONS
Cullyspring Water Co., Inc. operates a bottling plant in Seattle,
Washington producing drinking and distilled water. Water is purified in a
multistage process before it is bottled in five gallon refillable containers or
nonrefillable plastic bottles. The five gallon bottles are distributed to
commercial or residential customers who rent free-standing dispensers on a
monthly basis. The non refillable containers are generally distributed through
grocery outlets.
2. SIGNIFICANT ACCOUNTING POLICIES
These financial statements have been prepared by management in accordance
with accounting principles generally accepted in the United States, the more
significant of which are as follows:
INVENTORIES
Inventories consisting principally of bottling materials and supplies 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 accumulated depreciation based on
lives of 3 through 7 years. Declining balance depreciation methods are used.
Leasehold improvements are amortized evenly over 7 to 31.5 years.
FINANCIAL INSTRUMENTS
The Company's primary financial instruments consist of accounts receivable,
accounts payable, customer deposits, debt due within one year 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 a minimal customer concentration
and credit risk.
At year end the Company did not have any exposure relating to derivative
instruments.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
INCOME TAXES
The company has elected S corporation status effective July 1, 1995. Under
this status net income flows through to the stockholders and is taxable to them.
Accordingly, the Company has not incurred any provision for income tax
obligations.
F-47
<PAGE> 162
CULLYSPRING WATER CO., INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1996
Had the Company been taxed as a C corporation, the Company's net income
would have been reduced to the pro forma amounts as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
------------------------------------
1995 1996
---- ----
<S> <C> <C>
Net income as reported............................. $ 327,505 $ 478,928
Provision for income taxes -- pro forma............ 113,200 165,600
--------------- ---------------
Net income -- pro forma............................ $ 214,305 $ 313,328
=============== ===============
</TABLE>
3. FIXED ASSETS
<TABLE>
<CAPTION>
1995 1996
-------------------------- --------------------------
ACCUMULATED ACCUMULATED
COST DEPRECIATION COST DEPRECIATION
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Machinery and equipment..... $1,710,472 $1,309,184 $2,030,166 $1,500,016
Equipment under capital
lease..................... 173,613 123,804 65,422 65,422
Motor vehicles.............. 586,879 514,530 633,148 521,808
Leasehold improvements...... 346,208 72,556 375,397 88,129
Returnable bottles.......... 442,060 373,112 457,935 404,463
---------- ---------- ---------- ----------
3,259,232 2,393,186 3,562,068 2,579,838
Accumulated depreciation.... 2,393,186 2,579,838
---------- ----------
Net book value.............. $ 866,046 $ 982,230
========== ==========
</TABLE>
4. LONG-TERM DEBT
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Loan payable bearing interest at 9% repayable in monthly
instalments of principal and interest of $814 to February
1999...................................................... $ -- $18,495
Loan payable bearing interest at 9.25% repayable in monthly
instalments of principal and interest of $406 to July
1999...................................................... -- 10,849
Loan payable bearing interest at 10.3% repayable in monthly
instalments of principal and interest of $875 to November
1999...................................................... -- 25,717
Loan payable bearing interest at 8% repayable in monthly
instalments of principal and interest of $1,336 to August
1997...................................................... 22,436 8,939
Loan payable bearing interest at 10.5% repayable in monthly
instalments of principal and interest of $799 to June
1998...................................................... 19,598 12,577
------- -------
42,034 76,577
Less: portion due within one year........................... 20,518 38,351
------- -------
$21,516 $38,226
======= =======
</TABLE>
The Company has pledged as collateral for the loans payable a first fixed
charge on the vehicles associated with the loans.
F-48
<PAGE> 163
CULLYSPRING WATER CO., INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1996
Principal repayments required in each of the next three years are as
follows:
<TABLE>
<S> <C>
1997................................................. $38,351
1998................................................. 26,693
1999................................................. 11,533
</TABLE>
5. OBLIGATIONS UNDER CAPITAL LEASES
During 1996 the Company paid out the capital leases in full.
6. STATEMENT OF CASH FLOW
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
(Increase) decrease in
Accounts receivable....................................... $(40,978) $ 23,005
Inventories............................................... (19,853) (26,114)
-------- --------
(60,831) (3,109)
Decrease in accounts payable and accrued liabilities........ (659) (34,837)
-------- --------
Net change in non-cash working capital balances............. $(61,490) $(37,946)
======== ========
</TABLE>
7. RELATED PARTY TRANSACTIONS
During the year the Company paid approximately $132,000 (1995 -- $144,000)
for building rent to an affiliated company controlled by the shareholders of the
Company.
F-49
<PAGE> 164
CULLYSPRING WATER CO., INC.
BALANCE SHEET
<TABLE>
<CAPTION>
AS AT SEPTEMBER 30
(WITH COMPARATIVE FIGURES AS
AT DECEMBER 31)
----------------------------
1996 1997
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current
Cash and cash equivalents................................... $ 769,185 $ 892,186
Accounts receivable......................................... 300,258 371,602
Inventories................................................. 90,648 90,345
Refundable deposits......................................... 575 575
---------- ----------
Total current assets................................... 1,160,666 1,354,708
Fixed assets................................................ 982,230 936,033
---------- ----------
Total assets........................................... 2,142,896 2,290,741
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Accounts payable and accrued liabilities.................... 65,236 61,037
Debt due within one year.................................... 38,351 38,351
---------- ----------
Total current liabilities.............................. 103,587 99,388
---------- ----------
Long-term debt.............................................. 38,226 55,074
Customer deposits........................................... 176,644 188,838
---------- ----------
Total long-term liabilities............................ 214,870 243,912
---------- ----------
Shareholders' equity
Common stock (no par value, 50,000 shares authorized, 1,000
shares issued and outstanding)............................ 50,000 50,000
Contributed surplus......................................... 37,866 37,866
Retained earnings........................................... 1,736,573 1,859,575
---------- ----------
Total shareholders' equity............................. 1,824,439 1,947,441
---------- ----------
Total liabilities and shareholders' equity............. $2,142,896 $2,290,741
========== ==========
</TABLE>
F-50
<PAGE> 165
CULLYSPRING WATER CO., INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
--------------------------
1996 1997
----------- -----------
(UNAUDITED)
<S> <C> <C>
Revenue..................................................... $3,077,358 $3,183,296
Cost of sales............................................... 1,619,001 1,606,833
---------- ----------
Gross profit................................................ 1,458,357 1,576,463
---------- ----------
Expenses
Corporate and administrative................................ 752,524 893,092
Depreciation and amortization............................... 262,055 263,491
Interest and bank charges................................... 5,377 5,692
---------- ----------
1,019,956 1,162,275
---------- ----------
Income before the following................................. 438,401 414,188
Interest income............................................. 13,787 13,992
Gain on sale of fixed assets................................ 2,150 --
---------- ----------
Net income.................................................. 454,338 428,180
Retained earnings, beginning of year........................ 1,488,755 1,736,573
Dividends................................................... (216,109) (305,178)
---------- ----------
Retained earnings, end of year.............................. $1,726,984 $1,859,575
========== ==========
Net income -- pro forma (note 2)............................ $ 297,137 $ 280,030
========== ==========
</TABLE>
F-51
<PAGE> 166
CULLYSPRING WATER CO., INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
----------------------
1996 1997
--------- ---------
(UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 454,338 $ 428,180
Items not requiring cash
Depreciation and amortization............................. 262,055 263,491
--------- ---------
Gain on sale of fixed assets.............................. (2,150) --
Net change in non-cash working capital balances............. 77,984 (63,046)
--------- ---------
Cash provided by operating activities....................... 792,227 628,625
INVESTING ACTIVITIES
Purchase of fixed assets.................................... (416,273) (168,491)
Sale of fixed assets........................................ 2,150 --
--------- ---------
Cash used in investing activities........................... (414,123) (168,491)
--------- ---------
FINANCING ACTIVITIES
Dividends................................................... (216,109) (302,665)
Repayment of long-term debt................................. (31,749) (34,468)
Repayment of obligations under capital lease................ (16,004) --
--------- ---------
Cash used in financing activities........................... (263,862) (337,133)
--------- ---------
Increase in cash during the period.......................... 114,242 123,001
Cash and cash equivalents, beginning of period.............. 681,970 769,185
--------- ---------
Cash and cash equivalents, end of period.................... $ 796,212 $ 892,186
========= =========
</TABLE>
F-52
<PAGE> 167
CULLYSPRING WATER CO., INC.
NOTES TO FINANCIAL STATEMENTS
1. INTERIM FINANCIAL STATEMENTS
The unaudited interim consolidated financial statements reflect all
adjustments which are, in the opinion of management, necessary for a fair
presentation of the results for the interim periods presented. The adjustments
are of a normal recurring nature.
2. INCOME TAXES
The company has elected S corporation status. Under this status net income
flows through to the stockholders and is taxable to them. Accordingly, the
company has not incurred any provision for income tax obligations.
Had the company been taxed as a C corporation, the Company's net income
would have been reduced to the pro forma amounts as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1996 1997
-------- --------
<S> <C> <C>
Net income as reported...................................... $454,338 $428,180
Provision for income taxes -- pro forma..................... 157,201 148,150
-------- --------
Net income -- pro forma..................................... $297,137 $280,030
======== ========
</TABLE>
F-53
<PAGE> 168
FINANCIAL STATEMENTS
D&D AND COMPANY, INC.
(OPERATING AS MOUNTAIN FRESH BOTTLED WATER)
DECEMBER 31, 1996
F-54
<PAGE> 169
AUDITORS' REPORT
To the Directors of
Sparkling Spring Water Limited
We have audited the balance sheet of D&D And Company, Inc. as at December
31, 1996 and the statements of income, shareholders' equity and cash flows for
the year then ended. 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 audit.
We conducted our audit 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 financial statements present fairly, in all material
respects, the financial position of the Company as at December 31, 1996 and the
results of its operations and the changes in its financial position for the year
then ended in accordance with accounting principles generally accepted in the
United States.
The financial statements for the year ended December 31, 1995 are
unaudited.
Halifax, Canada ERNST & YOUNG
October 10, 1997 Chartered Accountants
F-55
<PAGE> 170
D&D AND COMPANY, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
AS AT DECEMBER 31
-----------------------
1995 1996
----------- --------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current
Cash and cash equivalents................................... $ 14,102 $ 17,641
Accounts receivable......................................... 132,900 170,695
Inventories................................................. 40,298 46,089
-------- --------
Total current assets................................... 187,300 234,425
Other assets................................................ 12,824 9,795
Note receivable............................................. 5,548 5,548
Fixed assets [note 3]....................................... 649,996 535,874
-------- --------
Total assets........................................... 855,668 785,642
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Accounts payable and accrued liabilities.................... 62,066 51,090
Income tax payable.......................................... 564 564
Debt due within one year [note 4]........................... 185,910 178,897
-------- --------
Total current liabilities.............................. 248,540 230,551
-------- --------
Long term debt [note 4]..................................... 384,091 295,080
Other liabilities........................................... 5,793 4,394
-------- --------
Total long-term liabilities............................ 389,884 299,474
-------- --------
Shareholders' equity
Common stock (no par value, 5,000 shares authorized, 2,000
shares issued and outstanding)............................ 20,630 20,630
Retained earnings........................................... 196,614 234,987
-------- --------
Total shareholders' equity............................. 217,244 255,617
-------- --------
Total liabilities and shareholders' equity............. $855,668 $785,642
======== ========
Commitments (Note 6)
</TABLE>
See accompanying notes
F-56
<PAGE> 171
D&D AND COMPANY, INC.
STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------
1995 1996
----------- -----------
(UNAUDITED)
<S> <C> <C>
Revenue..................................................... $1,892,461 $2,233,062
Cost of sales............................................... 370,687 425,003
---------- ----------
Gross profit................................................ 1,521,774 1,808,059
---------- ----------
Expenses
Corporate and administrative................................ 1,150,709 1,303,337
Depreciation and amortization............................... 221,210 236,527
Interest and bank charges................................... 57,375 59,764
---------- ----------
1,429,294 1,599,628
---------- ----------
Net income before the following............................. 92,480 208,431
Gain on sale of fixed assets................................ 9,215 --
---------- ----------
Net income.................................................. $ 101,695 $ 208,431
========== ==========
</TABLE>
See accompanying notes
F-57
<PAGE> 172
D&D AND COMPANY, INC.
STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------
COMMON STOCK
---------------- RETAINED
SHARES AMOUNT EARNING
------ ------- ---------
<S> <C> <C> <C>
Balance December 31, 1994 [unaudited]....................... 2,000 $20,630 $ 214,749
Net income [unaudited]...................................... 101,695
Dividends [unaudited]....................................... (119,830)
----- ------- ---------
Balance December 31, 1995................................... 2,000 20,630 196,614
Net income.................................................. 208,431
Dividends................................................... (170,058)
----- ------- ---------
Balance December 31, 1996................................... 2,000 $20,630 $ 234,987
===== ======= =========
</TABLE>
See accompanying notes
F-58
<PAGE> 173
D&D AND COMPANY, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------
1995 1996
----------- ---------
(UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 101,695 $ 208,431
Items not requiring cash
Depreciation and amortization.......................... 221,210 236,527
Gain on sale of fixed assets........................... (9,215) --
--------- ---------
313,690 444,958
Net change in non-cash working capital balances [note 5].... (49,115) (54,562)
--------- ---------
Cash provided by operating activities....................... 264,575 390,396
--------- ---------
INVESTING ACTIVITIES
Purchase of fixed assets.................................... (20,196) (122,405)
Sale of fixed assets, net................................... 8,000 --
Decrease in other assets.................................... 2,858 3,029
--------- ---------
Cash used in investing activities........................... (9,338) (119,376)
--------- ---------
FINANCING ACTIVITIES
Decrease in other liabilities............................... -- (1,399)
Increase in long-term debt.................................. 47,192 88,743
Repayment of long-term debt................................. (169,344) (184,767)
Reduction in note receivable................................ 556 --
Dividends................................................... (119,830) (170,058)
--------- ---------
Cash used in financing activities........................... (241,426) (267,481)
--------- ---------
Increase in cash and cash equivalents during the year....... 13,811 3,539
Cash and cash equivalents, beginning of year................ 291 14,102
--------- ---------
Cash and cash equivalents, end of year...................... $ 14,102 $ 17,641
========= =========
</TABLE>
See accompanying notes
F-59
<PAGE> 174
D&D AND COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. NATURE OF OPERATIONS
D&D And Company, Inc. operates a bottling plant producing drinking and
distilled water. Water is purified in a multistage process before it is bottled
in five gallon refillable containers or non-refillable plastic bottles. The five
gallon bottles are distributed to commercial or residential customers who rent
free-standing dispensers on a monthly basis. The non-refillable containers are
generally distributed through grocery outlets.
The Company also distributes coffee and coffee products to commercial and
residential customers. Coffee brewers are rented to customers on a monthly
basis.
2. SIGNIFICANT ACCOUNTING POLICIES
These financial statements have been prepared by management in accordance
with accounting principles generally accepted in the United States, the more
significant of which are as follows:
INVENTORIES
Inventories consisting principally of bottling materials are valued at the
lower of cost determined on a last in, first out basis and net realizable value.
FIXED ASSETS
Fixed assets are recorded at cost less accumulated depreciation based on
lives of 3 through 7 years. Declining balance depreciation methods are used.
Straight line depreciation is used for assets purchased before 1993. Leasehold
improvements are amortized evenly over the remaining terms of the leases.
FINANCIAL INSTRUMENTS
The Company's primary financial instruments consist of accounts receivable,
note receivable, accounts payable, debt due within one year 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 a minimal customer concentration
and credit risk.
At year end the Company did not have any exposure relating to derivative
instruments.
INCOME TAXES
The company has elected S corporation status. Under this status net income
flows through to the stockholders and is taxable to them. Accordingly, the
company has not incurred any provision for income tax obligations.
Had the Company been taxed as a C corporation, the Company's net income
would have been reduced to the pro forma amounts as follows:
F-60
<PAGE> 175
D&D AND COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1996
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
-------------------------------
1995 1996
------------ ---------
(UNAUDITED)
<S> <C> <C>
Net income as reported................................. $101,695 $208,431
Provision for income taxes -- pro forma................ 32,500 78,200
-------- --------
Net income -- pro forma................................ $ 69,195 $130,231
======== ========
</TABLE>
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 an
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
3. FIXED ASSETS
<TABLE>
<CAPTION>
1995 1996
--------------------------- --------------------------
ACCUMULATED ACCUMULATED
COST DEPRECIATION COST DEPRECIATION
----------- ------------ ---------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Coolers...................... $ 772,071 $398,571 $ 849,644 $542,803
Machinery and equipment...... 465,564 241,900 483,799 317,916
Motor vehicles............... 127,458 84,359 147,917 94,244
Leasehold improvements....... 10,000 267 10,000 523
---------- -------- ---------- --------
1,375,093 725,097 1,491,360 955,486
Accumulated depreciation..... 725,097 955,486
---------- ----------
Net book value............... $ 649,996 $ 535,874
========== ==========
</TABLE>
4. LONG-TERM DEBT
<TABLE>
<CAPTION>
1995 1996
--------- -----------
(UNAUDITED)
<S> <C> <C>
Note payable bearing interest at 9%, repayable in monthly
principal and interest instalments of $1,520, maturing
August 1998............................................ $ 43,090 $ 28,125
Note payable bearing interest at 9%, repayable in monthly
principal and interest instalments of $447, maturing
February 2001.......................................... -- 18,590
Note payable bearing interest at 11%, repayable in
monthly principal and interest instalments of $4,894,
maturing August 2000................................... 214,926 178,020
Note payable bearing interest at 10.75%, repayable in
monthly principal and interest instalments of $1,735,
maturing March 1998.................................... 41,445 24,250
</TABLE>
F-61
<PAGE> 176
D&D AND COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1996
<TABLE>
<CAPTION>
1995 1996
--------- -----------
(UNAUDITED)
<S> <C> <C>
Note payable bearing interest at 11%, repayable in
monthly principal and interest instalments of $1,305,
maturing September 2000................................ 57,716 47,929
Note payable bearing interest at 9%, repayable in monthly
principal and interest instalments of $595, maturing
September 2000......................................... 27,511 22,649
Note payable bearing interest at 9.82%, repayable in
monthly principal and interest instalments of $2,446,
maturing August 1999................................... -- 68,618
Note payable bearing interest at 10%, repayable in
monthly principal and interest instalments of $261,
maturing July 1998..................................... 7,101 4,566
Note payable bearing interest at 12%, repayable in
monthly principal and interest instalments of $462,
maturing August 1997................................... -- 3,535
Note payable bearing interest at 9%, repayable in monthly
principal and interest instalments of $589, maturing
July 2000.............................................. 26,438 21,555
Note payable bearing interest at 10.75%, repayable in
monthly principal and interest instalments of $854,
maturing December 1998................................. 26,167 18,360
Note payable bearing interest at 8.58%, repayable in
monthly principal and interest instalments of$2,537,
maturing October 1997.................................. 51,609 24,552
Note payable bearing interest at 8.47%, repayable in
monthly principal and interest instalments of $2,259,
maturing June 1997..................................... 38,062 13,228
Note payable bearing interest at 10.75%, repayable in
monthly principal and interest instalments of $397..... 837 --
Note payable bearing interest at 8.75%, repayable in
monthly principal and interest instalments of
$1,821................................................. 20,846 --
Note payable bearing interest at 9%, repayable in monthly
principal and interest instalments of $785............. 3,084 --
Note payable bearing interest at 9%, repayable in monthly
principal and interest instalments of $895............. 6,926 --
Note payable bearing interest at 9.5%, repayable in
monthly principal and interest instalments of $490..... 4,243 --
-------- --------
570,001 473,977
Less portion due within one year......................... 185,910 178,897
-------- --------
$384,091 $295,080
======== ========
</TABLE>
F-62
<PAGE> 177
D&D AND COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
DECEMBER 31, 1996
The Company has pledged as collateral for the notes payable a first fixed
and floating charge on the fixed assets.
Principal repayments required in each of the next five years are as
follows:
<TABLE>
<S> <C>
1997................................................ $178,897
1998................................................ 126,964
1999................................................ 100,995
2000................................................ 66,233
2001................................................ 888
</TABLE>
5. STATEMENT OF CASH FLOW
<TABLE>
<CAPTION>
1995 1996
-------- -----------
(UNAUDITED)
<S> <C> <C>
(Increase) decrease in
Accounts receivable....................................... $(10,433) $(37,795)
Inventories............................................... (5,109) (5,791)
Prepaid expenses.......................................... 300 --
-------- --------
(15,242) (43,586)
Decrease in accounts payable and accrued liabilities........ (33,873) (10,976)
-------- --------
Net change in non-cash working capital balances............. $(49,115) $(54,562)
======== ========
</TABLE>
6. LEASE COMMITMENTS
The Company is committed under operating leases extending for various
periods to 2000. Future minimum lease payments are as follows:
<TABLE>
<S> <C>
1997................................................. $66,907
1998................................................. 56,185
1999................................................. 33,037
2000................................................. 4,982
</TABLE>
F-63
<PAGE> 178
FINANCIAL STATEMENTS
MARLBOROUGH EMPLOYMENT LIMITED
AND SUBSIDIARIES
(OPERATING AS WATER AT WORK LIMITED)
31 JANUARY 1997 AND 1996
KIDSONS IMPEY
CHARTERED ACCOUNTANTS
GLASGOW, SCOTLAND
F-64
<PAGE> 179
MARLBOROUGH EMPLOYMENT LIMITED AND SUBSIDIARIES
FINANCIAL STATEMENTS
FOR THE YEARS ENDED 31 JANUARY 1997 AND 1996
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Company information......................................... F-64
Director's report........................................... F-65
Statement of director's responsibilities.................... F-66
Auditors' report............................................ F-67
Profit and loss account..................................... F-68
Balance sheet............................................... F-69
Cash flow statement......................................... F-70
Notes....................................................... F-71
</TABLE>
F-65
<PAGE> 180
MARLBOROUGH EMPLOYMENT LIMITED AND SUBSIDIARIES
COMPANY INFORMATION
31 JANUARY 1997 AND 1996
<TABLE>
<S> <C>
DIRECTOR............. S. Larson
SECRETARY............ C. M. M. Hurley
REGISTERED OFFICE.... Breckenridge House
274 Sauchiehall
Street
Glasgow
G2 3EH
AUDITORS............. Kidsons Impey
Chartered
Accountants
Breckenridge House
274 Sauchiehall
Street
Glasgow
G2 3EH
</TABLE>
F-66
<PAGE> 181
MARLBOROUGH EMPLOYMENT LIMITED AND SUBSIDIARIES
DIRECTOR'S REPORT
31 JANUARY 1997
The director presents his report and the audited financial statements for
the year ended 31 January 1997.
PRINCIPAL ACTIVITY
The principal activities of the group were the provision of management
services to a subsidiary company; the supply of mineral water cooling systems
and mineral water and; arranging distributors of drinks as an agent for the
holding company.
DIRECTOR
The director of the company during the year and his interest in the shares
of the company as recorded in the register of directors' interests was as
follows
<TABLE>
<CAPTION>
31 JANUARY 1997 1 FEBRUARY 1996
ORDINARY ORDINARY
SHARES SHARES
--------------- ---------------
<S> <C> <C>
J. Duffy................................... 19,999 19,999
</TABLE>
On 6 February 1997, J. Duffy and E. Duffy resigned as director and
secretary respectively. On the same date, S. Larson and C. M. M. Hurley were
appointed as director and secretary respectively. J. Duffy transferred his
shares to Sparkling Spring Water UK Limited on 6 February 1997.
AUDITORS
Kidsons Impey have agreed to offer themselves for re-appointment as
auditors.
SMALL COMPANY EXEMPTIONS
This report is prepared in accordance with the special provisions of Part
VII of the Companies Act 1985 relating to small companies.
On behalf of the board
S. Larson
Director
28 October, 1997
Breckenridge House
274 Sauchiehall Street
Glasgow
G2 3EH
F-67
<PAGE> 182
MARLBOROUGH EMPLOYMENT LIMITED AND SUBSIDIARIES
STATEMENT OF DIRECTOR'S RESPONSIBILITIES
Company law requires the director to prepare financial statements for each
financial year which give a true and fair view of the state of affairs of the
company and of the profit or loss of the company for that period. In preparing
those financial statements, the director is required to
- select suitable accounting policies and apply them consistently;
- make judgements and estimates that are reasonable and prudent;
- prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the company will continue in business.
The director is responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
company and to enable him to ensure that the financial statements comply with
the Companies Act 1985. He is also responsible for safeguarding the assets of
the company and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
On behalf of the board
S. Larson
Director
28 October, 1997
F-68
<PAGE> 183
MARLBOROUGH EMPLOYMENT LIMITED AND SUBSIDIARIES
AUDITORS' REPORT
AUDITORS' REPORT TO THE MEMBERS OF
MARLBOROUGH EMPLOYMENT LIMITED AND SUBSIDIARIES
We have audited the financial statements on pages F-69 to F-79 which have
been prepared under the historical cost convention and the accounting policies
set out on pages F-69 and F-70.
RESPECTIVE RESPONSIBILITIES OF THE DIRECTOR AND AUDITORS
As described on page F-66, the company's director is responsible for the
preparation of financial statements. It is our responsibility to form an
independent opinion, based on our audit, on those statements and to report our
opinion to you.
BASIS OF OPINION
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the financial statements. It
also includes an assessment of the significant estimates and judgements made by
the director in the preparation of the financial statements, and of whether the
accounting policies are appropriate to the company's circumstances, consistently
applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or error or other
irregularity. In forming our opinion we also evaluated the overall adequacy of
the presentation of information in the financial statements.
OPINION
In our opinion the financial statements give a true and fair view of the
state of the group's affairs as at 31 January 1997 and 1996 and of its profit
for the years then ended and have been properly prepared in accordance with the
Companies Act 1985, and in accordance with accounting principles generally
accepted in the United Kingdom.
Kidsons Impey
Glasgow Registered Auditors
Chartered Accountants
Glasgow, Scotland
28 October, 1997
F-69
<PAGE> 184
MARLBOROUGH EMPLOYMENT LIMITED AND SUBSIDIARIES
PROFIT AND LOSS ACCOUNT
FOR THE YEARS ENDED 31 JANUARY 1997 AND 1996
<TABLE>
<CAPTION>
1996 1997
NOTE L L
---- ---------- ----------
<S> <C> <C> <C>
Turnover.................................................. 2 1,751,035 2,305,308
Cost of sales............................................. (447,314) (568,628)
---------- ----------
Gross profit.............................................. 1,303,721 1,736,680
Net operating expenses
Administrative expenses................................... (1,179,889) (1,346,427)
Other operating income.................................... 4,000 4,665
---------- ----------
Operating profit.......................................... 3 127,832 394,918
Interest payable.......................................... 5 (43,442) (40,182)
---------- ----------
Profit on ordinary activities before taxation............. 84,390 354,736
Taxation.................................................. (15,866) (99,755)
---------- ----------
Profit on ordinary activities after taxation.............. 68,524 254,981
Dividends................................................. 6 (10,000) --
---------- ----------
Retained profit for the year.............................. 15 58,524 254,981
========== ==========
</TABLE>
Movements in reserves are shown in the notes to the financial statements.
None of the company's activities were acquired or discontinued during the
above two financial years.
There are no recognised gains and losses in 1997 or 1996 other than the
profit for the year.
F-70
<PAGE> 185
MARLBOROUGH EMPLOYMENT LIMITED AND SUBSIDIARIES
BALANCE SHEET
AT 31 JANUARY 1997 AND 1996
<TABLE>
<CAPTION>
1996 1997
-------------------- --------------------
NOTE L L L L
---- -------- -------- --------- -------
<S> <C> <C> <C> <C> <C>
Fixed assets
Tangible assets...................... 7 110,367 165,229
Current assets
Stocks............................... 8 494,033 442,996
Debtors.............................. 9 319,043 566,264
Cash at bank and in hand............. 50,778 58,416
-------- ---------
863,854 1,067,676
Creditors: amounts falling due within
one year........................... 10 (698,651) (772,969)
-------- ---------
Net current assets................... 165,203 294,707
-------- -------
Total assets less current
liabilities.............. 275,570 459,936
Creditors: amounts falling due after
more than one year................. 11 (145,468) (74,853)
-------- -------
130,102 385,083
======== =======
Capital and reserves
Called up share capital.............. 13 20,000 20,000
Other reserves....................... 14 23,002 23,002
Profit and loss account.............. 15 87,100 342,081
-------- -------
Total shareholders'
funds.................... 12 130,102 385,083
======== =======
</TABLE>
These financial statements are prepared in accordance with the special
provisions of Part VII of the Companies Act 1985 relating to small companies.
The financial statements on pages 5 to 16 were approved by the director on
28 October, 1997.
S. Larson
Director
F-71
<PAGE> 186
MARLBOROUGH EMPLOYMENT LIMITED AND SUBSIDIARIES
CASH FLOW STATEMENT
FOR THE YEARS ENDED 31 JANUARY 1997 AND 1996
<TABLE>
<CAPTION>
1996 1997
------------------ --------------------
NOTE L L L L
---- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Net cash inflow from operating
activities.............................. 17 152,922 268,221
Returns on investments and servicing of
finance
Interest paid............................. (27,393) (24,389)
Interest element of finance lease rental
payments................................ (16,049) (15,793)
------- --------
(43,442) (40,182)
Taxation
Corporation tax paid...................... (7,386) (17,337)
Capital expenditure and financial
investment
Purchase of tangible fixed assets......... (33,217) (125,411)
Sale of tangible fixed assets............. 47,527 46,410
------- --------
14,310 (79,001)
------- --------
116,404 131,701
Equity dividends paid..................... (10,000) --
------- --------
106,404 131,701
Financing
Debt due within a year:
Bank loan repayments.................... (24,800) (31,738)
Debt due beyond a year:
Bank loan (repayments)/advances......... 91,076 (1,433)
Capital element of finance lease
rentals................................. (84,101) (90,892)
------- --------
(17,825) (124,063)
-------
Increase in cash.......................... 88,579 7,638
======= ========
</TABLE>
F-72
<PAGE> 187
MARLBOROUGH EMPLOYMENT LIMITED AND SUBSIDIARIES
NOTES ON FINANCIAL STATEMENTS
31 JANUARY 1997 AND 1996
1 ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The financial statements have been prepared under the historical cost
accounting rules.
TURNOVER
Turnover represents the amount derived from the provision of goods and
services falling within the company's activities after deduction of trade
discounts and value added tax.
DEPRECIATION
Depreciation of fixed assets is calculated to write off their cost or
valuation less any residual value over their estimated useful lives as follows:
<TABLE>
<S> <C>
Leasehold property....................... straight line over term of lease
Improvements to property................. 12.5% straight line/over term of lease
Computer equipment/plant and machinery... 33.3% straight line/20% reducing balance
Motor vehicles........................... 25% reducing balance
Fixtures and fittings.................... 12.5% straight line/20% reducing balance
</TABLE>
LEASES AND HIRE PURCHASE CONTRACTS
Tangible fixed assets acquired under finance leases and hire purchase
contracts are capitalised at the estimated fair value at the date of inception
of each lease or contract. The total finance charges are allocated over the
period of the lease in such a way as to give a reasonably constant charge on the
outstanding liability.
Rentals paid under operating leases are charged to income as incurred.
STOCKS
Stocks are valued at the lower of cost and net realisable value. Cost is
computed on a first in first out basis. Net realisable value is based on
estimated selling price less the estimated cost of disposal.
DEFERRED TAXATION
Deferred taxation is provided on the liability method in respect of the
taxation effect of all timing differences to the extent that tax liabilities are
likely to crystallise in the foreseeable future.
PENSIONS
DEFINED CONTRIBUTION SCHEME
Contributions are charged to the profit and loss account as they become
payable in accordance with the rules of the scheme.
F-73
<PAGE> 188
MARLBOROUGH EMPLOYMENT LIMITED AND SUBSIDIARIES
NOTES ON FINANCIAL STATEMENTS -- (CONTINUED)
CONSOLIDATION
These financial statements have been prepared by consolidating the
following financial statements:
Your Label Water Company Limited
Natural Water Company Limited
Water at Work Limited
The financial statements represent the results of the group as a whole and
do not show the individual company position.
2 TURNOVER
In the opinion of the directors, none of the turnover of the company is
attributable to geographical markets outside the UK. (1996 nil)
3 OPERATING PROFIT
<TABLE>
<CAPTION>
1996 1997
L L
------ ------
<S> <C> <C>
Operating profit is stated after crediting
Rent receivable........................................ 4,000 4,000
Interest receivable.................................... -- 665
------ ------
and after charging
Auditors' remuneration................................. 6,200 6,750
Loss on sale of assets................................. 25,742 11,390
------ ------
Depreciation of tangible fixed assets (note 7)
owned assets........................................... 10,617 32,985
leased assets.......................................... 18,608 10,739
------ ------
29,225 43,724
====== ======
The total amount charged against profits in respect of
finance leases and hire purchase contracts is.......... 34,657 26,532
====== ======
(of which part is shown as depreciation and the balance
is shown as interest payable in note 5)
</TABLE>
4 DIRECTORS
<TABLE>
<CAPTION>
1996 1997
L L
------ ------
<S> <C> <C>
Directors' emoluments.................................... 21,781 33,001
====== ======
</TABLE>
DEFINED CONTRIBUTION PENSION SCHEME
The company operates a defined contribution scheme. The assets of the
scheme are held separately from those of the company in an independently
administered fund. The pension cost charge represents contributions payable by
the company to the fund and amounted to L10,601 (1996 L7,381). Contributions
totalling L0 (1996 L0) were payable to the fund at 31 January 1997 and are
included in creditors. These contributions are payable in respect of both the
director and the employees of the company.
F-74
<PAGE> 189
MARLBOROUGH EMPLOYMENT LIMITED AND SUBSIDIARIES
NOTES ON FINANCIAL STATEMENTS -- (CONTINUED)
5 INTEREST PAYABLE
<TABLE>
<CAPTION>
1996 1997
L L
------ ------
<S> <C> <C>
Finance lease and hire purchase contracts................ 16,049 15,793
Other interest payable................................... 27,393 24,389
------ ------
43,442 40,182
====== ======
</TABLE>
6 DIVIDENDS
<TABLE>
<CAPTION>
1996 1997
L L
------ ------
<S> <C> <C>
Equity -- ordinary/final................................. 10,000 --
====== ======
</TABLE>
7 TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
PLANT FIXTURES LEASEHOLD
MOTOR AND AND PROPERTY/
VEHICLES MACHINERY FITTINGS IMPROVEMENTS TOTAL
L L L L L
-------- --------- -------- ------------ -------
<S> <C> <C> <C> <C> <C>
COST
1 February 1996................. 60,908 73,412 25,869 15,872 176,061
Additions....................... 44,775 110,589 1,022 -- 156,386
Disposals....................... (28,921) (47,265) (5,054) (1,446) (82,686)
------- ------- ------ ------ -------
31 January 1997................. 76,762 136,736 21,837 14,426 249,761
------- ------- ------ ------ -------
DEPRECIATION
1 February 1996................. 22,572 28,324 11,911 2,887 65,694
Charge for year................. 16,141 24,272 2,429 882 43,724
Disposals....................... (10,373) (11,875) (2,638) -- (24,886)
------- ------- ------ ------ -------
31 January 1997................. 28,340 40,721 11,702 3,769 84,532
------- ------- ------ ------ -------
NET BOOK AMOUNT
31 January 1997................. 48,422 96,015 10,135 10,657 165,229
======= ======= ====== ====== =======
1 February 1996................. 38,336 45,088 13,958 12,985 110,367
======= ======= ====== ====== =======
</TABLE>
The net book amount of fixed assets includes L30,141 (1996 L61,651) in
respect of assets held under finance leases and hire purchase contracts, the
depreciation of which is shown in note 3.
INTANGIBLE FIXED ASSETS
In addition to the above tangible fixed assets, the group has an intangible
fixed asset in the form of a lease over the site and the spring which has 13
years to run, with an option to extend it for a further 20 years. The company
also owns 3 boreholes, each of which has an abundant supply of water. These
assets have not been incorporated into the financial statements, but the former
director was of the opinion that they could realise the sum of L150,000.
8 STOCKS
<TABLE>
<CAPTION>
1996 1997
L L
------- -------
<S> <C> <C>
Stocks................................................. 494,033 442,996
======= =======
</TABLE>
F-75
<PAGE> 190
MARLBOROUGH EMPLOYMENT LIMITED AND SUBSIDIARIES
NOTES ON FINANCIAL STATEMENTS -- (CONTINUED)
9 DEBTORS
<TABLE>
<CAPTION>
1996 1997
L L
------- -------
<S> <C> <C>
AMOUNTS FALLING DUE WITHIN ONE YEAR
Trade debtors.......................................... 289,704 402,241
Other debtors.......................................... 29,339 164,023
------- -------
319,043 566,264
======= =======
</TABLE>
'Other debtors' includes balances in respect of directors' overdrawn
current accounts totalling L139,548 (1996 L0). This was repaid on 6 February
1997.
10 CREDITORS: amounts falling due within one year
<TABLE>
<CAPTION>
1996 1997
L L
------- -------
<S> <C> <C>
Bank loans and overdrafts.............................. 31,738 66,643
Trade creditors........................................ 108,729 117,602
Obligations under finance leases and hire purchase
contracts -- note 11................................. 62,081 40,386
Corporation tax........................................ 27,076 109,494
Other taxation and social security..................... 168,967 88,511
Other creditors........................................ 300,060 350,333
------- -------
698,651 772,969
======= =======
</TABLE>
F-76
<PAGE> 191
MARLBOROUGH EMPLOYMENT LIMITED AND SUBSIDIARIES
NOTES ON FINANCIAL STATEMENTS -- (CONTINUED)
11 CREDITORS: amounts falling due after more than one year
<TABLE>
<CAPTION>
1996 1997
L L
------- -------
<S> <C> <C>
Bank loans............................................. 68,076 --
Other creditors........................................ 77,392 74,853
------- -------
145,468 74,853
======= =======
MATURITY OF DEBT INCLUDED ABOVE
In one year or less, or on demand...................... 31,738 66,643
Between one and two years.............................. 35,500 --
Between two and five years............................. 32,576 --
------- -------
99,814 66,643
======= =======
CREDITORS OTHER THAN FINANCE LEASE AND HIRE PURCHASE
CONTRACTS
SECURED CREDITORS
Bank loans and overdrafts.............................. 99,814 66,643
OBLIGATIONS UNDER FINANCE LEASES AND HIRE PURCHASE
CONTRACTS
Amounts included above are repayable over varying
periods by monthly instalments as follows:
In the next year....................................... 62,081 40,386
In the second to fifth years........................... 38,222 --
------- -------
100,303 40,386
======= =======
</TABLE>
12 RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
<TABLE>
<CAPTION>
1996 1997
L L
------- -------
<S> <C> <C>
Profit for the financial year.......................... 68,524 254,981
Dividends.............................................. (10,000) --
------- -------
Net addition to shareholders' funds.................... 58,524 254,981
Opening shareholders' funds............................ 71,578 130,102
------- -------
Closing shareholders' funds............................ 130,102 385,083
======= =======
</TABLE>
13 CALLED UP SHARE CAPITAL
<TABLE>
<CAPTION>
1996 1997
------------------- -------------------
NUMBER OF NUMBER OF
SHARES L SHARES L
--------- ------ --------- ------
<S> <C> <C> <C> <C>
AUTHORISED
Ordinary shares of L1 each...................... 50,000 50,000 50,000 50,000
====== ====== ====== ======
ALLOTTED CALLED UP AND FULLY PAID
Ordinary shares of L1 each...................... 20,000 20,000 20,000 20,000
====== ====== ====== ======
</TABLE>
F-77
<PAGE> 192
MARLBOROUGH EMPLOYMENT LIMITED AND SUBSIDIARIES
NOTES ON FINANCIAL STATEMENTS -- (CONTINUED)
14 OTHER RESERVES
<TABLE>
<CAPTION>
1997
L
-------
<S> <C>
Negative goodwill........................................... 23,002
=======
</TABLE>
15 PROFIT AND LOSS ACCOUNT
<TABLE>
<CAPTION>
1997
L
-------
<S> <C>
1 February 1996............................................. 87,100
Retained profit for the year................................ 254,981
-------
31 January 1997............................................. 342,081
=======
</TABLE>
16 ULTIMATE PARENT UNDERTAKING
During the year the company did not have a holding company. On 6 February
1997, the whole of the company's issued share capital was acquired by Sparkling
Spring Water UK Limited, a company incorporated in England.
17 NOTES TO THE CASH FLOW STATEMENT
RECONCILIATION OF OPERATING PROFIT TO OPERATING CASH FLOWS
<TABLE>
<CAPTION>
1996 1997
L L
-------- ---------
<S> <C> <C>
Operating profit.................................... 127,832 394,918
Depreciation charges................................ 29,225 43,724
Loss on sale of fixed assets........................ 25,742 11,390
Decrease/(increase) in stocks....................... (110,830) 51,037
Increase in debtors................................. (46,850) (247,221)
Increase in creditors............................... 127,803 14,373
-------- ---------
Net cash inflow from operating activities........... 152,922 268,221
======== =========
</TABLE>
ANALYSIS OF CHANGES IN NET DEBT
<TABLE>
<CAPTION>
AT START CASH OTHER AT END
OF YEAR FLOWS CHANGES OF YEAR
L L L L
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Cash in hand, at bank.......................... 50,778 7,638 -- 58,416
Overdrafts..................................... -- -- -- --
-------
7,638
-------
Debt due within 1 year......................... (31,738) 31,738 (66,643) (66,643)
Debt due after 1 year.......................... (68,076) 1,433 66,643 --
Finance leases................................. (100,303) 90,892 (30,975) (40,386)
-------
124,063
-------- ------- ------- -------
Total................................ (149,339) 131,701 (30,975) (48,613)
======== ======= ======= =======
</TABLE>
F-78
<PAGE> 193
MARLBOROUGH EMPLOYMENT LIMITED AND SUBSIDIARIES
NOTES ON FINANCIAL STATEMENTS -- (CONTINUED)
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
<TABLE>
<CAPTION>
1996 1997
L L
-------- --------
<S> <C> <C>
Increase in cash in the year......................... 88,579 7,638
Cash outflow from decrease in debt and lease
financing.......................................... 17,825 124,063
-------- --------
Change in net debt resulting from cash flows......... 106,404 131,701
New finance leases................................... (22,366) (30,975)
-------- --------
Movement in net debt in the year..................... 84,038 100,726
Net debt at 1 February 1996.......................... (233,377) (149,339)
-------- --------
Net debt at 31 January 1997.......................... (149,339) (48,613)
======== ========
</TABLE>
19 DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
These financial statements have been prepared in accordance with accounting
principles generally accepted in the United Kingdom, which conform, in all
material respects, with accounting principles generally accepted in the United
States except as explained below.
If Marlborough Employment Limited had followed the US basis, the net effect
on consolidated profits would be:
<TABLE>
<CAPTION>
1996 1997
L L
------ --------
<S> <C> <C>
Retained profits, UK basis............................. 58,524 254,981
Reallocation to reserves -- dividends.................. 10,000 --
------ --------
Retained profits, US basis............................. 68,524 254,981
====== ========
</TABLE>
If Marlborough Employment Limited had followed the requirements of SFAS No.
95 its cash flow from operating activities, investing activities and financing
activities would be as follows:
<TABLE>
<CAPTION>
1996 1997
L L
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net income........................................... 68,524 254,981
Items not requiring cash
Depreciation and amortization...................... 29,225 43,724
Loss on sale of fixed assets....................... 25,742 11,390
Net change in non-cash working capital balances...... (59,843) (100,171)
-------- --------
Cash provided by operating activities................ 63,648 209,924
-------- --------
INVESTING ACTIVITIES
Purchase of fixed assets............................. (52,059) (156,386)
Sale of fixed assets................................. 43,973 46,410
-------- --------
Cash used in investing activities.................... (8,056) (109,976)
-------- --------
FINANCING ACTIVITIES
Dividends............................................ (10,000) --
Issuance of long-term debt........................... 68,076 --
Repayment of long-term debt.......................... (8,738) (68,076)
Repayment of obligations under capital lease......... (61,735) (59,917)
Increase in customer deposits........................ 7,196 35,683
-------- --------
Cash used in financing activities.................... (5,201) (92,310)
-------- --------
Increase in cash during the year..................... 50,391 7,638
Cash and cash equivalents, beginning of year......... 387 50,778
-------- --------
Cash and cash equivalents, end of year............... 50,778 58,416
======== ========
</TABLE>
F-79
<PAGE> 194
FINANCIAL STATEMENTS
COASTAL MOUNTAIN
WATER CORP.
OCTOBER 31, 1997
F-80
<PAGE> 195
AUDITORS' REPORT
To the Directors of
Sparkling Spring Water Group Limited
We have audited the balance sheet of Coastal Mountain Water Corp. as at
October 31, 1997 and the statements of (loss) income, deficit and cash flows for
the year then ended. 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 audit.
We conducted our audit 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 financial statements present fairly, in all material
respects, the financial position of the Company as at October 31, 1997 and the
results of its operations and the changes in its financial position for the year
then ended in accordance with generally accepted accounting principles.
The financial statements for the year ended October 31, 1996 are unaudited.
Halifax, Canada ERNST & YOUNG
February 27, 1998 Chartered Accountants
F-81
<PAGE> 196
COASTAL MOUNTAIN WATER CORP.
BALANCE SHEET
<TABLE>
<CAPTION>
AS AT OCTOBER 31
--------------------------
1996 1997
----------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS [NOTES 3 AND 5]
Current
Cash........................................................ $ 9,385 $ --
Accounts receivable......................................... 261,159 298,302
Inventories................................................. 29,906 20,208
Prepaid expenses and deposits............................... 26,019 17,643
----------- -----------
326,469 336,153
Capital assets, at cost less amortization [note 2].......... 974,308 1,114,044
----------- -----------
1,300,777 1,450,197
=========== ===========
LIABILITIES
Current
Bank indebtedness [note 3].................................. 95,657 18,945
Accounts payable and accrued liabilities.................... 163,264 238,874
Unearned revenue............................................ 116,890 139,390
Advances from shareholders [note 4]......................... 1,102,267 1,176,910
Current portion of long-term debt [note 5].................. 173,927 116,476
Current portion of deferred lease inducement [note 6]....... 5,528 15,528
Customer deposits........................................... 117,432 131,760
----------- -----------
1,774,965 1,837,883
----------- -----------
Long-term debt [note 5]..................................... 627,038 917,538
----------- -----------
Deferred lease inducement [note 6].......................... 25,337 57,561
----------- -----------
Shareholders' equity
Share capital [note 7]...................................... 12 12
Deficit..................................................... (1,126,575) (1,362,797)
----------- -----------
(1,126,563) (1,362,785)
----------- -----------
$ 1,300,777 $ 1,450,197
=========== ===========
</TABLE>
See accompanying notes
F-82
<PAGE> 197
COASTAL MOUNTAIN WATER CORP.
STATEMENT OF DEFICIT
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31
--------------------------
1996 1997
----------- -----------
(UNAUDITED)
<S> <C> <C>
Deficit, beginning of year.................................. $(1,147,327) $(1,126,575)
Net income (loss)........................................... 20,752 (236,222)
----------- -----------
Deficit, end of year........................................ $(1,126,575) $(1,362,797)
=========== ===========
</TABLE>
See accompanying notes
F-83
<PAGE> 198
COASTAL MOUNTAIN WATER CORP.
STATEMENT OF (LOSS) INCOME
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31
-------------------------
1996 1997
----------- ----------
(UNAUDITED)
<S> <C> <C>
Revenue..................................................... $2,045,232 $2,312,623
Cost of sales............................................... 331,873 397,880
---------- ----------
Gross profit................................................ 1,713,359 1,914,743
---------- ----------
Expenses
Delivery.................................................... 479,955 582,955
Wages and benefits.......................................... 406,223 502,731
Sales and marketing......................................... 193,685 362,255
Depreciation................................................ 202,602 238,497
Interest on long-term debt.................................. 82,544 84,763
Travel and entertainment.................................... 86,922 75,228
Office and sundry........................................... 58,510 72,350
Automotive.................................................. 41,773 55,536
Rent........................................................ 21,516 31,051
Bank charges and interest................................... 20,574 28,917
Telephone and communications................................ 22,838 26,114
Computer maintenance........................................ 15,249 19,088
Bad debts................................................... 15,708 21,696
Legal and accounting........................................ 7,320 14,874
Insurance................................................... 10,766 12,148
Repairs and maintenance..................................... 5,643 5,907
Equipment lease............................................. 3,633 5,612
Utilities................................................... 3,872 5,158
Permits, licenses and dues.................................. 11,123 2,407
Loss on disposal of capital assets.......................... 2,151 3,678
---------- ----------
1,692,607 2,150,965
---------- ----------
Net income (loss)........................................... $ 20,752 $ (236,222)
========== ==========
</TABLE>
See accompanying notes
F-84
<PAGE> 199
COASTAL MOUNTAIN WATER CORP.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31
------------------------
1996 1997
----------- ---------
(UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss)........................................... $ 20,752 $(236,222)
Items not affecting cash
Depreciation........................................... 202,602 238,497
Amortization of lease inducement....................... (5,528) (9,693)
Loss on disposal of capital assets..................... 2,151 3,678
--------- ---------
219,977 (3,740)
Net change in non-cash working capital balances [note 8].... (49,676) 93,369
--------- ---------
Cash provided by operating activities....................... 170,301 89,629
--------- ---------
FINANCING ACTIVITIES
Increase (decrease) in advances from shareholders........... (106,090) 74,643
Increase in long-term debt.................................. 256,760 831,994
Repayment of long-term debt................................. (54,570) (598,945)
Increase in lease inducement................................ -- 51,917
--------- ---------
Cash provided by financing activities....................... 96,100 359,609
--------- ---------
INVESTING ACTIVITIES
Purchase of capital assets.................................. (302,316) (428,971)
Sale of capital assets...................................... -- 47,060
--------- ---------
Cash used in investing activities........................... (302,316) (381,911)
--------- ---------
Decrease (increase) in cash and equivalents................. (35,915) 67,327
Cash and equivalents, beginning of year..................... (50,357) (86,272)
--------- ---------
Cash and equivalents, end of year........................... (86,272) (18,945)
========= =========
Cash and cash equivalents are comprised of:
Cash...................................................... 9,385 --
Bank indebtedness......................................... (95,657) (18,945)
--------- ---------
$ (86,272) $ (18,945)
========= =========
</TABLE>
See accompanying notes
F-85
<PAGE> 200
COASTAL MOUNTAIN WATER CORP.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1997
AMOUNTS AS AT AND FOR THE YEAR ENDED OCTOBER 31, 1996 ARE UNAUDITED.
1. SIGNIFICANT ACCOUNTING POLICIES
These financial statements have been prepared by management in accordance
with accounting principles generally accepted in Canada, the more significant of
which are as follows:
INVENTORIES
Inventories are valued at the lower of cost determined on a first-in,
first-out basis and net realizable value.
CAPITAL ASSETS
Depreciation of capital assets is calculated using the declining balance
method and the following rates per annum:
<TABLE>
<S> <C>
Computer software........................................... 100%
Forklift.................................................... 20%
Leasehold improvements...................................... 20%
Manufacturing equipment..................................... 20%
Returnable bottles.......................................... 20%
Rental coolers.............................................. 20%
Computer equipment.......................................... 30%
Office furniture............................................ 20%
Signs....................................................... 20%
Equipment under capital lease............................... 30%
</TABLE>
DEFERRED LEASE INDUCEMENT
Deferred lease inducements received are recorded as deferred credits and
amortized on a straight-line basis over the life of the lease, as a reduction to
rental expense.
UNEARNED REVENUE
Unearned revenue represents the prepayment of cooler leases and bottled
water charges. These amounts are recognized as revenue in the period to which
the lease relates or the product is provided.
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.
F-86
<PAGE> 201
COASTAL MOUNTAIN WATER CORP.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
OCTOBER 31, 1997
AMOUNTS AS AT AND FOR THE YEAR ENDED OCTOBER 31, 1996 ARE UNAUDITED.
FINANCIAL INSTRUMENTS
The Company's primary financial instruments consist of accounts receivable,
accounts payable, shareholder advances, customer deposits and long-term debt.
The difference between the carrying values and the fair values of the primary
financial instruments are not material.
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.
The Company does not have any exposure relating to derivative instruments.
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.
2. CAPITAL ASSETS
<TABLE>
<CAPTION>
1996 1997
-------- ----------------------------------------
NET BOOK ACCUMULATED NET BOOK
VALUE COST AMORTIZATION VALUE
-------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Forklift........................ $ 7,260 $ 31,934 $ 20,718 $ 11,216
Computer equipment.............. 19,510 44,378 26,974 17,404
Computer software............... -- 20,283 20,283 --
Leasehold improvements.......... 2,086 224,412 187,154 37,258
Manufacturing equipment......... 238,327 521,488 323,524 197,964
Office furniture................ 20,455 63,537 39,700 23,837
Equipment under capital lease... 4,855 6,144 2,764 3,380
Rental equipment................ 679,677 1,447,700 626,835 820,865
Signs........................... 2,138 8,036 5,916 2,120
-------- ---------- ---------- ----------
$974,308 $2,367,912 $1,253,868 $1,114,044
======== ========== ========== ==========
</TABLE>
3. BANK INDEBTEDNESS
The company's operating line of credit bears interest at prime + 1% and is
collateralized by an assignment of book debts, a subordinate charge on the
Company's assets and subrogation of shareholders' loans.
F-87
<PAGE> 202
COASTAL MOUNTAIN WATER CORP.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
OCTOBER 31, 1997
AMOUNTS AS AT AND FOR THE YEAR ENDED OCTOBER 31, 1996 ARE UNAUDITED.
4. ADVANCES FROM SHAREHOLDERS
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Advances from shareholders, non-interest bearing
with no fixed terms for repayment............... $ 251,253 $ 325,896
Advances from shareholder bearing interest at
prime plus 2% per annum, no specific terms of
repayment....................................... 851,014 851,014
---------- ----------
$1,102,267 $1,176,910
========== ==========
</TABLE>
5. LONG-TERM DEBT
<TABLE>
<CAPTION>
1996 1997
-------- ----------
<S> <C> <C>
Royal Bank of Canada loan at 8.375% repayable in monthly
instalments of $10,447 collateralized by a floating
charge over all assets, maturing July, 2004.............. $145,070 $ 734,564
Business Development Bank loan at prime plus 2%, repayable
in monthly instalments of $1,675 plus interest,
collateralized by machinery, equipment, and accounts
receivable, maturing August 23, 2000..................... 77,050 56,950
Loans payable.............................................. 574,337 --
Obligation under capital lease............................. 4,508 --
Business Development Bank loan at prime plus 1%, repayable
in monthly installments of $2,500 plus interest,
collateralized by machinery, equipment, and accounts
receivable, maturing February, 2004...................... -- 242,500
-------- ----------
800,965 1,034,014
Less principal due within one year......................... 173,927 116,476
-------- ----------
$627,038 $ 917,538
======== ==========
</TABLE>
Principal repayments required in each of the next five years are as
follows:
<TABLE>
<S> <C>
1998.................................................... $ 116,476
1999.................................................... 122,253
2000.................................................... 125,185
2001.................................................... 132,760
2002.................................................... 137,682
Thereafter.............................................. 399,658
----------
$1,034,014
==========
</TABLE>
F-88
<PAGE> 203
COASTAL MOUNTAIN WATER CORP.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
OCTOBER 31, 1997
AMOUNTS AS AT AND FOR THE YEAR ENDED OCTOBER 31, 1996 ARE UNAUDITED.
6. DEFERRED LEASE INDUCEMENT
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Lease inducements received............................. $38,696 $90,613
Less accumulated amortization.......................... 7,831 17,524
------- -------
$30,865 $73,089
Less current portion................................... 5,528 15,528
------- -------
$25,337 $57,561
======= =======
</TABLE>
The Company received cash payments of $38,696 in 1995 and $51,917 in 1997
as an inducement to renew the lease on its premises.
7. SHARE CAPITAL
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Authorized
10,000 common shares without par value
1,000,000 class A non-voting redeemable preferred shares
with a par value of $10 per share
Issued
1,200 common shares....................................... $12 $12
=== ===
</TABLE>
8. NET CHANGE IN NON-CASH WORKING CAPITAL BALANCES
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
(Increase) decrease
Accounts receivable................................ $(54,650) $(37,143)
Inventories........................................ 1,109 9,698
Prepaid expenses and deposits...................... 4,754 8,376
-------- --------
(48,787) (19,069)
-------- --------
(Decrease) increase
Accounts payable and accrued liabilities........... (28,889) 75,610
Unearned revenue................................... 18,000 22,500
Customer deposits.................................. 10,000 14,328
-------- --------
(889) 112,438
-------- --------
$(49,676) $ 93,369
======== ========
</TABLE>
F-89
<PAGE> 204
COASTAL MOUNTAIN WATER CORP.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
OCTOBER 31, 1997
AMOUNTS AS AT AND FOR THE YEAR ENDED OCTOBER 31, 1996 ARE UNAUDITED.
9. LEASE COMMITMENTS
The Company is committed to the following approximate minimum operating
lease payments over the next five years for its premises, vehicles and office
equipment:
<TABLE>
<S> <C>
1998..................................................... $332,800
1999..................................................... 313,500
2000..................................................... 290,800
2001..................................................... 270,300
2002..................................................... 143,000
</TABLE>
10. INCOME TAXES
Potential reductions of future income taxes which have not been recorded in
the accounts relate to the following:
<TABLE>
<S> <C>
Non-capital losses carried forward expiring:
1999.................................................. $ 229,801
2000.................................................. 131,944
2001.................................................. 28,220
----------
389,965
Excess of amortization recorded in the accounts over
capital cost allowance claimed for income tax
purposes.............................................. 691,398
----------
$1,081,363
==========
</TABLE>
11. SUBSEQUENT EVENT
In December, 1997 the Company reorganized its capital structure. As part of
the reorganization previously outstanding common shares held were exchanged for
Class A and B common shares and preferred shares were issued in exchange for the
advances due to shareholders.
12. UNITED STATES ACCOUNTING PRINCIPLES
These financial statements are expressed in Canadian dollars and are
prepared in accordance with generally accepted accounting principles in Canada
("Canadian GAAP") which, for the purposes of these financial statements, conform
in all material respects with those in the United States ("U.S. GAAP"), except
for where bank indebtedness is treated as a cash equivalent for purposes of
determining the Company's cash flows. Under US GAAP changes in bank indebtedness
would be treated as a financing activity. Cash provided by financing activities
and decrease in cash would be $282,897 (1996 -- $137,614) and $9,385
(1996 -- $5,599), respectively.
Additionally, at October 31, 1997, the Company has significant operating
losses available for carryforward, the benefit of which has not been recognized
for accounting purposes under Canadian generally accepted accounting principles.
Under SFAS 109, a deferred tax amount equal to these benefits would not be
recorded as the value of the benefits would be fully offset by a valuation
allowance.
F-90
<PAGE> 205
======================================================
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus in connection with the offer contained herein and, if given or made,
such information or representations must not be relied upon as having been
authorized by the Company. This Prospectus does not constitute an offer to sell
or a solicitation of an offer to buy any security other than those to which it
relates nor does it constitute an offer to sell, or a solicitation of an offer
to buy, to any person in any jurisdiction in which such offer or solicitation is
not authorized, or in which the person making such offer or solicitation is not
qualified to do so, or to any person to whom it is unlawful to make such offer
or solicitation. Neither the delivery of this Prospectus nor the exchange
proposed to be made hereunder shall, under any circumstances, create any
implication that there has been no change in the affairs of the Company since
the date hereof or that the information contained herein is correct as of any
time subsequent to the date hereof.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary............................... 1
Risk Factors.......................... 13
Use of Proceeds....................... 21
The Offering.......................... 21
Capitalization........................ 22
Unaudited Pro Forma Consolidated
Financial Data...................... 23
Selected Historical Consolidated
Financial Data...................... 32
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 33
The Exchange Offer.................... 37
The Company........................... 49
Management............................ 65
Certain Relationships and Related
Transactions........................ 68
Security Ownership of Certain
Beneficial Owners and Management.... 70
Description of the Credit Agreement... 71
Certain Federal Income Tax
Considerations...................... 73
Description of the Notes.............. 74
Book Entry; Delivery and Form......... 105
Plan of Distribution.................. 106
Legal Matters......................... 107
Independent Auditors.................. 107
Additional Information................ 108
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
======================================================
======================================================
-------------------
PROSPECTUS
-------------------
$100,000,000
[SPARKLING SPRINGS LOGO]
SPARKLING SPRING WATER GROUP LIMITED
OFFER TO EXCHANGE
11 1/2% SENIOR SUBORDINATED NOTES
DUE 2007
, 1998
======================================================
<PAGE> 206
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law contains detailed
provisions for indemnification of directors and officers of Delaware
corporations against expenses, judgments, fines and settlements in connection
with litigation.
Article Tenth of the Certificate of Incorporation of each of Spring Water,
Inc., a wholly-owned subsidiary of Sparkling Spring ("Spring Water"), Mountain
Fresh Acquisition Corp., a wholly-owned subsidiary of Sparkling Spring ("MFA"),
and Crystal Spring Acquisition, Inc., a wholly-owned subsidiary of Sparkling
Spring ("CSA"), provides that each company shall indemnify its officers and
directors to the fullest extent permitted by law and further provides that to
the fullest extent permitted by the Delaware General Corporation Law as the same
exists or may hereafter be amended, a director of the company shall not be
liable to the company or its stockholders for monetary damages for breach of
fiduciary duty as a director.
Section 145 of the Delaware General Corporation Law further permits each of
Spring Water, MFA and CSA to insure itself for such indemnification.
Sections 23B.08.500 through 23B.08.600 of the Washington Business
Corporation Act contains detailed provisions for indemnification of directors
and officers of Washington corporations against expenses, judgments, fines and
settlements in connection with litigation.
Section 23B.08.580 Washington Business Corporation Act further permits each
of Cullyspring Water Co., Inc. ("Cullyspring") and Crystal Springs Drinking
Water, Inc. ("CSD") to insure itself for such indemnification.
Each of Spring Water, MFA, CSA, CSD and Cullyspring maintains insurance
coverage for its directors and officers with respect to certain liabilities
incurred in their capacities as such and for each company with respect to any
payments which it becomes obligated to make to such persons under the foregoing
statutory provisions.
Each of Sparkling Spring, SSWL, Water Jug, Canadian Springs, 3003969 Nova
Scotia Limited (a wholly-owned subsidiary of Sparkling Spring), High Valley,
Aqua Care Water Softening & Purification Inc. (a wholly-owned subsidiary of
Sparkling Spring) and Withey's Water have similar articles of association which
provide that every director or officer or former director or officer who acts at
the company's request as a director or officer of the company shall be
indemnified by the company against, and it shall be the duty of the directors
out of the funds of the company to pay, all costs, losses and expenses including
any amount paid to settle an action or a claim that such director or officer may
incur or become liable to pay in respect of any claim against such person by
reason of being or having been a director or officer of the company.
In addition, Sparkling Spring and SSWL have entered into a specific
indemnity agreement with a certain officer by which they have agreed on behalf
of themselves and each of their Canadian subsidiary companies to indemnify and
hold such officer harmless from and against any damage which he may suffer as a
result of having acted as an officer or director of Sparkling Spring or any of
its subsidiary companies.
SSWL maintains insurance coverage for its directors and officers with
respect to certain liabilities which may be incurred in their capacities as
officers and directors and which the companies become obligated to make to such
persons under the foregoing provisions of the companies constating documents.
Sparkling Spring is in the process of obtaining similar insurance.
Section 310 of the Companies Act 1985 (the "CA") makes void any provision,
whether contained in the articles of the company or any contract with the
company or otherwise, for exempting any officer of the company or any person
(whether an officer or not) employed by the company as auditor from, or
indemnifying him against, any liability which by virtue of any rule of
II-1
<PAGE> 207
law would otherwise attach to him in respect of any negligence, default or
breach of duty or breach of trust of which he may be guilty of in relation to
the company.
However, Section 137 of the Companies Act 1989 substituted a new Subsection
3 for Section 310 of the CA which provides that a company may purchase and
maintain for any officer or auditor insurance against the liabilities which may
attach to such person in respect of any negligence, default, breach of duty or
breach of trust. Furthermore, Section 310(3)(b) of the CA allows a company to
indemnity an officer or auditor who is a successful defendant in civil or
criminal proceedings or who successfully applies for relief under Section 144(3)
of the CA (acquisition of shares by innocent nominee) or Section 727 of the CA
(general power to grant relief in cases of honest and reasonable conduct) in
which relief is granted to him by the court.
The articles of association of SSWUK provide that every director, auditor,
secretary or other officer of SSWUK shall be entitled to be indemnified by SSWUK
against all costs, charges, claims, expenses and liabilities incurred by him in
the execution and/or discharge of his duty and all the exercise of his powers
and/or otherwise in relation to or in connection with his duties, including any
liability incurred by him in defending criminal or civil proceedings in which
judgment is given in his favor or in which he is acquitted or in connection with
any application under any statute for relief from liability in which relief is
granted to him by the court.
The articles of association of Aquaporte UK provide that every director,
secretary, auditor or other officer of Aquaporte UK shall be entitled to be
indemnified by Aquaporte UK against all losses and liabilities incurred by him
in the exercise of his duties, including any liability incurred in defending any
civil or criminal proceedings in which judgment is given in his favor or in
which he is acquitted or in connection with any application in which relief is
granted to him by the court from liability in respect of the act or omission
done.
The articles of association of Natural Water Limited, a wholly-owned
subsidiary of Sparkling Spring, provide that each director and officer of
Natural Water Limited shall be entitled to be indemnified against costs,
charges, losses and expenses incurred in defending any proceedings civil or
criminal in which judgment is given in his favor in which he is acquitted or in
connection with any application under Section 144(3) or (4) or Section 77 of the
CA in which the court relieves him from liability.
There is no specific provision included in the articles of association of
Marlborough Employment Limited, a wholly-owned subsidiary of Sparkling Spring,
dealing with directors indemnities. The Articles of Table A of the Companies Act
1948 apply to Marlborough Employment Limited. The relevant provision dictates
that each director and other officer shall be indemnified out of the assets of
the company against any liability incurred in defending any proceedings (whether
criminal or civil) in which judgment is given in his favor or in which he is
acquitted or in connection with any application under Section 448 of the
Companies Act 1948 in which relief is granted by the court.
In addition to the indemnity contained in Article 118 of Table A of the CA,
the articles of association of Water at Work provide that every director,
officer or official shall be indemnified for all costs, charges, losses,
expenses and liability incurred in the execution of his duties. Article 118 of
Table A of the CA provides that each director and officer of the company shall
be indemnified out of the assets of the company against any liability incurred
in defending any proceedings, civil or criminal, in which judgment is given in
his favor or in which he is acquitted or in connection with any application in
which relief is granted to him by the court from liability from negligence,
default, breach of duty or breach of trust in relation to the affairs of the
company.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS.
<TABLE>
<S> <C>
3.1 Memorandum of Association of Sparkling Spring Water Group
Limited, as amended.*
3.2 Articles of Association of Sparkling Spring Water Group
Limited.*
3.3 Memorandum of Association of Sparkling Spring Water
Limited.*
</TABLE>
II-2
<PAGE> 208
<TABLE>
<S> <C>
3.4 Articles of Association of Sparkling Spring Water Limited.*
3.5 Certificate of Incorporation of Spring Water, Inc.*
3.6 By-laws of Spring Water, Inc.*
3.7 Articles of Incorporation of Cullyspring Water Co., Inc.*
3.8 By-laws of Cullyspring Water Co., Inc., as amended.*
3.9 Certificate of Incorporation of Crystal Spring Acquisition, Inc.*
3.10 By-laws of Crystal Spring Acquisition, Inc.*
3.11 Certificate of Incorporation of Mountain Fresh Acquisition Corp.*
3.12 By-laws of Mountain Fresh Acquisition Corp.*
3.13 Memorandum of Association of Water Jug Enterprises Limited.*
3.14 Articles of Association of Water Jug Enterprises Limited.*
3.15 Memorandum of Association of Withey's Water Softening & Purification Ltd.*
3.16 Articles of Association of Withey's Water Softening & Purification Ltd.*
3.17 Memorandum of Association of Aqua Care Water Softening & Purification Inc.*
3.18 Articles of Association of Aqua Care Water Softening & Purification Inc.*
3.19 Memorandum of Association of High Valley Water Limited.*
3.20 Articles of Association of High Valley Water Limited.*
3.21 Memorandum of Association of 3003969 Nova Scotia Limited.*
3.22 Articles of Association of 3003969 Nova Scotia Limited.*
3.23 Memorandum of Association of Canadian Springs Water Company Limited.*
3.24 Articles of Association of Canadian Springs Water Company Limited.*
3.25 Memorandum of Association of Sparkling Spring Water (UK) Limited.*
3.26 Articles of Association of Sparkling Spring Water (UK) Limited.*
3.27 Memorandum of Association of Aquaporte (UK) Limited.*
3.28 Articles of Association of Aquaporte (UK) Limited.*
3.29 Memorandum of Association of Marlborough Employment Limited.*
3.30 Articles of Association of Marlborough Employment Limited.*
3.31 Memorandum of Association of Water at Work Limited.*
3.32 Articles of Association of Water at Work Limited.*
3.33 Memorandum of Association of Natural Water Limited.*
3.34 Articles of Association of Natural Water Limited.*
3.35 Certificate of Incorporation of Crystal Springs of Seattle, Inc.*
3.36 By-laws of Crystal Springs of Seattle, Inc.*
3.37 Certificate of Incorporation of Crystal Springs Drinking Water, Inc.*
3.38 By-laws of Crystal Springs Drinking Water, Inc.*
4 Indenture, dated as of November 19, 1997, among Sparkling Spring Water Group Limited, as Issuer,
Bankers Trust Company, as Trustee, and the Subsidiary Guarantors named therein.*
4.1 First Supplemental Indenture, dated as February 1, 1998, by and among Crystal Springs of Seattle, Inc.,
Crystal Springs Drinking Water, Inc. and Bankers Trust Company, as Trustee.*
5.1 Opinion of Robinson & Cole LLP.*
5.1(a) Revised opinion of Robinson & Cole LLP.**
5.2 Opinion of Lane Powell Spears Lubersky LLP.*
5.2(a) Revised opinion of Lane Powell Spears Lubersky LLP.*
5.3 Opinion of Stewart McKelvey Stirling Scales.*
5.3(a) Revised opinion of Stewart McKelvey Stirling Scales.*
5.4 Opinion of Norton Rose.*
5.4(a) Revised opinion of Norton Rose.*
5.5 Opinion of Dundas & Wilson.*
</TABLE>
II-3
<PAGE> 209
<TABLE>
<S> <C>
5.5(a) Revised opinion of Dundas & Wilson.*
8 Opinion of Robinson & Cole LLP re. tax matters.*
*8(a) Revised opinion of Robinson & Cole LLP re. tax matters.**
10.1 Purchase Agreement, dated November 14, 1997, among Sparkling Spring Water Group Limited, BT Alex. Brown
Incorporated, NatWest Capital Markets Limited and the Guarantors named therein.*
10.2 Registration Rights Agreement, dated as of November 19, 1997, among Sparkling Spring Water Group
Limited and the Guarantors named therein, as Issuers, and BT Alex. Brown Incorporated and NatWest
Capital Markets Limited as Initial Purchasers.*
10.3 Employment Agreement, dated October 2, 1997, between Sparkling Spring Water Limited and Stewart E.
Allen.*
10.4 Shareholder Agreement, dated as of October 22, 1997, among Sparkling Spring Water Group Limited,
Sparkling Spring Water Limited, and the Shareholders named therein.*
10.5 Management Agreement, as amended and restated January 12, 1996, among Sparkling Spring Water Limited,
C.F. Capital Corporation, G. John Krediet and Stephen L. Larson.*
10.6 Amendment Agreement, dated October 22, 1997, among Sparkling Spring Water Limited, C.F. Capital
Corporation, G. John Krediet, Stephen L. Larson and Sparkling Spring Water Group Limited.*
10.7 Form of Exchange Agent Agreement between Sparkling Spring Water Group Limited and Bankers Trust
Company, as Exchange Agent.*
10.7(a) Revised form of Exchange Agent Agreement between Sparkling Spring Water Group Limited and Bankers Trust
Company, as Exchange Agent.*
11. Statement Re: Computation of Per Share Earnings.**
12. Ratio of Earnings to Fixed Charges.**
21 Subsidiaries of the Registrant.*
21 (a) Subsidiaries of the Registrant (revised)*
*21 (b) Subsidiaries of the Registrant (revised)**
23.1 Consent of Ernst & Young.*
23.1(a) Consent of Ernst & Young.(Revised).**
23.2 Consent of Kidsons Impey.*
23.2(a) Revised consent of Kidsons Impey.*
23.3 Consent of Robinson & Cole LLP (included in Exhibit 5.1).*
23.4 Consent of Lane Powell Spears Lubersky LLP (included in Exhibit 5.2).*
23.5 Consent of Stewart McKelvey Stirling Scales (included in Exhibit 5.3).*
23.6 Consent of Norton Rose (included in Exhibit 5.4).*
23.7 Consent of Dundas & Wilson (included in Exhibit 5.5).*
24.1 Power of Attorney for Sparkling Spring Water Group Limited (included in signature page of Sparkling
Spring Water Group Limited on page II-6).*
24.2 Power of Attorney for Sparkling Spring Water Limited (included in signature page of Sparkling Spring
Water Limited on page II-7).*
24.3 Power of Attorney for Spring Water, Inc. (included in signature page of Spring Water, Inc. on page
II-8).*
24.4 Power of Attorney for Cullyspring Water Co., Inc. (included in signature page of Cullyspring Water Co.,
Inc. on page II-9).*
24.5 Power of Attorney for Crystal Spring Acquisition, Inc. (included in signature page of Crystal Spring
Acquisition, Inc. on page II-10).*
24.6 Power of Attorney for Mountain Fresh Acquisition Corp (included in signature page of Mountain Fresh
Acquisition Corp on page II-11).*
24.7 Power of Attorney for Water Jug Enterprises Limited (included in signature page of Water Jug
Enterprises Limited on page II-12).*
24.8 Power of Attorney for Withey's Water Softening & Purification Ltd. (included in signature page of
Withey's Water Softening & Purification Ltd. on page II-13).*
24.9 Power of Attorney for Aqua Care Water Softening & Purification Inc. (included in signature page of Aqua
Care Water Softening & Purification Inc. on page II-14).*
</TABLE>
II-4
<PAGE> 210
<TABLE>
<S> <C>
24.10 Power of Attorney for High Valley Water Limited (included in
signature page of High Valley Water Limited on page II-15).*
24.11 Power of Attorney for 3003969 Nova Scotia Limited (included
in signature page of 3003969 Nova Scotia Limited on page
II-16).*
24.12 Power of Attorney for Canadian Springs Water Company Limited
(included in signature page of Canadian Springs Water
Company Limited on page II-17).*
24.13 Power of Attorney for Sparkling Spring Water (UK) Limited
(included in signature page of Sparkling Spring Water (UK)
Limited on page II-18).*
24.14 Power of Attorney for Aquaporte (UK) Limited (included in
signature page of Aquaporte (UK) Limited on page II-19).*
24.15 Power of Attorney for Marlborough Employment Limited
(included in signature page of Marlborough Employment
Limited on page II-20).*
24.16 Power of Attorney for Water at Work Limited (included in
signature page of Water at Work Limited on page II-21).*
24.17 Power of Attorney for Natural Water Limited (included in
signature page of Natural Water Limited on page II-22).*
25 Statement of Eligibility on Form T-1 of Trustee under the
Indenture.*
99.1 Form of Letter of Transmittal.*
99.1(a) Revised Form of Letter of Transmittal.*
99.2 Form of Notice of Guaranteed Delivery.*
99.2(a) Revised Form of Notice of Guaranteed Delivery.*
99.3 Letter to Clients.*
99.4 Letter to Registered Holders and Depository Trust Company
Participants.*
99.5 Letter of Kidsons Impey.*
</TABLE>
- ---------------
* Previously filed.
** Filed herewith.
(b) FINANCIAL STATEMENT SCHEDULES.
All schedules for which provision is made in Regulation S-X of the
Securities and Exchange Commission are not required under the related
instructions or are inapplicable or the required information is included in the
financial statements or notes thereto and, therefore, have been omitted.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-5
<PAGE> 211
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(d) The undersigned registrant hereby undertakes: (i) to respond to
requests for information that is incorporated by reference into the prospectus
pursuant to Items 4, 10(b), 11, or 13 of this Form, within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means; and (ii) to arrange or provide for a
facility in the U.S. for the purpose of responding to such requests. The
undertaking in subparagraph (i) above includes information contained in
documents filed subsequent to the effective date of the registration statement
through the date of responding to the request.
(e) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-6
<PAGE> 212
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Stamford, State of Connecticut, on
this 18th day of March 1998.
SPARKLING SPRING WATER GROUP LIMITED
By: /s/ STEPHEN L. LARSON
------------------------------------
Stephen L. Larson
Vice Chairman of the Board
and Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
has been signed by the following persons on March 18, 1998 in the capacities
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
* Principal Executive Officer and Director
- -----------------------------------------------------
G. John Krediet
*By: /s/ STEPHEN L. LARSON
------------------------------------------------
Stephen L. Larson
(Attorney-in-Fact)
/s/ STEPHEN L. LARSON Principal Financial and Accounting Officer,
- ----------------------------------------------------- Authorized Representative in the United
Stephen L. Larson States and Director
* Director
- -----------------------------------------------------
Michael Bregman
* Director
- -----------------------------------------------------
C. Sean Day
* Director
- -----------------------------------------------------
Kenneth B. Rotman
*By: /s/ STEPHEN L. LARSON
------------------------------------------------
Stephen L. Larson
(Attorney-in-Fact)
</TABLE>
II-7
<PAGE> 213
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Stamford, State of Connecticut, on
this 18th day of March 1998.
SPARKLING SPRING WATER LIMITED
By: /s/ STEPHEN L. LARSON
------------------------------------
Stephen L. Larson
Vice Chairman of the Board
and Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
has been signed by the following persons on March 18, 1998 in the capacities
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
* Principal Executive Officer and Director
- -----------------------------------------------------
G. John Krediet
*By: /s/ STEPHEN L. LARSON
------------------------------------------------
Stephen L. Larson
(Attorney-in-Fact)
/s/ STEPHEN L. LARSON Principal Financial and Accounting Officer,
- ----------------------------------------------------- Authorized Representative in the United
Stephen L. Larson States and Director
* Director
- -----------------------------------------------------
Michael Bregman
* Director
- -----------------------------------------------------
C. Sean Day
* Director
- -----------------------------------------------------
Kenneth B. Rotman
*By: /s/ STEPHEN L. LARSON
------------------------------------------------
Stephen L. Larson
(Attorney-in-Fact)
</TABLE>
II-8
<PAGE> 214
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Stamford, State of Connecticut, on
this 18th day of March 1998.
SPRING WATER, INC.
By: /s/ STEPHEN L. LARSON
------------------------------------
Stephen L. Larson
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
has been signed by the following persons on March 18, 1998 in the capacities
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ STEPHEN L. LARSON
- ----------------------------------------------------- Principal Executive Officer, Principal Financial and
Stephen L. Larson Accounting Officer and Director
</TABLE>
II-9
<PAGE> 215
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Stamford, State of Connecticut, on
this 18th day of March 1998.
CULLYSPRING WATER CO., INC.
By: /s/ STEPHEN L. LARSON
------------------------------------
Stephen L. Larson
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
has been signed by the following persons on March 18, 1998 in the capacities
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ STEPHEN L. LARSON
- ----------------------------------------------------- Principal Executive Officer, Principal Financial and
Stephen L. Larson Accounting Officer and Director
</TABLE>
II-10
<PAGE> 216
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Stamford, State of Connecticut, on
this 18th day of March 1998.
CRYSTAL SPRING ACQUISITION, INC.
By: /s/ STEPHEN L. LARSON
------------------------------------
Stephen L. Larson
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
has been signed by the following persons on March 18, 1998 in the capacities
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ STEPHEN L. LARSON Principal Executive Officer, Principal
- ----------------------------------------------------- Financial and Accounting Officer and
Stephen L. Larson Director
</TABLE>
II-11
<PAGE> 217
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Stamford, State of Connecticut, on
this 18th day of March 1998.
MOUNTAIN FRESH ACQUISITION CORP.
By: /s/ STEPHEN L. LARSON
------------------------------------
Stephen L. Larson
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
has been signed by the following persons on March 18, 1998 in the capacities
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ STEPHEN L. LARSON Principal Executive Officer, Principal
- ----------------------------------------------------- Financial and Accounting Officer and
Stephen L. Larson Director
</TABLE>
II-12
<PAGE> 218
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Stamford, State of Connecticut, on
this 18th day of March 1998.
WATER JUG ENTERPRISES LIMITED
By: /s/ STEPHEN L. LARSON
------------------------------------
Stephen L. Larson
Vice Chairman of the Board
and Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
has been signed by the following persons on March 18, 1998 in the capacities
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ STEPHEN L. LARSON Principal Executive Officer, Principal
- ----------------------------------------------------- Financial and Accounting Officer, Authorized
Stephen L. Larson Representative in the United States and
Director
</TABLE>
II-13
<PAGE> 219
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Stamford, State of Connecticut, on
this 18th day of March 1998.
WITHEY'S WATER SOFTENING & PURIFICATION LTD.
By: /s/ STEPHEN L. LARSON
-----------------------------------------
Stephen L. Larson
Vice Chairman of the Board
and Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
has been signed by the following persons on March 18, 1998 in the capacities
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ STEPHEN L. LARSON Principal Executive Officer, Principal
- ----------------------------------------------------- Financial and Accounting Officer, Authorized
Stephen L. Larson Representative in the United States and
Director
</TABLE>
II-14
<PAGE> 220
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Stamford, State of Connecticut, on
this 18th day of March 1998.
AQUA CARE WATER SOFTENING & PURIFICATION
INC.
By: /s/ STEPHEN L. LARSON
-----------------------------------------
Stephen L. Larson
Vice Chairman of the Board
and Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
has been signed by the following persons on March 18, 1998 in the capacities
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ STEPHEN L. LARSON Principal Executive Officer, Principal
- ----------------------------------------------------- Financial and Accounting Officer, Authorized
Stephen L. Larson Representative in the United States and
Director
</TABLE>
II-15
<PAGE> 221
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Stamford, State of Connecticut, on
this 18th day of March 1998.
HIGH VALLEY WATER LIMITED
By: /s/ STEPHEN L. LARSON
------------------------------------
Stephen L. Larson
Vice Chairman of the Board
and Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
has been signed by the following persons on March 18, 1998 in the capacities
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ STEPHEN L. LARSON Principal Executive Officer, Principal
- ----------------------------------------------------- Financial and Accounting Officer, Authorized
Stephen L. Larson Representative in the United States and
Director
</TABLE>
II-16
<PAGE> 222
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Stamford, State of Connecticut, on
this 18th day of March 1998.
3003969 NOVA SCOTIA LIMITED
By: /s/ STEPHEN L. LARSON
------------------------------------
Stephen L. Larson
Vice Chairman of the Board
and Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
has been signed by the following persons on March 18, 1998 in the capacities
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ STEPHEN L. LARSON Principal Executive Officer, Principal
- ----------------------------------------------------- Financial and Accounting Officer, Authorized
Stephen L. Larson Representative in the United States and
Director
</TABLE>
II-17
<PAGE> 223
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Stamford, State of Connecticut, on
this 18th day of March 1998.
CANADIAN SPRINGS WATER COMPANY LIMITED
By: /s/ STEPHEN L. LARSON
-------------------------------------
Stephen L. Larson
Vice Chairman of the Board
and Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
has been signed by the following persons on March 18, 1998 in the capacities
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ STEPHEN L. LARSON Principal Executive Officer, Principal
- ----------------------------------------------------- Financial and Accounting Officer, Authorized
Stephen L. Larson Representative in the United States and
Director
</TABLE>
II-18
<PAGE> 224
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Stamford, State of Connecticut, on
this 18th day of March 1998.
SPARKLING SPRING WATER (UK) LIMITED
By: /s/ STEPHEN L. LARSON
------------------------------------
Stephen L. Larson
Vice Chairman of the Board
and Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
has been signed by the following persons on March 18, 1998 in the capacities
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ STEPHEN L. LARSON Principal Executive Officer, Principal
- ----------------------------------------------------- Financial and Accounting Officer, Authorized
Stephen L. Larson Representative in the United States and
Director
</TABLE>
II-19
<PAGE> 225
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Stamford, State of Connecticut, on
this 18th day of March 1998.
AQUAPORTE (UK) LIMITED
By: /s/ STEPHEN L. LARSON
------------------------------------
Stephen L. Larson
Vice Chairman of the Board
and Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
has been signed by the following persons on March 18, 1998 in the capacities
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ STEPHEN L. LARSON Principal Executive Officer, Principal
- ----------------------------------------------------- Financial and Accounting Officer, Authorized
Stephen L. Larson Representative in the United States and
Director
</TABLE>
II-20
<PAGE> 226
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Stamford, State of Connecticut, on
this 18th day of March 1998.
MARLBOROUGH
EMPLOYMENT LIMITED
By: /s/ STEPHEN L. LARSON
--------------------------------
Stephen L. Larson
Vice Chairman of the Board
and Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
has been signed by the following persons on March 18, 1998 in the capacities
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ STEPHEN L. LARSON Principal Executive Officer, Principal
- --------------------------------------------------- Financial and Accounting Officer, Authorized
Stephen L. Larson Representative in the United States and
Director
</TABLE>
II-21
<PAGE> 227
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Stamford, State of Connecticut, on
this 18th day of March 1998.
WATER AT WORK LIMITED
By: /s/ STEPHEN L. LARSON
--------------------------------
Stephen L. Larson
Vice Chairman of the Board
and Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
has been signed by the following persons on March 18, 1998 in the capacities
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ STEPHEN L. LARSON Principal Executive Officer, Principal
- --------------------------------------------------- Financial and Accounting Officer, Authorized
Stephen L. Larson Representative in the United States and
Director
</TABLE>
II-22
<PAGE> 228
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Stamford, State of Connecticut, on
this 18th day of March 1998.
NATURAL WATER LIMITED
By: /s/ STEPHEN L. LARSON
--------------------------------
Stephen L. Larson
Vice Chairman of the Board
and Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
has been signed by the following persons on March 18, 1998 in the capacities
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ STEPHEN L. LARSON Principal Executive Officer, Principal
- --------------------------------------------------- Financial and Accounting Officer, Authorized
Stephen L. Larson Representative in the United States and
Director
</TABLE>
II-23
<PAGE> 229
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Stamford, State of Connecticut, on
this 18th day of March 1998.
CRYSTAL SPRINGS OF SEATTLE, INC.
By: /s/ STEPHEN L. LARSON
--------------------------------
Stephen L. Larson
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
has been signed by the following persons on March 18, 1998 in the capacities
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ STEPHEN L. LARSON Principal Executive Officer, Principal
- --------------------------------------------------- Financial and Accounting Officer and Director
Stephen L. Larson
</TABLE>
II-24
<PAGE> 230
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Stamford, State of Connecticut, on
this 18th day of March 1998.
CRYSTAL SPRINGS DRINKING WATER, INC.
By: /s/ STEPHEN L. LARSON
------------------------------------
Stephen L. Larson
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
has been signed by the following persons on March 18, 1998 in the capacities
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ STEPHEN L. LARSON Principal Executive Officer, Principal
- --------------------------------------------------- Financial and Accounting Officer and Director
Stephen L. Larson
</TABLE>
II-25
<PAGE> 231
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Stamford, State of Connecticut, on
this 18th day of March 1998.
COASTAL MOUNTAIN WATER CO.
By: /s/ STEPHEN L. LARSON
------------------------------------
Stephen L. Larson
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
has been signed by the following persons on March 18, 1998 in the capacities
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ STEPHEN L. LARSON Principal Executive Officer, Principal
- --------------------------------------------------- Financial and Accounting Officer, Authorized
Stephen L. Larson Representative in the United States and
Director
</TABLE>
II-26
<PAGE> 232
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- ------- ----------- ----------
<S> <C> <C>
3.1 Memorandum of Association of Sparkling Spring Water Group
Limited, as amended.*
3.2 Articles of Association of Sparkling Spring Water Group
Limited.*
3.3 Memorandum of Association of Sparkling Spring Water
Limited.*
3.4 Articles of Association of Sparkling Spring Water Limited.*
3.5 Certificate of Incorporation of Spring Water, Inc.*
3.6 By-laws of Spring Water, Inc.*
3.7 Articles of Incorporation of Cullyspring Water Co., Inc.*
3.8 By-laws of Cullyspring Water Co., Inc., as amended.*
3.9 Certificate of Incorporation of Crystal Spring Acquisition,
Inc.*
3.10 By-laws of Crystal Spring Acquisition, Inc.*
3.11 Certificate of Incorporation of Mountain Fresh Acquisition
Corp.*
3.12 By-laws of Mountain Fresh Acquisition Corp.*
3.13 Memorandum of Association of Water Jug Enterprises Limited.*
3.14 Articles of Association of Water Jug Enterprises Limited.*
3.15 Memorandum of Association of Withey's Water Softening &
Purification Ltd.*
3.16 Articles of Association of Withey's Water Softening &
Purification Ltd.*
3.17 Memorandum of Association of Aqua Care Water Softening &
Purification Inc.*
3.18 Articles of Association of Aqua Care Water Softening &
Purification Inc.*
3.19 Memorandum of Association of High Valley Water Limited.*
3.20 Articles of Association of High Valley Water Limited.*
3.21 Memorandum of Association of 3003969 Nova Scotia Limited.*
3.22 Articles of Association of 3003969 Nova Scotia Limited.*
3.23 Memorandum of Association of Canadian Springs Water Company
Limited.*
3.24 Articles of Association of Canadian Springs Water Company
Limited.*
3.25 Memorandum of Association of Sparkling Spring Water (UK)
Limited.*
3.26 Articles of Association of Sparkling Spring Water (UK)
Limited.*
3.27 Memorandum of Association of Aquaporte (UK) Limited.*
3.28 Articles of Association of Aquaporte (UK) Limited.*
3.29 Memorandum of Association of Marlborough Employment
Limited.*
3.30 Articles of Association of Marlborough Employment Limited.*
3.31 Memorandum of Association of Water at Work Limited.*
3.32 Articles of Association of Water at Work Limited.*
3.33 Memorandum of Association of Natural Water Limited.*
3.34 Articles of Association of Natural Water Limited.*
3.35 Certificate of Incorporation of Crystal Springs of Seattle,
Inc.*
3.36 By-laws of Crystal Springs of Seattle, Inc.*
3.37 Certificate of Incorporation of Crystal Springs Drinking
Water, Inc.*
3.38 By-laws of Crystal Springs Drinking Water, Inc.*
4 Indenture, dated as of November 19, 1997, among Sparkling
Spring Water Group Limited, as Issuer, Bankers Trust
Company, as Trustee, and the Subsidiary Guarantors named
therein.*
4.1 First Supplemental Indenture, dated as February 1, 1998, by
and among Crystal Springs of Seattle, Inc., Crystal Springs
Drinking Water, Inc. and Bankers Trust Company, as Trustee.*
</TABLE>
<PAGE> 233
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- ------- ----------- ----------
<S> <C> <C>
5.1 Opinion of Robinson & Cole LLP.*
5.1(a) Revised opinion of Robinson & Cole LLP.**
5.2 Opinion of Lane Powell Spears Lubersky LLP.*
5.2(a) Revised opinion of Lane Powell Spears Lubersky LLP.*
5.3 Opinion of Stewart McKelvey Stirling Scales.*
5.3(a) Revised opinion of Stewart McKelvey Stirling Scales.*
5.4 Opinion of Norton Rose.*
5.4(a) Revised opinion of Norton Rose.*
5.5 Opinion of Dundas & Wilson.*
5.5(a) Revised opinion of Dundas & Wilson.*
8 Opinion of Robinson & Cole LLP re. tax matters.*
*8(a) Revised opinion of Robinson & Cole LLP re. tax matters.**
10.1 Purchase Agreement, dated November 14, 1997, among Sparkling
Spring Water Group Limited, BT Alex. Brown Incorporated,
NatWest Capital Markets Limited and the Guarantors named
therein.*
10.2 Registration Rights Agreement, dated as of November 19,
1997, among Sparkling Spring Water Group Limited and the
Guarantors named therein, as Issuers, and BT Alex. Brown
Incorporated and NatWest Capital Markets Limited as Initial
Purchasers.*
10.3 Employment Agreement, dated October 2, 1997, between
Sparkling Spring Water Limited and Stewart E. Allen.*
10.4 Shareholder Agreement, dated as of October 22, 1997, among
Sparkling Spring Water Group Limited, Sparkling Spring Water
Limited, and the Shareholders named therein.*
10.5 Management Agreement, as amended and restated January 12,
1996, among Sparkling Spring Water Limited, C.F. Capital
Corporation, G. John Krediet and Stephen L. Larson.*
10.6 Amendment Agreement, dated October 22, 1997, among Sparkling
Spring Water Limited, C.F. Capital Corporation, G. John
Krediet, Stephen L. Larson and Sparkling Spring Water Group
Limited.*
10.7 Form of Exchange Agent Agreement between Sparkling Spring
Water Group Limited and Bankers Trust Company, as Exchange
Agent.*
10.7(a) Revised form of Exchange Agent Agreement between Sparkling
Spring Water Group Limited and Bankers Trust Company, as
Exchange Agent.*
11. Statement Re: Computation of Per Share Earnings.**
12. Ratio of Earnings to Fixed Charges.**
21 Subsidiaries of the Registrant.*
21 (a) Subsidiaries of the Registrant (revised)*
*21 (b) Subsidiaries of the Registrant (revised)**
23.1 Consent of Ernst & Young.*
23.1(a) Consent of Ernst & Young.(Revised).**
23.2 Consent of Kidsons Impey.*
23.2(a) Revised consent of Kidsons Impey.*
23.3 Consent of Robinson & Cole LLP (included in Exhibit 5.1).*
23.4 Consent of Lane Powell Spears Lubersky LLP (included in
Exhibit 5.2).*
23.5 Consent of Stewart McKelvey Stirling Scales (included in
Exhibit 5.3).*
23.6 Consent of Norton Rose (included in Exhibit 5.4).*
23.7 Consent of Dundas & Wilson (included in Exhibit 5.5).*
24.1 Power of Attorney for Sparkling Spring Water Group Limited
(included in signature page of Sparkling Spring Water Group
Limited on page II-6).*
</TABLE>
<PAGE> 234
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- ------- ----------- ----------
<S> <C> <C>
24.2 Power of Attorney for Sparkling Spring Water Limited
(included in signature page of Sparkling Spring Water
Limited on page II-7).*
24.3 Power of Attorney for Spring Water, Inc. (included in
signature page of Spring Water, Inc. on page II-8).*
24.4 Power of Attorney for Cullyspring Water Co., Inc. (included
in signature page of Cullyspring Water Co., Inc. on page
II-9).*
24.5 Power of Attorney for Crystal Spring Acquisition, Inc.
(included in signature page of Crystal Spring Acquisition,
Inc. on page II-10).*
24.6 Power of Attorney for Mountain Fresh Acquisition Corp
(included in signature page of Mountain Fresh Acquisition
Corp on page II-11).*
24.7 Power of Attorney for Water Jug Enterprises Limited
(included in signature page of Water Jug Enterprises Limited
on page II-12).*
24.8 Power of Attorney for Withey's Water Softening &
Purification Ltd. (included in signature page of Withey's
Water Softening & Purification Ltd. on page II-13).*
24.9 Power of Attorney for Aqua Care Water Softening &
Purification Inc. (included in signature page of Aqua Care
Water Softening & Purification Inc. on page II-14).*
24.10 Power of Attorney for High Valley Water Limited (included in
signature page of High Valley Water Limited on page II-15).*
24.11 Power of Attorney for 3003969 Nova Scotia Limited (included
in signature page of 3003969 Nova Scotia Limited on page
II-16).*
24.12 Power of Attorney for Canadian Springs Water Company Limited
(included in signature page of Canadian Springs Water
Company Limited on page II-17).*
24.13 Power of Attorney for Sparkling Spring Water (UK) Limited
(included in signature page of Sparkling Spring Water (UK)
Limited on page II-18).*
24.14 Power of Attorney for Aquaporte (UK) Limited (included in
signature page of Aquaporte (UK) Limited on page II-19).*
24.15 Power of Attorney for Marlborough Employment Limited
(included in signature page of Marlborough Employment
Limited on page II-20).*
24.16 Power of Attorney for Water at Work Limited (included in
signature page of Water at Work Limited on page II-21).*
24.17 Power of Attorney for Natural Water Limited (included in
signature page of Natural Water Limited on page II-22).*
25 Statement of Eligibility on Form T-1 of Trustee under the
Indenture.*
99.1 Form of Letter of Transmittal.*
99.1(a) Revised Form of Letter of Transmittal.*
99.2 Form of Notice of Guaranteed Delivery.*
99.2(a) Revised Form of Notice of Guaranteed Delivery.*
99.3 Letter to Clients.*
99.4 Letter to Registered Holders and Depository Trust Company
Participants.*
99.5 Letter of Kidsons Impey.*
</TABLE>
- ---------------
* Previously filed.
** Filed herewith.
<PAGE> 1
EXHIBIT 5.1(a)
[ROBINSON & COLE LLP LETTERHEAD]
March 18, 1998
Crystal Springs of Seattle, Inc.
Crystal Springs Drinking Water, Inc.
Spring Water, Inc.
Crystal Spring Acquisition, Inc.
Mountain Fresh Acquisition Corp.
Cullyspring Water Co., Inc.
Sparkling Spring Water Group Limited
Sparkling Spring Water Limited
Water Jug Enterprises Limited
Withey's Water Softening & Purification Ltd.
Aqua Care Water Softening & Purification Inc.
High Valley Water Limited
3003969 Nova Scotia Limited
Canadian Springs Water Company Limited
Sparkling Spring Water (UK) Limited
Aquaporte (UK) Limited
Marlborough Employment Limited
Water at Work Limited
Natural Water Limited
One Landmark Square
Stamford, Connecticut 06901
Ladies and Gentlemen:
We refer to the offer of Sparkling Spring Water Group Limited (the
"Issuer") and Crystal Springs of Seattle, Inc., Crystal Springs Drinking Water,
Inc., Spring Water, Inc., Crystal Spring Acquisition, Inc., Mountain Fresh
Acquisition Corp., Cullyspring Water Co., Inc., Sparkling Spring Water Limited,
Water Jug Enterprises Limited, Withey's Water Softening & Purification, Ltd.,
Aqua Care Water Softening & Purification Inc., High Valley Water Limited,
3003969 Nova Scotia Limited, Canadian Springs Water Company Limited, Sparkling
Spring Water (UK) Limited, Aquaporte (UK) Limited, Marlborough Employment
Limited, Water at Work Limited and Natural Water Limited (the "Guarantors") to
exchange $1,000, aggregate principal amount of 11-1/2% Senior Subordinated Notes
due 2007 of the Issuer (the "Exchange Notes") (together with the related
guarantees of the Guarantors), for each $1,000 aggregate principal of the
outstanding unregistered 11-1/2% Senior Subordinated Notes due 2007 of the
Issuer (together with the related guarantees of the Guarantors), which Exchange
Notes (and the related guarantees of the Guarantors) are the subject of the
Registration Statement on Form F-4, to which this opinion is an Exhibit, filed
with the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "Act") (the "Registration Statement").
In connection herewith, we have examined the Registration Statement,
the Indenture, dated as of November 19, 1997 among the Issuer, the Guarantors
and Bankers Trust Company ("Trustee") as supplemented by the First Supplemental
Indenture to the Indenture, dated as of February 1, 1998 among the Trustee,
Crystal Springs of Seattle, Inc. and Crystal Springs Drinking Water, Inc., and
the Exchange Notes (and the related guarantees of the Guarantors included
therewith) (the Indenture, the Exchange Notes and the related guarantees of the
Exchange Notes of the Guarantors are collectively referred to herein as the
"Documents"), together with such corporate records, certificates and other
documents, and such questions of law, as we have considered necessary or
appropriate for the purposes of this opinion.
On the basis of the foregoing examination, we advise you that,
upon the (i) Registration Statement becoming effective under the Act, and (ii)
qualification of the Indenture under the Trust Indenture Act of 1939, as
amended, in our opinion the guarantee of the Exchange Notes by each Guarantor
will have been duly authorized and will constitute a valid and binding
obligation of such Guarantor, subject to applicable bankruptcy, insolvency,
reorganization and similar laws affecting creditors' rights generally and
general principles of equity (regardless of whether such principles are
considered in a proceeding in equity or at action at law).
<PAGE> 2
The foregoing opinion is limited to the laws of the State of New York
and the General Corporation Law of the State of Delaware.
The foregoing opinions are subject to the qualification that the
enforceability of certain rights, remedies and waivers provided in the Documents
may be unavailable or limited by certain laws and judicial decisions. In respect
of such qualification, however, we are of the opinion that such laws and
judicial decisions do not, subject to the other exceptions and limitations
contained in this letter, make the remedies generally afforded by the Documents
inadequate to permit enforcement of the indebtedness arising thereunder. We note
that the provisions of any Document that permit any person thereunder to take
action or make determinations, or to benefit from indemnities and similar
undertakings of the Issuer or any Guarantor, may be subject to a requirement
that such action be taken or such determinations be made, and that any action or
inaction by such person which may give rise to a request for payment under such
an undertaking be taken or not taken, on a reasonable basis and in good faith.
We consent to the filing of this opinion with the Commission as an
Exhibit to the Registration Statement and to the use of our name under the
caption "Legal Matters" in the Prospectus included therein. In giving this
opinion, we do not thereby admit that we are within the category of persons
whose consent is required under Section 7 of the Act or the Rules and
Regulations of the Commission.
Very truly yours,
ROBINSON & COLE LLP
By: /s/ Richard A. Krantz
-------------------------------
Richard A. Krantz
<PAGE> 1
[Letterhead of Robinson & Cole LLP]
Exhibit 8(a)
Sparkling Spring Water Group Limited
One Landmark Square
Stamford, CT 06901
Ladies and Gentleman:
You have requested our opinion concerning the material anticipated
United States federal income tax consequences of the exchange of outstanding
11-1/2% Senior Subordinated Notes due 2007 originally issued by Sparkling
Spring Water Group Limited ("Sparkling Spring"), for 11-1/2% Senior Subordinated
Notes due 2007 of Sparkling Spring which were registered under the Securities
Act of 1933, as amended, pursuant to the Registration Statement on Form F-4
filed herewith (the "Registration Statement").
The facts upon which we relied to issue the opinion are presented in
the Registration Statement. Based on such facts, it is our opinion that the
material anticipated federal income tax consequences are accurately set forth
under the heading "Certain Federal Income Tax Considerations" in the
Registration Statement. We express no opinion as to any other matter not
discussed therein. For example, this opinion does not purport to discuss all
possible United States federal income tax consequences attributable to the
exchange, nor does it present the applicability and effect of any state, local
or foreign law. Additionally, any change in the facts from those set forth in
the Registration Statement may impact our opinion.
The basis for our opinion rests in provisions of the Internal Revenue
Code of 1986, as amended (the "Code"), regulations promulgated thereunder, and
administrative rulings and judicial decisions now in effect, all of which are
subject to change (possibly with retroactive effect) or different
interpretations.
We consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
ROBINSON & COLE LLP
By: /s/ Richard W. Tomeo
Richard W. Tomeo, a partner
<PAGE> 1
Exhibit 11
STATEMENT RE:
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31 ENDED SEPTEMBER 30
1994 1995 1996 1996 1997
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PRIMARY
Average shares outstanding 1,156,212 1,216,308 1,468,527 1,405,472 1,720,746
Net effect of dilutive stock options and
warrants - based on the treasury stock
method using average market value
per share - 194,420 242,396 261,039 242,396
- ---------------------------------------------------------------------------------------------------------------------------------
1,156,212 1,410,728 1,710,923 1,666,511 1,963,142
(Loss) Earnings before extraordinary item $ (93,983) $ 410,688 $ 166,440 $ 216,235 $1,233,699
Primary (loss) earnings per share before
extraordinary item $ (0.081) $ 0.291 $ 0.097 $ 0.013 $ 0.63
Net (loss) earnings $ (237,715) $ 19,062 $ (306,996) $ (253,068) $1,233,699
Primary (loss) earnings per share $ (0.206) $ 0.014 $ (0.209)(1) $ (0.18)(1) $ 0.63
- ---------------------------------------------------------------------------------------------------------------------------------
FULLY DILUTED
Average shares outstanding 1,156,212 1,216,308 1,468,527 1,405,472 1,720,746
Net effect of dilutive stock options and
warrants - based on the treasury stock
method using the year end market value
per share, if higher than average market
value per share - 194,420 289,495 289,495 289,495
- ---------------------------------------------------------------------------------------------------------------------------------
1,156,212 1,410,728 1,758,022 1,694,967 2,010,241
(Loss) Earnings before extraordinary item $ (93,983) $ 410,688 $ 166,440 $ 216,235 $1,233,699
Fully diluted (loss) earnings per share before
extraordinary item $ (0.081) $ 0.291 $ 0.095 $ 0.13 $ 0.61
Net (loss) earnings $ (237,715) $ 19,062 $ (306,996) $ (253,068) $1,233,699
Fully diluted (loss) earning per share $ (0.206) $ 0.014 $ (0.209)(1) $ (0.18)(1) $ 0.61
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Notes:
(1) Using the average shares outstanding, as including the effect of stock
options and warrants, is anti-dilutive.
(2) Fully diluted (loss) earnings per share was not disclosed as it does not
differ from primary earnings (loss) per share.
<PAGE> 1
Exhibit 12
RATIO OF EARNINGS TO FIXED CHARGES
(thousands)
<TABLE>
<CAPTION>
PRO FORMA
1992 1993 1994 1995 1996 1996
$ $ $ $ $ $
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net (loss) income before
extraordinary items (12) (95) (104) 687 572 (8,203)
Add interest expense 227 227 625 1,294 2,481 11,850
Interest on operating leases 41 43 186 232 299 499
- -------------------------------------------------------------------------------------------------------------------
256 175 707 2,213 3,352 4,146
Interest expense plus interest
on operating leases 268 270 811 1,526 2,780 12,349
- --------------------------------------------------------------------------------------------------------------------
Ratio - - - 1.450 1.206 -
- --------------------------------------------------------------------------------------------------------------------
Deficiency (12) (95) (104) n/a n/a (8,203)
- --------------------------------------------------------------------------------------------------------------------
NINE MONTHS NINE MONTHS
NINE MONTHS NINE MONTHS ENDED ENDED
ENDED ENDED SEPTEMBER SEPTEMBER
SEPTEMBER SEPTEMBER 30, 1996 30, 1997
30, 1996 30, 1997 PRO FORMA PRO FORMA
$ $ $ $
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net (loss) income before
extraordinary items 570 2,297 (5,418) (3,023)
Add interest expense 1,702 2,901 8,888 8,888
Interest on operating leases 209 326 372 379
- --------------------------------------------------------------------------------------------------------
2,481 5,524 3,842 6,244
Interest expense plus interest
on operating leases 1,911 3,227 9,260 9,267
- --------------------------------------------------------------------------------------------------------
Ratio 1.298 1.712 - -
- --------------------------------------------------------------------------------------------------------
Deficiency n/a n/a (5,418) (3,023)
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 1
Exhibit 21(b)
SUBSIDIARIES OF THE REGISTRANT
Sparkling Spring Water Limited
Spring Water, Inc.
Cullyspring Water Co., Inc.
Crystal Spring Acquisition, Inc.
Mountain Fresh Acquisition Corp.
Water Jug Enterprises Limited
Withey's Water Softening & Purification Ltd.
Aqua Care Water Softening & Purification Inc.
High Valley Water Limited
3003969 Nova Scotia Limited
Canadian Springs Water Company Limited
Sparkling Spring Water (UK) Limited
Aquaporte (UK) Limited
Marlborough Employment Limited
Water at Work Limited
Natural Water Limited
Crystal Springs of Seattle, Inc.
Crystal Springs Drinking Water, Inc.
Coastal Mountain Water Co., Inc.
<PAGE> 1
EXHIBIT 23.1(a)
[ERNST & YOUNG LETTERHEAD]
We consent to the reference to our firm under the caption "Experts" and to the
use of (i) our report dated November 19, 1997 (except for notes 20 and 21 which
are as of February 24, 1998) to the directors of Sparkling Spring Water Group
Limited (the "Company") on the consolidated financial statements of the Company
as at December 31, 1996 and 1995 and for each of the years in the three year
period ended December 31, 1996, (ii) our report dated July 11, 1997 to the
directors of Sparkling Spring Water Limited on the financial statements of
Canadian Springs Water Company Ltd. as at January 17, 1996 and March 31, 1995
and for the 292 days ended January 17, 1996 and the year ended March 31, 1995,
(iii) our report dated October 10, 1997 to the directors of Sparkling Spring
Water Limited on the financial statements of Cullyspring Water Co., Inc. as at
December 31, 1996 and 1995 and for the years then ended, (iv) our report dated
October 10, 1997 to the directors of Sparkling Spring Water Limited on the
financial statements of D&D and Company, Inc. as at December 31, 1996 and for
the year then ended, and (v) our report dated February 27, 1998 addressed to the
directors of Sparkling Spring Water Group Limited on the financial statements of
Coastal Mountain Water Corp. as at October 31, 1997 and for the year then ended,
in Amendment No. 2 to the Registration Statement (Form F4) for the registration
of $100,000,000 of the Company's 11-1/2% Senior Subordinated Notes due 2007.
/s/ Ernst & Young
--------------------------
Ernst & Young
Halifax, Canada
March 18, 1998
