<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 10, 1994
REGISTRATION NO. 33-
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
TRIARC COMPANIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
2086, 2087, 5812,
OHIO 2211, 5984 38-0471180
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NO.) IDENTIFICATION NO.)
</TABLE>
777 SOUTH FLAGLER DRIVE
WEST PALM BEACH, FLORIDA 33401
(407) 653-4000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
CURTIS S. GIMSON, ESQ.
TRIARC COMPANIES, INC.
777 SOUTH FLAGLER DRIVE
WEST PALM BEACH, FLORIDA 33401
(407) 653-4000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPY TO:
BRIAN L. SCHORR, ESQ.
PAUL, WEISS, RIFKIND, WHARTON & GARRISON
1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019-6064
(212) 373-3000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective and all other
conditions to the Merger, pursuant to the Merger Agreement described herein,
have been satisfied or waived.
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED PER UNIT OFFERING PRICE FEE
<S> <C> <C> <C> <C>
Class A Common Stock, $.10 par value......... 2,691,822 shares(1) (2) (2) (2)(3)
</TABLE>
(1) Based upon the maximum number of shares that may be issued in the Merger
described herein.
(2) The registration fee for all the securities registered hereby, $17,984, has
been calculated pursuant to Rule 457(f)(1) under the Securities Act of 1933,
as amended, as follows: one twenty-ninth of 1% of (A) the product of (a)
$15.50, the average of the high and low prices of shares of SEPSCO Common
Stock reported on the Pacific Stock Exchange on March 7, 1994, multiplied by
(B) 3,364,778, the maximum number of shares of SEPSCO Common Stock which may
be exchanged upon consummation of the Merger.
(3) A fee of $16,185 was paid on behalf of Triarc Companies Inc. with respect to
the transaction on September 13, 1993, pursuant to a filing under Rule
14a-6(a) of a Schedule 14A. Pursuant to Rule 457(b) promulgated under the
Securities Act and Section 14(g)(1)(B) and Rule 0-11 promulgated under the
Securities Exchange Act of 1934, as amended, the amount of such previously
paid fee has been credited against the registration fee which would
otherwise be payable in connection with this filing. Accordingly, an
additional filing fee of $1,799 is required to be paid with this
Registration Statement.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT 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.
________________________________________________________________________________
<PAGE>
TRIARC COMPANIES, INC.
CROSS-REFERENCE SHEET
PURSUANT TO REGULATION S-K ITEM 501(b)
<TABLE>
<CAPTION>
FORM S-4 ITEM NUMBER AND CAPTION LOCATION IN PROXY STATEMENT/PROSPECTUS
- -------------------------------------------------------------------------- ---------------------------------------
<S> <C> <C>
1. Forepart of the Registration Statement and Outside Front Cover Page
of Prospectus..................................................... Outside Front Cover Page of Proxy
Statement/Prospectus; Introduction.
2. Inside Front and Outside Back Cover Pages of Prospectus............. Available Information; Information
Incorporated by Reference; Table of
Contents.
3. Risk Factors, Ratio of Earnings to Fixed Charges and Other
Information....................................................... Introduction; Summary; Risk Factors;
Triarc and Consolidated Subsidiaries
Selected Financial Data; SEPSCO and
Subsidiaries Selected Financial Data.
4. Terms of the Transaction............................................ Introduction; Summary; Special
Factors -- Purpose and Structure of
the Merger; -- Certain Effects of
the Merger and Related Transactions;
-- Recommendation of the SEPSCO
Special Committee and the SEPSCO
Board; -- Opinion of Financial
Advisor; The Merger Agreement;
Financing of the Merger and Related
Transactions: Source and Amount of
Funds; Information Relating to
Mergerco; Description of Triarc
Capital Stock; Certain Federal Income
Tax Consequences of the Merger;
Comparison of Rights of Holders of
SEPSCO Common Stock and Triarc Class
A Common Stock.
5. Pro Forma Financial Information..................................... Summary; Pro Forma Financial
Statements.
6. Material Contacts with the Company Being Acquired................... Introduction; Summary; The Special
Meeting; Special
Factors -- Recommendation of the
SEPSCO Special Committee and the
SEPSCO Board; Certain Relationships
and Related Transactions; The Merger
Agreement; Financing of the Merger
and Related Transactions: Source and
Amount of Funds; Management of
SEPSCO; Ownership of SEPSCO
Securities by certain Beneficial
Owners and Management.
7. Additional Information Required for Reoffering by Persons and
Parties Deemed to be Underwriters................................. Not Applicable.
8. Interests of Named Experts and Counsel.............................. Not Applicable.
<PAGE>
<CAPTION>
FORM S-4 ITEM NUMBER AND CAPTION LOCATION IN PROXY STATEMENT/PROSPECTUS
- -------------------------------------------------------------------------- ---------------------------------------
<S> <C> <C>
9. Disclosure of Commission Position on Indemnification for Securities
Act Liabilities................................................... Not Applicable.
10. Information with Respect to S-3 Registrants......................... Introduction; Summary; Market for
Triarc's Common Equity and Related
Shareholder Matters; Triarc and
Consolidated Subsidiaries Selected
Financial Data; Business of Triarc
Companies; Triarc Companies
Management's Discussion and Analysis
of Financial Condition and Results of
Operations.
11. Incorporation of Certain Information by Reference................... Information Incorporated by Reference.
12. Information with Respect to S-2 or S-3 Registrants.................. Not Applicable.
13. Incorporation of Certain Information by Reference................... Not Applicable.
14. Information with Respect to Registrants Other Than S-3 or S-2
Registrants....................................................... Not Applicable.
15. Information with Respect to S-3 Companies........................... Not Applicable.
16. Information with Respect to S-2 or S-3 Companies.................... Not Applicable.
17. Information with Respect to Companies Other Than S-2 and S-3
Companies......................................................... Introduction; Summary; Market for
SEPSCO's Common Equity and Related
Stockholder Matters; SEPSCO and
Subsidiaries Selected Financial Data;
Business of SEPSCO; SEPSCO
Management's Discussion and Analysis
of Financial Condition and Results of
Operations.
18. Information if Proxies, Consents or Authorizations are to be
Solicited......................................................... Introduction; Summary; The Special
Meeting; Special Factors -- Interests
of Certain Persons in the Merger;
-- Conduct of the Business of the
Surviving Corporation After the
Merger; The Merger Agreement;
Management of Triarc; Triarc
Executive Compensation; Ownership of
Triarc Securities By Certain
Beneficial Owners and Management;
Management of SEPSCO; Ownership of
SEPSCO Securities By Certain
Beneficial Owners and Management.
19. Information if Proxies, Consents or Authorizations Are not to be
Solicited or in an Exchange Offer................................. Not Applicable.
</TABLE>
<PAGE>
PRELIMINARY COPY
SOUTHEASTERN PUBLIC SERVICE COMPANY
777 S. FLAGLER DRIVE, SUITE 1000E
WEST PALM BEACH, FLORIDA 33401
March 14, 1994
TO OUR STOCKHOLDERS:
It is our pleasure to invite you to attend a Special Meeting of
Stockholders of Southeastern Public Service Company (the 'Company') to be held
on Thursday, April 14, 1994, commencing at 12:00 noon, local time, at the Palm
Beach Airport Hilton, 150 Australian Avenue, West Palm Beach, Florida.
The purpose of the Special Meeting is to consider and vote upon a proposal
to adopt an Agreement and Plan of Merger (the 'Merger Agreement'), dated as of
November 22, 1993, by and among the Company, SEPSCO Merger Corporation
('Mergerco'), a wholly owned subsidiary of Triarc Companies, Inc. ('Triarc')
(formerly known as DWG Corporation), and Triarc, which provides for the merger
(the 'Merger') of Mergerco into the Company, with the Company being the
surviving corporation. In this Merger, holders of outstanding shares of the
Company's Common Stock, other than Triarc and its subsidiaries, will receive 0.8
of a share of Triarc's Class A Common Stock for each of their shares of Company
Common Stock.
A special committee of the Board of Directors of the Company (the 'Special
Committee') has considered the terms and conditions of the Merger. In connection
with such consideration, the Special Committee retained Smith Barney Shearson
Inc. ('Smith Barney') to act as its independent financial advisor. A copy of
Smith Barney's written opinion as to the fairness, from a financial point of
view, to the stockholders of SEPSCO (other than Triarc and its affiliates) of
the consideration to be received in the Merger by such stockholders, is included
as an Annex II to the attached Proxy Statement-Prospectus. The Special Committee
and your Board of Directors have each unanimously approved the Merger Agreement
and your Board of Directors recommends that you vote FOR adoption of the Merger
Agreement.
The Merger is structured to satisfy Triarc's obligations under the terms of
a Stipulation of Settlement (the 'Settlement Agreement') relating to the
settlement of a purported derivative action (the 'Action') brought by a Company
stockholder on behalf of the Company against Triarc, certain of its affiliates
and certain individuals. On January 11, 1994, the court in which the Action is
pending approved the terms of the Settlement Agreement.
The attached Proxy Statement-Prospectus is a proxy statement for the
Special Meeting and a prospectus for the shares of Triarc Class A Common Stock
to be issued to holders of the Company's Common Stock in the Merger.
Please give these proxy materials your careful attention, as the discussion
included therein is important to your decisions on the matters being presented.
Your vote is important and it is important that your shares be represented and
voted at the Meeting, regardless of the size of your holdings. Accordingly,
whether or not you plan to attend the Meeting in person, please promptly mark,
sign and date the enclosed proxy and return it in the enclosed envelope to
assure that your shares will be represented at the Meeting.
Stockholders should not send in their stock certificates when returning
their proxies. If the Merger is consummated, stockholders will be notified and
furnished with instructions as to how and when to submit stock certificates to
receive the merger consideration.
Sincerely yours,
<TABLE>
<S> <C>
NELSON PELTZ PETER W. MAY
Chairman and Chief President and Chief
Executive Officer Operating Officer
</TABLE>
<PAGE>
PRELIMINARY COPY
SOUTHEASTERN PUBLIC SERVICE COMPANY
777 S. FLAGLER DRIVE, SUITE 1000E,
WEST PALM BEACH, FLORIDA 33401
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON THURSDAY, APRIL 14, 1994
------------------------
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the 'Special
Meeting') of Southeastern Public Service Company, a Delaware corporation (the
'Company'), will be held on Thursday, April 14, 1994, commencing at 12:00 noon,
local time, at the Palm Beach Airport Hilton, 150 Australian Avenue, West Palm
Beach, Florida, for the following purposes:
(1) To consider and vote upon a proposal to adopt the Agreement and
Plan of Merger, dated as of November 22, 1993 (the 'Merger Agreement'), by
and among the Company, SEPSCO Merger Corporation and Triarc Companies,
Inc., a copy of which attached as Annex I to the accompanying Proxy
Statement-Prospectus; and
(2) To transact such other business as may properly come before the
Special Meeting or any adjournments or postponements thereof.
Holders of the Company's outstanding shares of 5 1/2% Cumulative
Convertible Preferred Stock, Series B (the 'Preferred Shares') have the right to
dissent from the merger and seek an appraisal of their Preferred Shares pursuant
to court proceedings by following the procedures prescribed under Section 262 of
the Delaware General Corporation Law. THE HOLDERS OF SHARES OF THE COMPANY'S
COMMON STOCK DO NOT HAVE THE RIGHT TO SEEK AN APPRAISAL OF THEIR SHARES PURSUANT
TO ANY SUCH COURT PROCEEDING.
Only stockholders of record on March 7, 1994 are entitled to receive notice
of and to vote at the Special Meeting and any adjournments or postponements
thereof. See 'THE SPECIAL MEETING' in the accompanying Proxy
Statement-Prospectus.
Please promptly mark, sign and date the enclosed proxy and return it in the
enclosed envelope whether or not you plan to attend the Special Meeting. Your
proxy may be revoked at any time before it is voted by filing with the Secretary
of the Company a written revocation of proxy bearing a later date, or by
attending and voting in person at the Special Meeting.
By Order of the Board of Directors,
CURTIS S. GIMSON
Senior Vice President and
Associate General Counsel, and
Secretary
West Palm Beach, Florida
March 14, 1994
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE SPECIAL
MEETING, PLEASE MARK, SIGN AND DATE AND RETURN THE ACCOMPANYING PROXY PROMPTLY.
PLEASE DO NOT SEND ANY STOCK CERTIFICATES AT THIS TIME.
<PAGE>
SUBJECT TO COMPLETION PRELIMINARY PROXY STATEMENT_--_PROSPECTUS
DATED MARCH 10, 1994
PROXY STATEMENT
OF
SOUTHEASTERN PUBLIC SERVICE COMPANY
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 14, 1994
------------------------
PROSPECTUS
OF
TRIARC COMPANIES, INC.
(FORMERLY DWG CORPORATION)
CLASS A COMMON STOCK
PAR VALUE $.10 PER SHARE
------------------------
INTRODUCTION
This Proxy Statement-Prospectus is being furnished to stockholders of
Southeastern Public Service Company, a Delaware corporation ('SEPSCO'), in
connection with the solicitation of proxies by the Board of Directors of SEPSCO
(the 'SEPSCO Board') from holders of the outstanding shares of SEPSCO common
stock, par value $1.00 per share ('SEPSCO Common Stock'), and SEPSCO 5 1/2%
Cumulative Convertible Preferred Stock, Series B, par value $50.00 per share
('SEPSCO Preferred Stock' and together with the SEPSCO Common Stock, the 'SEPSCO
Voting Stock'), for use at a special meeting of stockholders of SEPSCO scheduled
to be held on April 14, 1994, commencing at 12:00 noon, local time, at the Palm
Beach Airport Hilton, 150 Australian Avenue, West Palm Beach, Florida, and at
any adjournments or postponements thereof (the 'Special Meeting'). Only holders
of SEPSCO Common Stock and SEPSCO Preferred Stock (each, a 'SEPSCO Stockholder')
at the close of business on March 7, 1994 (the 'Record Date') are entitled to
notice of and to vote at the Special Meeting and any adjournments or
postponements thereof. On the Record Date, there were outstanding 11,655,067
shares of SEPSCO Common Stock, 8,290,289 of which (constituting approximately
71.1% of such outstanding shares) were held by a wholly-owned subsidiary of
Triarc Companies, Inc. ('Triarc'), an Ohio corporation formerly known as DWG
Corporation, and 490 shares of SEPSCO Preferred Stock, all of which were held by
Triarc. This Proxy Statement-Prospectus and a form of proxy for use at the
Special Meeting are first being mailed on or about March 14, 1994 to holders of
record on the Record Date of shares of SEPSCO Common Stock and SEPSCO Preferred
Stock.
- ----------------------------------------------------------
SEE 'RISK FACTORS' FOR A DESCRIPTION OF CERTAIN RISKS RELATING TO
THE MERGER AND THE MERGER CONSIDERATION.
- ----------------------------------------------------------
At the Special Meeting, stockholders will be asked to consider and vote
upon a proposal to adopt the Agreement and Plan of Merger, dated as of November
22, 1993 (the 'Merger Agreement'), by and among Triarc, SEPSCO Merger
Corporation, a Delaware corporation and wholly owned subsidiary of Triarc
('Mergerco'), and SEPSCO, a copy of which is attached as Annex I to this Proxy
Statement -- Prospectus, pursuant to which (a) Mergerco will be merged with and
into SEPSCO (the 'Merger'), with SEPSCO being the surviving corporation (the
'Surviving Corporation'), all of the stock of which will be owned by Triarc, and
(b) each share of SEPSCO Common Stock outstanding immediately prior to the time
the Merger becomes effective (the 'Effective Time'), other than shares which are
held by Triarc or a subsidiary of Triarc, will be converted into the right to
receive 0.8 of a share of Triarc's Class A Common Stock, par value $.10 per
share ('Triarc Class A Common Stock'), all as described below. This Proxy
Statement also constitutes the Prospectus of Triarc for the issuance of the
shares of Triarc Class A Common Stock in connection with the Merger.
Holders of shares of SEPSCO Preferred Stock have the right to dissent from
the Merger and (in the event that the Merger Agreement is approved and the
Merger consummated) seek an appraisal of their shares of SEPSCO Preferred Stock
pursuant to court proceedings, by following the procedures prescribed under
Section 262 ('Section 262') of the Delaware General Corporation Law (the
'DGCL'). HOLDERS OF SHARES OF SEPSCO COMMON STOCK DO NOT HAVE THE RIGHT TO SEEK
AN APPRAISAL OF THEIR SHARES. Triarc holds all outstanding shares of SEPSCO
Preferred Stock and has agreed to vote all such shares FOR the adoption of the
Merger Agreement and, therefore, will not be able to exercise its rights under
Section 262.
Triarc Class A Common Stock is listed on the New York Stock Exchange, Inc.
(the 'NYSE') under the symbol 'TRY.'
(Cover continued on next page)
- ----------------------------------------------------------
THE SHARES OF TRIARC CLASS A COMMON STOCK HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN
THIS PROXY STATEMENT-PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
- ----------------------------------------------------------
THE DATE OF THIS PROXY STATEMENT-PROSPECTUS IS MARCH , 1994.
<PAGE>
(Cover continued from previous page.)
Approximately 2,691,822 shares of Triarc Class A Common Stock will be
issued by Triarc in the Merger. Such shares will represent approximately 11.2%
of the issued and outstanding shares of Triarc Class A Common Stock immediately
after giving effect to the issuance of shares of Triarc Class A Common Stock in
the Merger.
Pursuant to the terms of the Merger Agreement, each holder immediately
prior to the Effective Time of shares of SEPSCO Common Stock (other than Triarc
and its subsidiaries) will receive (a) a number of whole shares of Triarc Class
A Common Stock determined by multiplying the number of shares of SEPSCO Common
Stock owned by such stockholder immediately prior to the Effective Time by 0.8
and (b) cash in lieu of any fractional shares of Triarc Class A Common Stock
which they would otherwise be entitled to receive. The shares of Triarc Class A
Common Stock, and cash in lieu of fractional shares of Triarc Class A Common
Stock, to be received by holders of SEPSCO Common Stock in the Merger are
sometimes hereinafter referred to as the 'Merger Consideration.'
Consummation of the Merger will satisfy certain of the terms and conditions
(the 'Settlement Terms and Conditions') contained in a Stipulation of Settlement
(the 'Settlement Agreement') relating to the settlement of a purported
derivative action (the 'Ehrman Litigation') brought on behalf of SEPSCO by
William A. Ehrman (the 'Plaintiff'), a SEPSCO stockholder, against Triarc,
certain of its affiliates and certain individuals, including certain former
directors of SEPSCO (together, the 'Defendants'). On January 11, 1994, the
United States District Court for the Southern District of Florida (the 'District
Court'), the court before which the Ehrman Litigation is pending, held a hearing
on the Settlement Agreement and following such hearing entered an order
approving the Settlement Agreement.
If the Merger is consummated, the District Court will permanently bar and
enjoin the institution or prosecution by the Plaintiff and his counsel, either
directly or derivatively, SEPSCO and SEPSCO's stockholders, and any of their
respective representatives, trustees, successors, heirs, executors,
administrators and assigns, of all claims, rights or causes of action, they now
have or ever had whether known or unknown or suspected to exist which were or
could have been asserted in the Ehrman Litigation, or in any other court or
forum, in connection with, arising out of, or in any way relating to any acts,
facts, transactions, omissions or other subject matters set forth, alleged,
embraced, or otherwise referred to in the Ehrman Litigation, the complaint filed
by Plaintiff in connection with the Ehrman Litigation or the Settlement
Agreement, against (i) any Defendant, (ii) any present or former director,
officer, agent, financial or legal advisor, predecessor or successor of any
corporate Defendant, (iii) any subsidiary of a corporate Defendant or (iv) any
financial or legal advisor of any such subsidiary (collectively, the 'Released
Persons').
Approval of the proposal to adopt the Merger Agreement requires the
affirmative votes of (i) the holders of at least a majority of the outstanding
shares of SEPSCO Voting Stock entitled to vote at the Special Meeting
(considered as a single class), (ii) the holders of at least two-thirds of the
outstanding shares of SEPSCO Preferred Stock entitled to vote at the Special
Meeting, and (iii) the holders of at least two-thirds of the outstanding shares
of SEPSCO Voting Stock, other than those held by Triarc or any subsidiary of
Triarc, entitled to vote at the Special Meeting (the foregoing votes being the
'Required Stockholder Vote'). Triarc owns all of the outstanding shares of
SEPSCO Preferred Stock and, through a wholly-owned subsidiary, owns a sufficient
number of shares of SEPSCO Common Stock to cause the votes described in clauses
(i) and (ii) of the preceding sentence to be obtained without the vote of any
other SEPSCO Stockholder. HOWEVER, THE OBTAINING OF THE VOTE DESCRIBED IN CLAUSE
(III) DEPENDS SOLELY UPON THE VOTE OF SEPSCO STOCKHOLDERS OTHER THAN TRIARC AND
ITS SUBSIDIARY AND CANNOT BE ASSURED. IF SUCH CONDITION IS NOT SATISFIED, THE
PROPOSAL TO ADOPT THE MERGER AGREEMENT WILL NOT BE APPROVED AND THE MERGER WILL
NOT BE CONSUMMATED. If the Merger is not consummated, the Settlement Agreement
will not enter into effect and will be deemed null and void ab initio and the
rights and duties of the parties to the Ehrman Litigation will revert, without
prejudice, to their respective status immediately prior to the execution of the
Settlement Agreement. Upon the occurrence of such event, and if no other
settlement or resolution of the Ehrman Litigation is reached, Triarc has
indicated that it will vigorously defend itself against the allegations
contained in the complaint filed by the Plaintiff in the Ehrman Litigation.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INTRODUCTION................................... 1
AVAILABLE INFORMATION.......................... 4
INFORMATION INCORPORATED BY REFERENCE.......... 5
LIST OF CERTAIN DEFINED TERMS.................. 6
SUMMARY........................................ 8
RISK FACTORS................................... 18
THE SPECIAL MEETING............................ 21
General.................................... 21
Voting at the Special Meeting.............. 21
Proxies.................................... 21
SPECIAL FACTORS................................ 23
Background to the Merger; Reasons for the
Merger.................................. 23
The Reorganization and Related
Matters............................. 23
Legal Proceedings Related to SEPSCO
and Triarc.......................... 25
Purpose and Structure of the Merger........ 28
Certain Effects of the Merger and Related
Transactions............................ 28
Conduct of the Business of the Surviving
Corporation After the Merger............ 29
Recommendation of the SEPSCO Special
Committee and the SEPSCO Board.......... 29
Opinion of Financial Advisor............... 32
Interests of Certain Persons in the
Merger.................................. 35
PRO FORMA FINANCIAL STATEMENTS................. 36
THE MERGER AGREEMENT........................... 46
General.................................... 46
Effective Time of Merger................... 46
Conversion of Stock........................ 46
Payment for SEPSCO Common Stock............ 46
Certificate of Incorporation, By-laws,
Directors............................... 47
Conditions to the Merger................... 47
Certain Agreements Pending the Merger...... 49
Termination................................ 51
Certain Other Provisions of the Merger
Agreement............................... 52
FINANCING OF THE MERGER AND RELATED
TRANSACTIONS: SOURCE AND AMOUNT OF FUNDS..... 53
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE
MERGER....................................... 54
COMPARISON OF RIGHTS OF HOLDERS OF SEPSCO
COMMON STOCK AND TRIARC CLASS A COMMON
STOCK........................................ 54
MARKET FOR TRIARC'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS.......................... 61
MARKET FOR SEPSCO'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.......................... 62
TRIARC CAPITALIZATION.......................... 63
SEPSCO CAPITALIZATION.......................... 64
TRIARC AND CONSOLIDATED SUBSIDIARIES SELECTED
FINANCIAL DATA............................... 65
SEPSCO AND SUBSIDIARIES SELECTED FINANCIAL
DATA......................................... 66
BUSINESS OF TRIARC COMPANIES................... 67
Introduction............................... 67
Business Segments.......................... 69
General.................................... 86
<CAPTION>
PAGE
----
<S> <C>
Discontinued and Other Operations.......... 89
Properties................................. 92
BUSINESS OF SEPSCO............................. 94
Introduction............................... 94
Business Overview.......................... 94
Other Investments.......................... 96
Recent Transactions........................ 96
Environmental Matters...................... 97
Working Capital............................ 97
Intellectual Property; Research and
Development; Backlog.................... 97
Employees.................................. 98
Legal Proceedings.......................... 98
Properties................................. 98
TRIARC COMPANIES MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS................................ 99
SEPSCO MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATION.................................... 114
MANAGEMENT OF TRIARC........................... 121
Executive Officers and Directors of
Triarc.................................. 121
Certain Arrangements and Undertakings
Relating to the Composition of the
Triarc Board of Directors............... 124
Information Regarding Certain Committees of
the Triarc Board of Directors........... 125
Compensation Committee Interlocks and
Insider Participation................... 126
Compensation of Directors.................. 126
TRIARC EXECUTIVE COMPENSATION.................. 127
OWNERSHIP OF TRIARC SECURITIES BY CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT............. 134
MANAGEMENT OF SEPSCO........................... 136
OWNERSHIP OF SEPSCO SECURITIES BY CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT............. 137
INFORMATION RELATING TO MERGERCO............... 139
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS................................. 140
DESCRIPTION OF TRIARC CAPITAL STOCK............ 145
Triarc Common Shares....................... 145
Redeemable Convertible Preferred Stock..... 145
Triarc Serial Preferred Shares and Triarc
Junior Preferred Shares................. 147
SUBMISSION OF STOCKHOLDER PROPOSALS FOR
SEPSCO'S 1994 ANNUAL MEETING OF SEPSCO
STOCKHOLDERS................................. 147
CERTAIN LEGAL MATTERS, EXPERTS AND REGULATORY
APPROVALS.................................... 147
Federal and State Approvals................ 147
Legal Opinions............................. 147
Experts.................................... 148
Delaware Business Combination Statute...... 148
Miscellaneous.............................. 148
INDEX TO FINANCIAL STATEMENTS.................. F-1
ANNEX I -- MERGER AGREEMENT.................... A-1
ANNEX II -- OPINION OF SMITH BARNEY............ B-1
</TABLE>
3
<PAGE>
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT-PROSPECTUS,
IN CONNECTION WITH THE OFFERING MADE HEREBY, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED ON AS HAVING BEEN AUTHORIZED.
THIS PROXY STATEMENT-PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY THE SECURITIES TO WHICH IT RELATES IN ANY
JURISDICTION IN WHICH, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH AN
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROXY STATEMENT-PROSPECTUS
NOR ANY OFFER OR SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN INFORMATION SET FORTH HEREIN OR IN
THE AFFAIRS OF SEPSCO, TRIARC OR MERGERCO OR ANY OF THEIR AFFILIATES OR
SUBSIDIARIES FROM THE DATE HEREOF.
AVAILABLE INFORMATION
Triarc has filed with the Securities and Exchange Commission (the
'Commission') a registration statement on Form S-4 (the 'Registration
Statement'), of which this Proxy Statement-Prospectus is a part, under the
Securities Act of 1933, as amended (the 'Securities Act'), with respect to the
Triarc Class A Common Stock. As permitted by the rules and regulations of the
Commission, this Proxy Statement-Prospectus omits certain information and
exhibits contained in the Registration Statement.
SEPSCO and Triarc are subject to the information and reporting requirements
of the Securities Exchange Act of 1934, as amended (the 'Exchange Act'), and in
accordance therewith file periodic reports, proxy statements and other
information with the Commission. The Registration Statement and the exhibits
thereto, as well as such reports, proxy statements and other information filed
by SEPSCO or Triarc with the Commission, can be inspected and copied at the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, and at its regional offices at Northwestern Atrium
Center, 500 Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and 7 World
Trade Center, New York, New York 10048. Copies of such material can be obtained
from the public reference section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 upon payment of the prescribed fee.
The SEPSCO Common Stock and SEPSCO's 11 7/8% Senior Subordinated Debentures
due February 1, 1998 (the '11 7/8% Debentures') are listed on the Pacific Stock
Exchange Incorporated (the 'PSE'). Reports and other information concerning
SEPSCO should be available for inspection and copying at the offices of the PSE
at 301 Pine Street, San Francisco, California 94104.
If the Merger is consummated, the SEPSCO Common Stock will be delisted from
the PSE and SEPSCO will take steps to terminate the registration of the SEPSCO
Common Stock under Section 12 of the Exchange Act. See 'MARKET FOR SEPSCO'S
COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.' However, SEPSCO will be required
to file periodic reports with the Commission so long as it has securities (such
as the 11 7/8% Debentures) registered under the Exchange Act.
The Triarc Class A Common Stock is listed on the NYSE and the PSE.
Application will be made to list the additional shares of Triarc Class A Common
Stock to be issued in connection with the Merger for trading on each exchange
located in the United States of America on which shares of Triarc Class A Common
Stock are listed. Reports and other information concerning Triarc should be
available for inspection and copying at the offices of the NYSE at 20 Broad
Street, New York, New York 10005, and the PSE at 301 Pine Street, San Francisco,
California 94104. Such reports and other information may also be obtained from
Triarc in the manner specified in 'INFORMATION INCORPORATED BY REFERENCE.'
4
<PAGE>
INFORMATION INCORPORATED BY REFERENCE
THIS PROXY STATEMENT-PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF ANY SUCH DOCUMENTS,
OTHER THAN EXHIBITS TO SUCH DOCUMENTS UNLESS THEY ARE SPECIFICALLY INCORPORATED
BY REFERENCE, ARE AVAILABLE WITHOUT CHARGE TO ANY PERSON, INCLUDING ANY
BENEFICIAL OWNER, TO WHOM THIS PROXY STATEMENT-PROSPECTUS IS DELIVERED UPON
WRITTEN OR ORAL REQUEST TO: CURTIS S. GIMSON, TRIARC COMPANIES, INC., 777 SOUTH
FLAGLER DRIVE, WEST PALM BEACH, FLORIDA 33401; TELEPHONE (407) 653-4000. IN
ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY
APRIL 4, 1994.
The following documents filed with the Commission pursuant to Section 13 of
the Exchange Act with respect to Triarc (File No. 1-2207) are hereby
incorporated by reference into this Proxy Statement-Prospectus:
1. Triarc's Annual Report on Form 10-K for the fiscal year ended April
30, 1993, as amended by an amendment thereto filed with the Commission on
August 30, 1993;
2. Triarc's Quarterly Reports on Form 10-Q for the fiscal quarters
ended July 31, 1993 and October 31, 1993;
3. Triarc's Current Reports on Form 8-K dated April 23, 1993,
September 13, 1993, October 15, 1993, October 27, 1993, and November 22,
1993; and
4. The description of Triarc's Class A Common Stock contained in the
registration statement on Form 8-A dated November 2, 1993, filed under
Section 12 of the Exchange Act, including any amendment or report filed for
the purpose of updating such description.
All documents filed by Triarc's with the Commission pursuant to Sections
13(a), 13(c), 14 and 15(d) of the Exchange Act after the date hereof and prior
to the date of the Special Meeting shall be deemed to be incorporated by
reference herein.
On October 27, 1993, Triarc announced that it would change its fiscal year
from a year ending April 30 to a year ending December 31, commencing with
December 31, 1993. Accordingly, on or before March 31, 1994, Triarc will file
with the Commission a transition report on Form 10-K for the period May 1
through December 31, 1993 (such period being hereinafter referred to as
'Transition 1993').
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes hereof to the extent that a statement contained herein (or in any
other subsequently filed document which also is incorporated or deemed to be
incorporated by reference herein) modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed to constitute a part
hereof except as so modified or superseded.
All information appearing in this Proxy Statement-Prospectus is qualified
in its entirety by the information and financial statements (including notes
thereto) appearing in the documents incorporated herein or deemed to be
incorporated herein by reference.
5
<PAGE>
LIST OF CERTAIN DEFINED TERMS
<TABLE>
DEFINED TERM PAGE
- ----------------------------------------------- ----
<S> <C>
AFA............................................ 79
AFC............................................ 24
AFC Exchange Agreement......................... 24
AIG............................................ 90
Apartment...................................... 128
APL............................................ 101
APL Committee.................................. 143
APL Complaint.................................. 143
APL Proceedings................................ 143
Arby's......................................... 8
ARCOP.......................................... 79
ASE............................................ 15
Asplundh....................................... 97
Avery.......................................... 121
Bank Loan...................................... 129
Book Value Adjustment.......................... 119
Brilliant...................................... 91
C.H. Patrick................................... 8
Cameon......................................... 91
Carson Employment Agreement.................... 129
CEO Compensation............................... 36
Certificate.................................... 46
CFC Holdings................................... 9
CFC Holdings Agreements........................ 140
Change in Control.............................. 99
Chesapeake Insurance........................... 89
Citibank....................................... 135
Citibank Loans................................. 135
Closing Date................................... 117
Cold Storage Business.......................... 9
Commission..................................... 4
Complaint...................................... 12
Completed Transactions......................... 36
Consulting Agreement........................... 23
Control Agreement.............................. 50
Conversion Price............................... 146
Cost Sharing Arrangements...................... 141
Cott........................................... 8
Cott Worldwide Agreement....................... 19
Counsel Notes.................................. 26
Court Appointed Directors...................... 124
Current Annual Premiums........................ 52
Current Cott Agreement......................... 19
Custodial Loans................................ 135
Defendants..................................... 2
DGCL........................................... 1
DHEC........................................... 88
Discontinued Operations Plan................... 9
District Court................................. 2
D&O Insurance Coverage......................... 52
DWG Acquisition................................ 10
Early Termination Payment...................... 142
EBIT........................................... 34
EBITDA......................................... 34
Effective Period............................... 125
Effective Time................................. 1
Ehrman Claims.................................. 30
Ehrman Litigation.............................. 2
Employment Agreements.......................... 130
<CAPTION>
DEFINED TERM PAGE
- ----------------------------------------------- ----
<S> <C>
Equitable Bag.................................. 122
Equity Participation Plan...................... 50
Equity Transactions............................ 10
Exchange Act................................... 4
Exchange Agent................................. 11
FDA............................................ 87
Final Order.................................... 13
Finance Committee.............................. 49
First Boston................................... 122
Fiscal......................................... 8
Fiscal 1993.................................... 99
Florida Property............................... 129
Former Affiliates.............................. 141
Former Cost Sharing Arrangements............... 141
Former Management Services Agreement........... 141
Fractional Shares.............................. 47
GATT........................................... 20
Granada........................................ 91
Graniteville................................... 8
Graniteville Credit Facility................... 24
greige goods................................... 80
Hearing........................................ 28
Holdings Common Stock.......................... 140
House.......................................... 49
Ice Business................................... 9
Indemnified Parties............................ 52
Indenture...................................... 110
IRM............................................ 35
IRS............................................ 108
January Memorandum............................. 15
July Resolution................................ 9
Kingsmore Employment Agreement................. 130
Landlord....................................... 142
Lease.......................................... 142
Lease Modification............................. 142
Leased Space................................... 142
Letter of Intent............................... 9
LIBOR Rate..................................... 107
LP gas......................................... 83
LP Gas Companies............................... 8
Merger......................................... 1
Merger Agreement............................... 1
Mergerco....................................... 1
Merger Consideration........................... 2
Mergerco Common Stock.......................... 46
Merrill Lynch/DLJ Investors.................... 23
Minority Share Acquisitions.................... 140
Modification................................... 91
Mountleigh..................................... 122
MTCIP.......................................... 128
Mutual Fire.................................... 90
NAFTA.......................................... 20
Named Officers................................. 127
National Propane............................... 8
Note........................................... 117
Notice......................................... 27
NPC Leasing.................................... 142
NVF............................................ 30
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
DEFINED TERM PAGE
- ----------------------------------------------- ----
<S> <C>
NVF Proceedings................................ 109
NYSE........................................... 1
Ohio Court..................................... 91
Original Stipulation........................... 91
OSHA........................................... 88
PDER........................................... 113
PEC............................................ 103
Pierce Employment Agreement.................... 129
Plaintiff...................................... 2
Pledged Shares................................. 135
Posner......................................... 10
Posner Entities................................ 10
PPM Corp....................................... 96
Preliminary Order.............................. 27
Public Gas..................................... 8
Public Stockholder............................. 12
Purchase Price................................. 135
PSE............................................ 4
QSR............................................ 77
RC/Arby's...................................... 12
RC/Arby's Refinancing.......................... 12
RC Cola........................................ 8
Record Date.................................... 1
Redeemable Convertible Preferred Stock......... 15
Refinancing.................................... 10
Registration Statement......................... 4
Reincorporation................................ 55
Released Persons............................... 2
Relocation Agreement........................... 129
Remediation Plan............................... 97
Reorganization................................. 10
Republic Loans................................. 135
Required Stockholder Vote...................... 2
Restructuring.................................. 10
Revolving Loan................................. 107
RICO........................................... 12
Rights......................................... 50
Salem.......................................... 141
S&P 500 Index.................................. 48
SARs........................................... 126
Securities Act................................. 4
Section 262.................................... 1
Senate......................................... 49
SEPSCO......................................... 1
SEPSCO Board................................... 1
SEPSCO By-Laws................................. 54
SEPSCO Certificate of Incorporation............ 54
SEPSCO Common Stock............................ 1
SEPSCO Comparable Companies.................... 34
SEPSCO Fiscal 1993............................. 114
SEPSCO Preferred Stock......................... 1
SEPSCO Pro Forma Balance Sheet................. 42
SEPSCO Pro Forma Financial Statements.......... 42
SEPSCO Pro Forma Statements of Operations...... 42
<CAPTION>
DEFINED TERM PAGE
- ----------------------------------------------- ----
<S> <C>
SEPSCO Special Committee....................... 11
SEPSCO Stockholder............................. 1
SEPSCO Transition 1993......................... 62
SEPSCO Voting Stock............................ 1
September Memorandum........................... 15
Settlement Agreement........................... 2
Settlement Condition........................... 48
Settlement Note................................ 26
Settlement Terms and Conditions................ 2
SFAS........................................... 101
SFAS 106....................................... 101
SFAS 109....................................... 101
Smith Barney................................... 12
SMC............................................ 35
Southwestern Ice............................... 9
Special Meeting................................ 1
Step-Up Notes.................................. 24
Stock Purchase Agreement....................... 124
Surviving Corporation.......................... 1
Target Companies............................... 34
TASCO.......................................... 144
TASCO Fee...................................... 144
Term Loan...................................... 107
TIN............................................ 54
Transition 1993................................ 5
Trian.......................................... 121
Triangle....................................... 121
Triarc......................................... 1
Triarc Articles................................ 54
Triarc Board................................... 20
Triarc Capital Stock........................... 145
Triarc Class A Common Stock.................... 1
Triarc Class B Common Stock.................... 23
Triarc Common Shares........................... 50
Triarc Companies............................... 8
Triarc Companies Pro Forma Balance Sheet....... 36
Triarc Companies Pro Forma Financial
Statements................................... 36
Triarc Companies Pro Forma Statements of
Operations................................... 36
Triarc Comparable Companies.................... 34
Triarc Junior Serial Preferred Stock........... 55
Triarc Notes................................... 24
Triarc Preferred Stock......................... 145
Triarc Regulations............................. 54
Triarc Serial Preferred Stock.................. 55
Triarc Special Committee....................... 91
Undertaking.................................... 125
Ways and Means Committee....................... 49
Wilson Brothers................................ 68
Wright & Lopez................................. 96
9 3/4% Senior Notes............................ 24
11 7/8% Debentures............................. 4
13 1/8% Debentures............................. 109
16 7/8% Debentures............................. 41
</TABLE>
7
<PAGE>
SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information and the financial statements (including the notes thereto)
appearing elsewhere in this Proxy Statement-Prospectus or incorporated by
reference herein. SEPSCO Stockholders are urged to read this Proxy
Statement-Prospectus and the Annexes hereto in their entirety. Unless the
context otherwise requires, all references in this Proxy Statement-Prospectus to
'Triarc Companies' refer to Triarc and its consolidated subsidiaries. On October
27, 1993, Triarc announced that it was changing its fiscal year end to December
31 effective for the transition period ended December 31, 1993 and that each of
its subsidiaries that did not then have a December 31 fiscal year end, including
SEPSCO, would also change its fiscal year end to December 31 effective for the
transition period ended December 31, 1993. Unless otherwise indicated, (i)
references herein to financial information of Triarc's subsidiaries refer to
such financial information as reflected in the Consolidated Financial Statements
of Triarc and subsidiaries (see Note 1 to the Notes to Consolidated Financial
Statements of Triarc Companies, Inc. and Subsidiaries included elsewhere
herein), and (ii) references herein to a year preceded by the word 'Fiscal'
refer to the twelve months ended April 30 of such year. SEPSCO STOCKHOLDERS ARE
ESPECIALLY URGED TO READ THE SECTION ENTITLED 'SPECIAL FACTORS' FOR A DISCUSSION
OF CERTAIN SPECIAL FACTORS RELATING TO THE MERGER AND AN INVESTMENT IN TRIARC.
PARTIES TO THE MERGER AGREEMENT
TRIARC COMPANIES
Triarc Companies is engaged in four core businesses: soft drink, fast food,
textiles and liquefied petroleum gas. The soft drink operations are conducted
through Royal Crown Company, Inc., formerly known as Royal Crown Cola Co., Inc.
('RC Cola'); the fast food operations are conducted through Arby's, Inc.
('Arby's'); the textile operations are conducted through Graniteville Company
('Graniteville'); and the liquefied petroleum gas operations are conducted
through National Propane Corporation ('National Propane') and its subsidiaries
and Public Gas Company ('Public Gas'), a subsidiary of SEPSCO (National Propane
and its subsidiaries and Public Gas are collectively referred to herein as the
'LP Gas Companies').
RC Cola produces and sells soft drink concentrates used in the production
and distribution of soft drinks by independent bottlers under the brand names RC
COLA, DIET RC COLA, DIET RITE COLA, DIET RITE flavors, NEHI, UPPER 10 and KICK.
RC Cola is the third largest national brand cola and is the only national brand
cola alternative available to non-Coca-Cola and non-Pepsi-Cola bottlers. RC Cola
is also the exclusive supplier of proprietary cola concentrate to Cott
Corporation ('Cott'), which sells private label soft drinks to major retailers
such as Wal-Mart, A&P and Safeway.
Arby's is the world's largest franchise restaurant system specializing in
roast beef sandwiches with an estimated market share in 1993 of 65.1% of the
roast beef sandwich segment of the quick-service restaurant category. In
addition, Triarc Companies believes that Arby's is the 14th largest restaurant
chain in the United States, based on domestic system-wide sales. Worldwide sales
for the Arby's system were approximately $1.5 billion in Fiscal 1993 and
approximately $1.1 billion during Transition 1993. Arby's acts both as a
franchisor and as an owner and operator in a system that included 2,682
restaurants as of December 31, 1993, of which 259 were company-owned.
Graniteville manufactures, dyes and finishes cotton, synthetic and blended
(cotton and polyester) apparel fabrics. Graniteville produces fabrics for
utility wear including uniforms and other occupational apparel, piece-dyed
fabrics for sportswear, casual wear and outerwear, indigo-dyed fabrics for
jeans, sportswear and outerwear and specialty fabrics for recreational,
industrial and military end-uses. Through a wholly-owned subsidiary, C.H.
Patrick & Co., Inc. ('C.H. Patrick'), Graniteville also produces and markets
dyes and specialty chemicals primarily to the textile industry. Triarc Companies
believes that Graniteville is a leading domestic manufacturer of fabrics for
utility wear, piece-dyed fabrics for sportswear, casual wear and outerwear and
indigo-dyed fabrics used in the production of high-end fashion apparel.
Triarc Companies believes the LP Gas Companies are the fifth largest
distributors of liquefied petroleum gas in terms of unit volume in the United
States. This business is conducted by approximately 156 operating units located
in 20 states in the Southeast, Northeast, Midwest and Southwest, primarily in
suburban and rural areas.
8
<PAGE>
Set forth on page 69 is an organizational chart which shows Triarc and its
principal subsidiaries and indicates the current percentage of the outstanding
common equity which Triarc owns, directly or indirectly, in each such
subsidiary. Triarc, through a number of direct and indirect subsidiaries,
including SEPSCO, is also currently engaged in a variety of non-core businesses,
substantially all of which it intends to dispose of or discontinue as part of
its business strategy. Triarc was incorporated in Ohio in 1929. Triarc's
principal executive offices are located at 777 South Flagler Drive, West Palm
Beach, Florida 33401, and its telephone number is (407) 653-4000. See 'BUSINESS
OF TRIARC COMPANIES.'
SEPSCO
SEPSCO, directly and through its subsidiaries, currently provides cold
storage warehouse facilities and manufactures and sells ice; distributes and
sells liquefied petroleum gas; and has working and royalty interests in natural
gas and oil producing properties. SEPSCO also holds minority interests in
several Triarc subsidiaries, including a 49% interest in Graniteville and a 5.4%
interest in CFC Holdings Corp. ('CFC Holdings'), the indirect parent of RC Cola
and Arby's. In July 1993, the SEPSCO Board adopted a resolution (the 'July
Resolution') calling for the sale or discontinuance of substantially all of its
operating businesses and assets, other than its minority equity interests in
other Triarc subsidiaries. The actions contemplated by the July Resolution are
referred to herein as the 'Discontinued Operations Plan.' In October 1993,
SEPSCO completed three transactions in which it disposed of businesses which
provide a variety of services to electrical and telephone utilities and
municipalities, which businesses formerly constituted SEPSCO's utilities and
municipal services segment. On November 12, 1993, SEPSCO and Southwestern Ice
Inc. ('Southwestern Ice') signed a letter of intent (the 'Letter of Intent') for
the sale by SEPSCO to Southwestern Ice of substantially all of the operating
assets of the ice manufacturing and distribution portion of its refrigeration
services and products businesses (the 'Ice Business') for $5 million in cash and
approximately $4 million principal amount of subordinated secured notes due on
the fifth anniversary of the sale and the assumption by the purchaser of certain
current liabilities. The Letter of Intent, by its terms, expired on January 11,
1994, although the parties are still continuing discussions with respect to the
transaction contemplated by the Letter of Intent. Completion of the transaction
contemplated by the Letter of Intent is subject to a number of significant
conditions and no assurance can be given that such transaction will be
consummated. Triarc and SEPSCO have agreed in principle to the sale by SEPSCO to
Triarc of the stock of the SEPSCO subsidiaries that hold SEPSCO's natural gas
and oil working and royalty interests. Such sale will be for a net cash purchase
price of $8.5 million, will be consummated on or before July 22, 1994 and is not
contingent upon the consummation of the Merger. See 'BUSINESS OF SEPSCO --
Recent Transactions' and 'CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS --
Certain Other Transactions.' Triarc has indicated that following the Merger, in
connection with the Discontinued Operations Plan, it intends to cause SEPSCO to
transfer the liquefied petroleum gas business conducted by SEPSCO's Public Gas
subsidiary to National Propane. Assuming that the Ice Business is sold to
Southwestern Ice as contemplated by the Letter of Intent and the transfers
described in the two immediately preceeding sentences have occurred, the only
SEPSCO business remaining to be disposed of pursuant to the Discontinued
Operations Plan is the nationwide cold storage and warehouse facilities portion
of SEPSCO's refrigeration products and services businesses (the 'Cold Storage
Business'). No agreements have been entered into as of the date hereof with
respect to the Cold Storage Business and the precise timetable for the
disposition of such business will depend upon SEPSCO's ability to identify an
appropriate purchaser and to negotiate acceptable terms of sale. Although SEPSCO
currently anticipates completing the sale of that business by July 31, 1994,
there can be no assurance that SEPSCO will be successful in completing such
sale. Some or all of the net proceeds from the sale by SEPSCO of its businesses
may be used to repurchase, redeem or prepay SEPSCO's outstanding indebtedness,
including the indebtedness evidenced by the 11 7/8% Debentures.
Triarc, through a wholly-owned subsidiary, currently owns approximately
71.1% of the outstanding shares of SEPSCO Common Stock and directly owns 100% of
the outstanding shares of SEPSCO Preferred Stock. If the Merger is consummated,
SEPSCO will be a wholly owned subsidiary of Triarc. SEPSCO was incorporated in
Delaware in 1947. SEPSCO's principal executive offices are located at 777 South
Flagler Drive, Suite 1000E, West Palm Beach, Florida 33401, and its telephone
number is (407) 653-4000. See 'BUSINESS OF SEPSCO.'
9
<PAGE>
MERGERCO
Mergerco was organized by Triarc in September 1993 under Delaware law in
order to effect the Merger. Mergerco is a wholly owned subsidiary of Triarc.
Mergerco has not engaged in any activities other than those incident to its
formation. If the Merger is consummated, Mergerco will be merged into SEPSCO and
will no longer exist. Mergerco's principal executive offices are located at 777
South Flagler Drive, West Palm Beach, Florida 33401, and its telephone number is
(407) 653-4000. See 'INFORMATION RELATING TO MERGERCO.'
NEW OWNERSHIP AND EXECUTIVE MANAGEMENT
On April 23, 1993, DWG Acquisition Group, L.P. ('DWG Acquisition'), a
Delaware limited partnership, the sole general partners of which are Nelson
Peltz and Peter W. May, acquired shares of Triarc common stock from Victor
Posner ('Posner') and certain entities controlled by Posner (together with
Posner, the 'Posner Entities'), representing approximately 28.6% of Triarc's
then outstanding Common Stock. As a result of such acquisition and a series of
related transactions which were also consummated on April 23, 1993
(collectively, the 'Equity Transactions'), the Posner Entities no longer hold
any shares of voting stock of Triarc or any of its subsidiaries. Concurrently
with the consummation of the Equity Transactions, the Triarc Companies
refinanced a significant portion of its high cost debt in order to reduce
interest costs and to provide additional funds for working capital and liquidity
purposes (the 'Refinancing'). Following the consummation of the Equity
Transactions and the Refinancing, the Boards of Directors of each of Triarc and
SEPSCO installed a new corporate management team, headed by Nelson Peltz and
Peter W. May, who were elected Chairman and Chief Executive Officer and
President and Chief Operating Officer of each of Triarc and SEPSCO,
respectively. In addition, Leon Kalvaria was elected Vice Chairman of each of
Triarc and SEPSCO. The Triarc Board of Directors also approved a plan to
decentralize and restructure the Triarc Companies' management (the
'Restructuring'). For a more detailed description of the Equity Transactions,
the Refinancing and the Restructuring (collectively referred to herein as the
'Reorganization'), see 'SPECIAL FACTORS -- Background to the Merger; Reasons for
the Merger -- The Reorganization and Related Matters.'
THE SPECIAL MEETING
The Special Meeting will be held on Thursday, April 14, 1994, commencing at
12:00 noon local time, at the Palm Beach Airport Hilton, 150 Australian Avenue,
West Palm Beach, Florida. Holders of record of shares of SEPSCO Common Stock and
shares of SEPSCO Preferred Stock at the close of business on the Record Date are
entitled to notice of and to vote at the Special Meeting.
Each outstanding share of SEPSCO Common Stock entitles the holder thereof
to one vote; each outstanding share of SEPSCO Preferred Stock entitles the
holder thereof to one vote. On the Record Date, 11,655,067 shares of SEPSCO
Common Stock and 490 shares of SEPSCO Preferred Stock were outstanding. The
total voting power of outstanding shares of SEPSCO Voting Stock entitled to vote
at the Special Meeting is 11,655,557 votes.
The affirmative vote of (i) the holders of at least a majority of the
outstanding shares of SEPSCO Voting Stock entitled to vote at the Special
Meeting (considered as a single class), (ii) the holders of at least two-thirds
of the outstanding shares of SEPSCO Preferred Stock entitled to vote at the
Special Meeting, and (iii) the holders of at least two-thirds of the outstanding
shares of SEPSCO Voting Stock, other than those held by Triarc or any subsidiary
of Triarc, entitled to vote at the Special Meeting, is required to adopt the
Merger Agreement. Therefore, abstentions and broker non-votes will have the same
effect as votes against approval and adoption of the Merger.
The Merger Agreement requires Triarc to vote, or cause to be voted, all of
its SEPSCO Voting Stock in favor of the adoption of the Merger Agreement.
Triarc, which directly and through a wholly-owned subsidiary owns and has the
right to vote at the Special Meeting approximately 71.1% of the outstanding
shares of SEPSCO Voting Stock and 100% of the outstanding shares of SEPSCO
Preferred Stock, controls a sufficient number of shares of SEPSCO Common Stock
and SEPSCO Preferred Stock to cause the votes described in clauses (i) and (ii)
above to be obtained without the vote of any other SEPSCO Stockholder. HOWEVER,
THE OBTAINING OF THE VOTE DESCRIBED IN CLAUSE (III) ABOVE DEPENDS SOLELY UPON
THE VOTE OF SEPSCO STOCKHOLDERS OTHER THAN TRIARC AND CANNOT BE ASSURED. See
'THE SPECIAL MEETING.'
10
<PAGE>
THE MERGER
TERMS OF THE MERGER
The Merger Agreement provides for the merger of Mergerco into SEPSCO with
SEPSCO being the Surviving Corporation.
At the Effective Time, (i) each outstanding share of SEPSCO Common Stock
(other than shares of SEPSCO Common Stock then owned by Triarc and its
subsidiaries, all of which will be cancelled) will, by virtue of the Merger and
without any action on the part of the holder thereof, be converted into the
right to receive from Triarc 0.8 of a share of Triarc Class A Common Stock, (ii)
each outstanding share of SEPSCO Preferred Stock will, by virtue of the Merger
and without any action on the part of the holder thereof, be cancelled, and
(iii) SEPSCO will become a wholly owned subsidiary of Triarc. Pursuant to the
Merger Agreement, Triarc will vote all of the shares of SEPSCO Voting Stock
owned by it in favor of the Merger Agreement and, therefore, will not be
entitled under Section 262 to exercise its appraisal rights with respect to the
shares of SEPSCO Preferred Stock which it owns.
Assuming the Merger is consummated, approximately 2,691,822 shares of
Triarc Class A Common Stock will be issued in the Merger. Such shares will
represent approximately 11.2% of the issued and outstanding shares of Triarc
Class A Common Stock immediately after giving effect to the issuance of the
shares of Triarc Class A Common Stock in the Merger. For information concerning
the capitalization of Triarc as of October 31, 1993 on an actual and on a pro
forma basis to reflect the Merger, see 'TRIARC CAPITALIZATION.'
EXCHANGE OF SEPSCO COMMON STOCK FOR MERGER CONSIDERATION
In order to receive the Merger Consideration following the Effective Time,
each holder of a certificate theretofore representing SEPSCO Common Stock will
be required to properly surrender his or her stock certificate, together with a
duly executed and properly completed letter of transmittal and any other
required documents to Harris Trust Company of New York, as Exchange Agent (the
'Exchange Agent'). The Exchange Agent will send instructions to holders of
SEPSCO Common Stock with regard to the procedure for surrendering certificates,
together with a letter of transmittal and any required documents, as promptly as
practicable after the Effective Time. Each holder of SEPSCO Common Stock (other
than Triarc and its subsidiaries) will receive a number of whole shares of
Triarc Class A Common Stock determined by multiplying the number of shares of
SEPSCO Common Stock owned by such stockholder at the Effective Time by 0.8. Such
holders will be paid cash in lieu of any fractional shares of Triarc Class A
Common Stock which they would otherwise be entitled to receive. See 'THE MERGER
AGREEMENT -- Payment for SEPSCO Common Stock.'
SEPSCO STOCKHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THE
ENCLOSED PROXY CARD.
RECOMMENDATION OF THE SEPSCO BOARD
On April 24, 1993, the SEPSCO Board created a special committee of the
SEPSCO Board composed of directors David E. Schwab II and Sir Ian MacGregor (the
'SEPSCO Special Committee') for the purpose of reviewing, negotiating the terms
of, and reporting back to the full SEPSCO Board as to its recommendations with
respect to, any transaction proposed by Triarc in connection with the settlement
of the Ehrman Litigation. The SEPSCO Special Committee was authorized to engage
such legal, financial and other advisers as the SEPSCO Special Committee deemed
appropriate in carrying out its assignment. Pursuant to such authority, the
SEPSCO Special Committee retained Smith Barney Shearson Inc. ('Smith Barney') to
act as its financial adviser. See 'SPECIAL FACTORS -- Recommendation of the
SEPSCO Special Committee and the SEPSCO Board.'
After considering all relevant information, including the opinion of Smith
Barney to the effect that the Merger Consideration to be received by the holders
of SEPSCO Common Stock (other than Triarc and its affiliates) (each, a 'Public
Stockholder') is fair, from a financial point of view, to such holders, the
SEPSCO Special Committee voted unanimously to approve the terms of the Merger.
Following the favorable recommendation of the SEPSCO Special Committee, the
SEPSCO Board unanimously approved the Merger Agreement and recommends that the
SEPSCO Stockholders vote FOR adoption of the Merger Agreement. See 'SPECIAL
FACTORS -- Recommendation of the SEPSCO Special Committee and the SEPSCO Board.'
11
<PAGE>
In considering the recommendation of the SEPSCO Board with respect to the
Merger, SEPSCO stockholders should be aware that certain members of SEPSCO's
management and of the SEPSCO Board have certain interests which may present them
with potential conflicts of interest in connection with the Merger. Messrs.
Peltz and May are Chairman and Chief Executive Officer and President and Chief
Operating Officer, respectively, of SEPSCO, Triarc and Mergerco and Leon
Kalvaria is the Vice Chairman of each of SEPSCO, Triarc and Mergerco. Three of
SEPSCO's five directors (Messrs. Peltz and May and Leon Kalvaria) are also
directors of Triarc. The two other SEPSCO directors (Messrs. Schwab and
MacGregor, who, as the only members of the SEPSCO Board who are not also Triarc
directors, were designated members of the SEPSCO Special Committee to review the
merger proposal from Triarc) have served as directors of other corporations
affiliated with Messrs. Peltz and May. All of Mergerco's directors are directors
of both Triarc and SEPSCO. Substantially all of the executive officers of Triarc
and Mergerco are also executive officers of SEPSCO. See 'SPECIAL
FACTORS -- Interests of Certain Persons in the Merger.'
THE SEPSCO BOARD UNANIMOUSLY RECOMMENDS THAT SEPSCO STOCKHOLDERS VOTE FOR
---
ADOPTION OF THE MERGER AGREEMENT.
OPINION OF FINANCIAL ADVISOR
On November 15, 1993, Smith Barney delivered to the SEPSCO Special
Committee its oral opinion, confirmed by a written opinion dated November 22,
1993, to the effect that, as of the respective dates and based upon and subject
to certain matters as stated in its written opinion, the Merger Consideration to
be received by the holders of SEPSCO Common Stock (other than Triarc and its
affiliates) in the Merger was fair, from a financial point of view, to such
holders. The full text of the November 22, 1993 Smith Barney written opinion
setting forth the assumptions made, matters considered and scope of review
undertaken in connection therewith is attached as Annex II to this Proxy
Statement-Prospectus and should be read in its entirety. See 'SPECIAL
FACTORS -- Opinion of Financial Advisor.'
LEGAL PROCEEDINGS RELATED TO THE MERGER
In December 1990, the Plaintiff commenced the Ehrman Litigation in the
District Court. Although SEPSCO was named as a nominal defendant in such case,
the amended complaint, which was filed in April 1991 (the 'Complaint'), names as
defendants Triarc, certain current and former corporate affiliates of Triarc,
and certain individuals who were, at the time of the actions described in the
Complaint, directors of SEPSCO (including two persons who are currently
directors of Triarc, Messrs. William L. Pallot and Thomas A. Prendergast). The
Complaint alleges that the Defendants breached their fiduciary duties to SEPSCO
and RC/Arby's Corporation ('RC/Arby's'), the parent corporation of RC Cola and
Arby's, formerly known as Royal Crown Corporation, by authorizing or permitting
certain transactions that reduced SEPSCO's ownership of RC/Arby's and
Graniteville while increasing Triarc's equity interest in such companies. The
Complaint also alleged that SEPSCO's 1991 proxy statement violated Section 14 of
the Exchange Act by failing to disclose certain alleged material facts and it
also alleged that the Defendants had engaged in a pattern of racketeering
activity in violation of the Racketeer Influenced and Corrupt Organizations Act
of 1970 ('RICO'). See 'SPECIAL FACTORS -- Background of the Merger; the Reasons
for the Merger; -- Legal Proceedings Related to SEPSCO and Triarc.'
On October 18, 1993, the parties to the Ehrman Litigation executed the
Settlement Agreement containing the following Settlement Terms and Conditions:
(1) dismissal on the merits and with prejudice of the Ehrman Litigation
resulting in a final adjudication on the merits of any and all claims against
the Defendants that Plaintiff, SEPSCO or any of the Public Stockholders have or
could have asserted in the Ehrman Litigation or in any other action or in any
other court relating to any of the acts, facts, transactions, omissions or other
subject matters set forth, embraced or otherwise referred to in the Ehrman
Litigation, the Complaint or the Settlement Agreement, and (2) agreement by
Triarc that after the Settlement Agreement becomes final, it will cause SEPSCO
to be merged with or otherwise acquired by Triarc, or an affiliate or subsidiary
of Triarc, in a transaction in which each Public Stockholder would receive in
exchange for each share of SEPSCO Common Stock held by such Public Stockholder
0.8 of a share of Triarc Class A Common Stock. The Settlement Terms and
Conditions also provide that Triarc will pay the reasonable fees and expenses of
Plaintiff's counsel and investment
12
<PAGE>
banker, as may be awarded by the District Court, and include an agreement by
Triarc and the other Defendants not to object to an application by Plaintiff's
counsel for fees and expenses in an amount not to exceed $1,250,000 and to
payment of Plaintiff's investment banker's fees and expenses in amount not to
exceed $50,000.
On January 11, 1994, the District Court held a hearing on the Settlement
Agreement and entered an Order and Final Judgment (a 'Final Order') approving
the Settlement Terms and Conditions and the Plaintiff's application for legal
and investment banking fees and expenses aggregating $1.3 million.
The terms of the Merger are consistent with the Settlement Terms and
Conditions. The entry by the District Court of the Final Order approving, among
other things, the Settlement Terms and Conditions satisfied one of the
conditions to the obligations of Triarc, Mergerco and SEPSCO to consummate the
Merger. See 'THE MERGER AGREEMENT -- Conditions to the Merger.'
If the Merger is not consummated, the Settlement Agreement will not enter
into effect and will be deemed null and void ab initio and the rights and duties
of the parties to the Ehrman Litigation will revert, without prejudice, to their
respective status immediately prior to the execution of the Settlement
Agreement. Upon the occurrence of such event, and if no other settlement or
resolution of the Ehrman Litigation is reached, Triarc has indicated that it
will vigorously defend itself against the allegations contained in the complaint
filed by the Plaintiff in the Ehrman Litigation.
For more information concerning the Ehrman Litigation and the Settlement
Agreement, see 'SPECIAL FACTORS -- Background to the Merger; Reasons for the
Merger -- Legal Proceedings Related to SEPSCO and Triarc.'
RISK FACTORS
STOCKHOLDERS ARE URGED TO READ THE SECTION APPEARING FOLLOWING THIS SUMMARY
ENTITLED 'RISK FACTORS' FOR A DISCUSSION OF CERTAIN RISKS AND OTHER FACTORS
RELATING TO THE MERGER AND TO AN INVESTMENT IN TRIARC.
APPRAISAL RIGHTS
Only holders of record of shares of SEPSCO Preferred Stock have the right
to dissent from the Merger and seek an appraisal of their shares pursuant to
Section 262. HOLDERS OF SHARES OF SEPSCO COMMON STOCK DO NOT HAVE SUCH RIGHTS
WITH RESPECT TO THEIR SHARES OF SEPSCO COMMON STOCK. Triarc holds all
outstanding shares of SEPSCO Preferred Stock and has agreed to vote all such
shares for the adoption of the Merger Agreement and, therefore, will not be able
to exercise its rights under Section 262.
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO PUBLIC STOCKHOLDERS
Generally, the exchange of shares of SEPSCO Common Stock for shares of
Triarc Class A Common Stock will constitute a taxable exchange for federal
income tax purposes. As a result, a holder of SEPSCO Common Stock will recognize
gain or loss on the exchange of SEPSCO Common Stock for shares of Triarc Class A
Common Stock measured by the difference between such stockholder's tax basis in
such shares of SEPSCO Common Stock and the fair market value of the shares of
Triarc Class A Common Stock received with respect thereto. See 'CERTAIN FEDERAL
INCOME TAX CONSEQUENCES OF THE MERGER.'
PURPOSE, STRUCTURE AND CERTAIN EFFECTS OF THE MERGER
The purpose of the Merger is for Triarc to acquire the shares of SEPSCO
Common Stock held by the Public Stockholders in accordance with the Settlement
Terms and Conditions contained in the Settlement Agreement. If the Merger is
consummated, SEPSCO will become a wholly owned subsidiary of Triarc. As a result
of the Merger, the SEPSCO Common Stock would be delisted from the PSE and the
registration of the SEPSCO Common Stock under the Exchange Act would terminate.
Stockholders of SEPSCO would become stockholders of Triarc, SEPSCO's parent. See
'SPECIAL FACTORS -- Certain Effects of the Merger and Related Transactions.'
13
<PAGE>
REGULATORY APPROVALS
No federal or state regulatory requirements remain to be complied with in
order to consummate the Merger. See 'CERTAIN LEGAL MATTERS, EXPERTS AND
REGULATORY APPROVALS.' However, the obligations of Triarc, Mergerco and SEPSCO
to consummate the Merger are subject to satisfaction of a number of other
conditions. See 'THE MERGER AGREEMENT -- Conditions to the Merger.'
PLANS FOR SEPSCO AFTER THE MERGER
Triarc has indicated that SEPSCO's Discontinued Operations Plan will not be
affected by the Merger and accordingly, following the Merger, Triarc intends to
cause SEPSCO to (i) continue with plans to dispose of its Ice Business and its
Cold Storage Business, to the extent not theretofore disposed of, and (ii)
transfer the liquefied petroleum gas business of SEPSCO's Public Gas subsidiary
to National Propane, although the precise method by which such business will be
transferred has not yet been determined. Triarc and SEPSCO have agreed in
principle to the sale by SEPSCO to Triarc of the stock of the SEPSCO
subsidiaries that hold SEPSCO's natural gas and oil working and royalty
interests. Such sale will be for a net cash purchase price of $8.5 million, will
be consummated on or before July 22, 1994 and is not contingent upon the
consummation of the Merger. See 'SPECIAL FACTORS -- Conduct of the Business of
the Surviving Corporation After the Merger.'
ACCOUNTING TREATMENT OF THE MERGER
Triarc will account for the Merger as a step acquisition in accordance with
the purchase method of accounting and, accordingly, the additional interest in
the assets acquired and the additional interest in the liabilities assumed will
be recorded at their fair values (which they currently approximate) and the
minority interest in SEPSCO will be eliminated as of the date of the Merger. The
excess of the purchase price over the fair value of the additional interest in
the net assets acquired will be amortized on a straight-line basis over 30
years.
MARKET PRICES FOR THE SEPSCO COMMON STOCK AND THE TRIARC CLASS A COMMON STOCK
The PSE is the principal market on which SEPSCO Common Stock is traded
(symbol: SPV). The NYSE is the principal market on which Triarc Class A Common
Stock is traded (symbol: TRY). The Triarc Class A Common Stock is also traded on
the PSE.
Set forth below are the closing sale prices for a share of SEPSCO Common
Stock and for a share of Triarc Class A Common Stock, each as reported on the
consolidated transaction reporting system, on each of the following dates:
September 1, 1992, the last full business day preceding the public announcement
that a letter of intent had been entered into by Triarc, the Posner Entities and
an affiliate of DWG Acquisition which contemplated the several transactions
ultimately resulting in DWG Acquisition becoming the largest stockholder of
Triarc and the Posner Entities selling their interests in the Triarc Companies
for cash and non-voting shares of Triarc's cumulative convertible redeemable
preferred stock, par value $.10 per share (the 'Redeemable Convertible Preferred
Stock'); January 20, 1993, the last full business day preceding the public
announcement that DWG Acquisition and the Plaintiff in the Ehrman Litigation had
entered into a Memorandum of Understanding dated January 21, 1993 (the 'January
Memorandum') with respect to a proposed settlement of the Ehrman Litigation,
which terms, although different in certain material respects from the Settlement
Terms and Conditions, contemplated that DWG Acquisition would use its best
efforts following the Reorganization to cause Triarc to settle the Ehrman
Litigation through the acquisition by Triarc of the shares of SEPSCO Common
Stock held by the Public Stockholders; April 22, 1993, the last full business
day preceding the Reorganization; September 10, 1993, the last business day
preceding the public announcement that Triarc and the Plaintiff had entered into
a Memorandum of Understanding dated September 13, 1993 (the 'September
Memorandum') which superseded the January Memorandum and which provided that
Triarc would use its best efforts to cause the Defendants to enter into the
Settlement Agreement; October 15, 1993, the last business day preceding the day
on which Triarc announced that the parties to the Ehrman Litigation had executed
the Settlement Agreement; November 19, 1993, the last business
14
<PAGE>
day preceeding the day on which Triarc and SEPSCO announced that the Merger
Agreement had been executed; and March 10, 1994.
<TABLE>
<CAPTION>
CLOSING SALE PRICE
-----------------------------
SEPSCO TRIARC CLASS A
COMMON STOCK COMMON STOCK*
------------ -------------
<S> <C> <C>
September 1, 1992..................................................... $ 6 7/8 $ 11
January 20, 1993...................................................... 14 1/4 15 5/8
April 22, 1993........................................................ 15 1/4 19 5/8
September 10, 1993.................................................... 23 31 5/8
October 15, 1993...................................................... 22 3/4 30 1/8
November 19, 1993..................................................... 21 3/8 27 3/4
March 10, 1994........................................................
</TABLE>
- ------------
* Prior to April 23, 1993, Triarc had only one authorized class of common
stock. On April 23, 1993, in connection with the Reorganization, each then
outstanding share of Triarc common stock was converted into a share of Triarc
Class A Common Stock. Prior to November 17, 1993, the date on which the
Triarc Class A Common Stock began trading on the NYSE, the principal market
for the Triarc Class A Common Stock was the American Stock Exchange, Inc.
(the 'ASE').
- ----------------------------------------------------------
For information relating to historical market prices of and dividends on
the SEPSCO Common Stock and the Triarc Class A Common Stock, see 'MARKET FOR
SEPSCO'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS' and 'MARKET FOR TRIARC'S
COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.' Holders of SEPSCO Common Stock
are urged to obtain current quotations for such securities.
15
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
SUMMARY FINANCIAL INFORMATION(1)
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED
OCTOBER
FISCAL YEAR ENDED APRIL 30, 31,
--------------------------------------------------------------------------- --------
PRO FORMA(2)
1989 1990 1991 1992 1993 1993 1992
-------- ---------- ---------- ---------- ---------- ------------ --------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues......................... $987,730 $1,038,923 $1,027,162 $1,074,703 $1,058,274 $1,058,274 $522,371
Operating profit................. 45,123 61,130 23,304 58,552 34,459 30,191 32,129
Loss from continuing
operations..................... (5,851) (13,966) (17,501) (10,207) (44,549) (50,114) (4,398)
Discontinued operations, net..... 3,250 1,072 (55) 2,705 (2,430) 2,016
Extraordinary items, net......... 1,807 1,363 703 -- (6,611) --
Cumulative effect of changes in
accounting principles, net..... -- -- -- -- (6,388) (6,388)
Net loss......................... (794) (11,531) (16,853) (7,502) (59,978) (8,770)
Preferred stock dividend
requirements................... (580) (14) (11) (11) (121) (5)
Net loss applicable to common
stockholders(3)................ (1,374) (11,545) (16,864) (7,513) (60,099) (8,775)
Loss per share:
Continuing operations........ (.39) (.55) (.68) (.39) (1.73) (2.36) (.17)
Discontinued operations...... .20 .04 -- .10 (.09) .08
Extraordinary items.......... .11 .06 .03 -- (.26) --
Cumulative effect of changes
in accounting principles... -- -- -- -- (.25) (.25)
Net loss..................... (.08) (.45) (.65) (.29) (2.33) (.34)
BALANCE SHEET DATA:
Total assets..................... 860,709 863,993 851,912 821,170 910,662
Long-term debt................... 409,418 407,353 345,860 289,758 488,654
Redeemable preferred stock....... -- -- -- -- 71,794
Stockholders' equity (deficit)... 117,646 109,052 92,529 86,482 (35,387)
Net book value (deficit) per
share.......................... 6.78 4.21 3.57 3.34 (1.67)
Weighted average common shares
outstanding.................... 16,669 25,428 25,853 25,867 25,808 23,712
<CAPTION>
PRO FORMA(2)
1993 1993
-------- ------------
<S> <C> <C>
OPERATING DATA:
Revenues......................... $521,470 $521,470
Operating profit................. 22,253 21,476
Loss from continuing
operations..................... (19,628) (20,574)
Discontinued operations, net..... (7,168)
Extraordinary items, net......... (448)
Cumulative effect of changes in
accounting principles, net..... --
Net loss......................... (27,244)
Preferred stock dividend
requirements................... (2,916)
Net loss applicable to common
stockholders(3)................ (30,160)
Loss per share:
Continuing operations........ (1.06) (.98)
Discontinued operations...... (.34)
Extraordinary items.......... (.02)
Cumulative effect of changes
in accounting principles... --
Net loss..................... (1.42)
BALANCE SHEET DATA:
Total assets..................... 913,439 944,830
Long-term debt................... 540,355 540,355
Redeemable preferred stock....... 71,794 71,794
Stockholders' equity (deficit)... (64,749) (12,298)
Net book value (deficit) per
share.......................... (3.04) (.51)
Weighted average common shares
outstanding.................... 21,239 23,931
</TABLE>
- ------------
(1) Summary financial information has been retroactively restated to reflect the
discontinuance of SEPSCO's utility and municipal services, refrigeration and
natural gas and oil operations in fiscal 1993. On December 9, 1993 SEPSCO's
Board of Directors decided the natural gas and oil business will be
transferred to Triarc rather than SEPSCO selling it to an independent third
party. Such transfer will be in the form of a sale of the stock of the
entities comprising the natural gas and oil business for cash. It is
intended for this sale to occur following the Merger and the resulting
elimination of the minority interest in SEPSCO. However, should the Merger
not be approved by the SEPSCO stockholders the sale of the stock of the
natural gas and oil entities for cash to Triarc will be completed prior to
July 22, 1994.
(2) Pro forma summary financial information reflects (i) the issuance of an
aggregate 2,691,822 common shares of Triarc for all of the aggregate
3,364,778 SEPSCO common shares owned by stockholders other than Triarc
Companies and its subsidiaries in connection with the Merger Agreement, (ii)
the payment of $1,000,000 of estimated expenses related to the issuance of
the stock and $3,000,000 of estimated fees and expenses related to the
Merger and Settlement Agreement and (iii) the Completed Transactions (as
defined in the TRIARC COMPANIES PRO FORMA FINANCIAL STATEMENTS included
elsewhere herein).
(3) Triarc has not declared or paid any dividends on its common shares during
any of the periods presented.
16
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
SUMMARY FINANCIAL INFORMATION(1)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
NOVEMBER 30,
FISCAL YEAR ENDED FEBRUARY 28 OR 29, PRO ------------------
------------------------------------------------ FORMA(2)
1989 1990 1991 1992 1993 1993 1992 1993
-------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales................................... $ 24,134 $ 27,104 $ 29,154 $ 29,220 $ 28,520 $28,520 $ 18,944 $ 19,760
Operating profit............................ 4,045 3,922 3,181 4,571 3,634 2,602 1,705 354
Income (loss) from continuing operations
before equity in cumulative effect of
changes in accounting principles and
extraordinary items....................... (632) 7,716 4,245 6,332 12,572 11,540 7,366 1,183
Income (loss) from discontinued operations,
net of income taxes....................... (425) (2,256) (7,899) (225) (5,542) 938 (23,355)
Cumulative effect of changes in accounting
principles of:
SEPSCO.................................. -- -- -- -- -- -- 7,617
Equity in affiliates, net of taxes...... -- -- -- -- (5,954) (5,954) (102)
Equity in extraordinary items of
affiliates................................ 1,226 748 794 -- (348) -- --
Net income (loss)........................... 169 6,208 (2,860) 6,107 728 2,350 (14,657)
Preferred stock dividend requirements....... (24) (16) (8) (1) (1) (1) (1)
Net income (loss) applicable to common
stockholders(2)........................... 145 6,192 (2,868) 6,106 727 2,349 (14,658)
Income (loss) per share(3):
Continuing operations................... (.05) .66 .36 .54 1.08 1.39 .63 .10
Discontinued operations................. (.04) (.19) (.68) (.02) (.48) .08 (2.00)
Cumulative effect of changes in
accounting principles of affiliate.... -- -- -- -- (.51) (.51) .64
Extraordinary items of affiliate........ .10 .06 .07 -- (.03) -- --
Net income (loss)....................... .01 .53 (.25) .52 .06 .20 (1.26)
Triarc Companies' loss from continuing
operations per equivalent SEPSCO
share(4).................................. (1.89)
BALANCE SHEET DATA:
Total assets................................ 206,882 196,498 191,788 208,330 206,253 171,130
Long-term debt of continuing operations..... 79,908 71,845 64,373 56,826 49,661 50,501
Long-term debt included in discontinued
operations................................ 19,383 18,146 17,973 18,070 16,992 277
Stockholders' equity........................ 82,672 88,503 85,010 107,503 108,230 93,572
Net book value per share.................... 7.09 7.59 7.29 9.22 9.28 8.03
Triarc Companies' net book value (deficit)
per equivalent SEPSCO share(4)
<CAPTION>
PRO FORMA(2)
1993
------------
<S> <C>
OPERATING DATA:
Net sales................................... $ 19,760
Operating profit............................ (420)
Income (loss) from continuing operations
before equity in cumulative effect of
changes in accounting principles and
extraordinary items....................... 409
Income (loss) from discontinued operations,
net of income taxes.......................
Cumulative effect of changes in accounting
principles of:
SEPSCO..................................
Equity in affiliates, net of taxes......
Equity in extraordinary items of
affiliates................................
Net income (loss)...........................
Preferred stock dividend requirements.......
Net income (loss) applicable to common
stockholders(2)...........................
Income (loss) per share(3):
Continuing operations................... .05
Discontinued operations.................
Cumulative effect of changes in
accounting principles of affiliate....
Extraordinary items of affiliate........
Net income (loss).......................
Triarc Companies' loss from continuing
operations per equivalent SEPSCO
share(4).................................. (.78)
BALANCE SHEET DATA:
Total assets................................ 196,227
Long-term debt of continuing operations..... 50,501
Long-term debt included in discontinued
operations................................ 277
Stockholders' equity........................ 119,369
Net book value per share.................... 14.40
Triarc Companies' net book value (deficit)
per equivalent SEPSCO share(4) (.41)
</TABLE>
- ------------
(1) Summary financial information has been retroactively restated to reflect the
discontinuance of utility and municipal services, refrigeration and natural
gas and oil operations in 1993.
(2) Pro forma summary financial information reflects the Merger which will
result in Triarc Companies owning all outstanding shares of SEPSCO and the
payment of expenses related to the settlement of the Ehrman Litigation in
connection with the Merger and Settlement Agreement.
(3) SEPSCO has not paid any dividends on its common shares during any of the
periods presented.
(4) Triarc Companies' pro forma loss from continuing operations per equivalent
SEPSCO share and pro forma net book value per equivalent SEPSCO share were
calculated by multiplying the Triarc Companies' respective amounts per share
by the exchange ratio contemplated by the Merger (0.8 Triarc shares to each
SEPSCO share).
(5) Weighted average shares outstanding were 11,655,067 for each of the
historical periods presented. For pro forma periods, weighted average shares
outstanding were 8,290,289 after giving effect to 3,364,778 shares of SEPSCO
Common Stock assumed to be exchanged for Triarc Class A Common Stock in
connection with the Merger.
17
<PAGE>
RISK FACTORS
HOLDING COMPANY STRUCTURE
Triarc is a holding company which conducts all of its operations through
its subsidiaries. All of Triarc's operating income is generated by its
subsidiaries. Triarc must rely on dividends and other advances and transfers of
funds from its subsidiaries, including payments pursuant to certain cost sharing
arrangements described elsewhere herein and certain tax sharing arrangements to
provide the funds necessary to meet Triarc's obligations. See 'CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS.' The ability of Triarc's subsidiaries to
pay such dividends and make such advances and transfers is subject to applicable
state laws as well as to the terms of existing and future agreements restricting
the payment of dividends and the making of such advances and transfers by such
subsidiaries to Triarc. The relevant provisions of the existing principal
agreements are described under 'TRIARC MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Liquidity and Capital
Resources' and in Note 11 of the Notes to Consolidated Financial Statements of
Triarc Companies, Inc. and Subsidiaries included elsewhere herein.
SUBSTANTIAL LEVERAGE; DEBT SERVICE
Triarc and its consolidated subsidiaries are highly leveraged. As a
consequence of such leverage: (i) Triarc's ability to obtain additional
financing in the future for working capital, capital expenditures or other
purposes may be limited; (ii) a substantial portion of Triarc's consolidated
cash flow from operations may be dedicated to payments in respect of its
indebtedness; and (iii) Triarc's flexibility in responding to economic downturns
and competitive pressures could be limited. See 'TRIARC COMPANIES MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Liquidity and Capital Resources.'
NET LOSSES; NEW MANAGEMENT AND BUSINESS STRATEGY TO RESTORE PROFITABILITY
The Triarc Companies reported net losses after preferred dividend
requirements for each fiscal year from 1989 through 1993, and for the six month
period ended October 31, 1993. The Triarc Companies believes that these losses
were in large part the result of limited managerial and financial resources
devoted to certain of its business units, a significant amount of high cost debt
and, with respect to Fiscal 1993 and the six month period ended October 31,
1993, certain restructuring and other charges. See 'TRIARC MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.'
In connection with the Reorganization, new chief executive officers were
appointed for each of RC Cola, Arby's and National Propane and a new slate of
executive officers for the Triarc Companies was elected. These new executive and
operating management teams have developed business strategies designed to
improve the Triarc Companies' financial performance. The Triarc Companies has a
limited operating history under these new management teams and business
strategies. Accordingly, although the members of these management teams have
significant experience in their respective industries, there is no opportunity
for prospective investors to evaluate such management on the basis of past
performance with the Triarc Companies. In addition, there can be no assurance
that these strategies can be implemented effectively or that the implementation
of these strategies will result in improved profitability. As a part of its
business strategy, the Triarc Companies intends to undertake and is actively
pursuing acquisitions and business combinations to augment the four core
businesses. The Triarc Companies does not currently have any agreements,
arrangements or understandings with respect to any specific, material
acquisition or business combination. There can be no assurance that new
management will be able to identify appropriate acquisition opportunities or
that any acquisition, if consummated, will result in improved profitability. See
'BUSINESS OF TRIARC COMPANIES -- Business Strategy,' ' -- Business
Segments -- Soft Drink (RC Cola) -- Business Strategy,' ' -- Fast Food
(Arby's) -- Business Strategy' and ' -- Liquefied Petroleum Gas (National
Propane and Public Gas) -- Business Strategy.'
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RC COLA'S RELIANCE ON CERTAIN BOTTLERS AND PRIVATE LABEL SALES
RC Cola sells its soft drink concentrate to a number of independent
bottlers who are granted exclusive licenses to sell RC Cola brand products
within a defined territory. Two of RC Cola's bottlers purchased approximately
22.3% and 16.1%, respectively, of the concentrate sold by RC Cola in Fiscal 1993
and approximately 25.4% and 16.9%, respectively, of the concentrate sold by RC
Cola in Transition 1993. RC Cola's ten largest bottlers purchased approximately
68.3% and 77.0%, respectively, of the concentrate sold by RC Cola in Fiscal 1993
and Transition 1993, respectively. If one or more of these major bottlers, due
to financial difficulties of the bottlers or otherwise, were to discontinue
selling RC Cola brand products for any reason, RC Cola's sales could be
adversely affected in the areas serviced by such bottlers. See 'BUSINESS OF
TRIARC COMPANIES -- Business Segments -- Soft Drink (RC Cola) -- RC Cola's
Bottler Network.'
In 1991, RC Cola entered into a five-year contract with Cott (the 'Current
Cott Agreement') to be Cott's sole provider of cola concentrates for private
label soft drinks in the United States and Canada. In Fiscal 1993 and Transition
1993, respectively, revenues from sales of private label concentrate to Cott
represented 10.6% and 10.9%, respectively, of RC Cola's total revenues.
In January 1994, RC Cola and Cott agreed on the terms of a new agreement
(the 'Cott Worldwide Agreement'), which will supersede the Current Cott
Agreement. Under the Cott Worldwide Agreement, RC Cola will be Cott's exclusive
worldwide supplier of cola concentrates for retailer-branded beverages in
various containers. In addition, wherever possible, RC Cola will also supply
Cott's requirements for non-cola carbonated soft drink concentrates. The Cott
Worldwide Agreement requires that Cott purchase at least 75% of its total
worldwide requirements for carbonated soft drink concentrates from RC Cola. The
initial term of the Cott Worldwide Agreement is 21 years, with multiple six-year
renewable terms. Although the Cott Worldwide Agreement provides that RC Cola may
manufacture and sell private label concentrate to other packagers or bottlers if
Cott does not meet certain minimum purchase requirements, there can be no
assurance that RC Cola would be able to enter into satisfactory arrangements
with an alternative private label concentrate purchaser either upon Cott's
failure to meet such minimum requirements or upon the termination of the Cott
Worldwide Agreement. See 'BUSINESS OF TRIARC COMPANIES -- Business
Segments -- Soft Drink (RC Cola) -- Private Label.'
ARBY'S EXPANSION STRATEGY
Arby's fast food business consisted of 259 company-owned and operated and
2,423 franchised units as of December 31, 1993. As part of Arby's business
strategy, management currently intends to open approximately 20 to 30 new
company-owned restaurants and to renovate or remodel approximately 70 to 80
company-owned restaurants in 1994. In addition, Arby's is seeking to increase
the number of its franchised restaurants. Arby's ability to implement
successfully its expansion plan will depend on various factors, including the
ability to identify and acquire, by lease or purchase, suitable sites on
satisfactory terms, the availability of skilled management and, with respect to
the expansion of franchised units, the ability to identify and attract qualified
franchisees. There can be no assurance that Arby's will be able to implement its
proposed expansion strategy, including the remodeling plan, or that if
implemented such strategy will be successful. See 'BUSINESS OF TRIARC
COMPANIES -- Business Segments -- Fast Food (Arby's) -- Business Strategy.'
BUSINESS ENVIRONMENT OF TEXTILE INDUSTRY
Graniteville's business is subject to cyclical economic trends that affect
the domestic textile industry. Certain of Graniteville's product lines (such as
utility wear) are sensitive to fluctuations in the general economy, while others
may be affected by changes in fashion trends. Exchange rate fluctuations can
also affect the level of demand for Graniteville's products by changing the
relative price of competing fabrics from overseas producers. See 'BUSINESS OF
TRIARC COMPANIES -- Business Segments -- Textiles (Graniteville).'
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COMPETITION
Each of the industries in which the Triarc Companies' four core businesses
are engaged is highly competitive. Some competitors in these industries have
significantly greater financial, marketing, personnel and other resources than
does the Triac Companies. See 'BUSINESS OF TRIARC COMPANIES -- Competition.'
In recent years, both the soft drink and fast food industries have
experienced increased price competition resulting in significant price
discounting throughout these industries. While the net impact of price
discounting cannot be quantified, a continuation of this practice could have an
adverse effect on the Triarc Companies.
In addition, the Triarc Companies' textile business has experienced
significant competition from manufacturers located outside of the United States
that generally have access to less expensive labor and, in certain cases, raw
materials. The North American Free Trade Agreement ('NAFTA'), which became
effective on January 1, 1994, immediately eliminated quantitative restrictions
on qualified imports of textiles between the United States, Mexico and Canada
and will gradually eliminate tariffs on such imports over a ten-year period. In
addition, a tentative agreement reached on December 15, 1993 under the General
Agreement on Trade and Tariffs ('GATT') would eliminate quantitative
restrictions on imports of textiles and apparel between GATT member countries
over a ten-year transition period. Any significant reduction in import
protection for domestic textile manufacturers could materially adversely affect
the the Triarc Companies' business.
CONTROL BY CERTAIN SHAREHOLDERS
At present, DWG Acquisition owns directly or indirectly approximately 28.1%
of the outstanding Triarc Class A Common Stock. DWG Acquisition will own
approximately 24.9% of the outstanding Triarc Class A Common Stock after giving
effect to the issuance of shares of Triarc Class A Common Stock in the Merger.
Messrs. Peltz and May, as the sole general partners of DWG Acquisition,
beneficially own all of the Triarc Class A Common Stock owned by DWG
Acquisition. As a result of such ownership, Messrs. Peltz and May are able to
exercise significant influence over the election of members of the Triarc Board
of Directors (the 'Triarc Board') and may also be able to influence
significantly the outcome of certain corporate actions requiring shareholder
approval, including mergers, consolidations and the sale of all or substantially
all of Triarc's assets, and may be in a position to prevent or cause a change in
control of Triarc.
ENVIRONMENTAL CONSIDERATIONS
Certain of the Triarc Companies' operations are subject to federal, state
and local environmental laws and regulations concerning the discharge, storage,
handling and disposal of hazardous or toxic substances. Such laws and
regulations provide for significant fines, penalties and liabilities, in certain
cases without regard to whether the owner or operator of the property knew of,
or was responsible for, the release or presence of such hazardous or toxic
substances. In addition, third parties may make claims against owners or
operators of properties for personal injuries and property damage associated
with releases of hazardous or toxic substances. The Triarc Companies cannot
predict what environmental legislation or regulations will be enacted in the
future or how existing or future laws or regulations will be administered or
interpreted. The Triarc Companies cannot predict the amount of future
expenditures which may be required in order to comply with any environmental
laws or regulations or to satisfy any such claims. The Triarc Companies believes
that its operations comply substantially with all applicable environmental laws
and regulations. See 'BUSINESS OF TRIARC COMPANIES -- Environmental Matters' for
additional information relating to environmental matters.
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THE SPECIAL MEETING
GENERAL
This Proxy Statement-Prospectus and the accompanying notice of the Special
Meeting and form of proxy are being furnished to all holders of record on the
Record Date of shares of SEPSCO Common Stock and shares of SEPSCO Preferred
Stock in connection with the solicitation of proxies by the SEPSCO Board for use
at the Special Meeting to be held on Thursday, April 14, 1994, commencing at
12:00 noon, local time, at the Palm Beach Airport Hilton, 150 Australian Avenue,
West Palm Beach, Florida, and any adjournments or postponements thereof. These
proxy materials are being mailed to the SEPSCO Stockholders on or about March
14, 1994.
At the Special Meeting, the SEPSCO Stockholders will be asked to consider
and vote upon a proposal to adopt the Merger Agreement, pursuant to which (i)
Mergerco will be merged with and into SEPSCO, with SEPSCO being the Surviving
Corporation, all of the common stock of which will be owned by Triarc and (ii)
each share of SEPSCO Common Stock outstanding immediately prior to the Effective
Time (other than shares of SEPSCO Common Stock then owned by Triarc or any
subsidiary of Triarc, all of which will be cancelled) will be converted into the
right to receive 0.8 of a share of Triarc Class A Common Stock. The full text of
the Merger Agreement is attached as Annex I hereto and is incorporated herein in
its entirety. See 'THE MERGER AGREEMENT.'
VOTING AT THE SPECIAL MEETING
Record Date. The close of business on March 7, 1994 has been fixed as the
Record Date for determining the SEPSCO Stockholders entitled to notice of and to
vote at the Special Meeting. On the Record Date, there were 11,655,067 shares of
SEPSCO Common Stock and 490 shares of SEPSCO Preferred Stock outstanding and
entitled to vote, held by approximately 2,400 holders of record. SEPSCO
Stockholders may cast one vote per share, either in person or by proxy, on each
matter to be voted on at the Special Meeting.
Required Stockholder Vote. A majority of the outstanding shares of SEPSCO
Voting Stock entitled to vote, represented in person or by proxy, is required
for a quorum at the Special Meeting. The affirmative vote of (i) the holders of
a majority of the outstanding shares of SEPSCO Voting Stock entitled to vote at
the Special Meeting (considered as a single class), (ii) the holders of at least
two-thirds of the outstanding shares of SEPSCO Preferred Stock entitled to vote
at the Special Meeting and (iii) the holders of at least two-thirds of the
outstanding shares of SEPSCO Voting Stock, other than those held by Triarc or
any subsidiary of Triarc, entitled to vote at the Special Meeting, is required
to adopt the Merger Agreement. Therefore, abstentions and broker non-votes will
have the same effect as votes against adoption of the Merger Agreement. The
Merger Agreement requires Triarc to vote, or cause to be voted, all shares
beneficially owned by it in favor of adoption of the Merger Agreement. Triarc,
which directly and through a wholly-owned subsidiary owns and has the right to
vote at the Special Meeting approximately 71.1% of the outstanding shares of
SEPSCO Voting Stock and 100% of the outstanding shares of SEPSCO Preferred
Stock, controls a sufficient number of shares of SEPSCO Common Stock and SEPSCO
Preferred Stock to cause the votes described in clauses (i) and (ii) above to be
obtained without the vote of any other SEPSCO Stockholder. HOWEVER, THE
OBTAINING OF THE VOTE DESCRIBED IN CLAUSE (III) ABOVE DEPENDS SOLELY UPON THE
VOTE OF SEPSCO STOCKHOLDERS OTHER THAN TRIARC AND CANNOT BE ASSURED.
THE SEPSCO BOARD UNANIMOUSLY RECOMMENDS THAT SEPSCO STOCKHOLDERS VOTE FOR
ADOPTION OF THE MERGER AGREEMENT.
PROXIES
All shares of SEPSCO Voting Stock represented at the Special Meeting by
properly executed proxies received prior to or at the Special Meeting, unless
the proxies have previously been revoked, will be voted in accordance with the
instructions on such proxies. If no instructions are given, proxies will be
voted FOR adoption of the Merger Agreement. If any other matters are properly
presented to the Special Meeting for action, the persons named in the enclosed
form of proxy as acting thereunder
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will have discretion to vote on such matters in accordance with their best
judgment. SEPSCO does not know of any matters other than adoption of the Merger
Agreement and procedural matters relating to the conduct of business at the
Special Meeting that will be presented at the Special Meeting.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by delivery to
the Secretary of SEPSCO, at Southeastern Public Service Company, 777 South
Flagler Drive, Suite 1000E, West Palm Beach, Florida 33401, of a written notice
of revocation bearing a later date than the proxy, by duly executing and
delivering to the Secretary a subsequent proxy relating to the same shares, or
by attending the Special Meeting and voting in person (although attendance at
the Special Meeting will not in and of itself constitute revocation of a proxy).
Proxies are being solicited by and on behalf of the SEPSCO Board. In
addition to solicitation by mail, proxies may be solicited by directors and
authorized officers and employees of SEPSCO in person or by telephone, telegram
or other means of communication. Such directors, officers and employees will not
be additionally compensated, but may be reimbursed for out-of-pocket expenses in
connection with such solicitation. Arrangements will also be made with
custodians, nominees and fiduciaries for forwarding of proxy solicitation
material to beneficial owners of shares of SEPSCO Voting Stock held of record by
such persons, and SEPSCO may reimburse such custodians, nominees and fiduciaries
for reasonable expenses incurred in connection therewith. SEPSCO has also
retained the firm of Georgeson & Company to assist in the solicitation of
proxies. See 'FINANCING OF THE MERGER AND RELATED TRANSACTIONS: SOURCE AND
AMOUNT OF FUNDS' for additional information concerning proxy solicitation
expenses to be borne by SEPSCO and Triarc.
All information in this Proxy Statement-Prospectus concerning the Triarc
Companies (including information concerning its capital stock and other
securities), Mergerco, the Triarc Class A Common Stock, the plans for SEPSCO and
its subsidiaries after the Merger and the pro forma financial statements has
been provided by Triarc. Except as otherwise indicated, all other information
contained in this Proxy Statement-Prospectus has been supplied by SEPSCO.
THE MERGER CONSTITUTES A MATTER OF GREAT IMPORTANCE TO SEPSCO STOCKHOLDERS.
IF THE MERGER AGREEMENT IS APPROVED AND THE MERGER IS CONSUMMATED, THE DIRECT
EQUITY INVESTMENT IN SEPSCO OF SEPSCO'S PUBLIC STOCKHOLDERS WILL CEASE, AND SUCH
STOCKHOLDERS WILL BE ENTITLED TO RECEIVE THE MERGER CONSIDERATION. ACCORDINGLY,
SEPSCO STOCKHOLDERS ARE URGED TO READ AND CAREFULLY CONSIDER THE INFORMATION
PRESENTED IN THIS PROXY STATEMENT-PROSPECTUS.
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SPECIAL FACTORS
BACKGROUND TO THE MERGER; REASONS FOR THE MERGER
THE REORGANIZATION AND RELATED MATTERS
EQUITY TRANSACTIONS
On April 23, 1993, the Equity Transactions were consummated and DWG
Acquisition acquired control of the Triarc Companies from the Posner Entities.
Immediately prior to the closing of the Equity Transactions, the Posner Entities
owned approximately 46% of the outstanding common equity of the Company.
The principal elements comprising the Equity Transactions are as follows:
DWG Acquisition purchased from the Posner Entities 5,982,867 shares
of Triarc Class A Common Stock, representing approximately 28.6% of
Triarc's common equity outstanding immediately after the
Reorganization, for $12.00 per share, or an aggregate purchase price
of $71.8 million.
The remaining 5,982,866 shares of Triarc Class A Common Stock owned
by the Posner Entities were exchanged for newly created, non-voting
shares of Redeemable Convertible Preferred Stock. The 5,982,866
shares of Redeemable Convertible Preferred Stock so issued have an
aggregate stated value of $71.8 million and a cumulative annual
dividend rate of 8 1/8%, and are convertible into an aggregate of
4,985,722 shares of Triarc's Class B Common Stock, par value $.10 per
share (the 'Triarc Class B Common Stock'), which shares are non-
voting, at a conversion price of $14.40 per share, subject to certain
adjustments. The shares of Redeemable Convertible Preferred Stock can
be converted without restriction into shares of Triarc Class A Common
Stock (which shares have one vote per share) if they are sold to
persons other than Victor Posner, members of his family, or
affiliates of Victor Posner. Triarc has certain first refusal rights
with respect to any such sale.
The minority interests owned by the Posner Entities in certain
subsidiaries of Triarc, including SEPSCO, were purchased by Triarc.
Victor Posner and his son, Steven Posner, resigned as Directors,
officers and employees of Triarc and all of its subsidiaries. In
connection with such resignations, Victor Posner did not receive any
severance payments. However, in order to induce Steven Posner to
resign, Triarc entered into a five-year consulting agreement (the
'Consulting Agreement') with Steven Posner which provides for an
initial payment of $1 million at the commencement of the term of such
agreement and an annual consulting fee of $1 million. The Consulting
Agreement does not require Steven Posner to provide any substantial
services to Triarc and Triarc presently does not expect that it will
receive any such services from him.
Posner and his affiliates are prohibited for seven years from (i)
acquiring securities of Triarc, except by gift, devise or operation
of law or upon conversion of the Redeemable Convertible Preferred
Stock; (ii) directly or indirectly engaging in a tender or exchange
offer for securities of Triarc; (iii) proposing any business
combination or extraordinary transaction involving Triarc; or (iv)
otherwise acting to seek to control the management, Board of
Directors or policies of Triarc.
Certain affiliates and employees of Merrill Lynch & Co. and
Donaldson, Lufkin and Jenrette Securities Corporation (the 'Merrill
Lynch/DLJ Investors') purchased from Triarc an aggregate of 833,332
newly issued shares of Triarc Class A Common Stock for $12.00 per
share, or an aggregate price of approximately $10.0 million.
THE REFINANCING
Concurrently with the consummation of the Equity Transactions, on April 23,
1993 certain debt of the Triarc Companies was refinanced in order to reduce
borrowing costs and to make available additional funds for general working
capital and liquidity purposes. The principal elements of the
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Refinancing were the sale by RC/Arby's of $225 million aggregate principal
amount of its Senior Secured Step-Up Rate Notes due 2000 (the 'Step-Up Notes')
and the establishment of a new $180 million credit facility for Graniteville
(the 'Graniteville Credit Facility'). The Step-Up Notes were repaid in their
entirety on August 12, 1993 out of the proceeds of the public offering by
RC/Arby's of $275 million aggregate principal amount of RC/Arby's' 9 3/4% Senior
Secured Notes due 2000 (the '9 3/4% Senior Notes'). The Graniteville Credit
Facility and the 9 3/4% Senior Notes are described under 'TRIARC COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Liquidity and Capital Resources.'
As part of the Refinancing, on April 23, 1993, RC/Arby's and Graniteville
made loans to Triarc of $75.0 million and $66.6 million, respectively, both of
which loans are evidenced by unsecured promissory notes (the 'Triarc Notes') due
April 15, 2003 and bear interest at 9.5% per annum payable on October 15 and
April 15 of each year commencing October 15, 1993. Such interest may be paid at
the option of Triarc in cash or capitalized as additional principal, except that
at least 20% of each interest payment through April 15, 1995 and 40% of each
interest payment thereafter with respect to the Triarc Note payable to
Graniteville is to be in cash. The Triarc Note held by RC/Arby's was dividended
to CFC Holdings in August 1993.
The proceeds of the Triarc Notes and the issuance of Triarc Class A Common
Stock to the Merrill Lynch/DLJ Investors, aggregating $151.6 million, were
utilized by Triarc on April 23, 1993 to (i) repay $20.8 million of secured
borrowings from American Financial Corporation ('AFC') under a loan agreement
(the 'AFC Exchange Agreement') which had a scheduled maturity of April 30, 1993,
together with accrued interest of $0.6 million; (ii) repay $40.0 million of
intercompany advances to National Propane which National Propane used to repay
$30.0 million of secured borrowings it owed under the AFC Exchange Agreement and
$4.8 million principal balance of a secured note payable to AFC, together with
accrued interest aggregating $0.9 million, (iii) repay $27.1 million of notes
payable to SEPSCO which SEPSCO used to repay $12.7 million under an accounts
receivable financing arrangement and $14.4 million of intercompany loans due
Chesapeake Insurance, including accrued interest; (iv) pay accrued rent of $11.7
million to Posner (after reflecting an $8.9 million reduction in connection with
the settlement of past due amounts); (v) purchase all minority shares of Triarc
subsidiaries owned by the Posner Entities for an aggregate of $10.9 million, net
of offset of certain amounts owed the Triarc Companies; (vi) pay legal fees,
shareholder litigation settlements and other Reorganization costs aggregating
$7.6 million; (vii) purchase shares of CFC Holdings and SEPSCO common stock
owned by National Propane for $3.9 million, which along with the $4.3 million of
proceeds remaining from the repayment of the advance referred to in item (ii)
above, are intended to fund working capital needs of National Propane.
Approximately $29 million of proceeds remained at Triarc immediately subsequent
to the Refinancing, which proceeds have been or will be used to fund general
corporate expenditures and working capital requirements of Triarc and to repay
amounts owed to National Propane and SEPSCO if needed to supplement their
working capital requirements.
THE RC/ARBY'S REFINANCING
On August 12, 1993 RC/Arby's sold an aggregate of $275.0 million principal
amount of 9 3/4% Senior Notes in an underwritten public offering. Approximately
$223.5 million of the net proceeds from the sale of the 9 3/4% Senior Notes were
used to redeem all of the Step-Up Notes, and the remainder has been or will be
used for general corporate purposes, including capital expenditures and the
payment of fees and expenses (the 'RC/Arby's Refinancing').
THE RESTRUCTURING
Also, as a part of the Reorganization, on April 23, 1993, the Boards of
Directors of Triarc and SEPSCO and certain other Triarc subsidiaries were
reconstituted. At the April 24, 1993 meeting of the reconstituted Triarc Board,
based on a report and recommendations from a management consulting firm that had
conducted an extensive review of the Triarc Companies' operations and management
structure, the Triarc Board approved the Restructuring, a plan of
decentralization and restructuring which contemplated that Triarc would focus
its resources on its four core businesses and entailed, among other things, the
following features:
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(i) the strategic decision to manage Triarc and its subsidiaries in
the future on a decentralized, rather than on a centralized, basis;
(ii) the hiring of new executive officers for Triarc and the hiring of
new chief executive officers and new senior management teams for each of
Arby's, RC Cola and National Propane to carry out the decentralization
strategy;
(iii) the termination of a significant number of employees as a result
of both the new management philosophy and the hiring of an almost entirely
new management team; and
(iv) the relocation of the corporate headquarters of Triarc and of all
of its subsidiaries whose headquarters were located in South Florida,
including SEPSCO, Arby's, RC Cola and National Propane.
The estimated costs associated with substantially all of these actions were
reflected in Triarc's results of operations for Fiscal 1993. See 'TRIARC
COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.'
At its April 24, 1993 meeting, the reconstituted Triarc Board also approved
the terms of a proposed settlement of the Ehrman Litigation in accordance with
the terms set forth in the January Memorandum and authorized the officers of
Triarc to pursue settlement of the Ehrman Litigation along the lines
contemplated by the January Memorandum. See 'SPECIAL FACTORS -- Background to
the Merger; Reasons for the Merger -- Legal Proceedings Related to SEPSCO and
Triarc' for a description of the material terms of the January Memorandum.
At its meeting on April 24, 1993, the reconstituted SEPSCO Board created
the SEPSCO Special Committee for the purpose of reviewing, negotiating the terms
of, and reporting back to the full SEPSCO Board as to its recommendations with
respect to, any transaction proposed by Triarc in connection with the settlement
of the Ehrman Litigation. The SEPSCO Special Committee was given the power to
engage such legal, financial and other advisors as the SEPSCO Special Committee
deemed appropriate in carrying out its assignment.
LEGAL PROCEEDINGS RELATED TO SEPSCO AND TRIARC
On December 18, 1990, the Plaintiff commenced the Ehrman Litigation, a
purported shareholder derivative suit. The action, captioned William A. Ehrman,
derivatively on behalf of nominal defendant Southeastern Public Service Company
v. Victor Posner, et al., was brought on behalf of SEPSCO, against its then
current directors and certain corporations which may then have been deemed to be
affiliates of SEPSCO, including Triarc, in the District Court. The Plaintiff
subsequently filed the amended Complaint in April of 1991. The Complaint
alleges, among other things, that the Defendants breached their fiduciary duties
to SEPSCO and RC/Arby's (i) by causing RC/Arby's to issue approximately 4.1
million shares of convertible redeemable preferred stock to Triarc for cash and
forgiveness of indebtedness of approximately $41,350,000, which preferred stock,
upon conversion, resulted in Triarc owning approximately 88.8% of RC/Arby's'
outstanding voting securities and reduced SEPSCO's ownership of RC/Arby's from
approximately 48% to 5.4%; (ii) by causing Chesapeake Insurance, then a
subsidiary of RC/Arby's and now a subsidiary of CFC Holdings, to suffer losses
in the operations of its business; and (iii) by causing the sale by SEPSCO in
January 1986 of shares of Graniteville's common stock constituting approximately
51% of Graniteville's then outstanding stock to Triarc. The Complaint also
alleges that the proxy statement issued by SEPSCO in connection with the March
8, 1991 Annual Meeting of SEPSCO Stockholders violated Section 14 of the
Exchange Act by failing to disclose certain alleged material facts concerning
Victor Posner, SEPSCO's then Chairman of the Board, President and Chief
Executive Officer. In addition, the Complaint alleges that the Defendants
engaged in a pattern of racketeering activity in violation of RICO.
The Complaint sought (i) a declaration that the Defendants committed
breaches of trust and of their respective fiduciary duties to SEPSCO and
RC/Arby's and their shareholders; (ii) unspecified damages, including treble
damages under the RICO claim; (iii) an accounting by the Defendants to SEPSCO
for the acts and conduct alleged in the Complaint; (iv) a return to SEPSCO of
all salaries and other remuneration paid during the time when the Defendants
were in breach of their fiduciary duties
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to SEPSCO; (v) a declaration that all transactions complained of are void; (vi)
an award to the Plaintiff of costs and expenses; and (vii) any other relief as
may be appropriate.
The Defendants have denied each of the allegations set forth in the
Complaint.
On January 21, 1993, DWG Acquisition and the Plaintiff in the Ehrman
Litigation, entered into the January Memorandum which set forth certain terms
for a proposed settlement of the Ehrman Litigation. Insofar as they relate to
the Public Stockholders, the proposed settlement terms set forth in the January
Memorandum differed from the Settlement Terms and Conditions ultimately set
forth in the Settlement Agreement as described below. The proposed settlement of
the Ehrman Litigation contemplated by the January Memorandum provided, among
other things, that SEPSCO would be merged into, or otherwise acquired by Triarc,
or a subsidiary or affiliate thereof, on the following terms: each holder of
SEPSCO Common Stock other than Triarc would receive in exchange for each share
of SEPSCO Common Stock, .55 shares of Triarc Class A Common Stock and a note (or
appropriate portion of a note) payable by Triarc or SEPSCO having a principal
amount of $6.00 (a 'Settlement Note') and the SEPSCO Common Stock would be
delisted from the PSE and would be eligible for termination of registration
pursuant to Section 12(g)(4) of the Exchange Act. According to the January
Memorandum, it was to have been a condition to the closing of the transaction
contemplated thereby that no transactions were to have been entered into between
the date of the January Memorandum and the date of the merger (or acquisition)
which would have a material dilutive effect upon the common stock of Triarc
(other than (i) the granting of stock options pursuant to the existing stock
option plan of Triarc and (ii) the issuance or potential issuance of shares of
common stock of Triarc in connection with the then proposed refinancing of
Triarc, including shares to be issued upon exercise of warrants issued in
connection with such proposed refinancing, of not more than 8% of that number of
shares of Triarc's common stock which are issued and outstanding immediately
prior to the consummation of the Reorganization) nor were there to have occurred
any material adverse change to Triarc or SEPSCO. The January Memorandum provided
that the defendants in the Ehrman Litigation would retain the firm of Salomon
Brothers Inc or another investment banking firm of similar stature to state with
respect to the Settlement Notes that they would have a fair market value, on a
fully distributed basis, of approximately $6.00 per each $6.00 of principal
amount. The January Memorandum also provided that Plaintiff's counsel would be
paid by Triarc or SEPSCO, subject to District Court approval, in respect of its
fees and expenses, an amount not to exceed $650,000 in cash and $650,000 in
value in notes (the 'Counsel Notes') (which Counsel Notes would be identical in
form and substance to the Settlement Notes).
As a result of discussions held subsequent to the closing of the
Reorganization between representatives of Triarc and the Plaintiff, certain
changes from the proposed settlement terms set forth in the January Memorandum
were made. Such changes are set forth in the September Memorandum which was
executed on September 13, 1993 and which supersedes the January Memorandum. The
settlement of the Ehrman Litigation contemplated by the September Memorandum
differs from the terms contemplated by the January Memorandum in that the
September Memorandum (i) increased the number of shares of Triarc Class A Common
Stock to be received in the merger (or acquisition) transaction from .55 to 0.8
per share of SEPSCO Common Stock, while eliminating the Settlement Notes, (ii)
revised certain of the conditions to the closing of the transaction in which
Triarc would acquire the shares of SEPSCO Common Stock held by the SEPSCO Public
Stockholders, (iii) provided for the payment by Triarc of up to $50,000 of
Plaintiff's investment banker's fees and expenses, and (iv) provided for an all
cash payment by Triarc of Plaintiff's attorneys fees and expenses in an amount
not to exceed $1,250,000. The primary reason for eliminating the Settlement
Notes and increasing the number of shares of Triarc Class A Common Stock was to
provide the Public Stockholders with more liquid securities, since many SEPSCO
Stockholders would have received Settlement Notes in principal amounts of less
than $1,000 which would have been illiquid or prohibitively expensive to sell.
The closing conditions were revised to reflect the fact that the Reorganization
had been completed and to clarify what actions would and would not be deemed to
have a materially dilutive effect upon the Triarc Common Stock to be issued as
Merger Consideration.
On October 18, 1993, the parties to the Ehrman Litigation executed the
Settlement Agreement containing the Settlement Terms and Conditions contemplated
by the September Memorandum. The
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Settlement Terms and Conditions contemplated by the September Memorandum and set
forth in the Settlement Agreement provide for dismissal on the merits, with
prejudice and without costs to any party (except as described below with respect
to the award of Plaintiff's counsel's fees and expenses), of the Ehrman
Litigation and the release of any and all claims, rights or causes of action
against the Defendants and certain other persons that the Plaintiff (in his
individual and derivative capacity), SEPSCO or any SEPSCO Stockholder, or any of
their respective successors or assigns, have or may have, whether known or
unknown or suspected to exist, which were or could have asserted in the Ehrman
Litigation or in any court or forum in connection with, arising out of or in any
way relating to the acts, facts, transactions, omissions or other subject
matters set forth, embraced or otherwise referred to in the Ehrman Litigation,
the Complaint or the Settlement Agreement. The Settlement Terms and Conditions
also provide that Triarc will release the Defendants from all claims for
indemnification, contribution or otherwise seeking recovery for any alleged
damage, loss or injury incurred by Triarc by reason of the specific transactions
challenged in the Ehrman Litigation, including loss or injury incurred by reason
of Triarc having entered into the Settlement Agreement. The Settlement Terms and
Conditions include an agreement by Triarc that, in full settlement and
compromise of all claims asserted against the Defendants or any claims which
might have been asserted against them by reason of, or in connection with, any
of the matters referred to in the Complaint, Triarc will cause SEPSCO to be
merged into, or otherwise acquired by Triarc, or a subsidiary or affiliate
thereof, on the following terms: each holder of SEPSCO Common Stock, other than
Triarc or a subsidiary of Triarc, shall receive in exchange for each share of
SEPSCO Common Stock so held 0.8 of a share of Triarc Class A Common Stock.
The Settlement Terms and Conditions provide that the agreement relating to
the transaction in which the shares held by the Public Stockholders will be
acquired shall contain the closing conditions described below and such customary
closing conditions as may be agreed upon by Triarc and the SEPSCO Special
Committee, including without limitation, the following: Triarc shall issue no
common stock or rights to acquire common stock between the date of the
Settlement Agreement and the date of the merger (or acquisition) which will have
a materially dilutive economic effect upon the common stock of Triarc, except
that the following shall not be deemed to have any such materially dilutive
economic effect for purposes hereof: (a) the granting of stock options or
restricted stock awards so that the aggregate number of shares of Triarc's stock
to be issued upon the issuance of such restricted stock awards, and upon the
conversion of such stock options, does not exceed 3,500,000 shares; or (b) the
issuance or potential issuance of shares of common stock of Triarc, upon the
election to convert by any holders, at at such holders' option, of all or some
of the Redeemable Convertible Preferred Stock or any other series of convertible
preferred stock or other convertible securities of Triarc outstanding on the day
of the Settlement Agreement; or (c) the issuance or potential issuance of shares
in connection with an underwritten public offering; or (d) the issuance or
potential issuance of shares at not less than fair market value, as determined
in good faith by the Triarc Board; or (e) any other such issuance of shares of
common stock, so long as the shares of Triarc Class A Common Stock to be
received in exchange for each share of SEPSCO pursuant to the terms of the
Settlement Agreement are appropriately adjusted.
The Settlement Terms and Conditions also provide that Triarc will pay the
reasonable fees and expenses of Plaintiff's counsel and investment banker, as
may be awarded by the District Court, and include an agreement by Triarc and the
other Defendants not to object to an application which was then expected to be
made (and subsequently was made) to the District Court by Plaintiff's counsel
and investment banker for fees and expenses in an amount not to exceed
$1,250,000 and $50,000, respectively.
The effectiveness of the Settlement Agreement is conditioned on (i) entry
by the District Court of a Final Order approving the Settlement Agreement and
the Settlement Terms and Conditions set forth therein as fair, reasonable and
adequate and in the best interests of SEPSCO and the Public Stockholders; and
(ii) such Final Order having become final and nonappealable.
On November 2, 1993 the District Court entered a preliminary order (the
'Preliminary Order') (i) approving a form of written Notice of Pendency of
Derivative Action, Proposed Settlement of Derivative Action, Settlement Hearing
and Right to Object (the 'Notice') and (ii) scheduling January
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11, 1994 as the date for a hearing to be held before the District Court (the
'Hearing') to determine the 'reasonableness, adequacy and fairness' of the
Settlement Terms and Conditions. The Notice was mailed to SEPSCO's stockholders
on or about November 23, 1993. Such Notice described the Settlement Agreement
and the Settlement Terms and Conditions proposed therein and notified the SEPSCO
Stockholders that they would have an opportunity to appear, in person or through
counsel of their own choice, at the Hearing and to note their objection, if any,
to the Settlement Agreement and the Settlement Terms and Conditions. The Notice
also informed the SEPSCO Stockholders that failure to object to the proposed
Settlement Terms and Conditions in the manner specified in the Notice will be
deemed to constitute a waiver by such person of his, her or its right to object
and would bar such person from making such objection in this or any other action
or proceeding.
On January 11, 1994, the Hearing was held. No SEPSCO Stockholder objected
to the Settlement Agreement or the Settlement Terms and Conditions in the manner
specified in the Notice, nor did any SEPSCO Stockholder or party to the Ehrman
Litigation appear at the Hearing for the purpose of objecting to the Settlement
Agreement or the Settlement Terms and Conditions. On January 11, 1994, following
the Hearing, the District Court entered a Final Order approving the Settlement
Terms and Conditions and the Plaintiff's application for legal and investment
banking fees and expenses aggregating $1.3 million. The entry by the District
Court of the Final Order satisfied one of the conditions to the obligations of
Triarc, Mergerco and SEPSCO to consummate the Merger. If the Merger is not
consummated, the Settlement Agreement will not enter into effect and will be
deemed null and void ab initio and the rights and duties of the parties to the
Ehrman Litigation will revert, without prejudice, to their respective status
immediately prior to the execution of the Settlement Agreement. Upon the
occurrence of such event, and if no other settlement or resolution of the Ehrman
Litigation is reached, Triarc has indicated that it will vigorously defend
itself against the allegations contained in the complaint filed by the Plaintiff
in the Ehrman Litigation. See 'THE MERGER AGREEMENT -- Conditions to the
Merger.'
The description herein of the Settlement Agreement, the Settlement Terms
and Conditions, the Final Order, the dismissal of the Ehrman Litigation and of
the releases to be given pursuant to the Settlement Agreement is qualified in
its entirety by reference to the Settlement Agreement and exhibits thereto and
the Final Order that have been filed with the District Court and which may be
examined in person during regular business hours at the office of the Clerk of
the District Court, United States Courthouse, 301 N. Miami Avenue, Miami,
Florida 33128-7788. Copies of the Settlement Agreement and Final Order are also
available to SEPSCO Stockholders from SEPSCO upon written or oral request to:
Curtis S. Gimson, Southeastern Public Service Company, 777 South Flagler Drive,
Suite 1000E, West Palm Beach Florida 33401; telephone (407) 653-4000.
PURPOSE AND STRUCTURE OF THE MERGER
The purpose of the Merger is for Triarc to acquire all of the shares of
SEPSCO capital stock that it does not currently own so that SEPSCO will be a
wholly owned subsidiary of Triarc. The Merger is structured to satisfy the
obligations of Triarc in accordance with the Settlement Terms and Conditions.
CERTAIN EFFECTS OF THE MERGER AND RELATED TRANSACTIONS
Following the consummation of the Merger, the SEPSCO Common Stock will be
delisted from the PSE and the registration of the SEPSCO Common Stock under the
Exchange Act will be terminated. The termination of registration of the SEPSCO
Common Stock under the Exchange Act would make certain of the provisions of the
Exchange Act, such as the requirement of furnishing a proxy statement in
connection with certain meetings of stockholders, no longer applicable with
respect to the SEPSCO Common Stock. SEPSCO will be required to file periodic
reports with the Commission so long as it has securities (such as the 11 7/8%
Debentures) registered under Section 12 of the Exchange Act. SEPSCO and Triarc
have indicated that some or all of the net proceeds from the sale of SEPSCO's
several businesses and assets could be used to prepay or otherwise acquire some
of the 11 7/8% Debentures. See 'BUSINESS OF SEPSCO' and 'SPECIAL
FACTORS -- Conduct of the Business of the Surviving Corporation After the
Merger.'
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CONDUCT OF THE BUSINESS OF THE SURVIVING CORPORATION AFTER THE MERGER
Following the Merger, SEPSCO will be a wholly owned subsidiary of Triarc.
As a result of the Merger, the Board of Directors of Mergerco (composed of
Messrs. Peltz, May and Kalvaria) will become the Board of Directors of SEPSCO.
Triarc has indicated that SEPSCO's Discontinued Operations Plan will not be
affected by the Merger and accordingly, following the Merger, Triarc intends to
cause SEPSCO to (i) continue with plans to dispose of its Ice Business and its
Cold Storage Business, to the extent not theretofore disposed of, and (ii)
transfer the liquefied petroleum gas business of SEPSCO's Public Gas subsidiary
to National Propane, although the precise method by which such business will be
transferred has not yet been determined. In connection with the transfer of the
business of Public Gas to National Propane, Triarc intends to cause Public Gas,
which is currently 99.7% owned by SEPSCO, to become wholly owned by the Triarc
Companies. Triarc and SEPSCO have agreed in principle to the sale by SEPSCO to
Triarc of the stock of the SEPSCO subsidiaries that hold SEPSCO's natural gas
and oil working and royalty interests. Such sale will be for a net cash purchase
price of $8.5 million, will be consummated on or before July 22, 1994 and is not
contingent upon the consummation of the Merger.
Following consummation of the Merger, and in view of the plans described
above and the fact that SEPSCO will be a wholly owned subsidiary of Triarc,
Triarc will review the present capitalization and dividend policy of SEPSCO, and
may make changes thereto as well as other material changes in SEPSCO's business
or corporate structure and changes in SEPSCO's charter, by-laws or instruments
corresponding thereto.
Triarc's ability to carry out the plans described above may be limited by
restrictions contained in applicable debt instruments or other material
contractual arrangements. Therefore, no assurance can be given that Triarc will
complete such plans, or that applicable contractual or other restrictions will
not significantly delay Triarc's ability to complete such plans.
RECOMMENDATION OF THE SEPSCO SPECIAL COMMITTEE AND THE SEPSCO BOARD
On January 21, 1993, DWG Acquisition and the Plaintiff in the Ehrman
Litigation entered into the January Memorandum which provided, among other
things, that Triarc would cause SEPSCO to be merged into, or be otherwise
acquired by Triarc, and that each holder of SEPSCO Common Stock (other than
Triarc and its affiliates) would receive in exchange for each share of SEPSCO
Common Stock (a) .55 share of Triarc common stock and (b) a Settlement Note
payable by Triarc or SEPSCO having a principal amount of $6.00.
From January 21, 1993 through April 23, 1993, DWG Acquisition worked
towards consummating the Reorganization of Triarc. On April 23, 1993, following
the closing of the Equity Transactions, a new Board of Directors was elected for
SEPSCO. On April 24, 1993, following the Reorganization, the newly elected
SEPSCO Board created the SEPSCO Special Committee composed of directors David E.
Schwab II and Sir Ian MacGregor for the purpose of reviewing, negotiating the
terms of, and reporting back to the full SEPSCO Board as to its recommendations
with respect to, any transaction proposed by Triarc in connection with the
settlement of the Ehrman Litigation.
The SEPSCO Special Committee was authorized to engage legal, financial and
other advisors as the SEPSCO Special Committee deemed appropriate in carrying
out its assignment. On May 5, 1993, the SEPSCO Committee met informally to
discuss the selection of legal counsel and a financial advisor. Thereafter, the
SEPSCO Special Committee interviewed law firms and retained Willkie Farr &
Gallagher to act as its legal counsel. Concurrently, the SEPSCO Special
Committee requested and received presentations from three investment banks. The
SEPSCO Special Committee reviewed the presentations and held additional
discussions with each investment bank, finally selecting Smith Barney to act as
its financial advisor on August 9, 1993.
In the course of reviewing the terms of the Merger, the SEPSCO Special
Committee met formally on September 1, 1993, September 30, 1993 and November 15,
1993 and informally on a number of other occasions. At the September 1 meeting,
Smith Barney discussed the general nature of its initial analysis.
After signing the January Memorandum, the Plaintiff in the Ehrman
Litigation and Triarc continued to negotiate the terms of a settlement, and on
September 13, 1993, the September Memorandum was signed which changed the
consideration to be distributed in the Merger by eliminating the Settlement Note
component and increasing the share exchange ratio from .55 to 0.8
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share of Triarc Class A Common Stock for each share of SEPSCO Common Stock. At
the September 30 and November 15, meetings, Smith Barney presented to the SEPSCO
Special Committee its preliminary analyses as to the valuation of SEPSCO and the
valuation of the Triarc Companies and at the November 15, 1993 meeting,
presented its preliminary oral opinion with respect to the fairness of the
Merger Consideration from a financial point of view. At the September 30, 1993
and November 15, 1993 meetings, Smith Barney also presented its more limited
analysis of the potential value of certain claims made by the Plaintiff in the
Ehrman Litigation (the 'Ehrman Claims'). On November 22, 1993, Smith Barney
delivered its written fairness opinion to the SEPSCO Special Committee.
The SEPSCO Special Committee, after considering all relevant information,
as more fully discussed below, voted unanimously to approve the terms of the
Merger at its meeting held on November 15, 1993, subject to the receipt of Smith
Barney's written opinion and subject also to receipt of certificates from
officers of SEPSCO with respect to the accuracy of representations being made by
SEPSCO in the Merger Agreement. During its deliberations, the SEPSCO Special
Committee examined materials prepared and distributed by Smith Barney with
respect to the valuations of SEPSCO and the Triarc Companies and questioned
Smith Barney on aspects of its analysis and methodologies. In addition, the
SEPSCO Special Committee carefully considered a number of other factors relating
to the fairness of the terms of the Merger and other Merger Consideration. The
factors considered by the SEPSCO Special Committee included:
Smith Barney Fairness Opinion. The SEPSCO Special Committee engaged Smith
Barney to express its opinion as to the fairness, from a financial point of
view, to the SEPSCO Stockholders (other than Triarc and its affiliates), of the
Merger Consideration. Smith Barney presented its preliminary analyses of the
range of valuations attributable to SEPSCO at the September 30, 1993 and
November 15, 1993 SEPSCO Special Committee meetings. Thereafter, Smith Barney
delivered its written opinion, dated November 22, 1993, that as of such date,
the consideration to be received by the holders of SEPSCO Common Stock (other
than Triarc and its affiliates), pursuant to the Merger Agreement was fair, from
a financial point of view, to such stockholders. See ' -- Opinion of Financial
Advisor.' In reaching its opinion, Smith Barney did not consider the potential
value, if any, to SEPSCO of the Ehrman Claims.
As part of its analysis of the Merger Consideration, Smith Barney prepared
and presented to the SEPSCO Special Committee a range of valuations attributable
to the Triarc Companies using substantially similar methodologies to those used
to value SEPSCO. Smith Barney presented its preliminary analysis of the range of
valuations to the SEPSCO Special Committee on September 30, 1993 and November
15, 1993, at which times Smith Barney confirmed that the market price for Triarc
Class A Common Stock was within the range of valuations derived from these
analyses.
Assessment of Ehrman Claims. At the request of the SEPSCO Special
Committee, Smith Barney reviewed, from a financial point of view, certain
material allegations contained in the Complaint and on September 30, 1993 and
November 15, 1993, presented orally to the SEPSCO Special Committee its analyses
(preliminary and then final) regarding the potential value, if any, to SEPSCO of
the claims relating thereto. Smith Barney's review and analysis was undertaken
at the request of the SEPSCO Special Committee and was not part of the analyses
of SEPSCO and the Triarc Companies performed in conjunction with its opinion.
Smith Barney analyzed four transactions which were the subject of allegations in
the Complaint, including: (i) the issuances of an aggregate of approximately 4.1
million shares of convertible redeemable preferred stock by RC/Arby's in 1988
and in 1989 to Triarc for cash and forgiveness of indebtedness; (ii) the
purchase by Chesapeake Insurance of Sharon Steel Corporation common stock from
NVF Company ('NVF') in 1987; (iii) the extension from October 1988 through March
1990 by Chesapeake Insurance of a series of loans totalling $4.425 million to
Pennsylvania Engineering Corporation; and (iv) the sale by SEPSCO of
approximately 2.5 million shares of Graniteville common stock to Triarc in 1986.
For purposes of its analyses, Smith Barney assumed that the Plaintiff would
prevail on each allegation asserted with respect to the four transactions and
did not take into account the validity of such claims or the various legal
defenses available to the Defendants. In conducting its analyses, Smith Barney
relied solely upon information which was publicly available, the description of
each transaction analyzed as set forth in the Complaint and certain information
provided by SEPSCO, without independent verification thereof. With respect to
transactions (i) and (iv) above, Smith Barney performed a valuation analysis for
RC/Arby's and Graniteville similar to that done for SEPSCO and the
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Triarc Companies in connection with the preparation of its opinion, although not
as comprehensive, and assumed that the difference between these values and what
was actually paid would have been invested at an annual compound growth rate of
10%, and multiplied the result by the proportionate interest held by SEPSCO. For
transactions (ii) and (iii) above, Smith Barney assumed that the investments had
not been made, the cash used had instead been invested at an annual compound
growth rate of 10% and multiplied the result by the proportionate interest held
by SEPSCO. Based on the foregoing, Smith Barney derived a value for such claims
of approximately $4.06 to $8.25 per share of SEPSCO Common Stock, based upon the
fully diluted shares outstanding as of August 31, 1993.
The SEPSCO Special Committee also requested that Smith Barney have its
counsel review and analyze the claims in the Complaint. Smith Barney's counsel
reviewed the pleadings of record in the Ehrman Litigation, including among
others the United States Magistrate Judge's opinion of November 19, 1992, and
the District Court's affirmance of such opinion, dismissing certain claims
without prejudice, and interviewed both Plaintiff's and Defendants' trial
counsel. At the September 30, 1993 SEPSCO Special Committee meeting, Smith
Barney's counsel presented its oral report to the SEPSCO Special Committee and
its conclusion that, based on such review, the court would most likely not
permit the Plaintiff's RICO claims to be reinstated, and that the Plaintiff's
claims with respect to alleged omissions in the proxy statement were duplicative
of and inclusive with other claims in the Complaint.
At the September 30, 1993 meeting, the SEPSCO Special Committee also
interviewed trial counsel for the Plaintiff in the Ehrman Litigation. During
this session, the SEPSCO Special Committee explored with Plaintiff's counsel the
various aspects of the Plaintiff's case and the rationale underlying the
ultimate decision to settle. In addition, Plaintiff's counsel informed the
SEPSCO Special Committee of its estimates of the settlement value for the Ehrman
Claims, which the SEPSCO Special Committee noted were below the low end of Smith
Barney's range of valuations for such claims.
Terms of Merger/Arm's-Length Negotiations. The basic terms of the Merger
and the Merger Consideration were negotiated at arm's-length by the Plaintiff in
the Ehrman Litigation and DWG Acquisition, prior to the Reorganization, and by
Triarc following the Reorganization. The Merger terms set forth in the January
Memorandum and ultimately changed by the September Memorandum and reflected in
the Settlement Agreement were the results of these negotiations.
Further Action by the SEPSCO Special Committee. Based on the terms of the
September Memorandum, the SEPSCO Special Committee and Triarc negotiated the
terms of the Merger Agreement. Although the SEPSCO Special Committee, based on
the oral advice of its advisors as discussed above, preliminarily concluded that
the terms of the Merger contained in the September Memorandum were fair to the
SEPSCO Stockholders (other than Triarc and its affiliates) from a financial
point of view, the SEPSCO Special Committee negotiated with Triarc to improve
both the economic and non-economic terms of the Merger. The SEPSCO Special
Committee was not successful in negotiating improved economic terms;
nevertheless, the SEPSCO Special Committee did successfully negotiate
improvements to the non-economic terms of the Merger Agreement. As a result of
the negotiating efforts by the SEPSCO Special Committee, certain changes were
made to the Merger Agreement prior to its being executed, which changes include,
among other things, (i) the addition of a provision that limits Triarc's ability
to issue shares of its capital stock to certain persons, with certain limited
exceptions, without SEPSCO's written consent, (ii) the addition of a provision
that limits the types of information that SEPSCO was required to represent and
warrant to Triarc, (iii) the addition of a provision that allows SEPSCO to
terminate its obligations to consummate the Merger if there is a material
adverse change in the business, assets, financial condition, the results of
operations or certain other events effecting Triarc and its subsidiaries, taken
as a whole, and (iv) the limitation of the circumstances under which Triarc may
terminate its obligations to consummate the Merger.
Based on Smith Barney's valuations, the sum of the range of the potential
per share recovery from certain challenged transactions within the Ehrman
Claims, $4.06 to $8.25 (which as previously noted were estimates that did not
take into consideration the validity of the claims or the availability of any
legal defenses) and the range of per share value attributable to the SEPSCO
Common Stock, $14.42 to $17.73, results in a range of $18.48 to $25.98. Although
in its opinion Smith Barney did not consider the potential value of the Ehrman
Claims, the SEPSCO Special Committee noted that the mid-point of the $18.48 to
$25.98 range is within the per share value of the Merger Consideration based on
Smith Barney's analysis of the Triarc Companies, $20.87 to $24.94.
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Given the variety and complexity of the factors considered by the SEPSCO
Special Committee in its evaluation of the terms of the Merger, it did not find
it practicable to, and did not, quantify or otherwise attempt to assign relative
weights to the specific factors considered in reaching its determinations.
FOLLOWING THE FAVORABLE RECOMMENDATION OF THE SEPSCO SPECIAL COMMITTEE, THE
FULL SEPSCO BOARD UNANIMOUSLY APPROVED THE MERGER AGREEMENT (INCLUDING THE
MERGER CONSIDERATION) AND RECOMMENDS THAT THE SEPSCO STOCKHOLDERS VOTE FOR
ADOPTION OF THE MERGER AGREEMENT.
OPINION OF FINANCIAL ADVISOR
Smith Barney was retained by the SEPSCO Special Committee to act as its
financial advisor in connection with the Merger. Pursuant to such engagement,
the Special Committee requested that Smith Barney evaluate the fairness, from a
financial point of view, to the stockholders of SEPSCO (other than Triarc and
its affiliates) of the consideration to be received in the Merger by such
shareholders. On November 15, 1993, Smith Barney delivered to the SEPSCO Special
Committee its oral opinion, confirmed by a written opinion dated November 22,
1993, to the effect that, as of the respective dates and based upon and subject
to certain matters as stated in its written opinion, the Merger Consideration to
be received by the holders of SEPSCO Common Stock (other than Triarc and its
affiliates) in the Merger was fair, from a financial point of view, to such
holders.
In arriving at its opinion, Smith Barney reviewed preliminary copies of
this Proxy Statement -- Prospectus and the Merger Agreement and met with certain
senior officers of SEPSCO and with certain senior officers of Triarc to discuss
the operations, financial condition, history and prospects of SEPSCO and the
Triarc Companies. Smith Barney also examined certain publicly available business
and financial information relating to SEPSCO and the Triarc Companies, as well
as certain financial and other information for SEPSCO and the Triarc Companies,
provided to Smith Barney by SEPSCO and Triarc, which is not publicly available,
including projected financial information prepared by the respective managements
of SEPSCO and Triarc. Smith Barney reviewed the financial terms of the Merger as
set forth in the Merger Agreement in relation to, among other things: current
and historical market prices and trading volumes of the SEPSCO Common Stock and
Triarc Class A Common Stock; the respective companies' financial results; and
the capitalization and financial conditions of SEPSCO and the Triarc Companies.
Smith Barney also analyzed certain publicly available information with respect
to certain other companies whose businesses and operations Smith Barney
considered comparable to those of SEPSCO and the Triarc Companies, the terms of
certain other transactions that Smith Barney considered relevant to its
investigation and certain other transactions involving the buyout of minority
stockholders. In addition to the foregoing, Smith Barney conducted such other
analyses and examinations and considered such other financial, economic and
market criteria as Smith Barney deemed necessary to arrive at its opinion. For
purposes of its opinion, Smith Barney did not, however, consider the potential
value, if any, to SEPSCO of the alleged claims by plaintiff in the Ehrman
Litigation. Smith Barney noted that its opinion was necessarily based upon
interest rates, dividend rates, market conditions and other conditions and
circumstances existing and known to Smith Barney as of the date of its opinion,
and Smith Barney did not express any opinion as to what the value of the Triarc
Class A Common Stock will be when issued to SEPSCO Stockholders pursuant to the
Merger or the price at which Triarc's Class A Common Stock will trade subsequent
to the Merger.
In rendering its opinion, Smith Barney assumed and relied, without
independent verification, upon the accuracy and completeness of the financial
and other information publicly available or furnished to or otherwise discussed
with Smith Barney. With respect to financial forecasts and other non-public
financial information provided to or otherwise discussed with Smith Barney,
Smith Barney assumed that such forecasts and other financial information were
reasonably prepared based upon the best currently available estimates and
judgments of the respective managements of SEPSCO and the Triarc Companies as to
the expected future financial performance of SEPSCO and the Triarc Companies. In
rendering its opinion, Smith Barney considered the changes in managements at
certain Triarc subsidiaries, the changes to the Triarc Companies business plan
and the decision by the SEPSCO Board to pursue the sale or disposition of
certain of the businesses and assets of SEPSCO. See 'SPECIAL
FACTORS -- Background to the Merger; Reasons for the Merger -- The
Reorganization and Related Matters' and ' -- Conduct of the Business of the
Surviving Corporation After the Merger.' Smith Barney did not make or obtain an
independent evaluation or appraisal of the assets or liabilities
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(contingent or otherwise) of SEPSCO or the Triarc Companies nor did Smith Barney
make any physical inspection of the properties or assets of SEPSCO or the Triarc
Companies. No limitations were imposed by SEPSCO on Smith Barney with respect to
the investigations made or procedures followed by Smith Barney in rendering its
opinion.
Smith Barney's opinion does not address the relative merits of the Merger
as compared to any alternative business strategies that might exist for SEPSCO
or the effect of any other transaction in which SEPSCO might engage. Although
Smith Barney evaluated the financial terms of the Merger, Smith Barney was not
asked to and did not recommend the specific consideration to be paid by Triarc
in the Merger, nor did it participate in any of the negotiations or discussions
regarding the terms of the Merger or the proposed settlement of the Ehrman
Litigation. Smith Barney also did not, nor was it authorized to, solicit or
investigate alternative transactions which might be available to SEPSCO; nor did
it, nor was it requested to, seek other offers for the shares of SEPSCO not held
by Triarc.
The full text of Smith Barney's opinion, which sets forth the assumptions
made, matters considered and limitations on the review undertaken, is attached
hereto as Annex II. SEPSCO Stockholders are urged to read such opinion carefully
in its entirety. Smith Barney's opinion is directed only to the Merger
Consideration, does not address any other aspect of the Merger and does not
constitute a recommendation to any stockholder as to how such stockholder should
vote at the SEPSCO Special Meeting. The summary of the opinion of Smith Barney
set forth in this Proxy Statement -- Prospectus is qualified in its entirety by
reference to the full text of such opinion.
In preparing its opinion to the Special Committee, Smith Barney performed a
variety of financial and comparative analyses, including those described below.
The summary of such analyses does not purport to be a complete description of
the analyses underlying Smith Barney's opinion. The preparation of a fairness
opinion is a complex analytic process involving various determinations as to the
most appropriate and relevant methods of financial analysis and the application
of those methods to the particular circumstances and, therefore, such an opinion
is not readily susceptible to summary description. In arriving at its opinion,
Smith Barney did not attribute any particular weight to any analysis or factor
considered by it, but rather made qualitative judgments as to the significance
and relevance of each analysis and factor. Accordingly, Smith Barney believes
that its analyses must be considered as a whole and that selecting portions of
its analyses or specific factors, without considering all analyses and factors,
could create a misleading or incomplete view of the processes underlying such
analyses and its opinion. In its analyses, Smith Barney made numerous
assumptions with respect to SEPSCO and the Triarc Companies, industry
performance, general business, economic, market and financial conditions and
other matters, many of which are beyond the control of SEPSCO and Triarc. The
estimates contained in such analyses are not necessarily indicative of actual
values or predictive of future results or values, which may be significantly
more or less favorable than those suggested by such analyses. In addition,
analyses relating to the value of businesses or securities do not purport to be
appraisals or (except as specifically stated below) to reflect the prices of
which businesses or securities actually may be sold. Accordingly, such analyses
and estimates are inherently subject to substantial uncertainty. With regard to
the comparable public company and selected merger and acquisition transactions
analyses described below, no company, transaction or business used as a
comparison in such analyses is identical to SEPSCO, Triarc or the Merger.
Accordingly, an analysis of the results of such analyses is not entirely
mathematical; rather it involves complex considerations and judgments concerning
differences in financial and operating characteristics and other factors that
could affect the acquisition or public trading value of the Target Companies,
the SEPSCO Comparable Companies or Triarc Comparable Companies (as defined
below) or the business segment or company to which they are being compared.
VALUATION ANALYSIS OF SEPSCO
Smith Barney considered the authorization by the SEPSCO Board of the sale
and/or disposition of certain of the businesses and assets of SEPSCO, and
analyzed, in conjunction with the management of SEPSCO, the potential values
which might be achievable in the sale or disposition of the SEPSCO businesses
based upon, among other things, the businesses' historical and projected
financial performance, cash flows and financial condition. Smith Barney was not
authorized to, nor did it, solicit proposals to acquire any of the SEPSCO
businesses or assets. In analyzing the potential value of the independent
business segments, Smith Barney relied upon the expected completion of the sale
(which
33
<PAGE>
has since been completed) by SEPSCO of the assets of SEPSCO's tree maintenance
business for approximately $70 million plus the assumption by the buyer of
certain liabilities up to $5 million. In addition, Smith Barney also valued
certain of SEPSCO's other investments, including (i) SEPSCO's ownership of
approximately 49% of the outstanding common stock of Graniteville; (ii) SEPSCO's
ownership of approximately 5.4% of CFC Holdings; and, (iii) a promissory note
issued by Triarc due August 1, 1998 with a principal value of approximately
$26,538,000. For the purposes of determining an estimated valuation range for
SEPSCO, Smith Barney included (i) the values of the independent business
segments, net of any debt or other significant liabilities which were
identified, (ii) SEPSCO's other investments, (iii) approximately $87 million of
debt (net of cash, including restricted cash, and cash equivalents) identified
on SEPSCO's balance sheet dated August 31, 1993 (prior to accounting adjustments
to reflect the discontinuance of certain businesses) and (iv) a reserve for a
contingent liability related to certain environmental matters of approximately
$4 million.
Selected Public Companies Analysis. Using publicly available information,
Smith Barney analyzed, among other things, the market values (market value is
defined as the closing stock price multiplied by the number of shares
outstanding, adjusted to reflect any outstanding common stock equivalents) of
selected companies which were deemed comparable to SEPSCO (the 'SEPSCO
Comparable Companies'). Smith Barney compared the market values of the SEPSCO
Comparable Companies as multiples of earnings, after-tax cash flow and book
value. Smith Barney also compared the adjusted market values (adjusted market
value is defined as market value plus the book value of total debt and preferred
stock less the book value of cash and cash equivalents) of the SEPSCO Comparable
Companies as multiples of revenues, earnings before interest, taxes,
depreciation and amortization ('EBITDA') and earnings before interest and taxes
('EBIT'). All market values were based upon closing stock prices as of November
19, 1993.
Discounted Cash Flow Analysis. Smith Barney performed a discounted cash
flow analysis of the projected unlevered, tax-affected free cash flows of
SEPSCO. Key assumptions in the discounted cash flow analysis of SEPSCO included
(i) discount rates of 10% to 14% and (ii) terminal multiples of projected EBITDA
OF 5.0 to 9.0.
Based upon the above analyses, Smith Barney's estimated valuation range for
SEPSCO was approximately $168 million to $207 million, or approximately $14.42
to $17.73 per share.
VALUATION ANALYSIS OF THE TRIARC COMPANIES
Smith Barney considered the plan of decentralization and restructuring
adopted by the Triarc Board calling for the retention of certain businesses and
the sale and/or disposition of others, and analyzed the values of both the
retained businesses and those to be disposed of, based upon, among other things,
the businesses' historical and projected financial performance, cash flows and
financial condition. In analyzing the potential value of the business segments,
Smith Barney used a variety of techniques, including discounted cash flow, and
comparison to selected public companies and selected mergers and acquisitions,
as set forth below. For the purposes of determining an estimated valuation range
for the Triarc Companies, Smith Barney included (i) the values of the business
segments, net of any debt or other significant liabilities which were
identified, (ii) Triarc's 71% ownership interest in SEPSCO, (iii) intercompany
notes payable and (iv) discontinued businesses.
Selected Public Companies Analysis. Using publicly available information,
Smith Barney analyzed, among other things, the market values (as defined above)
of selected companies which were deemed comparable to each of Triarc's principal
business segments (the 'Triarc Comparable Companies'). Smith Barney compared the
market values of the Triarc Comparable Companies as multiples of earnings,
after-tax cash flow and book value. Smith Barney also compared the adjusted
market values (as defined above) of the Triarc Comparable Companies as multiples
of revenues, EBITDA and EBIT. All market values were based upon closing stock
prices as of November 19, 1993.
Selected Merger and Acquisition Transactions Analysis. Using publicly
available information, Smith Barney analyzed the purchase prices (purchase price
is defined as the price paid for the equity of the target company) and
transaction values (transaction value is defined as the purchase price plus the
book value of total debt less the book value of cash and cash equivalents) in
selected merger and acquisition transactions involving target companies ('Target
Companies') which were deemed comparable to each of Triarc's principal business
segments. Smith Barney compared the purchase prices of the Target Companies as
multiples of earnings, after-tax cash flow and book value. Smith Barney also
compared
34
<PAGE>
the transaction values of the Target Companies as multiples of revenues, EBITDA,
EBIT and total assets.
Discounted Cash Flow Analysis. Smith Barney performed a discounted cash
flow analysis of the projected unlevered, tax-affected free cash flows of each
of Triarc's principal business segments, based on assumptions as to discount
rates and terminal multiples which varied for each segment.
Based upon the above analyses, Smith Barney's estimated valuation range for
the Triarc Companies (prior to adjusting for the Merger) was approximately $686
million to $820 million, or approximately $26.09 to $31.18 per share.
Pursuant to the terms of Smith Barney's engagement, SEPSCO agreed to pay
Smith Barney an opinion fee of $350,000, payable to Smith Barney upon rendering
its opinion to the Special Committee. In addition, Smith Barney was entitled to
receive additional compensation if the total value received by the SEPSCO
Stockholders (other than Triarc and its affiliates) in the Merger increased more
than $3 million from the value of the Merger Consideration contemplated by the
September Memorandum. SEPSCO also has agreed to indemnify Smith Barney and
related persons against certain liabilities, including liabilities under federal
securities laws, arising out of Smith Barney's engagement and to reimburse Smith
Barney for certain out-of-pocket expenses, which Smith Barney currently expects
will aggregate approximately $80,000, incurred pursuant to its engagement.
Smith Barney has advised SEPSCO that, in the ordinary course of business,
it may actively trade equity and debt securities of SEPSCO and the Triarc
Companies for its own account or for the account of its customers and,
accordingly, may at any time hold a long or short position in such securities.
Smith Barney is a nationally recognized investment banking firm and was
selected by the Special Committee based upon Smith Barney's experience and
expertise. Smith Barney regularly engages in the valuation of businesses and
their securities in connection with mergers and acquisitions, negotiated
underwritings, competitive bids, secondary distributions of listed and unlisted
securities, private placements and valuations for estate, corporate and other
purposes.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the SEPSCO Board with respect to the
Merger, SEPSCO Stockholders should be aware that certain members of SEPSCO's
management and of the SEPSCO Board have certain interests which may present them
with potential conflicts of interest in connection with the Merger. Messrs.
Peltz and May are Chairman and Chief Executive Officer and President and Chief
Operating Officer, respectively, of SEPSCO, Triarc and Mergerco and Leon
Kalvaria is the Vice Chairman of each of SEPSCO, Triarc and Mergerco. Three of
SEPSCO's five directors (Messrs. Peltz and May and Leon Kalvaria) are also
directors of Triarc. The two other SEPSCO directors (Messrs. Schwab and
MacGregor), who, as the only members of the SEPSCO Board who are not also Triarc
directors, were designated members of the SEPSCO Special Committee to review the
merger proposal from Triarc, have served as directors of other corporations
affiliated with Messrs. Peltz and May. All of the Mergerco's directors are
directors of both Triarc and SEPSCO. Substantially all of the executive officers
of Triarc and Mergerco are also executive officers of SEPSCO.
SEPSCO Stockholders should note that if the Merger is consummated, the
District Court will permanently bar and enjoin the institution or prosecution by
the Plaintiff and his counsel, either directly or derivatively, SEPSCO and the
SEPSCO Stockholders, and any of their respective representatives, trustees,
successors, heirs, executors, administrators and assigns, of all claims, rights
or causes of action, they now have or ever had whether known or unknown or
suspected to exist which were or could have been asserted in the Ehrman
Litigation, or in any other court or forum, in connection with, arising out of,
or in any way relating to any acts, facts, transactions, omissions or other
subject matters set forth, alleged, embraced, or otherwise referred to in the
Ehrman Litigation, the Complaint or the Settlement Agreement, against the
Released Persons. The Released Persons include each current or former director
and officer of SEPSCO and Triarc, including each current member of the SEPSCO
Board and the SEPSCO Special Committee, as well as each subsidiary of Triarc and
SEPSCO. The Released Persons also include Insurance Risk Management, Inc.
('IRM'), Security Management Corp. ('SMC') and NVF and their respective current
and former officers and directors and financial and legal advisors. Each of IRM,
SMC and NVF is believed to be an affiliate of Victor Posner, SEPSCO's former
Chairman, President and Chief Executive Officer.
35
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated Triarc Companies
balance sheet as of October 31, 1993 (the 'Triarc Companies Pro Forma Balance
Sheet') and pro forma condensed consolidated Triarc Companies statements of
operations for Fiscal 1993 and the six months ended October 31, 1993 (the
'Triarc Companies Pro Forma Statements of Operations' and collectively with the
Triarc Companies Pro Forma Balance Sheet, the 'Triarc Companies Pro Forma
Financial Statements') have been prepared by adjusting the Triarc Companies
historical condensed consolidated balance sheet as of October 31, 1993 and
consolidated statements of operations for Fiscal 1993 and the six months ended
October 31, 1993 appearing elsewhere herein. The historical financial statements
(i) have been adjusted, as applicable, to give effect to (a) the salaries and
related employment benefits of the new chief executive officers of RC Cola,
Arby's and National Propane (the 'CEO Compensation'), (b) the Refinancing and
the RC/Arby's Refinancing, (c) the sale of the utility and municipal services
business segment of SEPSCO and related use of proceeds (collectively with the
CEO Compensation, the Refinancing and the RC/Arby's Refinancing, the 'Completed
Transactions'), and (ii) have been further adjusted to give effect to the
Merger, as if such transactions had occurred as of October 31, 1993 for the
Triarc Companies Pro Forma Balance Sheet and as of May 1, 1992 for the Triarc
Companies Pro Forma Statements of Operations. Such pro forma adjustments are
described in the accompanying notes to the Triarc Companies Pro Forma Financial
Statements which should be read in conjunction with the Triarc Companies Pro
Forma Financial Statements. Such Triarc Companies Pro Forma Financial Statements
should also be read in conjunction with the Triarc Companies consolidated
financial statements and notes thereto appearing elsewhere herein. The Triarc
Companies Pro Forma Financial Statements do not purport to be indicative of the
actual financial position or results of operations of Triarc Companies had such
transactions actually been consummated on October 31, 1993 and May 1, 1992,
respectively, or of the future financial position or future results of
operations of Triarc Companies which will result from the consummation of such
transactions.
36
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
OCTOBER 31, 1993
(UNAUDITED)
<TABLE>
<CAPTION>
ADJUSTMENTS
ADJUSTMENTS FOR THE
FOR THE MERGER AND
AS COMPLETED SETTLEMENT
REPORTED TRANSACTIONS AGREEMENT PRO FORMA
-------- ----------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents................................. $ 87,178 $ 42,841(a) $ (1,000)(c) $125,834
(185)(b) (3,000)(d)
Receivables, net..................................... 109,122 109,122
Inventories.......................................... 114,661 114,661
Deferred income taxes................................ 22,632 22,632
Net current assets of discontinued operations ....... 33,062 (33,062)(a) --
Other current assets................................. 29,596 29,596
-------- ----------- ----------- ---------
Total current assets............................ 396,251 9,594 (4,000) 401,845
-------- ----------- ----------- ---------
Restricted cash and equivalents of insurance operations... 27,062 27,062
Properties, net........................................... 242,463 242,463
Unamortized costs in excess of net assets of acquired
companies............................................... 184,115 25,797(c) 209,912
Net non-current assets of discontinued operations ........ 15,822 15,822
Other assets.............................................. 47,726 47,726
-------- ----------- ----------- ---------
$913,439 $ 9,594 $ 21,797 $944,830
-------- ----------- ----------- ---------
-------- ----------- ----------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt.................... $ 38,834 $ $ $ 38,834
Accounts payable..................................... 48,178 48,178
Accrued facilities relocation and corporate
restructuring costs................................ 35,970 35,970
Other current liabilities............................ 75,574 (3,000)(d) 72,574
Net current liabilities of discontinued operations... -- 9,779(a) 9,594
(185)(b)
-------- ----------- ----------- ---------
Total current liabilities....................... 198,556 9,594 (3,000) 205,150
-------- ----------- ----------- ---------
Long-term debt............................................ 540,355 540,355
Insurance loss reserves................................... 86,277 86,277
Deferred income taxes..................................... 41,404 41,404
Deposits and other liabilities............................ 12,148 12,148
Minority interests........................................ 27,654 (27,654)(c) --
Redeemable preferred stock, $12 stated value.............. 71,794 71,794
Stockholders' equity (deficit):
Class A common stock, $.10 par value................. 2,842 269(c) 3,111
Additional paid-in capital........................... 56,338 55,932(c) 112,270
Accumulated deficit.................................. (35,868) (3,750)(c) (39,618)
Class A common shares in treasury.................... (80,109) (80,109)
Other................................................ (7,952) (7,952)
-------- ----------- ----------- ---------
Total stockholders' equity (deficit)............ (64,749) -- 52,451 (12,298)
-------- ----------- ----------- ---------
$913,439 $ 9,594 $ 21,797 $944,830
-------- ----------- ----------- ---------
-------- ----------- ----------- ---------
</TABLE>
(footnotes on next page)
37
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET -- (CONTINUED)
(a) To record the October 15, 1993 sale of the tree maintenance services
operations of the utility and municipal services business segment of SEPSCO
for cash of $69,600,000 and liabilities assumed by the buyers of $5,000,000
and the related payment of $24,136,000 of capitalized leases secured by
assets sold and estimated income taxes and expenses of $2,623,000. The
liabilities assumed, capitalized leases repaid and estimated expenses were
included in current net assets of discontinued operations. This adjusting
entry as well as the entry in (b) are necessary since the Triarc Companies
October 31 consolidation includes the August 31 accounts of SEPSCO.
(b) To record the October 7, 1993 sale of the construction related operations of
the utility and municipal services business segment of SEPSCO for a nominal
amount of cash and the payment of $2,000,000 to be used to cover the buyer's
short-term operating losses and working capital requirements. SEPSCO is
entitled to deferred purchase price adjustments, of which $1,815,000 had
been received through December 31, 1993. Subsequent to December 31, 1993,
SEPSCO expects to receive additional net purchase price adjustments of
$555,000, consisting of proceeds from the sale of fixed assets and
collections of receivables of $1,645,000 partially offset by capital lease
repayments of $1,090,000.
(c) To record (i) the issuance of 2,691,822 shares of Triarc Class A Common
Stock at an assumed issue price of $21.25 per share (the closing price per
share on March 2, 1994 as reported on the NYSE consolidated transaction
system) net of estimated Triarc expenses of $1,000,000, in exchange for all
of the shares of SEPSCO Common Stock owned by stockholders other than Triarc
Companies, and (ii) the resulting elimination of Triarc's $27,654,000
minority interest and the related $25,797,000 increase in 'Unamortized costs
in excess of net assets of acquired companies' ('Goodwill') based on
preliminary evaluations of purchase accounting (the final purchase
accounting may allocate certain of the purchase price to assets other than
Goodwill.) The increase in Goodwill is net of $3,750,000, which is
considered to be the portion of the merger consideration which represents
the settlement of the Ehrman Litigation. Such amount has been charged to
'Accumulated deficit', and has no tax benefit.
(d) To record Triarc Companies' payment of $3,000,000 of estimated expenses
related to the settlement of the Ehrman Litigation, all of which had been
previously accrued.
38
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED APRIL 30, 1993
------------------------------------------------------
<S> <C> <C> <C> <C>
ADJUSTMENTS
ADJUSTMENTS FOR THE
FOR THE MERGER AND
AS COMPLETED SETTLEMENT
REPORTED TRANSACTIONS AGREEMENT PRO FORMA
---------- ----------- ----------- ----------
Revenues.................................................. $1,058,274 $ -- $ -- $1,058,274
Costs and expenses:
Cost of sales........................................... 766,795 766,795
Selling, general and administrative expenses............ 203,662 3,236(a) 1,032(d) 207,930
Facilities relocation and corporate restructuring....... 43,000 43,000
Provision for doubtful accounts from affiliates......... 10,358 10,358
---------- ----------- ----------- ----------
1,023,815 3,236 1,032 1,028,083
---------- ----------- ----------- ----------
Operating profit..................................... 34,459 (3,236) (1,032) 30,191
---------- ----------- ----------- ----------
Interest expense.......................................... (72,830) (888)(b) (73,718)
Other expense, net........................................ (920) (920)
---------- ----------- ----------- ----------
(73,750) (888) (74,638)
---------- ----------- ----------- ----------
Loss from continuing operations before income taxes
and minority interests............................. (39,291) (4,124) (1,032) (44,447)
Benefit from (provision for) income taxes................. (8,608) 1,485(c) (7,123)
---------- ----------- ----------- ----------
(47,899) (2,639) (1,032) (51,570)
Minority interests in net losses.......................... 3,350 (1,894) (e) 1,456
---------- ----------- ----------- ----------
Loss from continuing operations...................... $ (44,549) $(2,639) $(2,926) $ (50,114)
---------- ----------- ----------- ----------
---------- ----------- ----------- ----------
Loss from continuing operations per share(f)......... $ (1.73) $ (2.36)
---------- ----------
---------- ----------
</TABLE>
(Table continued on next page)
39
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS -- (CONTINUED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
(Table continued from previous page)
<TABLE>
<CAPTION>
SIX MONTHS ENDED OCTOBER 31, 1993
--------------------------------------------------
<S> <C> <C> <C> <C>
ADJUSTMENTS
ADJUSTMENTS FOR THE
FOR THE MERGER AND
AS COMPLETED SETTLEMENT
REPORTED TRANSACTIONS AGREEMENT PRO FORMA
-------- ------------ ------------ ----------
Revenues.................................................................. $521,470 $ -- $ -- $521,470
Costs and expenses:
Cost of sales........................................................... 368,757 368,757
Selling, general and administrative expenses............................ 130,460 261(a) 516(d) 131,237
-------- ------------ ------------ ----------
499,217 261 516 499,994
-------- ------------ ------------ ----------
Operating profit..................................................... 22,253 (261) (516) 21,476
-------- ------------ ------------ ----------
Interest expense.......................................................... (32,924) (954)(b) (33,878)
Other expense, net........................................................ (2,256) (2,256)
-------- ------------ ------------ ----------
(35,180) (954) (36,134)
-------- ------------ ------------ ----------
Income from continuing operations before income taxes and minority
interests.......................................................... (12,927) (1,215) (516) (14,658)
Benefit from (provision for) income taxes................................. (6,354) 438(c) (5,916)
-------- ------------ ------------ ----------
(19,281) (777) (516) (20,574)
Minority interests in net income.......................................... (347) 347(e) --
-------- ------------ ------------ ----------
Loss from continuing operations...................................... $(19,628) $ (777) $ (169) $(20,574)
-------- ------------ ------------ ----------
-------- ------------ ------------ ----------
Loss from continuing operations per share(f)......................... $ (1.06) $ (.98)
-------- ----------
-------- ----------
</TABLE>
(footnotes on next page)
40
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS -- (CONTINUED)
(UNAUDITED)
(footnotes from previous page)
(a) Reflects salaries and related employment benefits including bonuses for the
new chief executive officers of RC Cola, Arby's and National Propane and
the annual accretion of fair value of restricted common stock grants for
the chief executive officers of each of Triarc's four core businesses for
Fiscal 1993 and, to the extent not included in the historical results, for
the six months ended October 31, 1993.
(b) Represents additions to (reductions in) interest expense as follows:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
APRIL 30, 1993 OCTOBER 31, 1993
-------------- ----------------
(IN THOUSANDS)
<S> <C> <C>
Repayment of Step-up Notes............................................ $ -- $ (7,585)
Repayment of AFC Exchange Agreement, Note and Loans................... (26,385) (1,120)
Repayment of term loans............................................... (3,696) (1,274)(1)
Repayment of accounts receivable financing and other debt............. (7,008) (1,608)(1)
Repayment of $9.0 million of RC/Arby's 16 7/8% Subordinated Debentures
due 1996 (the '16 7/8% Debentures') and $1.0 million of RC/Arby's
16 1/4% Senior Subordinated Debentures due 1996..................... (1,673) (520)
Issuance of 9 3/4% Senior Notes....................................... 26,813 9,806
Issuance of Graniteville Credit Facility (borrowings of $153,570,000
and $152,616,000 respectively)...................................... 12,257 3,090
Increase in amortization of deferred financing costs.................. 580 165
-------------- --------
$ 888 $ 954
-------------- --------
-------------- --------
- ---------------
(1) Includes interest on the Term Loan and Revolving Loan of the
Graniteville Credit Facility of $654,000 and $789,000,
respectively.
</TABLE>
(c) To record the aggregate tax effect of the pre-tax entries at 36%.
(d) To record additional amortization relating to the exchange of Triarc Class
A Common Stock for the SEPSCO Common Stock owned by stockholders other than
Triarc Companies. The $25,797,000 of additional Goodwill has been amortized
over an estimated average of 25 years. The 25 year weighted average
reflects the preliminary evaluation of purchase accounting whereas the
final purchase accounting may allocate certain of the purchase price to
assets for which the amortization period would be less than the remaining
30 year life for Goodwill.
(e) To eliminate the minority interest in the loss from continuing operations
of SEPSCO due to the assumed acquisition pursuant to the Merger Agreement
of all the SEPSCO Common Stock owned by stockholders other than Triarc
Companies.
(f) The loss from continuing operations per share is determined by dividing the
loss from continuing operations less preferred stock dividend requirements
(pro forma for Fiscal 1993 as if the Redeemable Convertible Preferred Stock
was issued as of May 1, 1992 and historical for the six months ended
October 31, 1993) by the weighted average common shares outstanding. The
weighted average common shares outstanding were determined as follows:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
APRIL 30, 1993 OCTOBER 31, 1993
-------------- ----------------
(IN THOUSANDS)
<S> <C> <C>
Historical............................................................ 25,808 21,239
Effect of the issuance of 833,332 shares of Triarc Class A Common
Stock in the Equity Transactions.................................... 817 --
Effect of the acquisition by Triarc of 5,982,866 shares of Triarc
Class A Common Stock in the Equity Transactions..................... (5,868) --
Effect of grant of 268,000 shares of restricted Triarc Class A Common
Stock issued in connection with the Restructuring................... 263 --
Effect of the issuance of 2,691,822 shares of Triarc Class A Common
Stock in the Merger................................................. 2,692 2,692
------- -------
Pro forma............................................................. 23,712 23,931
------- -------
------- -------
</TABLE>
41
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated SEPSCO balance
sheet as of November 30, 1993 (the 'SEPSCO Pro Forma Balance Sheet') and pro
forma condensed consolidated SEPSCO statements of operations for the fiscal year
ended February 28, 1993 and the nine months ended November 30, 1993 (the 'SEPSCO
Pro Forma Statements of Operations' and collectively with the SEPSCO Pro Forma
Balance Sheet, the 'SEPSCO Pro Forma Financial Statements' have been prepared by
adjusting the SEPSCO historical condensed consolidated balance sheet as of
November 30, 1993 and consolidated statements of operations for the fiscal year
ended February 28, 1993 and the nine months ended November 30, 1993 appearing
elsewhere herein. The historical financial statements have been adjusted, as
applicable, to give effect to (i) the sale of the construction related
operations of the utility and municipal services business segment and (ii) have
been further adjusted to give effect to the Merger and the payment of expenses
related to the settlement of the Ehrman Litigation in connection with the Merger
and Settlement Agreement as if such transactions had occurred as of November 30,
1993 for the SEPSCO Pro Forma Balance Sheet and as of March 1, 1992 for the
SEPSCO Pro Forma Statements of Operations. Such pro forma adjustments are
described in the accompanying notes to the SEPSCO Pro Forma Financial Statements
which should be read in conjunction with the SEPSCO Pro Forma Financial
Statements. The SEPSCO Pro Forma Financial Statements should also be read in
conjunction with the SEPSCO consolidated financial statements included elsewhere
herein. The SEPSCO Pro Forma Financial Statements do not purport to be
indicative of the actual financial position or results of operations of SEPSCO
had such transactions actually been consummated on November 30, 1993 or March 1,
1992, respectively, or of the future financial position or results of operations
of SEPSCO which will result from the consummation of such transactions.
42
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
NOVEMBER 30, 1993
(UNAUDITED)
<TABLE>
<CAPTION>
ADJUSTMENTS
ADJUSTMENTS FOR THE
FOR THE MERGER AND
COMPLETED SETTLEMENT
AS REPORTED TRANSACTIONS AGREEMENT PRO FORMA
----------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents.............................. $ 41,111 $300(a) $ (1,000)(b) $ 40,411
Receivables, net.................................. 3,884 3,884
Inventories....................................... 888 888
Deferred income tax benefit....................... 1,062 1,062
Other current assets.............................. 534 534
----------- ----- ----------- ---------
Total current assets......................... 47,479 300 (1,000) 46,779
----------- ----- ----------- ---------
Properties, net....................................... 7,298 7,298
Note receivable from Triarc........................... 26,538 26,538
Investments in affiliates............................. 68,033 68,033
Unamortized costs in excess of net assets of acquired
companies........................................... -- 25,797(c) 25,797
Deferred income tax benefit........................... 528 528
Other assets.......................................... 2,483 2,483
Net non-current assets of discontinued operations..... 18,771 18,771
----------- ----- ----------- ---------
$ 171,130 300 $ 24,797 $196,227
----------- ----- ----------- ---------
----------- ----- ----------- ---------
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt................. $ 9,287 $ $ $ 9,287
Accounts payable.................................. 8,690 8,690
Accrued expenses.................................. 4,190 (1,000)(b) 3,190
Net current liabilities of discontinued
operations..................................... 3,406 300(a) 3,706
----------- ----- ----------- ---------
Total current liabilities.................... 25,573 300 (1,000) 24,873
----------- ----- ----------- ---------
Long-term debt........................................ 50,501 50,501
Other liabilities..................................... 1,484 1,484
Commitments and contingencies
Stockholders' equity:
Series B convertible preferred stock, $50 par
value.......................................... 24 24
Common stock, $1.00 par value..................... 11,896 11,896
Capital in excess of par value.................... 90,539 25,797(c) 116,336
Accumulated deficit............................... (8,021) (8,021 )
----------- ----- ----------- ---------
94,438 25,797 120,235
Common shares in treasury......................... (866) (866 )
----------- ----- ----------- ---------
Total stockholders' equity................... 93,572 25,797 119,369
----------- ----- ----------- ---------
$ 171,130 $300 $ 24,797 $196,227
----------- ----- ----------- ---------
----------- ----- ----------- ---------
</TABLE>
- ------------
(a) To record an increase to cash relating to the October 7, 1993 sale of the
construction related operations of the utility and municipal services
business segment. Such operations were sold for a nominal amount of cash and
the payment of $2,000,000 to be used to cover the buyer's short-term
operating losses and working capital requirements. SEPSCO is entitled to
deferred purchase price adjustments, of which $1,515,000 had been received
through November 30, 1993, the balance sheet date, and of which $1,815,000
had been received through December 31, 1993. Subsequent to December 31,
1993, SEPSCO expects to receive additional purchase price adjustments of
$555,000, consisting of proceeds from the sale of fixed assets and
collections of receivables of $1,645,000 partially offset by capital lease
repayments of $1,090,000.
(b) To record SEPSCO's payment of $1,000,000 of estimated expenses related to
the settlement of the Ehrman Litigation, all of which had been previously
accrued for.
(c) To record the increases in 'Unamortized costs in excess of net assets of
acquired companies' ('Goodwill') and 'Capital in excess of par value'
resulting from the assumed pushdown of such unamortized costs in excess of
net assets of acquired companies to SEPSCO from Triarc based on preliminary
evaluations of purchase accounting (the final purchase accounting may
allocate certain of the purchase price to assets other than Goodwill).
43
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FEBRUARY 28, 1993
------------------------------------
ADJUSTMENTS
FOR THE
MERGER AND
AS SETTLEMENT
REPORTED AGREEMENT PRO FORMA
-------- ----------- ---------
<S> <C> <C> <C>
Net sales.................................................................. $ 28,520 $ $ 28,520
-------- ---------
Cost and expenses:
Cost of sales......................................................... 22,604 22,604
Selling, general and administrative expenses.......................... 2,282 1,032(a) 3,314
-------- ----------- ---------
24,886 1,032 25,918
-------- ----------- ---------
Operating profit................................................. 3,634 (1,032) 2,602
-------- ----------- ---------
Other income (expense):
Interest expense...................................................... (13,901) (13,901)
Equity in earnings of affiliates before cumulative effect of changes
in accounting principles and extraordinary items of affiliate....... 12,161 12,161
Interest income from Triarc........................................... 7,336 7,336
Gain on sale of marketable security................................... 6,000 6,000
Other, net............................................................ (987) (987)
-------- ---------
10,609 10,609
-------- ---------
Income from continuing operations before income taxes, cumulative effect of
changes in accounting principles and extraordinary items of affiliate.... 14,243 (1,032) 13,211
Provision for income taxes................................................. (1,671) (1,671)
-------- ----------- ---------
Income from continuing operations before equity in cumulative effect of
changes in accounting principles and extraordinary items of affiliate.... $ 12,572 $(1,032) $ 11,540
-------- ----------- ---------
-------- ----------- ---------
Income from continuing operations per share(b)............................. $1.08 $1.39
(Table continued on next page)
</TABLE>
44
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED NOVEMBER 30, 1993
-------------------------------------------
ADJUSTMENTS
FOR THE
MERGER AND
AS SETTLEMENT
REPORTED AGREEMENT PRO FORMA
-------- -------------- -------------
<S> <C> <C> <C>
Net sales............................................................. $19,760 $ $19,760
-------- -------------
Costs and expenses:
Cost of sales.................................................... 16,408 16,408
Selling, general and administrative expenses..................... 2,998 774(a) 3,772
-------- ------ -------------
19,406 774 20,180
-------- ------ -------------
Operating profit (loss)..................................... 354 (774) (420)
-------- ------ -------------
Other income (expense):
Interest expense................................................. (7,521) (7,521)
Equity in earnings of affiliates before cumulative effect of
changes in accounting principles............................... 4,310 4,310
Interest income from Triarc...................................... 3,141 3,141
Other............................................................ (892) (892)
-------- -------------
(962) (962)
-------- -------------
Loss from continuing operations before income taxes and cumulative
effect of changes in accounting principles.......................... (608) (774) (1,382)
Benefit from income taxes............................................. 1,791 1,791
-------- ------ -------------
Income from continuing operations before cumulative effect of changes
in accounting principles............................................ $ 1,183 $ (774) $ 409
-------- ------ -------------
-------- ------ -------------
Income from continuing operations per share(b)........................ $.10 $.05
</TABLE>
- ------------
(a) To record amortization relating to the exchange of Triarc Class A Common
Stock for the SEPSCO Common Stock owned by stockholders other than Triarc
Companies. The $25,797,000 of additional Goodwill has been amortized over an
estimated average of 25 years. The 25 year weighted average reflects the
preliminary evaluation of purchase accounting whereas the final purchase
accounting may allocate certain of the purchase price to assets for which
the amortization period would be less than the remaining 30 year life for
Goodwill.
(b) The income from continuing operations per share is determined by dividing
the income from continuing operations less preferred stock dividend
requirements by the weighted average common shares outstanding (11,655,067
shares for historical and 8,290,289 shares for pro forma after giving effect
to the exchange of 3,364,778 shares of SEPSCO Common Stock for Triarc Class
A Common Stock in connection with the Merger).
45
<PAGE>
THE MERGER AGREEMENT
GENERAL
The terms of the Merger are contained in the Merger Agreement, a copy of
which is attached as Annex I to this Proxy Statement-Prospectus and incorporated
herein by reference. Statements in this Proxy Statement-Prospectus with respect
to the terms of the Merger are qualified in their entirety by reference to the
Merger Agreement. SEPSCO Stockholders are urged to read the full text of the
Merger Agreement.
Under the Merger Agreement, if the Merger is approved by the SEPSCO
Stockholders and becomes effective, Mergerco will merge with and into SEPSCO,
and SEPSCO, as the Surviving Corporation in the Merger, will continue its
corporate existence under the laws of Delaware under the name 'Southeastern
Public Service Company.' The Surviving Corporation will be a wholly owned
subsidiary of Triarc.
EFFECTIVE TIME OF MERGER
The Effective Time of the Merger will be at the time of filing of a
Certificate of Merger with the Secretary of State of the State of Delaware in
accordance with applicable Delaware law. It is presently anticipated that the
filing of the Certificate of Merger will be made as soon as practicable after
the conclusion of the Special Meeting. Such filing will be made, however, only
upon satisfaction or waiver, where permissible, of the conditions set forth in
the Merger Agreement. See ' -- Conditions to the Merger.'
CONVERSION OF STOCK
At the Effective Time, each outstanding share of SEPSCO Common Stock (other
than shares of SEPSCO Common Stock owned by Triarc or a subsidiary of Triarc,
which will be cancelled) automatically will be converted into the right to
receive 0.8 of a share of Triarc Class A Common Stock.
At the Effective Time, each share of SEPSCO Preferred Stock will
automatically be cancelled.
Upon the Effective Time, holders of shares of SEPSCO Common Stock and
shares of SEPSCO Preferred Stock will have no continuing interests in or rights
as stockholders of SEPSCO.
Each share of Mergerco's common stock, par value $1.00 per share ('Mergerco
Common Stock'), issued and outstanding immediately prior to the Effective Time
shall, by virtue of the Merger and without any action on the part of Triarc, be
converted into and become one share of Common Stock, par value $1.00 per share,
of the Surviving Corporation.
Only holders of shares of SEPSCO Preferred Stock have the right under
Section 262 to dissent from the Merger and obtain an appraisal of the fair value
of such shares pursuant to Section 262 if the Merger is consummated. However,
because Triarc holds all outstanding shares of SEPSCO Preferred Stock and has
agreed to vote such shares for the adoption of the Merger Agreement, it will not
be able to exercise its appraisal rights under Section 262.
PAYMENT FOR SEPSCO COMMON STOCK
In order to receive the Merger Consideration, each holder of certificates
(each, a 'Certificate') theretofore representing shares of SEPSCO Common Stock
will be required to surrender his or her Certificate or Certificates, together
with a duly executed and properly completed letter of transmittal and any other
required documents, to Harris Trust Company of New York, which has been
appointed by Triarc as the Exchange Agent. Upon receipt of such Certificate or
Certificates, together with a duly executed and properly completed letter of
transmittal and any other required documents from a holder of SEPSCO Common
Stock, the Exchange Agent will arrange for the issuance and delivery to the
person or persons entitled thereto of a certificate or certificates representing
that number of whole shares of Triarc Class A Common Stock equal to 0.8
multiplied by the number of shares of SEPSCO Common Stock represented by the
surrendered Certificate or Certificates. Shares of Triarc Class A Common Stock
will be issued only in whole shares. Former holders of shares of SEPSCO Common
46
<PAGE>
Stock will not be entitled to receive fractions of shares of Triarc Class A
Common Stock ('Fractional Shares') but, instead, will be entitled to receive
promptly from the Exchange Agent a cash payment in lieu of Fractional Shares in
an amount equal to such former holder's proportionate interest in the net
proceeds from the sale in the open market by the Exchange Agent, on behalf of
all such former holders, of the aggregate Fractional Shares.
No dividends or other distributions that are otherwise payable on the
shares of Triarc Class A Common Stock issued in connection with the Merger will
be paid to the holder of any unsurrendered Certificate until such Certificate is
properly surrendered to the Exchange Agent. However, upon the proper surrender
of such Certificate to the Exchange Agent (i) there shall be paid to the person
in whose name the shares of Triarc Class A Common Stock constituting Merger
Consideration are issued the amount of any dividends that shall have become
payable with respect to such shares of Triarc Class A Common Stock between the
Effective Time of the Merger and the time of such surrender and (ii) at the
appropriate payment date or as soon thereafter as practicable, there shall be
paid to such person the amount of any dividends on such shares of Triarc Class A
Common Stock that shall have a record or due date prior to such surrender and a
payment date after such surrender, subject in each such case to (x) deduction
therefrom of any amount required by applicable law to be withheld, and (y) any
applicable escheat laws or unclaimed property laws. On proper surrender of a
Certificate, no interest shall be payable with respect to the payment of such
dividends and no interest shall be payable with respect to the amount of any
cash payable in lieu of a fractional share of Triarc Class A Stock.
If the Merger Consideration is to be paid to a person other than the
registered holder of the Certificates surrendered, it is a condition of such
issuance that the Certificate or Certificates so surrendered be properly
endorsed or otherwise be in proper form for transfer and that the person
requesting such payment or issuance either pay to the Exchange Agent any
transfer or other taxes required by reason of the issuance to a person other
than the registered owner of the Certificate or Certificates surrendered or
shall establish to the satisfaction of Triarc that such tax has been paid or is
not applicable.
The Exchange Agent will send instructions to holders of SEPSCO Common Stock
with regard to the procedure for surrendering Certificates in exchange for the
Merger Consideration, together with a letter of transmittal to be used for this
purpose, as promptly as practicable after the Effective Time. Holders of SEPSCO
Common Stock should surrender Certificates only with a letter of transmittal.
SEPSCO STOCKHOLDERS SHOULD NOT SEND ANY CERTIFICATES WITH THE ENCLOSED
PROXY CARD.
CERTIFICATE OF INCORPORATION, BY-LAWS, DIRECTORS
The Merger Agreement provides that, at the Effective Time, the Certificate
of Incorporation of SEPSCO and By-laws of Mergerco, each as in effect
immediately prior to the Effective Time, shall be the Certificate of
Incorporation and By-laws of the Surviving Corporation, except that at the
Effective Time Article Fourth of the Certificate of Incorporation of the
Surviving Corporation shall be amended to read as follows: 'The total number of
shares of stock of all classes which the Corporation has authority to issue is
1,000 shares of Common Stock, par value $1.00 per share.' The Merger Agreement
also provides that the officers of SEPSCO and directors of Mergerco at the
Effective Time shall be the initial officers and directors of the Surviving
Corporation and shall serve until their respective successors are duly elected
or appointed and qualify in the manner provided in the Certificate of
Incorporation and By-laws of the Surviving Corporation, or as otherwise provided
by law.
CONDITIONS TO THE MERGER
The obligations of each of Triarc, Mergerco and SEPSCO to consummate the
Merger are subject to fulfillment of the following conditions at or prior to the
Effective Time: (i) the Merger Agreement shall have been adopted by the Required
Stockholder Vote, (ii) the Registration Statement shall have become effective
under the Securities Act and no stop order suspending such effectiveness shall
have been issued or proceeding for such purpose instituted or threatened; (iii)
no order, statute, rule, regulation, executive order, stay, decree, judgment or
injunction shall have been enacted, entered, promulgated or enforced by any
court or governmental authority which prevents or materially restricts
47
<PAGE>
consummation of the Merger, (iv) the District Court shall have entered a Final
Order approving the Settlement Agreement and the Settlement Terms and Conditions
set forth therein and dismissing the Ehrman Litigation on the merits with
prejudice (the 'Settlement Condition'), (v) the shares of Triarc Class A Common
Stock to be issued as Merger Consideration shall have been approved for listing
on each stock exchange located in the United States of America upon which the
shares of Triarc Class A Common Stock are then listed, subject to official
notice of issuance, and (vi) Smith Barney shall not have withdrawn or in any
material way modified or amended its opinion with respect to the fairness from a
financial point of view of the Merger Consideration to the Public Stockholders.
The obligation of SEPSCO to effect the Merger is subject to fulfillment of
the following additional conditions at or prior to the Effective Time: (i)
Triarc and Mergerco shall have performed their agreements contained in the
Merger Agreement in all material respects, (ii) except as contemplated by the
Merger Agreement, the representations and warranties of Triarc and Mergerco set
forth in the Merger Agreement shall be true and correct in all material respects
at and as of the Effective Time as if made at and as of such date, unless stated
in the Merger Agreement to be true on and as of another date, in which case such
representation and warranty shall have been true in all material respects on and
as of such date and (iii) since the date of the Merger Agreement, there shall
not have been (a) any material adverse change, or any development, not in the
ordinary course of business, which is likely to result in a material adverse
change in the business, assets, financial condition or the results of operations
of Triarc and its subsidiaries (excluding SEPSCO and its subsidiaries), taken as
a whole; (b) any change in accounting methods, principles or practices by Triarc
materially affecting its assets, liabilities or business, except insofar as may
have been required by a change in generally accepted accounting principles; (c)
any damage, destruction or loss which, after taking into account any insurance
proceeds with respect thereto, would have a material adverse effect on the
business, assets, properties, financial condition or results of operations of
Triarc and its subsidiaries (excluding SEPSCO and its subsidiaries) taken as a
whole.
The obligations of Triarc and Mergerco to effect the Merger are subject to
fulfillment of the following additional conditions at or prior to the Effective
Time: (i) subject to the Control Agreement (as defined below under ' -- Certain
Agreements Pending the Merger -- Agreements of Triarc'), SEPSCO shall have
performed its agreements under the Merger Agreement in all material respects;
(ii) except as contemplated by the Merger Agreement, the representations and
warranties of SEPSCO shall be true and correct in all material respects at and
as of the Effective Time as if made at and as of such date, unless stated in the
Merger Agreement to be true on and as of such date, in which event such
representation and warranty shall have been true in all material respects on and
as of such date; (iii) there shall not have occurred and be continuing (a) any
general suspension of trading in, or limitation on prices for, securities on the
NYSE or any exchange on which the shares of Triarc Class A Common Stock are
listed for trading (b) a declaration of banking moratorium or suspension of
payments of banks generally in the United States, whether or not mandatory, (c)
certain wars or other international or national calamities materially affecting
the United States which commenced after the date of the Merger Agreement, (d)
any limitation, whether or not mandatory, by any governmental authority on, or
other event reasonably likely to affect extension of credit by banks or other
lending institutions in the United States, or (e) any other material adverse
change in the United States securities or financial markets, which material
adverse change shall be deemed to have occurred if the closing Standard and
Poor's 500 Stock Index (the 'S&P 500 Index') on the business day immediately
preceding the day on which the Special Meeting is held at which the vote on the
Merger Agreement is taken, is at least 12% less than the closing S&P 500 Index
on the business day immediately preceding the date of the Merger Agreement; (iv)
there shall not have been any action taken, or any statute, rule, regulation,
legislation, interpretation, judgment, order or injunction enacted, entered,
enforced, promulgated, amended, issued or deemed applicable to the Merger by any
domestic legislative body, court, government or governmental, administrative or
regulatory authority or agency (a) restraining or preventing the carrying out of
the transactions contemplated by the Merger Agreement (b) prohibiting Triarc's
ownership or operation of all or any material portion of its or SEPSCO's
businesses or assets, or compelling Triarc to dispose of or hold separate all or
any material portion of Triarc's or SEPSCO's businesses or assets as a result of
the transactions contemplated by the Merger Agreement; (c) making acquisition of
the shares of SEPSCO Common Stock pursuant to the Merger illegal; (d)
prohibiting
48
<PAGE>
Triarc effectively from acquiring or holding or exercising full rights of
ownership of the shares of SEPSCO Common Stock, including, without limitation,
the right to vote the shares of SEPSCO Common Stock acquired by it pursuant to
the Merger, on all matters properly presented to the stockholders of SEPSCO; (e)
prohibiting Triarc or any of its subsidiaries or affiliates from effectively
controlling in any material respect the businesses or operations of SEPSCO,
Triarc or their respective subsidiaries; or (f) which would impose any condition
which would materially adversely affect the business of SEPSCO or (as a
condition of consummating the transactions contemplated by the Merger Agreement)
the business of Triarc and its subsidiaries (excluding SEPSCO and its
subsidiaries) taken as a whole; (v) there shall not have been any federal income
tax changes (including any legislation, regulation, or judicial or
administrative interpretations) adopted, or proposed by the United States
Treasury Department or by the Chairman or ranking minority member of either the
Ways and Means Committee (the 'Ways and Means Committee') of the United States
House of Representatives (the 'House') or the Finance Committee (the 'Finance
Committee') of the United States Senate (the 'Senate'), or favorably reported to
either the full House or Senate by the Ways and Means Committee or the Finance
Committee, on or subsequent to the date of the Merger Agreement that would make
consummation of the Merger impracticable; (vi) the SEPSCO Board shall not have
withdrawn or modified its position with respect to the Merger; (vii) except
actions taken by SEPSCO in connection with its decision to sell substantially
all of its businesses and assets as they exist on the date of the Merger
Agreement, and the restatement of SEPSCO's 1993 audited consolidated financial
statements and unaudited quarterly consolidated financial statements to reflect
the discontinuance of such businesses and assets, since the date of the Merger
Agreement, since the date of the Merger Agreement there shall not have been (a)
any material adverse change, or any development, not in the ordinary course of
business, which is likely to result in a material adverse change in the
business, assets, financial condition or the results of operations of SEPSCO and
its subsidiaries, taken as a whole; (b) any change in accounting methods,
principles or practices by SEPSCO materially adversely affecting its assets,
liabilities or business, except insofar as may have been required by a change in
generally accepted accounting principles; (c) any damage, destruction or loss
which, after taking into account any insurance coverage proceeds received with
respect thereto, would have a material adverse effect on the business, assets,
properties, financial condition or results of operations of SEPSCO and its
subsidiaries taken as a whole; and (viii) the Final Order approving the
Settlement Agreement shall have become final and non-appealable.
CERTAIN AGREEMENTS PENDING THE MERGER
AGREEMENT OF SEPSCO
In the Merger Agreement, SEPSCO has agreed that, prior to the Effective
Time, unless Triarc otherwise agrees, or as otherwise contemplated by the Merger
Agreement, neither SEPSCO nor any subsidiary of SEPSCO shall (i) amend its
certificate of incorporation or by-laws, (ii) change the number of authorized or
outstanding shares of its capital stock, from the number authorized and
outstanding on the date of the Merger Agreement, (iii) declare, set aside or pay
any dividend or other distribution, or make any payment in cash, stock or
property, in respect of any shares of its capital stock, except for regular
dividends and/or distributions declared and/or paid (a) by any subsidiary of
SEPSCO to SEPSCO or to any other subsidiary of SEPSCO, or (b) on the outstanding
shares of SEPSCO Preferred Stock, (iv) authorize for issuance, issue, grant,
sell, pledge or dispose of, or propose to issue, grant, sell, pledge or dispose
of any shares of, or warrants, options, commitments, subscriptions or rights of
any kind to acquire any shares of, the capital stock of SEPSCO or such
subsidiary or any securities convertible into or exchangeable for shares of any
such capital stock, (v) incur any material indebtedness for borrowed money other
than in the ordinary and usual course of business, consistent with past
practice, (vi) acquire directly or indirectly by redemption or otherwise any
shares of the capital stock of SEPSCO or any subsidiary of SEPSCO, or (vii)
enter into any agreement or take any other action to do any of the things
described above or which would make any representation or warranty of SEPSCO set
forth in the Merger Agreement that is qualified as to materiality untrue or
incorrect and any such representation or warranty which is not so qualified
materially untrue or incorrect.
49
<PAGE>
AGREEMENTS OF TRIARC
In the Merger Agreement, Triarc has agreed that prior to the Effective
Time, unless SEPSCO otherwise agrees, Triarc shall not issue any shares of its
capital stock (or issue or grant any options, warrants or other securities
evidencing the right to acquire, prior to the Effective Time, shares of its
capital stock upon the exercise or conversion thereof (collectively 'Rights'))
to any executive officer or director of Triarc, or any affiliate of Triarc or
any such person, other than (i) upon exercise of Rights outstanding on the date
of the Merger Agreement, (ii) pursuant to Triarc's 1993 Amended and Restated
Equity Participation Plan (the 'Equity Participation Plan') or (iii) upon
receipt of consideration equal to at least the fair market value of the shares
of Triarc capital stock issued in respect thereof (or, in the case of the
issuance of shares of capital stock upon the exercise of any Right issued
subsequent to the date of the Merger Agreement, upon receipt of consideration
(including the consideration, if any, received by Triarc for the issuance of the
Right) equal to at least the fair market value, as of the date of issuance of
the Right, of the shares of Triarc capital stock to be issued upon exercise
thereof). Any non-cash consideration shall be valued in good faith by the Triarc
Board.
Pursuant to the Merger Agreement, and as required by the terms of the
Settlement Agreement, Triarc has also agreed that it shall not issue any shares
of Triarc Class A Common Stock or Triarc Class B Common Stock (together, 'Triarc
Common Shares'), or Rights to acquire Triarc Common Shares, subsequent to
October 18, 1993 (the date on which the Settlement Agreement was executed) and
prior to the Effective Time, which will have a materially dilutive economic
effect upon the Triarc Common Shares, except that the following shall not be
deemed to have any such materially dilutive economic effect for purposes of such
agreement: (i) the granting of stock options or restricted stock awards so that
the aggregate number of Triarc Common Shares to be issued upon the issuance of
such restricted stock awards, and upon the conversion of such stock options,
does not exceed 3,500,000 shares; or (ii) the issuance or potential issuance of
Triarc Common Shares, upon the election to convert by any holders, at such
holders' option, of all or some of the shares of Redeemable Convertible
Preferred Stock or any other series of convertible preferred stock or other
convertible securities of Triarc outstanding on October 18, 1993; or (iii) the
issuance or potential issuance of shares of Triarc Common Shares in connection
with an underwritten public offering; or (iv) the issuance or potential issuance
of Triarc Common Shares at not less than fair market value, as determined in
good faith by the Triarc Board; or (v) any other such issuance of Triarc Common
Shares, so long as the number of shares of Triarc Class A Common Stock to be
received in exchange for each share of SEPSCO Common Stock pursuant to the terms
of the Settlement Agreement and the Merger Agreement are appropriately adjusted.
In addition, Triarc, either in its capacity as a SEPSCO Stockholder or
through its nominees on the SEPSCO Board (which for purposes of the Merger
Agreement mean Messrs. Peltz, May and Kalvaria), in each case subject to the
exercise of their respective fiduciary duties, if any, to the SEPSCO
Stockholders, has agreed not to take or fail to take, as the case may be, any
action, the taking or failure of which to take, as the case may be, would be
likely to cause any representation or warranty of SEPSCO contained in the Merger
Agreement to cease to be accurate in any material respect or that would be
reasonably likely to prevent the performance in all material respects by SEPSCO
of any covenant or the satisfaction by SEPSCO of any condition contained in the
Merger Agreement (the foregoing agreement being referred to as the 'Control
Agreement').
AGREEMENTS OF SEPSCO, TRIARC AND MERGERCO
In the Merger Agreement, each party agrees to use its best efforts to take,
or cause to be taken, all lawful action, to do, or cause to be done, and to
assist and cooperate with the other parties thereto in doing, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective, as soon as reasonably practicable, the
transactions contemplated by the Merger Agreement, including (i) the Merger,
(ii) the obtaining of consents, amendments to or waivers under the terms of any
material borrowing arrangements or other material contractual arrangements
required by the transactions contemplated by the Merger Agreement, and (iii) the
defending of any lawsuits or other legal proceedings, whether judicial or
administrative, challenging the Merger Agreement or the consummation of the
transactions contemplated thereby. Each of the parties to the Merger Agreement
50
<PAGE>
also agreed not to take or to fail to take, as the case may be, any action, the
taking of which or the failure of which to take, as the case may be, would be
likely to cause any representation or warranty contained in the Merger Agreement
to cease to be true or accurate in any material respect or that would be
reasonably likely to prevent the performance in all material respects of any
covenant or the satisfaction of any condition contained in the Merger Agreement.
In the Merger Agreement, each of the parties agrees promptly to notify each
other party of any claims, actions, proceedings or investigations commenced or,
to the best of its knowledge, threatened, and any material developments relating
to any such pending claim, action, proceeding or investigation involving or
affecting the parties, or any of their respective properties or assets, or, to
the best of its knowledge, any employee or consultant of the parties, in his or
her capacity as such, or director or officer, in his or her capacity as such, of
SEPSCO or Triarc disclosed in writing pursuant to or which, if pending on the
date, would have been required to have been disclosed in writing pursuant to the
Merger Agreement, or which relate to the consummation of the Merger.
The Merger Agreement also provides that each party promptly shall notify
the others of: (i) any notice of, or other communication relating to, a default
or event that, with notice or lapse of time or both, would become a default,
received by such party or any of its subsidiaries subsequent to the date of the
Merger Agreement and prior to the Effective Time, under any agreement, indenture
or instrument material to the financial condition, properties, business or
results of operations of such party and its subsidiaries taken as a whole to
which such party or any of its subsidiaries is a party or is subject; (ii) any
notice or other communication from any third party alleging that the consent of
such third party is or may be required in connection with the transactions
contemplated by the Merger Agreement; (iii) any notice or other communication
from any regulatory authority in connection with the transactions contemplated
by the Merger Agreement, (iv) any material adverse change in the financial
condition, properties, businesses or results of operations of such party and its
subsidiaries taken as a whole, or the occurrence of an event which, so far as
reasonably can be foreseen at the time of its occurrence, would result in any
such change; or (v) any matter arising after the date of the Merger Agreement
which, if existing, occurring or known at the date of the Merger Agreement,
would have been required to be disclosed to such other parties.
In the Merger Agreement, each party agrees that it shall, and shall cause
its subsidiaries, officers, directors, employees and agents to, afford to each
other party and such party's accountants, counsel, financial advisors,
investment bankers and other agents and representatives, full access at all
reasonable times throughout the period prior to the Effective Time to all of the
officers, employees, agents, properties, books, contracts, commitments and
records (including but not limited to tax returns) of such party and its
subsidiaries.
TERMINATION
The Merger Agreement may be terminated notwithstanding the approval by the
SEPSCO Stockholders or the shareholders of Triarc or Mergerco (i) at any time
prior to the Effective Time, by mutual consent of the boards of directors of
each of the respective parties to the Merger Agreement, (ii) by either Triarc
and Mergerco or SEPSCO if the Merger is not consummated on or before June 30,
1994 (or such later date as the parties may agree to in writing) unless the
failure to consummate the Merger on or prior to such date resulted from the
failure of the party seeking to terminate the Merger Agreement to satisfy any of
the closing conditions set forth in the Merger Agreement, (iii) by SEPSCO if
either Triarc or Mergerco fails to perform in any material respect any of its
material obligations under the Merger Agreement, or (iv) by Triarc or Mergerco
if SEPSCO fails to perform in any material respect any of its material
obligations under the Merger Agreement; provided that, in the event of a failure
to perform under clauses (iii) or (iv) above, if such failure is curable, notice
of such failure shall have been given to the defaulting party and the failure
shall not have been cured within 30 days of such notice. The Merger Agreement
will automatically be terminated, at any time prior to the Merger, including
following approval of the Merger by the SEPSCO Stockholders, if (i) the District
Court rejects the Settlement Agreement or any of the material Settlement Terms
and Conditions or (ii) any court having jurisdiction over the matter shall set
aside, overturn or materially modify the District
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Court's Final Order approving the Settlement Agreement or such court shall
otherwise take any action which causes the Settlement Agreement to fail to
become effective according to its terms.
CERTAIN OTHER PROVISIONS OF THE MERGER AGREEMENT
In the Merger Agreement, Triarc has agreed that all rights to
indemnification existing as of the date of the Merger Agreement in favor of the
employees, agents, directors or officers of SEPSCO and its subsidiaries
(collectively, the 'Indemnified Parties') as provided in their respective
charters or by-laws, by agreement or otherwise in effect on the date of the
Merger Agreement shall survive the Merger and shall, with respect to any action
or omission occurring prior to the Effective Time, continue in full force and
effect in accordance with their terms for a period of six years from the
Effective Time; provided that, in the event any claim or claims are asserted or
made within such six year period, all rights to indemnification in respect of
any such claim or claims shall continue until the disposition of any and all
such claims. In addition, the Merger Agreement provides that if any Indemnified
Party becomes involved in any capacity in any action, proceeding or
investigation in connection with any matter, including the transactions
contemplated by the Merger Agreement, occurring prior to, and including, the
Effective Time, SEPSCO will periodically advance to such Indemnified Party its
legal and other expenses incurred in connection therewith. Furthermore, Triarc
has agreed in the Merger Agreement that subsequent to the Effective Time it
shall, jointly and severally with the Surviving Corporation, to the extent, with
respect to each indemnitor, permitted by applicable law, (i) indemnify each
member of the SEPSCO Special Committee and their successors and assigns from and
against any and all issues, claims, judgments and liabilities (including,
reasonable fees and disbursements of attorneys and costs of investigation),
relating to the Merger Agreement or the transactions contemplated thereby and
(ii) periodically advance to each member of the SEPSCO Special Committee legal
and other expenses incurred in connection therewith; provided, however, that
Triarc's indemnification liabilities (including its obligations to advance legal
and other expenses) shall not apply either (x) in respect of any liability
unless demand for indemnification in respect of such liability is first made on
SEPSCO and SEPSCO does not promptly pay the same or (y) to amounts paid in any
settlement effected without Triarc's written consent (which consent shall not be
unreasonably withheld). In any proceeding to determine whether Triarc's consent
was unreasonably withheld, Triarc will have the burden of proof of demonstrating
that its consent was reasonably withheld. Triarc has also agreed to cause to be
maintained in effect for a period of six years from the Effective Time the
current policies of the directors' and officers' liability insurance maintained
by SEPSCO (the 'D&O Insurance Coverage') (provided that Triarc may substitute
therefor policies of at least the same coverage containing terms and conditions
which are no less advantageous) with respect to matters occurring prior to the
Effective Time; provided, however, that Triarc's obligation to maintain such D&O
Insurance Coverage shall be subject to SEPSCO being able to maintain or obtain
insurance at an annual cost not greater than 150% of the annual premiums
currently paid (the annual premiums currently being paid being the 'Current
Annual Premiums') by SEPSCO with respect to its D&O Insurance and if such D&O
Insurance Coverage is not avilable at such cost, then Triarc has agreed to cause
to be maintained the highest level of D&O Insurance Coverage that can be
purchased against payment of annual premiums equal to 150% of the Current Annual
Premiums.
The Merger Agreement provides that it may be amended by the parties
thereto, by action taken by their respective Boards of Directors, at any time
prior to the Effective Time; provided, however, that after approval of the
Merger Agreement by SEPSCO Stockholders, no amendment or modification shall (a)
alter or change the amount or kind of shares, securities, cash, property and/or
rights to be received in exchange for or on conversion of all or any of the
shares of any class or series thereof of SEPSCO, (b) alter or change any term of
the certificate of incorporation of the Surviving Corporation to be effected by
the Merger, (c) alter or change any of the terms and conditions of the Merger
Agreement if such alteration or change would adversely affect the holders of any
class or series of capital stock of SEPSCO or (d) amend the Merger Agreement to
permit the waiver by the parties of the Settlement Condition. In addition, at
any time prior to the Effective Time, the parties to the Merger Agreement by
action taken by their respective Boards of Directors may (a) extend the time for
the performance of any of the obligations or other acts of the other parties to
the Merger Agreement, (b) waive any inaccuracies in the representations and
warranties contained in the Merger Agreement or
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in any document delivered pursuant hereto, and (c) waive compliance with any of
the agreements or conditions contained in the Merger Agreement; provided,
however, that the parties may not waive satisfaction of the Settlement Condition
and provided, further, that any action taken by the SEPSCO Board to enforce
SEPSCO's rights under the Merger Agreement, including the right to amend the
Merger Agreement or to permit any such waiver, or to consent to the taking of
any action which may not be taken without SEPSCO's consent, may only be taken
following the authorization thereof by the Special Committee.
The Merger Agreement also provides that (i) subject to applicable law and
fiduciary duties, including the duties of loyalty and care, the SEPSCO Board
shall recommend that the SEPSCO Stockholders vote in favor of the Merger and
adoption of the Merger Agreement, (ii) all SEPSCO Voting Stock owned by Triarc
or any subsidiary of Triarc will be voted in favor of adoption of the Merger
Agreement.
FINANCING OF THE MERGER AND RELATED
TRANSACTIONS: SOURCE AND AMOUNT OF FUNDS
The approximate fees and expenses expected to be incurred by Triarc and
SEPSCO in connection with the Merger are as set forth below:
<TABLE>
<CAPTION>
TRIARC SEPSCO
---------- ----------
<S> <C> <C>
Investment Bankers' Fees and Expenses....................................... $ -- $ 470,000
Attorneys' Fees and Expenses................................................ 850,000 230,000
Accountants' Fees and Expenses.............................................. 350,000 --
Exchange Agent's Fees and Expenses.......................................... 20,000 10,000
Printing Costs.............................................................. 320,000 220,000
Solicitation Expenses (Including Proxy Solicitation Firm's Fees and
Expenses)................................................................. 21,000 1,000
Fee for Filing with the SEC................................................. 1,800 16,185
Blue Sky Fees and Expenses.................................................. 5,000 --
Miscellaneous............................................................... 132,200 52,815
---------- ----------
Total............................................................. $1,700,000 $1,000,000
---------- ----------
---------- ----------
</TABLE>
Pursuant to the Settlement Agreement, if the Merger is consummated, Triarc
will pay $1,250,000 in respect of fees and expenses of Plaintiff's counsel and
$50,000 in respect of fees and expenses of Plaintiff's investment banker. Such
attorneys' fees and expenses are to be paid upon the later of (i) the closing of
the Merger, and (ii) the Settlement Agreement becoming effective. See 'SPECIAL
FACTORS -- Legal Proceedings Related to Triarc and SEPSCO.'
Out-of-pocket costs and expenses incurred by Triarc and SEPSCO in
connection with the Merger will be paid by the party incurring such costs and
expenses. Expenses incurred by SEPSCO and Triarc in connection with the Merger
and the Settlement Agreement are expected to be paid out of available funds.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The discussion below is intended only as a summary and does not purport to
be a complete analysis or listing of all potential tax effects relevant to a
decision whether to vote for the approval of the Merger Agreement and the
Merger. The discussion addresses neither the tax consequences that may be
relevant to particular categories of investors subject to special treatment
under certain federal income tax laws, such as dealers in securities, banks,
insurance companies and foreign individuals or entities, nor any tax
consequences arising out of the laws of any state, locality or foreign
jurisdiction. Furthermore, the tax consequences to taxpayers who acquired an
interest in SEPSCO as compensation may differ from those discussed herein and
such other tax consequences are not addressed herein.
The exchange of shares of SEPSCO Common Stock for shares of Triarc Class A
Common Stock will constitute a taxable exchange for federal income tax purposes.
As a result, a holder of SEPSCO Common Stock will recognize gain or loss on the
exchange of SEPSCO Common Stock for shares of Triarc Class A Common Stock
measured by the difference between such stockholder's tax basis in such shares
of SEPSCO Common Stock and the fair market value of the shares of Triarc Class A
Common Stock received with respect thereto. Such gain or loss will be capital
gain or loss provided that such shares of SEPSCO Common Stock were held by the
stockholder as a capital asset, and will be long-term if, at the time of the
exchange, the shares have been held for more than one year. Gain, loss and tax
basis, must be calculated separately for each block of SEPSCO Common Stock
(i.e., a group of shares acquired at the same time as single transaction at the
same cost) held by a stockholder. A stockholder's tax basis in the shares of
Triarc Class A Common Stock will be equal to the fair market value of those
shares at the time of the exchange and the holding period of such shares will
begin on the date they are received.
Under the Internal Revenue Code, interest, dividends and other 'reportable
payments' may, under certain circumstances, be subject to 'backup withholding'
at a rate of 31%. Backup withholding generally applies if the stockholder: (a)
fails to furnish such holder's social security number or other taxpayer
identification number ('TIN'); (b) furnishes an incorrect TIN; (c) fails
properly to report interest or dividends; or (d) under certain circumstances,
fails to provide a certified statement, signed under penalty or perjury, that
the TIN provided is correct and such holder is not subject to backup
withholding. The backup withholding tax is not an additional tax and is
creditable against the holder's federal income tax liability.
SEPSCO stockholders are urged to consult their own tax advisors concerning
the federal, state, local and foreign tax consequences to each such stockholder
of the Merger with specific reference to their own particular facts and
circumstances on the matters discussed herein.
COMPARISON OF RIGHTS OF HOLDERS OF SEPSCO COMMON STOCK
AND TRIARC CLASS A COMMON STOCK
INTRODUCTION
Triarc is incorporated under the laws of the State of Ohio, and SEPSCO is
incorporated under the laws of the State of Delaware. The SEPSCO Stockholders,
whose rights as stockholders are currently governed by Delaware law and SEPSCO's
Composite Certificate of Incorporation, as amended (the 'SEPSCO Certificate of
Incorporation') and By-Laws (the 'SEPSCO By-Laws'), will, upon the exchange of
their shares for shares of Triarc Class A Common Stock pursuant to the Merger,
become shareholders of Triarc, and their rights as such will be governed by Ohio
law, Triarc's Amended Articles of Incorporation, as amended (the 'Triarc
Articles') and Triarc's Code of Regulations (the 'Triarc Regulations'). Certain
differences between the rights of holders of Triarc Class A Common Stock and
SEPSCO's Common Stock resulting from such differences in governing law and
documents are summarized below.
The following summary does not purport to be a complete statement of the
rights of Triarc's shareholders under applicable Ohio laws, the Triarc Articles
and the Triarc Regulations as compared with the rights of SEPSCO's stockholders
under applicable Delaware laws, the SEPSCO Certificate of Incorporation and the
SEPSCO By-Laws or a complete description of the specific provisions referred to
herein. The identification of specific differences is not meant to indicate that
other equally or more
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significant differences do not exist. This summary is qualified in its entirety
by reference to the DGCL and the Ohio General Corporation Law (as well as
Chapters 1704 and 1707 of the Ohio Revised Code) and the governing corporate
instruments of Triarc and SEPSCO, to which the holders of shares of SEPSCO
Common Stock are referred.
Certain provisions contained in the Ohio laws may discourage certain
transactions involving an actual or threatened change in control of Triarc. To
the extent any of such provisions has such an effect, shareholders might be
deprived of an opportunity to sell their shares of Triarc at a premium above the
market price.
Triarc's management currently intends to recommend to the Triarc Board that
Triarc reincorporate in Delaware (the 'Reincorporation'). If the Reincorporation
is approved by the Triarc Board, Triarc's management anticipates that the
Reincorporation would be presented to Triarc's shareholders for approval at
Triarc's 1994 Annual Meeting of Shareholders, which is currently scheduled to be
held in June 1994. If the Merger Agreement is adopted at the Special Meeting and
the Merger consummated shortly thereafter, as currently contemplated, the SEPSCO
Stockholders will become Triarc shareholders prior to the record date for
determining shareholders entitled to vote at Triarc's 1994 Annual Meeting and,
as such, will be entitled to vote at such meeting on whether or not to approve
such Reincorporation. If both the Merger and the Reincorporation are
consummated, the rights of former SEPSCO Stockholders, as shareholders of
Triarc, will be governed by Delaware law. There can be no assurance, however, of
the timing of the Reincorporation or if it will be consummated.
CERTAIN VOTING RIGHTS
Delaware law generally requires approval of any merger, consolidation or
sale of substantially all the assets of a corporation at a meeting of
stockholders by vote of the holders of a majority of all outstanding shares of
the corporation entitled to vote thereon. While a certificate of incorporation
of a Delaware corporation may provide for a greater vote, the SEPSCO Certificate
of Incorporation does not so provide.
Under Ohio law, unless otherwise provided in the corporation's articles of
incorporation, such matters require the approval of the holders of shares
entitling such holders to exercise at least two-thirds of the voting power of
the corporation. The articles of incorporation of an Ohio corporation may
provide for a greater or lesser vote or a vote by separate classes of stock so
long as the vote provided for is not less than a majority of the voting power of
the corporation. The Triarc Articles do not contain any provisions changing the
requirement for the approval of such matters by the holders of shares entitling
such holders to exercise at least two-thirds of the voting power of the
corporation.
If a proposed amendment to the certificate of incorporation of a Delaware
corporation affects adversely the rights, preferences or powers of a class of
stock without voting rights in certain specified matters, such amendment must
also be approved by a majority of the holders of that class of stock. Unless
otherwise provided by an Ohio corporation's articles of incorporation, the Ohio
General Corporation law would require that, among certain other amendments, an
amendment that would change the express terms of a class of shares without
voting rights in any substantially prejudicial manner be approved by the holders
of two-thirds of such class.
The Triarc Articles generally provide that (i) the consent of holders of
two-thirds of the outstanding shares of Redeemable Convertible Preferred Stock,
voting as a class, is required to approve certain amendments to the Triarc
Articles or Triarc Regulations that would adversely affect the rights of the
holders of the Redeemable Convertible Preferred Stock and that (ii) the consent
of the holders of a majority of the outstanding shares of Triarc's Serial
Preferred Stock, par value $.10 per share (the 'Triarc Serial Preferred Stock'),
and Triarc's Junior Serial Preferred Stock, par value $.10 per share (the
'Triarc Junior Serial Preferred Stock'), each voting as a class, is required to
approve amendments to the Triarc Articles or Triarc Regulations that could cause
substantial prejudice to the holders of the Triarc Serial Preferred Stock or the
Triarc Junior Serial Preferred Stock. As of the date hereof, no shares of Triarc
Serial Preferred Stock or Triarc Junior Serial Preferred Stock are outstanding.
Both Ohio law and Delaware law permit mergers without approval by
shareholders of the surviving corporation if, among other things, no charter
amendment is involved and issuances of common stock
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and securities convertible into common stock to shareholders of the
non-surviving corporation pursuant to the merger will result in no more than a
specified maximum increase in outstanding common stock. Under Delaware law, the
maximum permitted increase is 20% of the corporation's common stock outstanding
immediately prior to the merger. Under Ohio law, the maximum permitted increase
is any amount less than 16 2/3% of a corporation's resulting shares possessing
the voting power of that corporation in the election of directors.
The rules of the NYSE, on which the Triarc Class A Common Stock is listed,
require Triarc shareholder approval prior to the issuance by Triarc of any
Triarc Common Shares, or any securities convertible into Triarc Common Shares,
if such shares are to be issued in connection with any transaction or series of
related transactions, other than a public offering for cash, if (i) the voting
power of such Triarc Common Shares would be equal to at least 20% of the voting
power of the shares outstanding prior to the issuance of such shares, or (ii)
the number of such shares would be equal to at least 20% of the number of Triarc
Common Shares outstanding prior to the issuance of such shares. The NYSE rules
also require shareholder approval for certain transactions in which Triarc
Common Shares, or securities convertible into Triarc Common Shares, are to be
issued to a Triarc director, officer, substantial shareholder, or an entity in
which any such person holds a substantial interest, if the number of Triarc
Common Shares so issued or into which the securities so issued are convertible
exceeds one percent of the number of Triarc Common Shares outstanding prior to
such issuance or one percent of the outstanding voting power prior to such
issuance. The NYSE also requires shareholder approval for any issuance of
securities by Triarc that will result in a change of control of Triarc.
SPECIAL MEETINGS OF SHAREHOLDERS; SHAREHOLDER ACTION BY WRITTEN CONSENT
Under Delaware law, special stockholder meetings may be called by the Board
of Directors and by any person or persons authorized by the certificate of
incorporation or the by-laws. Under the SEPSCO By-Laws, special meetings of
SEPSCO stockholders may be called at any time by the president or the secretary
or by a majority of the directors or by resolution of the SEPSCO Board.
Under Ohio law, a special meeting of the shareholders may be called by the
chairman of the board of directors, the president, a majority of the directors
acting without a meeting, persons owning 25% of the outstanding shares entitled
to vote at such meeting (or a lesser or greater proportion as specified in the
articles or regulations but not greater than 50%) or the person or persons
authorized to do so by the articles of incorporation or the corporation's
regulations. The Triarc Regulations do not authorize any additional persons to
call a meeting. The Triarc Regulations further provide that business transacted
at any special meeting of shareholders shall be confined to the purpose stated
in the notice for such special meeting.
Under Delaware law, any action by stockholders must be taken at a meeting
of stockholders, unless a consent in writing setting forth the action so taken
is signed by the stockholders having not less than the minimum number of votes
necessary to take such action at a meeting at which all shares entitled to vote
were present and voted.
Under Ohio law, any action by shareholders generally must be taken at a
meeting of shareholders, unless a consent in writing setting forth the action so
taken is signed by all the shareholders who would be entitled to notice of the
meeting held to consider the subject matter thereof.
AMENDMENT OF CERTIFICATE OF INCORPORATION AND BY-LAWS
Delaware law allows amendments of the certificate of incorporation if the
board of directors adopts a resolution setting forth the amendment proposed and
declaring its advisability, and the stockholders thereafter approve such
proposed amendment either at a special meeting called by the board for the
purpose of approval of such amendment by the stockholders or, if so directed by
the board, at the next annual stockholders' meeting. At any such meeting, the
proposed amendment generally must be approved by a majority of the outstanding
shares entitled to vote.
Ohio law permits the adoption of amendments to the articles of
incorporation if such amendments are approved at a meeting held for such purpose
by the holders of shares entitling them to exercise two-
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thirds of the voting power of the corporation, or such lesser, but not less than
a majority, or greater vote as specified in the corporation's articles of
incorporation. The Triarc Articles do not alter this provision.
Under Delaware law, the power to adopt, amend or repeal by-laws resides
with the stockholders entitled to vote thereon, and with the directors if such
power is conferred upon the board of directors by the certificate of
incorporation. The SEPSCO Certificate of Incorporation so provides.
Under Ohio law, regulations may be adopted, amended or repealed only by
approval of the shareholders. They may be adopted or amended at a meeting of
shareholders by the affirmative vote of the holders of shares entitling them to
exercise a majority of the voting power on such proposal or by written consent
signed by holders of shares entitling them to exercise two-thirds of the voting
power on such proposed amendment.
BOARD APPROVED PREFERRED STOCK
Both Delaware law and Ohio law permit a corporation's certificate of
incorporation or articles of incorporation, respectively, to allow the board of
directors to issue, without shareholder approval, a series of preferred or
preference stock and to designate the powers, rights, preferences and privileges
thereof and restrictions thereon (except that Ohio law does not permit the board
of directors to fix the voting rights of any such series of preferred or
preference stock). The SEPSCO Certificate of Incorporation grants such power to
the SEPSCO Board. Similarly, the Triarc Articles grant such power to the Triarc
Board with respect to the Triarc Serial Preferred Stock and the Triarc Junior
Serial Preferred Stock.
LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
Delaware law and Ohio law have provisions and limitations regarding
directors' liability and indemnification by a corporation of its officers,
directors and employees.
A director of an Ohio corporation shall not be found to have violated his
fiduciary duties to the corporation or its shareholders unless there is proof by
clear and convincing evidence that the director has not acted in good faith, in
a manner he reasonably believes to be in or not opposed to the best interests of
the corporation, or with the care that an ordinarily prudent person in a like
position would use under similar circumstances. In addition, under Ohio law a
director is liable in damages for any action or failure to act as a director
only if it is proved by clear and convincing evidence that such act or omission
was undertaken either with deliberate intent to cause injury to the corporation
or with reckless disregard for the best interests of the corporation, unless the
corporation's articles or regulations make this provision inapplicable by
specific reference. The Triarc Articles do not make this provision inapplicable.
Ohio law does not, however, require proof of intent to cause injury or
reckless disregard as a condition to the availability of injunctions, recovery
on principles of restitution or other relief which is essentially equitable in
nature. The Ohio law limits a director's liability for breaches of the fiduciary
duties of care and loyalty. This standard does not apply, however, where the
director has acted either outside his capacity as a director or with respect to
certain dividends, distributions, purchases or redemptions of corporation
shares, loans or, in the case of a corporation that does not have actively
traded shares, a change in control in which a majority of the shareholders
receive a greater consideration for their shares than other shareholders. Ohio
law further requires all expenses, including attorney's fees, incurred by a
director in defending any action, suit or proceeding (other than one asserting
only liability for unlawful dividends, distributions or redemptions) shall be
paid by the corporation as they are incurred in advance of the final disposition
of the action, suit or proceeding upon receipt of an undertaking by or on behalf
of the director in which he agrees to repay such amounts if it is proved by
clear and convincing evidence that his action or failure to act involved an act
or omission undertaken with deliberate intent to cause injury to the corporation
or undertaken with reckless disregard for the best interests of the corporation
and the director reasonably cooperates with the corporation concerning the
action, suit or proceeding. These provisions are automatically applicable to an
Ohio corporation unless the corporation opts out from their application. Triarc
has not opted out.
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Delaware law permits a Delaware corporation to include in its certificate
of incorporation a provision which eliminates or limits the personal liability
of a director to the corporation or its stockholders for monetary damages for
breach of fiduciary duties as a director provided no such provision may
eliminate or limit the liability of a director (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the DGCL (dealing with
illegal redemptions and stock repurchases) or (iv) for any transaction from
which the director derived an improper personal benefit. The SEPSCO Certificate
of Incorporation does not include such a provision.
The SEPSCO By-laws require SEPSCO to indemnify any person who is or was a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding by reason of the fact that he is or was a
director, officer, employee or agent of SEPSCO, or is or was serving at the
request of SEPSCO as a director, officer, employee or agent of another
enterprise, against expenses (including attorneys' fees) and, if the action,
suit or proceeding is one which is other than by or in the right of SEPSCO to
procure a judgment in its favor, against judgments, fines, amounts paid in
settlement, actually and reasonably incurred by such person in connection with
any such action, suit or proceeding to the fullest extent permitted by the DGCL.
Under the DGCL, a director or officer may, in general, be indemnified by the
corporation if he has acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the corporation and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
his conduct was unlawful.
CLASSIFICATION OF BOARD OF DIRECTORS
Both Delaware law and Ohio law permit, but do not require, the adoption of
a 'classified' board of directors with staggered terms under which a part of the
board of directors is elected each year for a maximum term of three years.
Neither SEPSCO nor Triarc has a classified board of directors and all directors
stand for election on an annual basis.
CUMULATIVE VOTING OF SHARES
Under Delaware law, shareholders of a corporation cannot elect directors by
cumulative voting unless its certificate of incorporation so provides. The
SEPSCO Certificate of Incorporation does not provide for cumulative voting. As a
result, the holder or holders of a majority of the voting power of SEPSCO are
able to elect all directors then being elected.
In accordance with Ohio law, cumulative voting (unless eliminated by an
amendment of the articles of incorporation) is required to be available for the
election of directors if notice to such effect is given by a shareholder prior
to a shareholders' meeting and an announcement to such effect is made at such
meeting. The Triarc Articles have been amended to provide for the elimination of
such cumulative voting rights.
NUMBER OF DIRECTORS
Under Delaware law, unless the certificate of incorporation specifies the
number of directors, a board of directors may change the authorized number of
directors by an amendment to the corporation's by-laws if fixed therein, or in
such manner as provided therein. If the certificate of incorporation specifies
the number of directors, the number of directors can only be changed by amending
the certificate of incorporation. The SEPSCO Certificate of Incorporation
provides that the number of directors of SEPSCO shall be fixed and may be
altered from time to time as provided in the SEPSCO By-Laws. The SEPSCO By-Laws
provides that the number of directors shall be five.
Under Ohio law, the number of directors of a corporation may be fixed or
changed by the shareholders or by the board of directors if so authorized by the
corporation's articles of incorporation or regulations. The Triarc Regulations
provide that the number of directors which shall constitute the whole board of
directors shall be limited to a maximum of thirteen persons unless changed by a
vote of the holders of a majority of shares entitled to vote thereon at a
meeting of shareholders called for the purpose of electing directors.
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REMOVAL OF DIRECTORS
In general, under both Delaware law and Ohio law, any or all of the
directors of a corporation may be removed, with or without cause, by vote of the
holders of a majority of the shares then entitled to vote at an election of
directors, except that Delaware law authorizes removal by the shareholders of a
member of a classified board only for cause.
DISSENTERS' RIGHTS IN MERGERS
Under both Delaware law and Ohio law, a shareholder of a corporation
participating in certain merger transactions may, under certain circumstances,
receive cash in the amount of the fair market value of his shares (as determined
by a court) in lieu of the consideration he would otherwise receive in the
merger. Unless a corporation's certificate of incorporation provides otherwise,
Delaware law does not require that such dissenters' rights of appraisal be
afforded to stockholders with respect to (i) a merger or consolidation of a
corporation with a surviving corporation the shares of which are either listed
on a national securities exchange designated as a national market security or an
interdealer quotation system by the National Association of Securities Dealers,
Inc. or widely held (by more than 2,000 shareholders), if the stockholders of
such corporation receive only shares of the surviving corporation or of such a
listed or widely held corporation; or (ii) those stockholders who are the
stockholders of a corporation surviving a merger if no vote of such stockholder
is required because, among other things, the number of shares to be issued in
the merger does not exceed 20% of the shares of the surviving corporation
outstanding immediately prior to the merger (if certain other conditions are
met).
Ohio law does not provide exclusions from dissenters' rights similar to
those described above with respect to Delaware law. However, under Ohio law, in
mergers and certain other transactions (e.g., acquisitions of assets or of a
majority of stock interests in exchange for stock) in which, after giving effect
to the transaction, the original shareholders of the acquiring corporation
retain more than five-sixths of the voting power of such corporation, such
shareholders are denied dissenters' rights.
PAYMENT OF DIVIDENDS
Both Delaware law and Ohio law permit the payment of dividends out of
paid-in, earned or other surplus. However, under Ohio law, if a dividend is paid
out of capital surplus, shareholders must be so notified. Under Delaware law, no
such notice is required and dividends may also be paid out of net profits for
the fiscal year in which declared or out of net profits for the preceding fiscal
year, even if the corporation has no surplus.
REPURCHASE OF SHARES
Under Ohio law, a corporation by act of its directors may repurchase shares
only in certain specified instances, the most significant of which are when the
articles authorize the redemption of such shares, when the articles in substance
provide that the corporation shall have the right to repurchase, and when
authorized by the shareholders at a meeting called for such purpose by the
affirmative vote of the holders of two-thirds of the shares of each class or, if
the articles so provide, by a greater or lesser proportion but not less than a
majority. The Triarc Articles authorize the directors to use surplus or net
profits in excess of $250,000 to repurchase shares of Triarc common stock.
Delaware law vests discretion in the board of directors to authorize the
repurchase of shares.
Both Delaware and Ohio law permit the redemption of shares out of paid-in,
earned or other surplus.
LOANS TO DIRECTORS AND OFFICERS
Under Delaware law, a corporation may make loans to, guarantee the
obligations of or otherwise assist its officers or other employees and those of
its subsidiaries when the transaction, in the judgment of the corporation's
board of directors, may reasonably be expected to benefit the corporation. Under
Ohio law, a corporation generally may make a loan to or guaranty of the
obligations of officers, directors or shareholders only if such loan or guaranty
is approved by a majority of the disinterested members of its board of
directors. The disinterested directors, taking into account the terms and
provisions of the loan and other relevant factors, must determine that the
making of the loan could reasonably be expected to benefit the corporation.
Under Ohio law, directors who authorize unlawful loans are jointly and severally
liable for the loan together with interest. The standard of conduct which
59
<PAGE>
is a precondition to the imposition of monetary damages discussed under
' -- Liability and Indemnification of Officers and Directors' above is not
applicable to directors' authorizing unlawful loans.
TENDER OFFER STATUTE
The Ohio tender offer statute requires any person making a tender offer for
a corporation incorporated in Ohio to comply with certain filing, disclosure and
procedural requirements. Delaware has no tender offer statute.
The Ohio tender offer statute imposes certain filing and disclosure
requirements. The disclosure requirements include a statement of any plans or
proposals that the offeror, upon gaining control, may have to liquidate the
subject company, sell its assets, effect a merger or consolidation of it,
establish, terminate, convert, or amend employee benefit plans, close any plant
or facility of the subject company or of any of its subsidiaries or affiliates,
change or reduce the work force of the subject company or any of its
subsidiaries or affiliates, or make any other major change in its business,
corporate structure, management personnel, or policies of employment.
Until the issue of constitutionality is decided by clearly controlling
appellate court decisions or clarifying legislation is adopted, the
enforceability of the Ohio statute as a protection against board-opposed
takeover attempts is uncertain.
In addition, Ohio has a 'Control Share Acquisition' statute which requires
shareholder approval for the acquisition of voting power for certain ranges of
stock ownership. This statute was declared unconstitutional in 1986 by the
United States District Court for the Southern District of Ohio in Fleet
Aerospace Corp. v. Holderman, which holding was affirmed by the United States
Court of Appeals for the Sixth Circuit. On April 27, 1987, however, the United
States Supreme Court vacated and remanded the Sixth Circuit's decision in light
of the Supreme Court's recent holding in CTS Corporation v. Dynamics Corporation
of America, which held that Indiana's Control Share Acquisition Act, a law
similar in some respects to the Ohio Control Share Acquisition Act, is
constitutional.
MERGER MORATORIUM STATUTES
Both Ohio and Delaware have 'Merger Moratorium' statutes which are designed
to encourage potential acquirors of publicly traded corporations such as Triarc
and SEPSCO to obtain the consent and approval of the proposed target's board of
directors prior to commencing a tender offer for the target company's shares.
This encouragement is accomplished by prohibiting or restricting acquirors from
undertaking many post-acquisition financial restructuring alternatives.
Both the Ohio and Delaware statutes permit a corporation to opt out of the
operation of the merger moratorium provisions. Neither Triarc nor SEPSCO has
opted out.
The Ohio law becomes applicable when a person (a potential acquiror and all
of that acquiror's affiliates) can vote or direct the vote of 10% or more of the
voting shares. In Delaware, the law is applicable when a person acquires more
than 15% of the voting stock.
Under Ohio law (with minor exceptions), there is an absolute prohibition on
mergers and dissolutions and restrictions on asset sales and purchases and other
transactions that would give the acquiror significant funds or assets of the
target during the three-year period after the acquiror becomes a greater than
10% shareholder. Following the three-year period, in Ohio, the acquiror can
engage in these transactions only if a fair price as defined in the statute is
provided to the minority shareholders or the acquiror obtains the consent of the
shareholders holding a majority of the disinterested shares.
In Delaware, the restriction lasts for three years. During that three-year
period, the restrictions are not applicable if at the time the acquiror became
subject to the statute it holds more than 85% of such stock or the transaction
is approved by two-thirds of the disinterested stockholders.
ANTI-GREENMAIL STATUTE
'Greenmail' is the practice whereby a corporation purchases the shares of a
substantial minority shareholder at a premium to avoid the future potential
takeover of the corporation by that minority shareholder. Ohio recently enacted
an anti-greenmail statute which would cause the forfeiture of the premium
received by the minority shareholder. Ohio law permits a corporation to opt out
of the anti-greenmail statute. Triarc has so opted out.
60
<PAGE>
MARKET FOR TRIARC'S COMMON EQUITY
AND RELATED SHAREHOLDER MATTERS
Since November 17, 1993, the principal market for the Triarc Class A Common
Stock has been the NYSE (symbol: TRY). Prior to November 17, 1993, the date on
which the Triarc Class A Common Stock began trading on the NYSE, the ASE was the
principal market for the Triarc Class A Common Stock. The Triarc Class A Common
Stock is also listed on the PSE. The high and low market prices for the Triarc
Class A Common Stock, as reported in the consolidated transaction reporting
system, are set forth below:
<TABLE>
<CAPTION>
MARKET PRICE
------------------------------
HIGH LOW
------------ ------------
<S> <C> <C>
Fiscal 1992
First Quarter ended July 31, 1991.............................................. $ 3 5/8 $ 1 3/4
Second Quarter ended October 31, 1991.......................................... 3 1/2 1 1/2
Third Quarter ended January 31, 1992........................................... 4 7/8 2 3/4
Fourth Quarter ended April 30, 1992............................................ 9 1/2 4
Fiscal 1993
First Quarter ended July 31, 1992.............................................. $ 10 1/4 $ 8
Second Quarter ended October 31, 1992.......................................... 12 1/8 9
Third Quarter ended January 31, 1993........................................... 15 3/4 11 1/4
Fourth Quarter ended April 30, 1993............................................ 21 7/8 14 1/2
Transition 1993
May 1, 1993 through July 31, 1993.............................................. $ 22 3/4 $ 16 1/8
August 1, 1993 through October 31, 1993........................................ 33 21 3/4
November 1, 1993 through December 31, 1993..................................... 31 23 3/4
1994
First Quarter (through March 10, 1994)......................................... $ $
</TABLE>
Other than regular quarterly cash dividends on its previously outstanding
preferred stock, Triarc has not paid any dividends on its capital stock in the
two most recently completed fiscal years, in Transition 1993 or in the current
year to date and does not presently anticipate the declaration of cash dividends
on its common stock in the near future.
In connection with the Reorganization, Triarc issued to the Posner
Entities, 5,982,866 shares of Redeemable Convertible Preferred Stock having an
aggregate stated value of $71.8 million and a cumulative annual dividend rate of
8 1/8%. Such shares of Redeemable Convertible Preferred Shares are convertible
into 4,985,000 shares of non-voting Triarc Class B Common Stock at a conversion
price of $14.40 per share. Such shares of Redeemable Convertible Preferred Stock
can also be converted without restriction into shares of Triarc Class A Common
Stock if they are sold to a third party unaffiliated with the Posner Entities.
No dividend, other than a stock dividend payable in common stock, may be paid on
the Triarc Class A Common Stock if Triarc is in arrears on the payment of
dividends on the Redeemable Convertible Preferred Stock. Triarc has no class of
equity securities currently issued and outstanding, except for the Triarc Class
A Common Stock and the Redeemable Convertible Preferred Stock.
Because Triarc is a holding company, holders of its debt and equity
securities, including holders of the Triarc Class A Common Stock, are dependent
primarily upon the cash flow from Triarc's subsidiaries for payment of
principal, interest and dividends. Potential dividends and other advances and
transfers from Triarc's subsidiaries represent its most significant sources of
cash flow. Applicable state laws and the provisions of the debt instruments by
which Triarc's principal subsidiaries are bound limit the ability of such
companies to dividend or otherwise provide funds to Triarc. The relevant
restrictions of such debt instruments are described under 'TRIARC MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --
Liquidity and Capital Resources' and in Note 11 of the Notes to Consolidated
Financial Statements of Triarc Companies, Inc. and Subsidiaries.
61
<PAGE>
As of March 7, 1994, there were approximately 4,000 holders of record of
the Triarc Class A Common Stock.
MARKET FOR SEPSCO'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The principal market for the SEPSCO Common Stock is the PSE (symbol: SPV).
The high and low closing prices of the SEPSCO Common Stock as reported in the
consolidated transaction reporting system are as follows:
<TABLE>
<CAPTION>
MARKET PRICES
------------------------------
HIGH LOW
------------ ------------
<S> <C> <C>
1991
First Quarter ended May 31, 1990............................................... $ 11 3/8 $ 8 3/4
Second Quarter ended August 31, 1990........................................... 10 7/8 5 1/4
Third Quarter ended November 30, 1990.......................................... 7 5/8 2 5/8
Fourth Quarter ended February 28, 1991......................................... 3 3/8 1 7/8
1992
First Quarter ended May 31, 1991............................................... $ 2 3/4 $ 2
Second Quarter ended August 31, 1991........................................... 2 1 1/8
Third Quarter ended November 30, 1991.......................................... 2 1/4 13/16
Fourth Quarter ended February 29, 1992......................................... 7 1
1993
First Quarter ended May 31, 1992............................................... $ 7 3/8 $ 4 5/8
Second Quarter ended August 31, 1992........................................... 7 5 1/2
Third Quarter ended November 30, 1992.......................................... 13 3/8 6 1/2
Fourth Quarter ended February 28, 1993......................................... 14 1/2 12
SEPSCO Transition 1993
March 1 1993 through May 31, 1993.............................................. $ 16 1/2 $ 13 1/4
June 1, 1993 through August 31, 1993........................................... 19 7/8 13 7/8
September 1, 1993 through November 30, 1993.................................... 24 7/8 18 7/8
December 1, 1993 through December 31, 1993..................................... 20 3/4 19
1994
First Quarter (through March 10, 1994)......................................... $ $
</TABLE>
No dividends have been paid or declared on the SEPSCO Common Stock in the
three most recent full fiscal years, in the ten month period from March 1, 1993
to December 31, 1993 ('SEPSCO Transition 1993') or in the current year to date.
Under the provisions of the 11 7/8% Debentures, the payment of cash
dividends and the acquisition of shares of SEPSCO's capital stock by SEPSCO are
limited to the sum of (i) 50% of the aggregate consolidated net income after
November 30, 1982 (exclusive of equity in the net income (loss) of affiliates),
(ii) the aggregate net proceeds received from the sale of capital stock and
(iii) $7.5 million. Under such provisions, at November 30, 1993 SEPSCO was
permitted to pay cash dividends or acquire shares of SEPSCO's capital stock up
to an aggregate amount of approximately $4.1 million. The payment of cash
dividends is also dependent upon, among other things, the availability of
current and retained earnings. SEPSCO does not presently anticipate the
declaration of cash dividends on the SEPSCO Common Stock in the near future.
As of March 7, 1994, there were approximately 2,400 record holders of
SEPSCO Common Stock. At such date, all of the outstanding shares of SEPSCO
Preferred Stock (consisting of 490 shares of such SEPSCO Preferred Stock
convertible into 8,167 shares of SEPSCO Common Stock) were held by Triarc.
62
<PAGE>
TRIARC
CAPITALIZATION
The following table sets forth the actual capitalization of Triarc
Companies as of October 31, 1993 and as adjusted to give effect to the Merger.
This table should be read in conjunction with the Consolidated Financial
Statements of Triarc Companies, Inc. and Subsidiaries and the Triarc Companies
Pro Forma Financial Statements and related notes thereto appearing elsewhere
herein.
<TABLE>
<CAPTION>
ACTUAL
OCTOBER 31,
1993 AS ADJUSTED
----------- -----------
(IN MILLIONS)
<S> <C> <C>
Current portion of long-term debt:
Term loan........................................................................ $ 10.5 $ 10.5
11 7/8% Debentures............................................................... 9.0 9.0
13 1/8% Debentures............................................................... 7.0 7.0
16 7/8% Debentures............................................................... 6.5 6.5
Other current debt, principally capital lease obligations and notes payable
secured by machinery and equipment.............................................. 5.8 5.8
----------- -----------
Total current portion of long-term debt..................................... 38.8 38.8
----------- -----------
Long-term debt:
9 3/4% Senior Notes.............................................................. 275.0 275.0
Term loan........................................................................ 67.0 67.0
Revolving loan................................................................... 81.4 81.4
11 7/8% Debentures............................................................... 49.4(a) 49.4(a)
13 1/8% Debentures............................................................... 45.6(a) 45.6(a)
Other long-term debt, principally capital lease obligations and notes payable
secured by machinery and equipment.............................................. 22.0 22.0
----------- -----------
Total long-term debt........................................................ 540.4 540.4
----------- -----------
Redeemable Convertible Preferred Stock................................................ 71.8 71.8
Stockholders' equity (deficit)........................................................ (64.7) (12.3)
----------- -----------
Total capitalization.................................................................. $ 586.3 $ 638.7
----------- -----------
----------- -----------
</TABLE>
- ------------
(a) The 11 7/8% Debentures and the 13 1/8% Debentures are net of unamortized
debt discount of $4,635,000 and $3,417,000, respectively.
63
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
CAPITALIZATION
The following table sets forth the capitalization of SEPSCO as of November
30, 1993 and as adjusted to give effect to the Merger and Settlement Agreement.
This table should be read in conjunction with the SEPSCO historical consolidated
financial statements and the SEPSCO Pro Forma Financial Statements and related
notes thereto appearing elsewhere herein.
<TABLE>
<CAPTION>
ACTUAL
NOVEMBER 30,
1993 AS ADJUSTED
------------ -----------
(IN MILLIONS)
<S> <C> <C>
Current portion of long-term debt:
11 7/8% Debentures............................................................. $ 9.0 $ 9.0
Due to leasing affiliate....................................................... 1.1(a) 1.1(a)
------------ -----------
Total current portion of long-term debt................................... 10.1 10.1
------------ -----------
Long-term debt:
11 7/8% Debentures............................................................. 49.7 49.7
Due to leasing affiliate....................................................... 0.5(b) 0.5(b)
Equipment notes................................................................ 0.5(b) 0.5(b)
------------ -----------
Total long-term debt...................................................... 50.7 50.7
------------ -----------
Stockholders' equity................................................................ 93.6 119.4
------------ -----------
Total capitalization................................................................ $154.4 $ 180.2
------------ -----------
------------ -----------
</TABLE>
- ------------
(a) Includes $0.3 million classified in 'Current portion of long-term debt' of
continuing operations and $0.8 million classified in 'Net current
liabilities of discontinued operations' on SEPSCO's condensed consolidated
balance sheet.
(b) Includes $0.3 million classified in 'Long-term debt of continuing
operations' and $0.2 million classified in 'Net non-current assets of
discontinued operations' on SEPSCO's condensed consolidated balance sheet.
64
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA(1)
The following table presents selected consolidated financial data of Triarc
Companies, Inc. and subsidiaries for each of the years in the five-year period
ended April 30, 1993 and for the six-month periods ended October 31, 1992 and
1993. The selected consolidated operating data for the years ended April 30,
1991, 1992 and 1993 and the balance sheet data as of April 30, 1992 and 1993 are
derived from consolidated financial statements audited by Arthur Andersen & Co.,
independent certified public accountants, contained elsewhere herein and should
be read in conjunction therewith and with the notes thereto. Such operating data
for the years ended April 30, 1989 and 1990 and balance sheet data as of April
30, 1989, 1990 and 1991 are derived from consolidated financial statements
audited by Arthur Andersen & Co. not included herein. Such data for the
six-month periods ended October 31, 1992 and 1993 has not been audited but
reflects, in the opinion of management, all adjustments (which include only
normal recurring adjustments) necessary to present fairly the data for such
periods. The interim results of operations are not necessarily indicative of
results to be expected for full years. Also presented are selected pro forma
consolidated financial data of Triarc Companies, Inc. for the year ended April
30, 1993 and the six-month period ended October 31, 1993 reflecting (i) the
issuance of an aggregate 2,691,822 common shares of Triarc for all of the
aggregate 3,364,778 SEPSCO common shares owned by stockholders other than Triarc
Companies in connection with the Merger Agreement and (ii) the payment of
$1,000,000 of estimated expenses related to the issuance of the stock and
$3,000,000 of estimated fees and expenses, all of which had been previously
accrued, related to the Merger as if such transactions had occurred as of May 1,
1992 with respect to statement of operations data and as of October 31, 1993
with respect to balance sheet data. Such selected pro forma consolidated
financial data are derived from the Triarc Pro Forma Financial Statements
contained elsewhere herein and should be read in conjunction therewith and with
the notes thereto.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED APRIL 30,
----------------------------------------------------------------------------
PRO
FORMA
1989 1990 1991 1992 1993 1993
-------- ---------- ---------- ---------- ---------- --------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Revenues.................. $987,730 $1,038,923 $1,027,162 $1,074,703 $1,058,274 $1,058,274
Operating profit.......... 45,123 61,130 23,304 58,552 34,459 30,191
Income (loss) from
continuing operations... (5,851) (13,966) (17,501) (10,207) (44,549) (50,114)
Discontinued operations,
net..................... 3,250 1,072 (55) 2,705 (2,430)
Extraordinary items,
net..................... 1,807 1,363 703 -- (6,611)
Cumulative effect of
changes in accounting
principles, net......... -- -- -- -- (6,388)
Net loss.................. (794) (11,531) (16,853) (7,502) (59,978)
Preferred stock dividend
requirements............ (580) (14) (11) (11) (121)
Net loss applicable to
common stockholders(2).. (1,374) (11,545) (16,864) (7,513) (60,099)
Loss per share:
Continuing
operations.......... (.39) (.55) (.68) (.39) (1.73) (2.36)
Discontinued
operations.......... .20 .04 -- .10 (.09)
Extraordinary items... .11 .06 .03 -- (.26)
Cumulative effect of
changes in
accounting
principles.......... -- -- -- -- (.25)
Net loss.............. (.08) (.45) (.65) (.29) (2.33)
Total assets.............. 860,709 863,993 851,912 821,170 910,662
Long-term debt............ 409,418 407,353 345,860 289,758 488,654
Redeemable preferred
stock................... -- -- -- -- 71,794
Stockholders' equity
(deficit)............... 117,646 109,052 92,529 86,482 (35,387)
Weighted-average common
shares outstanding...... 16,669 25,428 25,853 25,867 25,808 23,712
<CAPTION>
SIX MONTHS ENDED OCTOBER 31,
--------------------------------
PRO
FORMA
1992 1993 1993
-------- -------- --------
<S> <C> <C> <C>
Revenues.................. $522,371 $521,470 $521,470
Operating profit.......... 32,129 22,253 21,476
Income (loss) from
continuing operations... (4,398) (19,628) (20,574 )
Discontinued operations,
net..................... 2,016 (7,168)
Extraordinary items,
net..................... -- (448)
Cumulative effect of
changes in accounting
principles, net......... (6,388) --
Net loss.................. (8,770) (27,244)
Preferred stock dividend
requirements............ (5) (2,916)
Net loss applicable to
common stockholders(2).. (8,775) (30,160)
Loss per share:
Continuing
operations.......... (.17) (1.06) (.98 )
Discontinued
operations.......... .08 (.34)
Extraordinary items... -- (.02)
Cumulative effect of
changes in
accounting
principles.......... (.25) --
Net loss.............. (.34) (1.42)
Total assets.............. 913,439 944,830
Long-term debt............ 540,355 540,355
Redeemable preferred
stock................... 71,794 71,794
Stockholders' equity
(deficit)............... (64,749) (12,298 )
Weighted-average common
shares outstanding...... 21,239 23,931
</TABLE>
- ------------
(1) Selected Financial Data have been retroactively restated to reflect the
discontinuance of SEPSCO's utility and municipal services, refrigeration and
natural gas and oil operations in 1993. On December 9, 1993 SEPSCO's Board
of Directors decided the natural gas and oil business will be transferred to
Triarc rather than SEPSCO selling it to an independent third party. Such
transfer will be in the form of a sale of the stock of the entities
comprising the natural gas and oil business for cash. It is intended for
this sale to occur following the Merger and the resulting elimination of the
minority interest in SEPSCO. However, should the Merger not be approved by
the SEPSCO stockholders the sale of the stock of the natural gas and oil
entities for cash to Triarc will be completed prior to July 22, 1994.
(2) Triarc has not paid any dividends on its common shares during any of the
periods presented.
65
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
SELECTED FINANCIAL DATA(1)
The following table presents selected consolidated financial data of SEPSCO
and subsidiaries for each of the years in the five-year period ended February
28, 1993 and the nine-month periods ended November 30, 1992 and 1993. The
selected consolidated operating data for the years ended February 28, 1991,
February 29, 1992 and February 28, 1993 and the balance sheet data as of
February 29, 1992 and February 28, 1993 are derived from consolidated financial
statements audited by Arthur Andersen & Co., independent certified public
accountants, contained elsewhere herein and should be read in conjunction
therewith and with the notes thereto. Such operating data for the years ended
February 28, 1989 and 1990 and balance sheet data as of February 28, 1989, 1990
and 1991 are derived from consolidated financial statements audited by Arthur
Andersen & Co. not included herein. Such data for the nine-month periods ended
November 30, 1992 and 1993 has not been audited but reflects, in the opinion of
management, all adjustments (which include only normal recurring adjustments)
necessary to present fairly the data for such periods. The interim results of
operations are not necessarily indicative of results to be expected for full
years. Also presented are selected pro forma consolidated financial data as of
November 30, 1993 reflecting the Merger and the payment of expenses related to
the Merger and Settlement Agreement. Such selected pro forma consolidated
financial data are derived from the SEPSCO Pro Forma Financial Statements
contained elsewhere herein and should be read in conjunction therewith and with
the notes thereto.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FEBRUARY 28 OR 29,
---------------------------------------------------
1989 1990 1991 1992 1993
------- ------- ------- ------- -------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Net sales................................ $24,134 $27,104 $29,154 $29,220 $28,520
Operating profit......................... 4,045 3,922 3,181 4,571 3,634
Income (loss) from continuing operations
before equity in cumulative effect of
changes in accounting principles and
extraordinary items.................... (632) 7,716 4,245 6,332 12,572
Income (loss) from discontinued
operations, net of income taxes........ (425) (2,256) (7,899) (225) (5,542)
Cumulative effect of changes in
accounting principles of:
SEPSCO............................... -- -- -- -- --
Equity in affiliates, net of taxes... -- -- -- -- (5,954)
Equity in extraordinary items of
affiliates............................. 1,226 748 794 -- (348)
Net income (loss)........................ 169 6,208 (2,860) 6,107 728
Preferred stock dividend requirements.... (24) (16) (8) (1) (1)
Net income (loss) applicable to common
stockholders(2)........................ 145 6,192 (2,868) 6,106 727
Income (loss) per share(3):
Continuing operations................ (.05) .66 .36 .54 1.08
Discontinued operations.............. (.04) (.19) (.68) (.02) (.48)
Cumulative effect of changes in
accounting principles of
affiliate.......................... -- -- -- -- (.51)
Extraordinary items of affiliate..... .10 .06 .07 -- (.03)
Net income (loss).................... .01 .53 (.25) .52 .06
Total assets............................. 206,882 196,498 191,788 208,330 206,253
Long-term debt included in continuing
operations............................. 79,908 71,845 64,373 56,826 49,661
Long-term debt of discontinued
operations............................. 19,383 18,146 17,973 18,070 16,992
Stockholders' equity..................... 82,672 88,503 85,010 107,503 108,230
<CAPTION>
NINE MONTHS ENDED NOVEMBER
30,
-----------------------------
PRO PRO
FORMA FORMA
1993 1992 1993 1993
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales................................ $28,520 $18,944 $19,760 $19,760
Operating profit......................... 2,602 1,705 354 (420 )
Income (loss) from continuing operations
before equity in cumulative effect of
changes in accounting principles and
extraordinary items.................... 11,540 7,366 1,183 409
Income (loss) from discontinued
operations, net of income taxes........ 938 (23,355)
Cumulative effect of changes in
accounting principles of:
SEPSCO............................... -- 7,617
Equity in affiliates, net of taxes... (5,954) (102)
Equity in extraordinary items of
affiliates............................. -- --
Net income (loss)........................ 2,350 (14,657)
Preferred stock dividend requirements.... (1) (1)
Net income (loss) applicable to common
stockholders(2)........................ 2,349 (14,658)
Income (loss) per share(3):
Continuing operations................ 1.39 .63 .10 .05
Discontinued operations.............. .08 (2.00)
Cumulative effect of changes in
accounting principles of
affiliate.......................... (.51) .64
Extraordinary items of affiliate..... -- --
Net income (loss).................... .20 (1.26)
Total assets............................. 171,130 196,227
Long-term debt included in continuing
operations............................. 50,501 50,501
Long-term debt of discontinued
operations............................. 277 277
Stockholders' equity..................... 93,572 119,369
</TABLE>
- ------------
(1) Selected Financial Data have been retroactively restated to reflect the
discontinuance of utility and municipal services, refrigeration and natural
gas and oil operations in 1993.
(2) SEPSCO has not paid any dividends on its common shares during any of the
periods presented.
(3) Weighted average common shares outstanding were 11,655,067 for each of the
historical periods presented. For pro forma periods, weighted average shares
outstanding were 8,290,289 after giving effect to 3,364,778 shares of SEPSCO
Common Stock assumed to be exchanged for Triarc Class A Common Stock in
connection with the Merger.
66
<PAGE>
BUSINESS OF TRIARC COMPANIES
INTRODUCTION
Triarc Companies is engaged in four core businesses: soft drink, fast food,
textiles and liquefied petroleum gas. The soft drink operations are conducted
through RC Cola; the fast food operations are conducted through Arby's; the
textile operations are conducted through Graniteville; and the liquefied
petroleum gas operations are conducted through the LP Gas Companies. In
addition, Triarc, through a number of direct and indirect subsidiaries, is also
currently engaged in a number of non-core businesses, substantially all of which
it intends to dispose of or liquidate as part of its business strategy. See
' -- General -- Discontinued and Other Operations.'
Triarc was incorporated in Ohio in 1929. Triarc's principal executive
offices are located at 777 South Flagler Drive, West Palm Beach, Florida 33401.
The Company's telephone number is (407) 653-4000.
NEW OWNERSHIP AND EXECUTIVE MANAGEMENT
On April 23, 1993, DWG Acquisition acquired shares of Triarc Class A Common
Stock from the Posner Entities representing approximately 28.6% of the then
outstanding Triarc Class A Common Stock. As a result of the Equity Transactions,
the Posner Entities no longer hold any shares of voting stock of Triarc or any
of its subsidiaries. Concurrently with the consummation of the Equity
Transactions, Triarc refinanced a significant portion of its high cost debt in
order to reduce interest costs and to provide additional funds for working
capital and liquidity purposes. Following the consummation of the Equity
Transactions, the Triarc Board installed a new corporate management team, headed
by Nelson Peltz and Peter W. May, who were elected Chairman and Chief Executive
Officer and President and Chief Operating Officer of Triarc, respectively. In
addition, Leon Kalvaria was elected Vice Chairman of Triarc. The Triarc Board
also approved a plan to decentralize and restructure the Company's management.
See 'SPECIAL FACTORS -- Background to the Merger; Reasons for the Merger -- The
Reorganization and Related Matters.'
BUSINESS STRATEGY
New executive management has developed a business strategy intended to
address the Triarc Companies past inability to attract strong operating
management, lack of focused advertising and marketing programs, and failure to
make sufficient investments in capital projects. The key elements of this
business strategy include (i) focusing the Triarc Companies resources on the
four core businesses -- soft drink, fast food, textiles and liquefied petroleum
gas, (ii) building strong operating management teams for each of the core
businesses, and permitting each of these teams to operate in a newly
decentralized environment, (iii) providing strategic leadership and financial
resources to enable the management teams to develop and implement specific,
growth-oriented business plans, and (iv) rationalizing the Triarc Companies
organizational structure by eliminating minority interests and settling
previously outstanding shareholder litigation.
The new chief executive officers of the Triarc Companies' four core
businesses, three of whom came from outside the Triarc Companies, have developed
and begun to implement individual plans focused on increasing revenues and
improving operating efficiency. In addition, the Triarc Companies expects to
undertake, and is actively pursuing, acquisitions and business combinations to
augment the four core businesses and dispositions of the non-core businesses.
The implementation of the Triarc Companies business strategy is expected to
result in significant increases in expenditures for, among other things, capital
projects and acquisitions and, over time, marketing and advertising. To provide
liquidity to finance these expenditures and to reduce interest costs, as part of
the Refinancing and the RC/Arby's Refinancing, the Triarc Companies refinanced a
significant portion of its high cost debt.
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The first steps of this strategic program have already been taken,
including:
In late April 1993, new chief executive officers were appointed for each
of the the Triarc Companies' four core businesses. Three of these officers
came from outside the Triarc Companies: John C. Carson (RC Cola) who is
the former President of Cadbury Beverages, North America; Donald L. Pierce
(Arby's) who is the former President of Denny's and Kentucky Fried
Chicken -- International; and Ronald Paliughi (National Propane) who is a
former senior officer of AmeriGas. In addition, Harold D. Kingsmore, who
was previously chief operating officer of Graniteville, was named chief
executive officer of Graniteville.
As part of the Refinancing, Graniteville entered into the Graniteville
Credit Facility which provided Graniteville with an $80 million term loan
and $100 million revolving credit facility (of which $11.0 million was
available at December 31, 1993). The Graniteville Credit Facility,
together with Graniteville's operating cash flow, provides liquidity to
fund Graniteville's working capital and capital expenditure requirements.
In August 1993, RC/Arby's sold $275 million aggregate principal amount of
9 3/4% Senior Notes. A portion of the proceeds from this financing was
used to redeem $225 million aggregate principal amount of Step-Up Notes.
As of December 31, 1993, RC/Arby's had cash on hand of approximately $55.2
million to fund certain of RC Cola's and Arby's strategic programs.
The Triarc Companies reduced its corporate staff from more than 200 to
less than 100 employees. At the same time, each of RC Cola, Arby's and
National Propane strengthened its own management team.
In October 1993, SEPSCO's utility and municipal services business segment
was sold. After the payment of the outstanding balance of $24.5 million of
related capitalized leases on the closing date of the sale, and setting
aside amounts for taxes, transaction expenses and related matters, the
disposition of this business segment increased the Triarc Companies' net
cash available for investment in the four core businesses by approximately
$37.1 million.
In November 1993, SEPSCO entered into the Letter of Intent to sell the Ice
Business for $5 million in cash and approximately $4 million principal
amount of subordinated secured notes due on the fifth anniversary of the
sale and the assumption by the purchaser of certain current liabilities.
The Letter of Intent, by its terms, expired on January 11, 1994, although
the parties are still continuing discussions with respect to the
transaction contemplated by the Letter of Intent.
In January 1994, Triarc disposed of its 58.6% interest in Wilson Brothers
('Wilson Brothers'), a company engaged in the specialty decoration of
glass and ceramic items and the design, manufacturing and servicing of
overhead industrial cranes. In February 1994, Triarc sold its lamp
manufacturing business to certain members of operating management for $5.5
million in cash and a note in the principal amount of $0.5 million.
Triarc is proceeding with its plans to sell or discontinue substantially
all of its remaining non-core businesses, including the Cold Storage
Business of SEPSCO and the ownership of certain grapefruit groves. Given
Triarc's focus on its four core businesses, Triarc may sell the natural
gas and oil businesses that Triarc has agreed in principle to purchase
from SEPSCO. No assurance can be given as to the time frame within which
such businesses may be sold.
Triarc's corporate headquarters and the headquarters of three of its four
core businesses have been relocated to more modern and efficient office
space.
The estimated costs associated with substantially all of these actions were
reflected either in Triarc Companies' results of operations for Fiscal 1993 or
for the six months ended October 31, 1993. See 'TRIARC MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS,' Note 19 to the
Fiscal 1993 Consolidated Financial Statements of Triarc Companies, Inc. and
Subsidiaries and Note 12 to the Condensed Consolidated Financial Statements of
Triarc Companies, Inc. and Subsidiaries.
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ORGANIZATIONAL STRUCTURE
The following chart sets forth the organizational structure of the Triarc
Companies, excluding certain non-core businesses that are in the process of
being disposed of or discontinued.
<ORGANIZATIONAL CHART>
(1) After the Merger, Triarc will directly or indirectly own 100% of each of its
core businesses.
BUSINESS SEGMENTS
SOFT DRINK (RC COLA)
RC Cola produces concentrates used in the production of soft drinks which
are sold domestically and internationally to independent, licensed bottlers who
manufacture and distribute finished beverage products. RC Cola's major products
have strong brand recognition and include: RC COLA, DIET RC COLA, DIET RITE
COLA, DIET RITE flavors, NEHI, UPPER 10 and KICK. In addition, RC Cola is the
exclusive supplier of proprietary cola concentrate to Cott which sells private
label soft drinks to major retailers such as Wal-Mart, A&P and Safeway. For
information with respect to RC Cola's revenues, operating profit and assets for
the last three fiscal years, see 'Consolidated Financial Statements of Triarc
Companies, Inc. and Subsidiaries.'
RC COLA is the third largest national brand cola and is the only national
brand cola available to non-Coca Cola and non-Pepsi-Cola bottlers. DIET RITE is
available in a cola as well as various other flavors and formulations and is
sugar-free (sweetened with 100% aspartame, an artificial sweetener), sodium-free
and caffeine-free. It is the only national brand sodium-free soft drink on the
market. DIET RC COLA is the low-calorie version of RC COLA containing aspartame
as its sweetening agent. NEHI is a line of approximately 20 flavored soft
drinks, UPPER 10 is a lemon-lime soft drink and KICK is a citrus soft drink. RC
Cola's share of the overall domestic carbonated soft drink market was
approximately 2.2% in 1993 according to The Maxwell Consumer Report. RC Cola's
soft drink brands have a share of national supermarket sales of approximately
2.9%, as measured by Nielsen Marketing Research.
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John C. Carson joined RC Cola on May 10, 1993 as President and Chief
Executive Officer. Prior to joining RC Cola, Mr. Carson was President of Cadbury
Beverages, North America, where he worked with a bottling network of
approximately 900 bottlers, including many existing RC Cola bottlers. Mr. Carson
has over 25 years of experience in the beverage business, including positions in
sales, marketing and administration. Since joining RC Cola, Mr. Carson has hired
key senior finance, marketing and operations executives to form the nucleus of
the RC Cola management team.
BUSINESS STRATEGY
RC Cola's new management believes that the RC Cola products continue to
enjoy significant brand recognition. RC Cola's new management also believes that
the full potential of the RC Cola franchise, however, has not been realized due
to unfocused spending on marketing and advertising, inefficient product
distribution, and generally poor relationships between RC Cola and its bottlers.
Furthermore, RC Cola's new management believes that there is an opportunity for
RC Cola to address these issues, and increase sales and earnings through a newly
formulated business strategy. The key elements of this strategy include:
More Effective Advertising and Marketing: The principal determinant of
success in the industry is the ability to establish a recognized brand
name, the lack of which serves as the industry's primary barrier to
entry. Historically, the marketing expenditures of RC Cola and its
bottlers have emphasized couponing and sponsorship of local and regional
sporting events rather than coordinated media spending that reinforces
the image of the brands across markets. RC Cola management intends to
increase its 1994 marketing budget by $5 million and to reallocate $14
million of this increased budget to media advertising and regional
promotions, including a new advertising and marketing campaign developed
by a recently hired outside advertising agency. Thereafter, RC Cola
management expects to increase the overall level of RC Cola's marketing
and advertising expenditures.
Improved Bottler Relationships: Senior management of the Triarc Companies
and RC Cola are working to develop a long-term partnership with RC Cola's
bottlers. RC Cola management believes that the implementation of the new
advertising and marketing program described above will encourage the
bottlers to increase their own marketing expenditures, as well as
coordinate promotional activity more closely with RC Cola. Finally, RC
Cola is actively pursuing arrangements with Cott that could lead to an
increase in private label bottling by the RC Cola bottling network.
Expansion of Private Label Business: The domestic market share of private
label soft drinks has increased rapidly in the past several years
reflecting the emphasis of many retailers on the development and
marketing of quality store brand merchandise at competitive prices.
Private label sales to Cott represent the fastest growing segment of RC
Cola's business, more than doubling from Fiscal 1992 to Fiscal 1993.
Private label sales to Cott during Transition 1993 exceeded such sales
for Fiscal 1993. In January 1994, RC Cola and Cott agreed on the terms of
the Cott Worldwide Agreement, which will supersede the Current Cott
Agreement. Under the Cott Worldwide Agreement, RC Cola will be Cott's
exclusive worldwide supplier of cola concentrates for retailer-branded
beverages in various containers. In addition, wherever possible, RC Cola
will also supply Cott's requirements for non-cola carbonated soft drink
concentrates. RC Cola's management believes that the Cott Worldwide
Agreement will benefit RC Cola significantly by both expanding the
markets for which RC Cola is Cott's exclusive supplier of cola
concentrates, and significantly increasing the portion of Cott's
requirements for non-cola carbonated soft drink concentrates which are
supplied by RC Cola.
Improved Distribution in Key Channels: Based on independent market
research, RC Cola management believes that better distribution of RC Cola
products in the key 'take home' channels (such as food stores and drug
stores) will increase the market share of RC Cola brands. RC Cola is
beginning to provide bottlers with timely and reliable market information
to identify retailers that do not distribute RC Cola products and to
monitor the inventory positions of the various RC Cola brands in stores
where the products are currently distributed to limit out-of-stock
positions.
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New Channels of Distribution: RC Cola's management believes that
distribution of RC Cola brands through vending machines and convenience
outlets (such as convenience stores and retail gas mini-markets) can be
expanded significantly. This strategy has been implemented by arranging
for the leasing of approximately 9,300 vending machines and the
subleasing of this equipment to bottlers to encourage service of
convenience outlets. In addition, as part of this strategy, RC Cola is
also considering a program for the leasing of cold storage boxes and and
the subleasing of them to bottlers to further encourage such service.
International Expansion: While the financial and managerial resources of
RC Cola have initially been focused on the United States and Canada, RC
Cola management believes that there are significant opportunities to
increase the international penetration of RC Cola brands. In those
countries where RC Cola brands are currently distributed, RC Cola has
provided limited advertising support due to capital constraints. RC
Cola's brands have not yet been distributed in a number of major
international markets, including Chile and Brazil in Latin America, Hong
Kong and China in the Far East and Russia, Poland, Spain and Portugal in
Europe. To support expansion in these markets, new managers have been
added for Latin America and Europe, and outside consultants have been
hired for the countries of the former Soviet Union. These markets are
currently targeted for development during 1994.
Acquisitions: RC Cola management is actively seeking to expand market
share through the acquisition of additional soft drink product lines. RC
Cola management believes that providing additional product lines and
nationally recognized soft drink brands will assist RC Cola in
strengthening its relationships with its bottlers and allow RC Cola to
leverage its marketing and administrative activities.
INDUSTRY
Soft drinks constitute one of the largest consumer food and beverage
categories in the United States, with retail sales of approximately $50 billion
in calendar 1993 as measured by Jesse Meyers Beverages Digest. Trends affecting
the soft drink industry in recent years have included the growth of consumer
demand for diet soft drinks, the increased market share of private label soft
drinks, and the recent introduction of 'new age' beverages. In calendar 1993,
diet drinks represented approximately 29.1% of the soft drink market, compared
to approximately 19% in 1981. The share of the cola category of soft drink sales
in all food stores, as measured by Nielsen Marketing Research, declined from
61.3% in calendar 1989 to 59.2% in 1993. This decline is attributable in large
part to the decline in sales of sugar-sweetened cola drinks, whose share
declined from 41.0% in calendar 1989 to 38.6% in 1993, while the share of diet
cola drinks over the period remained stable at approximately 20.6%. RC Cola
management believes that the market share of private label soft drinks, as
measured by Nielsen Marketing Research, increased from approximately 7.2% in
calendar 1989 to approximately 11.1% in 1993, reflecting the expansion in sales
of private label products generally as retailers have placed increased emphasis
on the development and marketing of quality store brand merchandise at
competitive prices. RC Cola management believes that the share of 'new age'
beverages (such as carbonated fruit drinks, natural sodas and seltzers, sports
drinks and iced teas) in the soft drink market is currently approximately 7.5%
in terms of volume and will continue to increase at the expense of traditional
soft drinks.
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PRODUCTS
The following chart sets forth RC Cola's product mix of branded products
for Fiscal 1993 and Transition 1993:
<TABLE>
<CAPTION>
FISCAL 1993 TRANSITION 1993
-------------------------- --------------------------
UNITS OF UNITS OF
BRANDED PRODUCT CONCENTRATE* PERCENTAGE CONCENTRATE* PERCENTAGE
- ------------------------------------------------- ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C>
RC Cola.......................................... 689,952 55% 451,276 55%
Diet Rite Cola................................... 321,604 26 194,423 24
Nehi............................................. 100,448 8 73,143 9
Diet Rite Flavors................................ 88,304 7 52,772 7
Diet RC.......................................... 31,836 2 16,842 2
Others........................................... 23,836 2 26,387 3
------------ --- ------------ ---
Total....................................... 1,255,980 100% 814,843 100%
------------ --- ------------ ---
------------ --- ------------ ---
</TABLE>
- ------------
* One domestic unit equals concentrate sufficient to produce an average of 144
cases, each consisting of 24 eight-ounce containers, of finished product.
ADVERTISING AND MARKETING
The principal determinant of success in the soft drink industry is the
ability to establish a recognized brand name, the lack of which serves as the
industry's primary barrier to entry. Advertising, promotions and marketing
expenditures in Fiscal 1992, Fiscal 1993 and Transition 1993 were $51.0 million,
$54.6 million and $54 million, respectively. However, RC Cola historically
focused a large proportion of these expenditures on local and regional sporting
event sponsorship, couponing and in-store/point of sale promotions. In addition,
media spending was not well-coordinated across regions or with the timing of
bottler promotions. RC Cola believes that, in spite of unfocused advertising
spending over the last several years, its products continue to enjoy nationwide
brand recognition.
RC Cola management intends to increase its 1994 marketing budget by $5
million and to reallocate $14 million of this increased budget to media
advertising and regional promotions. In August 1993, RC Cola hired GSD&M
Advertising to produce and coordinate new media advertising campaigns for both
regional and national distribution and to coordinate these campaigns with RC
Cola's bottlers.
RC COLA'S BOTTLER NETWORK
In addition to highly recognized brands, a strong bottler network is a
critical determinant of the success of a soft drink producer. Analysis of market
share by distributor indicates that a strong bottler can substantially increase
the share of RC Cola brand products in that bottler's local market. Therefore,
good relations with its bottlers, and a strong bottler network, are critical
factors for RC Cola. As RC Cola's relationships with its bottlers improve, RC
Cola management believes that its bottlers, the majority of whom also provide
bottling services to other brands, will tend to focus more on RC Cola products.
This increase in focus on RC Cola products is expected to result in increased
participation by the bottlers in cooperative advertising, marketing and
promotion activities, as well as added emphasis on improving shelf space
positions for RC Cola brands with retailers and closer monitoring of retailer
inventory positions, thus reducing out-of-stock positions.
RC Cola sells its flavoring concentrates for branded products to
independent franchised bottlers in the United States and 53 foreign countries,
including Canada. Consistent with industry practice, each bottler is assigned an
exclusive territory within which no other bottler may distribute RC Cola brand
soft drinks. This type of arrangement is designed to help ensure that RC Cola
has a strong distributor in each market served. As of December 31, 1993, RC
Cola's products were packaged and distributed domestically in 158 franchised
territories. There were a total of 61 production and distribution agreements and
97 distribution only agreements, covering 50 states.
In most localities, licensed RC Cola bottlers also hold one or more
franchises from other concentrate manufacturers, although RC Cola bottlers (like
bottlers of Coca-Cola and Pepsi-Cola) are
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not permitted to distribute other colas. Of RC Cola's 158 franchised
territories, Triarc believes 76 carry RC Cola as the lead brand, 38 carry RC
Cola with 'Seven-Up' as the lead brand, 17 carry RC Cola with 'Dr. Pepper' as
the lead brand, and the remaining 27 are classified as mixed. The existence of
RC Cola enables non-Coca-Cola and non-Pepsi-Cola bottlers to offer a full line
of branded cola products, better positioning them to compete with bottlers of
Coca-Cola and Pepsi-Cola.
The following table sets forth the percentage of domestic unit sales of
concentrate for branded product accounted for by each of RC Cola's ten largest
bottler groups during Fiscal 1993 and Transition 1993:
<TABLE>
<CAPTION>
PERCENT OF UNIT SALES
------------------------------
BOTTLER GROUP FISCAL 1993 TRANSITION 1993
- --------------------------------------------------------------------------- ----------- ---------------
<S> <C> <C>
Chicago Bottling Group..................................................... 22.3% 25.4%
All American Bottling...................................................... 16.1 16.9
Brooks Beverage Management Inc. ........................................... 7.2 8.3
7UP/RC Bottling of Southern California..................................... 7.0 8.0
RC Bottling Co. -- Evansville, IN.......................................... 3.7 4.0
Mid-Continent Bottlers..................................................... 2.9 3.5
Kalil Bottling-Arizona..................................................... 2.7 3.4
Dr. Pepper Bottling-Texas.................................................. 2.3 2.7
Beverage Properties Inc.................................................... 2.2 2.4
Bland Group................................................................ 1.9 2.3
----- -----
Total............................................................ 68.3% 76.9%
----- -----
----- -----
</TABLE>
RC Cola enters into a license agreement with each of its bottlers which it
believes are comparable to those prevailing in the industry. RC Cola
periodically sets a uniform price list for concentrate for all of its licensed
bottlers. The length of the license agreements vary, but RC Cola may terminate
any such agreement in the event of a material breach of the terms thereof by the
bottler that is not cured within a specified period of time.
The license agreements require producing bottlers to manufacture RC Cola
soft drinks in strict accordance with the standards, formulae and procedures
established by RC Cola and to package the products in containers specified by RC
Cola. Each bottler is obligated to operate within its exclusive territory with
adequate manufacturing, packaging and distribution capability to produce and
distribute sufficient quantities of RC Cola products to meet consumer demand in
the territory and to maintain an inventory of RC Cola products sufficient to
supply promptly the reasonably foreseeable demand for such products. Bottlers
that operate distribution facilities and do not operate production facilities
purchase RC Cola products from producing bottlers.
Total concentrate sales in the New York City region declined by
approximately 39,000 units (69%), from 4.1% to 1.5% of total domestic
concentrate sales, between 1989 and 1993. This decrease was attributable to the
bankruptcy of one of the two RC Cola bottlers in the region and the liquidation
of the other. RC Cola entered into license agreements with two new bottlers in
the New York City region in December 1991. Sales in the New York City region
were approximately 18,500 units during 1993, representing an increase of
approximately 4% from the 17,800 units sold during 1992. The market share in the
New York City region of the RC Cola brands, as measured in a survey of
supermarket sales conducted by Nielsen Marketing Research, has increased from
1.0% in calendar 1992 to 1.2% in calendar 1993. There can be no assurance,
however, that these agreements will continue to result in RC Cola restoring lost
market share in the New York City region.
PRIVATE LABEL
RC Cola believes that private label sales through Cott represent a growth
opportunity due to the increased emphasis by national retailers on the
development and marketing of quality store brand merchandise at competitive
prices. RC Cola's private label sales began in late 1990 and grew, as Cott's
business has expanded, from approximately 309,000 units of concentrate in Fiscal
1992 to approximately 623,000 units in Fiscal 1993 and approximately 798,000
units in Transition 1993. In Fiscal 1993 and
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Transition 1993, revenues from sales of private label concentrate to Cott
represented approximately 10.6% and 10.9%, respectively, of RC Cola's total
revenues. RC Cola is currently providing concentrate to Cott pursuant to the
Current Cott Agreement, under which RC Cola is Cott's exclusive supplier of cola
concentrates for private label and Cott's proprietary label soft drinks in the
United States and Canada.
In January 1994, RC Cola and Cott agreed on the terms of the Cott Worldwide
Agreement, which will supersede the Current Worldwide Agreement. Under the Cott
Worldwide Agreement, RC Cola will be Cott's exclusive worldwide supplier of cola
concentrates for retailer-branded beverages in various containers. In addition,
wherever possible, RC Cola will also supply Cott's requirements for non-cola
carbonated soft drink concentrates. The Cott Worldwide Agreement requires that
Cott purchase at least 75% of its total worldwide requirements for carbonated
soft drink concentrates from RC Cola. The initial term of the Cott Worldwide
Agreement is 21 years, with multiple six-year renewable terms.
Cott delivers the private label concentrate and packaging materials to
independent bottlers for bottling. The finished private label product is then
shipped to Cott's trade customers, including major retailers such as Wal-Mart,
A&P and Safeway. The Cott Worldwide Agreement provides that, so long as Cott
purchases a specified minimum number of units of private label concentrate in
each year of the Cott Worldwide Agreement, RC Cola will not manufacture and sell
private label carbonated soft drink concentrates to parties other than Cott
anywhere in the world.
Through its private label program, RC Cola develops new concentrates
specifically for Cott's private label accounts. The proprietary formulae RC Cola
uses for its private label program are customer specific and differ from those
of RC Cola's branded products. RC Cola works with Cott to develop a concentrate
according to each trade customer's specifications. RC Cola retains ownership of
the formulae for such concentrates.
Gross margins for private label sales are lower than those for branded
sales. However, since most advertising and marketing expenses and general and
administrative expenses are not attributable to private label sales, resulting
net operating margins for branded sales become lower than those for private
label sales, despite the fact that net operating profits for branded sales
remain higher than those for private label sales on a per-case basis.
PRODUCT DISTRIBUTION
Bottlers distribute finished product through four major distribution
channels: take home (consisting of food stores, drug stores, mass merchandisers,
warehouses and discount stores); convenience (consisting of convenience stores
and retail gas mini-markets); fountain/food service (consisting of fountain
syrup sales and restaurant single drink sales); and vending (consisting of
bottle and can sales through vending machines). The take home channel is the
principal channel of distribution for RC Cola products.
In recent years, RC Cola's products have experienced excessive out-of-stock
positions at retail outlets. Management believes that providing timely and
reliable market information to the bottlers on the inventory positions of the
retailers in their local markets will allow the bottlers to anticipate out-of-
stocks, and therefore more effectively distribute RC Cola's products.
RC Cola brands are not currently broadly distributed through vending
machines or convenience outlets. In addition to stimulating trial purchases, the
presence of RC Cola identified vending machines and cold storage boxes
reinforces consumer awareness of the brands. RC Cola management, therefore,
arranged for the leasing of approximately 9,300 vending machines and for the
subleasing of this equipment to bottlers to encourage service of convenience
outlets. In addition, as part of this effort to stimulate trial purchases, RC
Cola is also considering a program for the leasing of cold storage boxes and the
subleasing of them to bottlers to further encourage such service.
INTERNATIONAL
Sales outside the United States accounted for approximately 13.0% of RC
Cola's sales in Transition 1993 and an average of 9.6% for the five fiscal years
from 1989 through 1993. As of December 31, 1993,
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68 bottlers and 12 distributors sold RC Cola brand products outside the United
States in 53 countries, with international sales in Transition 1993 distributed
among Canada (47%), Latin America and Mexico (11.8%), Europe (21.1%), the Middle
East/Africa (15.0%) and the Far East (5.1%). Historically, RC Cola has had
limited managerial or financial resources making it difficult for RC Cola to
support its brands outside of the United States. RC Cola brands have not yet
been distributed in a number of major international markets, including Chile and
Brazil in Latin America, Hong Kong and China in the Far East and Russia, Poland,
Spain and Portugal in Europe. To support expansion in these markets, new
managers have been added for Latin America and Europe, and outside consultants
hired for the countries of the former Soviet Union. These markets are currently
targeted for development during 1994.
PRODUCT DEVELOPMENT AND RAW MATERIALS
RC Cola believes that it has a reputation as an industry leader in product
innovation. RC Cola introduced the first national brand diet cola in 1961. The
DIET RITE flavors line was introduced in 1988 to complement the cola line and to
target the non-cola segment of the market, which has been growing faster than
the cola segment due to a consumer trend toward lighter beverages.
Flavoring ingredients and sweeteners for sugar-sweetened soft drinks are
generally available on the open market from several sources. However, aspartame,
the sweetener currently preferred by consumers of diet soft drinks, was until
recently subject to a patent held by The NutraSweet Company, a division of
Monsanto Company. The NutraSweet Company was the only supply source for
aspartame in the United States until December 1992, when its patent for
aspartame expired. The price of aspartame declined in 1993. The reduced cost of
aspartame has improved RC Cola's gross margin.
FAST FOOD (ARBY'S)
Arby's is the world's largest franchise restaurant system specializing in
roast beef sandwiches with an estimated market share in 1993 of 65.1% of the
roast beef sandwich segment of the quick service restaurant category. In
addition, the Company believes that Arby's is the 14th largest restaurant chain
in the United States, based on domestic system-wide sales. As of December 31,
1993, Arby's restaurant system consisted of 2,682 restaurants, of which 2,531
operated within the United States and 151 operated outside the United States. As
of December 31, 1993, Arby's owned and operated 259 units and the remaining
units were owned and operated by franchisees. At December 31, 1993, all
restaurants outside the United States were franchised. System-wide sales were
approximately $1.5 billion in Fiscal 1993 and approximately $1.1 billion during
Transition 1993. For information with respect to Arby's revenues, operating
profit and assets for the last three fiscal years, see 'Consolidated Financial
Statements of Triarc Companies, Inc. and Subsidiaries.'
In addition to its various roast beef sandwiches, Arby's restaurants offer
a broad menu of chicken, submarine and other sandwiches and salads. A breakfast
menu, which consists of croissants with a variety of fillings, is also available
at many Arby's restaurants. The typical Arby's restaurant, however, generates a
substantial amount of its revenues during the lunch hours.
Arby's revenues are derived from three principal sources: (i) sales at
company-owned restaurants; (ii) royalties from franchisees and (iii) one-time
franchise fees from new franchisees. During Fiscal 1993 and Transition 1993
approximately 78% of Arby's revenues were derived from sales at company-owned
restaurants and approximately 22% were derived from royalties and franchise
fees.
Donald L. Pierce joined Arby's on May 17, 1993 as President and Chief
Executive Officer. Prior to joining Arby's, Mr. Pierce was President of PepsiCo,
Inc.'s Hot 'n Now hamburger chain. Mr. Pierce was President of Kentucky Fried
Chicken -- International from 1988 to 1990 and held a number of senior
management positions at Denny's from 1981 to 1988, including President of
Denny's, Inc. from 1987 to 1988. Mr. Pierce has assembled a management team with
substantial industry experience consisting of both existing Arby's employees and
key additions in marketing and finance from outside the Triarc Companies.
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BUSINESS STRATEGY
Despite the lack of a chief executive officer responsible solely for Arby's
business and unfocused advertising and marketing programs prior to the
Reorganization, Arby's has maintained consistently high rankings in consumer
awareness surveys and continues to attract new franchisees to its system. In
recent years, however, Arby's opened few company-owned restaurants. As a result,
the number of restaurants in the Arby's system has grown at a slower rate than
other leading fast food chains, which have expanded through both internal growth
and acquisitions. In addition, the lack of attention of prior management to the
operating standards of both company-owned and franchised restaurants, including
significantly reduced capital available for remodeling certain of the
company-owned restaurants, may have resulted in a market perception of declining
quality across the Arby's system.
The new operating management team is developing a business strategy
designed to increase the total number of restaurants in the Arby's system and to
improve the revenues and profitability of the restaurants. The key elements of
this business strategy include:
Accelerated Store Opening Program: Due to capital constraints, Arby's
opened only five company-owned restaurants during Transition 1993. Since
the Reorganization, Arby's has expanded its management team to support an
accelerated program of opening company-owned stores, including
professionals in charge of site analysis and selection, lease
negotiation, and personnel training. Arby's intends to open 20 to 30 new
company-owned restaurants in 1994, and 50 to 60 new restaurants in 1995.
From time to time, Arby's will consider increasing the number of
company-owned restaurants by acquiring restaurants from existing
franchisees. For example, in February 1994, Arby's sold 20 company-owned
restaurants to a current franchisee and agreed to purchase from the same
franchisee an aggregate of 33 of its franchised restaurants, thereby
increasing Arby's overall number of company-owned restaurants by 13.
Through new store openings and the purchase of franchised restaurants,
management intends to increase the percentage of company-owned
restaurants in the system to 20% over a three to five year period.
Remodeling Program: The average company-owned restaurant has not been
renovated or remodeled in approximately 11 years. Based on the historical
experience of Arby's franchisees, restaurants generally record
double-digit increases in sales in the year after a remodeling. Arby's
expects to renovate or remodel approximately 70 to 80 of its
company-owned restaurants per year for each of the next three years.
Certain of the restaurants to be renovated or remodeled were acquired by
Arby's from franchisees.
Expanding the Franchise Network: Arby's management believes that more
effective marketing and advertising, a stronger commitment by Arby's to
building the system through its accelerated store opening program, and
the improvement in the quality of the facilities of the company-owned
restaurants will increase the value of, and demand for, Arby's
franchises. As of December 31, 1993, Arby's had received prepaid
commitments for the opening of up to 402 new domestic franchised
restaurants over the next five years. Management believes that its
efforts to improve the value of the Arby's franchise should result in a
significantly higher number of openings during this time period.
Increasing Operating Efficiency: Arby's management believes that
significant additional operating efficiency can be achieved by (i)
rigorously evaluating the performance of company-owned restaurants and
closing those that do not meet selected profitability criteria, (ii)
requiring more uniformity across its restaurant system to increase
purchasing efficiencies and improve ease and speed of service, and (iii)
installing point-of-sale systems, certain new kitchen equipment and other
labor-saving processes in company-owned restaurants. Arby's closed six
company-owned restaurants during Transition 1993 and expects to close
three additional company-owned restaurants in 1994. In addition,
management anticipates that it will spend approximately $7 to $10 million
in 1994 on new equipment, including point-of-sale terminals, for the
company-owned restaurants.
More Focused Retail-Oriented Marketing: Arby's management believes that
focused advertising and marketing, combined with renewed emphasis on
customer service, will increase consumer awareness of Arby's, improve
customer satisfaction and stimulate repeat visits. Arby's
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management believes that Arby's historically has over-emphasized the use
of coupons and other promotional efforts, rather than marketing programs
that reinforce consumer recognition of Arby's.
International Expansion: Although Arby's is initially focusing its
resources on expanding the domestic restaurant system, Arby's management
believes that the international network represents a significant long
term growth opportunity. Other than Canada (103 restaurants) and Mexico
(15 restaurants), no foreign country had more than two Arby's restaurants
as of December 31, 1993. Arby's intends to expand the system outside the
United States by opening its first foreign company-owned restaurants and
granting direct franchises in several new international markets. In
addition, management expects increases in the number of restaurants
opened under existing territorial agreements with international
franchisees in 33 countries. As of December 31, 1993, Arby's had received
prepaid commitments for the opening of approximately 450 international
restaurants over the next seven years.
Acquisitions: In addition to purchasing franchised restaurants, Arby's
intends to increase the geographic coverage of its system by acquiring
small regional restaurant chains and converting the newly acquired
locations into Arby's restaurants.
INDUSTRY
The U.S. restaurant industry is highly fragmented, with approximately
400,000 units nationwide. Industry surveys indicate that the 15 largest chains
accounted for approximately 17% of all units and 29% of all industry sales in
1993. According to data compiled by the National Restaurant Association, total
domestic restaurant industry sales were approximately $193 billion in 1993, of
which approximately $80 billion were in the quick service ('QSR') or fast food
segment. In recent years the industry has benefitted as spending in restaurants
has consistently increased as a percentage of total food-related spending.
According to a Standard & Poor's Corporation report dated November 1992 (its
most recent report on the subject), it was estimated that approximately 34% of
all domestic retail food sales in 1992 would be made in restaurants, compared
with approximately 25% in 1970. According to an industry survey, the QSR segment
has been the fastest growing segment of the restaurant industry over the past
five years, with a compounded annual sales growth rate from 1989 through 1993 of
4.5%. The recent recession, however, slowed the rate of growth in restaurant
spending.
ARBY'S RESTAURANTS
The first Arby's restaurant opened in Youngstown, Ohio in 1964. As of
December 31, 1993, Arby's restaurants operated in 49 states, Puerto Rico, the
U.S. Virgin Islands and 14 foreign countries. At December 31, 1993, the five
leading states by number of operating units were: Ohio, with 199 restaurants;
California, with 175 restaurants; Texas, with 158 restaurants; Michigan, with
141 restaurants; and Georgia, with 126 restaurants. Other than Canada (103
restaurants) and Mexico (15 restaurants), as of December 31, 1993 no foreign
country had more than two Arby's restaurants.
The typical company-owned Arby's restaurant in the United States is 2,570
square feet, including approximately 1,100 square feet devoted to seating space,
approximately 100 square feet to selling space and approximately 1,370 square
feet to kitchen operations and storage. Stores typically have a manager,
assistant manager and as many as 20 full and part-time employees. Staffing
levels, which vary during the day, tend to be heaviest during the lunch hours.
The following table sets forth the number of company-owned and franchised
Arby's restaurants at December 31, 1991, 1992 and 1993.
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1991 1992 1993
----- ----- -----
<S> <C> <C> <C>
Company-owned restaurants....................................... 260 268 259
Franchised restaurants.......................................... 2,241 2,335 2,423
----- ----- -----
Total restaurants..................................... 2,501 2,603 2,682
----- ----- -----
----- ----- -----
</TABLE>
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Arby's opened only five company-owned restaurants in Transition 1993. Since
the Reorganization, Arby's has expanded its management team to support an
accelerated program of opening company-owned stores, including professionals in
charge of site analysis and selection, lease negotiation and personnel training.
Arby's intends to open 20 to 30 new company-owned restaurants in 1994, and 50 to
60 new restaurants in 1995.
Arby's also intends to undertake a program to upgrade the quality of the
facilities of its company-owned restaurants. The average Arby's company-owned
restaurant has not been renovated or remodeled in approximately 11 years. The
average cost of renovating a restaurant is $70,000, which includes the cost of
new signage, menu boards, seating areas, kitchens and point-of-sale systems. In
addition, Arby's management intends to add drive-through windows in several of
its company-owned restaurants. At December 31, 1993, approximately 200
company-owned restaurants had drive-through facilities. The average cost of
adding a drive-through window in a restaurant is $50,000.
In Fiscal 1991, Arby's purchased 22 poorly performing restaurants from a
franchisee, substantially all of which have been included in the Arby's
remodeling program. Arby's management believes that the acquisition and
remodeling of poorly performing franchised restaurants will enable Arby's to
improve the overall quality of the facilities in the Arby's system.
In February 1994, Arby's sold 20 company-owned restaurants in the Atlanta,
Georgia and Portland, Oregon markets to a current franchisee and agreed to
purchase from the same franchisee an aggregate of 33 of its franchised
restaurants in the Jacksonville, Florida and Orlando, Florida markets. Following
the acquisition of the Florida restaurants by Arby's, these restaurants will be
remodeled and renovated. The acquisition of the Florida restaurants is part of a
plan to increase Arby's market presence in Florida, Arby's headquarter state,
which, in turn, will allow Arby's to test new products and concepts more
effectively.
FRANCHISE NETWORK
At December 31, there were approximately 500 Arby's franchisees operating
2,423 separate locations. The initial term of the typical franchise agreement is
20 years with a 20-year renewal option by the franchisee, subject to certain
conditions. While Arby's management is currently considering implementing a
program to provide financing arrangements to its franchisees, as of December 31,
1993, Arby's did not offer any financing arrangements to its franchisees.
The Arby's franchise was ranked by a survey published in Entrepreneur
magazine in January 1994 as one of the top 20 franchises among 500 franchised
businesses, based on a variety of objective criteria of importance to
franchisees. As of December 31, 1993, Arby's had received prepaid commitments
for the opening of up to 402 new domestic franchised restaurants over the next
five years. Arby's has granted territorial agreements with international
franchisees in 33 countries, and as of December 31, 1993 received prepaid
commitments for the opening of approximately 450 international restaurants over
the next seven years. Under the terms of these territorial agreements, many of
the international franchisees have the exclusive right to open Arby's
restaurants in specific regions or countries, as well as to sub-franchise Arby's
restaurants. Management expects that future international franchise agreements
will more narrowly limit the geographic exclusivity of the franchisees and
prohibit sub-franchise arrangements.
Arby's offers franchises for the development of both single and multiple
restaurant locations. All franchisees are required to execute standard franchise
agreements. Arby's standard U.S. franchise agreement provides for, among other
things, an initial $37,500 franchise fee for the first franchised unit and
$25,000 for each subsequent unit and a monthly royalty payment based on 3.5% of
restaurant sales for the first two years from the date of opening of the
franchised unit and 4.0% during the remainder of the term of the franchise
agreement. Franchise agreements effective after February 1, 1994 provide for a
4.0% royalty payment for the entire term of the franchise agreement. As a result
of lower royalty rates still in effect under earlier agreements, the average
royalty rate paid by franchisees at December 31, 1993 was 2.6%. Franchisees
typically pay a $10,000 commitment fee, credited against the franchise fee
referred to above, during the development process for a new restaurant.
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Franchised restaurants are operated in accordance with uniform operating
standards and specifications relating to the selection, quality and preparation
of menu items, signage, decor, equipment, uniforms, suppliers, maintenance and
cleanliness of premises and customer service. Arby's continuously monitors
franchisee operations and inspects restaurants periodically to ensure that
company practices and procedures are being followed. Management believes that
expanding the number of the company-owned stores and up-grading the quality of
the facilities will enhance the value of an Arby's franchise.
ADVERTISING AND MARKETING
Arby's management believes that focused advertising and marketing can
increase consumer awareness of the system and the quality of its food, service
and facilities. As part of its business strategy, franchisees and Arby's
contribute 0.7% of gross sales to the Arby's Franchise Association ('AFA'),
which produces advertising and promotion materials for the system. Each
franchisee is also required to spend a reasonable amount, but not less than 3%
of its monthly gross sales, for local advertising including their contribution
to a cooperative area advertising program with other franchisees who are
operating Arby's restaurants in the same area. Arby's advertises primarily
through regional television, radio and newspapers. Payment for advertising time
and space is made by the local franchisee, Arby's or both on a shared basis. In
Fiscal 1992 and 1993 and Transition 1993, Arby's expenditures for advertising
and marketing in support of company-owned stores were $14.4 million, $16.2
million and $11.1 million, respectively. Management believes that Arby's has
historically over-emphasized the use of coupons and other promotional efforts,
rather than marketing programs that reinforce consumer recognition of Arby's.
PROVISIONS AND SUPPLIES
Arby's roast beef is provided by four independent meat processors, three of
which have been suppliers to Arby's and its franchisees for more than ten years.
One of such suppliers (Custom Food Products, Best Western Food Division)
provides approximately 40% of the roast beef requirements for Arby's and its
franchisees. Arby's other roast beef suppliers are Multi-Foods Corporation,
Prepared Foods Division (28%), Peck Foods Corporation (16%) and Cargill
Processed Meats, Enge Packing Company (16%). Franchise operators are required to
obtain roast beef from one of the four suppliers. Arby's, through a non-profit
purchasing cooperative ARCOP, Inc. ('ARCOP'), which negotiates contracts with
approved suppliers on behalf of Arby's and its franchisees, is currently
negotiating the renewal of its 'cost-plus' contracts with these suppliers that
have expired in August, 1993. While the renewal contracts are being negotiated,
the suppliers continue to provide Arby's with roast beef pursuant to the terms
of the expired contracts. Arby's believes that satisfactory arrangements could
be made to replace any of its current roast beef suppliers, if necessary, on a
timely basis.
Franchisees may obtain other products, including food, beverage,
ingredients, paper goods, equipment and signs, from any source that meets Arby's
specifications. Food, proprietary paper and operating supplies are also made
available to Arby's franchisees through ARCOP.
QUALITY ASSURANCE AND CUSTOMER SERVICE
Arby's has developed a quality assurance program designed to (i) ensure
that each franchised unit adheres to Arby's policies, practices and procedures,
(ii) maintain uniformity among its franchised restaurants and (iii) ensure that
products it receives from its major suppliers meet its high standards for
quality.
Arby's believes that a high level of customer service results in improved
customer satisfaction and, therefore, repeat visits. Arby's has recently
up-graded its employee training programs for company-owned restaurants and
offers similar programs for franchisees, including refresher courses, training
videos and other materials. Management believes that improved customer service
has been an important contributing factor in the 11.0% increase in same store
sales experienced in the twelve months ended December 31, 1993.
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TEXTILES (GRANITEVILLE)
Graniteville manufactures, dyes, and finishes cotton, synthetic and blended
(cotton and polyester) apparel fabrics. Graniteville produces fabrics for
utility wear including uniforms and other occupational apparel, piece-dyed
fabrics for sportswear, casual wear and outerwear, indigo-dyed fabrics for
jeans, sportswear and outerwear and specialty fabrics for recreational,
industrial and military end-uses. Through its wholly-owned subsidiary, C.H.
Patrick, Graniteville also produces and markets dyes and specialty chemicals
primarily to the textile industry. For information with respect to
Graniteville's revenues, operating profit and assets for the last three fiscal
years, see 'Consolidated Financial Statements of Triarc Companies, Inc. and
Subsidiaries.' Triarc believes that Graniteville is a leading domestic
manufacturer of fabrics for utility wear, piece-dyed fabrics for sportswear,
casual wear and outerwear and indigo-dyed fabrics used in the production of
high-end fashion apparel.
On April 24, 1993, Harold D. Kingsmore, who had been Executive Vice
President and Chief Operating Officer of Graniteville since 1986, became
President and Chief Executive Officer of Graniteville. Mr. Kingsmore has more
than 30 years of experience in the textile industry, and together with the other
members of Graniteville's management team, has been successfully managing
Graniteville's business for more than seven years.
BUSINESS STRATEGY
Graniteville believes that it has a reputation in the textile industry as
both a consistent producer of quality products and an innovator of new products
to meet the changing needs of its customers. The management of Graniteville
intends to continue to implement the following business strategy, focusing its
resources on products and markets where it believes it can obtain a significant
market share. The key elements of the strategy include:
Focus on Innovative, Value-Added Products: Graniteville's products are
high value-added fabrics that require sophisticated manufacturing, dyeing
and finishing techniques. Graniteville maintains its leadership position
in these products by creating new processes that result in special colors
or textures in the case of fashion-oriented fabrics or provide improved
performance characteristics in the case of utility wear.
Maintain Profitability in a Cyclical Industry: Graniteville consistently
purchases unfinished fabrics (known as 'greige goods') from third parties
for its finishing plants to supplement internally manufactured fabrics.
This strategy generally allows Graniteville to reduce purchases of greige
goods during periods of reduced demand while continuously operating its
manufacturing facilities. This strategy also allows Graniteville to
increase purchases during periods of peak demand. As a result of
operating its weaving facilities at consistently high utilization rates,
cyclical fluctuations in demand have less impact on Graniteville's
operating profits than on certain of its competitors. In addition,
Graniteville attempts to minimize its working capital investment through
inventory controls while still allowing efficient scheduling of its
manufacturing facilities and achieving on-time deliveries to customers.
Maintain Quick Response to Customers: Graniteville believes that a key
element of its success has been its ability quickly to develop and
produce innovative, finished fabrics for customers, giving it a
competitive advantage over certain other fabric producers. Quick response
time is particularly valued by customers engaged in fashion-sensitive
segments of the apparel industry. Graniteville's modern, flexible
production facilities enable it to provide this high value-added service
in a cost-effective manner.
Invest Capital in Modern Vertically-Integrated Operations: Graniteville
believes that vertical integration is an essential element of its ability
to produce customized fabrics in a quick and cost-effective manner.
Graniteville has spent $132 million over the seven year period ending
December 31, 1993 to modernize its facilities. Management will continue
its facilities and equipment modernization program to lower production
costs while simultaneously maintaining quality standards.
Expand Dyes and Specialty Chemicals Business: Graniteville's dyes and
specialty chemicals subsidiary, C.H. Patrick, has experienced 10.5%
compound annual growth in revenues over the
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last five years and is viewed as an innovator in its field. Management
intends to continue to emphasize the development of C.H. Patrick's
products and markets.
PRODUCTS AND MARKETS
Graniteville's principal products are cotton and cotton blended fabrics,
including denim. Fabric styles are distinguished by weave, weight and finishing.
The production of fabric is organized into four product lines based on fabric
type and end-use -- utility wear, piece-dyed fabrics for sportswear, casual wear
and outerwear, indigo dyed fabrics for jeans, sportswear and outerwear and
specialty products. In addition, Graniteville manufactures dyes and specialty
chemicals through C.H. Patrick. Graniteville focuses its resources on products
and markets where it believes it can obtain a significant market share. In each
of its market segments, Graniteville focuses on developing relationships with
those customers with the greatest need for high value added products.
The contribution of each product line and service to Graniteville's total
revenues during Fiscal 1993 and Transition 1993 is set forth below:
<TABLE>
<CAPTION>
PERCENT OF REVENUES
------------------------------
FISCAL 1993 TRANSITION 1993
----------- ---------------
<S> <C> <C>
Utility wear........................................... 36% 39%
Piece-dyed fabrics for sportswear, casual wear and
outerwear............................................ 26 23
Indigo-dyed fabrics for jeans, sportswear and
outerwear............................................ 21 22
Specialty products..................................... 8 7
Dyes and specialty chemicals........................... 8 8
Other.................................................. 1 1
--- ---
Total........................................ 100% 100%
--- ---
--- ---
</TABLE>
Utility Wear: Graniteville believes it is a leading domestic manufacturer
of fabrics for sale to apparel manufacturers that supply utility wear to
industrial laundries for rental to their customers, as well as manufacturers
that sell utility wear on the retail market. In the utility wear market, fabrics
are generally piece-dyed, which means that the fabric is first woven and then
dyed. Utility wear customers require a durable fabric which complies with strict
standards for fitness of use and continuity and retention of color. Graniteville
works closely with its customers in order to develop fabrics with enhanced
performance characteristics. Graniteville's utility wear customers include Red
Kap, Williamson-Dickie, Cintas, Carhartt, Inc., American Uniform, Washable Inc.,
Walls Industries, Perfect Industrial Uniform, Reed Manufacturing and Unifirst.
Piece-dyed Fabrics for Sportswear, Casual Wear and Outerwear: Graniteville
believes it is a leading domestic manufacturer of woven cotton piece-dyed
fabrics that are sold primarily to domestic manufacturers and retailers of
men's, women's and children's sportswear, casual wear and outerwear. Fabrics are
produced for customers in a wide variety of styles, colors, textures and
weights, according to individual customer specifications. Graniteville works
directly with its customers to develop innovative fabric styles and finishes.
Graniteville's piece-dyed sportswear fabric customers include Wrangler, Polo
Ralph Lauren, The Gap, M&F Girbaud, Levi Strauss (Dockers), Liz Claiborne, Henry
I. Siegel Company, Inc. (H.I.S.), Farah, Sun Apparel and I.C. Isaac's.
Indigo-Dyed (Denim) Fabrics for Jeans, Sportswear and Outerwear:
Graniteville believes it is a leading domestic manufacturer of indigo-dyed
fabrics (primarily denim) in a wide range of styles for use in the production of
high-end men's, women's and children's fashion apparel. Graniteville also
produces other indigo-dyed fabrics for jeans, sportswear and outerwear. In the
manufacture of indigo-dyed fabrics, the yarn is dyed before it is woven. This
process results in the distinctive appearance of indigo-dyed apparel fabrics,
noted by variations in color. Graniteville is a leader in the development of new
and innovative colors and styles of weaves and finishes for indigo-dyed fabrics,
and works directly with its customers to produce indigo-dyed fabrics that meet
the changing styles of the contemporary fashion market. Graniteville's
indigo-dyed fabrics customers include The Gap, Guess, Flynn Enterprises,
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Wilkins Industries, Stuffed Shirt, Wrangler, Sun Apparel, Levi Strauss, Cherokee
Apparel and Carhartt, Inc.
Specialty Products: Graniteville produces a variety of fabrics for
recreational, industrial and military end-uses, including coated fabrics for
awnings, tents, boat covers and camper fabrics. The specialty products unit also
dyes customer-owned finished garments, enabling customers to order color
selections, while minimizing inventory risk and meeting short delivery
schedules.
C.H. PATRICK PRODUCTS AND MARKETS
C.H. Patrick develops, manufactures and markets dyes and specialty
chemicals, primarily to the textile industry. During both the twelve month
period ended February 28, 1993 and the eight month period from March 1, 1993
through October 31, 1993, approximately 57% of C.H. Patrick's sales were to
non-affiliated manufacturers, and 43% were to Graniteville. C.H. Patrick's sales
to third parties have increased at a compounded annual rate of 10.5% over the
last three calendar years. Graniteville management believes that C. H. Patrick
has earned a reputation for producing high quality, innovative dyes and
specialty chemicals.
C.H. Patrick processes dye presscakes and other basic materials to produce
and sell indigo, vat, sulfur and disperse liquid dyes, as well as disperse,
direct and aluminum powder dyes. The majority of C.H. Patrick's dye products are
used in the continuous dyeing of cotton and polyester/cotton blends. C.H.
Patrick also manufactures various textile softeners, surfactants, dyeing
auxiliaries and permanent press resins, as well as several acrylic polymers used
in textile finishing as soil release agents. Most of C.H. Patrick's products
offer higher margins than other product lines of Graniteville.
MARKETING AND SALES
Graniteville's fabric is marketed and sold by its woven apparel marketing
group which will be moved from its current headquarters in New York City to
Graniteville's headquarters in South Carolina before the end of 1994. The group
also maintains regional sales offices in Boston, Massachusetts; Greensboro,
North Carolina; Greenville, South Carolina; Dallas, Texas; and San Francisco,
California. Independent sales agents in Los Angeles, California and Canada also
market Graniteville's woven apparel products. Graniteville's specialty products
are marketed and sold by the specialty products division. C.H. Patrick markets
and sells its dyes and chemicals through its own sales and marketing department.
MANUFACTURING
Graniteville is a vertically integrated manufacturer, with facilities
capable of converting raw fiber into finished fabrics. Generally, raw fibers are
purchased and spun into yarn, and yarns are either dyed and then woven into
fabrics (as in the case of indigo-dyed fabrics) or woven into fabrics, which are
then dyed according to customer specifications. Graniteville currently operates
four weaving plants, two indigo-dyeing facilities, one piece-dyeing facility,
one coating facility and one garment-dyeing facility, all of which are located
within a fifteen mile radius of Graniteville's headquarters.
Graniteville's piece-dyed dyeing and finishing facilities utilize a wide
range of technologies, highlighted by the use of a sophisticated computer-based
monitoring and control system. This system, which Graniteville believes to be
unique in the industry, allows Graniteville to continuously monitor and control
each phase of the dyeing and finishing process in order to improve productivity,
efficiency, consistency and quality.
Graniteville invested approximately $132 million over the seven year period
ending December 31, 1993 to modernize its manufacturing operations.
Graniteville's yarn spinning and weaving operations were updated by the addition
of state-of-the-art computer-controlled spinning machinery and high speed
air-jet and rapier looms, capable of significantly increasing productivity while
allowing Graniteville to maintain its high quality manufacturing standards. In
1994 Graniteville expects to spend approximately $20 million in order to
maintain, expand and upgrade its facilities.
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RAW MATERIALS
The principal raw materials used by Graniteville in the manufacture of its
textile products are cotton and man-made fibers (primarily polyester).
Graniteville seeks to enter into partnership-type arrangements with its
suppliers. It purchases cotton from a number of domestic suppliers at the time
it receives orders from customers and generally maintains a commitment position
resulting in a four to six month supply of cotton. Polyester is generally
purchased from one principal supplier, although there are numerous alternative
domestic sources for polyester. Polyester is purchased pursuant to periodic
negotiations whereby Graniteville seeks to assure itself of a consistent,
cost-effective supply. In general, there is an adequate supply of such raw
materials to satisfy the needs of the industry. In addition, Graniteville
purchases greige goods from other manufacturers to supplement its internal
production. These fabrics have normally been available in adequate supplies from
a number of domestic sources. Graniteville also purchases bulk dyes and
specialty chemicals manufactured by various domestic producers, including C.H.
Patrick. While Graniteville believes that there is a competitive advantage to
purchasing these dyes and specialty chemicals from C.H. Patrick, they are
presently available in adequate supply in the open market.
BACKLOG
Graniteville's backlog of unfulfilled customer orders was approximately
$191.2 million at December 31, 1993, as compared to approximately $222.2 million
at December 31, 1992. It is expected that substantially all of the orders
outstanding at December 31, 1993 will be filled during the next 12 months. Order
backlogs are usual to the business in which Graniteville operates.
LIQUEFIED PETROLEUM GAS (NATIONAL PROPANE AND PUBLIC GAS)
National Propane and its subsidiaries and Public Gas distribute liquefied
petroleum gas ('LP gas') for residential, agricultural, commercial and
industrial uses, including space heating, water heating, cooking and engine
fuel. The LP Gas Companies also sell related appliances and equipment. Triarc
believes that the LP Gas Companies are the fifth largest distributors of LP gas
in terms of unit volume in the United States. As of December 31, 1993, this
business was conducted by approximately 156 operating units located in 20 states
in the Southeast, Northeast, Midwest and Southwest, primarily in suburban and
rural areas. For information with respect to the revenues, operating profit and
assets of the LP Gas Companies for the last three fiscal years, see
'Consolidated Financial Statements of Triarc Companies, Inc. and Subsidiaries.'
Ronald D. Paliughi joined the LP Gas Companies on April 24, 1993 as
National Propane's President and Chief Executive Officer. Previously, Mr.
Paliughi had been Senior Vice President-Western Operations of AP Propane
(AmeriGas), the largest LP gas company in the United States, and director of
retail operations of CalGas Corporation, previously a division of the fourth
largest LP gas company in the United States. Mr. Paliughi has assembled an
experienced management team committed to implementing the strategy outlined
below.
BUSINESS STRATEGY
Prior to the Reorganization, the LP Gas Companies did not have a chief
executive officer solely responsible for their business, and were operating in
their numerous regions without coordinated pricing or distribution strategies.
Purchasing and other functions were decentralized, resulting in cost
duplications and purchasing inefficiencies.
The LP Gas Companies' new management has begun to implement the following
strategies intended to increase revenues and improve operating margins:
Centralization and Streamlining of Operations: Historically, Triarc's LP
gas business was comprised of seven regionally branded companies, each
with its own operating style and corporate staff. These seven regional
companies were restructured in July 1993 into a centralized headquarters
and two operating divisions. Since the Reorganization, the LP Gas
Companies' work force has been reduced by approximately ten percent and
further reductions are planned
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during calendar 1994. In addition, better utilization of the vehicle
fleet should permit a ten percent reduction in the size of such fleet by
the end of calendar 1994. As a result, operating expenses are expected to
decrease significantly in calendar 1994.
Improved Pricing Management: To better monitor prices, the LP Gas
Companies are in the process of installing a $2.4 million centralized
pricing and billing system in all of their offices which will enable
management to set and monitor prices from headquarters. This system,
which is expected to be fully operational in mid-1994, will permit the
monitoring of supply, demand and competitive pricing information on a
system-wide basis. The LP Gas Companies' management believes that the
timely availability of this information will lead to an increase in
margins, thereby increasing gross profits.
Improved Marketing: The LP Gas Companies intend to differentiate
themselves from many smaller, local competitors by establishing an image
as a large, reliable fuel supplier on which customers can depend. All of
the businesses will operate under the National Propane brand and
operating management will implement coordinated advertising and marketing
campaigns.
Efficient Purchasing: Due to capital constraints and the lack of
centralized purchasing, the LP Gas Companies historically have not taken
advantage of existing storage capacity. When conditions are appropriate,
management intends to purchase and store LP gas supplies during the
summer months when market pricing is distressed, and sell these supplies
during times of higher gas prices. In addition, each LP Gas Company
historically purchased LP Gas independently. The LP Gas Companies'
management recently centralized purchasing and hired an experienced
senior executive to manage all LP gas purchasing activities.
Acquisitions: To complement the strategies outlined above, the LP Gas
Companies intend to increase revenues by acquiring smaller, less
efficient competitors and incorporating them into the LP Gas Companies
existing network. Accordingly, in November 1993, National Propane
acquired the assets of Ark-La-Tex LP Gas, Inc. and affiliates with
locations in Texarkana, Arkansas and Karnack, Texas. National Propane
paid approximately $1.4 million for these assets, of which amount
approximately $0.7 million was financed by the seller. Prior to its
acquisition, Ark-La-Tex sold approximately 1.4 million gallons of LP gas
per year. In addition, in January 1994, National Propane acquired the
assets of Ozark Gas Company and affiliates, which sold LP gas and related
merchandise in West Plains, Thayer, and Willow Springs, Missouri. The
purchase price for these assets was approximately $3.8 million, of which
approximately $2.7 million was financed by the seller. Prior to its
acquisition, Ozark Gas Company had annual sales of approximately 3.7
million gallons of LP gas.
INDUSTRY
LP gas is a clean burning fuel produced by extraction from natural gas by
pipeline and by separation from crude oil and crude oil products. In recent
years, industry sales of LP gas have not grown, primarily due to the economic
downturn and energy conservation trends, which have negatively impacted the
demand for energy by both residential and commercial customers. However, LP Gas,
relative to other forms of energy, is gaining increased recognition as an
environmentally superior, safe, convenient, efficient and easy to use energy
source in many applications.
MARKETS; CUSTOMERS
LP gas is sold primarily in suburban and rural areas which do not have
access to natural gas. In the residential market, LP gas is used in LP gas
appliances and heaters in a manner similar to natural gas, primarily for home
heating, water heating and cooking (indoor and outdoor). In the agricultural
market, LP gas is used primarily for motor fuel, chicken brooders and crop
drying. In the commercial market, LP gas is used primarily by restaurants, fast
foods franchises, shopping centers and other retail or service establishments.
In the industrial market, LP gas is used primarily as a fuel for fork lift
trucks and delivery trucks, heat-treating and other industrial applications.
During Fiscal 1993 and Transition 1993, approximately 68% and 53%,
respectively, of sales by the LP Gas Companies were to residential customers and
approximately 32% and 47%, respectively, of
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such sales were to commercial, agricultural and industrial customers. In Fiscal
1993 and Transition 1993, no single customer accounted for more than 10% of the
LP Gas Companies' combined operating revenues.
PRODUCTS AND SERVICES
LP gas is sold and distributed in bulk or in portable cylinders, through
company-owned retail outlets and distributors. Most of the LP Gas Companies'
volume, in terms of dollars and gallons, is distributed in bulk, although almost
half of their customers are served using interchangeable portable cylinders. For
customers served using cylinders, normally two LP gas cylinders of 100 pound
capacity (23.5 gallons each) are installed on the customer's premises along with
necessary regulating and protective equipment. Regular bulk deliveries of LP gas
are made to customers whose consumption is sufficiently high to warrant this
type of service. For such customers, tanks (usually having a capacity of 50 to
1,000 gallons) are installed at the customers' premises and the LP gas is stored
in the tanks under pressure and piped into the premises.
The LP Gas Companies' sales by cylinder and bulk service for the last three
fiscal years and Transition 1993 are as follows:
<TABLE>
<CAPTION>
CYLINDER
TOTAL BULK TOTAL COMBINED TOTAL
-------- ---------- --------------
(GALLONS IN THOUSANDS)
<S> <C> <C> <C>
Fiscal 1991..................................................... 14,480 129,937 144,417
Fiscal 1992..................................................... 13,634 132,074 145,708
Fiscal 1993..................................................... 13,963 140,876 154,839
Transition 1993................................................. 9,687 80,493 90,180
</TABLE>
Year-to-year demand for LP gas is affected by the relative severity of the
winter and other climatic conditions. For example, while the severe flooding in
the mid-west United States during the summer of 1993 has significantly reduced
the demand for LP gas for crop-drying applications in these agricultural
regions, the ice, snow and frigid temperatures that were experienced by the
United States in January and February of 1994 significantly increased the
overall demand for LP gas.
The LP Gas Companies also provide specialized equipment for the use of LP
gas. In the residential market, the LP Gas Companies sell household appliances
such as cooking ranges, water heaters, space heaters, central furnaces and
clothes dryers. In the industrial market, the LP Gas Companies sell or lease
specialized equipment for the use of LP gas as fork lift truck fuel, in metal
cutting and atmospheric furnaces and for portable heating for construction. In
the agricultural market, specialized equipment is leased or sold for the use of
LP gas as engine fuel and for chicken brooding and crop drying.
SUPPLY
The profitability of the LP Gas Companies is dependent upon the price and
availability of LP gas as well as seasonal and climatic factors. Contracts for
LP gas are typically made on a year-to-year basis, but the price of the LP gas
to be delivered depends upon market conditions at the time of delivery. By
acquiring the ability to store LP gas, the LP Gas Companies will be able to
lower their annual cost of goods sold by maximizing supplies purchased during
the low season and minimizing purchases during times of seasonally high prices.
The LP Gas Companies are not party to any contracts to purchase LP gas
containing 'take or pay' provisions. Certain contracts do, however, specify
certain minimum and maximum amounts of LP gas to be purchased. The LP Gas
Companies purchase LP gas from numerous suppliers. The LP Gas Companies have
experienced conditions of limited supply availability from time to time but have
generally been able to secure sufficient LP gas to meet their customers' needs.
The primary sources of supply of LP gas are major oil companies and independent
producers of both gas liquids and oil. Worldwide availability of both gas
liquids and oil affects the supply of LP gas in domestic markets, and from time
to time the ability to obtain LP gas at attractive prices may be limited as a
result of market conditions, thus affecting price levels to all distributors of
LP gas.
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GENERAL
TRADEMARKS
Arby's is the sole owner of the ARBY'S trademark and considers it, and
certain other trademarks owned by Arby's, to be material to its business.
Pursuant to its standard franchise agreement, Arby's grants each of its
franchisees the right to use Arby's trademarks, service marks and trade names in
the manner specified therein.
RC Cola considers its concentrate formulae, which are not the subject of
any patents, to be trade secrets. In addition, RC COLA, DIET RC, ROYAL CROWN,
DIET RITE, NEHI, UPPER 10 and KICK are registered as trademarks in the United
States, Canada and a number of other countries. RC Cola believes that such
trademarks are material to its business.
RC Cola and Arby's material trademarks are registered in the U.S. Patent
and Trademark Office and various foreign jurisdictions. RC Cola and Arby's
rights to such trademarks in the United States will last indefinitely so long as
they continue to use and police the trademarks and to renew filings with the
applicable governmental offices. No challenges to RC Cola and Arby's right to
use the ARBY'S, RC COLA, DIET RC, ROYAL CROWN, DIET RITE, NEHI, UPPER 10 or KICK
trademarks in the United States have arisen.
COMPETITION
The Triarc Companies' four core businesses operate in highly competitive
industries. Many of the major competitors in these industries have substantially
greater financial, marketing, personnel and other resources than does the Triarc
Companies.
Arby's faces direct and indirect competition from numerous well established
competitors, including national and regional fast food chains. In addition,
Arby's competes with locally owned restaurants, drive-ins, diners and other
establishments. Key competitive factors in the fast food industry are price,
quality of products, quality and speed of service, advertising, name
identification, restaurant location and attractiveness of facilities.
RC Cola's soft drink products compete generally with all liquid
refreshments and in particular with numerous nationally-known soft drinks such
as Coca-Cola and Pepsi-Cola. RC Cola competes with other beverage companies not
only for consumer acceptance but also for shelf space in retail outlets and for
marketing focus by RC Cola's distributors, most of which also distribute other
beverage brands. The principal methods of competition in the soft drink industry
include product quality and taste, brand advertising, trade and consumer
promotions, pricing, packaging and the development of new products.
In recent years, both the soft drink and fast food businesses have
experienced increased price competition resulting in significant price
discounting throughout these industries. Price competition has been especially
intense with respect to sales of soft drink products in food stores, with local
bottlers granting significant discounts and allowances off wholesale prices in
order to maintain or increase market share in the food store segment. When
instituting its own discount promotions, Arby's has experienced increases in
sales but, with respect to company-owned restaurant operations, lower gross
margins. While the net impact of price discounting in the soft drink and fast
food industries cannot be quantified, such practices could have an adverse
impact on the Triarc Companies.
Graniteville has many domestic competitors, including large integrated
textile companies and smaller concerns. No single manufacturer dominates the
industry or any particular line in which Graniteville's participates. The
principal elements of competition include quality, price and service.
The Triarc Companies' textile business has experienced significant
competition from manufacturers located outside of the Untied States that
generally have access to less expensive labor and, in certain cases, raw
materials. Graniteville has attempted to counteract the negative impact of
competition from imports by focusing on product lines (for example, denim) that
are less vulnerable to import penetration, and by emphasizing Graniteville's
location in the United States, its efficient production techniques and its high
level of customer service which allow it to provide more timely deliveries and
to respond more quickly to changes in its customers' fabric needs. NAFTA, which
became effective on
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January 1, 1994, immediately eliminated quantitative restrictions on qualified
imports of textiles between the United States, Mexico and Canada and will
gradually eliminate tariffs on such imports over a ten-year period. In addition,
a tentative agreement reached on December 15, 1993 under GATT would eliminate
quantitative restrictions on imports of textiles and apparel between GATT member
countries over a ten-year transition period. Any significant reduction in import
protection for domestic textile manufacturers could materially adversely affect
Graniteville's business.
The LP Gas Companies compete in each LP gas marketing area with numerous
other LP gas distributors, none of which, including the LP Gas Companies, can be
considered dominant in any particular marketing area. The principal competitive
factors affecting this industry are price and service. In addition, LP gas is
sold in competition with all other commonly used fuels and energy sources,
including electricity, fuel oil and natural gas. The primary competing energy
source to LP gas is electricity, which is available in substantially all of the
market areas served by the LP Gas Companies. Currently, LP Gas is generally less
expensive than electricity based on equivalent energy value. Fuel oil is a major
competitor for home heating and other purposes and is sold by a diversified
group of companies throughout the marketing areas served by the LP Gas
Companies. Except for various industrial applications, no attempt has been made
to compete with natural gas which, with few exceptions, has been a less
expensive energy source than LP gas. Although competitive fuels may at times be
less costly for an equivalent energy value, historically LP gas has competed
successfully on the basis of cleanliness, convenience, safety, availability and
efficiency. In addition, the use of alternative fuels, including LP gas, is
mandated in certain specified areas of the United States that do not meet
federal air quality standards.
WORKING CAPITAL
Arby's and RC Cola's working capital requirements are generally met through
cash flow from operations.
Working capital requirements for the textile business are generally
fulfilled from operating cash flow supplemented by advances under the
Graniteville Credit Facility. Trade receivables are generally due in 60 days, in
accordance with industry practice.
Working capital requirements for the LP Gas Companies fluctuate due to the
seasonal nature of their businesses. Typically, in late summer and fall,
inventories are built up in anticipation of the heating season and are depleted
over the winter months. During the spring and early summer, inventories are at
low levels due to lower demand. Accounts receivable reach their highest levels
in the middle of the winter and are gradually reduced as the volume of LP gas
sold declines during the spring and summer. Working capital requirements are
generally met through cash flow from operations. Accounts receivables of the LP
Gas Companies are generally due within 30 days of delivery.
GOVERNMENTAL REGULATIONS
Each of the Triarc Companies' core businesses is subject to a variety of
federal, state and local laws, rules and regulations.
Arby's is subject to regulation by the Federal Trade Commission and state
laws governing the offer and sale of franchises and the substantive aspects of
the franchisor-franchisee relationship. In addition, Arby's is subject to the
Fair Labor Standards Act and various state laws governing such matters as
minimum wages, overtime and other working conditions. Significant numbers of the
food service personnel at Arby's restaurants are paid at rates related to the
federal and state minimum wage, and increases in the minimum wage may therefore
materially increase the labor costs of Arby's and its franchisees. From time to
time, Arby's has received inquiries from federal, state and local regulatory
agencies or has been named as a party to administrative proceedings brought by
such regulatory agencies. Arby's does not believe that any such inquiries or
proceedings will have a material adverse effect on Arby's financial condition or
results of operations.
The production and marketing of RC Cola beverages are subject to the rules
and regulations of various federal, state and local health agencies, including
the United States Food and Drug Administration (the 'FDA'). The FDA also
regulates the labeling of RC Cola products. New FDA
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labeling regulations will take effect in 1994. RC Cola estimates that the total
costs of complying with the new regulations, primarily for tooling new container
labels, will be approximately $1.5 million.
Graniteville's operations are governed by laws and regulations relating to
workplace safety and worker health, primarily the Occupational Safety and Health
Act ('OSHA') and the regulations promulgated thereunder. Revised cotton dust
standards, which became effective in 1986, have required increased capital
expenditures, and may require additional capital expenditures presently expected
to range from $7 million to $9 million.
The LP Gas Companies are subject to various Federal, state and local laws
and regulations governing the transportation, storage and distribution of LP
gas, and the health and safety of workers, primarily OSHA and the regulations
promulgated thereunder.
Except as described above, Triarc is not aware of any pending legislation
that in its view is likely to affect significantly the operations of Triarc's
subsidiaries. Triarc believes that the operations of its subsidiaries comply
substantially with all applicable governmental rules and regulations.
ENVIRONMENTAL MATTERS
Certain of the Triarc Companies' operations are subject to federal, state
and local environmental laws and regulations concerning the discharge, storage,
handling and disposal of hazardous or toxic substances. Such laws and
regulations provide for significant fines, penalties and liabilities, in certain
cases without regard to whether the owner or operator of the property knew of,
or was responsible for, the release or presence of such hazardous or toxic
substances. In addition, third parties may make claims against owners or
operators of properties for personal injuries and property damage associated
with releases of hazardous or toxic substances. Triarc cannot predict what
environmental legislation or regulations will be enacted in the future or how
existing or future laws or regulations will be administered or interpreted.
Triarc cannot predict the amount of future expenditures which may be required in
order to comply with any environmental laws or regulations or to satisfy any
such claims. Triarc believes that its operations comply substantially with all
applicable environmental laws and regulations.
In 1987, Graniteville was notified by the South Carolina Department of
Health and Environmental Control (the 'DHEC') that it discovered certain
contamination of Langley Pond near Graniteville, South Carolina and DHEC
asserted that Graniteville may be one of the parties responsible for such
contamination. Graniteville entered into a consent decree providing for the
study and investigation of the alleged pollution and its sources. The study
report, prepared by Graniteville's environmental consulting firm and filed with
DHEC on April 23, 1990, recommended that pond sediments be left undisturbed and
in place. DHEC responded by requesting that Graniteville submit additional
information concerning potential passive and active remedial alternatives, with
accompanying supportive information. In May 1991 Graniteville provided this
information to DHEC in a report of its environmental consulting firm. The 1990
and 1991 reports concluded that pond sediments should be left undisturbed and in
place and that other less passive remediation alternatives either provided no
significant additional benefits or themselves involved adverse effects on human
health, to existing recreational uses or to the existing biological communities.
Graniteville management is unable to predict at this time what further actions,
if any, may be required in connection with Langley Pond or what the cost thereof
may be. However, given the passage of time since the submission of the two
reports by Graniteville's environmental consulting firm without any objection or
adverse comment on such reports by DHEC and the absence of desirable remediation
alternatives, other than continuing to leave the Langley Pond sediments in place
and undisturbed as described in the reports, management believes that the
ultimate outcome of this matter will not have any material adverse effect on the
Triarc Companies' consolidated results of operations or financial condition. See
'TRIARC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- Liquidity and Capital Resources.'
As a result of certain environmental audits in 1991, SEPSCO became aware of
possible contamination by hydrocarbons and metals at certain sites of SEPSCO's
refrigeration operations and has filed appropriate notifications with state
environmental authorities and has begun a study of
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remediation at such sites. SEPSCO has removed certain underground storage and
other tanks at certain facilities of its refrigeration operations and has
engaged in certain remediation in connection therewith. Such removal and
environmental remediation involved a variety of remediation actions at various
facilities of SEPSCO located in a number of jurisdictions. Such remediation
varied from site to site, ranging from testing of soil and groundwater for
contamination, development of remediation plans and removal in certain instances
of certain contaminated soils. Remediation has recently been completed or is
ongoing and/or known to be required at two sites in Miami, Florida, one site in
Marathon, Florida, one site in Willard, Ohio, and one site in Provo, Utah. Based
on preliminary information and consultations with, and certain reports of,
environmental consultants and others, SEPSCO presently estimates the cost of
such remediation and/or removal will approximate $3.7 million, in respect of
which charges of $1.3 million, $0.2 million and $2.2 million were made against
earnings in SEPSCO's fiscal years ending February 28, 1991, February 29, 1992
and February 28, 1993, respectively. In connection therewith, SEPSCO has
incurred actual costs through December 31, 1993 of approximately $1.1 million
and has a remaining accrual of approximately $2.6 million. Triarc believes that
after such accrual, the ultimate outcome of this matter will not have a material
adverse effect on Triarc Companies' consolidated results of operations or
financial condition. See 'TRIARC MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Liquidity and Capital
Resources.' If the sale of the Ice Business contemplated by the Letter of Intent
is completed, Southwestern Ice will assume liability for up to $1.0 million of
remaining remediation expenses relating to the Ice Business assets to be sold,
with SEPSCO remaining liable for remediation expenses not so assumed. No
assurance can be given that the sale of the Ice Business to Southwestern Ice
under the terms contemplated by the Letter of Intent will be consummated. See
'BUSINESS OF SEPSCO -- Recent Transactions.'
SEASONALITY
Of the Triarc Companies' four core businesses, the soft drink and LP Gas
businesses are seasonal. In the soft drink business, the highest sales occur
during spring and summer. LP Gas operations are subject to the seasonal
influences of weather which vary by region. Generally, the demand for LP Gas
during the winter months, November through April, is substantially greater than
during the summer months at both the retail and wholesale levels, and is
significantly affected by climatic variations. Because of the different seasonal
patterns of these two businesses, the Triarc Companies' consolidated financial
results are not materially affected by seasonal factors.
DISCONTINUED AND OTHER OPERATIONS
The Triarc Companies are engaged in a variety of non-core businesses.
Consistent with Triarc's strategy of focusing resources on the four core
businesses, Chesapeake Insurance Company Limited ('Chesapeake Insurance'), a
direct subsidiary of CFC Holdings, ceased writing insurance or reinsurance of
any kind for periods commencing on or after October 1, 1993. In addition, Triarc
and SEPSCO have agreed in principle to the sale by SEPSCO to Triarc of the stock
of the SEPSCO subsidiaries that hold SEPSCO's natural gas and oil working and
royalty interests. Also, Triarc has indicated that following the Merger it
intends to (i) cause SEPSCO, to transfer the LP gas business of Public Gas to
National Propane, see 'SPECIAL FACTORS -- Conduct of the Business of the
Surviving Corporation after the Merger,' and (ii) sell or liquidate
substantially all of the remaining non-core businesses. Given Triarc's focus on
its four core businesses, Triarc may sell the natural gas and oil businesses
that Triarc has agreed in principle to purchase from SEPSCO. No assurance can be
given as to the time frame within which such businesses may be sold. These sales
or liquidations will not have a material impact on the Triarc Companies'
consolidated financial condition or results of operations. The precise timetable
for the sale or liquidation of the remaining non-core businesses will depend
upon Triarc's ability to identify appropriate purchasers and to negotiate
acceptable terms for the sale of such businesses.
Insurance Operations. Historically, Chesapeake Insurance (i) provided
certain property insurance coverage for the Triarc Companies and certain of its
former affiliates; (ii) reinsured a portion of certain insurance coverage which
the Triarc Companies and such former affiliates maintained with unaffiliated
insurance companies (principally workers' compensation, general liability,
automobile liability and
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group life); and (iii) reinsured insurance risks of unaffiliated third parties
through various group participations. Chesapeake Insurance ceased writing
reinsurance of risks of unaffiliated third parties during Fiscal 1992 and ceased
writing insurance or reinsurance of any kind effective in October 1993.
In March 1994, Chesapeake Insurance consummated an agreement with AIG Risk
Management, Inc. ('AIG') concerning the commutation to AIG of all insurance
previously underwritten by AIG on behalf of the Triarc Companies and affiliated
companies for the years 1977 - 1993, which insurance had been reinsured by
Chesapeake Insurance. In connection with such commutation, AIG received an
aggregate of approximately $63.5 million, consisting of approximately $29.3
million of commercial paper, common stock and other marketable securities of
unaffiliated third parties, and a promissory note of Triarc in the principal
amount of approximately $34.2 million.
In September 1989, the Pennsylvania Insurance Commissioner as rehabilitator
of Mutual Fire, Marine and Inland Insurance Company ('Mutual Fire') commenced an
action against Chesapeake Insurance seeking, among other things, recovery of
$4.0 million allegedly owed by Chesapeake Insurance in connection with certain
reinsurance arrangements, the issuance by Chesapeake Insurance of a letter of
credit in an amount in excess of $12.0 million, and compensatory and punitive
damages in excess of $40.0 million. In February 1994, Chesapeake Insurance
entered into a Settlement and Commutation Agreement with Mutual Fire which
provides for the full settlement of all claims brought by Mutual Fire for $12
million. Such agreement is subject to approval of the Commonwealth Court of
Pennsylvania. The Triarc Companies has previously recorded charges to operations
in order to fully provide for such settlement.
Chesapeake Insurance is registered under the Bermuda Insurance Act of 1978
and related regulations which require compliance with various provisions
regarding the maintenance of statutory capital and surplus and liquidity.
Chesapeake Insurance was not in compliance with certain of such provisions as of
December 31, 1992 and expects that it will not be in compliance with certain of
such provisions as of December 31, 1993. However, since Chesapeake Insurance
ceased writing insurance or reinsurance of any kind for periods commencing on or
after October 1, 1993, any such non-compliance will have no effect on the Triarc
Companies. For additional information with respect to Chesapeake Insurance, see
'TRIARC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.'
Discontinued Operations. In the Consolidated Financial Statements of Triarc
Companies, Inc. and Subsidiaries, Triarc reports as 'discontinued operations'
SEPSCO's utilities and municipal services business segment, and SEPSCO's
refrigeration services and products business segment. SEPSCO recently sold its
utilities and municipal services business segment in three separate transactions
with unaffiliated third parties for consideration negotiated on an arms'-length
basis. On November 12, 1993, SEPSCO signed the Letter of Intent to sell
substantially all of the operating assets of the Ice Business to Southwestern
Ice, an unaffiliated third party for consideration negotiated on an arms'-length
basis. The Letter of Intent, by its terms, expired on January 11, 1994, although
the parties are still continuing discussions with respect to the transaction
contemplated by the Letter of Intent. Completion of the transaction contemplated
by the Letter of Intent is subject to a number of significant conditions and no
assurance can be given that such transaction will be consummated. Triarc is
continuing its efforts to find an appropriate purchaser for its Cold Storage
Business. See 'BUSINESS OF SEPSCO -- Recent Transactions' and 'CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS -- Certain Other Transactions.'
Other Operations. On January 10, 1994, Triarc disposed of its 58.6%
interest in Wilson Brothers, a company engaged in the specialty decoration of
glass and ceramic items and the design, manufacture and servicing of overhead
industrial cranes. In February 1994, Triarc disposed of the assets of its lamp
manufacturing and distribution business. Triarc and SEPSCO have agreed in
principle to the sale by SEPSCO to Triarc of the stock of the SEPSCO
subsidiaries that hold SEPSCO's natural gas and oil working and royalty
interests. Such sale will be for a net cash purchase price of $8.5 million, will
be consummated on or before July 22, 1994 and is not contingent upon the
consummation of the Merger. Triarc Companies continues to own certain grapefruit
groves.
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EMPLOYEES
As of December 31, 1993, Triarc's four business segments employed
approximately 14,100 personnel, including approximately 2,200 salaried personnel
and approximately 11,900 hourly personnel. Triarc's management believes that
employee relations are satisfactory. At December 31, 1993, approximately 334 of
the total of Triarc's employees were covered by various collective bargaining
agreements expiring from time to time through 1996.
LEGAL PROCEEDINGS
In December 1990, a purported stockholder derivative suit was brought
against Triarc and other defendants on behalf of SEPSCO. For a description of
such legal proceedings, see 'SPECIAL FACTORS -- Background to the Merger;
Reasons for the Merger -- Legal Proceedings Related to SEPSCO and Triarc.'
In April 1993, the United States District Court for the Northern District
of Ohio (the 'Ohio Court'), entered a final order approving a Modification of a
Stipulation of Settlement (the 'Modification') which (i) modified the terms of a
previously approved stipulation of settlement (the 'Original Stipulation') in an
action captioned Granada Investments, Inc. v. DWG Corporation et al., an action
commenced in 1989 ('Granada'), and (ii) settled two additional lawsuits pending
before the Ohio Court captioned Brilliant et al. v. DWG Corporation, et al., an
action commenced in July 1992 ('Brilliant'), and DWG Corporation by and through
Irving Cameon et al. v. Victor Posner et al., an action commenced in June 1992
('Cameon'). Each of the Granada, Brilliant and Cameon cases were derivative
actions brought against Triarc and each of its then current directors (other
than Triarc's court-appointed directors, in the Brilliant and Cameon cases)
which alleged various instances of corporate abuse, waste and self-dealing by
Victor Posner, Triarc's then current Chairman of the Board and Chief Executive
Officer, and certain breaches of fiduciary duties and violations of proxy rules.
The Cameon case was also brought as a class action and included claims under
RICO and for violating federal securities laws.
The Modification continued the requirement contained in the Original
Stipulation that the Triarc Board include three court appointed directors and
that such directors, along with two other directors who are neither Triarc
employees nor relatives of Victor Posner, form a special committee of the Triarc
Board (the 'Triarc Special Committee') with authority to review and approve any
newly undertaken transaction between Triarc and its subsidiaries, on the one
hand, and entities or persons affiliated with Victor Posner on the other hand,
other than those transactions specifically approved in the Modification. The
Modification specifically permitted Triarc and/or affiliated entities to make
certain payments of rent, salary and expense reimbursements to Victor Posner
and/or persons or entities related to or affiliated with him. The restrictions
contained in the Modification will be binding on Triarc until the earlier of (i)
April 23, 1998, (ii) the date that Victor Posner and certain affiliated entities
certify to the Ohio Court (a) that they ceased to be the beneficial owners of
5.0% or more of Triarc's common stock, or securities convertible into such
shares, and (b) that they will not, directly or indirectly, exceed such 5.0%
limit prior to April 23, 1998, and (iii) the date that Triarc's common stock is
no longer publicly held. See 'MANAGEMENT OF TRIARC -- Certain Arrangements and
Undertakings Relating to the Composition of the Triarc Board.'
In addition to the matters described immediately above and the matters
referred to or described under 'BUSINESS OF TRIARC
COMPANIES -- General -- Environmental Matters,' Triarc and its subsidiaries are
involved in claims, litigation and administrative proceedings and investigations
of various types in several jurisdictions. Certain of these matters relate to
transactions involving companies which, prior to the Reorganization, were
affiliates of Triarc and which subsequent to the Reorganization became debtors
in bankruptcy proceedings. See 'CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.'
Other matters arise in the ordinary course of the business of the Triarc
Companies and it is the opinion of management that the outcome of any such
matter, or all of them combined, will not have a material adverse effect on the
Triarc Companies' business or consolidated financial condition.
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PROPERTIES
The Triarc Companies maintain a large number of diverse properties.
Management of the Triarc Companies believes that these properties, taken as a
whole, are generally well maintained and are adequate for current and
foreseeable business needs. The majority of the properties are owned. Except as
set forth below, substantially all of the Triarc Companies' materially important
physical properties are being fully utilized.
Certain information about the major plants and facilities maintained by
each of Triarc's four business segments as of December 31, 1993 is set forth in
the following table:
<TABLE>
<CAPTION>
SQ. FT. OF
SEGMENT FACILITIES-LOCATION LAND TITLE FLOOR SPACE
- --------------------------------------------- -------------------------------------- ----------- -----------
<S> <C> <C> <C> <C>
Fast Food.................................... 259 Restaurants: 56 owned *
Various locations 203 leased
throughout the
United States
Soft Drink................................... Concentrate Mfg.: 1 owned 216,000
Columbus, GA 1 leased 25,000
(including office) 1 leased 23,000
La Mirada, CA 1 leased 5,000
Cincinnati, OH
Toronto, Canada
Textiles..................................... Fabric Mfg.:
Graniteville, SC 7 owned 1,877,000
Augusta, GA 2 owned 518,000
Warrenville, SC 2 owned 208,000
Chemical and Dye Mfg.:
Greenville, SC 2 owned 103,000
Williston, SC 1 owned 75,000
Office/Warehouse 16 owned 520,000
LP Gas....................................... 143 Bulk Plants 201 owned *
73 Storage Depots 49 leased
32 Retail Depots
2 Underground storage
INACTIVE FACILITIES
Fast Food.................................... Restaurants 1 owned *
4 leased
Textiles..................................... Fabric Mfg. 3 owned 734,000
</TABLE>
- ------------
* While the restaurants in the fast food segment range in size from
approximately 700 square feet to 14,000 square feet, the typical
company-owned Arby's restaurant in the United States is approximately 2,570
square feet. The LP gas facilities have approximately 34,237,000 gallons of
storage capacity.
---------------------------
The fast food segment also owns two and leases eleven land sites for future
restaurants and owns ten and leases nine restaurants which are sublet
principally to franchisees. The textiles segment also owns approximately 16,000
acres of land, predominantly woodland, in and around Graniteville, South
Carolina, on which it has planted pine seedlings and maintains forest
conservation practices designed to help protect general water supplies.
Substantially all of the properties used in the textiles segment are
pledged as collateral for certain debt. All other properties owned by the Triarc
Companies are without significant encumbrances.
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Certain information about the materially important physical properties of
Triarc's discontinued and other operations as of December 31, 1993 is set forth
in the following table:
<TABLE>
<CAPTION>
LAND SQ. FT. OF
SEGMENT FACILITIES-LOCATION TITLE FLOOR SPACE
- ------------------------------------- ------------------------------------- --------- -----------
<S> <C> <C> <C>
SEPSCO:
Refrigeration Combination ice mfg. and
cold storage:
Topeka, KS 1 Owned 266,000
Phoenix, AZ 1 Owned 147,000
Other locations 1 Owned 42,000
Cold storage:
Bonner Springs, KS 1 Owned 919,000
Denver, CO 1 Owned 202,000
San Martin, CA 1 Owned 131,000
Santa Maria, CA 1 Owned 318,000
Portland, OR 1 Owned 200,000
American Falls, ID 1 Owned 169,000
Other locations 3 Owned 166,000
Ice mfg.:
El Centro, CA 1 Owned 122,000
Other locations 11 Owned 330,000
2 Leased 8,000
Natural Gas and Oil Office/warehouse 4 Owned 6,000
6 Leased 10,000
Other Facilities (inactive)
SEPSCO:
Refrigeration Ice mfg. and cold storage 3 Owned 189,000
Ice mfg. 9 Owned 285,000
</TABLE>
The natural gas and oil operations have net working interests in
approximately 61,000 acres and net royalty interests in approximately 4,000
acres, located almost entirely in the states of Alabama, Kentucky, Louisiana,
Mississippi, North Dakota, Texas and West Virginia. The Triarc Companies' citrus
operations also own approximately 650 acres of grapefruit grove in Hidalgo
County, Texas. The Triarc Companies' lamp manufacturing and distribution
operations, which were sold in February 1994, consisted of one production
facility with approximately 240,000 total square feet (including warehouse and
showroom space).
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<PAGE>
BUSINESS OF SEPSCO
INTRODUCTION
SEPSCO, directly and through subsidiaries, is currently engaged in three
primary businesses: refrigeration; liquefied petroleum gas and natural gas and
oil. These businesses accounted for $59.2 million and $41.9 million in revenues
in Fiscal 1993 and the nine month period ended November 30, 1993, respectively,
and $65.0 million in net assets as of November 30, 1993.
Pursuant to the Discontinued Operations Plan, in October 1993, SEPSCO sold
the businesses that formerly constituted its utilities and municipal services
segment and on November 12, 1993 SEPSCO and Southwestern Ice signed the Letter
of Intent for the sale of the Ice Business. See ' -- Recent Transactions.'
Triarc and SEPSCO have agreed in principle to the sale by SEPSCO to Triarc of
the stock of the SEPSCO subsidiaries that hold SEPSCO's natural gas and oil
working and royalty interests. Such sale will be for a net cash purchase price
of $8.5 million, will be consummated on or before July 22, 1994 and is not
contingent upon the consummation of the Merger. See 'CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS -- Certain Other Transactions.' Triarc has indicated that
following the Merger, in connection with the Discontinued Operations Plan, it
intends to cause SEPSCO to transfer the liquefied petroleum gas business
conducted by SEPSCO's Public Gas subsidiary to National Propane. Assuming that
the Ice Business is sold to Southwestern Ice as contemplated by the Letter of
Intent and the dispositions described in the two immediately preceding sentences
are consummated, the only SEPSCO business remaining to be sold to an independent
third party pursuant to the Discontinued Operations Plan will be the Cold
Storage Business. No agreements have been entered into as of the date hereof
with respect to Cold Storage Business and the precise timetable for the
disposition of such business will depend upon SEPSCO's ability to identify an
appropriate purchaser and negotiate acceptable terms of sale. Although SEPSCO
currently anticipates completing the sale of that business by July 31, 1994,
there can be no assurance that SEPSCO will be successful in this regard. Some or
all of the net proceeds from the sale by SEPSCO of any such business or assets
may be used to repurchase, redeem or prepay SEPSCO's outstanding indebtedness,
including the indebtedness evidenced by the 11 7/8% Debentures.
As result of the action taken by the SEPSCO Board, all of the businesses
historically engaged in by SEPSCO have been reclassified as discontinued
operations, and SEPSCO's consolidated financial statements have been restated to
reflect such reclassification. See Note 6 to Consolidated Financial Statements
of Southeastern Public Service Company and Subsidiaries.
Set forth below is a brief description of the businesses in which SEPSCO
continues to operate pending the transfer, sale or discontinuance thereof, with
respect to the refrigeration services and products businesses, the oil and
natural gas businesses and the LP gas business. In view of the Discontinued
Operations Plan and the Letter of Intent either or both of SEPSCO's Ice Business
and Cold Storage Business may be disposed of by SEPSCO prior to the date of the
Special Meeting or the Effective Time of the Merger.
BUSINESS OVERVIEW
REFRIGERATION SERVICES AND PRODUCTS
SEPSCO's refrigeration business provides cold storage warehousing
facilities and manufactures and distributes ice. The principal customers of the
warehousing activities are food distributors and supermarket chains. Ice is sold
to commercial establishments, produce shippers and distributors, fishing boats,
convenience stores, supermarkets and retail establishments.
SEPSCO's refrigeration services and products are provided to domestic
customers on a national basis. SEPSCO also enters into processing and storage
agreements with certain customers.
The availability of raw materials is not material to the operation of this
business segment. SEPSCO's refrigeration business is seasonal. Operating
revenues are lower during cold weather when demand declines for ice and cold
storage.
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<PAGE>
The products and services provided by this segment are marketed nationally
in competition with three large national companies as well as many local
concerns. No competitor is dominant in the industry, although several larger
firms have greater resources than SEPSCO. The principal competitive factors in
the refrigeration business are price and service.
As a result of certain environmental audits in 1991, SEPSCO became aware of
possible contamination by hydrocarbons and metals at certain sites of SEPSCO's
refrigeration operations and has filed appropriate notifications with state
environmental authorities and has begun a study of remediation at such sites.
SEPSCO removed certain underground storage and other tanks at certain facilities
of its refrigeration operations and has engaged in certain remediation in
connection therewith. Such removal and environmental remediation involved a
variety of remediation actions at various facilities of SEPSCO located in a
number of jurisdictions. Such remediation varied from site to site, ranging from
testing of soil and groundwater for contamination, development of remediation
plans and removal in certain instances of certain contaminated soils.
Remediation has recently been completed or is on-going and/or is known to be
required at two sites in Miami, Florida, one site in Marathon, Florida, one site
in Willard, Ohio, and one site in Provo, Utah. Based on preliminary information
and consultations with, and certain reports of, environmental consultants and
others, SEPSCO presently estimates the cost of such remediation and/or removal
will approximate $3.7 million, in respect of which charges of $1.3 million, $0.2
million and $2.2 million were made against earnings in SEPSCO's fiscal years
ending February 28, 1991, February 29, 1992 and February 28, 1993, respectively.
In connection therewith, SEPSCO has incurred actual costs of approximately $1.1
million through December 31, 1993 and had a remaining accrual of approximately
$2.6 million at that date. If the sale of the Ice Business as contemplated by
the Letter of Intent is completed, Southwestern Ice will assume liability for up
to $1.0 million of remaining remediation expenses relating to the Ice Business
assets to be sold, with SEPSCO remaining liable for remediation expenses not so
assumed. No assurance can be given that the sale of the Ice Business to
Southwestern Ice under the terms contemplated by the Letter of Intent will be
consummated. See ' -- Recent Transactions.'
LIQUEFIED PETROLEUM GAS BUSINESS
SEPSCO, through its Public Gas subsidiary, distributes and sells LP gas and
related appliances and equipment throughout the state of Florida, for
residential, agricultural, commercial and industrial uses, including, space
heating, water heating, cooking and engine fuel. Following the Reorganization,
management of SEPSCO's LP gas business was transferred to Triarc's National
Propane subsidiary. Triarc has indicated that, in connection with the
Discontinued Operations Plan, following the Merger, it intends to cause SEPSCO
to transfer Public Gas' business to National Propane. The precise method by
which such business will be transferred, however, has not yet been determined.
Triarc has informed SEPSCO that prior to or in connection with transferring such
business, it intends to cause Public Gas to become a wholly-owned subsidiary of
SEPSCO. See 'SPECIAL FACTORS -- Conduct of the Business of the Surviving
Corporation After the Merger.' For a description of SEPSCO's LP gas business,
see 'BUSINESS OF TRIARC COMPANIES -- Business Segments -- Liquefied Petroleum
Gas (National Propane and Public Gas).'
NATURAL GAS AND OIL INTERESTS
SEPSCO has working and royalty interests in natural gas and oil producing
properties located almost entirely in the states of Alabama, Kansas, Kentucky,
Louisiana, Mississippi, North Dakota, West Virginia and Texas.
SEPSCO produces most of the natural gas and all of the oil that it sells.
Natural gas produced by SEPSCO is sold to major marketeers and pipeline systems,
under short and long-term contracts. Oil production is sold to crude oil
refiners. The business is not dependent upon a single customer. SEPSCO has a
very minor position in the natural gas and oil industry and competes with many
larger independent natural gas and oil producers as well as with the major oil
companies. This industry is not subject to seasonal factors.
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<PAGE>
Triarc and SEPSCO have agreed in principle to the sale by SEPSCO to Triarc
of the stock of the SEPSCO subsidiaries that hold SEPSCO's natural gas and oil
working and royalty interests. Such sale will be for a net cash purchase price
of $8.5 million, will be consummated on or before July 22, 1994 and is not
contingent upon the consummation of the Merger.
OTHER INVESTMENTS
GRANITEVILLE
SEPSCO owns 49% of the outstanding common stock of Graniteville, the
remaining 51% of which is owned by a wholly-owned subsidiary of Triarc. SEPSCO
accounts for its investment in Graniteville on the equity method. For a
description of the business of Graniteville, see 'BUSINESS OF TRIARC
COMPANIES -- Business Segments -- Textiles (Graniteville).' As a result of the
discontinuance of substantially all of SEPSCO's other businesses, SEPSCO's
investment in Graniteville will constitute its largest asset. Because of
Graniteville's significance to SEPSCO, financial statements of Graniteville are
included herewith. See 'INDEX TO FINANCIAL STATEMENTS.'
CFC HOLDINGS
SEPSCO also has an investment in CFC Holdings. SEPSCO owns approximately
5.4% of the outstanding common stock of CFC Holdings, the remaining 94.6% of
which is owned by Triarc. SEPSCO accounts for its investment in CFC Holdings on
the equity method. CFC Holdings owns 100% of the outstanding common stock of
RC/Arby's, whose principal subsidiaries are Arby's and RC Cola. For a
description of the businesses of Arby's and RC Cola, see, respectively,
'BUSINESS OF TRIARC COMPANIES -- Business Segments -- Fast Food (Arby's)' and
'BUSINESS OF TRIARC COMPANIES -- Business Segments -- Soft Drinks (RC Cola).'
In addition, CFC Holdings owns all of the outstanding common stock of
Chesapeake Insurance. SEPSCO also owns 15,000 shares of convertible redeemable
preferred stock of Chesapeake Insurance which it purchased in fiscal 1992 for
$1,500,000. Each share has a par value of $100, is entitled to preferred
dividends when, as and if declared at a rate of 6% per annum, and is convertible
at any time into common shares of Chesapeake Insurance at a price of $5.52 per
common share. If all convertible preferred shares issued by Chesapeake Insurance
were converted to common shares, SEPSCO's ownership of Chesapeake Insurance
would be approximately 12%. Because the loss reserves of Chesapeake Insurance
for insurance already written are approximately equal to its assets, Chesapeake
Insurance's equity has been permanently impaired and no dividends or liquidating
distributions are expected to be made to Chesapeake Insurance's equity holders.
Both SEPSCO and CFC Holdings have, therefore, reduced the value of the assets
represented by their respective equity interests in Chesapeake Insurance to
zero. See 'BUSINESS OF TRIARC COMPANIES -- Discontinued and Other Operations.'
RECENT TRANSACTIONS
In October 1993, SEPSCO sold the businesses that formerly constituted its
utilities and municipal services segment in three separate transactions. The
first two of these transactions involved the sale by SEPSCO to Perkerson, Patton
Management Corp. ('PPM Corp.') of the stock of each of Wright & Lopez, Inc.
('Wright & Lopez'), through which SEPSCO conducted its underground cable and
conduit business, and Pressure Concrete Construction Co., through which SEPSCO
conducted its concrete refurbishment business. These corporations were sold to
PPM Corp. for a nominal amount subject to the adjustments described below. PPM
Corp. has agreed to pay, as deferred purchase price, 75% of the net proceeds
received from the sale or liquidation of these corporations' assets (cash of
$1.8 million had been received as of December 31, 1993) plus, in the case of
Wright & Lopez, an amount equal to 1.25 times its adjusted book value as of the
second anniversary of such sale. At the time Wright & Lopez was sold to PPM
Corp., its adjusted book value was approximately $1.6 million. In addition,
SEPSCO paid an aggregate of $2.0 million during October and November 1993 to
cover the buyer's short-term operating losses and working capital requirements
for the construction related operations. SEPSCO's
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<PAGE>
current estimate of the gain on such sales is $2.0 million excluding any
consideration of the potential book value adjustment. The other transaction
involved the sale of substantially all of the assets of SEPSCO's tree
maintenance subsidiaries to Asplundh Tree Expert Co. ('Asplundh') for a purchase
price of approximately $69.6 million in cash, subject to certain post closing
adjustments, and the assumption by Asplundh of certain liabilities of
$5,000,000 resulting in a loss of approximately $4.8 million. The terms of
each of these transactions was the result of arms'-length negotiations between
SEPSCO and PPM Corp. and Asplundh, as the case may be. Neither PPM Corp. nor
Asplundh is an affiliate of SEPSCO.
On November 12, 1993, SEPSCO and Southwestern Ice signed the Letter of
Intent for the sale to Southwestern Ice of substantially all of the operating
assets of SEPSCO's Ice Business for $5 million in cash and approximately $4
million principal amount of subordinated secured notes due on the fifth
anniversary of the sale and the assumption by Southwestern Ice of certain
current liabilities. The Letter of Intent contemplates that SEPSCO will retain
certain real estate assets associated with the Ice Business. The Letter of
Intent also contemplates that an environmental remediation plan (the
'Remediation Plan') will be prepared in connection with such sale and that
Southwestern Ice will be responsible for payment of the first and third $500,000
of expenses incurred in connection with the Remediation Plan, with SEPSCO
remaining liable for the second $500,000 of expenses and any expenses in excess
of $1.5 million. Completion of the transaction contemplated by the Letter of
Intent is subject to a number of significant conditions, including (i)
satisfactory completion by Southwestern Ice of (a) its review of the Ice
Business and (b) the financing arrangements for the transaction, (ii)
preparation of the Remediation Plan and (iii) the negotiation of definitive
documentation for the transaction. The Letter of Intent, by its terms, expired
on January 11, 1994, although the parties are still continuing discussions with
respect to the transaction contemplated by the Letter of Intent. No assurance
can be given that the transaction contemplated by the Letter of Intent will be
consummated. The terms of the transaction contemplated by the Letter of Intent
were the result of arms'-length negotiations between SEPSCO and Southwestern
Ice. Southwestern Ice is not an affiliate of SEPSCO.
ENVIRONMENTAL MATTERS
Although SEPSCO has not performed any environmental audits on any of the
operations which it continues to own, other than with respect to the ice
operations of its refrigeration segment, SEPSCO currently does not anticipate
that present environmental regulations will materially affect the capital
expenditures, earnings or competitive position of any segment of SEPSCO's
businesses, except for expenditures for environmental remediation required to be
made in the remainder of its current fiscal year and thereafter in connection
with its refrigeration services and products business. See 'BUSINESS OF
SEPSCO -- Business Overview -- Refrigeration Services and Products.'
WORKING CAPITAL
SEPSCO's working capital requirements have generally been fulfilled from
cash flow from operations, although, from January 1991 through April 1993 SEPSCO
had a credit facility with a commercial lender, secured by substantially all of
the accounts receivable of the tree maintenance activities and the
construction-related activities of the utility and municipal services segment
and certain other receivables. In connection with the Reorganization, Triarc
made certain payments on account of indebtedness owed by it to SEPSCO and SEPSCO
used a portion of the proceeds thereof to pay in full all amounts due under such
credit facility and at which time such facility was terminated.
INTELLECTUAL PROPERTY; RESEARCH AND DEVELOPMENT; BACKLOG
Patents, trademarks, licenses, franchises and concessions are not material
to any segment of SEPSCO's business. In the last three fiscal years, SEPSCO had
no material expenditures for research and development activities. The existence
of a forward order backlog is not material to any segment of SEPSCO's
businesses.
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<PAGE>
EMPLOYEES
As of December 31, 1993, SEPSCO employed approximately 624 employees,
including approximately 169 salaried employees. Approximately 187 of such
employees were covered by 13 collective bargaining agreements expiring from time
to time through 1996. SEPSCO believes that relationships with employees are
satisfactory.
LEGAL PROCEEDINGS
In December 1990, the Ehrman Litigation, a purported stockholder derivative
suit was brought against Triarc and other defendants on behalf of SEPSCO. For a
description of such legal proceedings, see 'SPECIAL FACTORS -- Background to the
Merger; Reasons for the Merger -- Legal Proceedings Related to SEPSCO and
Triarc.'
In addition to the Ehrman Litigation and the matters referred to or
described under ' -- Environmental Matters,' SEPSCO and its subsidiaries are
involved in claims, litigations and administrative proceedings and
investigations of various types in several jurisdictions. Such matters arise in
the ordinary course of the business of SEPSCO and its subsidiaries and it is the
opinion of management that the outcome of any such matter, or all of them
combined, will not have a material adverse effect on SEPSCO's business or
consolidated financial condition.
PROPERTIES
SEPSCO's management believes that the properties of the operations that it
continues to own, taken as a whole, are generally well maintained and are
adequate for current and foreseeable business needs. The majority of the
properties are owned. All of the properties owned in fee by SEPSCO are without
encumbrances, except minor ones which do not affect the use thereof in SEPSCO's
business. Information concerning the properties of SEPSCO is set forth under
'BUSINESS OF TRIARC COMPANIES -- Properties.' Except as set forth therein with
respect to properties listed as inactive, substantially all of SEPSCO's
materially important physical properties are being fully utilized.
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TRIARC COMPANIES MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
This 'Management's Discussion and Analysis of Financial Condition and
Results of Operations' should be read in conjunction with the financial
statements included herein of Triarc Companies, Inc. (formerly DWG Corporation,
'Triarc' or, collectively with its subsidiaries, 'Triarc Companies').
On October 27, 1993 the Triarc Board approved a change in the fiscal year
of Triarc from a fiscal year ending April 30 to a calendar year ending December
31, effective for the transition period ending December 31, 1993. The fiscal
years of all of Triarc's subsidiaries which did not end on December 31 were also
so changed. As used herein, 'Fiscal 1993' refers to the fiscal year ended April
30, 1993 and 'Transition 1993' refers to the eight months ending December 31,
1993.
RESULTS OF OPERATIONS
Triarc Companies reported net losses from continuing operations for each
fiscal year from 1989 through 1993 and for the six months ended October 31,
1993. Triarc believes that these losses were in large part the result of limited
managerial and financial resources devoted to certain of its business units, a
significant amount of high cost debt, material provisions for doubtful accounts
from former affiliates (principally for (i) management services which,
subsequent to October 1993, Triarc no longer provides and (ii) interest and
principal of notes from former affiliates for which there are no significant
balances subsequent to the April 23, 1993 change in control of Triarc (the
'Change in Control')), costs of stockholder and other litigation, operating
losses of certain non-core businesses and, with respect to Fiscal 1993 and the
six months ended October 31, 1993, certain restructuring and other charges
discussed below. The diversity of Triarc Companies' business segments precludes
any overall generalization about trends for Triarc Companies.
The textiles segment is subject to cyclical economic trends that affect the
domestic textile industry. In addition, the textile industry in general has
experienced significant competition from foreign manufacturers that generally
have access to less expensive labor and, in certain cases, raw materials.
However, certain fabrics which comprise the principal product lines sold by
Triarc Companies (e.g. workwear) have experienced foreign competition to a
lesser degree than the industry in general. Exchange rate fluctuations can also
affect the level of demand for the textile segment's products by changing the
relative price of competing fabrics from overseas producers.
Trends affecting the fast food segment in recent years include consistent
growth of the restaurant industry as a percentage of total food-related
spending, with fast food being the fastest growing segment of the restaurant
industry. The recent recession, however, slowed the rate of growth in restaurant
spending. Trends affecting the soft drink segment in recent years have included
the growth of consumer demand for diet soft drinks, the increased market share
of private label soft drinks and the introduction of 'new age' beverages. In
recent years, both the soft drink and fast food industries have experienced
increased price competition resulting in significant price discounting
throughout these industries. While the net impact of price discounting cannot be
quantified, a continuation of this practice could have an adverse effect on
Triarc Companies.
Trends affecting the LP gas segment in recent years include the economic
downturn and energy conservation trends, which have negatively impacted the
demand for energy by both residential and commercial customers. However, LP gas,
relative to other forms of energy, is gaining recognition as an environmentally
superior, safe, convenient, efficient and easy-to-use energy source in many
applications. In 1992, Congress enacted federal legislation that provides tax
incentives for the use of LP gas as one of five alternative forms of energy.
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SIX MONTHS ENDED OCTOBER 31, 1993 COMPARED WITH SIX MONTHS ENDED OCTOBER 31,
1992
<TABLE>
<CAPTION>
OPERATING PROFIT
REVENUES (LOSS)
SIX MONTHS ENDED SIX MONTHS ENDED
OCTOBER 31, OCTOBER 31,
-------------------- ------------------
1992 1993 1992 1993
-------- -------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Textiles........................................................... $246,989 $270,236 $22,696 $21,912
Fast food.......................................................... 98,183 112,020 8,695 11,247
Soft drink......................................................... 78,380 79,633 14,542 7,440
Liquified petroleum gas............................................ 54,399 56,749 (1,367) (1,135)
Other.............................................................. 44,420 2,832 (4,148) (9,778)
Unallocated general corporate expenses............................. -- -- (8,289) (7,433)
-------- -------- ------- -------
$522,371 $521,470 $32,129 $22,253
-------- -------- ------- -------
-------- -------- ------- -------
</TABLE>
Revenues decreased slightly to $521.5 million in the six months ended
October 31, 1993 from $522.4 million in the six months ended October 31, 1992
reflecting increased revenues in each of Triarc's core business segments which
were more than offset by the absence of revenues from certain non-core
operations which were sold in Fiscal 1993. Textiles revenues increased $23.2
million (9.4%) due to increased volume and prices. Fast food revenues increased
$13.8 million (14.1%) principally due to an increase in both company-owned and
franchised same store sales. Soft drink revenues increased $1.3 million (1.6%)
due to a significant unit volume increase offset in part by the effects of a
shift in sales mix toward lower-priced private label sales, a decline in branded
product sales and a major private label customer purchasing a component
(aspartame) of soft drink concentrate directly from Triarc Companies' supplier
rather than Triarc Companies. While Triarc Companies not supplying aspartame
directly to this customer negatively impacted sales, there is no impact on gross
profit since Triarc Companies reduced its sales price equal to its cost of the
aspartame. Revenues of the LP gas segment increased $2.4 million (4.3%) due to
higher prices partially reflecting the pass through of higher product costs.
Cost of sales declined $16.3 million (4.2%) to $368.8 million in the six
months ended October 31, 1993 from $385.1 million in the same period of the
prior fiscal year due principally to the absence of certain operations which
were sold in Fiscal 1993. Gross profit (total revenues less cost of sales)
increased $15.4 million (11.2%) to $152.7 million from $137.3 million and gross
margin increased to 29.3% from 26.3% due principally to improved margins in the
textiles, fast food and soft drink segments.
Selling, general and administrative expenses increased $29.1 million to
$130.5 million in the six months ended October 31, 1993 from $101.4 million in
the six months ended October 31, 1992 due principally to (i) a $13.6 million
increase in advertising and marketing expenses in the soft drink segment,
including an increase of $7.8 million in accrued advertising and promotional
allowances granted to soft drink bottlers, the total amounts of which normally
are dependent principally upon the achievement of annual sales volume, (ii) a
$10.0 million provision for insurance loss reserves based on the reviews and
recommendations of Triarc's insurance consulting actuaries and new insurance
management company and (iii) a $2.3 million increase in reserves for legal
matters principally for a recently asserted claim by NVF, a former affiliate,
currently involved in proceedings under the Federal Bankruptcy Code (see Notes 2
and 11 to the Condensed Consolidated Financial Statements of Triarc Companies,
Inc. and Subsidiaries).
Consolidated operating profit declined $9.8 million to $22.3 million in the
six months ended October 31, 1993 from $32.1 million in the comparable period of
the prior fiscal year principally due to $20.1 million of significant charges in
the current year period (as described above and in Note 2 to the Condensed
Consolidated Financial Statements of Triarc Companies, Inc. and Subsidiaries).
Textiles operating profit declined $0.8 million due to increased general and
administrative expenses, including corporate charges, which more than offset
improved gross profit. Fast food operating profit increased $2.6 million due to
the improvement in revenues and gross profit described above resulting from an
increasing focus on quality service, local promotions and an increase in the
number of franchised
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restaurants. Soft drink operating profit declined $7.1 million due to the
increased advertising and marketing expenses described above which more than
offset improved gross profit. The LP gas segment's seasonal operating loss
showed a slight improvement. Operating loss of other operations increased $5.6
million due to the $10.0 million provision for insurance loss reserves described
above offset in part by the absence of losses of certain non-core operations
sold or liquidated. Unallocated general corporate expenses in the six months
ended October 31, 1993 include a $2.3 million increase in reserves for legal
matters as described above, and in the prior year's comparable period included a
$3.7 million provision for doubtful accounts from a former affiliate, APL
Corporation ('APL'). The results for the six months ended October 31, 1993 have
not yet reflected the full benefits of Triarc's restructuring efforts.
Interest expense decreased $0.1 million due principally to lower interest
rates substantially offset by the effect of higher borrowings resulting from the
restructuring of Triarc Companies' indebtedness.
Other expense, net in the six months ended October 31, 1993 reflects (i) a
provision of $1.2 million for additional legal fees in connection with the
Ehrman Litigation which was brought against SEPSCO's directors at that time and
certain corporations, including Triarc, and which is in the process of being
settled and (ii) a provision of $1.0 million for additional losses expected to
be incurred in connection with the sale of a non-core business. Other income,
net in the six months ended October 31, 1992 reflected a net gain of
approximately $3.3 million with respect to the sale of two non-core businesses,
net of a write-down to estimated net realizable value of certain other non-core
businesses, offset in part by expenses of $2.5 million relating to certain
shareholder litigation subsequently settled.
Triarc Companies recorded a provision for income taxes of $6.4 million in
the six months ended October 31, 1993 despite a pretax loss of $12.9 million due
to a $6.0 million increase in reserves for income tax contingencies (see Note 2
to the Condensed Consolidated Financial Statements of Triarc Companies, Inc. and
Subsidiaries), losses of certain subsidiaries for which no tax benefit is
available, amortization of costs in excess of net assets of acquired companies
which is not deductible for income tax purposes and the increase in deferred
income taxes resulting from the increase in the Federal income tax rate from 34%
to 35%.
Income from discontinued operations of $0.2 million and $2.0 million, for
the six months ended October 31, 1993 and 1992, respectively, reflect the
results, net of tax and minority interests, of the utility and municipal
services, refrigeration and natural gas and oil business segments of SEPSCO
which Triarc Companies has, or plans to, dispose. The estimated loss on disposal
of $7.4 million reflects Triarc Companies' current estimate of losses to be
incurred on the sale or liquidation of such discontinued operations, including
projected operating results through the anticipated disposal dates (see Notes 2
and 12 to the Condensed Consolidated Financial Statements of Triarc Companies,
Inc. and Subsidiaries).
Extraordinary item, net in the six months ended October 31, 1993 represents
a loss, net of income tax benefit, resulting from the early extinguishment of
debt in August 1993 comprised of the write-off of unamortized deferred financing
costs of $2.2 million offset by $1.5 million of discount resulting from the
redemption of the debt and income tax benefit of $0.3 million.
The cumulative effect of changes in accounting principles in the six months
ended October 31, 1992 resulted from a charge of $4.9 million, net of minority
interests, from the adoption of Statement of Financial Accounting Standards
('SFAS') No. 109 'Accounting for Income Taxes' ('SFAS 109') and an after-tax
charge, net of minority interests, of $1.5 million from the adoption of SFAS No.
106, 'Employers' Accounting for Postretirement Benefits Other Than Pensions'
('SFAS 106').
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FISCAL 1993 COMPARED WITH FISCAL 1992
<TABLE>
<CAPTION>
OPERATING PROFIT
REVENUES (LOSS)
------------------------ --------------------
1992 1993 1992 1993
---------- ---------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Textiles................................................... $ 456,402 $ 499,060 $ 27,753 $ 47,203
Fast Food.................................................. 186,921 198,915 14,271 7,852
Soft Drink................................................. 143,830 148,262 36,112 23,461
Liquefied Petroleum Gas.................................... 141,032 148,790 12,676 3,008
Other...................................................... 146,518 63,247 (5,746) (15,942)
General corporate expenses................................. -- -- (26,514) (31,123)
---------- ---------- -------- --------
$1,074,703 $1,058,274 $ 58,552 $ 34,459
---------- ---------- -------- --------
---------- ---------- -------- --------
</TABLE>
Revenues declined $16.4 million (1.5%) to $1.06 billion in Fiscal 1993 from
$1.07 billion in Fiscal 1992 principally due to the absence of revenues from
certain non-core operations (included in 'Other' in the table above) which were
sold during Fiscal 1993, offset in part by increased revenues in each of Triarc
Companies' major segments. Textiles revenues increased approximately $42.7
million (9.3%) to $499.1 million from $456.4 million due to increased volume and
prices. Fast food revenues increased $12.0 million (6.4%) to $198.9 million from
$186.9 million due to additional company-owned and franchised restaurants and an
increase in same store sales of company-owned restaurants. Soft drink revenues
increased $4.5 million (3.1%) to $148.3 million from $143.8 million due to an
increase in private label and international sales as a result of unit volume
increases partially offset by a decrease in domestic sales of Diet Rite flavor
brands. LP gas revenues increased $7.8 million (5.5%) to $148.8 million from
$141.0 million due to an increase in the number of gallons sold.
Cost of sales declined $31.2 million to $766.8 million in Fiscal 1993 from
$798.0 million in Fiscal 1992 due principally to the net decline in revenues
described above. Gross profit (total revenues less cost of sales) increased
$14.8 million to $291.5 million in Fiscal 1993 from $276.7 million in Fiscal
1992 and gross margin increased to 27.5% in Fiscal 1993 from 25.7% in Fiscal
1992 due principally to higher average selling prices and lower cost of cotton
in the textiles segment.
Selling, general and administrative expenses increased $15.5 million to
$203.7 million in Fiscal 1993 from $188.2 million in Fiscal 1992. Affecting
general and administrative expenses in Fiscal 1993 was a $4.9 million accrual of
compensation paid to a special committee of the pre-Change in Control Triarc
Board representing a success fee attributable to the Change in Control, a $2.2
million provision for closing certain non-strategic company-owned restaurants
and abandoned bottling facilities, a $1.5 million provision for estimated costs
to comply with recent package labeling regulations affecting the soft drink
segment and other provisions aggregating $2.2 million offset by a $7.3 million
reversal of unpaid incentive plan accruals provided in prior years. Affecting
general and administrative expenses in Fiscal 1992 was the reversal of unpaid
incentive plan accruals aggregating approximately $10.0 million provided in
prior years.
In Fiscal 1993, results of operations were significantly impacted by
facilities relocation and corporate restructuring charges aggregating $43.0
million consisting of: (i) estimated costs of $14.9 million to relocate Triarc
Companies' corporate headquarters and to terminate the lease on its existing
corporate facilities; (ii) estimated restructuring charges of $20.3 million
including costs associated with hiring and relocating certain new senior
management including chief executive officers of the soft drink, fast food and
LP gas segments and other personnel recruiting and relocation costs, severance
costs and consultant fees; (iii) total costs of $6.0 million relating to a
five-year consulting agreement extending through April 1998 between Triarc and
Steven Posner, the former Vice Chairman of Triarc, and (iv) costs of $1.8
million in connection with a strategic restructuring within the textiles
segment. The charges referred to in items (i) through (iii) above related to the
Change in Control of Triarc on April 23, 1993 that resulted from the
Reorganization. In connection with the Reorganization, Victor Posner and Steven
Posner resigned as officers and directors of Triarc. In order to induce Steven
Posner to resign, Triarc entered into the Consulting Agreement with him. The
cost related to the Consulting Agreement was recorded as a charge in Fiscal 1993
because the Consulting Agreement does not require any substantial services and
Triarc does not expect to receive any services that will have substantial value
to
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it. As a part of the Reorganization, the Board of Directors of Triarc was
reconstituted. The first meeting of the reconstituted Board of Directors was
held on April 24, 1993. At that meeting, based on a report and recommendations
from a management consulting firm that had conducted an extensive review of
Triarc Companies' operations and management structure, the Board of Directors
approved the Restructuring which entailed, among other things, the following
features: (i) the strategic decision to manage Triarc Companies in the future on
a decentralized, rather than on a centralized basis; (ii) the hiring of new
executive officers for Triarc and the hiring of new chief executive officers and
new senior management teams for each of Arby's, RC Cola and National Propane to
carry out the decentralization strategy; (iii) the termination of a significant
number of employees as a result of both the new management philosophy and the
hiring of an almost entirely new management team; and (iv) the relocation of the
corporate headquarters of Triarc and of all of its subsidiaries whose
headquarters were located in South Florida, including Arby's, RC Cola, National
Propane, and SEPSCO. Accordingly, Triarc Companies' cost to relocate its
corporate headquarters and terminate the lease on its existing corporate
facilities ($14.9 million), and estimated corporate restructuring charges of
$20.3 million including costs associated with hiring and relocating new senior
management and other personnel recruiting and relocation costs, employee
severance costs and consulting fees, all stemmed from the decentralization and
restructuring plan formally adopted at the April 24, 1993 meeting of Triarc's
reconstituted Board of Directors. See Note 19 of Notes to Consolidated Financial
Statements of Triarc Companies, Inc. and Subsidiaries. The components of the
$4.3 million restructuring and facilities relocation charge in Fiscal 1992 are
described below.
Provision for doubtful accounts from affiliates was $10.4 million in Fiscal
1993 compared to $25.7 million in Fiscal 1992. The provision in Fiscal 1993
includes year-end charges of $5.1 million relating to the final write-off of
certain secured notes and accrued interest receivable from Pennsylvania
Engineering Corporation ('PEC') and APL, former affiliates that currently are in
bankruptcy proceedings, for which Triarc has significant doubts as to the net
realizability of the underlying collateral, offset by a recovery from IRM of
certain amounts offset in connection with the minority share acquisitions in the
Reorganization. The remainder of such provision in Fiscal 1993 relates
principally to unsecured receivables from APL, including accrued interest,
principally in connection with a former management services agreement with
Triarc. Triarc was obligated to provide certain limited management services to
several former non-subsidiary affiliates through October 1993 and discontinued
such services thereafter. There can be no assurance that Triarc will be able to
collect fees from such non-subsidiary affiliates for such management services
rendered. Any such uncollectible amounts are not expected to be material. The
components of such provision in Fiscal 1992 are described below.
Operating profit declined $24.1 million to $34.5 million in Fiscal 1993
from $58.6 million in Fiscal 1992 due primarily to the facilities relocation,
corporate restructuring and other significant charges aggregating $51.7 million
in April 1993 described above. Such charges have reduced the operating profits
reported by each of Triarc Companies' segments to the extent of charges relating
directly to their operations and also to the extent of corporate costs which are
allocable to such segments under the management services agreements between
Triarc and its subsidiaries. Textiles operating profit increased to $47.2
million (inclusive of $5.4 million of restructuring and other charges) in Fiscal
1993, from $27.8 million (inclusive of a divisional restructuring charge of $2.5
million partially offset by a $2.0 million incentive accrual reversal) in Fiscal
1992 due to increased sales volume and improved margins. Fast food operating
profit was $7.9 million (inclusive of $9.7 million of restructuring and other
charges) in Fiscal 1993 compared to $14.3 million (inclusive of $1.1 million of
restructuring costs relating to the closing of two regional fast food franchise
offices partially offset by a $0.5 million incentive accrual reversal) in Fiscal
1992. Soft drink operating profit was $23.5 million (inclusive of $11.1 million
of restructuring and other charges) in Fiscal 1993 compared to $36.1 million
(inclusive of a $3.0 million incentive accrual reversal partially offset by a
$0.7 million charge for the relocation of the soft drink corporate office) in
Fiscal 1992. LP gas operating profit was $3.0 million (inclusive of
restructuring and other charges of $8.0 million) in Fiscal 1993 compared to
$12.7 million (inclusive of a $3.0 million incentive accrual reversal) in Fiscal
1992. Operating loss of other operations was $15.9 million (inclusive of $9.0
million of provision for write-off of notes receivable from former affiliates
and other charges) in Fiscal 1993 compared to an operating loss of $5.7 million
(inclusive of a $5.6 million provision for
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<PAGE>
doubtful accounts from affiliates) in Fiscal 1992. Other operations were
negatively impacted in Fiscal 1993 by the absence of operating profits for a
portion of Fiscal 1993 of certain non-core businesses sold earlier in the year.
General corporate expenses were $31.1 million (inclusive of $8.5 million of
restructuring and other charges and a $3.3 million provision for doubtful
accounts from former affiliates) in Fiscal 1993 compared to $26.5 million
(inclusive of an $11.2 million provision for doubtful accounts from former
affiliates partially offset by a $1.5 million incentive accrual reversal) in
Fiscal 1992.
Interest expense increased $1.0 million due to a charge in Fiscal 1993 of
$8.5 million for interest accruals on income tax matters, partially offset by
interest savings resulting from lower average levels of debt and lower interest
rates.
Other income (expense), net, decreased $7.4 million to an expense of $0.9
million in Fiscal 1993 compared to income of $6.5 million in Fiscal 1992. The
major components of Other income (expense), net, in Fiscal 1993 include $3.2
million in costs for a proposed alternative financing which was never
consummated and expenses aggregating $9.3 million relating to certain
shareholder and other litigation (of which $5.9 million was recorded in the
fourth quarter) offset by a credit of approximately $8.9 million in connection
with the settlement of accrued rent as part of the Change in Control and a net
gain of approximately $2.2 million with respect to the sales of certain non-core
businesses, net of write-downs of $3.8 million to estimated net realizable value
of certain assets of other non-core businesses. The major components of Other
income (expense), net in Fiscal 1992 are described below. See also Note 15 to
Consolidated Financial Statements of Triarc Companies, Inc. and Subsidiaries.
The effective income tax rates differ from the statutory rate, as described
more fully in Note 10 of Notes to Consolidated Financial Statements of Triarc
Companies, Inc. and Subsidiaries, due principally to losses of certain
subsidiaries for which no income tax benefit is available, certain expenses
which are not deductible for tax purposes and, in Fiscal 1993, an $11.8 million
provision for income tax contingencies and other matters (of which $7.9 million
was recorded in the fourth quarter).
The effect of minority interests was a $3.4 million credit in Fiscal 1993
compared to a $0.5 million expense in Fiscal 1992 due principally to the
minority interest effect relating to the facilities relocation, corporate
restructuring and other significant charges in Fiscal 1993 described above.
Income (loss) from discontinued operations reflects the results, net of tax
and minority interests, of SEPSCO's utility and municipal services,
refrigeration and natural gas and oil operations which Triarc has disposed of or
plans to dispose of. Loss from discontinued operations in Fiscal 1993 reflects a
$12.9 million write-down ($5.4 million net of income tax and minority interest
credits) relating to the impairment of certain unprofitable properties and
accruals for environmental remediation and losses on certain contracts in
progress.
The Fiscal 1993 extraordinary item resulted from the early extinguishment
of certain debt of RC/Arby's in connection with the Change in Control and was
comprised of the write-off of unamortized deferred financing costs of $3.7
million and the payment of prepayment penalties of $6.7 million, net of tax
benefit of $3.8 million.
The Fiscal 1993 cumulative effect of changes in accounting principles
resulted from a charge of $4.9 million, net of minority interests, from the
adoption of SFAS 109 and an after-tax charge, net of minority interests, of $1.5
million from the adoption of SFAS 106. SFAS 109 requires an asset and liability
approach for the accounting for income taxes. As such, deferred income taxes are
determined based on the tax effect of the differences between the financial
statement and tax bases of assets and liabilities. The deferred income tax
provision or benefit for each year represents the increase or decrease,
respectively, in the deferred income tax liability during such year. SFAS 109
allows the recognition, subject to a valuation allowance if necessary, of a
deferred tax asset for net temporary differences that will result in net
deductible amounts in future years. SFAS 106 requires Triarc to charge to
expense the expected cost of other postretirement benefits during the years the
employees render services.
Net loss of $60.0 million in Fiscal 1993 increased from a net loss of $7.5
million in Fiscal 1992 principally as a result of the Fiscal 1993 facilities
relocation, corporate restructuring and other significant charges, including an
extraordinary charge and cumulative effect of changes in accounting principles,
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<PAGE>
previously discussed aggregating approximately $67.1 million, net of income tax
and minority interest credits.
FISCAL 1992 COMPARED WITH FISCAL 1991
<TABLE>
<CAPTION>
OPERATING PROFIT
REVENUES (LOSS)
------------------------ --------------------
1991 1992 1991 1992
---------- ---------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Textiles................................................... $ 414,174 $ 456,402 $ 11,970 $ 27,753
Fast Food.................................................. 181,293 186,921 12,652 14,271
Soft Drink................................................. 138,082 143,830 30,597 36,112
Liquefied Petroleum Gas.................................... 150,348 141,032 13,628 12,676
Other...................................................... 143,265 146,518 (19,208) (5,746)
General corporate expenses................................. -- -- (26,335) (26,514)
---------- ---------- -------- --------
$1,027,162 $1,074,703 $ 23,304 $ 58,552
---------- ---------- -------- --------
---------- ---------- -------- --------
</TABLE>
Revenues in Fiscal 1992 increased $47.5 million (4.6%) to $1.07 billion
from $1.03 billion in Fiscal 1991 principally due to higher selling prices and
volume in Triarc Companies' textiles segment and improved volume in Triarc
Companies' citrus operations. The soft drink and fast food segments also
experienced moderate increases in revenues, however, the LP gas segment and
insurance operations and certain other non-core businesses (included in 'Other'
in the table above) experienced offsetting declines in revenues.
Cost of sales increased $30.5 million to $798.0 million in Fiscal 1992 from
$767.5 million in Fiscal 1991 due principally to the net increase in revenues
described above. Gross profit increased $17.0 million to $276.7 million in
Fiscal 1992 from $259.7 million in Fiscal 1991 and gross margin increased to
25.7% in Fiscal 1992 from 25.3% in Fiscal 1991, due principally to higher
selling prices in the textiles segment.
Selling, general and administrative expenses decreased $26.4 million to
$188.2 million in Fiscal 1992 from $214.6 million in Fiscal 1991 due primarily
to a $10.4 million decline in claims loss and other expenses of insurance
operations and the reversal in Fiscal 1992 of unpaid incentive accruals
aggregating approximately $10.0 million provided in prior years.
The Fiscal 1992 facilities relocation and corporate restructuring charge of
$4.3 million consisted of a $2.5 million provision relating to a strategic
restructuring within the textiles segment, a $1.1 million provision relating to
the closing of two regional fast food franchise offices and a $0.7 million
charge for the relocation of the soft drink corporate office. The Fiscal 1991
facilities relocation and corporate restructuring charge of $3.8 million related
to the relocation of the fast food corporate office.
Provision for doubtful accounts from affiliates was $25.7 million in Fiscal
1992 compared to $18.0 million in Fiscal 1991. The provision in Fiscal 1992
reflected $16.2 million and $1.8 million of reserves for amounts owed by APL and
PEC, respectively, in connection with the management services agreements
referred to above and provisions of $2.2 million and $5.5 million for certain
notes, accrued interest and insurance premiums receivable from or attributable
to APL and PEC, respectively. The provision for doubtful accounts from
affiliates in Fiscal 1991 reflected provisions of approximately $4.3 million and
$2.7 million of reserves for amounts owed by APL and PEC, respectively, in
connection with such management services agreements and provisions of $6.2
million and $2.3 million of reserves for certain notes, interest and equipment
lease receivables from APL and PEC, respectively. The provision in Fiscal 1991
also included a $1.0 million reserve related to the indemnification of certain
construction bonding arrangements on behalf of PEC and a $1.5 million reserve
for certain other unsecured amounts and insurance premiums attributable to APL.
Operating profit increased $35.3 million to $58.6 million in Fiscal 1992
from $23.3 million in Fiscal 1991, reflecting significant increases in each of
Triarc Companies' major segments, except for the LP gas and fast food segments,
which experienced moderate declines in operating profit. The largest increases
in operating profit occurred in the textiles segment as a result of the higher
selling prices and volume noted above and in the citrus operations due to the
absence in Fiscal 1992 of a significant drop in the market price of frozen
concentrate processed and held for sale in Fiscal 1991. Operating results also
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<PAGE>
improved in the insurance segment as a result of a decline in claims loss and
other expenses and in the soft drink segment due primarily to higher selling
prices. Also contributing to the overall increase in operating profit was the
reversal of incentive accruals aggregating $10 million, partially offset by the
$7.7 million increase in provision for doubtful accounts from affiliates and the
$0.5 million increase in facilities relocation and corporate restructuring
charges described above.
Interest expense increased $5.1 million principally as a result of the July
1991 restructuring of indebtedness of RC/Arby's and increased short-term
borrowings of Graniteville.
Other income (expense), net, decreased $3.3 million to $6.5 million income
in Fiscal 1992 from $9.8 million in Fiscal 1991. Other income (expense), net in
Fiscal 1992 included gains of $4.6 million on repurchases of debentures for
sinking funds and interest income of $3.5 million offset by provisions
aggregating approximately $3.4 million with respect to certain shareholder and
Arby's litigation. Other income (expense), net in Fiscal 1991 included gains of
$3.5 million on repurchases of debentures for sinking funds, interest income of
$6.8 million, credits aggregating approximately $2.9 million with respect to a
reduction in previously accrued rent amounts and the allocation to affiliates of
a portion of previously accrued settlement costs with respect to certain
litigation, and proceeds aggregating $1.0 million from the realization of an
investment in a former bottling subsidiary offset in part by a $4.9 million
provision for a settlement of litigation relating to Graniteville's employee
benefit plan. See also Note 15 to Notes to Consolidated Financial Statements of
Triarc Companies, Inc. and Subsidiaries.
The effective income tax rates differ from the statutory rate, as described
more fully in Note 10 of Notes to Consolidated Financial Statements of Triarc
Companies, Inc. and Subsidiaries, due principally to losses of certain
subsidiaries for which no income tax benefit was available and, in Fiscal 1991,
a tax benefit for an employee benefit plan settlement, a significant portion of
the cost of which had been previously accrued in the purchase accounting for
Graniteville at which time no tax benefit was recognizable.
The effect of minority interests increased to an expense of $0.5 million in
Fiscal 1992 compared to a credit of $0.6 million in Fiscal 1991 due principally
to improved results of CFC Holdings.
Income from discontinued operations increased due to improved operating
results of SEPSCO's utility and municipal services and refrigeration business
segments.
LIQUIDITY AND CAPITAL RESOURCES
Consolidated cash and equivalents declined $9.5 million during the six
months ended October 31, 1993 principally reflecting (i) net cash used by
operations of $31.0 million during the six months ended October 31, 1993
including a net loss of $27.2 million and the changes in operating assets and
liabilities of $36.8 million (including a $22.3 million decrease in accounts
payable and other current liabilities and a $16.4 million increase in
inventories), (ii) capital expenditures of $17.3 million and (iii) other of $3.7
million partially offset by borrowings of long-term debt net of repayments of
$42.5 million. Due to the non-recurring nature of the changes in operating
assets and liabilities, Triarc does not believe such negative cash flows from
operations will continue. The decrease in accounts payable and other current
liabilities, which is net of a $7.8 million increase due to the increased
reserve for advertising and promotional allowances discussed above, reflects
payments of operating payables which were delayed due to the lack of liquidity
Triarc Companies experienced prior to the Change in Control. Such decrease also
includes a non-recurring payment of a litigation settlement of $8.1 million. The
increase in inventories principally reflects an increase of $11.6 million of
textiles inventories and a regular seasonal buildup of $4.0 million in the LP
gas segment. The increase in textiles inventories is principally due to sales of
certain product lines below projections during Transition 1993. Triarc Companies
is in the process of reducing such inventory to more normal levels.
In August 1993, RC/Arby's, a wholly-owned subsidiary of CFC Holdings, a
94.6% owned subsidiary of Triarc and 98.4% owned by Triarc Companies, issued
$275.0 million aggregate principal amount of 9 3/4% Senior Notes and utilized
$223.5 million of the net proceeds therefrom to redeem all of the Step-Up Notes
at a redemption price of approximately 99.3% of the principal amount. The
RC/Arby's Refinancing resulted in a net increase in cash of approximately $51.5
million, before the expenses of the RC/Arby's Refinancing. The 9 3/4% Senior
Notes mature on August 1, 2000 and do not provide for any
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<PAGE>
amortization of the principal amount thereof prior to such date. Interest at the
rate of 9 3/4% per annum is payable semi-annually on February 1 and August 1 of
each year. The 9 3/4% Senior Notes are secured by (i) all of the capital stock
of RC/Arby's and its subsidiaries, RC Cola and Arby's, and (ii) substantially
all of the receivables, inventories and other personal properties of RC Cola and
Arby's. RC/Arby's' obligations with respect to the 9 3/4% Senior Notes are
guaranteed by RC Cola and Arby's.
On September 24, 1993 RC/Arby's entered into a three-year interest rate
swap agreement in a notional amount of $137.5 million. Under the agreement,
interest on the notional amount is paid by RC/Arby's at a floating rate which is
based on the 180-day London Interbank Offered Rate (the 'LIBOR Rate') (set at
3.375% through February 1, 1994) and RC/Arby's receives interest at a fixed rate
of 4.72%. Subsequent to February 1, 1994 the floating rate is retroactively
reset at the end of each six-month calculation period through July 31, 1996 and
on September 24, 1996. The transaction effectively changes RC/Arby's' interest
rate on $137.5 million of its debt from a fixed-rate to a floating-rate basis.
As of October 31, 1993 RC/Arby's had outstanding $6.5 million principal
amount of the 16 7/8% Subordinated Debentures which are scheduled to be repaid
in July 1994.
Graniteville is a 51% owned subsidiary of Triarc and 85.8% owned by Triarc
Companies. The $180.0 million Graniteville Credit Facility provides for senior
secured revolving credit loans of up to $100.0 million (the 'Revolving Loan')
and an $80.0 million senior secured term loan (the 'Term Loan'). The Revolving
Loan has a term of five years. Borrowings under the Revolving Loan bear
interest, at current borrowing levels, at either the prime rate plus 1.25% per
annum or the LIBOR Rate plus 3.00% per annum, at Graniteville's option. As of
October 31, 1993 the Revolving Loan bore interest at a rate of 7.25%. The Term
Loan amortizes $2.5 million per quarter through April 1, 1994 and $3.0 million
per quarter thereafter, with a final payment of $22.0 million in April 1998,
subject to mandatory prepayments of 50% of Excess Cash Flow, as defined. The
Term Loan bears interest, based on current borrowing levels, at the prime rate
plus 1.75% per annum or the 90-day LIBOR Rate plus 3.5% per annum. As of October
31, 1993 the Term Loan bore interest at a weighted average rate of 6.82%. LIBOR
Rate based borrowings are limited to approximately one-half of the aggregate
outstanding borrowings under Revolving Loans and Term Loans. The borrowing base
for the Revolving Loan is the sum of 85% to 90% of eligible accounts receivable,
as defined, plus 65% of eligible inventory, as defined, provided that advances
against eligible inventory shall not exceed $35.0 million at any time, and for
the Term Loan is the sum of 75% of the fair market value of real estate and 80%
of the orderly liquidation value of machinery and equipment. The Graniteville
Credit Facility is secured by all of the assets of Graniteville and all
obligations under the Graniteville Credit Facility are unconditionally
guaranteed by Triarc. As collateral for such guarantee, Triarc pledged (i) 51%
of the issued and outstanding stock of Graniteville (subject to an existing
pledge on such stock held by SEPSCO securing its note receivable from Triarc),
and (ii) the issued and outstanding common stock of SEPSCO owned by Triarc.
Consolidated capital expenditures, inclusive of capitalized leases but
excluding the discontinued operations of SEPSCO, amounted to $27.2 million and
$21.1 million for Fiscal 1993 and the six-month period ended October 31, 1993,
respectively. Triarc Companies expects that capital expenditures during the
remainder of Transition 1993 and during calendar 1994 will approximate $22.5
million and $66.7 million, respectively. The relatively higher expenditures
during the remainder of Transition 1993 are as a result of higher expenditures
in the textiles segment due principally to the construction of a new dyeing
plant during Transition 1993 and in the fast food segment principally in
connection with capital spending related to the relocation of its corporate
headquarters. The increased anticipated 1994 expenditures reflect increased
levels of expenditures principally in the fast food segment in accordance with
the implementation of its plan to open approximately 25 company-owned stores
during 1994 at a cost of approximately $0.9 million per store, remodel existing
stores and replace equipment in such stores. Further, the pursuit of potential
acquisitions as part of Triarc Companies' growth strategy may also contribute to
its cash requirements.
In the fourth quarter of Fiscal 1993 Triarc Companies recorded a charge of
$43.0 million for facilities relocation and corporate restructuring costs in
connection with the Change in Control. As of October 31, 1993 the remaining
accrual for such costs was $36.0 million. Triarc expects cash
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requirements for such accruals of $4.2 million and $26.4 million for the
remainder of Transition 1993 and calendar 1994, respectively. Such payments are
included as a component of cash flows from operations previously discussed.
Federal income tax returns of Triarc and its subsidiaries have been
examined by the Internal Revenue Service ('IRS') for the tax years 1985 through
1988. Triarc Companies has resolved all but two issues related to such audit and
in connection therewith expects to pay approximately $8.0 million in the first
quarter of 1994, which amount has been fully reserved. Triarc Companies intends
to contest the two open issues at the Appellate Division of the IRS. The IRS has
recently commenced the examination of Triarc Companies' Federal income tax
returns for the tax years from 1989 through 1992. The amount and timing of any
payments required as a result of the open issues from the 1985 through 1988
audit as well as the 1989 through 1992 audit cannot presently be determined.
However, Triarc believes that adequate aggregate provisions have been made in
the current and prior years for any tax liabilities, including interest, that
may result from all such examinations.
Triarc Companies anticipates meeting its consolidated cash requirements
through Fiscal 1994 for debt repayments (see above and subsequent discussion),
capital expenditures, acquisitions, dividend payments aggregating approximately
$5.8 million annually on Triarc's redeemable preferred stock and any payments
required as a result of the examination of Triarc Companies' Federal income tax
returns through existing cash balances, proceeds received from the sale of the
utility and municipal services business segment after the repayment of related
capital lease obligations and taxes and expenses (see subsequent discussion),
future proceeds from the sale of remaining noncore businesses (see subsequent
discussion) and cash flows from operations (see prior discussion). The ability
of Triarc Companies to meet its long-term cash requirements is dependent upon
its ability to obtain and sustain sufficient cash flows from operations
supplemented as necessary by potential financings to the extent obtainable.
The ability of each of Triarc, RC/Arby's, Graniteville, National Propane
and SEPSCO to meet its respective short-term cash requirements is discussed
below.
TRIARC
Triarc is a holding company whose ability to meet its cash requirements is
primarily dependent upon cash flows from its subsidiaries including repayments
by subsidiaries of outstanding loans from Triarc, loans to Triarc by
subsidiaries, and reimbursement by subsidiaries to Triarc in connection with the
providing of certain management services and payments under certain tax sharing
agreements with certain subsidiaries.
Triarc's principal subsidiaries are subject to certain limitations on their
ability to pay dividends and/or make loans or advances to Triarc. The ability of
any of Triarc's subsidiaries to pay cash dividends and/or make loans or advances
to Triarc is also dependent upon the respective abilities of such entities to
achieve sufficient cash flows after satisfying their respective cash
requirements, including debt service, to enable the payment of such dividends or
the making of such loans or advances. Under the terms of the indenture relating
to the 9 3/4% Senior Notes, RC/Arby's is only permitted to pay cash dividends on
its common stock or make loans or advances to its parent, CFC Holdings, or to
Triarc, to the extent the aggregate amount of such payments declared or made
after August 12, 1993 shall not exceed (a) the sum of (i) 50% of the cumulative
net income of RC/Arby's after July 1, 1993, (ii) the aggregate net cash proceeds
received by RC/Arby's after the closing of the RC/Arby's Refinancing from the
issuance or sale of its capital stock or from equity contributions, and (iii)
$1.0 million (b) less 100% of the cumulative net loss of RC/Arby's after July 1,
1993. In accordance with such limitation, as of October 31, 1993 RC/Arby's could
not pay any dividends, or make any loans or advances to CFC Holdings. CFC
Holdings is not presently subject to any agreement which limits its ability to
pay cash dividends or make loans or advances, although by reason of the
restrictions to which RC/Arby's is subject, the ability of CFC Holdings in the
near term to obtain funds from its subsidiaries to do so is extremely limited.
Under its present credit agreement, Graniteville is permitted to pay
dividends or make loans or advances to its stockholders, including Triarc, in an
amount equal to 50% of the net income of Graniteville accumulated from the
beginning of the first fiscal year commencing on or after December 20, 1994,
provided that the outstanding principal balance of Graniteville's term loan is
less than $50
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million at the time of the payments (the outstanding principal balance was $77.5
million as of August 31, 1993), and certain other conditions are met.
Accordingly, Graniteville is unable to pay any dividends or make any loans or
advances to Triarc prior to December 31, 1995.
Under the indenture relating to National Propane's 13 1/8% Senior
Subordinated Debentures due March 31, 1999 (the '13 1/8% Debentures') National
Propane was permitted as of October 31, 1993 to pay cash dividends of up to
approximately $14.3 million. It is unlikely National Propane's cash flows (see
subsequent discussion) will permit any cash dividends in the immediate future
and, as a result, Triarc currently anticipates that any dividends declared by
National Propane to Triarc as the holder of all of its outstanding common stock
would be used to offset indebtedness and interest accrued thereon owed by Triarc
to National Propane. Under the indenture relating to the 11 7/8% Debentures,
SEPSCO was permitted as of October 31, 1993, to pay cash dividends of up to
approximately $4.1 million to Triarc. National Propane and SEPSCO are not
parties to any agreements restricting or limiting the amount of loans or
advances which they may make to Triarc.
As of October 31, 1993, Triarc had no outstanding external indebtedness but
it owed subsidiaries an aggregate principal amount of $244.1 million, consisting
of notes in the principal amounts of $78.4 million and $69.0 million owed to CFC
Holdings and Graniteville, respectively (which bear interest at 9.5% per annum)
and balances of $70.2 million of advances owed to National Propane (which bear
interest at 16.5% per annum) and $26.5 million remaining on a note payable to
SEPSCO (which bears interest at 13% per annum and is secured by the common
shares of Graniteville owned by Triarc).
In August 1993 NVF, a corporation which was affiliated with Triarc until
the April 1993 Change in Control, became a debtor in a case filed by its
creditors under Chapter 11 of the Federal Bankruptcy Code (the 'NVF
Proceedings'). In November 1993, Triarc received correspondence from NVF's
bankruptcy counsel claiming that, on the theories set forth in such
correspondence, Triarc and certain of its subsidiaries owed NVF approximately
$2.3 million. Triarc intends to vigorously contest such claims. Nevertheless,
Triarc previously accrued approximately $0.9 million with respect to claims that
might be made by NVF and, during the three months ended October 31, 1993,
accrued an additional $1.4 million with respect to such matters. Triarc believes
that the outcome of the NVF Proceedings, after considering the amounts provided
in the current and prior periods, will not have a material adverse effect on
Triarc Companies' consolidated financial condition or results of operations.
Triarc will not have significant cash requirements for the remainder of
Transition 1993. Triarc expects its significant cash requirements for calendar
1994 will include minimum required cash interest payments totaling approximately
$4.7 million on its notes payable to SEPSCO and Graniteville, dividend payments
aggregating approximately $5.8 million on its redeemable preferred stock and
general corporate expenses including cash requirements for its facilities
relocation and corporate restructuring accruals of $3.7 million. Triarc believes
that its expected sources of cash, including existing cash balances,
reimbursement of general corporate expenses from subsidiaries in connection with
management services agreements, net payments received under tax sharing
agreements with certain subsidiaries and proceeds, if any, from the sale of
certain subsidiary operations held for sale will be sufficient to enable it to
meet its short-term cash needs.
RC/ARBY'S AND GRANITEVILLE
It is expected that funds generated from operations of RC/Arby's and
Graniteville, plus existing cash balances remaining from the refinancing
completed in April 1993 and issuance of the 9 3/4% Senior Notes in the case of
RC/Arby's, and borrowings under the Graniteville Credit Facility in the case of
Graniteville, will be sufficient to enable those subsidiaries to meet their
respective short-term cash requirements.
NATIONAL PROPANE
The $56.0 million outstanding principal amount of the 13 1/8% Debentures at
October 31, 1993 require semiannual interest payments by National Propane on
March 1 and September 1 of each year (including an interest payment of
approximately $3.7 million made on September 1, 1993) and also
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require annual sinking fund payments of $7.0 million on March 1 of each year. A
final payment of principal on the 13 1/8% Debentures of $21.0 million is due
March 1, 1999.
Triarc anticipates National Propane's cash requirements, exclusive of
operating activities, for the remainder of Transition 1993 and calendar year
1994 will approximate $1.4 million and $9.6 million, respectively. The remaining
Transition 1993 amount consists of capital expenditures and the calendar year
1994 amount consists of a debt principal payment of $7.0 million and capital
expenditures of $2.6 million. National Propane had negative cash flows from
operations during the six months ended October 31, 1993 of $2.6 million, during
which period National Propane profits are historically lower due to seasonality.
However, National Propane believes its cash flows from operations for the
remainder of Transition 1993, which is anticipated to be positive due to
seasonality, and calendar year 1994, together with existing cash ($6.5 million
at October 31, 1993), should be adequate to meet its cash requirements noted
above. Should such cash flows not be adequate, Triarc may be required to
supplement them with increased cash payments of accrued interest and/or
principal on National Propane's advances to Triarc ($70.2 million as of October
31, 1993) to the extent Triarc has cash available for payment or through
restructuring of debt and/or operations by National Propane.
SEPSCO
SEPSCO is required to pay interest on the 11 7/8% Debentures semi-annually
on February 1 and August 1 of each year including an interest payment due
February 1, 1994 of $3.7 million. SEPSCO is also required to retire annually
through the operation of a mandatory sinking fund $9.0 million principal amount
of the 11 7/8% Debentures. The indenture pursuant to which the 11 7/8%
Debentures were issued (the 'Indenture') provides that in lieu of making such
payment in cash, SEPSCO may credit against the mandatory sinking fund
requirement the principal amount of the 11 7/8% Debentures acquired by SEPSCO,
other than through the sinking fund. SEPSCO presently expects that based on the
current market price for such 11 7/8% Debentures it would satisfy such mandatory
sinking fund requirement due February 1, 1994 through cash received from the
sale of the tree maintenance services operations rather than through the
delivery of 11 7/8% Debentures.
The Indenture contains a provision which limits to $100.0 million the
aggregate amount of specified kinds of indebtedness that SEPSCO and its
consolidated subsidiaries can incur. Effective as of October 31, 1993, such
indebtedness was $63.0 million, resulting in additional allowable indebtedness
of $37.0 million.
SEPSCO anticipates its cash requirements for the remainder of Transition
1993, exclusive of operating activities and the sale of the utility and
municipal services business segment, will approximate $0.2 million of capital
expenditures to provide for business expansion in the natural gas and oil and LP
gas segments. Such cash requirements for calendar 1994 will include $3.9 million
of such capital expenditures as well as $9.0 million of sinking fund payments on
the 11 7/8% Debentures. During the six months ended October 31, 1993 SEPSCO had
net cash outflows with respect to operating activities of $0.5 million
principally reflecting a net loss of $0.6 million. If the net cash flows from
operations during the remainder of 1993 and calendar 1994 is similar to that for
the first six months of Transition 1993, cash flows from operations will not be
adequate to meet its capital expenditure and debt repayment requirements.
However, SEPSCO should be able to meet such requirements during the remainder of
Transition 1993 as well as during calendar year 1994 with the excess cash
proceeds from the sale of the tree maintenance services operations referred to
below (see ' -- Discontinued Operations') of $42.8 million.
DISCONTINUED OPERATIONS
On July 22, 1993, SEPSCO's Board of Directors authorized the sale or
liquidation of SEPSCO's operating businesses consisting of the utility and
municipal services, refrigeration, and natural gas and oil businesses. The
natural gas and oil business will be transferred to Triarc in the form of a sale
of the stock of the entities comprising the natural gas and oil business for
cash of $8.5 million which is equal to their fair value and approximately $4.5
million higher than their net book value. It is intended for this sale to occur
following the Merger and the resulting elimination of the minority interest in
SEPSCO
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(See further discussion under 'Contingencies' below). However, should the merger
not be approved by the SEPSCO Stockholders the sale of the stock of the natural
gas and oil entities for cash to Triarc will be completed prior to July 22,
1994.
On October 15, 1993 SEPSCO sold the assets of its tree maintenance services
operations previously included in its utility and municipal services business
segment for $69.6 million in cash plus the assumption by the purchaser of up to
$5.0 million in current liabilities resulting in a loss of $4.8 million. On
October 7, 1993 SEPSCO sold the stock of its two construction related operations
previously included in its utility and municipal services business segment for a
nominal amount subject to adjustments described below. As the related assets are
sold or liquidated the purchasers have agreed to pay, as deferred purchase
price, 75% of the net proceeds received therefrom (cash of $1.8 million had been
received as of December 31, 1993) plus, in the case of one of the entities, an
amount equal to 1.25 times the adjusted book value of such entity as of October
5, 1995. As of October 8, 1993, the adjusted book value of the assets of that
entity aggregated approximately $1.6 million. In addition, SEPSCO paid an
aggregate $2.0 million in October and November 1993 to cover the buyer's
short-term operating losses and working capital requirements for the
construction related operations. Triarc's current estimate of the gain on such
sales is $2.0 million excluding any consideration of the potential Book Value
Adjustment, given its uncertainty.
On November 12, 1993 SEPSCO signed a letter of intent to sell substantially
all of the operating assets of the ice operations of its refrigeration business
segment for $5.0 million in cash, a $4.0 million note (discounted value $3.1
million) and the assumption by the buyer of certain current liabilities which as
of November 30, 1993 approximate $1.0 million. The note, which bears no interest
during the first year and 5% thereafter, would be payable in installments of
$120,000 at the end of each of the four years following the closing date with
the balance of approximately $3.5 million due at the end of the fifth year
following the closing date. The precise timetable for the sale and liquidation
of the remaining discontinued operation, the cold storage operations of the
refrigeration business segment, will depend upon SEPSCO's ability to identify
appropriate potential purchasers and to negotiate acceptable terms for the sale
of such operation. SEPSCO currently anticipates completion of such sales by July
31, 1994.
On July 22, 1993 SEPSCO's Board of Directors also authorized the sale or
liquidation of the liquefied petroleum gas business. SEPSCO previously reported
the liquefied petroleum gas business as a discontinued operation since it is to
be transferred to a subsidiary of Triarc and the transfer would be accounted for
at net book value. The precise method of such transfer has not been determined
and the transfer will not occur until after the SEPSCO merger. Based on these
facts, SEPSCO has reevaluated the accounting for the liquefied petroleum gas
business and retroactively accounted for the liquified petroleum gas business as
a continuing operation.
SEPSCO used a portion of the proceeds from the sale of the tree maintenance
services operations to pay fees and expenses and repay the portion of the
capitalized lease obligations relating to the tree maintenance services
operations ($24.1 million at the date of repayment) and amounts due to Triarc.
The excess of $42.8 million is available for SEPSCO's general corporate
purposes, including future annual sinking fund payments and semiannual interest
payments on the 11 7/8% Debentures.
CONTINGENCIES
In December 1990, the Ehrman Litigation was brought against SEPSCO's
directors at that time and certain corporations, including Triarc, in the
District Court. On October 18, 1993, Triarc entered into the Settlement
Agreement with the Plaintiff which was approved by the District Court on January
11, 1994. The Settlement Agreement provides, among other things, that SEPSCO
would be merged into, or otherwise acquired by, Triarc or an affiliate thereof,
in a transaction in which each holder of shares of SEPSCO Common Stock other
than Triarc will receive in exchange for each share of SEPSCO Common Stock, 0.8
shares of Triarc Class A Common Stock. The Settlement Agreement also provides
that Plaintiff's counsel and financial advisor will be paid, subject to court
approval, cash not to exceed $1.3 million. On November 22, 1993 Triarc and
SEPSCO entered into the Merger Agreement. Following the Merger, Triarc Companies
would own 100% of the SEPSCO Common Stock. Consummation of the Settlement
Agreement and the Merger are conditioned on, among other things, approval by the
SEPSCO Stockholders.
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In September 1989, the Pennsylvania Insurance Commissioner as rehabilitator
of Mutual Fire commenced an action in the Commonwealth Court of Pennsylvania
against Chesapeake Insurance, a wholly-owned subsidiary of CFC Holdings. Such
action, among other things, seeks recovery of $4.0 million allegedly owed by
Chesapeake Insurance in connection with certain reinsurance arrangements,
specific performance by Chesapeake Insurance of its alleged obligations under
certain reinsurance arrangements by requiring Chesapeake Insurance to provide a
letter of credit in an amount in excess of $12.0 million to secure certain
alleged outstanding losses, a restitution and accounting by Chesapeake
Insurance, and compensatory and punitive damages in an amount in excess of $40.0
million arising out of alleged bad faith in connection with such reinsurance
arrangements. In November 1993 Chesapeake Insurance entered into a letter of
intent with Mutual Fire for full settlement of all claims for $12.0 million.
Such settlement is subject to execution of a definitive settlement agreement
which agreement is subject to approval of the Commonwealth Court of
Pennsylvania. Triarc Companies has fully provided for such settlement in prior
years.
Chesapeake Insurance is registered under the Bermuda Insurance Act of 1978
and related regulations which require compliance with various provisions
regarding the maintenance of statutory capital and liquidity. Chesapeake
Insurance was not in compliance with the required solvency ratio as of September
30, 1993. In December 1993 Triarc Companies decided to cease writing insurance
and reinsurance of any kind through Chesapeake Insurance. As a result of this
decision, the non-compliance with the solvency test will have no effect on
Triarc Companies. Since Chesapeake Insurance will not have any future operating
cash flows for the payment of claims on insurance previously written, its
existing liabilities will be liquidated with cash and equivalents, including
restricted cash, collections of premiums receivable, investments, funds held by
insurance carriers and collection of notes receivable from CFC Holdings and
RC/Arby's as they become due.
As of October 31, 1993, Chesapeake Insurance had total assets of $100.8
million and total liabilities of $100.3 million, including $86.3 million of
non-current insurance loss reserves ($6.9 million of which relates to Mutual
Fire). Assets include $31.8 million of notes receivable from CFC ($28.0 million)
and RC/Arby's ($3.8 million) plus $5.6 million of accrued interest thereon. The
note receivable from CFC Holdings is due $10.0 million in each of the years
ended December 31, 1995 and 1996 with the $8.0 million balance due in the year
ended December 31, 1997. The note receivable from RC/Arby's is due $0.5 million
during the remainder of Transition 1993 and $3.3 million in the year ended
December 31, 1994. Accordingly, as the non-current insurance loss reserves
mature, Chesapeake Insurance will need to collect on these notes receivable in
order to meet these obligations. Chesapeake Insurance expects to be able to meet
its cash requirements through collections of the notes from CFC Holdings and
RC/Arby's.
In 1987, Graniteville was notified by the DHEC that it discovered certain
contamination of Langley Pond near Graniteville, South Carolina and DHEC
asserted that Graniteville may be one of the parties responsible for such
contamination. Graniteville entered into a consent decree providing for the
study and investigation of the alleged pollution and its sources. The study
report prepared by Graniteville's environmental consulting firm and filed with
DHEC in April 1990, recommended that pond sediments be left undisturbed and in
place. DHEC responded by requesting that Graniteville submit additional
information concerning potential passive and active remedial alternatives, with
accompanying supportive information. In May 1991 Graniteville provided this
information to DHEC in a report of Graniteville's environmental consulting firm.
The 1990 and 1991 reports concluded that pond sediments should be left
undisturbed and in place and that other less passive remediation alternatives
either provided no significant additional benefits or themselves involved
adverse effects on human health, to existing recreational uses or to the
existing biological communities. Triarc is unable to predict at this time what
further actions, if any, may be required in connection with Langley Pond or what
the cost thereof may be. However, given the passage of time since the submission
of the two reports by Graniteville's environmental consulting firm without any
objection or adverse comment on such reports by DHEC and the absence of
desirable remediation alternatives, other than continuing to leave the Langley
Pond sediments in place and undisturbed as described in the reports, Triarc
believes the ultimate outcome of this matter will not have a material adverse
effect on Triarc Companies' consolidated results of operations or financial
position.
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As a result of certain environmental audits in 1991, SEPSCO became aware of
possible contamination by hydrocarbons and metals at certain sites of SEPSCO's
refrigeration operations and has filed appropriate notifications with state
environmental authorities and has begun a study of remediation at such sites.
SEPSCO has removed certain underground storage and other tanks at certain
facilities of its refrigeration operations and has engaged in certain
remediation in connection therewith. Such removal and environmental remediation
involved a variety of remediation actions at various facilities of SEPSCO
located in a number of jurisdictions. Such remediation varied from site to site,
ranging from testing of soil and groundwater for contamination, development of
remediation plans and removal in certain instances of certain contaminated
soils. Based on preliminary information and consultations with, and certain
reports of, environmental consultants and others, SEPSCO presently estimates the
cost of such remediation and/or removal will approximate $3.7 million, all of
which was provided in prior years. In connection therewith, SEPSCO has incurred
actual costs through October 31, 1993 of $1.0 million and has a remaining
accrual of $2.7 million. Triarc believes that after such accrual the ultimate
outcome of this matter will not have a material adverse effect on Triarc
Companies' consolidated results of operations or financial position.
INFLATION AND CHANGING PRICES
Management believes that inflation did not have a significant effect on
gross margins during the three years ended April 30, 1993 and the six-month
period ended October 31, 1993, since inflation rates generally remained at
relatively low levels. Historically, Triarc Companies has been successful in
dealing with the impact of inflation to varying degrees within the limitations
of the competitive environment of each segment of its business.
PENDING ACCOUNTING PRONOUNCEMENTS
In November 1992, the FASB issued SFAS No. 112, 'Employers' Accounting for
Postemployment Benefits' which requires the accrual of certain postemployment
benefits under certain circumstances. Triarc Companies' accounting is currently
in accordance with SFAS No. 112 either because Triarc Companies does not provide
certain of the benefits contemplated, provides for certain of such services but
at no cost to Triarc Companies or does not meet the requirements for accrual and
such amounts are immaterial.
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SEPSCO MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
NINE MONTHS ENDED NOVEMBER 30, 1993 COMPARED WITH NINE MONTHS ENDED NOVEMBER 30,
1992
Net sales increased from $18.9 million in 1992 to $19.8 million in 1993 due
to higher volume of liquefied petroleum gas sales due to colder weather in the
regions serviced by such business in 1993, offset in part by slightly lower
average selling prices reflecting lower product costs.
Operating profit decreased from $1.7 million in 1992 to $0.4 million in
1993 principally due to a $1.5 million increase in selling, general and
administrative expenses. Such increase was principally due to $0.8 million of
the aggregate $4.7 million of 1993 corporate restructuring charges allocated to
the liquefied petroleum gas business and included in selling, general and
administrative expenses. The aggregate $4.7 million of corporate restructuring
charges consisted of $4.2 million of charges allocated to SEPSCO by Triarc
including: (i) estimated allocated costs of $2.8 million to terminate the lease
on Triarc's existing corporate facilities; (ii) total allocated costs of $1.4
million relating to the five year Consulting Agreement extending through April
1998 between Triarc and Steven Posner, the former Vice Chairman of Triarc and
$0.5 million of estimated costs to be incurred by SEPSCO to relocate SEPSCO's
corporate office. All of such charges are related to the change in control of
Triarc, SEPSCO's parent, which occurred on April 23, 1993 (the 'Change in
Control'). The $0.9 million increase in net sales was substantially offset by
the $0.6 million increase in cost of sales.
Interest expense decreased from $9.8 million in 1992 to $7.5 million in
1993 due primarily to the lower debt outstanding and, to a much lesser extent,
lower interest rates during 1993.
Equity in earnings of affiliates before cumulative effect of changes in
accounting principles decreased from $9.6 million in 1992 to $4.3 million in
1993 due to decreased earnings of Graniteville and, to a lesser extent, CFC
Holdings. Such lower earnings are principally attributable to (i) higher
corporate charges from Triarc to Graniteville during the first nine months of
the ten months ended December 31, 1993 ('SEPSCO Transition 1993'), (ii)
provisions for insurance losses by CFC Holdings' subsidiary Chesapeake Insurance
(see below), (iii) certain significant charges recorded in the first quarter of
SEPSCO Transition 1993 relating to costs allocated from Triarc to such
affiliates primarily for facilities relocation and corporate restructuring and
to compensation paid to a special committee of Triarc's Board of Directors and
(iv) the write-off of Graniteville's $2.5 million investment in Chesapeake
Insurance (see below).
SEPSCO also wrote off its $1.5 million investment in Chesapeake Insurance
since such investment is no longer deemed recoverable as a result of Chesapeake
Insurance reducing its stockholders' equity to $0.3 million following additional
provisions for insurance losses of $10.0 million during its quarter ended
September 30, 1993 and the decision by Triarc in December 1993 to cease writing
new insurance or reinsurance of any kind through Chesapeake Insurance.
The decrease in interest income from Triarc of $2.4 million resulted from
the lower outstanding balance of the Triarc note receivable as a result of the
April 1993 repayment of $28.9 million in connection with the Change in Control.
Other income, net increased from $0.1 million in 1992 to $0.6 million in
1993. The 1993 amount includes a reversal of a $1.3 million accrual, provided
for in the fourth quarter of the year ended February 28, 1993 ('SEPSCO Fiscal
1993'), for the legal counsel and financial advisor fees for the Plaintiff in
the Ehrman Litigation. Such fees will now be paid by Triarc instead of SEPSCO,
as originally anticipated, in accordance with the Settlement Agreement (see
further discussion below) entered into in October 1993. The 1993 amount also
includes a net accrual of $1.0 million for SEPSCO's expenses related to the
proposed Merger (see further discussion below).
SEPSCO recorded a benefit from income taxes of $1.8 million during the 1993
period despite a pretax loss of $0.6 million, representing an effective rate
substantially in excess of the 35% statutory rate, principally due to the
inclusion in pretax loss of equity in earnings of affiliates of $4.3 million on
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which no income taxes were provided. SEPSCO recorded a benefit of $0.2 million
despite pretax income of $7.2 million during the nine months ended November 30,
1992 principally due to the inclusion in pretax income of equity in earnings of
affiliates of $9.6 million on which income taxes were provided only on the
portion remaining after an 80% dividend exclusion.
Income (loss) from discontinued operations, net of income taxes decreased
$24.3 million to a loss of $23.4 million in 1993 from income of $0.9 million in
1992 primarily due to the following reasons:
In connection with the consummation of the sales of the tree
maintenance services operations and the construction related operations and
the signing of a letter of intent to sell the ice operations, SEPSCO
reevaluated the estimated gain or loss from the sale of its discontinued
operations and provided $13.9 million for the estimated loss on the sale of
the discontinued operations from an estimated break-even position as of
August 31, 1993. The revised estimate principally reflects (i) $4.7 million
of losses from the sales of operations comprising the utility and municipal
services business segment previously estimated to be approximately
break-even and (ii) $6.6 million of losses from the sale of operations
comprising SEPSCO's refrigeration business segment previously estimated to
be a gain of $1.6 million, (iii) $2.5 million of estimated losses from
operations from July 22, 1993 to the actual or estimated disposal dates of
the discontinued operations and (iv) less previously estimated losses of
$1.5 million from the sale of SEPSCO's natural gas and oil business segment
which now will be transferred to Triarc. Since such transfer will be among
companies in a controlled group it will be accounted for at net book value.
The net loss from the sale of the utility and municipal services business
segment reflects a reduction of $2.0 million due to a decrease in asset
sales of the construction related activities by July 31, 1994, a reduction
of $1.8 million in the estimated sales price for the construction related
operations from previous estimates and other adjustments in finalizing the
loss on the sale of the tree maintenance services operations. The $8.2
million charge relating to the sale of the refrigeration business segment
principally results from (i) a $4.0 million reduction in the sales price
for the ice operations based on the letter of intent and (ii) a $4.0
million reduction in the estimated sales price of the cold storage
operations based on preliminary sales discussions and experience with
respect to negotiating the sale of the other operations.
SEPSCO recorded an $8.0 million write-down relating to the impairment
of certain unprofitable properties in the first quarter of SEPSCO
Transition 1993.
Operating profits of certain business segments through July 22, 1993,
exclusive of the above charges, also declined. The tree maintenance
activities experienced a decline in earnings due to higher insurance costs,
losses on certain contracts and start-up costs on new crews. The flooding
conditions experienced during the second quarter of SEPSCO Transition 1993
prevented the generation of revenues by crews added in anticipation of
increased workload, whereas SEPSCO Fiscal 1993 was favorably affected by
the additional work in connection with Hurricane Andrew. The construction
related activities experienced a decline due to a lower number of contracts
in progress and losses experienced on existing contracts. Refrigeration
operations had lower margins due to lower revenues from cold storage due to
lower occupancy rates and lower margins in the ice operations due to
competitive conditions.
The corporate restructuring charges described above included $3.9
million of charges included in the 1993 loss from discontinued operations.
Effective March 1, 1993, SEPSCO changed its method of accounting for income
taxes when it adopted the provisions of SFAS 109. The cumulative effect on prior
years of the change in accounting principles decreased the net loss for the nine
months ended November 30, 1993 by $7.6 million or $.65 per share. Effective
January 1, 1993, CFC Holdings adopted SFAS 109 and SFAS 106. SEPSCO's equity in
the cumulative effect of changes in accounting principles amounts to a charge of
$0.1 million or $.01 per share. Effective March 1, 1992 Graniteville adopted
SFAS 109 and SFAS 106. The changes in accounting principles resulted in charges
in the nine months ended November 30, 1992 amounting to $6.0 million, (net of
taxes of $0.4 million), or $.51 per share.
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SEPSCO FISCAL 1993 COMPARED WITH SEPSCO FISCAL 1992
Net sales decreased from $29.2 million in 1992 to $28.5 million in 1993 due
to a decrease in the average selling prices, coupled with a slight decrease in
volume due to unseasonably warmer weather and increased competitive conditions.
Operating profit decreased from $4.6 million in 1992 to $3.6 million in
1993 principally due to the decrease in sales as explained above, and to a
lesser extent higher cost of product.
Equity in earnings of affiliates before cumulative effect of changes in
accounting principles and extraordinary items increased from $5.2 million in
1992 to $12.2 million in 1993 due to increased earnings of Graniteville.
The gain on sale of marketable security of $6.0 million resulted from the
recognition of a gain previously deferred on the sale of common stock of an
unaffiliated company to Triarc. Such gain had been deferred until collection of
a note received from Triarc in consideration of such sale was assured. As such
note was collected in April 1993, the gain was recorded in SEPSCO Fiscal 1993.
Gains on repurchase of debentures for sinking fund requirement decreased
from $4.0 million in 1992 to $.01 million in 1993 due to the market price of the
11 7/8% Debentures which increased to above par, and accordingly, since the
repurchase of the 11 7/8% Debentures was no longer beneficial, the sinking fund
requirement was made in cash.
Other, net decreased from income of $0.4 million in 1992 to expense of $1.1
million in 1993 principally due to a $1.3 million accrual for the proposed
settlement of the Ehrman Litigation.
Provision for income taxes as a percentage of income from continuing
operations before income taxes, extraordinary items and cumulative effect of
changes in accounting principles for the year was lower than the statutory rate
due to the equity in earnings of affiliates on which income taxes were provided
only on the portion remaining after an 80% dividend exclusion.
Loss from discontinued operations, net of income taxes, increased from $0.2
million in 1992 to $5.5 million in 1993 principally due to a $3.7 million
reduction in gross profit in the utility and municipal services segment due to
competitive conditions experienced principally in the construction related
activities and the tree maintenance operations due to intensely competitive
bidding in the first quarter of fiscal 1993 which resulted in losses of certain
contracts, most of which were replaced by ones with lower margins and the
adjustment of prices to retain certain other existing contracts. Also, the
refrigeration operations recorded a $2.1 million accrual before income taxes for
potential environmental remediation, whereas the 1992 period included a credit
of $1.4 million as proceeds from settlement of certain litigation of the
construction operations. These factors were partially offset by a benefit from
income taxes of $2.4 million in 1993 compared to a benefit from income taxes of
$0.3 million in 1992.
Equity in cumulative effect of changes in accounting principles of
affiliate, net of taxes, of $6.0 million resulted from Graniteville's adoption
of SFAS 109 and SFAS 106 during fiscal 1993.
Equity in extraordinary items of affiliate of $0.3 million resulted from
the early extinguishment of debt by CFC Holdings.
SEPSCO FISCAL 1992 COMPARED WITH SEPSCO FISCAL 1991
Net sales were flat in 1991 compared with 1992 due to the offsetting effect
that the lower average selling prices had on the increased volume.
Operating profit increased from $3.2 million in 1991 to $4.6 million in
1992 due to lower cost of product in the 1992 period, coupled with lower
selling, general and administrative expenses principally due to a decrease in
the provision for doubtful accounts of affiliates.
Interest expense increased from $12.9 million in 1991 to $13.7 million in
1992 due to higher interest costs related to increased borrowings under the
receivable financing arrangement.
Equity in earnings of affiliates before cumulative effect of changes in
accounting principles and extraordinary items increased from $2.7 million in
1991 to $5.2 million in 1992 due to the increased earnings of Graniteville.
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Gains on repurchase of debentures for sinking fund requirement increased
from $3.5 million in 1991 to $4.0 million in 1992 due to the lower market price
of the 11 7/8% Debentures at the time of purchase in 1992.
Other, net decreased from $1.8 million income in 1991 to $0.4 million
income in 1992 due to a $1.3 million gain on the sale of a non-operating
property of the LP Gas segment in 1991.
The provision for income taxes in 1992 and 1991 was less than the statutory
rate of 34% principally due to the inclusion in pre-tax earnings of equity in
earnings of affiliates on which income taxes were provided only on the portion
remaining after an 80% dividend exclusion.
Loss from discontinued operations, net of income taxes decreased from $7.9
million in 1991 to $0.2 million in 1992 due to higher revenues in all the
discontinued segments of SEPSCO, with the exception of the natural gas and oil
segment, and higher margins. The increase in gross profit of $5.6 million before
income taxes was principally the result of improved productivity in the utility
and municipal services segment and higher occupancy rates in the refrigeration
segment offset in part by lower selling prices in the natural gas and oil
segment. Also, favorably affecting income (loss) from discontinued operations
net of income taxes in 1992 was a decrease of $4.2 million in selling, general
and administrative expenses, principally due to a $2.7 million decrease in
provision for doubtful accounts of affiliates and a $1.4 million proceed from
the settlement of certain litigation. These increases were partially offset by
benefit from income taxes in 1992 of $0.3 million compared to a benefit from
income taxes of $4.0 million in 1991.
FINANCIAL CONDITION AND LIQUIDITY
At February 28, 1993 and November 30, 1993 cash and equivalents, excluding
restricted cash, amounted to $0.2 million and $35.8 million, respectively. The
$35.6 million increase in cash is principally a result of the remaining excess
proceeds from the sale of the tree maintenance services operations (see
subsequent discussion). Total debt, including the debt of the discontinued
operations, amounted to $110.2 million and $60.8 million at February 28, 1993
and November 30, 1993, respectively.
As previously reported, a change in control of Triarc occurred on April 23,
1993 (the 'Closing Date'), which as a result of Triarc's ownership of SEPSCO's
voting securities constituted a change in control of SEPSCO. In connection
therewith SEPSCO received from Triarc $27.1 million in cash and $3.5 million in
the form of an offset of amounts due to Triarc as of April 23, 1993 in
connection with the providing by Triarc of certain management services to
SEPSCO. The aggregate $30.6 million of payments by Triarc included full payment
of $6.8 million (including $0.3 million of accrued interest) on an unsecured
promissory note issued to SEPSCO by Triarc in connection with the 1988 sale of
an investment and partial payment of $23.8 million (including $1.4 million of
accrued interest) on a $49.0 million promissory note due to SEPSCO resulting
from the 1986 sale of approximately 51% of Graniteville's common stock to
Triarc, as described below. SEPSCO used the $27.1 million of cash proceeds to
pay $12.7 million due under its accounts receivable financing arrangement which
was then terminated and to pay $14.4 million (including $0.4 million of accrued
interest) owed to Chesapeake Insurance.
SEPSCO holds a promissory note (the 'Note') from Triarc in the original
face amount of approximately $49.0 million, bearing interest at the annual rate
of 13% payable semi-annually. As described above, on the Closing Date, SEPSCO
received partial payment of the Note of approximately $23.8 million (including
$1.4 million of accrued interest) from Triarc. The Note, after giving effect to
such prepayment, is due in August 1998 and resulted from the 1986 sale of
approximately 51% of the outstanding common shares of Graniteville to Triarc and
is secured by such shares. The Note is subordinated to senior indebtedness of
Triarc to the extent, if any, that the payment of principal and interest thereon
is not satisfied out of proceeds of the pledged Graniteville shares.
SEPSCO has not received any cash dividends from its investment in
Graniteville during the nine months ended November 30, 1993 compared with $3.0
million in the comparable prior year period.
Under its present credit agreement, Graniteville is permitted to pay
dividends or make loans or advances to its stockholders, including SEPSCO in an
amount equal to 50% of the net income of Graniteville accumulated from the
beginning of the first fiscal year commencing on or after
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December 20, 1994, provided that the outstanding principal balance of
Graniteville's term loan is less than $50.0 million at the time of the payment
(the outstanding principal balance was $75.0 million as of November 30, 1993)
and certain other conditions are met. Accordingly, Graniteville is unable to pay
any dividends or make any loans or advances to SEPSCO prior to December 31,
1995.
SEPSCO is required to pay interest on the 11 7/8% Debentures semi-annually
on February 1 and August 1 of each year including interest payments due February
1, 1994 and August 1, 1994 aggregating $6.9 million. SEPSCO is also required to
retire annually through the operation of a mandatory sinking fund $9.0 million
principal amount of the 11 7/8% Debentures on February 1 of each year. The
Indenture provides that, in lieu of making such payment in cash, SEPSCO may
credit against the mandatory sinking fund requirement the principal amount of
11 7/8% Debentures acquired by SEPSCO other than through the sinking fund. On
February 1, 1993, SEPSCO satisfied such sinking fund requirement by payment of
$8.7 million in cash and the delivery of $0.3 million principal amount of the
11 7/8% Debentures. SEPSCO obtained substantially all of the funds to satisfy
such sinking fund requirement by borrowings from Chesapeake Insurance as a
result of increasing its loans from Chesapeake Insurance by $8.4 million to
$14.0 million. As described elsewhere herein, such loans were repaid in full on
the Closing Date. SEPSCO presently expects that based on the current market
price for such 11 7/8% Debentures it would satisfy such mandatory sinking fund
requirement due February 1, 1994 through cash received from the sale of the tree
maintenance services operations rather than through the delivery of 11 7/8%
Debentures.
The Indenture contains a provision which limits to $100.0 million the
aggregate amount of specified kinds of indebtedness that SEPSCO and its
consolidated subsidiaries can incur. At November 30, 1993 such indebtedness was
$59.3 million resulting in allowable additional indebtedness, if SEPSCO desired
to make such borrowings and if such financing could be obtained, of $40.7
million.
On October 18, 1993, Triarc entered into the Settlement Agreement. The
Settlement Agreement provides, among other things, that SEPSCO would be merged
into, or otherwise acquired by, Triarc or an affiliate thereof, in a transaction
in which each holder of shares of SEPSCO Common Stock other than Triarc
Companies, will receive in exchange for each share of SEPSCO Common Stock, 0.8
shares of Triarc Class A Common Stock. On November 22, 1993 Triarc and SEPSCO
entered into the Merger Agreement pursuant to which a subsidiary of Triarc will
be merged into SEPSCO in the manner described in the Settlement Agreement.
Following the Merger, Triarc Companies would own 100% of SEPSCO Common Stock.
Consummation of the Settlement Agreement and the Merger are conditioned on,
among other things, approval of the Merger by SEPSCO's stockholders other than
Triarc Companies. On January 11, 1994 the District Court approved the Settlement
Agreement.
On July 22, 1993, SEPSCO's Board of Directors authorized the sale or
liquidation of its utility and municipal services, refrigeration and natural gas
and oil businesses. On December 9, 1993 SEPSCO's Board of Directors decided the
natural gas and oil business will be transferred to Triarc rather than SEPSCO
selling it to an independent third party. Such transfer will be in the form of a
sale of the stock of the entities comprising the natural gas and oil business
for cash of $8.5 million which is equal to their fair value and approximately
$4.5 million higher than their net book value. It is intended for this sale to
occur following the Merger and the resulting elimination of the minority
interest in SEPSCO. However should the Merger not be approved by the SEPSCO
stockholders the sale of the stock of the natural gas and oil entities for cash
to Triarc will be completed prior to July 22, 1994.
On October 15, 1993 SEPSCO sold the assets of its tree maintenance services
operations previously included in its utility and municipal services business
segment for $69.6 million in cash plus the assumption by the purchaser of $5.0
million in current liabilities resulting in a loss of $4.8 million. The $35.5
million cash balance as of November 30, 1993 is principally a result of such
cash proceeds, less the repayment of $24.1 million of capitalized lease
obligations relating to the tree maintenance services operations, repayment of
$1.1 million of amounts due to Triarc, payment of the $2.0 million to the
purchasers of the construction related operations (see below) and general
operating requirements since October 15, 1993. On October 7, 1993 SEPSCO sold
the stock of its two construction related operations previously included in its
utility and municipal services business segment for a nominal amount subject to
adjustments described below. As the related assets are sold or liquidated the
purchasers have agreed to pay, as deferred purchase price, 75% of the net
proceeds received therefrom (cash of $1.5 million had
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been received as of November 30, 1993) plus, in the case of the larger of the
two entities, an amount equal to 1.25 times the adjusted book value of such
entity as of October 5, 1995 (the 'Book Value Adjustment'). As of October 7,
1993, the adjusted book value of the assets of that entity aggregated
approximately $1.6 million. In addition, SEPSCO paid $2.0 million in October and
November 1993 to cover the buyer's short-term operating losses and working
capital requirements for the construction related operations. As of November 30,
1993 SEPSCO estimated the sales of the construction related operations would
result in a gain of $2.0 million excluding any consideration of the potential
Book Value Adjustment. In January 1994, however, SEPSCO learned that the buyer
of such businesses had successfully negotiated extensions of certain major
contracts with respect to the larger of such businesses and as a result no
longer intends to immediately dispose of the major portion of the assets. Should
the buyer hold such assets through October 5, 1995, the purchase price would
effectively be realized through the Book Value Adjustment. Based on such revised
estimates of asset sales, SEPSCO would approximately break even excluding any
consideration of the potential Book Value Adjustment, given its uncertainty.
On November 12, 1993 SEPSCO signed a letter of intent to sell substantially
all of the operating assets of the ice operations of its refrigeration business
segment for $5.0 million in cash, a $4.0 million note (discounted value $3.1
million) and the assumption by the buyer of certain current liabilities which as
of November 30, 1993 would approximate $1.0 million. The note, which bears no
interest during the first year and 5% thereafter, would be payable in
installments of $120.0 thousand at the end of each of the four years following
the closing date with the balance of approximately $3.5 million due at the end
of the fifth year following the closing date. The precise timetable for the sale
and liquidation of the remaining discontinued operation, the cold storage
operations of the refrigeration business segment, will depend upon SEPSCO's
ability to identify appropriate potential purchasers and to negotiate acceptable
terms for the sale of such operations. SEPSCO currently anticipates completion
of such sales by July 31, 1994.
On July 22, 1993 SEPSCO's Board of Directors also authorized the sale or
liquidation of the liquefied petroleum gas business. SEPSCO previously reported
the liquefied petroleum gas business as a discontinued operation since it is to
be transferred to a subsidiary of Triarc and the transfer would be accounted for
at net book value. The precise method of such transfer has not been determined
and the transfer will not occur until after the Merger. Based on these facts,
SEPSCO has reevaluated the accounting for the liquefied petroleum gas business
and retroactively accounted for the liquefied petroleum gas business as a
continuing operation.
SEPSCO has $5.3 million of restricted cash and equivalents which support
letters of credit which collateralize certain performance and other bonds
relating to the utility and municipal services business segment. SEPSCO
anticipates that subsequent to the closing of the sales of the operations
comprising such segment, in due course the buyers will provide the collateral
for such bonds or that the performance secured by the bonds will be completed
and the restricted cash will revert to SEPSCO free of restrictions and at that
time be used for general corporate purposes.
SEPSCO had cash used in operations of $2.0 million during the nine-month
period ended November 30, 1993. SEPSCO anticipates its cash requirements for the
last month of SEPSCO Transition 1993, exclusive of operating activities, to be
insignificant. Such cash requirements for the calendar year 1994 will include
$3.9 million of capital expenditures, of which SEPSCO intends to seek financing
from banks and other sources for $3.2 million, as well as $9.0 million of
sinking fund payments on the 11 7/8% Debentures. SEPSCO expects to meet all of
its cash requirements during the last month of SEPSCO Transition 1993 and the
calendar year 1994 with the aforementioned financing for capital expenditures
and its existing cash balances principally derived from the sale of the tree
maintenance services operations.
In 1987 Graniteville was notified by the South Carolina DHEC that it
discovered certain contamination of Langley Pond near Graniteville, South
Carolina and DHEC asserted that Graniteville may be one of the parties
responsible for such contamination. Graniteville entered into a consent decree
providing for the study and investigation of the alleged pollution and its
sources. The study report prepared by Graniteville's environmental consulting
firm and filed with DHEC in April 1990, recommended that pond sediments be left
undisturbed and in place. DHEC responded by requesting
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that Graniteville submit additional information concerning potential passive and
active remedial alternatives, with accompanying supportive information. In May
1991 Graniteville provided this information to DHEC in a report of
Graniteville's environmental consulting firm. The 1990 and 1991 reports
concluded that pond sediments should be left undisturbed and in place and that
other less passive remediation alternatives either provided no significant
additional benefits or themselves involved adverse effects on human health, to
existing recreational uses or to the existing biological communities. Triarc is
unable to predict at this time what further actions, if any, may be required in
connection with Langley Pond or what the cost thereof may be. However, given the
passage of time since the submission of the two reports by DHEC and the absence
of desirable remediation alternatives, other than continuing to leave the
Langley Pond sediments in place and undisturbed as described in the reports,
SEPSCO believes the ultimate outcome of this matter will not have a material
adverse effect on SEPSCO's consolidated results of operations or financial
position.
As a result of certain environmental audits in 1991, SEPSCO became aware of
possible contamination by hydrocarbons and metals at certain sites of SEPSCO's
refrigeration operations and has filed appropriate notifications with state
environmental authorities and has begun a study of remediation at such sites.
SEPSCO has removed certain underground storage and other tanks at certain
facilities of its refrigeration operations and has engaged in certain
remediation in connection therewith. Such removal and environmental remediation
involved a variety of remediation actions at various facilities of SEPSCO
located in a number of jurisdictions. Such remediation varied from site to site,
ranging from testing of soil and groundwater for contamination, development of
remediation plans and removal in certain instances of certain contaminated
soils. Based on preliminary information and consultations with, and certain
reports of, environmental consultants and others, SEPSCO presently estimates the
cost of such remediation and/or removal will approximate $3.7 million, all of
which was provided in prior years. In connection therewith, SEPSCO has incurred
actual costs through November 30, 1993 of $1.1 million and has a remaining
accrual of $2.6 million. SEPSCO believes that after such accrual the ultimate
outcome of this matter will not have a material adverse effect on SEPSCO's
consolidated results of operations or financial position.
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MANAGEMENT OF TRIARC
EXECUTIVE OFFICERS AND DIRECTORS OF TRIARC
The following table sets forth certain information regarding the directors
and executive officers of Triarc, all of whom are U.S. citizens.
<TABLE>
<CAPTION>
NAME AGE POSITIONS
- -------------------------------------------- ---- --------------------------------------------
<S> <C> <C>
Nelson Peltz................................ 51 Director; Chairman and Chief Executive
Officer of Triarc
Peter W. May................................ 51 Director; President and Chief Operating
Officer of Triarc
Leon Kalvaria............................... 35 Director; Vice Chairman of Triarc
Irving Mitchell Felt........................ 84 Director
Harold E. Kelley............................ 73 Director
Richard M. Kerger........................... 48 Director
Harold D. Kingsmore......................... 61 Director; President and Chief Executive
Officer of Graniteville
Daniel R. McCarthy.......................... 69 Director
William L. Pallot........................... 81 Director
Thomas A. Prendergast....................... 60 Director
Martin Rosen................................ 68 Director
Gerald Tsai, Jr. ........................... 65 Director
Stephen S. Weisglass........................ 64 Director
John C. Carson.............................. 47 President and Chief Executive Officer of RC
Cola
Ronald Paliughi............................. 50 President and Chief Executive Officer of
National Propane
Donald L. Pierce............................ 49 President and Chief Executive Officer of
Arby's
Anthony W. Graziano, Jr. ................... 52 Executive Vice President and General
Counsel, and Assistant Secretary of Triarc
Joseph A. Levato............................ 53 Executive Vice President and Chief Financial
Officer of Triarc
John L. Cohlan.............................. 36 Senior Vice President -- Corporate Finance
Curtis S. Gimson............................ 38 Senior Vice President and Associate General
Counsel, and Secretary of Triarc
Jerry Hostetter............................. 49 Senior Vice President -- Corporate
Communications
Francis T. McCarron......................... 36 Senior Vice President -- Taxes of Triarc
Fred H. Schaefer............................ 49 Vice President and Chief Accounting Officer
of Triarc
</TABLE>
Set forth below is certain additional information concerning the persons
listed above.
Nelson Peltz has been a director and Chairman of the Board and Chief
Executive Officer of Triarc since April 23, 1993. Since April 23, 1993 he has
also been a director and Chairman of the Board and Chief Executive Officer of
certain of Triarc's subsidiaries, including SEPSCO and RC/Arby's. Mr. Peltz has
also been a director of National Propane since April 23, 1993, and from April
23, 1993 until January 1994 he was a director and Chairman of the Board and
Chief Executive Officer of Wilson Brothers. He is also a general partner of DWG
Acquisition, whose principal business is ownership of securities of Triarc. From
its formation in January 1989 until April 23, 1993 Mr. Peltz was Chairman and
Chief Executive Officer of Trian Group, Limited Partnership ('Trian'), which
provided investment banking and management services for entities controlled by
Mr. Peltz and Mr. May. From 1983 to December 1988, he was Chairman and Chief
Executive Officer and a director of Triangle Industries, Inc. ('Triangle'),
which, through wholly owned subsidiaries, was, at that time, a manufacturer of
packaging products, copper electrical wire and cable and steel conduit and
currency and coin handling products. He was Chairman and Chief Executive Officer
and a director of Avery, Inc. ('Avery') from prior to
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1987 until October 1992. Until the October 1989 sale of Uniroyal Chemical
Holding Company, Avery was primarily engaged in the manufacture and sale of
specialty chemicals. From November 1989 through May 1992, Mr. Peltz was a
director of Mountleigh Group plc, a British property trading and retailing
company for which administrative receivers were appointed in May 1992
('Mountleigh'). He served in various executive capacities, including Executive
Chairman, of Mountleigh from November 1989 until October 1991. He is a director
of Equitable Bag Co., Inc. ('Equitable Bag'), a designer, manufacturer and
distributor of customized plastic and paper merchandise bags.
Peter W. May has been a director and President and Chief Operating Officer
of Triarc since April 23, 1993. Since April 23, 1993 he has also been a director
and President and Chief Operating Officer of certain of Triarc's subsidiaries,
including SEPSCO and RC/Arby's. Mr. May has also been a director of National
Propane since April 23, 1993, and from April 23, 1993 until January 1994 he was
a director and President and Chief Operating Officer of Wilson Brothers. He is
also a general partner of DWG Acquisition. From its formation in January 1989
until April 23, 1993, Mr. May was President and Chief Operating Officer of
Trian. He was President and Chief Operating Officer and a director of Triangle
from 1983 until December 1988. Mr. May was President and Chief Operating Officer
and a director of Avery from prior to 1987 until October 1992. From November
1989 through May 1992, Mr. May was a director of Mountleigh and he served as
Joint Managing Director of Mountleigh from November 1989 until October 1991. He
is a director of Equitable Bag. On April 29, 1992, Mr. May was also named a
director of The Leslie Fay Companies, Inc. following its filing on April 5, 1993
for protection under Chapter 11 of the United States Bankruptcy Code.
Leon Kalvaria has been a director and Vice Chairman of Triarc since April
23, 1993. Since April 23, 1993, he has also been a director and Vice Chairman of
certain of Triarc's subsidiaries, including SEPSCO and RC/Arby's. Mr. Kalvaria
has also been a director of National Propane since April 23, 1993, and from
April 23, 1993 until January 1994 he was a director and Vice Chairman of Wilson
Brothers. He joined Trian in January 1991 and was Vice Chairman of Trian from
April 1992 until April 23, 1993. He is also a director of Equitable Bag. Prior
to joining Trian, Mr. Kalvaria was employed by CS First Boston, an investment
banking firm ('First Boston'), for more than 10 years. Mr. Kalvaria was Managing
Director of the Mergers and Acquisitions Department of First Boston from 1989 to
1991.
Irving Mitchell Felt is a private investor. He is a Chairman of the Felt
Foundation, a philanthropic organization. Since 1983, Mr. Felt has been the
Honorary Chairman of the Board of Directors of Madison Square Garden
Corporation, an entertainment company, New York, New York, and prior thereto he
served as President and Chairman of the Board of Madison Square Garden
Corporation. Mr. Felt has been a director of Triarc since April 23, 1993.
Harold E. Kelley is an Attorney-At-Law and a Certified Public Accountant.
Mr. Kelley has been a director of Triarc since March 1991.
Richard M. Kerger is a partner of Marshall & Melhorn, a law firm. He has
been a director of Triarc since March 1991.
Harold D. Kingsmore has been President and Chief Executive Officer of
Graniteville since April 24, 1993. For more than five years prior thereto, he
was Executive Vice President and Chief Operating Officer of Graniteville. He is
a director of Palfed, Inc., a thrift institution. Mr. Kingsmore has been a
director of Triarc since 1988.
Daniel R. McCarthy is a Senior Partner of McCarthy & Lebit, Co., LPA, a law
firm. Mr. McCarthy is also a director of American Ship Building Company, which
is engaged in ship building and ship repairs. On November 4, 1993, American Ship
Building Company filed for protection under Chapter 11 of the United States
Bankruptcy Code. Mr. McCarthy has been a director of Triarc since March 1991.
William L. Pallot is retired Chairman of the Board of Royal Trust Bank of
Miami, N.A., Miami, Florida (Chairman 1972 - 1984). Mr. Pallot was a director of
SEPSCO until March 1992. He was a director of Triarc from 1966 to December 27,
1991 and has been a director of Triarc from April 23, 1993 to date.
Thomas A. Prendergast is a private investor. From January 1983 until
December 1988, he was Chairman of the Board of Air Cargo Equipment Corporation,
a manufacturer of aircraft cargo containers. From April 1989 through October
1991, he was Chairman of the Board of Cliniteck, Inc., a manufacturer of
disposable hospital products. Mr. Prendergast is also Chairman of the Board of
The
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Steel Corporation of Texas, a seller of steel mill products. He was a director
of Triarc from 1979 to December 27, 1991 and has been a director of Triarc from
April 23, 1993 to date.
Martin Rosen is senior partner of the law firm of Rosen & Reade, New York,
New York, which for many years has served as counsel to Triarc. He was director
of Triarc for more than five years prior to November 1986 and has been a
director of Triarc since April 23, 1993.
Gerald Tsai, Jr. is a private investor. Since February 1993, he has been
Chairman of the Board, President and Chief Executive Officer of Delta Life
Corporation, a life insurance company with which Mr. Tsai became associated in
1992. From 1982 until December 1988, Mr. Tsai served Primerica Corporation in
various executive capacities, including as Chairman of the Board and Chief
Executive Officer from 1987 until December 1988. Mr. Tsai also serves as a
director of Palm Beach National Bank and Trust Company, Rite-Aid Corporation,
Sequa Corporation, Zenith National Insurance Corporation and Proffitt's Inc. He
is a trustee of MediTrust, Boston University and New York University Medical
Center. Mr. Tsai has been a director of Triarc since October 1993.
Stephen S. Weisglass has been Chairman of Equity Research Associates, an
investment research firm, since 1991. During 1990, Mr. Weisglass was Vice
Chairman of Whale Securities, a broker-dealer firm. Prior thereto, Mr. Weisglass
was associated with Ladenburg, Thalmann, an investment banking firm, in various
capacities for more than 15 years, including President and Chief Executive
Officer from 1979 until 1990. He has been a director of Triarc since April 23,
1993.
John C. Carson has been President and Chief Executive Officer of RC Cola
since April 24, 1993. Prior thereto, Mr. Carson was President of Cadbury
Beverages, North America, a subsidiary of Cadbury Schweppes, PLC, where he was
also a member of Cadbury Beverages Global Board. Mr. Carson was president of
Schweppes NA from 1984 to 1988, vice president of sales and marketing of
Schweppes Bottling U.K. and Cadbury U.K. from 1964 to 1981.
Ronald Paliughi has been President and Chief Executive Officer of National
Propane since April 24, 1993. He was engaged in private research and consulting
services from 1992 until April 1993. During 1991, he served as a United States
Army Officer in Operation Desert Storm. From 1987 to 1990, Mr. Paliughi was
Senior Vice President -- Western Operations of AP Propane (AmeriGas), one of the
largest LP gas companies in the United States and a subsidiary of UGI
Corporation. During 1986, Mr. Paliughi was director of retail operations of
CalGas Corporation, a division of Dillingham corporation, the fourth largest LP
gas company in the United States and for more than 14 years prior thereto, he
held various positions with Vangas, Inc., last serving as Senior Vice
President -- General Manager.
Donald L. Pierce has been President and Chief Executive Officer of Arby's
since April 24, 1993. Prior thereto, Mr. Pierce was President of Pepsico, Inc.'s
Hot 'n Now hamburger chain and President of Kentucky Fried
Chicken -- International. From 1987 to 1988 Mr. Pierce was President and Chief
Operating Officer of Denny's, and from 1981 to 1987 he served Denny's in various
executive capacities, including Group Vice President, President of the El Pollo
Loco division, and Vice President, Finance. From 1969 to 1981 Mr. Pierce was
with American Hospital Supply, Inc. where he held positions in finance, sales
and operations.
Anthony W. Graziano, Jr. has been Executive Vice President and General
Counsel and Assistant Secretary of Triarc since April 24, 1993. He has also been
Executive Vice President and General Counsel and Assistant Secretary of certain
of Triarc's subsidiaries, including SEPSCO and RC/Arby's, since April 24, 1993.
Prior thereto, he was Senior Vice President -- Legal Affairs of Trian from its
formation in January 1989 until April 24, 1993. He joined Triangle in September
1985 and served as Senior Vice President -- Legal Affairs of Triangle until
January 1989 and as Senior Vice President -- Legal Affairs of Avery from 1986
until 1992.
Joseph A. Levato has been Executive Vice President and Chief Financial
Officer of Triarc since April 24, 1993. He has also been Executive Vice
President and Chief Financial Officer of certain of Triarc's subsidiaries,
including SEPSCO and RC/Arby's, since April 24, 1993. Prior thereto, he was
Senior Vice President and Chief Financial Officer of Trian from January 1992
until April 24, 1993. From 1984 to January 1989, he served as Senior Vice
President and Chief Financial Officer of Triangle and served as Senior Vice
President and Chief Financial Officer of Avery from 1986 until 1989.
John L. Cohlan has been Senior Vice President -- Corporate Finance of
Triarc since January, 1994. He has also been Senior Vice President -- Corporate
Finance of certain of Triarc's subsidiaries, including SEPSCO and RC/Arby's,
since January 1994. Prior thereto, he had served as Senior Vice President --
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Corporate Development of Triarc and such subsidiaries since April 24, 1993.
Before joining Triarc, he was a Senior Vice President of Trian from July 1992
until April 24, 1993. From January 1992 until May 1992, Mr. Cohlan was
associated with Mountleigh. From 1989 until 1991, he was a principal of The
Palmer Group, Inc., a firm specializing in corporate restructurings,
particularly in the hotel industry. From 1987 until 1989, Mr. Cohlan was Vice
President -- New Business Development of VMS Realty Partners, a real estate
concern.
Curtis S. Gimson has been Senior Vice President and Associate General
Counsel and Secretary of Triarc since April 24, 1993. He has also been Senior
Vice President and Associate General Counsel and Secretary of certain of
Triarc's subsidiaries, including SEPSCO and RC/Arby's, since April 24, 1993. Mr.
Gimson has also been Secretary of National Propane since April 24, 1993. Prior
thereto, he was Senior Vice President and Associate General Counsel of Trian
from its formation in January 1989 until April 24, 1993. He joined Triangle in
December 1984 and served as Vice President and Associate General Counsel of
Triangle until January 1989 and served as Senior Vice President and General
Counsel of Avery from 1986 until 1992.
Jerry Hostetter has been Senior Vice President -- Corporate Communications
of Triarc since September 28, 1993. He has also been Senior Vice
President -- Corporate Communications of certain of Triarc's subsidiaries,
including SEPSCO and RC/Arby's, since September 28, 1993. Prior thereto, he was
Vice President, Investor Relations and Communications for Varity Corporation, a
manufacturer of farm equipment, from June 1992 until September 1993. From March
1989 until May 1992, Mr. Hostetter established and ran a public relations
consulting firm. From 1986 until 1989, he was Vice President, Corporate
Communications of Triangle. He also served as Vice President, Corporate
Communications of Avery from 1986 to 1989.
Francis T. McCarron has been Senior Vice President -- Taxes of Triarc since
April 24, 1993. He has also been Senior Vice President -- Taxes of certain of
Triarc's subsidiaries, including SEPSCO, RC/Arby's and National Propane, since
April 24, 1993. Prior thereto, he was Vice President -- Taxes of Trian from its
formation in January 1989 until April 24, 1993. He joined Triangle in February
1987 and served as Director of Tax Planning & Research until January 1989. He
also served as Vice President -- Taxes of Avery from 1989 until 1992.
Fred H. Schaefer has been Vice President and Chief Accounting Officer of
Triarc since April 24, 1993. He has also been Vice President and Chief
Accounting Officer of certain of Triarc's subsidiaries, including SEPSCO,
RC/Arby's and National Propane, since April 24, 1993. Prior thereto, he was Vice
President and Chief Accounting Officer of Trian from its formation in January
1989 until April 24, 1993. Mr. Schaefer joined Triangle in 1980 and served in
various capacities in the accounting department, including Vice
President -- Financial, until January 1989 and served as Vice
President -- Financial Reporting of Avery from 1986 until 1992.
Each director was elected or reelected, as the case may be, at the most
recent annual meeting of shareholders of Triarc, which was held on October 27,
1993. Each director has been elected to serve until the next annual meeting of
Triarc shareholders and until his successor is duly chosen and qualified or
until his prior death, resignation or removal.
The term of office of each executive officer is until the organizational
meeting of the Triarc Board following the next annual meeting of Triarc
shareholders and until his successor is elected and qualified or until his prior
death, resignation or removal.
CERTAIN ARRANGEMENTS AND UNDERTAKINGS RELATING TO
THE COMPOSITION OF TRIARC'S BOARD OF DIRECTORS
The Stock Purchase Agreement entered into by DWG Acquisition and the Posner
Entities (the 'Stock Purchase Agreement') in connection with the Reorganization
provides that as long as the Posner Entities and entities controlled by them, in
the aggregate, are beneficial owners of equity securities of Triarc representing
or convertible into more than one-half of one percent of the issued and
outstanding Triarc common stock, DWG Acquisition (a) will not vote its shares in
favor of a director (other than Daniel R. McCarthy, Richard M. Kerger and Harold
E. Kelley (the 'Court Appointed Directors'), who were designated as directors by
the Ohio Court in 1991) who knowingly causes Triarc to breach or vote in favor
of any action that would constitute a breach of Triarc's obligations under
certain transactions entered into between the Posner Entities and their
affiliates, on the one hand, and Triarc and its affiliates, on the other hand,
(b) will, in the event either Steven Posner or Martin Rosen
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ceases to be a director of Triarc, vote its shares in favor of any appropriate
person nominated by Steven Posner (other than Victor Posner or certain of his
family members) to fill such vacancy and (c) until the earlier of (x) April 23,
1998 and (y) the date on which Posner Entities cease to own beneficially more
than 50% of the shares of Redeemable Convertible Preferred Stock issued to it in
the Reorganization (or shares of Triarc common stock into which such Redeemable
Convertible Preferred Stock may be converted), will, in the event that Russell
Boyle (who no longer serves as a director), H. Douglas Kingsmore, William Pallot
or Thomas Prendergast or their successors cease to be a director of Triarc, vote
its shares to fill such vacancy in favor of any person (other than Victor Posner
or certain of his family members) acceptable to both DWG Acquisition and Steven
Posner.
In addition, in connection with the Modification entered into on February
17, 1993 in connection with the settlement of the Granada, Brilliant and Cameon
cases, DWG Acquisition and Messrs. Peltz and May entered into an Undertaking and
Agreement, dated February 9, 1993 (the 'Undertaking'), pursuant to which DWG
Acquisition and Messrs. Peltz and May agreed to be bound by certain provisions
of the Modification, including (a) never to vote any shares of Triarc stock
owned or controlled by DWG Acquisition for the election of Victor Posner as a
director of Triarc, (b) causing any slate of directors of Triarc directly or
indirectly proposed or recommended by DWG Acquisition during the period (the
'Effective Period') terminating on the earliest of (i) April 23, 1998, (ii) the
date on which Victor Posner (and his affiliates) ceases to own shares of Triarc
common stock or Triarc convertible securities equal in the aggregate to more
than 5.0% of the issued and outstanding Triarc common stock and (iii) the date
on which the shares of Triarc common stock cease to be publicly held, to include
the Court Appointed Directors and (c) during the Effective Period, subject to
DWG Acquisition's absolute right to vote the minimum number of shares necessary
to accomplish the election of Messrs. Peltz, May and Kalvaria and Mr. Irving
Mitchell Felt, or their successors, to cast any other votes available to it for
the election of the Court Appointed Directors (if the shares of Triarc common
stock are subject to cumulative voting, DWG Acquisition is obligated to cumulate
its votes and to vote as described in this clause (c)).
INFORMATION REGARDING CERTAIN COMMITTEES OF THE TRIARC BOARD
The Triarc Board has standing audit, nominating, and compensation
committees whose current functions and members are described below.
Audit Committee. The Audit Committee is composed of Messrs. Daniel R.
McCarthy (Chairman), Irving Mitchell Felt, Martin Rosen and Gerald Tsai, Jr.
This Committee is charged with the responsibility of satisfying itself of the
propriety and accuracy of the financial statements of Triarc and any of its
subsidiaries which have publicly-owned securities. In the course of performing
its functions the Audit Committee (i) reviews Triarc's internal accounting
controls and its annual consolidated financial statements, (ii) reviews with
Triarc's independent certified public accountants the scope of their audit,
their report and their recommendations, (iii) considers the possible effect on
the independence of such accountants in approving non-audit services requested
of them, and (iv) recommends the action to be taken with respect to the
appointment of Triarc's independent certified public accountants.
Nominating Committee. The Nominating Committee is composed of Messrs. Peter
W. May (Chairman), Harold E. Kelley, Nelson Peltz and Gerald Tsai, Jr. This
Committee is charged with the responsibility of considering and recommending
individuals to be considered by the Triarc Board for membership on the Triarc
Board. The Nominating Committee will consider nominations for Triarc Board
membership by shareholders. The Nominating Committee has adopted the following
rules with respect to considering such nominations: (i) the nominating
shareholder must have owned shares of Triarc common stock or preferred stock
(entitled to vote for Directors) for at least six months prior to the date the
nomination is submitted; (ii) the nomination must be received by the Nominating
Committee 120 days before the mailing date for proxy material applicable to the
annual meeting for which such nomintion is proposed for submission; and (iii) a
detailed statement setting forth the qualifications, as well as the written
consent, of each party nominated must accompany each nomination submitted.
Compensation Committee. The Compensation Committee is composed of Messrs.
Irving Mitchell Felt (Chairman), William L. Pallot and Gerald Tsai, Jr. The
Committee is charged with the responsibility of (i) reviewing, advising and
making recommendations with respect to employee salary and compensation plans,
benefits and standards, (ii) taking such action with respect thereto that are
not
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reserved to the Triarc Board, and (iii) administering Triarc's Equity
Participation Plan and such other salary or compensation plans as the Committee
is designated to administer.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Martin Rosen, who served as a member of the Compensation Committee
until October 1993, is a member of the law firm of Rosen & Reade. During Fiscal
1993 and Transition 1993, the Company paid Rosen & Reade approximately
$1,744,000 and approximately $1,127,000, respectively, on account of legal
services rendered to the Triarc Companies.
COMPENSATION OF DIRECTORS
Since the Reorganization, each non-management director of Triarc receives
an annual retainer of $25,000 for serving on the Triarc Board. In addition,
non-management directors of Triarc receive $1,000 for each meeting of the Triarc
Board or of a Committee of the Triarc Board attended. See 'TRIARC EXECUTIVE
COMPENSATION' for certain information relating to compensation of Triarc
management directors.
In addition, pursuant to the Equity Participation Plan, each director of
Triarc who is not then an employee of Triarc or any subsidiary receives, on the
later of (i) the date of his initial election or appointment to the Triarc Board
and (ii) April 24, 1993, options to purchase 3,000 shares of Triarc Class A
Common Stock and, in connection therewith, tandem stock appreciation rights
('SARs') for the same number of shares. On the date of each subsequent annual
meeting of shareholders of Triarc at which a director is reelected, such
director will receive options to purchase 1,000 shares of Triarc Class A Common
Stock and, in connection therewith, SARs for the same number of shares. Each
such option has a term of ten years, subject to certain exceptions provided in
the Equity Participation Plan. Each such option becomes exercisable to the
extent of one-half thereof on each of the two immediately succeeding
anniversaries of the date of grant. The price per share to be paid by the holder
of such an option is equal to the fair market value of one share of Triarc Class
A Common Stock on the date the option is granted. The purchase price of the
shares of Triarc Class A Common Stock as to which such an option is exercised
shall be paid only in cash, and such SARs shall be exercisable only for shares
of Triarc Class A Common Stock.
Subsequent to the Reorganization, the Triarc Board approved and Triarc paid
a cash payment to each of the members of the Triarc Special Committee in respect
to their services to Triarc (principally in relationship to the settled
litigation which had been pending in the Ohio Court) through April 23, 1993 as
follows: $2,200,000 to Mr. Kelley, $1,300,000 to Mr. McCarthy, $1,000,000 to Mr.
Kerger and $200,000 to each of Messrs. Pallot and Prendergast. In addition, the
Compensation Committee of the Triarc Board, on the recommendation of the Triarc
Board, granted restricted stock awards to Messrs. Kelley, McCarthy and Kerger
with respect to 60,000, 60,000 and 30,000 shares of Triarc Class A Common Stock,
respectively. The grant of restricted stock awards was pursuant to the Equity
Participation Plan and such awards will vest in full and all restrictions on
transferability shall terminate on the earlier of December 31, 1996 or the date
the individual ceases to be a director of Triarc, unless the individual ceases
to be a director as a result of his voluntary resignation or his decision not to
stand for reelection or as a result of his directorship being terminated for
cause in accordance with the Ohio General Corporation Law.
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TRIARC EXECUTIVE COMPENSATION
COMPENSATION OF NEW EXECUTIVE OFFICERS
Just prior to the end of Fiscal 1993, a new chief executive officer as well
as other new executive officers of Triarc were elected in connection with the
Reorganization which was consummated on April 23, 1993. See 'SPECIAL
FACTORS -- Background to the Merger; Reasons for the Merger -- The
Reorganization and Related Matters.' At the same time, Triarc's former chief
executive officer and all other executive officers of Triarc, except Harold D.
Kingsmore and Jack Coppersmith, ceased to be executive officers of Triarc.
Accordingly, during Fiscal 1993 neither Triarc's new chief executive officer nor
any of its other new executive officers received any material amount of salary
from the Triarc Companies. Therefore, the only information with respect to
annual salaries for Fiscal 1993 set forth in the Summary Compensation Table is
presented with respect to Messrs. Kingsmore and Coppersmith. The Summary
Compensation Table does set forth cash bonuses awarded to certain of the new
executive officers at the time they accepted employment with the Triarc
Companies and in respect of performance during 1993, as well as non-cash awards
under the Equity Participation Plan to Triarc's new chief executive officer and
to four of the other new executive officers of Triarc who constituted Triarc's
four most highly compensated executive officers (the 'Named Officers') during
Transition 1993. Additional information with respect to the compensation
arrangements for the new chief executive officer and the Named Officers, as well
as for Messrs. Kingsmore and Coppersmith, are described below under
' -- Employment Arrangements with Executive Officers.'
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
------------------------------
AWARDS
---------------------- PAYOUTS
-------
ANNUAL COMPENSATION (E) (F) (I)
(A) ----------------------------- ------------ ---------- (G) (H) ------------
- ------------------------------------ OTHER RESTRICTED -------- ------- ALL
NAME AND (B) (C) (D) ANNUAL STOCK OPTIONS/ LTIP OTHER
PRINCIPAL --------- --------- --------- COMPENSATION AWARD(S) SARS PAYOUTS COMPENSATION
POSITION PERIOD(1) SALARY($) BONUS($) ($)(2) (#) (#)(6) ($) ($)
- ------------------------------------ --------- --------- --------- ------------ ---------- -------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Nelson Peltz(3) .................... TP 1 -- -- -- 75,000 -- --
Chairman of the Board and Chief 1993 -- -- -- -- 600,000 -- --
Executive Officer of Triarc
Peter W. May(3) .................... TP 1 -- -- -- 50,000 -- --
President and Chief Operating 1993 -- -- -- -- 400,000 -- --
Officer of Triarc
Leon Kalvaria ...................... TP 333,336 550,000 520,181 (10) 12,500 (6) 40,000 -- --
Vice Chairman of 1993 -- 800,000(4) -- 30,000 (6) 150,000 -- --
Triarc
John C. Carson ..................... TP 322,436 250,000 123,626 (11) 7,500 (6) 30,000 -- --
President and Chief Executive 1993 -- 1,000,000(5) -- 37,500 (6) 120,000 -- --
Officer of Royal Crown Company,
Inc.
Harold D. Kingsmore ................ TP 266,666 450,000 -- -- 10,000 -- --
President and Chief Executive 1993 300,000 1,300,000 (7) 50,000 (6) 50,000 -- --
Officer of Graniteville Company 1992 300,000 700,000 (7) -- -- -- 11,903(8)
1991 300,000 750,000 (7) -- -- -- --
Donald L. Pierce ................... TP 218,750 175,000 346,797 (12) 6,250 (6) 35,000 -- --
President and Chief Executive 1993 -- 500,000(5) -- 55,000 (6) 65,000 -- --
Officer of Arby's, Inc.
Jack Coppersmith(9) ................ TP 61,151 -- -- -- -- -- --
Executive Vice 1993 236,715 350,000 (7) -- 25,000 -- --
President -- Operations of SEPSCO 1992 241,360 120,000 (7) -- -- -- --
1991 248,000 -- (7) -- -- -- --
</TABLE>
(footnotes on next page)
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(footnotes from previous page)
(1) Information set forth opposite the letter 'TP' relates to Transition 1993,
while information set forth opposite 1993, 1992 or 1991 relates to Fiscal
1993, Fiscal 1992 or Fiscal 1991, respectively.
(2) Information in this column is set forth in accordance with the regulations
of the Securities and Exchange Commission only for Transition 1993, Fiscal
1993 and Fiscal 1992.
(3) Did not receive any amount of compensation, except as set forth under 'Long
Term Compensation -- Awards' during the periods reported.
(4) Discretionary bonus awarded April 24, 1993 in respect of services rendered
in connection with the Refinancing and Reorganization of Triarc. See
' -- Employment Arrangements with Executive Officers,' below.
(5) One-time bonus pursuant to an employment agreement entered into effective
April 24, 1993. See ' -- Employment Arrangements with Executive Officers,'
below.
(6) All restricted stock awards and stock option grants were made pursuant to
the Equity Participation Plan. The restricted stock awards are described
under ' -- Employment Arrangements with Executive Officers' below. The
option grants made during Fiscal 1993 are described below under
' -- Option/SAR Grants in Respect of Fiscal 1993 and Transition 1993.' The
option grants reported in the table for Transition 1993 were made on March
1, 1994 in respect of performance during Transition 1993. All such options
have an exercise price of $21.00 per share, which was the closing price of
Triarc Class A Common Stock on the NYSE on March 1, 1994. All such options
expire March 1, 2004. The options for Messrs. Peltz, May and Kalvaria vest
as follows: one third of the options granted vest on each of the first,
second and third anniversaries of the date of grant. The options for
Messrs. Carson, Kingsmore and Pierce vest as follows: one third of the
options granted vest on each of the third, fourth and fifth anniversaries
of the date of grant. Prior to adoption of the Equity Participation Plan in
April 1993, Triarc's executive compensation program did not include grants
of restricted stock awards.
(7) Perquisites or other personal benefits did not exceed the lesser of either
$50,000 or 10% of the total annual salary and bonus reported in columns
(c) and (d).
(8) Represents distributions under the Graniteville Company Retirement Savings
Plan.
(9) Mr. Coppersmith resigned as an officer and employee effective August 10,
1993.
(10) Includes $519,323 relating to Mr. Kalvaria's relocation to South Florida.
(11) Includes $121,422 relating to Mr. Carson's relocation to South Florida.
(12) Includes $345,289 relating to Mr. Pierce's relocation to South Florida.
EMPLOYMENT ARRANGEMENTS WITH EXECUTIVE OFFICERS
NELSON PELTZ AND PETER W. MAY
Since the Reorganization, Nelson Peltz and Peter W. May have been serving
Triarc as its Chairman and Chief Executive Officer and its President and Chief
Operating Officer, respectively, and each of them currently is receiving an
annual base salary of $1.00. In addition, Messrs. Peltz and May participate in
the incentive compensation and welfare and benefit plans made available to
Triarc's corporate officers, including the Equity Participation Plan described
below.
LEON KALVARIA
Since the Reorganization, Leon Kalvaria has been serving Triarc as its Vice
Chairman and is currently receiving an annual base salary of $500,000. Mr.
Kalvaria also received a bonus of $800,000 in Fiscal 1993 in respect of his
services in connection with the Reorganization. Effective November 1, 1993, Mr.
Kalvaria entered into an employment agreement with Triarc having an initial term
which expires on December 31, 1996 but which automatically extends for
successive three year periods on January 1 of each year, commencing January 1,
1995, unless, not later than one year preceding the date of any such extension,
either party notifies the other that it does not wish to have the term so
extended. The employment agreement provides for an annual salary of $500,000. In
addition, the agreement provides that Mr. Kalvaria will be entitled to receive a
bonus payment in each full calendar year of the agreement, commencing in 1994,
in an amount not less than the amount by which the salary and other
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cash payments made to him during such year pursuant to any long or short term
management incentive plan is less than $800,000. The agreement also provides
that if Mr. Kalvaria dies during the term of the agreement, his legal
representative will be entitled to receive from Triarc an amount calculated at
an annual rate of $800,000 for the remaining term of the agreement if Triarc had
been able to procure, at a reasonable rate, term insurance on Mr. Kalvaria's
life to pay such obligation, or, if Triarc had not been able to procure such
insurance, an amount calculated at the annual rate of $800,000 for the three
month period following Mr. Kalvaria's death. Triarc has obtained such insurance
to fund this obligation for the next seven years for an annual premium of
approximately $3,000. The agreement also provides that if Triarc terminates the
agreement as a result of Mr. Kalvaria becoming disabled, Triarc will continue to
pay Mr. Kalvaria at the annual rate of $800,000 for an eighteen month period
following such termination.
Triarc and Mr. Kalvaria are parties to an agreement (the 'Relocation
Agreement') pursuant to which Mr. Kalvaria relocated to Florida in order to work
in the West Palm Beach office. Mr. Kalvaria owns a cooperative apartment (the
'Apartment'), and because relocation companies, including the relocation company
retained by Triarc, typically do not handle the sale of cooperative apartments,
the Relocation Agreement is designed to place Mr. Kalvaria in the same position
he would have occupied if he had sold the Apartment through a relocation company
at an appraised value of $3.5 million. Accordingly, in addition to providing
certain standard relocation benefits, pursuant to the Relocation Agreement,
Triarc guaranteed a $3 million bank loan (the 'Bank Loan') secured by a first
mortgage on Mr. Kalvaria's new Florida residence (the 'Florida Property'), and
Triarc made loans aggregating $500,000 to Mr. Kalvaria in connection with his
purchase of the Florida Property. The Bank Loan bears interest at 6 1/2% per
annum, has a 15-year amortization schedule, and matures in 5 years. The
Relocation Agreement provides that when Mr. Kalvaria sells the Apartment, the
net proceeds will be used to reduce the principal on the Bank Loan to $1
million, at which time Triarc's guarantee will be released. Additionally, any
excess net proceeds from the sale of the Apartment will be used to reduce the
principal of the Triarc loans. To the extent that the net proceeds of the sale
of the Apartment are insufficient to reduce the principal on the Bank Loan to $1
million, Triarc will make additional loans to Mr. Kalvaria which will be used to
reduce the principal on the Bank Loan to $1 million. The Triarc loans bear
interest at the higher of 6 1/2% per annum or the applicable federal rate for
medium term loans with interest payable annually and mature on December 31,
1996.
JOHN C. CARSON
On April 24, 1993, Triarc and RC Cola entered into an employment agreement
with John C. Carson (the 'Carson Employment Agreement') providing for the
employment of Mr. Carson as President and Chief Executive Officer of RC Cola.
Mr. Carson's term of full-time employment began on May 10, 1993 and will
continue (unless otherwise terminated as provided in the Carson Employment
Agreement) until December 31, 1996, subject to automatic renewal for successive
two-year periods unless either RC Cola or Mr. Carson elects, upon 180 days'
notice, not to renew.
Pursuant to the Carson Employment Agreement, Mr. Carson will receive an
annual base salary of $500,000. Upon the Reorganization, Mr. Carson received a
one-time bonus of $1,000,000 and 37,500 restricted shares of Triarc Class A
Common Stock and options to purchase 120,000 shares of Triarc Class A Common
Stock at an exercise price of $18.00 per share. The $18.00 exercise price was
equal to the closing price of the Triarc Class A Common Stock on the ASE on
April 27, 1993, the first day of trading after the options were granted. The
options and restricted stock awards were granted pursuant to the Equity
Participation Plan. Mr. Carson also will be eligible to receive an annual cash
incentive bonus under RC Cola's proposed annual cash incentive plan (described
below), additional compensation pursuant to the Equity Plan and compensation
under RC Cola's proposed mid-term cash incentive plan (described below). For the
1994 calendar year, the sum of Mr. Carson's salary and annual cash incentive
bonus will be at least $800,000. Mr. Carson's annual base salary will be
reviewed annually for possible increase, but not decrease, by the Board of
Directors of RC Cola.
Should RC Cola elect to terminate Mr. Carson's employment without good
cause, the agreement provides that he will receive a special payment of $800,000
in addition to base salary through the end of the month in which the termination
occurs and accrued bonuses and compensation under RC Cola's proposed mid-term
cash incentive plan. The Carson Employment Agreement provides that, in the event
of a change in control of RC Cola or any parent of RC Cola, Mr. Carson would be
obligated to continue
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in employment under the Carson Employment Agreement until the first anniversary
of such change in control, after which he would have the right to resign as an
officer and employee of RC Cola and to receive the same payments that he would
have been entitled to receive had his employment been terminated by RC Cola
without good cause.
HAROLD D. KINGSMORE
On April 24, 1993, Graniteville, and Harold D. Kingsmore entered into an
employment agreement (the 'Kingsmore Employment Agreement') providing for Mr.
Kingsmore's employment as President and Chief Executive Officer of Graniteville.
The term of the agreement commenced May 1, 1993 and will continue (unless
otherwise terminated as provided in the Kingsmore Employment Agreement) until
December 31, 1996, subject to renewal for an additional three years unless
either party notifies the other that it does not wish to renew.
Pursuant to the Kingsmore Employment Agreement, Mr. Kingsmore will receive
an annual base salary of $400,000. Mr. Kingsmore also received 50,000 restricted
shares of Triarc Class A Common Stock and an option to purchase 50,000 shares of
Triarc Class A Common Stock at an exercise price of $18.00 per share pursuant to
the Equity Participation Plan. Mr. Kingsmore also will be eligible to receive an
annual cash incentive bonus under Graniteville's proposed annual cash incentive
plan (described below), additional compensation pursuant to the Equity
Participation Plan and compensation under Graniteville's proposed mid-term cash
incentive plan (described below). To compensate for the fact that no
distribution will be made under the mid-term plan until completion of the first
three year performance cycle, Mr. Kingsmore will receive cash compensation of at
least $850,000 with respect to his services during fiscal 1994 and 1995,
exclusive of any accrual with respect to such years under the mid-term plan. Mr.
Kingsmore's annual base salary will be reviewed annually for possible increase,
but not decrease, by Graniteville's Board of Directors.
DONALD L. PIERCE
On April 24, 1993, Arby's entered into an employment agreement with Donald
L. Pierce (the 'Pierce Employment Agreement,' and collectively with the Carson
Employment Agreement and the Kingsmore Employment Agreement, the 'Employment
Agreements') providing for Mr. Pierce's employment as President and Chief
Executive Officer of Arby's. The term of Mr. Pierce's employment commenced in
May 1993 and will continue (unless otherwise terminated as provided in the
Pierce Employment Agreement) until December 31, 1996, subject to renewal for an
additional three years unless either party notifies the other that it does not
wish to renew.
Pursuant to the Pierce Employment Agreement, Mr. Pierce will receive an
annual base salary of $350,000. On the commencement date of his employment, Mr.
Pierce received a one-time bonus of $500,000, 55,000 restricted shares of Triarc
Class A Common Stock and an option to purchase 65,000 shares of Triarc Class A
Common Stock, at an exercise price of $18.00 per share. The $18.00 exercise
price was equal to the closing price of Triarc Class A Common Stock on the ASE
on April 27, 1993, the first day of trading after the options were granted. Mr.
Pierce also will be eligible to receive an annual cash incentive bonus under
Arby's proposed annual cash incentive plan (described below), additional
compensation pursuant to the Equity Participation Plan and compensation under
Arby's proposed mid-term cash incentive plan (described below). Mr. Pierce's
annual base salary will be reviewed annually for possible increase, but not
decrease, by Arby's Board of Directors.
CASH INCENTIVE PLANS
Triarc intends to develop annual cash incentive plans and mid-term cash
incentive plans (each, a 'MTCIP') for executive officers of each of Triarc's
four principal business units.
Pursuant to their Employment Agreements, the proposed annual cash incentive
plans of RC Cola, Graniteville and Arby's will enable Messrs. Carson, Kingsmore
and Pierce, respectively, to earn up to 75% of their then-current base salaries
based on achievement of certain individual and company performance goals to be
determined by Mr. Carson and Triarc representatives, in the case of RC Cola's
plan, Mr. Kingsmore and Triarc representatives, in the case of Graniteville's
plan and Mr. Pierce and Triarc representatives, in the case of Arby's plan.
Officers and key employees of each of RC Cola,
130
<PAGE>
Graniteville and Arby's will also be eligible to participate in the relevant
company's plan, which will be administered by such company's board of directors.
From time to time, the Compensation Committee of the Triarc Board may award
discretionary bonuses based on performance to certain executive officers. The
amounts of such bonuses will be based on the Compensation Committee's evaluation
of each such individual's contribution.
Pursuant to the terms of their Employment Agreements, Messrs. Carson,
Kingsmore and Pierce also will be entitled to additional compensation pursuant
to a proposed MTCIP of RC Cola, Graniteville and Arby's, respectively. Each
MTCIP will be developed jointly by the chief executive officer of the subsidiary
and representatives of Triarc. Each MTCIP will be designed to yield to Messrs.
Carson, Kingsmore and Pierce a target award in cash at least equal to 75% of the
participant's then-current base salary if RC Cola, Graniteville or Arby's, as
the case may be, achieves an agreed-upon profit over a three-year performance
cycle. During each plan year, an amount will be accrued based upon the amount by
which the relevant company's profit for such year exceeds a minimum return to be
determined. A new three-year performance cycle will begin each year, such that
after the third year the annual cash amount paid to Messrs. Carson, Kingsmore
and Pierce pursuant to the relevant MTCIP should equal the target award if their
respective company's profit goals have been achieved. For Mr. Carson, amounts
accrued with respect to 1994 will be guaranteed at a minimum of 100% of the
target award for 1994 (i.e. at least $125,000).
1993 EQUITY PARTICIPATION PLAN
The Equity Participation Plan was adopted on April 24, 1993, amended and
restated on July 22, 1993, and, as amended and restated, was approved by
Triarc's shareholders on October 27, 1993. It expires by its terms on April 24,
1998. The plan provides for the grant of options to purchase Triarc Class A
Common Stock, tandem SARs and restricted shares of Triarc Class A Common Stock.
Selected officers and key employees of, and key consultants to, Triarc and its
subsidiaries are eligible to participate in the plan. The plan is being
administered by the Compensation Committee of the Triarc Board, which will
determine from time to time to grant options, SARs and restricted stock. One
third of the options granted to Messrs. Carson, Kingsmore and Pierce pursuant to
their respective Employment Agreements will vest after each of the third, fourth
and fifth anniversaries of the date of grant and the options will be exercisable
at any time between the date of vesting and the tenth anniversary of the date of
grant. One third of the options granted to Messrs. Peltz, May and Kalvaria will
vest after each of the first, second and third anniversaries of the date of
grant and the options will be exercisable at any time between the date of
vesting and the tenth anniversary of the date of grant. The options granted to
Mr. Coppersmith were forfeited as a result of his resignation. All of the
restricted shares of Triarc Class A Common Stock granted to Mr. Carson will vest
on May 10, 1996, and all of the restricted shares of Triarc Class A Common Stock
granted to Messrs. Kalvaria, Kingsmore and Pierce will vest on December 31,
1996.
MISCELLANEOUS
Messrs. Carson, Kingsmore, Pierce and Kalvaria are entitled pursuant to
their respective Employment Agreements to participate in other long-term
compensation and life insurance, disability and medical plans made generally
available to senior officers of RC Cola, Graniteville and Arby's, respectively.
Messrs. Carson, Kingsmore and Pierce also will be provided the use of a car and
other customary benefits during the terms of their respective agreements.
Pursuant to Triarc's standard employment-related relocation policy, which is
applicable to each of the Named Officers and other senior officers of Triarc, an
officer's compensation will be increased to the extent necessary to cause all
employment-related relocation expenses to be fully reimbursed on an 'after-tax'
basis.
Mr. Coppersmith resigned as an officer and employee of SEPSCO effective
August 10, 1993 and entered into a consulting agreement with SEPSCO pursuant to
which he will render consulting services on a part-time basis for a fee of
$30,000 per month until May 1, 1995. At the end of the consulting period, Mr.
Coppersmith may receive a discretionary bonus based upon the value of the
services rendered by him.
131
<PAGE>
OPTIONS/SARS GRANTED IN RESPECT OF FISCAL 1993 AND TRANSITION 1993
The following table sets forth certain information with respect to options
to purchase shares of Triarc Class A Common Stock and tandem SARs granted to the
Chief Executive Officer and the Named Officers in respect of Fiscal 1993 and
Transition 1993 performance. As noted in such table, certain of such options and
tandem SARs were granted on March 1, 1994, subsequent to the end of Transition
1993, but in respect of Transition 1993 performance. No stock options (or tandem
SARs) or freestanding SARs were exercised by the Chief Executive Officer or by
any Named Officer during Fiscal 1993 or Transition 1993.
OPTION/SAR GRANTS IN RESPECT OF FISCAL 1993 AND TRANSITION 1993
<TABLE>
<CAPTION>
GRANT DATE
INDIVIDUAL GRANTS VALUE
- -------------------------------------------------------------------------------------------- -------------
(b) (c) (d)
OPTIONS/ % OF TOTAL OPTIONS/SARS EXERCISE (f)
SARS GRANTED TO EMPLOYEES IN OR BASE (e) GRANT DATE
(a) GRANTED RESPECT OF FISCAL 1993 PRICE EXPIRATION PRESENT VALUE
NAME (#) AND TRANSITION 1993 ($/SH) DATE ($)(1)
- ------------------------- -------- ----------------------- --------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Nelson Peltz............. 600,000(2)(4) 27% 18.00 4/24/03 6,145,200
75,000(3)(4) 21.00 3/1/04 896,175
Peter W. May............. 400,000(2)(4) 18% 18.00 4/24/03 4,096,800
50,000(3)(4) 21.00 3/1/04 597,450
Leon Kalvaria............ 150,000(2)(4) 8% 18.00 4/24/03 1,536,300
40,000(3)(4) 21.00 3/1/04 477,960
John C. Carson........... 120,000(2)(5) 6% 18.00 4/24/03 1,157,760
30,000(3)(5) 21.00 3/1/04 337,680
Harold D. Kingsmore...... 50,000(2)(5) 2% 18.00 4/24/03 482,400
10,000(3)(5) 21.00 3/1/04 112,560
Donald L. Pierce......... 65,000(2)(5) 4% 18.00 4/24/03 627,120
35,000(3)(5) 21.00 3/1/04 393,960
Jack Coppersmith(6)...... 25,000(2) 1% 18.00 4/24/03 241,200
</TABLE>
- ------------
(1) These values were calculated using a Black-Scholes option pricing model. The
actual value, if any, that an executive may realize will depend on the
excess, if any, of the stock price over the exercise price on the date the
options are exercised, and no assurance exists that the value realized by an
executive will be at or near the value estimated by the Black-Scholes model.
The following assumptions were used in the calculations:
(a) assumed option term of 7.5 years;
(b) stock price volatility factor of 0.4758;
(c) 6.5% annual discount rate;
(d) no dividend payment; and
(e) 3% discount to Black-Scholes ratio for each year an option remains
unvested.
(2) These options were granted on April 24, 1993 and have an exercise price
equal to the closing price of the Triarc Class A Common Stock on the ASE on
April 27, 1993, the first day of trading after the options were granted.
(3) These options were granted on March 1, 1994 in respect of performance during
Transition 1993 and have an exercise price equal to the closing price of the
Triarc Class A Common Stock on the NYSE on March 1, 1994.
(4) One-third of the options granted will vest on each of the first, second and
third anniversaries of the date of grant and the options will be
exercisable at any time between the date of vesting and the tenth
anniversary of the date of grant.
(footnotes continued on next page)
132
<PAGE>
(footnotes continued from previous page)
(5) One-third of the options granted will vest on each of the third, fourth and
fifth anniversaries of the date of grant and the options will be
exercisable at any time between the date of vesting and the tenth
anniversary of the date of grant.
(6) Mr. Coppersmith resigned as an officer and employee effective August 10,
1993 and as a result, he has forfeited his options.
OPTION/SAR VALUES AT END OF FISCAL 1993 AND TRANSITION 1993
The following table sets forth certain information concerning the value at
the end of Fiscal 1993 and Transition 1993 of unexercised in-the-money options
to purchase shares of Triarc Class A Common Stock and tandem SARs granted to the
Chief Executive Officer and the Named Officers outstanding as of the end of
Fiscal 1993 and Transition 1993. This table does not include the options to
purchase shares of Triarc Class A Common Stock and tandem SARs which were
granted on March 1, 1994 because such options and SARs had not been granted
until subsequent to the end of Transition 1993 and, therefore, were not
outstanding as of the end of Fiscal 1993 or Transition 1993.
OPTION/SAR VALUES AT END OF FISCAL 1993 AND TRANSITION 1993
<TABLE>
<CAPTION>
(d)
NUMBER OF (e) (f)
SECURITIES VALUE OF VALUE OF
UNDERLYING UNEXERCISED UNEXERCISED IN-
UNEXERCISED IN-THE-MONEY THE-MONEY
OPTIONS/SARS OPTIONS/SARS OPTIONS/SARS
(b) AT FISCAL 1993 AT FISCAL 1993 AT TRANSITION 1993
SHARES (c) END(#)(1) END($)(2) END($)(3)
(a) ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE UNEXERCISABLE
- ------------------------------ ----------- ----------- -------------- -------------- ------------------
<S> <C> <C> <C> <C> <C>
Nelson Peltz.................. -0- -0- -0-/600,000 -0-/525,000 -0-/4,200,000
Peter W. May.................. -0- -0- -0-/400,000 -0-/350,000 -0-/2,800,000
Leon Kalvaria................. -0- -0- -0-/150,000 -0-/131,250 -0-/1,050,000
John C. Carson................ -0- -0- -0-/120,000 -0-/105,000 -0-/ 840,000
Harold D. Kingsmore........... -0- -0- -0-/ 50,000 -0-/ 43,750 -0-/ 350,000
Donald L. Pierce.............. -0- -0- -0-/ 65,000 -0-/ 56,875 -0-/ 455,000
</TABLE>
- ------------
(1) At the end of Transition 1993, there was no change in the number of
securities underlying unexercised Options/SARs granted to the identified
persons or in the number of such Options/SARs that were exercisable and
unexercisable at the end of Transition 1993.
(2) On April 30, 1993, the last day of Fiscal 1993, the closing price of the
Triarc Class A Common Stock on the ASE was $18 7/8.
(3) On December 31, 1993, the last day of Transition 1993, the closing price of
the Triarc Class A Common Stock on the NYSE was $25.00.
133
<PAGE>
OWNERSHIP OF TRIARC SECURITIES BY CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership as of December 31,
1993 by each person known by Triarc to be the beneficial owner of more than 5%
of the outstanding shares of Triarc Class A Common Stock (constituting the only
class of voting capital stock of Triarc), each director of Triarc who has such
ownership, the executive officers of the Triarc Companies who constituted
Triarc's four most highly compensated executive officers in Transition 1993 and
all directors and executive officers as a group.
<TABLE>
<CAPTION>
AMOUNT AND
NAME AND ADDRESS OF NATURE
BENEFICIAL OWNER OF OWNERSHIP(1) PERCENT OF CLASS
- --------------------------------------------------------- ---------------- ----------------
<S> <C> <C>
DWG Acquisition Group, L.P. ............................. 5,982,867 shares(4) 28.1%
1201 North Market Street
Wilmington, DE 19801
Nelson Peltz ............................................ 5,982,967 shares(2)(3)(4) 28.1%
777 South Flagler Drive
West Palm Beach, FL 33401
Peter W. May ............................................ 5,982,867 shares(2)(4) 28.1%
900 Third Avenue
New York, NY 10022
Leon Kalvaria ........................................... 30,000 shares(5) *
777 South Flagler Drive
West Palm Beach, FL 33401
Harold E. Kelly ......................................... 60,000 shares(5) *
777 South Flagler Drive
West Palm Beach, FL 33401
Richard M. Kerger ....................................... 30,000 shares(5) *
777 South Flagler Drive
West Palm Beach, FL 33401
Daniel R. McCarthy ...................................... 30,000 shares(5) *
777 South Flagler Drive
West Palm Beach, FL 33401
William L. Pallot ....................................... 431 shares *
400 Pickle Road
Shelbyville, TN 37160
Martin Rosen ............................................ 6,000 shares *
757 Third Avenue, 6th FL
New York, NY 10017
Stephen S. Weisglass .................................... 10,000 shares *
950 Third Avenue, 26th FL
New York, NY 10022
John C. Carson .......................................... 37,500 shares(5) *
100 Corporate Drive
Ft. Lauderdale, FL 33334
Harold D. Kingsmore ..................................... 50,000 shares(5) *
133 Marshall Street
Graniteville, SC 29829
Donald L. Pierce ........................................ 60,000 shares(6) *
100 Corporate Drive
Ft. Lauderdale, FL 33334
Directors and Executive Officers as a group 6,405,398 shares 30.0%
(24 persons)
</TABLE>
- ------------
* Less than 1%.
(1) Except as otherwise indicated, each person has sole voting and dispositive
power with respect to such shares.
(2) Includes 5,982,867 shares held by DWG Acquisition, of which Mr. Peltz and
Mr. May are the sole general partners.
(3) Includes 100 shares owned by Mr. Peltz's minor son, as to which Mr. Peltz
disclaims beneficial ownership.
(footnotes continued on next page)
134
<PAGE>
(footnotes continued from previous page)
(4) As previously described under 'SPECIAL FACTORS -- Background to the Merger;
Reasons for the Merger -- The Reorganization and Related Matters,' on April
23, 1993, DWG Acquisition acquired 5,982,867 shares of Triarc Class A Common
Stock from the Posner Entities, for an aggregate purchase price of
$71,794,404 (the 'Purchase Price'). In addition, as part of the
Reorganization on April 23, 1993, Triarc exchanged the remaining 5,982,866
shares of Triarc common stock owned by the Posner Entities for an equal
number of shares of Redeemable Convertible Preferred Stock having a stated
value of $12.00 per share or an aggregate stated value of $71,794,392.
Triarc is informed that Mr. Peltz contributed two-thirds of the Purchase
Price to DWG Acquisition and Mr. May contributed one-third of the Purchase
Price to DWG Acquisition. Of such funds, approximately $26.8 million of the
amount contributed by Mr. Peltz and approximately $14.3 million of the
amount contributed by Mr. May was made available to Messrs. Peltz and May
through certain loans (the 'Citibank Loans') made in the ordinary course of
business by Citibank, N.A. ('Citibank'). Approximately $21.1 million of the
amount contributed by Mr. Peltz and approximately $1.7 million of the amount
contributed by Mr. May was made available to Messrs. Peltz and May through
certain loans (the 'Republic Loans') made in the ordinary course of business
by Republic National Bank of New York. The remaining approximately $7.9
million of the Purchase Price was contributed to DWG Acquisition by Mr. May
from his personal funds.
The Citibank Loans are demand loans bearing interest at such bank's base
rate. Such loans were initially secured by certain assets of Messrs. Peltz
and May (other than the shares of Triarc Class A Common Stock purchased by
DWG Acquisition and their partnership interests in DWG Acquisition). On May
6, 1993, an aggregate of 740,000 shares of Triarc Class A Common Stock (the
'Pledged Shares') were pledged by DWG Acquisition in substitution for
certain other collateral securing the Citibank Loans, which other collateral
was released by Citibank upon delivery of the Pledged Shares. The Pledge
Agreement contains standard provisions concerning the maturity of the loans
and other provisions with respect thereto and with respect to the Pledged
Shares. The loan documentation in connection with the Citibank Loan contains
standard default and similar provisions.
The Republic Loans are revolving loans bearing interest at either such
bank's reference rate or a rate based upon the London interbank market rate
and are secured by certain assets of Messrs. Peltz and May (other than
shares of Triarc Class A Common Stock or their partnership interests in DWG
Acquisition).
On May 14, 1993, Messrs. Peltz and May also entered into certain loan
documentation with respect to certain loans aggregating $24 million (the
'Custodial Loans') made in the ordinary course of business to Messrs. Peltz
and May by Custodial Trust Company. The Custodial Loans are demand loans
bearing interest at the prime rate and are secured by 3,300,000 shares of
Triarc Class A Common Stock owned by DWG Acquisition and certain other
securities owned by Messrs. Peltz and May (and their spouses) other than
Triarc Class A Common Stock. The loan documentation in connection with the
Custodial Loans contains standard provisions concerning the maturity of the
loans and other provisions with respect thereto and with respect to the
shares of Triarc Class A Common Stock.
(5) Represents restricted shares granted under the Equity Participation Plan.
(6) Represents 55,000 restricted shares granted under the Equity Participation
Plan and 5,000 shares purchased by Mr. Pierce.
- ----------------------------------------------------------
The foregoing table does not include the 5,982,866 shares of Redeemable
Convertible Preferred Stock owned by a Posner Entity, which are convertible by
it into 4,985,722 shares of Triarc Class B Common Stock at a conversion price of
$14.40 per share, subject to certain adjustments, and can be converted without
restriction into an equal number of shares of Triarc Class A Common Stock
following a transfer to a non-affiliate of Posner. If the 5,982,866 currently
outstanding Redeemable Convertible Preferred Shares were converted into shares
of Triarc Class A Common Stock, such shares would constitute approximately 17.2%
of the then outstanding shares of Triarc Class A Common Stock after giving
effect to the issuance of shares of Triarc Class A Common Stock in the Merger.
Except for the pledges of an aggregate of 4,040,000 shares of Triarc Class A
Common Stock described in note (4) to the foregoing table, there are no
arrangements known to Triarc the operation of which may at a subsequent date
result in a change in control of Triarc.
135
<PAGE>
MANAGEMENT OF SEPSCO
EXECUTIVE OFFICERS AND DIRECTORS OF SEPSCO
The following table sets forth certain information regarding the directors
and executive officers of SEPSCO, all of whom are U.S. citizens.
<TABLE>
<CAPTION>
NAME AGE POSITIONS
- --------------------------------------- --- -------------------------------------------------------------------
<S> <C> <C>
Nelson Peltz........................... 51 Chairman and Chief Executive Officer, and Director
Peter W. May........................... 51 President and Chief Operating Officer, and Director
Leon Kalvaria.......................... 35 Vice Chairman and Director
David E. Schwab II..................... 62 Director
Sir Ian MacGregor...................... 80 Director
Anthony W. Graziano, Jr................ 52 Executive Vice President and General Counsel, and Assistant
Secretary
Joseph A. Levato....................... 53 Executive Vice President and Chief Financial Officer
Gilbert L. Bieger, Jr.................. 48 Senior Vice President - Operations
John L. Cohlan......................... 36 Senior Vice President - Corporate Finance
Curtis S. Gimson....................... 38 Senior Vice President and Associate General Counsel, and Secretary
Jerry Hostetter........................ 49 Senior Vice President - Corporate Communications
Francis T. McCarron.................... 36 Senior Vice President - Taxes
Fred H. Schaefer....................... 49 Vice President and Chief Accounting Officer
</TABLE>
Each of the persons identified above other than Mr. Bieger and Mr.
Hostetter first became an officer and/or director of SEPSCO in April 1993, in
connection with the Reorganization. Mr. Hostetter first became an officer of
SEPSCO in September 1993. Mr. Bieger has been employed by SEPSCO for more than
five years and was first been elected an officer of SEPSCO in 1981. See
'MANAGEMENT OF TRIARC' for additional information concerning all individuals
identified above other than Messrs. Schwab, McGregor and Bieger. Set forth below
is certain additional information concerning Messrs. Schwab and McGregor.
David E. Schwab II was a director of Triangle from 1980 through January
1989. He was a director of Avery from June 1989 through March 1991 and from
January 1987 through October 1987. Mr. Schwab has been a director of Equitable
Bag since August 1992. Since prior to 1987, Mr. Schwab has been a member of the
law firm of Schwab Goldberg Price & Dannay, New York, New York. Mr. Schwab has
been a director of SEPSCO since April 23, 1993.
Sir Ian MacGregor is a partner in the investment banking firm of McFarland,
Dewey and Co. He has been a Director and Chairman of Holmes Protection Group,
Inc., a security services company, since September 1991. Mr. MacGregor was
associated with Mountleigh as a Director and in various executive capacities
from 1987 until 1992. He was formerly Chairman and Chief Executive of The
National Coal Board, The British Steel Corporation, AMAX, and was formerly
Chairman of Hunterprint plc. Mr. MacGregor has been a director of SEPSCO since
April 23, 1993.
Each director has been elected to serve until the next annual meeting of
SEPSCO Stockholders and until his successor is duly chosen and qualified or
until his prior death, resignation or removal.
The term of office of each executive officer is until the organizational
meeting of the SEPSCO Board following the next annual meeting of SEPSCO
Stockholders and until his successor is elected and qualified or until his prior
death, resignation or removal.
136
<PAGE>
OWNERSHIP OF SEPSCO SECURITIES BY CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The security ownership of each person who is known to SEPSCO to be the
beneficial owner of more than five percent of any class of SEPSCO Voting Stock
as of December 31, 1993, is as follows:
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
NAME AND ADDRESS OF BENEFICIAL PERCENT
TITLE OF CLASS BENEFICIAL OWNER OWNERSHIP OF CLASS
- ---------------------------------- --------------------------------- -------------------- --------
<S> <C> <C> <C>
Common Stock...................... Triarc Companies, Inc.(1) 8,298,456 shares(2) 71.2%(2)
GS Holdings, Inc.
777 S. Flagler Drive
West Palm Beach, FL 33401
Preferred Stock Series B
Convertible..................... Triarc Companies, Inc.(1) 490 shares(3) 100%
777 S. Flagler Drive
West Palm Beach, FL 33401
</TABLE>
- ------------
(1) See 'OWNERSHIP OF TRIARC SECURITIES BY CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT' for information concerning certain beneficial ownership of
Triarc's voting securities. GS Holdings, Inc. is a wholly-owned subsidiary
of Triarc.
(2) Includes shares issuable upon conversion of SEPSCO Preferred Stock
(convertible into 8,167 shares of SEPSCO Common Stock).
(3) Convertible into 8,167 shares of SEPSCO Common Stock.
SECURITY OWNERSHIP OF MANAGEMENT
The beneficial ownership of the equity securities of SEPSCO and of its
parent, Triarc, by each director of SEPSCO who has such ownership, and by the
directors and executive officers of SEPSCO as a group, as of October 31, 1993,
is set forth in the following two tables:
SEPSCO
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENT
TITLE OF NAME OF OF BENEFICIAL OF
CLASS BENEFICIAL OWNER OWNERSHIP(1) CLASS
- ------------------------------------ --------------------------------- ----------------- -------
<S> <C> <C> <C>
Common Stock........................ Directors and Executive Officers 328 shares *
of SEPSCO as a group (13 persons)
</TABLE>
- ------------
* Less than 1%.
(1) Except as otherwise noted, to the best knowledge of SEPSCO each listed
person has both sole voting and sole investment power as to the shares set
forth opposite his name in the table above.
137
<PAGE>
TRIARC
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENT
TITLE OF NAME OF OF BENEFICIAL OF
CLASS BENEFICIAL OWNER OWNERSHIP(1) CLASS
- ----------------------------------------- --------------------------------- ----------------- -------
<S> <C> <C> <C>
Class A Common Stock..................... Nelson Peltz 5,982,967 shares(2)(3) 28.1%
Peter W. May 5,982,867 shares(2) 28.1%
Leon Kalvaria 30,000 shares *
Directors and Executive Officers 6,121,844 shares 28.7%
of SEPSCO as a group (13 persons)
</TABLE>
- ------------
* Less than 1%.
(1) Except as otherwise noted, to the best knowledge of Triarc and SEPSCO each
listed person has both sole voting and sole investment power as to the
shares set forth opposite his name in the table above.
(2) Includes 5,982,867 shares held by DWG Acquisition of which Mr. Peltz and Mr.
May are the sole general partners.
(3) Includes 100 shares owned by Mr. Peltz's minor son, as to which Mr. Peltz
disclaims beneficial ownership.
POSSIBLE CHANGES IN CONTROL
Except as described below, there are no arrangements known to SEPSCO, the
operation of which may at a subsequent date directly result in a change of
control of SEPSCO.
In connection with the Reorganization, Graniteville refinanced
substantially all of its indebtedness and entered into the Graniteville Credit
Facility. The Graniteville Credit Facility is guaranteed by Triarc and such
guarantee is secured by a pledge of (i) 51% of the issued and outstanding stock
of Graniteville owned by a wholly-owned subsidiary of Triarc (subject only to an
existing pledge on such stock held by SEPSCO) and (ii) at least 70% of the
issued and outstanding shares of SEPSCO Common Stock. The Graniteville Facility
contains standard provisions concerning the maturity of the loans and other
provisions with respect thereto and with respect to the securities pledged by
Triarc including the shares of SEPSCO Common Stock.
See Note (4) under 'OWNERSHIP OF TRIARC SECURITIES BY CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT' for certain arrangements regarding Triarc Class A Common
Stock, the operation of which may at a subsequent date result in a change of
control of Triarc and indirectly result in a change of control of SEPSCO.
138
<PAGE>
INFORMATION RELATING TO MERGERCO
GENERAL
Mergerco is a newly formed Delaware corporation organized by Triarc for the
sole purpose of effecting the Merger. The directors and the stockholders of
Mergerco have approved the Merger Agreement. Mergerco will not have any assets
or liabilities (other than those arising under the Merger Agreement) or engage
in any activities other than those incident to its formation, capitalization or
the Merger. As of the date of this Proxy Statement-Prospectus, the authorized
capital stock of Mergerco consists of 10,000 shares of common stock, par value
$1.00 per share, and 1,000 of such shares are issued and outstanding. All of the
issued and outstanding shares of Mergerco are owned by Triarc. In the Merger,
Mergerco will merge with and into SEPSCO, with SEPSCO being the surviving
corporation in the Merger.
EXECUTIVE OFFICERS AND DIRECTORS OF MERGERCO
The following table sets forth certain information regarding the directors
and executive officers of Mergerco, each of whom has served as such since the
incorporation of Mergerco. All of such individuals are U.S. citizens.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------ --- -----------------------------------------------------------
<S> <C> <C>
Nelson Peltz........................ 51 Chairman and Chief Executive Officer, and Director
Peter W. May........................ 51 President and Chief Operating Officer, and Director
Leon Kalvaria....................... 35 Vice Chairman and Director
Anthony W. Graziano, Jr............. 52 Executive Vice President and General Counsel and Assistant
Secretary
Joseph A. Levato.................... 53 Executive Vice President and Chief Financial Officer
Curtis S. Gimson.................... 38 Senior Vice President and Associate General Counsel and
Secretary
</TABLE>
See 'MANAGEMENT OF TRIARC' for additional information about each of the
individuals listed above.
Each director has been elected to serve until the next annual meeting of
Mergerco stockholders and until his successor is duly chosen and qualified or
until his prior death, resignation or removal.
The term of office of each executive officer is until the organizational
meeting of the Mergerco Board of Directors following the next annual meeting of
Mergerco stockholders and until his successor is elected and qualified or until
his prior death, resignation or removal.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CERTAIN TRANSACTIONS IN CONNECTION WITH THE REORGANIZATION
As described in 'SPECIAL FACTORS -- Background to the Merger; Reasons for
the Merger -- The Reorganization and Related Matters' and in 'TRIARC
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS,' Triarc and its subsidiaries completed certain transactions in
connection with the Reorganization, including transactions involving certain
Posner Entities. Such transactions included:
(a) The exchange by the Posner Entities and Triarc of 5,982,866 shares
of Triarc common stock for an equal number of shares of Redeemable
Convertible Preferred Stock;
(b) The resignation of Victor Posner and his son, Steven Posner, as
officers and employees of Triarc and all of its subsidiaries and the
entering into with Steven Posner of a five year consulting agreement (not
requiring the provision of any substantial services) which provided for an
initial payment of $1,000,000 on April 23, 1993 and an annual consulting
fee of $1,000,000 thereafter;
(c) The entering into of a modification of the lease with respect to
the corporate headquarters of Triarc and certain subsidiaries described
below under ' -- Certain Transactions with Former Management and Former
Affiliates'; and
(d) The purchase of certain minority interests in CFC Holdings, SEPSCO
and Wilson Brothers from the Posner Entities described below (the 'Minority
Share Acquisitions').
In the Minority Share Acquisitions, Triarc acquired from the Posner
Entities, shares of certain subsidiaries for an aggregate purchase price of
$17.2 million. After giving effect to the offsets of certain amounts owed to
Triarc, the Posner Entities received net proceeds from the Minority Share
Acquisitions aggregating approximately $9.7 million. The prices paid for such
minority interests were determined by negotiations among Triarc, DWG Acquisition
and the sellers in the context of the Reorganization and no separate
determination was made that the respective purchase prices represented the fair
value of the share purchased.
In accordance with certain agreements (the 'CFC Holdings Agreements')
between Triarc and certain holders of shares of common stock (the 'Holdings
Common Stock') of CFC Holdings, which agreements are described in the following
two paragraphs, Triarc purchased on April 23, 1993 an additional 4.5% of the
shares of Holdings Common Stock.
Pursuant to the CFC Holdings Agreements, Triarc purchased from NVF on April
23, 1993 141,000 shares of Holdings Common Stock representing 1.4% of the issued
and outstanding capital stock of CFC Holdings for $3.6 million. At December 31,
1992, the aggregate net book value of the 141,000 shares of Holdings Common
Stock being sold by NVF was approximately $212,000. Triarc made payment of the
purchase price to NVF first by offset against amounts (aggregating approximately
$2.5 million) owed to Triarc and subsidiaries by NVF on account of the cost
sharing arrangements described under ' -- Certain Transactions with Former
Management and Former Affiliates' (the 'Former Cost Sharing Arrangements') and
$1.1 million was paid by Triarc to NVF in cash. At April 23, 1993, Posner
Entities beneficially owned approximately 38.2% of the outstanding voting
securities of NVF (approximately 36.4% of NVF's common stock actually
outstanding on such date) and NVF may be deemed to be controlled by Victor
Posner. In August 1993, NVF became a debtor in a case filed by its creditors
under Chapter 11 of the Federal Bankruptcy Code. For information concerning
claims made against the Triarc Companies by NVF's bankruptcy counsel and
reserves taken by the Triarc Companies in respect of contingent liabilities
relating to the NVF Proceedings, see 'TRIARC MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Results of
Operations -- Six Months Ended October 31, 1993 Compared with Six Months Ended
October 31, 1992' and Notes 2 and 11 to Notes to Condensed Consolidated
Financial Statement of Triarc Companies, Inc. and subsidiaries.
Pursuant to the CFC Holdings Agreements, Triarc purchased from IRM on April
23, 1993, 324,300 shares of Holdings Common Stock, representing 3.1% of the
issued and outstanding capital stock of CFC Holdings, for an aggregate of $8.4
million. At December 31, 1992, the aggregate net book value of the 324,300
shares of Holdings Common Stock being sold by IRM was approximately $488,000.
Triarc
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made payment of the purchase price to IRM first, by offset of the $2.1 million
owed to Triarc by IRM on account of the stock repurchase described below,
second, by offset against amounts owed to Triarc and subsidiaries by IRM on
account of the Cost Sharing Arrangements described under ' -- Certain
Transactions with Former Management and Former Affiliates' (aggregating
approximately $1.7 million), third, by offset against amounts owed by IRM to
Chesapeake Insurance (representing insurance premiums payable aggregating
approximately $1.2 million) and fourth, by the payment by Triarc to IRM in cash
of the remainder, if any. At April 23, 1993, 25% of the stock of IRM was owned
by Triarc, 40% was owned by NVF and 35% was owned by Salem Corporation
('Salem'), which is, in turn, 49% owned by Victor Posner and which may be deemed
to be controlled by Victor Posner.
IRM also purchased from Triarc on April 23, 1993 the 250 shares of IRM's
common stock owned by Triarc for $2.1 million. At December 31, 1992, the
aggregate net book value of the shares of IRM being sold by Triarc was
approximately $1.2 million, after giving pro forma effect to the proposed sale
by IRM of the shares of the Holdings Common Stock described above. The payment
for such purchase of shares of IRM owned by Triarc was made by offset against
amounts owed by Triarc and subsidiaries under the agreement for the sale of the
Holdings Common Stock, as described above.
In addition, on April 23, 1993, Triarc purchased from Posner Entities,
721,931 shares of SEPSCO Common Stock, representing 6.2% of the issued and
outstanding voting securities of SEPSCO, at a purchase price of approximately
$6.93 per share or an aggregate of $5 million. Such price approximated the
market price for such stock on the date that a letter of intent was entered into
with respect to the Equity Transactions ($6.875 on September 1, 1992). At April
23, 1993, the closing sale price for SEPSCO's common stock on the PSE was $15.50
and the aggregate market value of the 721,931 shares of SEPSCO common stock
being purchased by Triarc was approximately $11.2 million. Triarc also purchased
from Posner Entities 161,800 shares of common stock of Wilson Brothers,
representing approximately 4.9% of the issued and outstanding voting securities
of Wilson Brothers, at a purchase price of approximately $1.24 per share or an
aggregate of $200,000. Such price approximated the net book value for such stock
on the date that a letter of intent was entered into with respect to the Equity
Transactions ($1.21 as of June 30, 1992). At April 23, 1993, the closing sale
price for Wilson Brothers' common stock on the PSE was $.5625 and the aggregate
market value of the 161,800 shares of Wilson Brothers common stock being
purchased by Triarc was approximately $91,000. The payment for the purchases of
SEPSCO and Wilson Brothers stock, described above, was made by Triarc in cash.
CERTAIN TRANSACTIONS WITH FORMER MANAGEMENT AND FORMER AFFILIATES
During Fiscal 1993, Triarc and its subsidiaries engaged in transactions
with certain corporations which may be deemed to be controlled by Victor Posner
and to have been affiliates of Triarc and its subsidiaries until the
Reorganization. Such former affiliates (the 'Former Affiliates') were NVF, NVF's
68% owned subsidiary, APL, IRM, Salem and until its filing for protection under
Chapter 7 of the Federal Bankruptcy Court in February 1992, PEC.
(1) Pursuant to a management services agreement (the 'Former Management
Services Agreement'), in Fiscal 1993 Triarc provided to its subsidiaries and the
Former Affiliates certain management services, including legal, accounting,
internal auditing, insurance, financial and other management services (the 'Cost
Sharing Arrangements'). Under the Former Management Services Agreement, Triarc
charged the Former Affiliates $6,640,000 (including interest on past due
balances) for such services in Fiscal 1993, excluding the charges described in
Paragraph (2) below. Certain Former Affiliates were unable to pay approximately
$5,096,000 of the amounts charged to them during such period, and such costs
were reserved and reallocated among Triarc and subsidiaries and other
participants under the Former Management Services Agreement, of which
approximately $4,991,000 was borne by Triarc and its subsidiaries in Fiscal
1993, and the remaining $105,000 was borne by the other participants.
The agreements entered into in connection with the Equity Transactions
provided for the termination of providing management services and space pursuant
to the Cost Sharing Arrangements to the Former Affiliates within six months
after the closing of the Equity Transactions as well as for the reimbursement
for any space or services provided to the Former Affiliates during the period
between the date of the closing of the Equity Transactions and the date of such
termination at commercially
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reasonable rates no less than the rate Triarc would charge an unaffiliated third
party. Pursuant to these arrangements, Triarc provided certain limited services
to Former Affiliates through October 23, 1993, and discontinued such services
thereafter. Charges to such Former Affiliates for such services, including
certain reinsurance and equipment lease billings, aggregated approximately
$166,000 during Transition 1993.
(2) Until January 31, 1994, Triarc leased approximately 297,000 square feet
at 6917 Collins Avenue, Miami Beach, Florida (the 'Leased Space') from Victor
Posner Trust No. 6, a trust created for the benefit of Victor Posner and his
children (the 'Landlord'), pursuant to a master commercial lease agreement dated
as of April 1, 1983 (the 'Lease'). In Fiscal 1993, the Leased Space, which
constituted approximately 98% of the space in such building, was used primarily
for the corporate offices of Triarc, certain of its subsidiaries and certain of
the Former Affiliates. Also included in the Leased Space were apartments which
were used from time to time on an 'as needed' basis by Triarc, its subsidiaries,
and the Former Affiliates for accommodations for persons visiting such corporate
offices. In Fiscal 1993, $5,790,000 of the cost of the Leased Space was borne by
Triarc and its subsidiaries, and $826,000 was charged to the Former Affiliates.
Approximately $436,000 of the amount charged to certain of the Former Affiliates
during Fiscal 1993 which such Former Affiliates were unable to pay was reserved
and reallocated among Triarc and its subsidiaries and the other participants
under the Former Management Services Agreement, of which approximately $380,000
was borne by Triarc and its subsidiaries.
In connection with the Reorganization, the Landlord and Triarc entered into
a Lease Modification and Extension Agreement (the 'Lease Modification'). The
Lease Modification provided, among other things, for an extension of the lease
for a period of four years commencing on April 1, 1993 and ending on March 31,
1997 and for a reduction in the annual amount of base rent retroactive to
October 1, 1992 to the lesser of $14.00 per rentable square foot or an aggregate
of $4 million per annum. In addition, the Lease Modification provided for a
reduction in the amount charged for inside and outside parking associated with
the building, the elimination of any charges or fees on account of furniture and
fixtures used in the apartments described above and the elimination of any
obligation to restore the premises at the end of the term of the extended lease.
The Lease Modification also provided that the Landlord may, on nine months'
notice to Triarc, terminate the lease and that Triarc may, on six months' notice
to the Landlord, terminate the lease upon payment to the Landlord of a single
payment (the 'Early Termination Payment') equal to all of the base rent which
would otherwise be payable for the balance of the extended term, without
discount, plus additional rent due through the date of such early termination,
less any amounts then owed by Landlord to Triarc, and, that thereafter Triarc
and subsidiaries shall be released from any further obligations under the Lease
Modification. Pursuant to the Lease Modification, all outstanding rent
obligations for the Leased Space, aggregating approximately $20,638,000, were
settled on April 23, 1993 for $11,738,000 resulting in a rent reduction credit
of approximately $8,900,000. Aggregate rent payments of approximately $2.9
million were made by Triarc Companies in respect of the Leased Space during
Transition 1993. In July 1993, Triarc gave notice of termination of the lease
effective January 31, 1994. Because Landlord and Triarc have not been able to
agree upon the precise amount of the Early Termination Payment, the parties have
agreed to extend the time for payment of the Early Termination Payment to March
14, 1994. In connection with such extension, the parties agreed that the amount
to be paid in respect of the Early Termination Payment will bear interest from
February 1, 1994 until paid at the prime or base reference rate of Citibank. In
July 1993, Triarc recorded a charge of approximately $13,000,000 to provide for
the remaining payments on the lease subsequent to its cancellation.
(3) In Fiscal 1993, NPC Leasing Corp. ('NPC Leasing'), an indirect
wholly-owned subsidiary of Triarc, leased vehicles and other equipment to the
Former Affiliates under long-term lease obligations which are accounted for as
direct financing leases. Lease billings by NPC Leasing to the Former Affiliates
during Fiscal 1993 were approximately $144,000. Since May 1, 1993, NPC Leasing
has not been providing any services to, nor are any material credits due to NPC
Leasing from, any Former Affiliate.
(4) Until October 1993, Chesapeake Insurance provided certain insurance
coverage and the reinsurance of certain risks primarily for Triarc and its
subsidiaries and the Former Affiliates. During Fiscal 1993, net premiums
attributable to such insurance coverage and reinsurance for the Former
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Affiliates approximated $2,875,000. Following the Reorganization, Triarc,
determined that Chesapeake Insurance would no longer insure or reinsure risks of
corporations other than Triarc and its subsidiaries. Chesapeake Insurance no
longer insures or reinsures any risks for any periods commencing on or after
October 1, 1993.
(5) During Fiscal 1993, Triarc and its subsidiaries secured the major
portion of their property and liability insurance coverage through IRM, an
insurance agency which acted as agent or broker and provided claims processing
services. Commissions and payments for such services to IRM by Triarc and
subsidiaries amounted to approximately $1,591,000 for Fiscal 1993. Such services
from IRM were discontinued subsequent to April 1993.
(6) In connection with the Cost Sharing Arrangements, advances, insurance
premiums, equipment leases and accrued interest, Triarc had receivables due from
APL, a Former Affiliate, aggregating $38,120,000 as of April 20, 1992, against
which a valuation allowance of $34,713,000 was recorded. APL has experienced
recurring losses and other financial difficulties in recent years and in July
1993 APL became a debtor in a proceeding under Chapter 11 of the Bankruptcy Code
(the 'APL Proceeding'). Accordingly, during Fiscal 1993, Triarc and its
subsidiaries provided an additional $9,863,000 for the unreserved portion of the
receivable at April 30, 1992 and additional net billings in 1993. In February
1994, the Official Committee of Unsecured Creditors of APL Corporation (the 'APL
Committee') filed a complaint (the 'APL Complaint') against certain Posner
Entities, Triarc and certain companies formerly or presently affiliated with
Posner or with Triarc, alleging causes of action arising from various
transactions allegedly caused by the named Posner Entities in breach of their
fiduciary duties to APL and resulting in corporate waste, fraudulent transfers
and preferences. In the APL Complaint, the APL Committee asserts claims against
Triarc for (a) aiding and abetting breach of fiduciary duty, (b) equitable
subordination of claims which Triarc may have against APL, (c) declaratory
relief as to whether APL has any liability to Triarc, and (d) recovery of
fraudulent transfers allegedly made by APL to Triarc prior to commencement of
the APL Proceeding. The APL Complaint seeks an undetermined amount of damages
from Triarc, as well as the other relief identified in the preceding sentence.
Because the APL Complaint was filed during the last week of February 1994,
Triarc management has not had an opportunity to fully investigate the matters
contained therein. However, based on information currently available to Triarc,
Triarc management does not believe that the outcome of the APL Proceedings will
have a material adverse effect on the financial condition or results of
operations of the Triarc Companies.
(7) Triarc and its subsidiaries had secured receivables from PEC, a Former
Affiliate, aggregating $6,664,000 as of April 30, 1992 against which a
$3,664,000 valuation allowance was recorded. PEC also filed for protection under
the bankruptcy code in February 1992, and accordingly, during Fiscal 1993,
Triarc and its subsidiaries provided an additional $3,000,000 for the unreserved
portion of the receivables and for Triarc's significant doubts as to the net
realizability of the underlying collateral.
In addition to the foregoing transactions, during the Transition 1993,
Triarc sold a yacht and certain other assets having a net book value of
approximately $400,000 to an entity owned by Victor Posner for cash sales prices
aggregating approximately $310,000.
CERTAIN OTHER TRANSACTIONS
Triarc subleases from an affiliate of Messrs. Peltz and May approximately
26,800 square feet of furnished office space in New York, New York owned by an
unaffiliated third party. In addition, until October 26, 1993, Triarc also
subleased from another affiliate of Messrs. Peltz and May approximately 32,000
square feet of office space in West Palm Beach, Florida owned by an unaffiliated
third party. Subsequent to October 26, 1993, Triarc assumed the lease for
approximately 17,000 square feet of the office space in West Palm Beach. The
aggregate amount paid by Triarc with respect to such subleases was approximately
$1.8 million during Transition 1993, which is less than the aggregate amount
such affiliates paid to the unaffiliated third party owners. Messrs. Peltz and
May have guaranteed to the unaffiliated landlords payment of rent for the New
York and West Palm Beach office space.
Pursuant to an agreement dated as of October 1, 1992 entered into in
connection with the Reorganization, Triarc agreed to reimburse DWG Acquisition
for certain of the reasonable, out-of-
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pocket expenses incurred by DWG Acquisition in connection with services rendered
by it to Triarc without charge relating to the refinancing and restructuring of
Triarc and subsidiaries and other transactions beneficial to Triarc and its
subsidiaries. Pursuant to such agreement, Triarc reimbursed DWG Acquisition for
$229,000 in expenses, which amount related principally to travel, reproduction
and delivery expense.
Triangle Aircraft Service Corporation ('TASCO'), a company owned by Messrs.
Peltz and May, owns three aircraft. From August 1992 until September 30 1993,
TASCO operated such aircraft and made them available for use by Triarc Companies
for a fee (the 'TASCO Fee'), and Triarc Companies have made extensive use of
these aircraft. The TASCO Fee was an amount equal to TASCO's direct
out-of-pocket expenses, excluding fuel, oil and lubricants, plus two times the
cost of fuel, oil and lubricants. The TASCO Fee was in accordance with Federal
Aviation Administration regulations applicable to non-charter carriers. During
Fiscal 1993 and the five month period commencing on May 1, 1993 and ending on
September 30, 1993, Triarc and its subsidiaries were charged $754,000 and
$681,000, respectively, in respect of such TASCO Fees. On October 1, 1993,
Triarc and TASCO entered into an agreement pursuant to which Triarc is leasing
TASCO's three aircraft on a 'dry lease' basis (i.e., Triarc pays an aggregate
annual rent of $2,200,000 and the operating expenses of the aircraft directly to
unaffiliated third parties). During the three month period commencing October 1,
1993 and ending on December 31, 1993, Triarc and its subsidiaries paid $550,000
to TASCO pursuant to this agreement.
Until February 1994, an affiliate of Messrs. Peltz and May leased an
apartment in New York City. Commencing June 1, 1993, such apartment was used by
executives of Triarc Companies and, in connection therewith, Triarc Companies
reimbursed such affiliate approximately $189,000 of rent for the apartment for
the seven months ended December 31, 1993.
Triarc and SEPSCO have agreed in principle to the sale by SEPSCO to Triarc
of the stock of the SEPSCO subsidiaries that hold SEPSCO's natural gas and oil
working and royalty interests. The sale of SEPSCO's natural gas and oil
interests will be for a net cash purchase price of $8.5 million, which Triarc
and SEPSCO believe is equal to their estimated fair value and which is
approximately $4.5 million higher than their net book value. It is intended that
the sale will occur after the Merger. However, if the Merger is not approved by
the SEPSCO Stockholders (or is not consummated for any other reason), the sale
of such stock to Triarc will be completed prior to July 22, 1994. This
transaction was approved by both the Triarc Board and the SEPSCO Board, with
both David E. Schwab II and Sir Ian MacGregor, the only members of the SEPSCO
Board who are not also members of the Triarc Board, voting to approve the
transaction.
During Fiscal 1993 and Transition 1993, Triarc and its subsidiaries paid
Rosen & Reade, a law firm, approximately $1,744,000 and approximately
$1,127,000, respectively, on account of legal services rendered to Triarc and
its subsidiaries. Martin Rosen, a director of Triarc, is a partner of such firm.
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DESCRIPTION OF TRIARC CAPITAL STOCK
The authorized capital stock of Triarc consists of 75,000,000 shares of
Triarc Class A Common Stock, 12,000,000 shares of Triarc Class B Common Stock,
6,000,000 shares of Redeemable Convertible Preferred Stock, 5,000,000 shares of
Triarc Serial Preferred Stock and 2,000,000 Shares of Triarc Junior Serial
Preferred Stock (together with the Redeemable Convertible Preferred Stock and
the Triarc Serial Preferred Stock, the 'Triarc Preferred Stock,' and together
with the Triarc Common Shares, the 'Triarc Capital Stock'). As of the close of
business on October 27, 1993, there were outstanding 21,323,160 shares of Triarc
Class A Common Stock, no shares of Triarc Class B Common Stock, 5,982,866 shares
of Redeemable Convertible Preferred Stock, no shares of Triarc Serial Preferred
Stock and no shares of Triarc Junior Serial Preferred Stock.
The relative preferences and rights of the Triarc capital stock, are set
forth in the Triarc Articles. Set forth below is a summary description of such
rights and preferences. This summary does not purport to be complete and is
qualified by reference to the Triarc Articles.
TRIARC COMMON SHARES
The holders of shares of Triarc Class A Common Stock are entitled to one
vote for each share held of record on all matters on which Triarc shareholders
are entitled to vote, including election of directors. Except as required by
Ohio law, the holders of shares of Triarc Class B Common Stock are not entitled
to vote.
Shares of Triarc Class A Common Stock and Triarc Class B Common Stock share
equally in any dividends or other distributions payable in either cash, capital
stock of Triarc (other than Triarc Class A Common Stock or Triarc Class B Common
Stock) or other property of Triarc when, as and if declared by the Triarc Board.
If a dividend or distribution payable in Triarc Common Shares is declared on the
Triarc Common Shares, such dividend or distribution shall be made to the holders
of shares of Triarc Class A Stock in the form of shares of Triarc Class A Common
Stock and shall be made to the holders of shares of Triarc Class B Common Stock
in the form of shares of Triarc Class B Common Stock.
No dividend, other than a stock dividend payable in Triarc Common Shares,
may be paid on the Triarc Common Shares if Triarc is in arrears on the payment
of dividends on any outstanding Triarc Preferred Stock.
In the event that Triarc shall liquidate, dissolve or be wound up, whether
voluntarily or involuntarily, to the extent assets remain after payment of
creditors in full and after there shall have been paid or set aside for all
Triarc Preferred Stock then outstanding the full preferential amounts to which
they are entitled, the net assets of Triarc remaining will be divided ratably
among the holders of the Triarc Class A Common Stock and the Triarc Class B
Common Stock. The merger or consolidation of Triarc with or into any other
corporation, the merger or consolidation of any other corporation with or into
Triarc, or the sale, lease or conveyance of all or substantially all of its
assets would not be deemed to be a liquidation, dissolution or winding up for
this purpose.
The holders of Triarc Common Shares are not entitled as of right to
purchase or subscribe for any shares of stock of any class whether heretofore or
hereafter authorized or issued, whether issued for cash, property, services or
by way of a dividend.
Shares of Triarc Class A Common Stock are not convertible. Each share of
Triarc Class B Common Stock is convertible, on a one-to-one basis, into one
share of Triarc Class A Common Stock, provided that either (i) the holder of
such share upon conversion is not a Posner Entity or an affiliate thereof, or
(ii) upon such conversion such shares are placed into a voting trust and certain
other conditions are met.
REDEEMABLE CONVERTIBLE PREFERRED STOCK
Each share of Redeemable Convertible Preferred Stock is entitled to receive
out of funds legally available therefor, when, as and if declared by the Triarc
Board, preferential dividends in cash at an annual rate of 8 1/8% of such
share's 'Stated Value' ($12.00 per share) or $.975 per share. Such dividends are
payable semi-annually in arrears and are cumulative. No dividend or other
distribution (other than dividends payable in Triarc Common Shares or other
shares ranking junior to the Redeemable
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Convertible Preferred Stock) may be paid on any Triarc Common Shares or on any
shares ranking on a parity with or junior to the Redeemable Convertible
Preferred Stock, nor may shares of such stock be purchased, redeemed, retired or
acquired by Triarc, unless all accrued dividends on the Redeemable Convertible
Preferred Stock shall have been paid, with certain limited exceptions.
In the event of voluntary or involuntary liquidation or dissolution of
Triarc, to the extent assets remain after payment of creditors in full and
before any distribution to holders of Triarc Common Shares, Triarc Junior Serial
Preferred Stock or other shares ranking junior to the Redeemable Convertible
Preferred Stock, the holders of Convertible Preferred Stock, on a parity with
the holders of Triarc Serial Preferred Stock, would be entitled to receive the
stated value of such shares, plus an amount equal to accrued and unpaid
dividends to the date of payment, ratably in proportion to their full
preferential amounts. The merger or consolidation of Triarc with or into any
other corporation, the merger of any other corporation with or into the Triarc
or the sale, lease or conveyance of all or substantially all its assets would
not be deemed to be a liquidation or dissolution for this purpose.
Except as required by law and except with respect to certain extraordinary
matters as set forth in the Triarc Articles, the shares of Redeemable
Convertible Preferred Stock have no voting rights.
Triarc may redeem all, but not less than all, of the then outstanding
Redeemable Convertible Preferred Stock at any time on or after April 23, 1998,
and must redeem any shares of Redeemable Convertible Preferred Stock which
remain outstanding on April 23, 2005, in each such case, at a price per share
equal to the then applicable redemption price (which is $12.84 if such
redemption is made during the twelve month period commencing April 23, 1998, and
which reduces by $.12 for each subsequent twelve month period thereafter until
April 23, 2005, when it becomes $12.00) plus accrued but unpaid dividends to the
date of redemption.
Each share of Redeemable Convertible Preferred Stock is convertible at any
time by the holder thereof into Triarc Common Shares. Upon the conversion of
such shares, the $12.00 per share Stated Value of the Redeemable Convertible
Preferred Stock is credited against the $14.40 per share conversion price (the
'Conversion Price') for the Triarc Common Shares, which Conversion Price will be
subject to certain adjustments. If the holder of the shares of Redeemable
Convertible Preferred Stock being converted is not a Posner Entity or an
affiliate thereof, such conversion will be for shares of Triarc Class A Common
Stock. If the holder of the shares of Redeemable Convertible Preferred Stock
being converted is a Posner Entity or an affiliate thereof, such conversion will
be for shares of Triarc Class B Common Stock. Triarc may require that the
holders thereof convert all outstanding shares of Redeemable Convertible
Preferred Stock into Triarc Common Shares, if, at any time during the period
from April 23, 1996 through April 22, 1998, the closing price for a share of
Triarc Class A Common Stock is at least $18.50, subject to certain adjustments,
for at least 20 out of any 30 consecutive trading days. If such conversion is
required, the holder of the Triarc Common Shares received upon conversion may
(within 30 days following such conversion) require Triarc to repurchase the
Triarc Common Shares received upon such conversion at a price of $21.00 per
share, subject to certain adjustments. If, upon any conversion, Triarc is in
arrears on three or more dividend payments on the shares of Redeemable
Convertible Preferred Stock, the converting holder may, at his, her or its
option, either have all or part of such arrearage, up to $2.40 per Triarc Common
Share received upon conversion, credited against the Conversion Price, or retain
the right to receive such arrearage.
Pursuant to an agreement between Triarc and the holders of the Redeemable
Convertible Preferred Stock, under certain circumstances, Triarc will have the
right to purchase or designate another purchaser for shares of Redeemable
Convertible Preferred Stock (or Triarc Common Shares received upon conversion
thereof), if a holder of such shares proposes to sell them.
Pursuant to an agreement between Triarc and the holders of the Redeemable
Convertible Preferred Stock, the holders of the Redeemable Convertible Preferred
Stock have the right to demand that Triarc register the Triarc Common Shares
into which the Redeemable Convertible Preferred Stock may be converted, at
Triarc's expense at any two times while such stock is outstanding and also have
certain incidental registration rights in the event of certain registrations
being made by Triarc.
Except for the conversion rights described above, no holder of any of the
shares of Redeemable Convertible Preferred Stock has the right to purchase or
subscribe for any shares of Triarc capital stock
146
<PAGE>
of any class of Triarc whether heretofore or hereafter authorized or issued,
whether issued for cash, property, services or by way of dividend.
TRIARC SERIAL PREFERRED SHARES AND TRIARC JUNIOR PREFERRED SHARES
Each series of Triarc Serial Preferred Stock ranks on a parity with the
Redeemable Convertible Preferred Stock and each other series of Triarc Serial
Preferred Stock. Each Series of Triarc Junior Preferred Stock ranks on a parity
with each other series of Triarc Junior Serial Preferred Stock and is junior to
the Redeemable Convertible Preferred Stock and each series of Triarc Serial
Preferred Stock. Shares of Triarc Serial Preferred Stock and Triarc Junior
Serial Preferred Stock may be issued by action of the Triarc Board at any time
or from time to time without shareholder action. For each series of Triarc
Serial Preferred Stock and each series of Triarc Junior Serial Preferred Stock
approved for issuance by the Triarc Board of Directors, the Triarc Board of
Directors will fix the following terms: (a) the designation of the series which
may be by distinguishing number, letter or title, (b) the authorized number of
shares of the series, which may (except where otherwise provided in the creation
of the series) be increased or decreased from time to time by the Triarc Board
before or after the issuance thereof (but not below the number of shares thereof
then outstanding), (c) the dividend rate or rates of the series, (d) the date on
which and the period or periods for which dividends, if declared, shall be
payable and the date or dates from which dividends shall accrue and be
cumulative, (e) the redemption rights and prices, if any, (f) the terms and
amounts of the sinking fund, if any, (g) the amounts payable on shares of the
series in the event of any voluntary or involuntary liquidation, dissolution or
winding up of the affairs of Triarc, (h) whether the shares of the series will
be convertible into Triarc Common Shares or shares of any other class and, if
so, the conversion rate or rates or price or prices, any adjustments thereof and
all other terms and conditions upon which such conversion may be made, and (i)
restrictions on the issuance of shares of the same or any other class or series.
The holders of Triarc Serial Preferred Stock and Triarc Junior Serial Preferred
Stock will each be entitled to the same voting rights as holders of shares of
Triarc Class A Common Stock, voting with such holders as a single class, and
will each have certain additional voting rights, voting as a separate class,
including the right of each class to elect two members of the Triarc Board upon
certain dividend arrearages. The issuance of shares of Triarc Serial Preferred
Stock or Triarc Junior Serial Preferred Stock could have a materially dilutive
effect on the holders of Triarc Common Shares, could result in material
restrictions on Triarc's ability to pay dividends or make distributions on the
outstanding Triarc Common Shares and could materially reduce the amount that
might otherwise be available to holders of Triarc Common Shares upon any
liquidation, dissolution or winding up of Triarc.
SUBMISSION OF STOCKHOLDER PROPOSALS
FOR SEPSCO'S 1994 ANNUAL MEETING OF SEPSCO STOCKHOLDERS
In the event the Merger is not consummated for any reason, in accordance
with the rules of the Commission, certain stockholder proposals that are
received by the Secretary of SEPSCO at SEPSCO's corporate headquarters a
reasonable time before proxies are solicited by the SEPSCO Board for SEPSCO's
1994 Annual Meeting of Stockholders must be included in the proxy statement and
proxy relating to the 1994 Annual Meeting of SEPSCO Stockholders.
CERTAIN LEGAL MATTERS, EXPERTS AND REGULATORY APPROVALS
FEDERAL AND STATE APPROVALS
No Federal or state regulatory requirements remain to be complied with in
order to consummate the Merger.
LEGAL OPINIONS
The validity of the shares of Triarc Class A Common Stock to be issued in
the Merger will be passed upon for Triarc by Baker & Hostetler, Cleveland, Ohio.
147
<PAGE>
EXPERTS
The audited consolidated financial statements of Triarc Companies, Inc. and
Subsidiaries, of Southeastern Public Service Company and Subsidiaries and of
Graniteville Company and Subsidiaries included in this Proxy
Statement-Prospectus have been audited by Arthur Andersen & Co., independent
certified public accountants, as indicated in their reports with respect thereto
and are included herein upon the authority of such firm as experts in accounting
and auditing.
DELAWARE BUSINESS COMBINATION STATUTE
SEPSCO is incorporated in the State of Delaware. Section 203 of the DGCL
restricts certain 'business combinations' between a Delaware corporation and an
'interested stockholder,' as such terms are defined in such Section. Generally,
an 'interested stockholder' is defined as any person who owns beneficially 15%
or more of a Delaware corporation's voting stock. As a result of the
Reorganization, Triarc is an 'interested stockholder' for purposes of Section
203 of the DGCL. Accordingly, approval of the Merger Agreement is subject to the
requirements of Section 203 of the DGCL. In addition to any other vote required
to approve the Merger Agreement, adoption of the Merger Agreement requires the
affirmative vote of the holders of at least two-thirds of the outstanding shares
of SEPSCO Voting Stock, other than those held by Triarc or any subsidiary of
Triarc, entitled to vote at the Special Meeting.
MISCELLANEOUS
It is expected that representatives of Arthur Andersen & Co., Triarc's and
SEPSCO's independent public accountants, will be present at the Special Meeting
to respond to appropriate questions of SEPSCO Stockholders and to make a
statement if they so desire.
SEPSCO knows of no matters to be presented at the Special Meeting other
than the matters set forth in the attached Notice and this Proxy
Statement-Prospectus. However, if any other matters come before the Special
Meeting, it is intended that the holder of the proxies will vote thereon in
their discretion.
No person has been authorized to give any information or make any
representation on behalf of Triarc, SEPSCO or Mergerco not contained in this
Proxy Statement-Prospectus, and if given or made, such information or
representation must not be relied upon as having been authorized.
By order of the Board of Directors
CURTIS S. GIMSON
Senior Vice President and Associate
General Counsel, and Secretary
777 South Flagler Drive
West Palm Beach, Florida 33401
March 14, 1994
148
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
TRIARC COMPANIES INC.:
Report of Independent Certified Public Accountants.................................................. F-2
Consolidated Balance Sheets as of April 30, 1992 and 1993........................................... F-3
Consolidated Statements of Operations for the Years Ended April 30, 1991, 1992 and 1993............. F-4
Consolidated Statements of Additional Capital for the Years Ended April 30, 1991, 1992 and 1993..... F-5
Consolidated Statements of Cash Flows for the Years Ended April 30, 1991, 1992 and 1993............. F-6
Notes to Consolidated Financial Statements.......................................................... F-8
Condensed Consolidated Balance Sheets as of April 30, 1993 and October 31, 1993..................... F-35
Condensed Consolidated Statements of Operations for the Six Months Ended October 31, 1992 and
1993............................................................................................... F-36
Condensed Consolidated Statements of Cash Flows for the Six Months Ended October 31, 1992 and
1993............................................................................................... F-37
Notes to Condensed Consolidated Financial Statements................................................ F-38
SOUTHEASTERN PUBLIC SERVICE COMPANY:
Report of Independent Certified Public Accountants.................................................. F-48
Consolidated Balance Sheets as of February 29, 1992 and February 28, 1993........................... F-49
Consolidated Statements of Operations and Retained Earnings (Deficit) for the Years Ended February
28 or 29, 1991, 1992 and 1993...................................................................... F-50
Consolidated Statements of Cash Flows for the Years Ended February 28 or 29, 1991, 1992 and 1993.... F-51
Notes to Consolidated Financial Statements.......................................................... F-53
Condensed Consolidated Balance Sheets as of February 28, 1993 and November 30, 1993................. F-70
Condensed Consolidated Statements of Operations for the Nine Months Ended November 30, 1992 and
1993............................................................................................... F-71
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended November 30, 1992 and
1993............................................................................................... F-72
Notes to Condensed Consolidated Financial Statements................................................ F-73
GRANITEVILLE COMPANY:
Report of Independent Certified Public Accountants.................................................. F-84
Consolidated Balance Sheets as of March 1, 1992 and February 28, 1993............................... F-85
Consolidated Statements of Income and Retained Earnings for the Years Ended March 3, 1991, March 1,
1992 and February 28, 1993......................................................................... F-86
Consolidated Statements of Cash Flows for the Years Ended March 3, 1991, March 1, 1992 and February
28, 1993........................................................................................... F-87
Notes to Consolidated Financial Statements.......................................................... F-88
Condensed Consolidated Balance Sheets as of February 28, 1993 and November 28, 1993................. F-100
Condensed Consolidated Statements of Income for the Nine Months Ended November 29, 1992 and November
28, 1993........................................................................................... F-101
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended November 29, 1992 and
November 28, 1993.................................................................................. F-102
Notes to Condensed Consolidated Financial Statements................................................ F-103
TRIARC COMPANIES, INC.:
Loss Per Share Calculation.......................................................................... F-106
Pro Forma Loss Per Share Calculation................................................................ F-107
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders,
TRIARC COMPANIES, INC.:
We have audited the accompanying consolidated balance sheets of Triarc
Companies, Inc. (an Ohio corporation, formerly DWG Corporation) and subsidiaries
as of April 30, 1992 and 1993, and the related consolidated statements of
operations, additional capital and cash flows for each of the three years in the
period ended April 30, 1993. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Triarc Companies, Inc. and
subsidiaries as of April 30, 1992 and 1993, and the results of their operations
and their cash flows for each of the three years in the period ended April 30,
1993 in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, effective
May 1, 1992, the Company changed its method of accounting for income taxes and
postretirement benefits other than pensions.
ARTHUR ANDERSEN & CO.
Miami, Florida,
August 12, 1993.
F-2
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
APRIL 30,
--------------------
1992 1993
-------- --------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents................................................................. $ 20,514 $ 96,635
Restricted cash and equivalents (Note 4)............................................. 8,200 5,589
Receivables, net (Note 5)............................................................ 75,030 116,257
Inventories (Note 6)................................................................. 136,662 98,270
Deferred income taxes (Note 10)...................................................... -- 21,365
Net current assets of discontinued operations (Note 3)............................... 10,474 6,823
Other current assets................................................................. 8,340 14,407
-------- --------
Total current assets............................................................ 259,220 359,346
-------- --------
Restricted cash and short-term investments of insurance operations (Note 4)............... 26,457 18,271
Properties, net (Note 8).................................................................. 256,180 237,853
Unamortized costs in excess of net assets of acquired companies (Note 1).................. 184,909 186,572
Net non-current assets of discontinued operations (Note 3)................................ 56,225 60,086
Other assets (Note 1)..................................................................... 38,179 48,534
-------- --------
$821,170 $910,662
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt (Note 11).......................................... $109,849 $ 43,100
Short-term debt...................................................................... 19,464 --
Accounts payable (Notes 7 and 16).................................................... 100,479 71,729
Other current liabilities (Note 9)................................................... 62,000 111,011
-------- --------
Total current liabilities....................................................... 291,792 225,840
-------- --------
Long-term debt (Note 11).................................................................. 289,758 488,654
Insurance loss reserves (Notes 1 and 7)................................................... 84,222 76,763
Deferred income taxes (Note 10)........................................................... 12,541 35,991
Deposits and other liabilities............................................................ 15,165 17,157
Commitments and contingencies (Notes 7, 10, 17 and 18)
Minority interests........................................................................ 41,210 29,850
Redeemable preferred stock, $12 stated value; authorized 6,000,000 shares in 1993, issued
5,982,866 shares; aggregate liquidation preference and redemption amount $71,794,000
(Note 12)............................................................................... -- 71,794
Stockholders' equity (deficit) (Note 13):
Cumulative convertible preferred stock, $1 par value................................. 31 --
Class A common stock, $.10 par value; authorized 40,000,000 and 75,000,000 shares,
issued 27,006,336 and 28,251,805 shares............................................. 2,701 2,825
Class B common stock, $.10 par value; authorized 12,000,000 shares in 1993, none
issued.............................................................................. -- --
Additional paid-in capital........................................................... 37,968 52,372
Retained earnings (deficit).......................................................... 53,920 (6,067)
Less 1,117,274 and 7,100,145 Class A common shares in treasury at cost............... (8,315) (80,109)
Other................................................................................ 177 (4,408)
-------- --------
Total stockholders' equity (deficit)............................................ 86,482 (35,387)
-------- --------
$821,170 $910,662
-------- --------
-------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
--------------------------------------
1991 1992 1993
---------- ---------- ----------
(IN THOUSANDS EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Revenues:
Net sales.......................................................... $ 977,145 $1,029,613 $1,011,015
Royalties, franchise fees and other revenues....................... 50,017 45,090 47,259
---------- ---------- ----------
1,027,162 1,074,703 1,058,274
---------- ---------- ----------
Costs and expenses:
Cost of sales...................................................... 767,485 797,968 766,795
Selling, general and administrative expenses (Note 19)............. 214,629 188,179 203,662
Facilities relocation and corporate restructuring (Note 19)........ 3,785 4,318 43,000
Provision for doubtful accounts from affiliates (Note 16).......... 17,959 25,686 10,358
---------- ---------- ----------
1,003,858 1,016,151 1,023,815
---------- ---------- ----------
Operating profit.............................................. 23,304 58,552 34,459
---------- ---------- ----------
Interest expense (Note 19).............................................. (66,761) (71,832) (72,830)
Other income (expense), net (Note 15)................................... 9,776 6,542 (920)
---------- ---------- ----------
(56,985) (65,290) (73,750)
---------- ---------- ----------
Loss from continuing operations before income taxes, minority
interests, extraordinary items and cumulative effect of
changes in accounting principles............................ (33,681) (6,738) (39,291)
Benefit from (provision for) income taxes (Note 10)..................... 15,554 (2,956) (8,608)
---------- ---------- ----------
(18,127) (9,694) (47,899)
Minority interests in net losses (income)............................... 626 (513) 3,350
---------- ---------- ----------
Loss from continuing operations............................... (17,501) (10,207) (44,549)
Income (loss) from discontinued operations, net of income taxes and
minority interests (Note 3)........................................... (55) 2,705 (2,430)
---------- ---------- ----------
Loss before extraordinary items and cumulative effect of
changes in accounting principles............................ (17,556) (7,502) (46,979)
Extraordinary items, net (Notes 10 and 11).............................. 703 -- (6,611)
Cumulative effect of changes in accounting principles, net (Note 1)..... -- -- (6,388)
---------- ---------- ----------
Net loss...................................................... (16,853) (7,502) (59,978)
Preferred stock dividend requirements (Notes 12 and 13)................. (11) (11) (121)
---------- ---------- ----------
Net loss applicable to common stockholders.................... $ (16,864) $ (7,513) $ (60,099)
---------- ---------- ----------
---------- ---------- ----------
Loss per share (Note 1):
Continuing operations.............................................. $(.68) $(.39) $(1.73)
Discontinued operations............................................ -- .10 (.09)
Extraordinary items................................................ .03 -- (.26)
Cumulative effect of changes in accounting principles.............. -- -- (.25)
----- ----- ------
$(.65) $(.29) $(2.33)
----- ----- ------
----- ----- ------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF ADDITIONAL CAPITAL
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
------------------------------
1991 1992 1993
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Additional paid-in capital:
Balance at beginning of year............................................... $37,880 $37,890 $ 37,968
Common stock issued:
In connection with the Reorganization (Note 2)........................ -- -- 9,567
Grant of restricted shares (Note 14).................................. -- -- 4,797
Conversion of preferred stock (Note 13)............................... -- -- 15
Conversion of debentures (Note 13).................................... 10 78 38
Redemption of preferred stock (Note 13).................................... -- -- (13)
------- ------- --------
Balance at end of year..................................................... $37,890 $37,968 $ 52,372
------- ------- --------
------- ------- --------
Retained earnings (deficit):
Balance at beginning of year............................................... $78,297 $61,433 $ 53,920
Net loss................................................................... (16,853) (7,502) (59,978)
Dividends on preferred stock............................................... (11) (11) (9)
------- ------- --------
Balance at end of year..................................................... $61,433 $53,920 $ (6,067)
------- ------- --------
------- ------- --------
Treasury stock:
Balance at beginning of year............................................... $(8,315) $(8,315) $ (8,315)
Exchange of redeemable preferred shares for common (Notes 2 and 12)........ -- -- (71,794)
------- ------- --------
Balance at end of year..................................................... $(8,315) $(8,315) $(80,109)
------- ------- --------
------- ------- --------
Other (Note 13):
Balance at beginning of year............................................... $(1,538) $(1,207) $ 177
Grant of restricted shares -- unearned compensation (Note 14).............. -- -- (4,824)
Net unrealized gains on marketable securities of insurance operations, net
of minority interests.................................................... 331 1,384 239
------- ------- --------
Balance at end of year..................................................... $(1,207) $ 177 $ (4,408)
------- ------- --------
------- ------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
---------------------------------
1991 1992 1993
-------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss................................................................ $(16,853) $ (7,502) $ (59,978)
Adjustments to reconcile net loss to net cash and equivalents provided
by operating activities:
Depreciation of properties......................................... 28,861 31,224 31,196
Amortization of costs in excess of net assets...................... 5,023 5,314 6,785
Amortization of deferred debt discount and financing costs......... 5,287 6,536 6,396
Write-off of deferred financing costs.............................. -- -- 3,741
Provision for doubtful accounts (including amounts due from former
affiliates)...................................................... 22,274 28,740 14,141
Provision for facilities relocation and corporate restructuring.... 3,785 4,318 43,000
Loss (gain) on sales of assets, net................................ 1,915 (388) (2,974)
Gain on purchase of debentures for sinking fund.................... (3,510) (4,650) (117)
Decrease (increase) in restricted cash securing payment of
insurance losses................................................. 7,131 (3,198) 8,186
Minority interests, net of dividends paid.......................... (356) 501 (3,607)
Loss (income) from discontinued operations......................... 55 (2,705) 2,430
Cumulative effect of changes in accounting principles.............. -- -- 6,388
Decrease (increase) in:
Restricted cash and equivalents............................... 172 (2,715) 2,611
Receivables................................................... 21,462 (5,103) 1,143
Inventories................................................... (5,183) (13,330) 12,862
Other current assets.......................................... (5,761) 13,002 (7,425)
Increase (decrease) in:
Accounts payable and other current liabilities................ 19,751 5,323 (15,097)
Insurance loss reserves....................................... 1,672 (2,236) (7,459)
Deferred income taxes......................................... (5,405) (6,747) (11,024)
Other liabilities............................................. (21,956) (1,462) 3,075
Other, net......................................................... (6,552) 3,006 2,149
-------- -------- ---------
Net cash and equivalents provided by operating activities..... 51,812 47,928 36,422
-------- -------- ---------
Cash flows from investing activities:
Proceeds from sales of assets........................................... 2,068 1,929 39,464
Capital expenditures.................................................... (32,233) (22,571) (23,758)
Purchase of minority interests.......................................... -- -- (17,200)
Redemption of investment in affiliate................................... -- -- 2,100
-------- -------- ---------
Net cash and equivalents provided (used) by investing activities... (30,165) (20,642) 606
-------- -------- ---------
Cash flows from financing activities:
Issuance of Class A common stock........................................ -- -- 9,650
Proceeds from long-term debt............................................ 21,096 5,800 396,595
Repayment of long-term debt............................................. (29,202) (69,658) (329,332)
Deferred financing costs................................................ -- (6,900) (25,820)
Increase (decrease) in short-term debt.................................. 6,078 13,386 (14,745)
Payment of dividends and redemption of preferred stock.................. (11) (11) (24)
-------- -------- ---------
Net cash and equivalents provided (used) by financing activities... (2,039) (57,383) 36,324
-------- -------- ---------
Net cash provided (used) by continuing operations............................ 19,608 (30,097) 73,352
Net cash provided (used) by discontinued operations.......................... (741) 4,772 2,769
-------- -------- ---------
Net increase (decrease) in cash and equivalents.............................. 18,867 (25,325) 76,121
Cash and equivalents at beginning of year.................................... 26,972 45,839 20,514
-------- -------- ---------
Cash and equivalents at end of year.......................................... $ 45,839 $ 20,514 $ 96,635
-------- -------- ---------
-------- -------- ---------
</TABLE>
F-6
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
---------------------------------
1991 1992 1993
-------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid (received) during the year for:
Interest expense................................................... $ 60,329 $ 62,063 $ 61,475
-------- -------- ---------
-------- -------- ---------
Income taxes (refunds), net........................................ $(12,639) $ (6,718) $ 17,156
-------- -------- ---------
-------- -------- ---------
Supplemental schedule of noncash investing and financing activities:
Total capital expenditures.............................................. $ 41,442 $ 31,253 $ 27,207
Amounts representing capitalized leases and other secured financing..... (9,209) (8,682) (3,449)
-------- -------- ---------
Capital expenditures paid in cash.................................. $ 32,233 $ 22,571 $ 23,758
-------- -------- ---------
-------- -------- ---------
</TABLE>
As described more fully in Note 2 of Notes to Consolidated Financial
Statements, in April 1993, Triarc issued 5,982,866 shares of its newly-created
redeemable preferred stock in a one-for-one exchange for its Class A common
stock owned by an affiliate of Victor Posner, the former Chairman and Chief
Executive Officer of Triarc. Such transaction, which resulted in a $71,794,000
increase in redeemable preferred stock and an equal increase in Class A common
shares held in treasury at cost, is not reflected in the 1993 consolidated
statement of cash flows due to its noncash nature.
In July 1991 Triarc's subsidiary, RC/Arby's Corporation ('RC/Arby's',
formerly known as Royal Crown Corporation), restructured a significant portion
of its outstanding indebtedness. Due to its noncash nature, the aspect of such
restructuring representing the exchange of one form of indebtedness for another
on the part of RC/Arby's is not reflected in the 1992 consolidated statement of
cash flows. Also in connection with such restructuring of the indebtedness of
RC/Arby's, the shares of preferred stock of RC/Arby's held by Triarc were
converted into common stock of RC/Arby's resulting in Triarc then owning
approximately 88.7% of RC/Arby's outstanding voting securities. Such conversion
resulted in an increase of approximately $12,788,000 in unamortized costs in
excess of net assets of acquired companies and a corresponding increase in
minority interests liability on a consolidated basis which, due to its noncash
nature, is not reflected in the 1992 consolidated statement of cash flows.
In December 1991 Triarc's subsidiary, National Propane Corporation
('National Propane'), acquired from a subsidiary of American Financial
Corporation $5,000,000 aggregate principal amount of National Propane's 13 1/8%
senior subordinated debentures in exchange for a promissory note. Due to its
noncash nature, such exchange of debt is not reflected in the 1992 consolidated
statement of cash flows.
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1993
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include, as more fully described
below, the accounts of Triarc Companies, Inc. (formerly DWG Corporation and
referred to herein as 'Triarc' and, collectively with its subsidiaries, 'Triarc
Companies') and its wholly-owned subsidiaries, National Propane Corporation
('National Propane'), Home Furnishing Acquisition Corporation ('Home
Furnishing') and Citrus Acquisition Corporation ('Citrus') for their fiscal
years ending April 30, Southeastern Public Service Company ('SEPSCO' -- a 71.1%
owned subsidiary) and Graniteville Company ('Graniteville' -- a 51% owned
subsidiary of Triarc and 85.8% owned by Triarc Companies) for their fiscal years
ending on or about February 28 and Wilson Brothers ('Wilson' -- a 58.6% owned
subsidiary) and CFC Holdings Corp. ('CFC Holdings' -- a 94.6% owned subsidiary
of Triarc and 98.4% owned by Triarc Companies) for their twelve months ending
March 31. All such ownership percentages are as of April 30, 1993 and reflect
the acquisition of certain minority interests described in Note 2.
The accounts of SEPSCO, Graniteville, Wilson and CFC Holdings included in
the consolidated financial statements which are as of a date prior to April 23,
1993 reflect certain adjustments to the accounts included in the financial
statements of the respective entities principally to reflect the effects of a
change in control and related recapitalization of Triarc Companies on April 23,
1993, as described in Note 2, as well as the recording of certain significant
charges which are discussed further in Note 19.
All significant intercompany balances and transactions have been eliminated
in consolidation.
INVENTORIES
Triarc Companies' inventories, consisting of materials, labor and overhead,
are valued at the lower of cost or market. Cost is determined on the first-in,
first-out ('FIFO') basis except for inventories of the textiles segment, for
which cost is determined on the last-in, first-out ('LIFO') basis (see Note 6).
DEPRECIATION
Depreciation is computed principally on the straight-line basis using the
estimated useful lives of the related major classes of properties: 3 to 9 years
for automotive and transportation equipment; 3 to 30 years for machinery and
equipment; and 15 to 60 years for buildings and improvements. Gains and losses
arising from disposals are included in current operations.
UNAMORTIZED COSTS IN EXCESS OF NET ASSETS OF ACQUIRED COMPANIES
Costs in excess of net assets of acquired companies are generally being
amortized on the straight-line basis over 30 to 40 years. Accumulated
amortization of such costs was approximately $38,245,000 and $44,353,000 at
April 30, 1992 and 1993, respectively. The amount of impairment, if any, in
'Unamortized costs in excess of net assets of acquired companies' ('Goodwill')
is measured based on projected future results of operations. To the extent
future results of operations of those subsidiaries to which the Goodwill relates
through the period such Goodwill is being amortized are sufficient to absorb the
amortization of Goodwill, Triarc Companies has deemed there to be no impairment
of Goodwill.
AMORTIZATION OF DEFERRED FINANCING COSTS AND DEBT DISCOUNT
Deferred financing costs and original issue debt discount are being
amortized as interest expense over the lives of the respective debt using the
interest rate method. At April 30, 1992 and 1993, $9,929,000 and $29,028,000,
respectively, of unamortized deferred financing costs are included in 'Other
assets'. Unamortized original issue debt discount is reported as a reduction of
related long-term debt in the accompanying consolidated balance sheets (see Note
11).
F-8
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
APRIL 30, 1993
RESEARCH AND DEVELOPMENT
Research and development costs are expensed during the year in which the
costs are incurred and amounted to $1,677,000 in 1991, $2,132,000 in 1992 and
$2,001,000 in 1993.
INCOME TAXES
Triarc files a consolidated Federal income tax return with its 80% or
greater owned subsidiaries, National Propane, Citrus, Home Furnishing and, since
July 1991, CFC Holdings. Less than 80% owned subsidiaries file separate
consolidated Federal income tax returns with their respective subsidiaries.
Deferred income taxes are provided to recognize the tax effect of timing
differences between the recognition of income and expenses for tax and financial
statement purposes.
Effective May 1, 1992 Triarc Companies adopted Statement of Financial
Accounting Standards ('SFAS') 109, 'Accounting for Income Taxes' ('SFAS 109'),
issued by the Financial Accounting Standards Board ('FASB') and did not restate
prior periods. Triarc Companies' early adoption of SFAS 109 resulted in a charge
of $4,852,000, net of applicable minority interests, to Triarc Companies'
results of operations for the year ended April 30, 1993 ('Fiscal 1993') which is
reported in the 'Cumulative effect of changes in accounting principles'.
POSTRETIREMENT BENEFITS
Effective May 1, 1992 Triarc Companies adopted SFAS 106, 'Employers'
Accounting for Postretirement Benefits Other Than Pensions' ('SFAS 106'), issued
by the FASB. SFAS 106 requires that the expected cost of postretirement benefits
be charged to expense during the years that employees render service. Triarc
Companies' early adoption of the new standard resulted in a charge of
$1,536,000, net of applicable income taxes and minority interests, to Triarc
Companies' results of operations for the year ended April 30, 1993 which is
reported in the 'Cumulative effect of changes in accounting principles'.
INSURANCE LOSS RESERVES
Insurance loss reserves include supplemental loss reserves of $35,342,000
and $29,693,000 at the 1992 and 1993 balance sheet dates, respectively. The
supplemental loss reserves for affiliated company business are based on
actuarial studies using historical loss experience. The balance of the reserves
are either reported by the unaffiliated reinsurers, calculated by Triarc
Companies or are based on claims adjustors' evaluations. Management believes
that the reserves are fairly stated. Adjustments to estimates recorded resulting
from subsequent actuarial evaluations or ultimate payments are reflected in the
operations of the periods in which such adjustments become known.
FRANCHISE FEES AND ROYALTIES
Franchise fees are recognized as income when a franchised restaurant is
opened. Franchise fees for multiple area developments represent the aggregate of
the franchise fees for the number of restaurants in the area development and are
recognized as income when each restaurant is opened in the same manner as
franchise fees for individual restaurants. Royalties are based on a percentage
of restaurant sales of the franchised outlet and are accrued as earned.
LOSS PER SHARE
Loss per share has been computed by dividing net loss plus dividend
requirements on Triarc Companies' preferred stocks by the weighted average
number of outstanding shares of common stock during the year. The weighted
average number of outstanding common shares was 25,853,000,
F-9
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
APRIL 30, 1993
25,867,000 and 25,808,000 for the years ended April 30, 1991, 1992 and 1993,
respectively. The preferred stock dividend requirements deducted include cash
dividends paid and dividend requirements for each year not yet paid. Common
stock equivalents were not used to compute loss per share because such inclusion
would have been antidilutive.
RECLASSIFICATIONS
Certain amounts included in the prior years' consolidated financial
statements have been reclassified to conform with the current year's
presentation.
(2) THE REORGANIZATION AND RELATED MATTERS
On April 23, 1993, DWG Acquisition Group, LP ('DWG Acquisition'), a newly
formed limited partnership controlled by Nelson Peltz and Peter W. May, acquired
control of Triarc from Victor Posner, the former Chairman and Chief Executive
Officer of Triarc Companies, and certain entities controlled by him
(collectively, 'Posner') through a series of related transactions (the
'Reorganization'). Immediately prior to the Reorganization, Posner owned
approximately 46% of the outstanding common stock of Triarc.
The principal elements comprising the equity portion of the Reorganization
included the following components:
DWG Acquisition purchased from Posner 5,982,867 shares of Triarc's
Class A common stock, par value $.10 per share (the 'Triarc Class A
Common Stock'), representing approximately 28.6% of Triarc's common
equity outstanding immediately after the Reorganization, for $12.00
per share, or an aggregate purchase price of $71,794,000.
All of the remaining shares of the Class A Common Stock owned by
Posner were exchanged for shares of newly-created, non-voting,
convertible redeemable preferred stock of Triarc.
The minority interests owned by Posner in CFC Holdings (4.5%), SEPSCO
(6.2%) and Wilson (4.9%) were purchased by Triarc (the 'Minority
Share Acquisitions') at negotiated purchase prices aggregating
$17,200,000, resulting in a net increase of approximately $8,700,000
in unamortized costs in excess of net assets of acquired companies.
Victor Posner and his son, Steven Posner, the former Vice Chairman of
Triarc Companies, resigned as directors, officers and employees of
Triarc Companies and all of its subsidiaries. In connection with such
resignations, Victor Posner did not receive any severance payments.
However, in order to induce Steven Posner to resign, Triarc entered
into a five year consulting agreement (the 'Consulting Agreement')
with Steven Posner which provides for an initial payment of
$1,000,000 at the commencement of the term of such agreement and an
annual consulting fee of $1,000,000. The Consulting Agreement does
not require Steven Posner to provide any substantial services to
Triarc and Triarc presently does not expect that it will receive any
such services from him. As a result, the $6,000,000 aggregate amount
of payments required under the Consulting Agreement has been expensed
in Fiscal 1993.
Affiliates of Donaldson, Lufkin & Jenrette Securities Corporation
('DLJ') and of Merrill Lynch & Co. ('Merrill Lynch' and together with
DLJ, the 'DLJ/Merrill Lynch Investors') purchased from Triarc an
aggregate of 833,332 newly issued shares of Triarc Class A Common
Stock, representing approximately 4.0% of the Triarc Class A Common
Stock outstanding immediately after the Reorganization, for $12.00
per share, the same price at which DWG Acquisition purchased its
Triarc Class A Common Stock. The aggregate price approximated
$10,000,000 (the 'Equity Financing').
F-10
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
APRIL 30, 1993
Concurrently with the consummation of the Reorganization (the 'Closing'),
certain debt of Triarc and its subsidiaries was refinanced in order to reduce
borrowing costs and to make available additional funds for general working
capital and liquidity purposes. The principal refinancing transactions
consummated in connection with the Reorganization were the sale by RC/Arby's
Corporation ('RC/Arby's', formerly known as Royal Crown Corporation), a
wholly-owned subsidiary of CFC Holdings, of $225,000,000 aggregate principal
amount of its senior secured step-up rate notes due 2000 (the 'Step-Up Notes')
and the establishment of a new $180,000,000 credit facility for Graniteville
(the 'Graniteville Credit Facility') providing for $80,000,000 of term loans and
$100,000,000 of revolving credit loans (see Note 11).
The following table summarizes the aggregate sources and uses of funds in
connection with the Reorganization:
<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C>
Sources:
RC/Arby's Step-Up Notes.............................................................. $ 225.0
Graniteville Term Loan............................................................... 80.0
Graniteville Revolving Credit Loan................................................... 100.0
Equity Financing..................................................................... 10.0
-------------
Total sources of funds.......................................................... $ 415.0
-------------
-------------
Uses:
Repay debt owed to affiliates of American Financial Corporation ('AFC').............. $ 159.1
Repay Graniteville debt owed to its commercial lender................................ 82.2
Repay SEPSCO accounts receivable financing........................................... 12.7
Transfer to Chesapeake Insurance Company Limited ('Chesapeake Insurance') a
wholly-owned subsidiary of CFC Holdings............................................. 27.0
Minority Share Acquisitions and settlement of amounts due to and from Posner......... 22.6
Fees and expenses primarily related to the issuance of the Step-Up Notes and
Graniteville Credit Facility........................................................ 26.7
Fund capital expenditures and working capital........................................ 84.7
-------------
Total uses of funds............................................................. $ 415.0
-------------
-------------
</TABLE>
(3) DISCONTINUED OPERATIONS
On July 22, 1993, SEPSCO's Board of Directors authorized the sale or
liquidation of SEPSCO's utility and municipal services, refrigeration and
natural gas and oil businesses. Such businesses of SEPSCO have been treated as
discontinued operations in Triarc Companies' consolidated financial statements.
The precise timetable for the sale and liquidation of SEPSCO's discontinued
businesses will depend upon its ability to identify appropriate purchasers and
to negotiate acceptable terms for the sale of such businesses and assets.
However, SEPSCO currently anticipates completing such sale or liquidation by
July 31, 1994. After consideration of a $12,903,000 write-down (before tax
benefit and minority interests of $7,540,000) in Fiscal 1993 relating to the
impairment of certain unprofitable properties and accruals for environmental
remediation and losses on certain contracts in progress reflected in operating
profit (loss) of discontinued operations summarized below, and based on the
analysis performed to date, Triarc expects that such dispositions, including
results of operations through the anticipated disposal dates, will in the
aggregate not result in a net loss to Triarc Companies (see Note 22 for
discussion of subsequent events). Condensed financial information for the
discontinued
F-11
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
APRIL 30, 1993
operations, which has been retroactively classified separately in the
accompanying consolidated financial statements, is as follows:
<TABLE>
<CAPTION>
APRIL 30,
--------------------
1992 1993
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Balance Sheets
Receivables, net........................................................... $ 26,113 $ 25,178
Inventories................................................................ 3,524 2,845
Other current assets....................................................... 1,412 1,774
Current portion of long-term debt.......................................... (10,937) (9,709)
Accounts payable........................................................... (1,813) (2,662)
Other current liabilities.................................................. (7,825) (10,603)
-------- --------
Net current assets of discontinued operations......................... $ 10,474 $ 6,823
-------- --------
-------- --------
Properties, net............................................................ $ 93,977 $ 85,880
Unamortized costs in excess of net assets of acquired companies............ 228 202
Other assets............................................................... 72 37
Long-term debt............................................................. (18,070) (16,992)
Deferred income taxes...................................................... (19,819) (8,477)
Deposits and other liabilities............................................. (163) (564)
-------- --------
Net non-current assets of discontinued operations..................... $ 56,225 $ 60,086
-------- --------
-------- --------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
--------------------------------
1991 1992 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Results of Operations
Revenues...................................................... $188,161 $200,353 $204,714
Operating profit (loss)....................................... 3,030 9,012 (3,568)
Income (loss) before income taxes and minority interests...... (134) 6,665 (6,016)
Benefit from (provision for) income taxes..................... 50 (2,500) 2,274
Minority interests............................................ 29 (1,460) 1,312
Net income (loss)............................................. (55) 2,705 (2,430)
</TABLE>
(4) RESTRICTED CASH AND EQUIVALENTS
Triarc Companies has $5,593,000 and $5,264,000 of cash deposited in
restricted interest-bearing accounts as of April 30, 1992 and 1993,
respectively. Such deposits secure outstanding and standby letters of credit
principally for the purpose of securing certain performance and other bonds. As
of April 30, 1992 and 1993, Triarc Companies had approximately $300,000 and
$325,000, respectively, held in an interest-bearing cash collateral account with
respect to state requirements for certain advertising promotions.
In addition, as of April 30, 1992 Triarc Companies had $2,307,000 held in
an interest-bearing escrow account which was surrendered in September 1992 in
payment of a judgment in certain litigation. Such judgment costs were charged to
operations in the year ended April 30, 1991 ('Fiscal 1991') ($900,000) and in
the year ended April 30, 1992 ('Fiscal 1992') ($1,407,000) and are included in
'Other income (expense), net'.
'Restricted cash and short-term investments of insurance operations'
represent amounts which have been pledged as collateral under certain letters of
credit and reinsurance agreements to secure
F-12
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
APRIL 30, 1993
future payment of losses reflected in the insurance loss reserves in the
accompanying consolidated balance sheets.
Exclusive of cash and short-term investments of the insurance operations,
which are considered part of a larger pool of restricted investments, all highly
liquid investments with a maturity of three months or less when acquired are
considered cash equivalents.
(5) RECEIVABLES
The following is a summary of the components of receivables:
<TABLE>
<CAPTION>
APRIL 30,
--------------------
1992 1993
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Receivables:
Trade...................................................................... $ 79,406 $123,486
Affiliated................................................................. 34,730 134
-------- --------
114,136 123,620
-------- --------
Less allowance for doubtful accounts:
Trade...................................................................... 6,890 7,363
Affiliated................................................................. 32,216 --
-------- --------
39,106 7,363
-------- --------
$ 75,030 $116,257
-------- --------
-------- --------
</TABLE>
Affiliated receivables and related allowances arose principally from the
providing of management services and equipment lease financing to certain former
affiliates of Triarc Companies in the ordinary course of business, as described
in Note 16.
(6) INVENTORIES
The following is a summary of the components of inventories:
<TABLE>
<CAPTION>
APRIL 30,
-------------------
1992 1993
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Raw materials.................................................................... $ 36,210 $24,655
Work in process.................................................................. 9,870 6,244
Finished goods................................................................... 90,582 67,371
-------- -------
$136,662 $98,270
-------- -------
-------- -------
</TABLE>
If the FIFO method had been used, inventories of the textiles segment would
have been approximately $3,825,000 and $2,494,000 higher at April 30, 1992 and
April 30, 1993, respectively.
(7) INSURANCE OPERATIONS
Chesapeake Insurance (i) provides certain property insurance coverage for
Triarc Companies and (ii) reinsures a portion of certain insurance coverage
which Triarc Companies and certain former affiliates maintain with unaffiliated
insurance companies (principally workers' compensation, general liability,
automobile liability and group life). Net premiums attributable to former
affiliates were approximately $8,063,000, $4,400,000 and $2,875,000 in fiscal
1991, 1992 and 1993, respectively. In the past, Chesapeake Insurance had also
reinsured insurance risks of unaffiliated third parties and former affiliates
through various group participations. Following the Reorganization, Triarc
determined that
F-13
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
APRIL 30, 1993
Chesapeake Insurance would no longer insure or reinsure risks of corporations,
including former affiliates, other than Triarc Companies. As a result, insurance
operations are less significant and are no longer reported as a separate segment
of Triarc Companies' business (see Note 20).
Chesapeake Insurance is registered under the Bermuda Insurance Act of 1978
and related regulations which require compliance with various provisions
regarding the maintenance of statutory capital and surplus and liquidity.
Chesapeake Insurance was not in compliance with the required liquidity and
solvency ratios as of December 31, 1992. However, as of June 30, 1993,
Chesapeake Insurance was in compliance with the solvency ratio although it
remained in non-compliance with the liquidity ratio by a relatively
insignificant amount. Chesapeake Insurance subsequently received acceptance of
certain assets for inclusion in the liquidity ratio through December 31, 1993
such that Chesapeake Insurance is now in compliance with such ratio.
In September 1989, the Pennsylvania Insurance Commissioner as rehabilitator
of Mutual Fire, Marine and Inland Insurance Company ('Mutual Fire') commenced an
action in the Commonwealth Court of Pennsylvania against Chesapeake Insurance.
Such action, among other things, seeks recovery of $4,000,000 allegedly owed by
Chesapeake Insurance in connection with certain reinsurance arrangements,
specific performance by Chesapeake Insurance of its alleged obligations under
certain reinsurance arrangements by requiring Chesapeake Insurance to provide a
letter of credit in an amount in excess of $12,000,000 to secure certain alleged
outstanding losses, a restitution and accounting by Chesapeake Insurance, and
compensatory and punitive damages in an amount in excess of $40,000,000 arising
out of alleged bad faith in connection with such reinsurance arrangements.
Chesapeake Insurance has filed an answer, numerous affirmative defenses and
counterclaims against Mutual Fire and is vigorously contesting Mutual Fire's
action. Triarc Companies has provided what it believes are adequate reserves and
does not believe that the ultimate resolution of such matter will materially
adversely affect the results of operations or financial position of Triarc
Companies.
In June 1993, Chesapeake Insurance paid $8,075,000 to a surety in full
settlement of an approximately $13,800,000 liability due June 30, 1996 in
connection with the indemnification by Chesapeake Insurance and RC/Arby's of
bonding arrangements on behalf of Pennsylvania Engineering Corporation ('PEC'),
a former affiliate, for the design and construction of a waste disposal facility
(the 'Dutchess Facility') in Dutchess County, New York. Triarc Companies has
reflected such settlement amount in accounts payable as of April 30, 1993, of
which $3,000,000 and $5,075,000 were provided in Fiscal 1992 and 1993,
respectively in 'Selling, general and administrative expenses'.
(8) PROPERTIES
The following is a summary of the components of properties, at cost:
<TABLE>
<CAPTION>
APRIL 30,
--------------------
1992 1993
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Land............................................................................ $ 25,207 $ 21,903
Buildings and improvements...................................................... 100,814 99,151
Machinery and equipment......................................................... 297,940 285,656
Automotive and transportation equipment......................................... 25,061 24,033
-------- --------
449,022 430,743
Less accumulated depreciation................................................... 192,842 192,890
-------- --------
$256,180 $237,853
-------- --------
-------- --------
</TABLE>
Substantially all of the properties used in the fast food, soft drink and
textiles segments, and substantially all of the automotive and transportation
equipment used in the liquefied petroleum gas segment (see Note 20), are pledged
as collateral for certain debt (see Note 11).
F-14
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
APRIL 30, 1993
(9) OTHER CURRENT LIABILITIES
The following is a summary of the components of other current liabilities:
<TABLE>
<CAPTION>
APRIL 30,
-------------------
1992 1993
------- --------
(IN THOUSANDS)
<S> <C> <C>
Facilities relocation and corporate restructuring (Note 19)...................... $ 1,704 $ 42,000
Salaries and wages............................................................... 14,920 14,902
Other............................................................................ 45,376 54,109
------- --------
$62,000 $111,011
------- --------
------- --------
</TABLE>
(10) INCOME TAXES
The benefit from (provision for) income taxes from continuing operations
consists of the following components:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
-------------------------------
1991 1992 1993
-------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal......................................................... $ 9,420 $(2,758) $ (9,994)
State........................................................... (2,032) (2,489) (3,232)
Foreign......................................................... (300) -- (249)
-------- ------- --------
7,088 (5,247) (13,475)
-------- ------- --------
Deferred:
Federal......................................................... 7,905 2,466 3,094
State........................................................... 561 (175) 1,773
-------- ------- --------
8,466 2,291 4,867
-------- ------- --------
Total........................................................... $ 15,554 $(2,956) $ (8,608)
-------- ------- --------
-------- ------- --------
</TABLE>
The current deferred tax asset and the non-current deferred tax
(liabilities) consisted of the following components as of April 30, 1993:
<TABLE>
<CAPTION>
CURRENT NON-CURRENT
ASSET LIABILITY
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Facilities relocation and corporate restructuring........................................ $12,508 $ --
Allowance for doubtful accounts including non-affiliates................................. 13,547 --
Employee benefit costs................................................................... 5,207 --
Accelerated depreciation................................................................. -- (38,448)
Reserve for income tax contingencies and other tax matters............................... -- (15,192)
Insurance loss reserves.................................................................. -- 6,952
Net operating loss and depletion carryforward............................................ -- 10,042
Other, net............................................................................... 2,195 5,144
------- -----------
33,457 (31,502)
Less valuation allowance................................................................. (12,092) (4,489)
------- -----------
$21,365 $ (35,991)
------- -----------
------- -----------
</TABLE>
F-15
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
APRIL 30, 1993
Deferred income (taxes) benefits result from temporary differences in
recognition of income and expenses for tax and financial statement purposes. The
tax effects of the principal timing differences are as follows:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
------------------------------
1991 1992 1993
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Provision for interest on income tax contingencies and other tax
matters.............................................................. $ -- $ -- $ 3,025
Insurance loss reserves................................................ 705 872 (675)
Facilities relocation and corporate restructuring...................... 1,437 (917) 12,508
Provision for income tax deficiencies and other tax matters............ -- -- (11,767)
Excess of (tax over book) book over tax depreciation, depletion and
amortization of properties........................................... (1,935) (530) 2,921
Alternative minimum (tax) credit....................................... 2,376 976 (2,684)
Carryforward recognized as a reduction of deferred credits............. -- 3,358 --
Expenses not deductible until paid..................................... 2,032 527 1,503
Tax on dividends from subsidiaries not included in consolidated
return............................................................... (416) (1,104) (334)
Amortization of debt discount.......................................... 259 335 317
Benefit from unrealized losses on marketable securities................ 498 960 130
Employee benefit plan payment.......................................... 3,064 (3,064) --
Pension benefit recognized for tax purposes............................ -- 530 --
Other, net............................................................. 446 348 (77)
------- ------- --------
$ 8,466 $ 2,291 $ 4,867
------- ------- --------
------- ------- --------
</TABLE>
F-16
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
APRIL 30, 1993
The difference between the reported income tax benefit (provision) and a
computed tax benefit based on loss from continuing operations before income
taxes at the 34% statutory rate is reconciled as follows:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
-----------------------------------
1991 1992 1993
-------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Loss from continuing operations before income taxes............. $ 33,681 $ 6,738 $ 39,291
Federal income tax rate......................................... 34% 34% 34%
-------- ------- --------
Computed expected benefit....................................... 11,452 2,291 13,359
Decrease (increase) in Federal taxes resulting from:
Provision for income tax contingencies and other tax
matters.................................................. -- -- (11,767)
Amortization of nontaxable debits resulting from purchase
accounting adjustments................................... (408) (531) (2,986)
Effect of net operating losses for which no tax carryback
benefit is available..................................... (3,021) (1,977) (2,533)
Consulting agreement with Steven Posner (Note 19).......... -- -- (2,040)
Tax on dividends from subsidiaries not included in
consolidated returns..................................... (416) (1,104) (1,397)
State taxes, net of Federal income tax benefit............. (971) (1,758) (963)
Foreign taxes.............................................. (300) -- (249)
Defined benefit pension plan settlement previously accrued
in purchase accounting without tax benefit............... 8,429 -- --
Other, net................................................. 789 123 (32)
-------- ------- --------
$ 15,554 $(2,956) $ (8,608)
-------- ------- --------
-------- ------- --------
</TABLE>
Federal income tax returns of Triarc and its subsidiaries are being
examined by the Internal Revenue Service ('IRS') for the tax years 1985 through
1988. In late Fiscal 1993, the IRS issued notices of proposed adjustments to
taxable income totaling approximately $98,000,000, that would be reduced by net
operating loss carryforwards of approximately $20,000,000 which otherwise would
have expired. Triarc Companies is contesting a significant portion of the
proposed adjustments and in July 1993 responded to such notices. The IRS is
presently reviewing such responses and no final report has been issued. Triarc
Companies understands the IRS will commence the examination of its Federal
income tax returns for the tax years from 1989 through 1992 in the latter part
of the 1993 calendar year. During Fiscal 1993, Triarc Companies has provided
estimated charges in the amount of approximately $11,767,000 to provision for
income taxes from continuing operations and $8,547,000 to interest expense
relating to such examinations and other tax matters, of which approximately
$7,897,000 and $6,109,000, respectively, were recorded in the fourth quarter.
Management of Triarc Companies believes that adequate aggregate provisions have
been made in the current and prior years for any tax liabilities, including
interest, that may result from such examinations and other tax matters.
Triarc Companies recorded an extraordinary credit relating to the
utilization of net operating loss carryforwards of $703,000 in Fiscal 1991.
F-17
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
APRIL 30, 1993
(11) LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
APRIL 30,
--------------------
1992 1993
-------- --------
(IN THOUSANDS)
<S> <C> <C>
CFC Holdings and subsidiaries:
Step-Up Notes, 9 1/2% increasing to 11 1/4% expensed at a constant rate to
maturity, refinanced August 12, 1993(a).................................. $ -- $225,000
AFC Exchange Agreement, paid in April 1993 (a)............................. 103,352 --
Notes payable to banks, prime plus 8%, paid in July 1992................... 20,000 --
16 1/4% senior subordinated debentures paid in July 1993................... 1,168 968
16 7/8% subordinated debentures due 1996(b)................................ 18,092 15,470
Capitalized lease obligations.............................................. 12,626 11,565
Other notes payable with interest ranging from 9% to 12.5% secured by
equipment................................................................ 6,112 5,237
-------- --------
161,350 258,240
-------- --------
Graniteville and subsidiaries:
Graniteville Credit Facility, prime or LIBOR plus from 1.25% to 3.5%, due
through April 1998 (c):
Term loan............................................................. -- 80,000
Revolving loan........................................................ -- 72,734
Term loan, prime plus 1 1/2%, paid in April 1993(c)........................ 46,875 --
6 1/2% Washington National Insurance Company Pollution Control note due
through 1999............................................................. 1,060 946
Notes collateralized by machinery and equipment maturing at various dates
through 1994 with interest at various fixed and floating rates (weighted
average interest rate of 8.5% and 8.2%).................................. 2,848 982
Capitalized lease obligations.............................................. 748 330
-------- --------
51,531 154,992
-------- --------
National Propane and subsidiaries:
13 1/8% senior subordinated debentures due March 1, 1999 (less unamortized
deferred discount of $4,654,000 and $3,815,000)(d)....................... 58,346 52,185
AFC loan, 11 3/4%, paid in April 1993(g)................................... 30,000 --
11 3/4% secured note payable to AFC, paid in April 1993(g)................. 4,958 --
Equipment notes, 1% to 2% over prime due through 1998(e)................... 34,394 32,570
Other...................................................................... 2,214 1,696
-------- --------
129,912 86,451
Portion of equipment notes relating to equipment of discontinued
operations(e)............................................................ (28,883) (26,198)
-------- --------
101,029 60,253
-------- --------
SEPSCO and subsidiaries:
11 7/8% senior subordinated debentures due February 1, 1998 (less
unamortized deferred discount of $6,666,000 and $5,282,000)(f)........... 65,334 57,718
10% to 13% mortgage and equipment notes due 1994 to 2003................... 147 546
Other...................................................................... -- 5
-------- --------
65,481 58,269
-------- --------
Triarc:
AFC loan, 11 3/4%, paid in April 1993 (less unamortized deferred discount
of $1,193,000 in 1992)(g)................................................ 19,647 --
5 1/2% convertible subordinated debentures retired January 1993............ 106 --
-------- --------
19,753 --
-------- --------
Other...................................................................... 463 --
-------- --------
Total debt....................................................... 399,607 531,754
Less amounts payable within one year....................................... 109,849 43,100
-------- --------
$289,758 $488,654
-------- --------
-------- --------
</TABLE>
F-18
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
APRIL 30, 1993
Aggregate annual maturities of long-term debt, including required sinking
fund payments, capitalized lease obligations and reflecting the scheduled
maturities of equipment notes without regard to any acceleration that would
result from the sale of certain of SEPSCO's businesses as discussed in note (e)
below, are as follows:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30, (IN THOUSANDS)
- ------------------------------------------------------------------------------ --------------
<S> <C>
1994.......................................................................... $ 43,100
1995.......................................................................... 39,885
1996.......................................................................... 31,084
1997.......................................................................... 29,878
1998.......................................................................... 142,430
Thereafter.................................................................... 254,474
--------------
540,851
Less unamortized deferred discount............................................ 9,097
--------------
$531,754
--------------
--------------
</TABLE>
(a) In April 1993, the AFC Exchange Agreement debt was repaid from the
proceeds of the issuance of $225,000,000 of senior secured step-up rate notes
due 2000 (the 'Step-Up Notes'). On August 12, 1993 the Step-Up Notes were
refinanced by the issuance of $275,000,000 of fixed rate senior secured debt
securities pursuant to a public offering (the '9 3/4%Senior Notes'). The 9 3/4%
Senior Notes bear interest at 9 3/4% and will mature in 2000. The 9 3/4% Senior
Notes are secured by all of the assets of RC/Arby's including all of the stock
of RC/Arby's' subsidiaries, Royal Crown Company, Inc. ('RC Cola', formerly known
as Royal Crown Cola Co., Inc.) and Arby's, Inc. ('Arby's'). In addition, CFC
Holdings pledged all the stock of RC/Arby's as collateral for the 9 3/4% Senior
Notes, and amounts due thereunder are unconditionally guaranteed by RC Cola and
Arby's. The guaranties of RC Cola and Arby's are secured by a first priority
lien and security interest in substantially all of their receivables,
inventories and properties. The 9 3/4% Senior Notes are redeemable at the option
of RC/Arby's at amounts commencing at 102.786% of principal commencing August
1998 decreasing to 101.393% in August 1999. In addition, should RC/Arby's
consummate an initial public equity offering RC/Arby's may redeem up to
$91,667,000 of the 9 3/4% Senior Notes at 110% of principal with the net
proceeds of such public offering.
RC/Arby's incurred approximately $14,700,000 of fees and expenses in
connection with the issuance of the 9 3/4% Senior Notes which are recorded as
deferred financing costs. Further, during 1993, RC/Arby's recognized an
extraordinary charge of $6,611,000 in connection with the early extinguishment
of debt, representing the write-off of unamortized deferred financing costs of
$3,741,000 and the payment of prepayment penalties of $6,651,000, less
$3,781,000 of income tax benefit. In addition, $3,200,000 of commitment fees for
another proposed financing with a syndicate of banks, which was never
consummated because of the issuance of the Step-Up Notes, was charged to
operations during 1993. Such alternative financing was abandoned due to more
favorable payment terms and covenants associated with the Step-Up Notes.
(b) The 16 7/8% subordinated debentures due 1996 (the '16 7/8% Debentures')
require mandatory sinking fund payments which as of April 30, 1993 are
$9,000,000 in July 1993 and $6,470,000 in July 1994.
(c) In connection with the Reorganization, on April 23, 1993 Graniteville
and its subsidiary, C. H. Patrick & Co., Inc., ('C. H. Patrick') entered into a
$180,000,000 senior secured credit facility (the 'Graniteville Credit Facility')
with Graniteville's commercial lender and repaid its prior term loan. The
Graniteville Credit Facility consists of a senior secured revolving credit
facility of up to $100,000,000 (the 'Revolving Loan') with a $5,000,000 sublimit
for letters of credit and an $80,000,000 senior secured term loan (the 'Term
Loan') and expires in 1998. As part of the Graniteville Credit Facility,
F-19
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
APRIL 30, 1993
Graniteville's commercial lender will continue to factor Graniteville's and C.
H. Patrick's sales, with credit balances assigned to secure the Graniteville
Credit Facility (the 'Factoring Arrangement'). Graniteville incurred
approximately $6,500,000 of fees and expenses in connection with the
Graniteville Credit Facility which are recorded as deferred financing costs.
Borrowings under the Revolving Loan bear interest, at Graniteville's
option, at either the prime rate plus 1.25% per annum or the 90-day London
Interbank Offered Rate (the 'LIBOR rate') plus 3.00% per annum. If the unpaid
principal balance of the Term Loan is less than $55,000,000, the interest rate
on the Revolving Loan will be reduced to the prime rate plus 1.00% or the 90-day
LIBOR rate plus 2.75%. All LIBOR rate loans will have a 90-day interest period
and will be limited to $90,000,000 in total borrowings under the Graniteville
Credit Facility. The borrowing base for the Revolving Loan will be the sum of
90% of accounts receivable which are credit-approved by the factor ('Credit
Approved Receivables'), plus 85% of all other eligible accounts receivable, plus
65% of eligible inventory, provided that advances against eligible inventory
shall not exceed $35,000,000 at any one time. Graniteville, in addition to the
aforementioned interest, pays a commission of 0.45% on all Credit-Approved
Receivables, including a 0.20% bad debt reserve which will be shared equally by
Graniteville's commercial lender and Graniteville after deducting customer
credit losses.
The Term Loan is repayable $10,000,000 during the first year and
$12,000,000 per year thereafter, with a final payment of $22,000,000 due in
April 1998. Until the unpaid principal of the Term Loan is equal to or less than
$60,000,000 at the end of any fiscal year, Graniteville must make mandatory
prepayments in an amount equal to 50% of Excess Cash Flow, as defined, for such
fiscal year. The Term Loan bears interest at the prime rate plus 1.75% per annum
or the 90-day LIBOR rate plus 3.5% per annum. When the unpaid principal balance
of the Term Loan is less than $55,000,000, the interest rate thereon will be
reduced to the prime rate plus 1.375% or the 90-day LIBOR rate plus 3.125%. In
each case, the LIBOR rate is limited to $90,000,000 in total borrowings under
the Graniteville Credit Facility. In the event that Graniteville prepays the
Term Loan, in whole or in part, prior to the end of the third year, then a
prepayment fee shall be payable as follows: 2% of the amount prepaid if the
prepayment occurs in the first year, 1% of the prepayment during the second year
and 1/2 of 1% in the third year.
The Graniteville Credit Facility is secured by all of the assets of
Graniteville and C. H. Patrick, including all accounts receivable, notes
(including the $66,600,000 note Graniteville received from Triarc as an
intercompany advance), inventory, machinery and equipment, trademarks, patents
and other intangible assets, and all real estate. Graniteville has also pledged
as collateral the stock of C. H. Patrick. Additionally, Triarc and Graniteville
International Sales, Inc., Graniteville's only other wholly-owned subsidiary,
have unconditionally guaranteed all obligations under the Graniteville Credit
Facility. As collateral for such guarantee, Triarc pledged (i) 51% of the issued
and outstanding stock of Graniteville (subject to pre-existing pledge of such
stock in connection with a Triarc intercompany note payable to SEPSCO in the
principal amount of $26,538,000), and (ii) the issued and outstanding common
stock of SEPSCO owned by Triarc.
(d) National Propane is required to retire annually through a mandatory
sinking fund, $7,000,000 principal amount of its 13 1/8% senior subordinated
debentures (the '13 1/8% Debentures') through 1998 with a final payment of
$21,000,000 due in 1999.
(e) The equipment notes were issued by NPC Leasing Corp. ('NPC
Leasing' -- a wholly-owned subsidiary of National Propane) and are secured by
vehicles and other equipment under lease to Triarc Companies, and in certain
cases are guaranteed by Triarc and/or National Propane. The notes bear interest
at rates which range from 1% to 2% above the prime rate and are payable in both
equal monthly and quarterly installments over varying terms of up to 60 months.
Approximately $26,198,000 of such notes as of April 30, 1993 are secured by
equipment utilized in the discontinued operations described in Note 3 and upon
the sale of such operations, notes will be repaid prior to maturity.
F-20
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
APRIL 30, 1993
(f) SEPSCO is required to retire annually, through a mandatory sinking
fund, $9,000,000 principal amount of its 11 7/8% senior subordinated debentures
(the '11 7/8% Debentures') through 1997 with a final payment of $27,000,000 due
in 1998.
(g) In connection with the Reorganization, Triarc Companies also repaid
National Propane's and Triarc's loans from subsidiaries of AFC.
Triarc Companies' debt agreements contain various covenants which (a)
require meeting certain financial amount and ratio tests; (b) limit, among other
items, (i) the incurrence of indebtedness, (ii) the retirement of other debt
prior to maturity, (iii) investments, (iv) asset dispositions, (v) capital
expenditures and (vi) affiliate transactions other than in the normal course of
business; and (c) restrict the payment of dividends by Triarc's principal
subsidiaries to Triarc. As of April 30, 1993 National Propane and SEPSCO have
$16,339,000 and $7,300,000, respectively (71.1% or approximately $5,190,000 in
the case of SEPSCO would inure to the benefit of Triarc) available for the
payment of dividends to Triarc. Graniteville is unable to pay any such dividends
prior to February 28, 1996. While there are no restrictions applicable to CFC
Holdings, RC/Arby's had $1,000,000 available for the payment of dividends to CFC
Holdings following the issuance of RC/Arby's' 9 3/4%Senior Notes.
Sinking fund requirements on the 13 1/8% Debentures and 11 7/8% Debentures
were satisfied during 1991, 1992 and 1993, as applicable, by a combination of
cash payments and surrender of such debentures acquired from either a subsidiary
of AFC or in the open market. The discount on the 13 1/8% Debentures and 11 7/8%
Debentures purchased in the open market aggregated $3,510,000, $4,650,000 and
$117,000 in Fiscal 1991, 1992 and 1993, respectively.
The carrying value of long-term debt which was issued on April 23, 1993
(consisting of the Graniteville Credit Facility and the Step-Up Notes)
approximates fair value due to the recent issuance of such indebtedness. Except
for the two issues noted below, the carrying value of other long-term debt also
approximates fair value based on current market rates for similar securities or
redemption prices subsequent to year-end. At April 30, 1993 the fair value of
the 13 1/8% Debentures was approximately $4,700,000 higher than their carrying
value of $52,185,000. The fair value of the 11 7/8% Debentures was approximately
$5,400,000 higher than their carrying value of $57,718,000. Such debentures'
fair value is represented by quoted market prices at April 30, 1993.
(12) REDEEMABLE PREFERRED STOCK
The redeemable preferred stock has a stated and liquidation value of $12.00
per share and bears a cumulative annual dividend of 8 1/8% payable semi-annually
is mandatorily redeemable on April 23, 2005 at $12.00 per share plus accrued but
unpaid dividends and is redeemable at the option of Triarc commencing on April
23, 1998 at prices commencing at $12.84 in 1998 and decrease annually thereafter
by $0.12 to $12.00 in 2005 (the 'Redeemable Convertible Preferred Stock').
If at any time during the period from April 23, 1996 to April 23, 1998, the
closing price per share of Triarc Class A Common Stock is at least $18.50 per
share, subject to customary anti-dilution adjustments, for at least 20 of 30
consecutive trading days, Triarc can within 30 days thereafter require
conversion of all but not less than all of the Redeemable Convertible Preferred
Stock into Class A or Class B (see Note 13) Common Stock at a conversion price
of $14.40 per share. If such conversion is required by Triarc, then, within 30
days after such conversion, the holders of such Common Stock into which the
Redeemable Convertible Preferred Shares were converted shall have the
unconditional right to require Triarc to purchase all or part of such common
stock at $21.00 per share. The Redeemable Convertible Preferred Stock will be
convertible, in whole or in part, by the holder thereof at any time into shares
of Triarc's Class B common stock par value $.10 per share (the 'Triarc Class B
Common Stock') at a conversion price of $14.40 per share or a total of 4,985,722
shares (the 'Conversion Shares'), which under certain circumstances, will become
convertible into the same number of shares of Triarc Class A Common Stock.
Triarc has reserved 4,985,722 shares of Triarc Class B Common Stock in
F-21
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
APRIL 30, 1993
accordance herewith. Under certain circumstances, the Redeemable Convertible
Preferred Stock will become convertible directly into shares of Triarc Class A
Common Stock at a conversion price of $14.40 per share. All of such conversion
and redemption prices are subject to anti-dilution adjustments.
(13) STOCKHOLDERS' EQUITY
Triarc has 75,000,000 authorized shares of Triarc Class A Common Stock and
12,000,000 authorized shares of Triarc Class B Common Stock as of April 30,
1993. The Triarc Class B Common Stock is identical to the Triarc Class A Common
Stock, except that Triarc Class A Common Stock has one vote per share and Triarc
Class B Common Stock is non-voting. Under certain circumstances, each share of
Triarc Class B Common Stock is convertible into one share of Triarc Class A
Common Stock. None of the Triarc Class B Common Stock has been issued. A summary
of the changes in the Triarc Class A Common Stock for the three years ended
April 30, 1993 is as follows:
<TABLE>
<CAPTION>
1991 1992 1993
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Number of shares at beginning of year...................................... 26,968 26,973 27,006
Common stock issued:
Equity Financing (Note 2)............................................. -- -- 833
Grant of restricted shares (Note 14).................................. -- -- 268
Conversion of preferred stock......................................... 1 2 129
Conversion of debentures.............................................. 4 31 15
------ ------ ------
Number of shares at end of year............................................ 26,973 27,006 28,251
------ ------ ------
------ ------ ------
</TABLE>
Triarc has 7,000,000 authorized shares of preferred stock as of April 30,
1993, excluding the 6,000,000 shares of Redeemable Convertible Preferred Stock.
Such preferred stock has been designated as Serial Preferred Stock, $.10 par
value (5,000,000 shares) and Junior Serial Preferred Stock, $.10 par value
(2,000,000 shares). No Serial Preferred Stock or Junior Serial Preferred Stock
has been issued. Prior to April 1993, Triarc had $.60 preferred stock and $.35
preferred stock which were convertible into 7.789 and 4.439 shares of Triarc
Class A Common Stock, respectively, and were redeemable at their respective
redemption prices of $20.00 and $5.50 per share. For the three years ended April
30, 1993, aggregate activity of issued preferred stock is summarized as follows:
<TABLE>
<CAPTION>
1991 1992 1993
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Number of shares at beginning of year...................................... 31 31 30
Conversions into common stock.............................................. -- (1) (28)
Redemptions................................................................ -- -- (2)
------ ------ ------
Number of shares at end of year............................................ 31 30 --
------ ------ ------
------ ------ ------
</TABLE>
'Other stockholders' equity (deficit)' consisted of the following at April 30,
1992 and 1993, respectively.
<TABLE>
<CAPTION>
1992 1993
---- -------
(IN THOUSANDS)
<S> <C> <C>
Unearned compensation (Note 14)....................................................... $-- $(4,824)
Net unrealized gains on marketable securities of insurance operations, net of minority
interests........................................................................... 177 416
---- -------
$177 $(4,408)
---- -------
---- -------
</TABLE>
F-22
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
APRIL 30, 1993
(14) PENSION AND INCENTIVE COMPENSATION PLANS
Triarc Companies provides or provided defined benefit plans for employees
of certain subsidiaries. In fiscal 1989, all but one of the plans were
temporarily frozen pending review by management with respect to required changes
necessary to comply with the nondiscrimination rules promulgated by the Tax
Reform Act of 1986 and subsequent legislation. During 1991 the Internal Revenue
Service issued final regulations regarding such non-discrimination rules and as
a result of the unfavorable consequences of such regulations, management of
Triarc Companies decided in calendar 1992 to freeze the plans permanently and
terminate certain of the plans. In accordance therewith, Triarc Companies
recognized curtailment gains of $1,182,000 and $2,562,000 in Fiscal 1992 and
1993, respectively, and a termination gain of $431,000 in fiscal 1993.
The net periodic pension cost (benefit) of the plans in 1991, 1992 and 1993
was $1,177,000, $(426,000) and $154,000, respectively. The components of the net
periodic pension cost (benefit) are as follows:
<TABLE>
<CAPTION>
1991 1992 1993
------- ------- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Current service cost...................................................... $ 1,487 $ 389 $ 281
Interest cost on projected benefit obligation............................. 1,988 1,419 568
Return on plan assets..................................................... (2,120) (2,255) (908)
Net amortization and deferrals............................................ (178) 21 213
------- ------- -----
Net periodic pension cost (benefit).................................. $ 1,177 $ (426) $ 154
------- ------- -----
------- ------- -----
</TABLE>
The following table sets forth the plans' funded status as of April 30,
1992 and 1993:
<TABLE>
<CAPTION>
AGGREGATE OF PLANS WHOSE
-----------------------------------------
ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFITS
BENEFITS EXCEED ASSETS
------------------- ------------------
1992 1993 1992 1993
-------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation.............................. $ (9,855) $(4,077) $(3,917) $(4,056)
Non-vested benefit obligation.......................... (156) (22) -- (68)
-------- ------- ------- -------
Accumulated and projected benefit obligation........... (10,011) (4,099) (3,917) (4,124)
Plan assets at fair value................................... 11,641 4,502 1,887 3,538
-------- ------- ------- -------
Reconciliation of funded status:
Projected benefit obligation less than (in excess of)
plan assets.......................................... 1,630 403 (2,030) (586)
Unrecognized prior service costs....................... 18 17 127 --
Unrecognized net gain from plan experience............. (1,961) (163) (90) (60)
Unamortized net (asset) obligation at transition....... 747 (182) 704 --
-------- ------- ------- -------
Prepaid (accrued) pension cost.................... $ 434 $ 75 $(1,289) $ (646)
-------- ------- ------- -------
-------- ------- ------- -------
</TABLE>
Significant assumptions used in measuring pension costs for the Fiscal
years 1991, 1992 and 1993 for the plans included a 9% expected long-term rate of
return on assets and amortization of gains and losses, plan amendments and the
transition asset or liability primarily over the average remaining service lives
of participants expected to receive benefits. The discount rate was 9% and 7%
(for plans terminated by 1992) for the 1991 and 1992 fiscal years and 8% for the
1993 Fiscal year. The effect of the reduction in the discount rate for
continuing plans was to increase the 1993 net pension expense by $47,000.
F-23
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
APRIL 30, 1993
Plan assets are invested in managed portfolios consisting primarily of
money market investments, corporate bonds, government obligations and common
stock of unaffiliated issuers.
Under certain union contracts, Triarc Companies is required to make
payments to the unions' pension funds based upon hours worked by the eligible
employees. Payments to the funds amounted to $1,464,000 in 1991, $1,359,000 in
1992 and $1,290,000 in 1993. Information from the plans' administrators is not
available to permit Triarc Companies to determine its proportionate share of
unfunded vested benefits, if any.
Triarc Companies maintains unfunded medical and death benefit plans for
certain retired employees who have reached certain ages and have provided
certain minimum years of service. The medical benefits are contributory for some
employees and noncontributory for others, while death benefits are
noncontributory. Effective May 1, 1992 Triarc Companies adopted SFAS 106 and,
accordingly, provided as 'Cumulative effect of changes in accounting principles,
net' the unfunded accumulated postretirement benefit obligation as of that date.
Prior to such date, Triarc Companies accounted for postretirement obligation
payments on a pay-as-you-go basis; in Fiscal 1991 and 1992 such payments were
immaterial.
Net other postretirement benefit expense for Fiscal 1993 consisted of the
following:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Service cost -- benefit earned during the period.................... $ 43
Interest cost on accumulated postretirement benefit obligation...... 219
------
$262
------
------
</TABLE>
The accumulated other postretirement benefit obligation as of April 30,
1993 (which is equal to the amount which has been recognized in the accompanying
consolidated balance sheet) consists of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Retirees and dependents............................................. $2,493
Active employees eligible to retire................................. 88
Active employees not eligible to retire............................. 305
-------
$2,886
-------
-------
</TABLE>
For measurement purposes, a 12% annual rate of increase in the per capita
cost of covered health care benefits was assumed for Fiscal 1993. The rate was
assumed to decrease one percentage point to 11% for the following period and
continue to decrease one percentage point annually to 6% for 1998 and remain at
that level thereafter. The assumed health care cost trend rate affects the
amounts reported. To illustrate, increasing such rate by one percentage point in
each year would increase the accumulated other postretirement benefit obligation
as of April 30, 1993 by approximately $246,000 and the aggregate of the service
and interest cost components of the net other postretirement benefit expense for
Fiscal 1993 by approximately $30,000. An 8% discount rate was assumed.
Triarc Companies maintains 401(k) defined contribution plans for employees
who elect to participate. Employees may contribute from 1% to 15% of their total
earnings, subject to certain limitations. Triarc Companies makes a matching
contribution of 25% of the employee's contributions but limited to the first 5%
of an employee's compensation and an additional contribution equal to 0.25% of
such employee's total earnings. Contributions made by Triarc Companies to such
plans were $590,000, $562,000 and $707,000 in 1991, 1992 and 1993, respectively.
Triarc's Board of Directors has approved an amended and restated 1993
equity participation plan (the 'Equity Participation Plan') under which certain
directors, officers and key employees and consultants are granted restricted
stock and stock options subject to stockholder approval. The Equity
F-24
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
APRIL 30, 1993
Plan provides for a maximum of 3,500,000 shares of Triarc Class A Common Stock
to be granted as restricted stock or issued on the exercise of options. Grantees
of restricted stock are entitled to receive dividends and have voting rights,
but do not receive full beneficial ownership until the required vesting period
has been completed and until certain other requirements, if any, have been met.
On April 24, 1993, 268,000 shares of restricted stock were granted. The fair
market value of Triarc Class A Common Stock on the first trading day following
the grant was $18.00 per share and total unearned compensation of $4,824,000 has
been recorded and will be amortized to compensation expense over the applicable
vesting period. Compensation expense related thereto was not significant in
fiscal 1993. Also, on April 24, 1993, 1,712,500 non-qualified stock options were
granted at an option price of $18.00. One-third of these options become
exercisable in the fourth, fifth and sixth year following the date of grant.
On July 22, 1993 an aggregate of 150,000 shares of restricted Triarc Class
A Common Stock was granted to certain of the members of a special committee of
Triarc's Board of Directors (the 'Triarc Special Committee' -- see below and
Note 19 for further discussion) in compensation for future services and pursuant
to the Equity Participation Plan. The fair market value of Triarc Class A Common
Stock on the day following the grant of $22.00 per share will be recorded in the
first quarter following Fiscal 1993 as unearned compensation and will be
amortized to compensation expense over the applicable vesting period.
Triarc Companies maintained management incentive plans (the 'Incentive
Plans') which provided for incentive compensation of up to 10% of operating
earnings and up to 10% of earnings from sales or other dispositions of assets.
Awards were entirely discretionary and required approval of the Board of
Directors. Additionally, awards to Victor and Steven Posner required approval by
the Triarc Special Committee of Triarc's Board of Directors formed in connection
with a stipulation of settlement of shareholder litigation (the 'Granada
Litigation') entered into in 1990 in connection with an action brought by
Granada Investments, Inc. against Triarc and its directors. In accordance with
the Incentive Plans Triarc Companies provided $3,044,000, $5,207,000 and
$6,668,000 in 1991, 1992 and 1993, respectively, and reversed $10,000,000 and
$7,297,000 in 1992 and 1993, respectively. Thus, the net provisions (reversals)
amounted to $3,044,000, $(4,793,000) and $(629,000), for 1991, 1992 and 1993,
respectively. No payments were made under the Incentive Plans because of the
Triarc Special Committee's refusal to approve any awards to Victor and Steven
Posner. Nevertheless, Triarc Companies continued to make provisions because if
the Granada Litigation had been resolved favorably to Victor Posner or if the
term of the Triarc Special Committee had expired during the period of Victor
Posner's control of Triarc Companies, it was likely that all or some of the
incentive compensation would have been paid. The reversal at the end of 1992 was
made on the recommendation of the Triarc Special Committee. In April 1993, in
connection with the change in control of Triarc Companies, Victor Posner and
Steven Posner resigned as officers and directors of Triarc Companies and its
affiliates and the new management of Triarc Companies terminated the Incentive
Plans. Accordingly, Triarc Companies reversed $7,297,000 of such accruals in
1993. At April 30, 1992 and 1993 there were $6,318,000 and $5,689,000,
respectively, available under the Incentive Plan including $4,689,000 paid under
the Incentive Plan subsequent to the Fiscal 1993 year-ends of certain
subsidiaries of Triarc; such amounts are included in 'Other current liabilities'
in the accompanying consolidated balance sheets.
F-25
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
APRIL 30, 1993
(15) OTHER INCOME (EXPENSE), NET
Other income (expense), net consists of the following components:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
-----------------------------
1991 1992 1993
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest income......................................................... $ 6,838 $ 3,543 $ 1,716
Gains on repurchases of debentures for sinking funds (Note 11).......... 3,510 4,650 117
Other expense, net (Notes 4 and 19)..................................... (572) (1,651) (2,753)
------- ------- -------
$ 9,776 $ 6,542 $ (920)
------- ------- -------
------- ------- -------
</TABLE>
(16) TRANSACTIONS WITH RELATED PARTIES
By agreement, Triarc provides certain management services including, among
others, legal, accounting, internal auditing, insurance and financial services
and incurs certain costs on behalf of its subsidiaries and former affiliates. In
1991, 1992 and 1993, respectively, $10,596,000, $8,854,000 and $9,181,000 of
these costs were borne by Triarc Companies and $7,437,000, $8,084,000 and
$6,640,000, including interest on past due balances, were charged to former
affiliates. Triarc is obligated to provide certain limited management services
to several former non-subsidiary affiliates through October 1993 and will
discontinue such services thereafter. Triarc also leases space on behalf of its
subsidiaries and former affiliates from a trust for the benefit of Victor Posner
and his children. In 1991, 1992 and 1993, respectively, $7,299,000, $7,451,000
and $5,790,000 of the cost of such leased space was borne by Triarc and
$1,946,000, $1,124,000 and $826,000 was charged to former affiliates. In
connection with the Reorganization, all outstanding rent obligations for such
leased space aggregating approximately $20,638,000 were settled on April 23,
1993 for $11,738,000 resulting in a rent reduction credit of approximately
$8,900,000 included in 'Other income (expense), net'. At April 30, 1992, Triarc
owed rent and late charges aggregating $14,550,000, which was included in
'Accounts payable'. In July 1993, Triarc Companies gave notice to terminate the
lease effective January 31, 1994 and recorded a charge of approximately
$13,000,000 included in 'Facilities relocation and corporate restructuring' in
the year ended April 30, 1993 to provide for the remaining payments on the lease
subsequent to its cancellation. As described below, certain amounts due from
former affiliates under such cost sharing arrangements were reserved and
reallocated among Triarc Companies and the other participants in such cost
sharing arrangements.
Insurance and Risk Management, Inc. ('IRM'), a former affiliate, acted as
agent or broker in connection with certain insurance coverage obtained by Triarc
Companies and provided claims processing services for Triarc Companies.
Commissions and payments for such services to IRM amounted to $1,727,000 in
1991, $1,778,000 in 1992 and $1,591,000 in 1993. Such services from IRM have
been discontinued subsequent to April 1993.
During Fiscal 1993, Triarc Companies used corporate aircraft owned by
Triangle Aircraft Services Corporation ('TASCO'), a corporation wholly-owned by
Messrs. Peltz and May, in connection with business trips related to the
Reorganization for which Triarc Companies incurred usage fees of approximately
$754,000.
NPC Leasing Corp. leases vehicles and other equipment to subsidiaries and
former affiliates under long-term lease obligations which are accounted for as
direct financing leases. Lease billings by NPC Leasing to former affiliates
during 1991, 1992 and 1993 were approximately $1,182,000, $703,000 and $144,000,
respectively. Lease billings receivable and direct finance-type lease
receivables from former affiliates of Triarc Companies, which are included in
'Receivables' and 'Other assets', aggregated
F-26
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
APRIL 30, 1993
approximately $132,000 and $42,000 at April 30, 1992 and 1993 , respectively,
net of allowance for doubtful accounts of $2,202,000 at April 30, 1992.
In connection with certain cost sharing agreements, advances, insurance
premiums, equipment leases and accrued interest, Triarc Companies had
receivables due from APL Corporation ('APL'), a former affiliate, aggregating
$38,120,000 as of April 30, 1992, against which a valuation allowance of
$34,713,000 was recorded. During the year ended April 30, 1993 Triarc Companies
provided an additional $9,863,000, of which $3,570,000 was provided during the
fourth quarter, for the unreserved portion of the receivable at April 30, 1992
and additional net billings in 1993. APL has experienced recurring losses and
other financial difficulties in recent years and in June 1993 certain creditors
of APL filed an involuntary petition for relief under the Federal bankruptcy
code against APL. Accordingly, Triarc Companies wrote off the full balance of
the APL receivables and related allowance of $44,576,000 during Fiscal 1993.
Triarc Companies also had secured receivables from Pennsylvania Engineering
Corporation ('PEC'), a former affiliate, aggregating $6,664,000 as of April 30,
1992 against which a $3,664,000 valuation allowance was recorded. During the
fourth quarter of the year ended April 30, 1993, Triarc Companies provided an
additional $3,000,000 for the unreserved portion of the receivables. PEC had
also filed for protection under the bankruptcy code and, moreover, Triarc
Companies has significant doubts as to the net realizability of the underlying
collateral.
See also Notes 2, 7, 12 and 19 with respect to certain other transactions
with related parties.
(17) ACCOUNTING FOR LEASES
Triarc Companies leases buildings and improvements, machinery and equipment
and automotive and transportation equipment for periods that vary between one
and twenty years. Some leases provide for contingent rentals based upon sales
volume, mileage or production. For the years ended April 30, 1991, 1992 and
1993, rental expense amounted to $14,606,000, $15,681,000 and $28,302,000,
including $13,000,000 for termination of the lease on Triarc Companies'
corporate office facility effective January 31, 1994 (see Note 16), for minimum
rentals and $1,077,000, $986,000 and $1,021,000 for contingent rentals, less
$621,000, $634,000 and $593,000 for sublease rental income, respectively.
The following table shows Triarc Companies' future minimum rentals for
leases having an initial lease term in excess of one year as of April 30, 1993:
<TABLE>
<CAPTION>
LEASES
-------------------------------------
CAPITALIZED OPERATING SUBLEASE
YEAR ENDED APRIL 30, LEASES LEASES INCOME
- -------------------------------------------------------------------- ----------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
1994................................................................ $ 2,739 $10,733 $ 917
1995................................................................ 2,311 10,210 806
1996................................................................ 2,176 9,266 684
1997................................................................ 2,100 7,526 413
1998................................................................ 1,922 5,883 403
Thereafter.......................................................... 10,839 34,294 240
----------- --------- ---------
Total minimum payments.............................................. 22,087 $77,912 $ 3,463
--------- ---------
--------- ---------
Less interest....................................................... 10,192
-----------
Present value of minimum capitalized lease payments................. $11,895
-----------
-----------
</TABLE>
Present value of minimum capitalized lease payments is included together
with long-term debt and the current portion of long-term debt in the
accompanying consolidated balance sheets. See Note 11.
F-27
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
APRIL 30, 1993
(18) LEGAL MATTERS
Triarc and certain of its present and former directors were defendants in
certain litigation brought in the United States District Court for the Northern
District of Ohio (the 'Ohio Court'). In April 1993, the Ohio Court entered a
final order approving a Modification (the 'Modification') which modified the
terms of a previously approved stipulation of settlement (the 'Original
Stipulation') in such litigation. The Modification resulted in the dismissal,
with prejudice, of all actions before the Ohio Court. Triarc Companies recorded
charges to operations for related legal fees of $219,000 and $2,004,000 in
Fiscal 1991 and 1992, respectively, and $6,225,000 in Fiscal 1993, including
$2,872,000 during the fourth quarter, included in 'Other income (expense), net'
in the accompanying consolidated statements of operations.
In December 1990, a purported shareholder derivative suit (the 'Ehrman
Litigation') was brought against SEPSCO's directors at that time and other
certain corporations, including Triarc, in the United States District Court for
the Southern District of Florida. The amended complaint in such action alleges,
among other things, that the defendants breached their fiduciary duties to
SEPSCO and RC/Arby's by causing RC/Arby's to issue approximately 4,100,000
shares of convertible redeemable preferred stock to Triarc for cash and
forgiveness of indebtedness of $41,350,000, which preferred stock, upon
conversion, resulted initially in Triarc owning approximately 88.7% of
RC/Arby's' outstanding voting securities and reduced SEPSCO's ownership of such
corporation from 48% to 5.4%, by causing Chesapeake Insurance, then a
wholly-owned subsidiary of RC/Arby's, to suffer large losses in the operations
of its business in order to make RC/Arby's seem less successful than it truly
was, and by causing the allegedly unfair sale by SEPSCO in January 1986 of
shares of Graniteville's common stock constituting approximately 51% of
Graniteville's outstanding common stock to Triarc. On April 24, 1993, the Board
of Directors of Triarc approved the terms of a proposed settlement of the Ehrman
Litigation in accordance with the terms set forth in a Memorandum of
Understanding dated January 21, 1993 (the 'January Memorandum') entered into by
DWG Acquisition and the plaintiff in the Ehrman Litigation. The proposed
settlement of the Ehrman Litigation contemplated by the January Memorandum
provides, among other things, that SEPSCO would be merged into, or otherwise
acquired by Triarc or an affiliate thereof, on the following terms: each holder
of common stock of SEPSCO other than Triarc will receive in exchange for each
share of common stock of SEPSCO, .55 shares of Triarc Class A Common Stock and a
note (or appropriate portion of a note) payable by Triarc or SEPSCO having a
principal amount of $6.00, and SEPSCO's common stock, par value $1.00 per share
('SEPSCO Common Stock') would be delisted from the Pacific Stock Exchange and
would be eligible for termination of registration pursuant to the Securities
Exchange Act of 1934. Triarc or SEPSCO will pay the reasonable fees and expenses
of counsel to the plaintiff in the action, as awarded by the court, and the
stockholders of SEPSCO will thus receive the merger consideration net of such
fees and expenses. Plaintiff's counsel will be paid, subject to court approval,
an amount not to exceed $650,000 in cash and $650,000 in value in notes (which
notes will be identical in form and substance to the notes distributed to the
SEPSCO stockholders). In addition, SEPSCO accrued $400,000 for its own legal
fees. Such amounts were accrued by Triarc Companies in the fourth quarter of
Fiscal 1993 and are included in 'Other income (expense), net' in the
accompanying consolidated statement of operations and in 'Other current
liabilities' in the accompanying consolidated balance sheet as of April 30,
1993. The settlement of the Ehrman Litigation is conditioned on, among other
things, approval by the District Court. SEPSCO and the plaintiff in the Ehrman
litigation are currently discussing a modification to the January Memorandum to
provide that the consideration to be received would consist solely of Triarc
Class A Common Stock based on a revised exchange ratio which is yet to be
determined. Such revised ratio is currently expected to be .80 shares of Triarc
Class A Common Stock for each share of SEPSCO Common Stock, although no
assurance can be given that a definitive agreement can be reached as to such
matter. Following such merger or acquisition, Triarc would own 100% of SEPSCO
Common Stock.
F-28
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
APRIL 30, 1993
In 1987, Graniteville was notified by the South Carolina Department of
Health and Environmental Control ('DHEC') that it discovered certain
contamination of Langley Pond near Graniteville, South Carolina and DHEC
asserted that Graniteville may be one of the parties responsible for such
contamination. Graniteville entered into a consent decree providing for the
study and investigation of the alleged pollution and its sources. The study
report, prepared by Graniteville's environmental consulting firm and filed with
DHEC in April 1990, recommended that pond sediments be left undisturbed and in
place. DHEC responded by requesting that Graniteville submit additional
information concerning potential passive and active remedial alternatives, with
accompanying supportive information. In May 1991 Graniteville provided this
information to DHEC in a report of Graniteville's environmental consulting firm.
The 1990 and 1991 reports concluded that pond sediments should be left
undisturbed and in place and that other less passive remediation alternatives
either provided no significant additional benefits or themselves involved
adverse effects on human health, to existing recreational uses or to the
existing biological communities. Triarc Companies is unable to predict at this
time what further actions, if any, may be required in connection with Langley
Pond or what the cost thereof may be. Two years have passed since the submission
of the two reports by Graniteville's environmental consulting firm without any
objection or adverse comment on such reports by DHEC and desirable remediation
alternatives, other than continuing to leave the Langley Pond sediments in place
and undisturbed as described in the reports, are not available.
As a result of certain environmental audits in 1991, SEPSCO became aware of
possible contamination by hydrocarbons and metals at certain sites of SEPSCO's
refrigeration operations and has filed appropriate notifications with state
environmental authorities and has begun a study of remediation at such sites.
SEPSCO has removed certain underground storage and other tanks at certain
facilities of its refrigeration operations and has engaged in certain
remediation in connection therewith. Such removal and environmental remediation
involved a variety of remediation actions at various facilities of SEPSCO
located in a number of jurisdictions. Such remediation varied from site to site,
ranging from testing of soil and groundwater for contamination, development of
remediation plans and removal in certain instances of certain contaminated
soils. Based on preliminary information and consultations with, and certain
reports of, environmental consultants and others, SEPSCO presently estimates the
cost of such remediation and/or removal will approximate $3,661,000, of which
$1,300,000, $200,000 and $2,161,000 was provided in its fiscal years ending in
1991, 1992 and 1993, respectively, and has been included in 'Income (loss) from
discontinued operations' in the accompanying consolidated statements of
operations. In connection therewith, SEPSCO has incurred actual costs of
$803,000 and has a remaining accrual of $2,858,000 included in 'Other current
assets and liabilities, net' in Note 3.
In 1991, Triarc Companies became aware that lead and cadmium contaminants
are present at a site owned by a non-core subsidiary of Triarc Companies at
which the subsidiary had disposed of decorative glass products produced prior to
1980. The Pennsylvania Department of Environmental Regulation (the 'PDER') has
been informed of this matter and Triarc Companies expects to develop, with the
PDER, a plan of remediation. The remediation actions being considered include
capping the materials in place or removing the materials to an approved
landfill. Triarc Companies has no reason to believe that any of the decorative
glass products produced by its subsidiary exceeded or were in any way
inconsistent with applicable standards, including health and safety standards,
for consumer use of glass products. Triarc Companies recorded charges to
operations of $900,000 in fiscal 1993 for the estimated costs of the anticipated
plan of remediation.
Triarc Companies is also engaged in ordinary routine litigation incidental
to its business. Triarc Companies does not believe that the litigation and
matters referred to above, as well as such ordinary routine litigation, will
have a material adverse effect on its consolidated financial position or results
of operations.
F-29
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
APRIL 30, 1993
(19) SIGNIFICANT FOURTH QUARTER 1993 CHARGES
The accompanying consolidated statements of operations for Fiscal 1993
include the following significant charges recorded in the fourth quarter of
Fiscal 1993 (in thousands):
<TABLE>
<S> <C>
Estimated costs to relocate Triarc Companies' headquarters and terminate the lease on its
existing corporate facilities (see Note 16)............................................. $14,900
Estimated restructuring charges including personnel recruiting and relocation costs,
employee severance costs and consultant fees............................................ 20,300
Costs related to a five-year consulting agreement extending through April 1998 between
Triarc and its former Vice Chairman..................................................... 6,000
Other restructuring costs................................................................. 1,800
-------
Total estimated restructuring and facilities relocation charges (i).................. 43,000
Write-off of uncollectible notes and other amounts due from former affiliates (see Note
16), net of a recovery of $1,430........................................................ 5,140(a)
Payment to the Special Committee of Triarc Companies' Board of Directors (ii)............. 4,900(b)
Provision for closing of certain non-strategic, Triarc-owned restaurants and abandoned
bottling facilities (iii)............................................................... 2,200(b)
Estimated costs to comply with new package labeling regulations (iv)...................... 1,500(b)
Reversal of unpaid incentive plan accruals provided in prior years (see
Note 14)................................................................................ (7,297)(b)
Other..................................................................................... 2,246(b)
-------
Total net charges affecting operating profit......................................... 51,689
Interest accruals relating to income tax matters (see Note 10)............................ 6,109(c)
Costs of certain shareholder and other litigation (v)..................................... 5,947(d)
Settlement of accrued rent balance in connection with the Reorganization (see Note 16).... (8,900)(d)
Commitment fees and other compensation costs relating to a proposed alternative financing
with a syndicate of banks which was not consummated because of the issuance of the
Step-Up Notes (see Note 11)............................................................. 3,200(d)
Reduction to estimated net realizable value of certain assets held for sale other than
discontinued operations................................................................. 2,147(d)
Income tax benefit relating to the above net charges...................................... (15,435)
Provision for income tax contingencies and other tax matters (see Note 10)................ 7,897
Minority interest effect of above net charges............................................. (3,956)
Write-down relating to the impairment of certain unprofitable operations and accruals for
environmental remediation and losses of certain contracts in progress of discontinued
operations, net of income tax benefit and minority interests (see Note 3)............... 5,363
Extraordinary item, net (see Note 11)..................................................... 6,611
Cumulative effect of changes in accounting principles, net, retroactively reflected in the
first quarter (see Note 1).............................................................. 6,388
-------
$67,060
-------
-------
</TABLE>
- ------------
(a) Included in 'Provision for doubtful accounts from affiliates'.
(b) Included in 'Selling, general and administrative expenses'.
(c) Included in 'Interest expense'.
(d) Included in 'Other income (expense), net'.
(i) In 1993, results of operations were significantly impacted by
facilities relocation and corporate restructuring charges aggregating
$43,000,000 consisting of: (i) estimated costs of $14,900,000 to relocate
Triarc Companies' corporate headquarters and to terminate the lease on its
existing corporate facilities; (ii) estimated restructuring charges of
$20,300,000 including costs associated with hiring and relocating certain
new senior management including chief executive officers of the fast food,
soft drink and liquefied petroleum gas segments and other personnel
F-30
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
APRIL 30, 1993
recruiting and relocation costs, employee severance costs and consultant
fees; (iii) total costs of $6,000,000 relating to a five-year consulting
agreement (the 'Consulting Agreement') extending through April 1998 between
Triarc and Steven Posner, the former Vice Chairman of Triarc Companies, and
(iv) costs of $1,800,000 in connection with a strategic restructuring
within the textiles segment. The charges referred to in items (i) through
(iii) above related to the change in control of Triarc Companies that
resulted from the Reorganization described in Note 2. In connection with
the Closing, Victor Posner and Steven Posner resigned as officers and
directors of Triarc Companies. In order to induce Steven Posner to resign,
Triarc entered into the Consulting Agreement with him. The cost related to
the Consulting Agreement was recorded as a charge in 1993 because the
Consulting Agreement does not require any substantial services and Triarc
Companies does not expect to receive any services that will have
substantial value to it. As a part of the Closing, the Board of Directors
of Triarc Companies was reconstituted. The first meeting of the
reconstituted Board of Directors was held on April 24, 1993. At that
meeting, based on a report and recommendations from a management consulting
firm that had conducted an extensive review of Triarc Companies' operations
and management structure, the Board of Directors approved a plan of
decentralization and restructuring which entailed, among other things, the
following features: (i) the strategic decision to manage Triarc Companies
in the future on a decentralized, rather than on a centralized basis; (ii)
the hiring of new executive officers for Triarc and the hiring of new chief
executive officers and new senior management teams for each of Arby's, RC
Cola and National Propane to carry out the decentralization strategy; (iii)
the termination of a significant number of employees as a result of both
the new management philosophy and the hiring of an almost entirely new
management team; and (iv) the relocation of the corporate headquarters of
Triarc and of all of its subsidiaries whose headquarters were located in
South Florida, including Arby's, RC Cola, National Propane and SEPSCO. In
connection with (ii) above, in April 1993 Triarc Companies entered into
employment agreements with the new president and chief executive officers
of RC Cola, Arby's, Graniteville and National Propane. Accordingly, Triarc
Companies' cost to relocate its corporate headquarters and terminate the
lease on its existing corporate facilities ($14,900,000), and estimated
corporate restructuring charges of $20,300,000 including costs associated
with hiring and relocating new senior management and other personnel
recruiting and relocation costs, employee severance costs and consulting
fees, all stemmed from the decentralization and restructuring plan formally
adopted at the April 24, 1993 meeting of Triarc's reconstituted Board of
Directors.
(ii) In accordance with certain court proceedings and related
settlements, five directors, including three court-appointed directors,
were appointed in 1991 to serve on the Triarc Special Committee of Triarc's
Board of Directors. Such committee was empowered to review and pass on
transactions between Triarc and Victor Posner, the then largest shareholder
of Triarc, and his affiliates. A success fee payable to the Triarc Special
Committee attributable to the closing of the Reorganization and the
resulting change in control was approved in the aggregate cash amount of
$4,900,000.
(iii) Triarc Companies has three abandoned bottling facilities that
were closed in 1983 and have a net book value of $1,500,000 as of April 30,
1993. Prior management of Triarc Companies did not undertake any active
program to sell the properties. Triarc Companies had periodically assessed
the valuation of the carrying value of such properties and determined that
in the aggregate there was no impairment in value and no writedown had been
recorded. In connection with the Reorganization, new management has changed
Triarc Companies' strategy and plans to follow a policy of accelerated
disposition where the ultimate sales price can be significantly less than a
willing buyer and seller not under such time constraints would negotiate.
Accordingly, new management provided $400,000 during the fourth quarter of
Fiscal 1993 to reduce the carrying value of such properties to the
currently estimated net realizable value. Also, new management
F-31
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
APRIL 30, 1993
reviewed the restaurant operations of Arby's and decided to close eleven
unprofitable restaurants pursuant to new management's strategic plans.
Triarc Companies provided an aggregate $1,700,000 relating to the decision
to close the restaurants during the fourth quarter of Fiscal 1993 including
(i) $600,000 relating to the writeoff of the difference between the net
book value of such properties and their anticipated sales value, (ii)
$800,000 relating to operating losses through the expected dates of closure
(nine restaurants in calendar 1993 and two restaurants in 1994) and (iii)
$300,000 relating to the estimated loss on sublease for one restaurant
extending to 2004.
(iv) Triarc Companies is required to change the labeling on all of its
RC Cola products as a result of the Food and Drug Administration
Regulations (the 'Regulations') issued pursuant to the Nutrition Labeling
and Education Act (the 'Act') of 1990. The Regulations which provided the
necessary guidance to implement the requirements of the Act were issued in
January 1993. At that time Triarc Companies was able to estimate the cost
of compliance and accordingly recorded a provision of $1,500,000.
(v) Includes legal fees and settlement costs aggregating approximately
$4,572,000 in connection with the Granada-related and Ehrman shareholder
litigation described in Note 18 settled or to be settled in connection with
the Reorganization, settlement costs of approximately $750,000 for
litigation involving a former subsidiary settled in August 1993 and
settlement costs of approximately $625,000 for litigation involving a
former employee settled in May 1993. Such current and past shareholder
litigation costs are essentially offset by an $8,900,000 credit due to the
settlement in connection with the Reorganization of accrued rent owed
Posner described in Note 16.
(20) BUSINESS SEGMENTS
Triarc Companies operates in four major segments: textiles, fast food, soft
drink and liquefied petroleum gas. The textiles segment manufactures, dyes and
finishes cotton, synthetic and blended (cotton and polyester) fabrics, primarily
for the apparel trade and mainly for two end uses: (1) utility wear and (2)
men's, women's and children's sportswear, casual wear and outerwear. The fast
food segment operates and franchises Arby's fast food restaurants, the largest
franchise restaurant system specializing in roast beef sandwiches. The soft
drink segment produces and sells soft drink concentrates under the principal
brand names RC COLA, DIET RC COLA, DIET RITE, NEHI and UPPER 10. The liquefied
petroleum gas segment distributes and sells liquefied petroleum gas. The other
segment consists of non-core businesses including (i) insurance and reinsurance,
(ii) specialty decorations of glass and ceramic items, (iii) the design,
manufacture and servicing of overhead industrial cranes, (iv) the manufacture
and distribution of lamps and (v) the operation of certain grapefruit groves.
Information concerning the various segments in which Triarc Companies
operates is shown in the table below. Operating profit is total revenue less
operating expenses. In computing operating profit, none of the following items
have been included: interest expense, interest income, general corporate
expenses, other non-operating income and expenses, and income tax provision
(benefits). Identifiable assets by segment are those assets that are used in
Triarc Companies' operations in each segment. General corporate assets consist
primarily of cash and equivalents, non-trade accounts and notes receivable and
deferred financing costs. See Notes 15 and 19 for the major components of other
income (expense), net.
No customer accounted for more than 10% of consolidated revenues in 1991,
1992 or 1993.
F-32
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
APRIL 30, 1993
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
--------------------------------------
1991 1992 1993
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
To unaffiliated customers:
Textiles........................................................... $ 414,174 $ 456,402 $ 499,060
Fast Food.......................................................... 181,293 186,921 198,915
Soft Drink......................................................... 138,082 143,830 148,262
Liquefied Petroleum Gas............................................ 150,348 141,032 148,790
Other.............................................................. 143,265 146,518 63,247
---------- ---------- ----------
Consolidated revenues......................................... $1,027,162 $1,074,703 $1,058,274
---------- ---------- ----------
---------- ---------- ----------
Operating profit (loss):
Textiles........................................................... $ 11,970 $ 27,753 $ 47,203
Fast Food.......................................................... 12,652 14,271 7,852
Soft Drink......................................................... 30,597 36,112 23,461
Liquefied Petroleum Gas............................................ 13,628 12,676 3,008
Other.............................................................. (19,208) (5,746) (15,942)
---------- ---------- ----------
Segment operating profit...................................... 49,639 85,066 65,582
Interest expense................................................... (66,761) (71,832) (72,830)
Non-operating income (expense), net................................ 9,776 6,542 (920)
General corporate expenses......................................... (26,335) (26,514) (31,123)
---------- ---------- ----------
Consolidated loss from continuing operations before income
taxes, minority interests, extraordinary items and
cumulative effect of changes in accounting principles....... $ (33,681) $ (6,738) $ (39,291)
---------- ---------- ----------
---------- ---------- ----------
Identifiable assets:
Textiles........................................................... $ 223,450 $ 215,215 $ 281,544
Fast Food.......................................................... 90,231 88,236 99,455
Soft Drink......................................................... 161,789 183,942 184,364
Liquefied Petroleum Gas............................................ 117,093 109,432 123,341
Other.............................................................. 129,886 122,035 62,715
---------- ---------- ----------
Total identifiable assets..................................... 722,449 718,860 751,419
General corporate assets........................................... 62,157 35,611 92,334
Discontinued operations, net....................................... 67,306 66,699 66,909
---------- ---------- ----------
Consolidated assets........................................... $ 851,912 $ 821,170 $ 910,662
---------- ---------- ----------
---------- ---------- ----------
Capital expenditures:
Textiles........................................................... $ 16,337 $ 11,399 $ 10,075
Fast Food.......................................................... 13,854 9,079 6,231
Soft Drink......................................................... 602 558 870
Liquefied Petroleum Gas............................................ 7,614 7,039 8,290
Corporate.......................................................... 303 205 42
Other.............................................................. 2,732 2,973 1,699
---------- ---------- ----------
Consolidated capital expenditures............................. $ 41,442 $ 31,253 $ 27,207
---------- ---------- ----------
---------- ---------- ----------
Depreciation, depletion and amortization:
Textiles........................................................... $ 8,364 $ 9,897 $ 10,380
Fast Food.......................................................... 8,639 9,866 10,891
Soft Drink......................................................... 4,763 5,125 5,460
Liquefied Petroleum Gas............................................ 8,762 8,479 8,196
Corporate.......................................................... 613 562 587
Other.............................................................. 2,743 2,609 2,467
---------- ---------- ----------
Consolidated depreciation, depletion and amortization......... $ 33,884 $ 36,538 $ 37,981
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
F-33
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
APRIL 30, 1993
(21) QUARTERLY INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------
JULY 31 OCTOBER 31 JANUARY 31 APRIL 30(A)
-------- ---------- ---------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1992
Revenues................................................. $250,900 $250,551 $288,469 $ 284,783
Gross profit............................................. 66,718 66,208 72,049 71,760
Operating profit......................................... 10,965 10,153 16,558 20,876
Income (loss) from continuing operations................. (4,516) (6,420) (1,860) 2,589
Income (loss) from discontinued operations, net.......... 1,394 1,767 485 (941)
Net income (loss)........................................ (3,122) (4,653) (1,375) 1,648
Income (loss) per share:
Continuing operations............................... (.17) (.25) (.07) .10
Discontinued operations............................. .05 .07 .02 (.04)
Net income (loss)................................... (.12) (.18) (.05) .06
1993
Revenues................................................. $268,288 $254,083 $277,607 $ 258,296
Gross profit............................................. 69,735 67,557 74,486 79,701
Operating profit (loss).................................. 14,691 17,438 25,016 (22,686)
Loss from continuing operations.......................... (1,843) (2,555) (1,841) (38,310)
Income (loss) from discontinued operations, net.......... 691 1,325 899 (5,345)
Extraordinary item, net.................................. -- -- -- (6,611)
Cumulative effect of changes in accounting principles,
net.................................................... (6,388) -- -- --
Net loss................................................. (7,540) (1,230) (942) (50,266)
Income (loss) per share:
Continuing operations............................... (.07) (.10) (.07) (1.50)
Discontinued operations............................. .03 .05 .03 (.21)
Extraordinary item.................................. -- -- -- (.26)
Cumulative effect of changes in accounting
principles........................................ (.25) -- -- --
Net loss............................................ (.29) (.05) (.04) (1.97)
</TABLE>
- ------------
(A) As described in Note 19, results of operations for the three months ended
April 30, 1993 were materially affected by facilities relocation, corporate
restructuring and other significant charges aggregating approximately
$60,672,000, net of income tax benefit and minority interests, and
exclusive of the cumulative effect of changes in accounting principles
which was retroactively recorded in the first quarter.
(22) EVENTS SUBSEQUENT TO DATE OF AUDITORS' REPORT
On October 27, 1993 Triarc's stockholders approved a change in the name of
the company from DWG Corporation to Triarc Companies, Inc. and is so referred to
herein.
In the quarter ended October 31, 1993 Triarc recorded a provision for the
estimated loss on disposal of discontinued operations of $7,397,000, net of
minority interests of $3,003,000. Such provision was determined based on (i) the
sale of the utility and municipal securities business segment in October 1993,
(ii) the signing of a letter of intent in November 1993 to sell the ice
operations of SEPSCO's refrigeration segment, (iii) a re-evaluation of the cold
storage operations based on preliminary sales discussions and experience with
respect to negotiating the sale of the other operations and (iv) the effect of
SEPSCO's December 9, 1993 Board of Directors' decision to transfer the natural
gas and oil business from SEPSCO to Triarc rather than selling such business to
an independent third party. Such transfer will be in the form of a sale of the
stock of the entities comprising the natural gas and oil business for cash of
$8,500,000 which is equal to their fair value. See Notes 2 and 12 to the Triarc
Companies, Inc. and subsidiaries condensed consolidated financial statements for
the six months ended October 31, 1993 contained elsewhere herein for further
information.
F-34
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
1993 1993
--------- ------------
(IN THOUSANDS)
(A) (UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents............................................................... $ 96,635 $ 87,178
Receivables, net................................................................... 116,257 109,122
Inventories........................................................................ 98,270 114,661
Deferred income taxes.............................................................. 21,365 22,632
Net current assets of discontinued operations...................................... 6,823 33,062
Other current assets............................................................... 19,996 29,596
--------- ------------
Total current assets.......................................................... 359,346 396,251
--------- ------------
Restricted cash and short-term investments of insurance operations...................... 18,271 27,062
Properties, net......................................................................... 237,853 242,463
Unamortized costs in excess of net assets of acquired companies......................... 186,572 184,115
Net non-current assets of discontinued operations....................................... 60,086 15,822
Other assets............................................................................ 48,534 47,726
--------- ------------
$ 910,662 $913,439
--------- ------------
--------- ------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current portion of long-term debt.................................................. $ 43,100 $ 38,834
Accounts payable................................................................... 71,729 48,178
Accrued facilities relocation and corporate restructuring costs.................... 42,000 35,970
Other current liabilities.......................................................... 69,011 75,574
--------- ------------
Total current liabilities..................................................... 225,840 198,556
--------- ------------
Long-term debt.......................................................................... 488,654 540,355
Insurance loss reserves................................................................. 76,763 86,277
Deferred income taxes................................................................... 35,991 41,404
Deposits and other liabilities.......................................................... 17,157 12,148
Minority interests...................................................................... 29,850 27,654
Redeemable preferred stock.............................................................. 71,794 71,794
Stockholders' equity (deficit):
Common Stock....................................................................... 2,825 2,842
Additional paid-in capital......................................................... 52,372 56,338
Accumulated deficit................................................................ (6,067) (35,868)
Treasury stock..................................................................... (80,109) (80,109)
Other.............................................................................. (4,408) (7,952)
--------- ------------
Total stockholders' deficit................................................... (35,387) (64,749)
--------- ------------
$ 910,662 $913,439
--------- ------------
--------- ------------
</TABLE>
- ------------
(A) Derived from the audited consolidated financial statements as of April 30,
1993.
See accompanying notes to condensed consolidated financial statements.
F-35
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
OCTOBER 31,
--------------------
1992 1993
-------- --------
(IN THOUSANDS,
EXCEPT PER SHARE
AMOUNTS)
(UNAUDITED)
<S> <C> <C>
Revenues:
Net sales............................................................................ $497,937 $494,746
Royalties, franchise fees and other revenues......................................... 24,434 26,724
-------- --------
522,371 521,470
-------- --------
Costs and expenses:
Cost of sales........................................................................ 385,079 368,757
Selling, general and administrative expenses (Note 2)................................ 101,446 130,460
Provision for doubtful accounts from a former affiliate.............................. 3,717 --
-------- --------
490,242 499,217
-------- --------
Operating profit................................................................ 32,129 22,253
-------- --------
Interest expense.......................................................................... (33,058) (32,924)
Other income (expense), net............................................................... 1,739 (2,256)
-------- --------
(31,319) (35,180)
-------- --------
Income (loss) from continuing operations before income taxes and minority
interests...................................................................... 810 (12,927)
Provision for income taxes (Notes 2 and 9)................................................ (4,358) (6,354)
-------- --------
(3,548) (19,281)
Minority interests in net (income) loss................................................... (850) (347)
-------- --------
Loss from continuing operations................................................. (4,398) (19,628)
Discontinued operations, net of income taxes and minority interests:
Income (loss) from discontinued operations...................................... 2,016 229
Estimated loss on disposal (Notes 2 and 12)..................................... -- (7,397)
-------- --------
2,016 (7,168)
-------- --------
Loss before extraordinary item and cumulative effect of changes in accounting
principles..................................................................... (2,382) (26,796)
Extraordinary item, net (Note 6).......................................................... -- (448)
Cumulative effect of changes in accounting principles, net (Note 1)....................... (6,388) --
-------- --------
Net loss........................................................................ (8,770) (27,244)
Preferred stock dividend requirements..................................................... (5) (2,916)
-------- --------
Net loss applicable to common stockholders...................................... $ (8,775) $(30,160)
-------- --------
-------- --------
Income (loss) per share:
Continuing operations................................................................ $ (.17) $ (1.06)
Discontinued operations.............................................................. .08 (.34)
Extraordinary item................................................................... -- (.02)
Cumulative effect of changes in accounting principles................................ (.25) --
-------- --------
$ (.34) $ (1.42)
-------- --------
-------- --------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-36
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
OCTOBER 31,
------------------------------------
1992 1993
---------------- ----------------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net loss............................................................................ $ (8,770) $ (27,244)
Adjustments to reconcile net loss to net cash and equivalents provided by (used in)
operating activities of continuing operations:
Depreciation of properties..................................................... 15,708 15,491
Amortization of costs in excess of net assets.................................. 2,629 2,839
Amortization of deferred debt discount, deferred financing costs and unearned
compensation................................................................. 3,203 5,184
Write-off of deferred financing costs.......................................... -- 2,214
Gain on sales of assets, net................................................... (3,375) (305)
Minority interests, net of dividends paid...................................... 844 341
Loss (income) from discontinued operations..................................... (2,016) 7,168
Cumulative effect of changes in accounting principles.......................... 6,388 --
Other, net..................................................................... 1,386 63
Changes in operating assets and liabilities
Decrease (increase) in:
Receivables............................................................... (5,057) 7,135
Inventories............................................................... 12,108 (16,391)
Other current assets...................................................... (3,039) (9,600)
Restricted cash of insurance operations................................... (2,146) (8,791)
Increase (decrease) in:
Accounts payable and other current liabilities............................ (6,555) (22,776)
Insurance loss reserves................................................... 123 9,514
Deferred income taxes..................................................... (2,103) 4,146
---------------- ----------------
Net cash and equivalents provided by (used in) operating activities............ 9,328 (31,012)
---------------- ----------------
Cash flows from investing activities:
Proceeds from sales of assets....................................................... 26,439 1,298
Capital expenditures................................................................ (11,041) (17,293)
---------------- ----------------
Net cash and equivalents provided by (used in) investing
activities.............................................................. 15,398 (15,995)
---------------- ----------------
Cash flows from financing activities:
Proceeds from long-term debt borrowings............................................. -- 283,696
Repayment of long-term debt......................................................... (28,789) (241,169)
Deferred financing costs............................................................ -- (3,971)
Net decrease in short-term debt..................................................... (6,012) --
Payment of dividends on preferred stock............................................. (5) (2,557)
---------------- ----------------
Net cash and equivalents provided by (used in) financing activities....... (34,806) 35,999
---------------- ----------------
Net cash used in continuing operations................................................... (10,080) (11,008)
Net cash provided by discontinued operations............................................. 2,866 1,551
---------------- ----------------
Net decrease in cash and equivalents..................................................... (7,214) (9,457)
Cash and equivalents at beginning of period.............................................. 20,514 96,635
---------------- ----------------
Cash and equivalents at end of period.................................................... $ 13,300 $ 87,178
---------------- ----------------
---------------- ----------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-37
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1993
(UNAUDITED)
(1) BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
the Company have been prepared in accordance with Rule 10-01 of Regulation S-X
promulgated by the Securities and Exchange Commission and, therefore, do not
include all information and footnotes necessary for a fair presentation of
financial position, results of operations and cash flows in conformity with
generally accepted accounting principles. In the opinion of the Company,
however, the accompanying financial statements contain all adjustments,
consisting of normal recurring adjustments and, in the six-month period ended
October 31, 1993, $29.4 million of aftertax significant charges discussed in
Note 2 necessary to present fairly the Company's financial position as of April
30, 1993 and October 31, 1993 and its results of operations and its cash flows
for the six-month periods ended October 31, 1992 and 1993. This information
should be read in conjunction with the consolidated financial statements and
notes thereto included in the Company's Annual Report on Form 10-K ('Form 10-K')
for the year ended April 30, 1993.
On October 27, 1993 the Board of Directors of Triarc, Inc. (formerly DWG
Corporation and referred to herein as 'Triarc' or, collectively with its
subsidiaries, 'Triarc Companies') approved a change in Triarc's fiscal year from
a fiscal year ending April 30 to a calendar year ending December 31, effective
for the transition period ending December 31, 1993. The fiscal years of all of
Triarc's subsidiaries which did not end on December 31 were also so changed.
Triarc plans to issue a transition report on Form 10-K for the eight-month
period ending December 31, 1993. As used herein, 'Fiscal 1993' refers to the
year ended April 30, 1993 and 'Transition 1993' refers to the eight months ended
December 31, 1993.
The condensed consolidated financial statements for the six-month period
ended October 31, 1992 have been retroactively restated for discontinued
operations, as described in Note 12, and the cumulative effect of adopting
Statement of Financial Accounting Standards ('SFAS') No. 109, 'Accounting for
Income Taxes' (which resulted in a charge of $4,852,000, net of applicable
minority interests) and SFAS No. 106, 'Employers' Accounting for Postretirement
Benefits Other Than Pensions' (which resulted in a charge of $1,536,000, net of
applicable income taxes and minority interests) effective May 1, 1992. In
addition, certain other amounts included in the prior period condensed
consolidated financial statements have been reclassified to conform with the
current period presentation.
(2) SIGNIFICANT CHARGES IN TRANSITION 1993
The accompanying condensed consolidated statement of operations for the
six-month period ended October 31, 1993 includes the following significant
charges (in thousands):
<TABLE>
<S> <C>
Increased reserves for Triarc Companies and third party insurance and reinsurance losses..... $10,006(a)
Increased reserve for advertising allowances to independent bottlers and coupon redemption... 7,772(b)
Provision for legal matters.................................................................. 2,300(c)
-------
Total charges included in 'Selling, general and administrative expenses'................ 20,078
Income tax benefit relating to the above charges............................................. (3,836)
Minority interest effect of above charges.................................................... (230)
Increased reserve for income tax contingencies............................................... 6,000(d)
Increased estimated loss on disposal of discontinued operations.............................. 7,397(e)
-------
$29,409
-------
-------
</TABLE>
(footnotes on next page)
F-38
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OCTOBER 31, 1993
(UNAUDITED)
(footnotes from previous page)
(a) Triarc Companies increased the reserves at Chesapeake Insurance Company
Limited ('Chesapeake Insurance'), which is a wholly-owned subsidiary of CFC
Holdings Corp. ('CFC Holdings'), a 94.6% owned subsidiary of Triarc and a
98.4% owned subsidiary of Triarc Companies, relating to both insurance and
reinsurance coverage previously extended to subsidiaries and former
affiliates, as well as reinsurance coverage previously extended to
non-affiliated third parties. This increase in the insurance loss reserves
at Chesapeake Insurance effectively wrote Triarc Companies' investment in
Chesapeake Insurance down to zero. Accordingly, the ultimate amount of
losses realized in respect of insurance and reinsurance previously written
by Chesapeake Insurance will not have a material adverse effect on Triarc
Companies' consolidated results of operations or financial condition.
(b) Triarc Companies provides to certain of its independent soft drink bottlers
advertising and promotional allowances, the amount of which are usually
dependent principally upon achievement of annual sales volume. Triarc
Companies provided an increase of $7,772,000 for the costs to Triarc
Companies of such advertising and promotional allowances to such
independent bottlers, principally recorded earlier in Transition 1993.
(c) Triarc Companies increased its reserves for legal matters by $2,300,000,
principally for a recently asserted claim by NVF Company ('NVF'), a former
affiliate (see Note 11).
(d) Triarc Companies increased its reserves for income tax contingencies by
$6,000,000 including provisions relating to certain issues being addressed
as part of the examination of Triarc Companies' income tax returns by the
Internal Revenue Service for the tax years from 1989 through 1992 which
commenced during the three months ended October 31, 1993.
(e) As set forth in Note 12, Southeastern Public Service Company, a 71.1% owned
subsidiary of Triarc ('SEPSCO'), completed the sale of its utility and
municipal services business segment in October 1993 and, in November 1993,
signed a letter of intent to sell the ice operations of its refrigeration
business segment. Assuming consummation of the intended sale of the ice
operations, the only remaining discontinued operation is the cold storage
operation of SEPSCO's refrigeration business segment. In connection with
the dispositions referred to above, SEPSCO reevaluated the estimated gain
or loss from the sale of its discontinued operations and Triarc provided
$10,400,000 ($7,397,000 net of minority interests) for the revised
estimated loss on the sale of the discontinued operations from an estimated
break-even position as of July 31, 1993. The revised estimate principally
reflects (i) $2,700,000 of losses from the sales of the operations
comprising the utility and municipal services business segment previously
estimated to be approximately break-even; (ii) $6,600,000 of losses from
the sale of operations comprising SEPSCO's refrigeration business segment
previously estimated to be a gain of $1,600,000 and (iii) $1,000,000 of
estimated losses from operations from July 22, 1993 to the actual or
estimated disposal dates of the discontinued operations previously
estimated to breakeven due to the previous reporting of SEPSCO's natural
gas and oil business segment as a discontinued operation less previously
estimated losses of $1,500,000 from the sale of SEPSCO's natural gas and
oil business segment. The net loss from the sale of the utility and
municipal services business segment reflects a reduction of $1,800,000 in
the estimated sales price for the construction related operations from
previous estimates and other adjustments in finalizing the loss on the sale
of the tree maintenance services operations. The $8,200,000 change relating
to the sale of the refrigeration business segment principally results from
(i) a $4,000,000 reduction in the sales price for the ice operations based
on the letter of intent and (ii) a $4,000,000 reduction in the estimated
sales price of the cold storage operations based on preliminary sales
discussions and experience with respect to negotiating the sale of the
other operations.
F-39
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OCTOBER 31, 1993
(UNAUDITED)
(3) INVENTORIES
The following is a summary of the components of inventories:
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
1993 1993
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Raw materials........................................................ $ 24,655 $ 24,971
Work in process...................................................... 6,244 6,445
Finished goods....................................................... 67,371 83,245
--------- -----------
$ 98,270 $ 114,661
--------- -----------
--------- -----------
</TABLE>
(4) PROPERTIES
The following is a summary of the components of properties, net:
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
1993 1993
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Properties, at cost.................................................. $ 430,743 $ 439,377
Less accumulated depreciation........................................ 192,890 196,914
--------- -----------
$ 237,853 $ 242,463
--------- -----------
--------- -----------
</TABLE>
(5) LONG-TERM DEBT
On August 12, 1993, the $225,000,000 aggregate principal amount of senior
secured step-up rate notes (the 'Step-Up Notes') of RC/Arby's Corporation
('RC/Arby's', formerly known as Royal Crown Corporation), a wholly-owned
subsidiary of CFC Holdings, were refinanced by the issuance of $275,000,000
aggregate principal amount of fixed rate senior secured notes (the '9 3/4%
Senior Notes') pursuant to a public offering. The 9 3/4% Senior Notes bear
interest at 9 3/4% and will mature in 2000. The 9 3/4% Senior Notes are secured
by the stock of RC/Arby's' subsidiaries, Royal Crown Company, Inc. ('RC Cola',
formerly known as Royal Crown Cola Co., Inc.) and Arby's, Inc. ('Arby's'). In
addition, all the stock of RC/Arby's has been pledged as collateral for the
9 3/4% Senior Notes, and amounts due thereunder are unconditionally guaranteed
by RC Cola and Arby's. The guaranties of RC Cola and Arby's are secured by a
first priority lien and security interest in substantially all of their
receivables, inventories and other personal properties. The 9 3/4% Senior Notes
are redeemable at the option of RC/Arby's at amounts commencing at 102.786% of
principal commencing August 1998 decreasing to 101.393% in August 1999. In
addition, should RC/Arby's consummate an initial public equity offering,
RC/Arby's may redeem up to $91,667,000 of the 9 3/4% Senior Notes at 110% of the
principal amount with the net proceeds of such public offering.
On September 24, 1993 RC/Arby's entered into a three-year interest rate
swap agreement in a notional amount of $137,500,000. Under the agreement,
interest on the notional amount is paid by RC/Arby's at a floating rate which is
based on the 180-day London Interbank Offered Rate (set at 3.375% through
February 1, 1994) and RC/Arby's receives interest at a fixed rate of 4.72%.
Subsequent to February 1, 1994 the floating rate will be retroactively reset at
the end of each six-month calculation period through July 31, 1996 and on
September 24, 1996. The transaction effectively changes RC/Arby's interest rate
on $137,500,000 of its debt from a fixed-rate to a floating-rate basis. The
differential to be paid or received will be amortized to interest expense over
the three-year life of the agreement. The agreement has been entered into with a
major financial institution which, therefore, is expected to be able to fully
perform under the terms of the agreement, thereby mitigating any credit risk of
the transaction.
F-40
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OCTOBER 31, 1993
(UNAUDITED)
Triarc Companies' debt agreements contain various covenants which, among
other items, restrict the payment of dividends or loans or advances by Triarc's
principal subsidiaries to Triarc. As of October 31, 1993 National Propane
Corporation, a wholly-owned subsidiary of Triarc ('National Propane'), and
SEPSCO have approximately $14,300,000 and $4,100,000, respectively, available
under their respective debt agreements for the payment of dividends to Triarc.
Graniteville Company, a 51% owned subsidiary of Triarc and 85.8% owned by Triarc
Companies ('Graniteville'), is not permitted to pay any such dividends or make
any such loans or advances prior to April 30, 1996. While there are no
restrictions applicable to CFC Holdings, CFC Holdings would be dependent upon
cash flows from RC/Arby's to pay dividends and, as of October 31, 1993,
RC/Arby's was unable to pay any dividends or make any loans or advances to CFC
Holdings under the indenture governing the 9 3/4% Senior Notes.
(6) EXTRAORDINARY ITEM
In connection with the early extinguishment of the Step-Up Notes and the
retirement of RC/Arby's' 16 1/4% senior subordinated debentures due 1996 and
16 7/8% subordinated debentures due 1996 (collectively, the 'RC/Arby's
Debentures') previously reacquired, Triarc Companies recognized an extraordinary
charge during the three months ended October 31, 1993 aggregating $448,000, net
of $241,000 of income tax benefit. Such pre-tax charge consisted of the
write-off of unamortized deferred financing costs of $1,632,000 on the Step-Up
Notes and $582,000 on the RC/Arby's Debentures partially offset by $1,525,000 of
discount resulting from the redemption of the Step-Up Notes.
(7) STOCKHOLDERS' EQUITY (DEFICIT)
During the six months ended October 31, 1993, Triarc granted 171,500 shares
of restricted stock to certain members of the Special Committee of Triarc's
Board of Directors and key employees under Triarc's Amended and Restated 1993
Equity Participation Plan. In connection therewith, Triarc Companies recorded
charges of $3,983,000 to unearned compensation included in 'Stockholders' equity
(deficit) -- Other'. Such amount is being amortized as compensation expense over
the applicable vesting period through December 31, 1996. In addition, during the
six months ended October 31, 1993, 301,000 non-qualified stock options were
granted at prices ranging from $20.00 to $30.75 per share. Of the 301,000
nonqualified stock options granted during the six months ended October 31, 1993,
275,000 were issued at $20.00 per share which was below the market price of
$31.75 on the date of grant resulting in deferred compensation of $3,200,000.
Such amount is being accrued as compensation expense over the applicable vesting
period through September 28, 1998.
(8) LOSS PER SHARE
The loss per share has been computed by dividing the net loss plus dividend
requirements on Triarc Companies' preferred stock by the weighted average number
of outstanding shares of common stock (25,893,000 shares in the six months ended
October 31, 1992 and 21,239,000 in the six months ended October 31, 1993).
Common stock equivalents were not used to compute the loss per share because
such inclusion would have been antidilutive. Fully diluted loss per share was
not applicable for all periods presented since contingent issuances of common
shares would have been antidilutive.
(9) INCOME TAXES
Triarc Companies recorded a provision for income taxes of $6,354,000 for
the six months ended October 31, 1993 despite a pretax loss of $12,927,000
principally due to a $6,000,000 increase in reserves for income tax
contingencies (see Note 2), losses of certain subsidiaries for which no tax
benefit is available, amortization of costs in excess of net assets of acquired
companies which is not deductible for income tax purposes and the increase in
deferred income taxes resulting from the increase in the Federal income tax rate
from 34% to 35%.
F-41
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OCTOBER 31, 1993
(UNAUDITED)
(10) TRANSACTIONS WITH RELATED PARTIES
During the six months ended October 31, 1993, Triarc Companies engaged in
the following transactions with certain entities which may be deemed to be
controlled by Victor Posner (Triarc Companies' former Chairman and Chief
Executive Officer and present beneficial owner of Triarc Companies' outstanding
redeemable convertible preferred stock) and to have been affiliates of Triarc
Companies until the Change in Control of Triarc Companies in April 1993 (the
'Change in Control'):
(a) During the six months ended October 31, 1993, Triarc Companies
sold a yacht and certain other assets having a net book value of
approximately $400,000 to an entity owned by Victor Posner for cash sales
prices aggregating approximately $310,000.
(b) Triarc Companies was obligated to provide certain limited
management services to several former non-subsidiary affiliates through
October 23, 1993 and discontinued such services thereafter. Charges to such
former affiliates for such services, including certain reinsurance and
equipment lease billings, aggregated approximately $166,000 during the six
months ended October 31, 1993.
(c) Triarc Companies leases approximately 297,000 square feet of
office space from a trust created for the benefit of Victor Posner and his
children to which Triarc Companies made aggregate rent payments of
$2,172,000 during the six months ended October 31, 1993 which have been
charged to 'Selling, general and administrative expenses'. In July 1993,
Triarc Companies gave notice of termination of such lease effective January
31, 1994. Triarc Companies had accrued a charge of approximately
$13,000,000 in the three months ended April 30, 1993 to provide for the
remaining payments on the lease subsequent to its cancellation, which is
included in 'Accrued facilities relocation and corporate restructuring
costs.'
On October 1, 1993 Triarc Companies began leasing two airplanes and a
helicopter from Triangle Aircraft Services Corporation ('TASCO'), a company
owned by Nelson Peltz (Chairman and Chief Executive Officer of Triarc Companies)
and Peter W. May (President and Chief Operating Officer of Triarc Companies),
for an aggregate annual rent of $2,200,000. In connection with such lease Triarc
Companies had rent expense for October 1993 of $183,000. Pursuant to this
arrangement, Triarc Companies also pays the operating expenses of the aircraft
directly to third parties. Prior to October 1, 1993, Triarc Companies also made
use of these aircraft pursuant to a prior agreement and paid TASCO for such use
at a rate equal to TASCO's direct out-of-pocket expenses, excluding fuel, oil
and lubricants, plus two times the cost of fuel, oil and lubricants. Triarc
Companies was charged $681,000 by TASCO in respect of usage under this prior
agreement during the six months ended October 31, 1993.
Triarc Companies also subleases from affiliates of Messrs. Peltz and May
(the 'Sub-landlords') approximately 26,800 square feet of furnished office space
in New York, New York and, until October 26, 1993, approximately 32,000 square
feet of office space in West Palm Beach, Florida owned by unaffiliated
landlords. Subsequent to October 26, 1993, Triarc Companies assumed the lease
for approximately 17,000 square feet of the office space in West Palm Beach. The
aggregate amount paid by Triarc Companies with respect to such subleases,
including operating expenses, was approximately $1,258,000 during the six months
ended October 31, 1993, which is less than the aggregate amount the
Sub-landlords paid to the unaffiliated landlords. Messrs. Peltz and May have
guaranteed to the unaffiliated landlords the payment of rent for the New York
and West Palm Beach office space.
An affiliate of Messrs. Peltz and May leases an apartment in New York City.
Commencing June 1, 1993, such apartment was used by executives of Triarc
Companies and, in connection therewith, Triarc Companies reimbursed such
affiliate for $138,000 of rent for the apartment for the five months ended
October 31, 1993.
(11) CONTINGENCIES
In December 1990, a purported shareholder derivative suit (the 'Ehrman
Litigation') was brought against SEPSCO's directors at that time and certain
corporations, including Triarc, in the United States District Court for the
Southern District of Florida (the 'District Court'). On October 18, 1993, Triarc
F-42
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OCTOBER 31, 1993
(UNAUDITED)
entered into a settlement agreement (the 'Settlement Agreement') with the
plaintiff (the 'Plaintiff') in the Ehrman Litigation. The Settlement Agreement
provides, among other things, that SEPSCO would be merged into, or otherwise
acquired by, Triarc or an affiliate thereof, in a transaction in which each
holder of shares of SEPSCO's common stock par value $1.00 per share (the 'SEPSCO
Common Stock') other than Triarc Companies will receive in exchange for each
share of SEPSCO Common Stock, 0.8 shares of Triarc's Class A common stock par
value $.10 per share (the 'Triarc Class A Common Stock'). The Settlement
Agreement also provides that Plaintiff's counsel and financial advisor will be
paid, subject to court approval, cash not to exceed $1,250,000 and $50,000,
respectively. Triarc Companies accrued such costs together with $400,000 and
$1,200,000 for legal fees of SEPSCO in the three months ended April 30, 1993 and
the six months ended October 31, 1993, respectively, and such accruals are
included in 'Other current liabilities' in the accompanying condensed
consolidated balance sheets as of April 30, 1993 and October 31, 1993. On
November 22, 1993 Triarc and SEPSCO entered into a merger agreement pursuant to
which a subsidiary of Triarc will be merged into SEPSCO in the manner described
in the Settlement Agreement (the 'Merger'). Following the Merger, Triarc
Companies would own 100% of the SEPSCO Common Stock. Consummation of the
Settlement Agreement and the Merger are conditioned on, among other things,
approval by SEPSCO's stockholders other than Triarc Companies. (See Note 13.)
Chesapeake Insurance is registered under the Bermuda Insurance Act of 1978
and related regulations which require compliance with various provisions
regarding the maintenance of statutory capital and liquidity. Chesapeake
Insurance was not in compliance with the required solvency ratio as of September
30, 1993. Since Triarc Companies has decided that Chesapeake Insurance will
cease writing any new insurance contracts, the non-compliance with the solvency
test will have no effect on Triarc Companies.
In September 1989, the Pennsylvania Insurance Commissioner as rehabilitator
of Mutual Fire, Marine and Inland Insurance Company ('Mutual Fire') commenced an
action in the Commonwealth Court of Pennsylvania against Chesapeake Insurance.
Such action, among other things, seeks recovery of $4,000,000 allegedly owed by
Chesapeake Insurance in connection with certain reinsurance arrangements,
specific performance by Chesapeake Insurance of its alleged obligations under
certain reinsurance arrangements by requiring Chesapeake Insurance to provide a
letter of credit in an amount in excess of $12,000,000 to secure certain alleged
outstanding losses, a restitution and accounting by Chesapeake Insurance, and
compensatory and punitive damages in an amount in excess of $40,000,000 arising
out of alleged bad faith in connection with such reinsurance arrangements. In
November 1993 Chesapeake Insurance entered into a letter of intent with Mutual
Fire for full settlement of all claims for $12,000,000. Such settlement is
subject to execution of a definitive settlement agreement which agreement is
subject to approval of the Commonwealth Court of Pennsylvania. Triarc Companies
has fully provided for such settlement in prior years of which $5,114,000 is
included in 'Accounts payable' and $6,886,000 in 'Insurance loss reserves' in
the accompanying condensed consolidated financial statements.
In August 1993, NVF, which was affiliated with Triarc Companies until the
Change in Control, became a debtor in a case filed by its creditors under
Chapter 11 of the Federal Bankruptcy Code (the 'NVF Proceedings'). In November
1993, Triarc Companies received correspondence from NVF's bankruptcy counsel
claiming that, on the theories set forth in such correspondence, Triarc and
certain of its subsidiaries owed NVF approximately $2,300,000. Triarc Companies
intends to vigorously contest such claims. Nevertheless, Triarc Companies
previously accrued approximately $875,000 with respect to claims that might be
made by NVF and, during the three months ended October 31, 1993, accrued an
additional $1,425,000 with respect to such matters (see Note 2). Triarc
Companies believes that the outcome of the NVF Proceedings, after considering
the amounts provided in the current and prior periods, will not have a material
adverse effect on Triarc Companies consolidated financial condition or results
of operations.
F-43
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OCTOBER 31, 1993
(UNAUDITED)
In 1987, Graniteville was notified by the South Carolina Department of
Health and Environmental Control ('DHEC') that it discovered certain
contamination of Langley Pond near Graniteville, South Carolina and DHEC
asserted that Graniteville may be one of the parties responsible for such
contamination. Graniteville entered into a consent decree providing for the
study and investigation of the alleged pollution and its sources. The study
report prepared by Graniteville's environmental consulting firm and filed with
DHEC in April 1990, recommended that pond sediments be left undisturbed and in
place. DHEC responded by requesting that Graniteville submit additional
information concerning potential passive and active remedial alternatives, with
accompanying supportive information. In May 1991 Graniteville provided this
information to DHEC in a report of Graniteville's environmental consulting firm.
The 1990 and 1991 reports concluded that pond sediments should be left
undisturbed and in place and that other less passive remediation alternatives
either provided no significant additional benefits or themselves involved
adverse effects on human health, to existing recreational uses or to the
existing biological communities. Triarc is unable to predict at this time what
further actions, if any, may be required in connection with Langley Pond or what
the cost thereof may be. However, given the passage of time since the submission
of the two reports by Graniteville's environmental consulting firm without any
objection or adverse comment on such reports by DHEC and the absence of
desirable remediation alternatives, other than continuing to leave the Langley
Pond sediments in place and undisturbed as described in the reports, Triarc
believes the ultimate outcome of this matter will not have a material adverse
effect on Triarc consolidated results of operations or financial position.
As a result of certain environmental audits in 1991, SEPSCO became aware of
possible contamination by hydrocarbons and metals at certain sites of SEPSCO's
refrigeration operations and has filed appropriate notifications with state
environmental authorities and has begun a study of remediation at such sites.
SEPSCO has removed certain underground storage and other tanks at certain
facilities of its refrigeration operations and has engaged in certain
remediation in connection therewith. Such removal and environmental remediation
involved a variety of remediation actions at various facilities of SEPSCO
located in a number of jurisdictions. Such remediation varied from site to site,
ranging from testing of soil and groundwater for contamination, development of
remediation plans and removal in certain instances of certain contaminated
soils. Based on preliminary information and consultations with, and certain
reports of, environmental consultants and others, SEPSCO presently estimates the
cost of such remediation and/or removal will approximate $3,700,000, all of
which was provided in prior years. In connection therewith, SEPSCO has incurred
actual costs through October 31, 1993 of $1,000,000 and has a remaining accrual
of $2,700,000. Triarc believes that after such accrual the ultimate outcome of
this matter will not have a material adverse effect on Triarc Companies'
consolidated results of operations or financial position.
In 1991, Triarc Companies became aware that lead and cadmium contaminants
are present at a site owned by a non-core subsidiary at which the subsidiary had
disposed of decorative glass products produced prior to 1980. The Pennsylvania
Department of Environmental Regulation ('PDER') has been informed of this matter
and such subsidiary expects to develop, with the PDER, a plan of remediation.
The remediation actions being considered include capping the materials in place
or removing the materials to an approved landfill. Triarc Companies has no
reason to believe that any of the decorative glass products produced by its
subsidiary exceeded or were in any way inconsistent with applicable standards,
including health and safety standards, for consumer use of glass products.
Triarc Companies recorded charges to operations of $900,000 in Fiscal 1993 for
the estimated costs of the anticipated plan of remediation. Triarc believes that
after such provision the ultimate outcome of this matter will not have a
material adverse effect on Triarc Companies' consolidated results of operations
or financial position.
In addition to the matters described above Triarc Companies is involved in
claims, litigation and administrative proceedings and investigations of various
types in several jurisdictions. Such matters arise
F-44
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OCTOBER 31, 1993
(UNAUDITED)
in the ordinary course of the business of Triarc Companies and it is the opinion
of management that the outcome of any such matter, or all of them combined, will
not have a material adverse effect on Triarc Companies' consolidated results of
operations or financial position.
(12) DISCONTINUED OPERATIONS
On July 22, 1993 SEPSCO's Board of Directors authorized the sale or
liquidation of SEPSCO's utility and municipal services, refrigeration and
natural gas and oil businesses. On December 9, 1993 SEPSCO's Board of Directors
decided the natural gas and oil business will be transferred to Triarc rather
than SEPSCO selling it to an independent third party. Such transfer will be in
the form of a sale of the stock of the entities comprising the natural gas and
oil business for cash of $8,500,000 which is equal to their fair value and
approximately $4,500,000 higher than their net book value. It is intended for
this sale to occur following the Merger and the resulting elimination of the
minority interest in SEPSCO (Note 11). However, should the Merger not be
approved by the SEPSCO stockholders (Note 11) the sale of the stock of the
natural gas and oil entities for cash to Triarc will be completed prior to July
22, 1994. Accordingly, the net assets of the natural gas and oil business have
been reclassified from the net current and non-current assets of discontinued
operations to 'Other Assets' in the accompanying condensed consolidated balance
sheet as of October 31, 1993. The condensed consolidated statements of
operations have not been restated since the results of operations of such
business segment for the six months ended October 31, 1992 and 1993 are not
material. SEPSCO's utility and municipal services business segment and its
refrigeration business segment have been accounted for as discontinued
operations in Triarc Companies' condensed consolidated financial statements.
On October 15, 1993 SEPSCO sold the assets of its tree maintenance services
operations previously included in its utility and municipal services business
segment for $69,600,000 in cash plus the assumption by the purchaser of up to
$5,000,000 in current liabilities resulting in a loss of $4,771,000. On October
7, 1993 SEPSCO sold the stock of its two construction related operations
previously included in its utility and municipal services business segment for a
nominal amount subject to adjustments described below. As the related assets are
sold or liquidated the purchasers have agreed to pay, as deferred purchase
price, 75% of the net proceeds received therefrom (cash of $1,091,000 had been
received as of October 31, 1993) plus, in the case of the larger of the two
entities, an amount equal to 1.25 times the adjusted book value of such entity
as of October 5, 1995. As of October 7, 1993, the adjusted book value of the
assets of that entity aggregated approximately $1,600,000. In addition, Triarc
Companies paid $2,000,000 during October 1993 to cover short-term operating
losses and working capital requirements for the construction related operations.
Triarc Companies' current estimate of the sales of the construction related
operations is a gain of $2,030,000 excluding any consideration of the potential
book value adjustment.
On November 12, 1993 SEPSCO signed a letter of intent to sell substantially
all of the operating assets of the ice operations of its refrigeration business
segment for $5,000,000 in cash, a $4,000,000 note (discounted value $3,101,000)
and the assumption by the buyer of certain current liabilities of approximately
$1,000,000. The note which bears no interest during the first year and 5%
thereafter, would be payable in installments of $120,000 at the end of each of
the four years following the closing date with the balance of $3,520,000 due at
the end of the fifth year following the closing date. The precise timetable for
the sale and liquidation of the remaining discontinued operation, the cold
storage operations of SEPSCO's refrigeration business segment, will depend upon
SEPSCO's ability to identify appropriate potential purchasers and to negotiate
acceptable terms for the sale of such operation. SEPSCO currently anticipates
completion of such sales by July 31, 1994.
Based on the analysis performed to date, after taking into account both the
charge taken in Fiscal 1993 and the charge to discontinued operations of
$10,400,000 (before minority interests of $3,003,000) taken in the three months
ended October 31, 1993 (see Note 2), Triarc Companies expects that all
F-45
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OCTOBER 31, 1993
(UNAUDITED)
currently anticipated dispositions, including the results of their operations
through the actual or anticipated disposal dates, will not in the aggregate
result in any additional loss to Triarc Companies.
Net current and non-current assets of the discontinued operations consist
of the following:
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
1993 1993
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Net assets of operations sold for cash, net of loss on disposal................ $ -- $33,768
Receivables, net............................................................... 25,178 2,506
Inventories.................................................................... 2,845 626
Current portion of long-term debt.............................................. (9,709) (256)
Other current assets and liabilities, net...................................... (11,491) (3,582)
--------- -----------
Net current assets of discontinued operations.................................. $ 6,823 $33,062
--------- -----------
--------- -----------
Properties, net................................................................ $ 85,880 $20,884
Long-term debt................................................................. (16,992) (287)
Deferred income taxes.......................................................... (8,477) (2,061)
Other assets and liabilities, net.............................................. (325) (2,714)
--------- -----------
Net non-current assets of discontinued operations.............................. $ 60,086 $15,822
--------- -----------
--------- -----------
</TABLE>
The income (loss) from discontinued operations through July 22, 1993
consisted of the following:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
OCTOBER 31,
-------------------
1992 1993
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Results of Operations
Revenues.................................................................... $103,628 $83,462
Operating profit............................................................ 6,403 2,298
Income before income taxes and minority interests........................... 4,989 1,242
Provision for income taxes.................................................. (1,885) (920)
Minority interests.......................................................... (1,088) (93)
Net income.................................................................. 2,016 229
</TABLE>
13. SUBSEQUENT EVENTS
Triarc has estimated that an aggregate $5,000,000 of the Merger
consideration represents settlement costs of the Ehrman Litigation. Of such
amount, $1,250,000 represents plaintiff's counsel fees which has been previously
accrued. The remaining $3,750,000 will be recorded as a charge to operations
during the two months ended December 31, 1993 since it was during such period
that Triarc determined that the litigation settlement was more likely than not
to be approved by the District Court. In fact, the District Court approved the
Settlement Agreement for the Ehrman Litigation on January 11, 1994.
In March 1994, Chesapeake Insurance entered into an agreement for the full
commutation of all insurance previously underwritten by its insurance carrier
for the years 1977-1993, on behalf of the Triarc Companies and former affiliated
companies which had been reinsured by Chesapeake Insurance (representing
approximately $63,500,000 of Triarc Companies insurance loss reserves). In
connection with such commutation, Triarc Companies paid an aggregate
consideration of approximately $63,500,000, consisting of approximately
$29,300,000 of restricted cash and short-term investments of insurance
operations, and a promissory note of Triarc bearing interest at 9 3/4% in the
principal amount of $34,200,000.
In February 1994, the official committee of unsecured creditors of APL
Corporation (the 'APL Committee') filed a complaint (the 'APL Complaint')
against certain Posner Entities, Triarc and
F-46
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OCTOBER 31, 1993
(UNAUDITED)
certain companies formerly or presently affiliated with Posner or with Triarc,
alleging causes of action arising from various transactions allegedly caused by
the named Posner Entities in breach of their fiduciary duties to APL and
resulting in corporate waste, fraudulent transfers and preferences. In the APL
Complaint, the APL Committee asserts claims against Triarc for (a) aiding and
abetting breach of fiduciary duty, (b) equitable subordination of claims which
Triarc may have against APL, (c) declaratory relief as to whether APL has any
liability to Triarc, and (d) recovery of fraudulent transfers allegedly made by
APL to Triarc prior to commencement of the APL proceeding. The APL Complaint
seeks an undetermined amount of damages from Triarc, as well as the other relief
identified in the preceding sentence. Because the APL Complaint was filed in the
last week of February, Triarc Management has not had an opportunity to fully
investigate the matters contained therein. However, based on information
currently available, Triarc does not believe that the outcome of the APL
Complaint will have a material adverse effect on the financial condition or
results of operations of the Triarc Companies.
F-47
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders,
SOUTHEASTERN PUBLIC SERVICE COMPANY:
We have audited the accompanying consolidated balance sheets of
Southeastern Public Service Company (a Delaware corporation and presently a
71.1% owned subsidiary of Triarc Companies Inc., formerly DWG Corporation) and
subsidiaries as of February 29, 1992 and February 28, 1993, and the related
consolidated statements of operations and retained earnings (accumulated
deficit) and cash flows for each of the three years in the period ended February
28, 1993. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Southeastern Public Service
Company and subsidiaries as of February 29, 1992 and February 28, 1993, and the
results of their operations and their cash flows for each of the three years in
the period ended February 28, 1993, in conformity with generally accepted
accounting principles.
As discussed in Note 7, effective March 2, 1992, the Company's 49% owned
affiliate accounted for under the equity method changed its method of accounting
for income taxes and postretirement benefits other than pensions.
ARTHUR ANDERSEN & CO.
Miami, Florida,
July 22, 1993 (except with respect to certain
matters discussed in Notes 2 and 15, as to
which the date is September 1, 1993).
F-48
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
FEBRUARY 28 OR 29,
--------------------
1992 1993
-------- --------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash................................................................................. $ 282 $ 239
Restricted cash and equivalents (Note 3)............................................. 5,264 5,264
Receivables (less allowance for doubtful accounts of $279 and $269).................. 3,847 3,971
Finished goods inventories........................................................... 1,025 733
Notes receivable from Triarc, net (less unamortized deferred discount
of $39) (Notes 5 and 16)........................................................... -- 25,047
Other current assets (Note 8)........................................................ 905 1,386
Net current assets of discontinued operations (Note 2)............................... -- 1,987
-------- --------
Total current assets............................................................ 11,323 38,627
Properties, net (Note 6).................................................................. 7,528 7,825
Notes receivable from Triarc (less unamortized deferred discount of $165 at February 29,
1992) (Notes 5 and 16).................................................................. 55,287 26,538
Investments in affiliates (Notes 7 and 15)................................................ 62,905 65,327
Other assets.............................................................................. 2,119 1,752
Net non-current assets of discontinued operations (Note 2)................................ 69,168 66,184
-------- --------
$208,330 $206,253
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (Notes 9 and 16)................................... $ 9,290 $ 9,312
Notes payable to affiliate (Notes 14 and 17)......................................... 5,643 14,043
Accounts receivable financing (Notes 4 and 17)....................................... 8,789 9,536
Accounts payable..................................................................... 1,674 2,249
Other accrued expenses............................................................... 3,185 4,624
Net current liabilities of discontinued operations (Note 2).......................... 180 --
-------- --------
Total current liabilities....................................................... 28,761 39,764
Long-term debt (less unamortized deferred discount of $6,666 and $5,282) (Notes 9 and
16)..................................................................................... 56,826 49,661
Deferred income taxes (Note 8)............................................................ 7,870 7,230
Other liabilities (Note 5)................................................................ 7,370 1,368
Commitments and contingencies (Notes 2, 8, 11 and 15)
Stockholders' equity (Note 10):
Series B, convertible preferred stock, $50 par value; 267,600 shares authorized; 490
shares issued....................................................................... 24 24
Common stock, $1 par value; 25,000,000 shares authorized; 11,896,136 shares issued... 11,896 11,896
Additional paid-in capital........................................................... 90,539 90,539
Retained earnings.................................................................... 5,910 6,637
-------- --------
108,369 109,096
Less 241,069 common shares in treasury, at cost...................................... 866 866
-------- --------
Total stockholders' equity...................................................... 107,503 108,230
-------- --------
$208,330 $206,253
-------- --------
-------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
F-49
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND
RETAINED EARNINGS (ACCUMULATED DEFICIT)
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28 OR 29,
-----------------------------
1991 1992 1993
------- ------- -------
(IN THOUSANDS EXCEPT FOR PER
SHARE AMOUNTS)
<S> <C> <C> <C>
Net sales........................................................................ $29,154 $29,220 $28,520
------- ------- -------
Costs and expenses:
Cost of sales............................................................... 23,033 22,416 22,604
Selling, general and administrative expenses................................ 2,940 2,233 2,282
------- ------- -------
25,973 24,649 24,886
------- ------- -------
Operating profit....................................................... 3,181 4,571 3,634
------- ------- -------
Other income (expense):
Interest expense............................................................ (12,892) (13,740) (13,901)
Equity in earnings of affiliates before cumulative effect of changes in
accounting principles and extraordinary items of affiliate (Note 7)....... 2,683 5,201 12,161
Interest income from Triarc (Note 5)........................................ 7,333 7,336 7,336
Gain on sale of marketable security (Note 5)................................ -- -- 6,000
Gains on repurchase of debentures for sinking fund (Note 9)................. 3,510 3,960 117
Other, net (Note 15)........................................................ 1,831 440 (1,104)
------- ------- -------
2,465 3,197 10,609
------- ------- -------
Income from continuing operations before income taxes, cumulative
effect of changes in accounting principles and extraordinary items of
affiliate............................................................ 5,646 7,768 14,243
Provision for income taxes (Note 8).............................................. (1,401) (1,436) (1,671)
------- ------- -------
Income from continuing operations before cumulative effect of changes
in accounting principles and extraordinary items of affiliate........ 4,245 6,332 12,572
Loss from discontinued operations, net of income taxes (Note 2).................. (7,899) (225) (5,542)
------- ------- -------
Income (loss) before equity in cumulative effect of changes in
accounting principles and extraordinary items of affiliate........... (3,654) 6,107 7,030
Equity in cumulative effect of changes in accounting principles of affiliate, net
of income taxes (Note 7)....................................................... -- -- (5,954)
Equity in extraordinary items of affiliate (Note 7).............................. 794 -- (348)
------- ------- -------
Net income (loss)...................................................... (2,860) 6,107 728
Retained earnings (accumulated deficit) at beginning of year..................... 2,672 (196) 5,910
Cash dividends ($2.75 per share):
Series A Redeemable preferred stock.................................... (7) (1) (1)
Series B Convertible preferred stock................................... (1) -- --
------- ------- -------
Retained earnings (accumulated deficit) at end of year........................... $ (196) $ 5,910 $ 6,637
------- ------- -------
------- ------- -------
Income (loss) per share (Note 1):
Continuing operations....................................................... $ .36 $ .54 $ 1.08
Discontinued operations..................................................... (.68) (.02) (.48)
Cumulative effect of changes in accounting principles of affiliate.......... -- -- (.51)
Extraordinary items of affiliate............................................ .07 -- (.03)
------- ------- -------
Net income (loss)........................................................... $ (.25) $ .52 $ .06
------- ------- -------
------- ------- -------
</TABLE>
See accompanying notes to consolidated financial statements.
F-50
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
FEBRUARY 28 OR 29,
---------------------------
1991 1992 1993
------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................................................... $(2,860) $ 6,107 $ 728
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation.............................................................. 1,272 1,231 1,246
Amortization of deferred financing costs and debt discount................ 1,837 1,755 1,663
Amortization of deferred discount on notes receivable from Triarc......... (93) (109) (126)
Provision for doubtful accounts........................................... 215 209 188
Gains on purchases of 11 7/8% Senior Subordinated Debentures.............. (3,510) (3,960) (117)
Gain on sale of marketable security....................................... -- -- (6,000)
Loss (gain) on sale of properties......................................... (1,237) (66) 18
Dividends from unconsolidated affiliate................................... 4,576 1,038 3,004
Equity in net earnings of affiliates...................................... (3,211) (4,792) (5,014)
Loss from discontinued operations......................................... 7,899 225 5,542
Increase (decrease) in deferred income taxes.............................. (3,249) (952) (1,051)
Other..................................................................... (16) 1,130 (54)
Changes in operating assets and liabilities:
Decrease (increase) in receivables................................... (334) 370 (312)
Decrease in inventories.............................................. 416 74 292
Decrease in note receivable from Triarc.............................. -- -- 3,828
Decrease (increase) in other current assets.......................... 60 (565) (481)
Increase (decrease) in accounts payable.............................. 114 (1,070) 575
Increase (decrease) in accrued expenses.............................. (499) (94) 1,439
------- ------- -------
Net cash provided by operating activities....................... 1,380 531 5,368
------- ------- -------
Cash flows from investing activities:
Capital expenditures........................................................... (538) (100) (656)
Proceeds from sales of properties.............................................. 1,321 160 73
Investment in affiliate........................................................ -- (1,500) --
------- ------- -------
Net cash provided by (used in) investing activities............. 783 (1,440) (583)
------- ------- -------
Cash flows from financing activities:
Net proceeds from accounts receivable financing................................ 5,878 2,911 747
Repayments of long-term debt................................................... (6,158) (5,651) (9,249)
Proceeds from note payable to affiliate........................................ -- 5,643 8,400
Other.......................................................................... (7) (1) (1)
------- ------- -------
Net cash provided by (used in) financing activities............. (287) 2,902 (103)
------- ------- -------
Net cash provided by continuing operations.......................................... 1,876 1,993 4,682
Net cash used by discontinued operations............................................ (5,364) (2,186) (4,725)
------- ------- -------
Net decrease in cash................................................................ (3,488) (193) (43)
Cash at beginning of year........................................................... 3,963 475 282
------- ------- -------
Cash at end of year................................................................. $ 475 $ 282 $ 239
------- ------- -------
------- ------- -------
</TABLE>
(table continued on next page)
F-51
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
(IN THOUSANDS)
(table continued from previous page)
<TABLE>
<CAPTION>
YEAR ENDED
FEBRUARY 28 OR 29,
---------------------------
1991 1992 1993
------- ------- -------
<S> <C> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest.................................................................. $11,035 $11,910 $11,401
------- ------- -------
------- ------- -------
Income taxes.............................................................. $ 4,178 $ 1,050 $ 2,204
------- ------- -------
------- ------- -------
</TABLE>
- ------------
Other:
During the years ended February 28, 1991, February 29, 1992 and
February 28, 1993, Southeastern Public Service Company ('SEPSCO') a
71.1% owned subsidiary of Triarc Companies, Inc. ('Triarc', formerly
DWG Corporation), received interest payments from Triarc of $5,600,
$7,209 and $6,026, respectively, in the form of offsets against
amounts due from SEPSCO to Triarc. In 1993, amounts payable to
Triarc were netted against a $6,500 promissory note receivable from
Triarc (see Note 5).
The reduction in the SEPSCO's ownership of CFC Holdings Corp. ('CFC
Holdings') in July 1991 described in Note 7 resulted in SEPSCO
reclassifying, in the year ended February 29, 1992, to 'Additional
paid-in capital' the cumulative equity in net losses of CFC Holdings
amounting to $15,210 which was previously recorded in 'Other
liabilities'.
See accompanying notes to consolidated financial statements.
F-52
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Southeastern
Public Service Company ('SEPSCO') a 71.1% owned subsidiary of Triarc Companies
Inc. ('Triarc', formerly DWG Corporation), and its subsidiaries. Due to their
planned sale or liquidation (see Note 2), all subsidiaries except for the
liquefied petroleum gas business have been reflected as discontinued operations.
All significant intercompany balances and transactions have been eliminated in
consolidation. SEPSCO's consolidated financial statements for each of the years
in the years ended February 28, 1991 ('SEPSCO Fiscal 1991'), February 29, 1992
('SEPSCO Fiscal 1992') and February 28, 1993 ('SEPSCO Fiscal 1993') include the
results of Graniteville Company ('Graniteville') as a 49% owned affiliate and
CFC Holdings Corp. ('CFC Holdings') as a 48% owned affiliate prior to July 1991,
5.4% owned since such date. Both investments are accounted for on the equity
method. SEPSCO's year ends on the last day of February and as used herein
February 28 shall mean the last day of SEPSCO's fiscal year.
CASH AND EQUIVALENTS
SEPSCO considers all highly liquid instruments with an original maturity of
three months or less when purchased to be cash equivalents.
INVENTORIES
Inventories are determined under the lower of cost (first-in, first-out
basis) or market basis.
DEPRECIATION, DEPLETION AND AMORTIZATION
Assets acquired prior to March 1, 1980 are depreciated on the straight-line
basis using composite annual rates on the majority of properties of 5.2% to 7.2%
for refrigeration properties; and 5% for liquefied petroleum gas properties. The
development of these composite rates was based on the estimated useful lives of
the related asset groups. Under the composite method of depreciation, upon
normal retirement or replacement, the cost of property, less any salvage
proceeds, is charged to accumulated depreciation. Gains and losses arising from
abnormal retirements or disposals are included in current earnings.
Assets acquired on or after March 1, 1980 are depreciated on the
straight-line basis using the estimated useful lives of the related major
classes of properties; 3 to 9 years for automotive equipment; 5 to 20 years for
machinery and equipment; and 20 to 30 years for buildings and improvements.
Under this method, gains and losses arising from disposals are included in
current earnings.
Depreciation and depletion on natural gas and oil properties are computed
using the units-of-production method based on proven reserves estimated from
engineering data.
Financing costs incurred in connection with the issuance of SEPSCO's
11 7/8% Senior Subordinated Debentures (the '11 7/8% Debentures') are being
amortized as interest expense over the term of the 11 7/8% Debentures using the
effective interest method. At February 28, 1992 and 1993, $1,342,000 and
$1,063,000, respectively, of such unamortized deferred financing costs are
included in 'Other assets' in the accompanying consolidated balance sheets.
The original issue debt discount on the 11 7/8% Debentures is being
amortized as interest expense over the term of the 11 7/8% Debentures using the
effective interest method. Such unamortized debt discount is reported as a
reduction of related long-term debt in the accompanying consolidated balance
sheets.
F-53
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INCOME TAXES
Federal income tax returns for SEPSCO and its consolidated subsidiaries are
filed on a consolidated basis. Deferred income taxes are provided to recognize
timing differences of income and expense items for financial and tax reporting
purposes.
In February 1992, the Financial Accounting Standards Board ('FASB') issued
Statement of Financial Accounting Standards ('SFAS') No. 109, 'Accounting for
Income Taxes', which requires SEPSCO to adopt the new accounting and disclosure
rules no later than the first quarter of the ten months ending December 31, 1993
('SEPSCO Transition 1993'). SEPSCO adopted the new standard effective March 1,
1993 and did not restate prior periods. The cumulative effect on prior years of
this change in accounting principles for the three months ended May 31, 1993 was
a favorable effect of $7,617,000 or $.65 per share.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
In December 1990, the FASB issued a new standard on accounting for
postretirement benefits other than pensions, SFAS No. 106 'Employers' Accounting
for Postretirement Benefits Other than Pensions', which requires SEPSCO to adopt
the new accounting and disclosure rules no later than the first quarter of
Transition 1993. This new standard requires that the expected cost of these
benefits be charged to expense during the years that employees render service.
SEPSCO adopted the new standard effective March 1, 1993, the effect of which was
immaterial.
OIL AND GAS
The successful efforts method of accounting is followed for costs incurred
in oil and gas exploration and development activities. Property acquisition
costs for oil and gas properties are initially capitalized. When a property is
determined to contain proven reserves, its property acquisition costs are
transferred to proven properties and amortized using the units-of-production
method. Exploration costs other than drilling, including geological and
geophysical costs are expensed as incurred. Exploratory drilling costs are
initially capitalized. If and when a property is determined to be nonproductive,
property acquisition and exploratory drilling costs are expensed.
INCOME (LOSS) PER SHARE
Income (loss) per share has been computed by dividing net income (loss),
after the reduction for preferred stock dividend requirements, by the weighted
average number (11,655,067) of common shares outstanding during each of the
years in the three year period ended February 28, 1993.
(2) DISCONTINUED OPERATIONS
SEPSCO originally issued its consolidated financial statements for the
fiscal year ended February 28, 1993 in May 1993. Subsequent thereto, on July 22,
1993 SEPSCO's Board of Directors authorized the sale or liquidation of its
utility and municipal services, refrigeration and natural gas and oil
businesses. Accordingly, SEPSCO has restated the accompanying consolidated
financial statements for each of the three years in the period ended February
28, 1993 to reflect such businesses as discontinued operations. In addition, on
July 22, 1993 SEPSCO's Board of Directors also authorized the sale or
liquidation of the liquefied petroleum gas business (see Note 18 regarding
discussion of subsequent events). On September 1, 1993 SEPSCO entered into an
agreement to sell the assets of its tree maintenance services operations
previously included in its utility and municipal services business segment for
approximately $70,000,000 of cash plus the assumption by the purchaser of up to
$5,000,000 in current liabilities. The resulting gain or loss is not yet
determinable; management of SEPSCO, however, expects to approximately break even
on such sales, or, at worst, incur an immaterial loss. Consummation of the sale
is subject to the satisfaction of a number of standard conditions, including
F-54
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
regulatory approvals. The precise timetable for the sale and liquidation of the
remaining discontinued businesses will depend upon SEPSCO's ability to identify
appropriate purchasers and to negotiate acceptable terms for the sale of such
businesses and assets. However, SEPSCO currently anticipates completing such
sales or liquidations by July 31, 1994. After consideration of a $4,903,000
pre-tax write-down in SEPSCO Fiscal 1993 relating to accruals for environmental
remediation and losses on certain contracts in progress reflected in operating
profit (loss) of discontinued operations summarized below, an $8,000,000 pre-tax
provision for impairment of certain unprofitable properties subsequently
recorded during the quarter ended May 31, 1993 (resulting from an evaluation of
the properties on a sale or liquidation basis rather than on an operating basis
due to the anticipated decision which was reached subsequent to the issuance of
the May 31, 1993 financial statements to sell or liquidate such properties) and
based on the analysis performed to date, SEPSCO expects that such dispositions
including results of operations through the anticipated disposal dates and any
loss on the sale of the tree maintenance services operations will not in the
aggregate result in a net loss to SEPSCO (see Note 18 regarding discussion of
subsequent events).
F-55
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Condensed financial information for the discontinued operations, which has been
retroactively classified separately in the accompanying consolidated financial
statements, is as follows:
<TABLE>
<CAPTION>
FEBRUARY 28,
------------------------------------------------------------
1992 1993
---------------------------- ----------------------------
UTILITY AND UTILITY AND
MUNICIPAL MUNICIPAL
NATURAL GAS SERVICES AND NATURAL GAS SERVICES AND
AND OIL REFRIGERATION AND OIL REFRIGERATION
----------- ------------- ----------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Current assets:
Cash............................................................ $-- $ -- $-- $ --
Receivables, less allowance for doubtful accounts............... 350 25,763 365 26,313
Inventories..................................................... 184 3,530 160 2,894
Other current assets............................................ 68 2,094 40 1,939
----------- ------------- ----------- -------------
Total current assets....................................... 602 31,387 565 31,146
----------- ------------- ----------- -------------
Current liabilities:
Current portion of long-term debt............................... -- 25 -- 349
Current portion of capital leases due to leasing affiliate...... 51 11,527 25 10,245
Accounts payable................................................ 447 9,858 287 8,693
Accrued salaries and wages...................................... 61 2,743 29 2,800
Other accrued expenses.......................................... 786 6,671 879 6,417
----------- ------------- ----------- -------------
Total current liabilities.................................. 1,345 30,824 1,220 28,504
----------- ------------- ----------- -------------
Net current assets (liabilities) of discontinued
operations.......................................... $ (743) $ 563 $ (655) $ 2,642
----------- ------------- ----------- -------------
----------- ------------- ----------- -------------
Non-current assets:
Properties...................................................... $18,764 $ 181,032 $18,893 $ 189,101
Less accumulated depreciation, depletion and amortization....... 10,600 95,219 11,489 104,625
----------- ------------- ----------- -------------
8,164 85,813 7,404 84,476
Other assets.................................................... 43 1,197 29 1,083
----------- ------------- ----------- -------------
Total non-current assets................................... 8,207 87,010 7,433 85,559
----------- ------------- ----------- -------------
Non-current liabilities:
Long-term debt.................................................. -- 92 -- 172
Capitalized leases due to leasing affiliate..................... 34 17,944 21 16,799
Deferred income taxes........................................... 1,580 5,418 1,303 5,162
Other liabilities............................................... 5 976 304 3,047
----------- ------------- ----------- -------------
Total non-current liabilities.............................. 1,619 24,430 1,628 25,180
----------- ------------- ----------- -------------
Net non-current assets of discontinued operations..... $ 6,588 $ 62,580 $ 5,805 $ 60,379
----------- ------------- ----------- -------------
----------- ------------- ----------- -------------
</TABLE>
F-56
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28,
-----------------------------------------------------------------------------------------------
1991 1992 1993
----------------------------- ----------------------------- -------------------------------
UTILITY AND UTILITY AND UTILITY AND
MUNICIPAL MUNICIPAL MUNICIPAL
NATURAL GAS SERVICES AND NATURAL GAS SERVICES AND NATURAL GAS SERVICES AND
AND OIL REFRIGERATION AND OIL REFRIGERATION AND OIL REFRIGERATION
------------ -------------- ------------ -------------- ------------ ----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Operating revenues:
Net sales................ $ 6,900 $ 11,083 $ 5,488 $ 32,709 $ 5,488 $ 10,818
Service revenues......... -- 170,178 -- 162,156 -- 188,408
------------ -------------- ------------ -------------- ------------ ----------------
6,900 181,261 5,488 194,865 5,488 199,226
------------ -------------- ------------ -------------- ------------ ----------------
Operating costs and expenses:
Cost of sales............ 3,530 12,131 2,997 11,095 3,934 10,805
Cost of services......... -- 160,486 -- 168,639 -- 176,895
Selling, general and
administrative
expenses............... 3,681 15,465 2,139 12,784 2,070 13,011
------------ -------------- ------------ -------------- ------------ ----------------
7,211 188,082 5,136 192,518 6,004 200,711
------------ -------------- ------------ -------------- ------------ ----------------
Operating profit
(loss)............ (311 ) (6,821 ) 352 2,347 (516 ) (1,485 )
------------ -------------- ------------ -------------- ------------ ----------------
Other income (expense):
Interest expense......... (18 ) (4,179 ) (14 ) (4,416 ) (9 ) (3,738 )
Other, net............... 1 (610 ) (148 ) 1,397 26 (2,240 )
------------ -------------- ------------ -------------- ------------ ----------------
(17 ) (4,789 ) (162 ) (3,019 ) 17 (5,978 )
------------ -------------- ------------ -------------- ------------ ----------------
Income (loss) before
income taxes........... (328 ) (11,610 ) 190 (672 ) (499 ) (7,463 )
Benefit from (provision for)
income taxes................ 107 3,932 (126 ) 383 172 2,248
------------ -------------- ------------ -------------- ------------ ----------------
Income (loss) from
discontinued
operations............. $ (221 ) $ (7,678 ) $ 64 $ (289 ) $ (327 ) $ (5,215 )
------------ -------------- ------------ -------------- ------------ ----------------
------------ -------------- ------------ -------------- ------------ ----------------
</TABLE>
(3) RESTRICTED CASH AND EQUIVALENTS
SEPSCO has an arrangement with a bank providing for the issuance of letters
of credit for the purpose of securing certain performance and other bonds
associated with the discontinued operations. These letters of credit are
collateralized by cash deposited in restricted interest-bearing accounts not
associated with the discontinued operations.
(4) DUE UNDER ACCOUNTS RECEIVABLE FINANCING
In January 1991, SEPSCO entered into an accounts receivable financing
arrangement with a commercial lender which covered substantially all the
accounts receivable of the tree maintenance activities and the construction
related activities of the utility and municipal services segment and a certain
location of the refrigeration segment (the 'Covered Segments'). Such advances
bore interest at the prime rate (6% at February 28, 1993) plus 1%, and a
commission of 1% of each account receivable for which advances were made and the
payment of an administrative fee of $100,000 per year. Pursuant to this
arrangement, all accounts receivable of the Covered Segments were pledged as
collateral. The proceeds from this financing were utilized for corporate
obligations. As described in Note 17, on April 23, 1993, upon completion of the
acquisition (the 'Acquisition') of 28.6% of Triarc by DWG Acquisition Group,
L.P., ('DWG Acquisition'), SEPSCO paid $12,689,000 outstanding as of that date
under the accounts receivable financing arrangement and terminated such
arrangement.
F-57
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(5) NOTES RECEIVABLE FROM TRIARC
SEPSCO holds a promissory note (the 'Note') of Triarc in the original face
amount of $48,952,000, bearing interest at the annual rate of 13% payable
semi-annually. On April 23, 1993 SEPSCO received a partial prepayment of
$22,414,000 on the principal of the Note plus $1,430,000 of accrued interest
from Triarc. The Note, after giving effect to such prepayment, is due on August
1, 1998. The Note resulted from the 1986 sale of approximately 51% of the
outstanding common shares of Graniteville to Triarc and is secured by such
shares. The Note is subordinated to senior indebtedness of Triarc to the extent,
if any, that the payment of principal and interest thereon is not satisfied out
of proceeds of the pledged Graniteville shares.
At February 28, 1993 SEPSCO also held an unsecured promissory note (the
'Promissory Note') of Triarc in the face amount of $6,500,000, bearing interest
at an annual rate of 13%, payable semi-annually and maturing on July 12, 1993.
The Promissory Note arose in connection with the sale of common stock of an
unaffiliated company to Triarc. The Promissory Note was recorded net of an
original deferred discount of $500,000 which was amortized to interest income
using the effective interest rate method. The carrying value of the Promissory
Note at February 28, 1992 and 1993 was $6,335,000 and $6,461,000, respectively.
Netted against such Promissory Note, which is reflected as a current asset as of
February 28, 1993, are current amounts payable to Triarc amounting to
$3,828,000. Such amount at February 28, 1992 of $3,102,000 was included in 'Net
current assets of discontinued operations' in the accompanying consolidated
balance sheet. As described in Note 17, on April 23, 1993 SEPSCO received full
payment of the Promissory Note in the amount of $6,806,000, including $306,000
of accrued interest from Triarc. Such payment included $3,271,000 in cash and
$3,535,000 in offsets of amounts owed by SEPSCO to Triarc. A related $6,000,000
gain on the sale of the common stock of an unaffiliated company to Triarc had
been previously deferred until collection of the Promissory Note was assured. As
such note was collected in April 1993, the $6,000,000 gain was recognized in
SEPSCO Fiscal 1993. Such deferred gain had been deferred in 'Other liabilities'
in the accompanying consolidated balance sheet as of February 28, 1992.
(6) PROPERTIES
The following is a summary of the components of properties, at cost:
<TABLE>
<CAPTION>
FEBRUARY 28,
----------------------------
1992 1993
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Land.............................................................................. $ 1,216 $ 1,722
Buildings and improvements........................................................ 1,232 1,244
Machinery and equipment........................................................... 13,600 13,601
Automotive equipment.............................................................. 3,860 3,964
------------ ------------
19,908 20,531
Less accumulated depreciation..................................................... 12,380 12,706
------------ ------------
$ 7,528 $ 7,825
------------ ------------
------------ ------------
</TABLE>
F-58
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(7) INVESTMENTS IN AFFILIATES
Investments in affiliates consisted of the following:
<TABLE>
<CAPTION>
FEBRUARY 28,
------------------
1992 1993
------- -------
(IN THOUSANDS)
<S> <C> <C>
Graniteville...................................................................... $59,496 $62,530
CFC Holdings...................................................................... 1,909 1,297
Chesapeake Insurance.............................................................. 1,500 1,500
------- -------
$62,905 $65,327
------- -------
------- -------
</TABLE>
Equity in earnings of affiliates before income taxes on the ultimate
distribution of earnings of affiliates to SEPSCO, cumulative effect of changes
in accounting principles and extraordinary items consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28,
---------------------------
1991 1992 1993
------ ------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
Graniteville.............................................................. $3,909 $6,009 $12,426
CFC Holdings.............................................................. (1,226) (808) (265)
------ ------ -------
$2,683 $5,201 $12,161
------ ------ -------
------ ------ -------
</TABLE>
GRANITEVILLE
Summary consolidated balance sheets at February 28, 1992 and 1993 and
consolidated statements of earnings for each of the years in the three-year
period ended February 28, 1993 of Graniteville are as follows:
<TABLE>
<CAPTION>
FEBRUARY 28,
--------------------
1992 1993
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Summary Consolidated Balance Sheets
Current assets............................................................. $114,801 $154,258
Properties, net............................................................ 102,119 105,472
Other assets............................................................... 3,422 3,634
-------- --------
$220,342 $263,364
-------- --------
-------- --------
Current liabilities........................................................ $ 46,781 $ 59,856
Long-term debt............................................................. 41,821 52,896
Deferred income taxes...................................................... 9,845 21,374
Other liabilities.......................................................... 475 1,626
Stockholders' equity....................................................... 121,420 127,612
-------- --------
$220,342 $263,364
-------- --------
-------- --------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28,
--------------------------------
1991 1992 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Summary Consolidated Statements of Income
Operating revenues............................................ $414,538 $456,402 $499,060
Operating profit.............................................. 10,619 28,786 49,734
Income before cumulative effect of changes in accounting
principles.................................................. 7,978 12,263 25,360
Net income.................................................... 7,978 12,263 12,324
</TABLE>
F-59
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In SEPSCO Fiscal 1993 Graniteville adopted SFAS 109 and SFAS 106 with the
cumulative effect of changes in accounting principles resulting in charges to
Graniteville's consolidated statement of earnings amounting to $12,314,000 for
SFAS 109 and $722,000, net of Graniteville's taxes of $429,000 for SFAS 106.
Graniteville's equity, net of taxes of $434,000 in such cumulative effect,
amounted to a charge of $5,954,000 or $.51 per share.
As a result of the Acquisition, Graniteville is permitted to pay dividends
or make loans or advances to SEPSCO in an amount equal to 50% of the net income
of Graniteville accumulated from the beginning of the first fiscal year
commencing on or after December 20, 1994, provided that the outstanding
principal balance of Graniteville's term loan is less than $50 million at the
time of the payments and certain other conditions are met. Accordingly,
following the Acquisition and prior to February 28, 1996, Graniteville will be
unable to pay any dividends to SEPSCO. Cash dividends received by SEPSCO from
its investment in Graniteville were, $4,576,000, $1,038,000 and $3,004,000, in
the years ended February 28, 1991, 1992 and 1993, respectively.
CFC HOLDINGS
SEPSCO presently owns 5.4% of the outstanding common stock of CFC Holdings.
The remaining 94.6% of such common stock is currently owned by Triarc. CFC
Holdings owns 100% of RC/Arby's Corporation ('RC/Arby's', formerly known as
Royal Crown Corporation) (the principal subsidiaries of which are Arby's Inc.
('Arby's') and Royal Crown Company, Inc. ('RC Cola', formerly known as Royal
Crown Cola Co., Inc.) and Chesapeake Insurance. SEPSCO received its 5.4%
interest in CFC Holdings in July 1991 in exchange for its then 5.4% interest in
the common stock of RC/Arby's which at that time owned 100% of Arby's, RC Cola
and Chesapeake Insurance. In connection with a capital restructuring in July
1991, all of the RC/Arby's preferred stock which was owned by Triarc was
converted into common stock of RC/Arby's reducing SEPSCO's ownership percentage
from its then 48% to 5.4%. The reduction in SEPSCO's ownership in connection
with such restructuring resulted in SEPSCO reclassifying as of August 31, 1991,
to 'Additional paid-in capital', the cumulative equity in net losses of CFC
Holdings amounting to $15,210,000 which was previously recorded in 'Other
liabilities'.
SEPSCO's equity in extraordinary items relates to CFC Holdings and
consisted of a credit in SEPSCO Fiscal 1991 of $794,000 due to the utilization
of a net operating loss carryforward and a charge in SEPSCO Fiscal 1993 of
$348,000 due to the early extinguishment of debt.
In SEPSCO Fiscal 1992, SEPSCO purchased 15,000 convertible redeemable
preferred shares of Chesapeake Insurance for $1,500,000. Such stock bears annual
dividends, as and when declared by Chesapeake Insurance, of 6% and is
convertible into Chesapeake Insurance common shares at a price of $5.52 per
common share. If all convertible preferred shares issued by Chesapeake Insurance
were converted to common shares SEPSCO's ownership of Chesapeake Insurance would
be 11.5%. SEPSCO accounts for such investment on the cost method.
F-60
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(8) INCOME TAXES
The benefit from (provision for) income taxes consisted of the following
components:
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28,
-----------------------------
1991 1992 1993
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal............................................................ $(1,181) $ (849) $ (183)
State.............................................................. (268) (312) (227)
------- ------- -------
(1,449) (1,161) (410)
------- ------- -------
Deferred:
Federal............................................................ 19 (326) (1,291)
State.............................................................. 29 51 30
------- ------- -------
48 (275) (1,261)
------- ------- -------
$(1,401) $(1,436) $(1,671)
------- ------- -------
------- ------- -------
</TABLE>
The difference between the reported tax benefit (provision) and the
computed tax benefit (provision) at the statutory rate is reconciled as follows:
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28,
-----------------------------
1991 1992 1993
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Income from continuing operations before income taxes, cumulative effect
of changes in accounting principles and extraordinary items of
affiliate............................................................. $ 5,646 $ 7,768 $14,243
------- ------- -------
------- ------- -------
Computed expected tax benefit (provision) at 34%........................ $(1,920) $(2,641) $(4,843)
Decrease (increase) in Federal taxes from:
Dividend exclusion on equity in earnings of affiliates............. 730 1,415 3,308
State taxes, net of Federal income tax benefit..................... (158) (172) (130)
Other, net......................................................... (53) (38) (6)
------- ------- -------
$(1,401) $(1,436) $(1,671)
------- ------- -------
------- ------- -------
</TABLE>
The deferred income tax (provision) benefit consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28,
----------------------------
1991 1992 1993
------ ------ --------
(IN THOUSANDS)
<S> <C> <C> <C>
Gain on sale of marketable security...................................... $ -- $ -- $ (2,040)
Book over tax gain on repurchase of Debentures........................... (402) (764) --
Original issue discount.................................................. 200 72 (9)
Settlement of litigation................................................. -- -- 442
Book over tax depreciation............................................... 144 318 339
Other.................................................................... 106 99 7
------ ------ --------
$ 48 $ (275) $ (1,261)
------ ------ --------
------ ------ --------
</TABLE>
The net liability for non-current deferred income taxes is reported as a
separate line item on the accompanying consolidated balance sheets while the net
benefit for current deferred income taxes of $663,000 as of February 28, 1993 is
included in 'Other current assets'.
As of February 28, 1993 SEPSCO had net operating loss carryforwards for
federal income tax reporting purposes of approximately $6,200,000. Such
carryforwards will expire in the amount of approximately $3,300,000 in the year
2006 and approximately $2,900,000 in the year 2008. In addition
F-61
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPSCO has depletion carryforwards of $5,000,000 and alternative minimum tax
credit carryforwards of approximately, $3,400,000, both of which have an
unlimited carryforward period. Such carryforwards are available to offset future
taxable income and capital gains, if any.
Federal income tax returns of SEPSCO have been examined by the Internal
Revenue Service ('IRS') for the tax years 1986 through 1988. Such audit has been
substantially resolved at no material cost to SEPSCO. The IRS has recently
commenced the examination of SEPSCO's Federal income tax returns for the tax
years 1989 through 1992. The amount and timing of any payments required as a
result of the 1989 through 1992 audit cannot presently be determined. However,
SEPSCO believes that it has adequate aggregate reserves for any tax liability,
including interest, that may result from all such examinations.
(9) LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
FEBRUARY 28,
--------------------------------------------------
1992 1993
----------------------- -----------------------
(IN THOUSANDS)
<S> <C> <C>
11 7/8% Senior Subordinated Debentures due February 1, 1998 (less
unamortized deferred debt discount of $6,666,000 and $5,282,000).......... $65,334 $57,718
Capitalized lease obligations with an affiliate (see Note 11)............... 636 703
10%-13% mortgage and equipment notes due 1994 to 2003....................... 146 546
Other....................................................................... -- 6
---------- ----------
66,116 58,973
Less current portion of long-term debt...................................... 9,290 9,312
---------- ----------
$56,826 $49,661
---------- ----------
---------- ----------
</TABLE>
Aggregate annual maturities, including required sinking fund payments and
capitalized lease obligations, of long-term debt as of February 28, 1993 are as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28,
- -----------------------------------------------------------------------------------
<S> <C>
1994............................................................................... $ 9,312
1995............................................................................... 9,259
1996............................................................................... 9,184
1997............................................................................... 9,118
1998............................................................................... 27,089
Thereafter......................................................................... 293
-------
64,255
Less unamortized deferred debt discount at February 28, 1993....................... 5,282
-------
$58,973
-------
-------
</TABLE>
SEPSCO is required to retire annually, through a mandatory sinking fund,
$9,000,000 principal amount of the 11 7/8% Debentures through 1997 with a final
payment of $27,000,000 due in 1998. On February 1, 1991 and 1992, SEPSCO
satisfied its mandatory sinking fund requirement due on such dates by purchasing
in the open market the required $9,000,000 principal amount of such 11 7/8%
Debentures. On February 1, 1993 SEPSCO satisfied its mandatory sinking fund
requirement due on such date by payment of $8,734,000 in cash and $266,000 of
principal amount of 11 7/8% Debentures. The discount on the 11 7/8% Debentures
purchased is reported as a separate line item in the accompanying consolidated
statements of operations.
F-62
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Under provisions of the indenture (the 'Indenture') pursuant to which the
11 7/8% Debentures were issued, SEPSCO is permitted to pay cash dividends and
acquire shares of SEPSCO's capital stock up to a maximum of $10,412,000 as of
February 28, 1993.
The Indenture contains a provision which limits to $100,000,000 the
aggregate amount of specified kinds of indebtedness that SEPSCO and its
consolidated subsidiaries can incur. At February 28, 1993 such indebtedness was
$82,369,000 resulting in allowable indebtedness of $17,631,000.
(10) STOCKHOLDERS' EQUITY
Additional paid-in capital increased by $15,210,000 in SEPSCO Fiscal 1992
as a result of the reduction in equity ownership of an affiliate (see Note 7).
There were no other changes in the stockholders' equity accounts for the three
years ended February 28, 1993 except for retained earnings (accumulated deficit)
as set forth on the consolidated statements of operations and retained earnings
(accumulated deficit).
At February 28, 1993, 64.9% of SEPSCO's outstanding common stock $1.00 par
value per share (the 'SEPSCO Common Stock') and all of the convertible preferred
stock, Series B, was owned by Triarc. Such common stock ownership was increased
to 71.1% as of April 23, 1993. The convertible preferred stock bears a dividend
of 5 1/2% and is convertible into 8,167 shares of common stock at a rate of
$3.00 per share.
Included in 'Retained earnings' at February 28, 1992 and 1993 are
$1,299,000 and $3,309,000 of net undistributed earnings of unconsolidated
affiliates, respectively.
(11) LEASE COMMITMENTS
SEPSCO leases certain machinery, automotive and other equipment primarily
from an indirect, wholly-owned subsidiary of Triarc under long-term lease
obligations which are accounted for as capital leases in the accompanying
consolidated balance sheets. The cost of properties under capital leases of
continuing operations (included in 'Properties, net') amounted to $1,280,000 and
$1,264,000 at February 28, 1992 and 1993, respectively, and the cost of
properties under capital leases of discontinued operations (included in 'Net
non-current assets of discontinued operations') amounted to $58,357,000 and
$54,698,000, respectively.
F-63
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The future minimum lease payments (net of sublease rentals which are not
significant) under capital leases and operating leases with an initial
noncancelable term in excess of one year are as follows as of February 28, 1993:
<TABLE>
<CAPTION>
CAPITAL LEASES OPERATING LEASES
------------------------------------- ------------------------------------
CONTINUING DISCONTINUED CONTINUING DISCONTINUED
YEAR ENDED FEBRUARY 28, OPERATIONS OPERATIONS TOTAL OPERATIONS OPERATIONS TOTAL
- ----------------------------- ---------- ------------ ------- ---------- ------------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
1994......................... $327 $ 12,552 $12,879 $281 $134 $ 415
1995......................... 248 9,213 9,461 227 93 320
1996......................... 149 6,155 6,304 148 34 182
1997......................... 69 2,809 2,878 43 28 71
1998......................... 30 1,032 1,062 9 2 11
Thereafter................... -- -- -- 17 -- 17
---------- ------------ ------- ---------- ------ ------
Total minimum lease
payments................... 823 31,761 32,584 $725 $291 $1,016
---------- ------ ------
---------- ------ ------
Less amounts representing
interest................... 120 4,671 4,791
---------- ------------ -------
Present value of minimum
lease payments............. $703 $ 27,090 $27,793
---------- ------------ -------
---------- ------------ -------
</TABLE>
Rental expense under operating leases, which is primarily for the rental of
office space, was $2,764,000 in SEPSCO Fiscal 1991, $2,330,000 in 1992 and
$2,012,000 in 1993, of which $629,000, $537,000 and $485,000, respectively,
related to continuing operations and $2,135,000, $1,793,000 and $1,527,000,
respectively, related to discontinued operations.
(12) RETIREMENT PLANS
Substantially all of the employees of the continuing and discontinued
businesses are covered under SEPSCO's 401(k) defined contribution plan or one of
the multi-employer union plans to which SEPSCO contributes.
The defined contribution plan allows eligible employees to contribute up to
15% of their total earnings, subject to certain limitations. SEPSCO makes a
matching contribution for eligible employees of 25% of the employee's
contributions but limited to the first 5% of an employee's compensation and an
additional contribution equal to 1/4 of 1% of such employee's total earnings.
Total contributions were $395,000 in SEPSCO Fiscal 1991, $368,000 in 1992 and
$394,000 in 1993.
SEPSCO had several defined benefit pension plans, all of which were frozen
prior to February 28, 1990. SEPSCO's applications with the Pension Benefit
Guaranty Corporation and the Internal Revenue Service for the termination and
distribution of surplus pension assets of SEPSCO's defined benefit pension plans
were approved during SEPSCO Fiscal 1992. After the purchase of annuities for
plan participants, SEPSCO received the net surplus pension assets of $3,226,000
in SEPSCO Fiscal 1992 and $206,000 in SEPSCO Fiscal 1993. Substantially all of
the gain on such reversions had previously been reflected through February 28,
1992 in accordance with SFAS 87, including $963,000 and $863,000 in SEPSCO
Fiscal 1991 and 1992, respectively. During the year ended February 28, 1993 all
remaining prepaid and accrued pension costs existing as of February 28, 1992
were eliminated resulting in a termination gain of $431,000.
F-64
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of the SEPSCO Fiscal 1991 and 1992 net periodic pension
benefits are as follows:
<TABLE>
<CAPTION>
FEBRUARY 28,
------------------
1991 1992
------- -------
(IN THOUSANDS)
<S> <C> <C>
Service cost....................................................................... $ 2 $ --
Interest cost on projected benefit obligation...................................... 695 604
Return on plan assets.............................................................. (1,381) (1,241)
Amortization, net of deferral...................................................... (279) (226)
------- -------
Net periodic pension benefits................................................. $ (963) $ (863)
------- -------
------- -------
</TABLE>
An assumed discount rate of 7.5% in SEPSCO Fiscal 1991 and 7% in 1992 and
an expected long-term rate of return on assets of 9%, were used in developing
this data. Plan assets were invested in a managed portfolio consisting primarily
of money market investments, corporate bonds and common stock of unaffiliated
issuers.
The following table sets forth a reconciliation of funded status of the
plans:
<TABLE>
<CAPTION>
FEBRUARY 28, 1992
------------------------------
PLANS WHERE
------------------------------
ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFITS
BENEFITS EXCEED ASSETS
------------- -------------
<S> <C> <C>
(IN THOUSANDS)
Accumulated and projected benefit obligation -- fully vested............. $(1,975) $(2,241)
Plan assets at fair value................................................ 2,985 1,452
------------- -------------
Projected benefit obligation (in excess of) or less than plan assets..... 1,010 (789)
Unrecognized net loss.................................................... 350 --
Unrecognized net asset at transition..................................... (496) --
------------- -------------
Prepaid (accrued) pension cost........................................... $ 864 $ (789)
------------- -------------
------------- -------------
</TABLE>
Under certain union contracts, SEPSCO is required to make payments to the
union pension funds based upon hours worked by the eligible employees. Payments
to the funds amounted to $915,000 in SEPSCO Fiscal 1991, $819,000 in 1992 and
$784,000 in 1993. Information from the plan administrators of the funds is not
available to permit SEPSCO to determine its share of unfunded vested benefits,
if any.
(13) INCENTIVE COMPENSATION PLANS
At February 28, 1993 SEPSCO maintained a management incentive plan. In
SEPSCO Fiscal 1991 and 1992 SEPSCO recorded provisions of $120,000 and $232,000,
respectively, in connection with the plan. No provision was recorded in SEPSCO
Fiscal 1993. Such plan was terminated on April 24, 1993.
(14) TRANSACTIONS WITH AFFILIATES
In SEPSCO Fiscal 1993, SEPSCO increased its borrowings from Chesapeake
Insurance by $8,400,000 to $14,043,000. The additional borrowings were used to
provide the necessary funds to meet SEPSCO's mandatory sinking fund requirements
due February 1, 1993. The loans from Chesapeake Insurance were payable on demand
and bore interest at an annual rate of 11 7/8%. In addition such loans were
secured by a pledge of 100% of the stock of SEPSCO's Public Gas subsidiary. As
described in Note 17, on April 23, 1993 SEPSCO paid in full such loans amounting
to $14,426,000 including $383,000 of accrued interest to Chesapeake Insurance.
In SEPSCO Fiscal 1992 SEPSCO purchased 15,000 convertible redeemable
preferred shares of Chesapeake Insurance for $1,500,000 (see Note 7).
F-65
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPSCO receives from Triarc certain management services including legal,
accounting, internal auditing, insurance, financial and other management
services. The portion of these costs allocated to SEPSCO was $2,664,000 in 1991,
$2,063,000 in 1992 and $2,033,000 in SEPSCO Fiscal 1993 (of which $373,000,
$268,000 and $264,000, respectively, was allocated to continuing operations and
$2,291,000, $1,795,000 and $1,769,000, respectively, was allocated to
discontinued operations). Additionally, SEPSCO was allocated certain costs
representing uncollectible amounts owed to Triarc for similar management
services to certain former affiliates of SEPSCO amounting to $4,159,000 in
SEPSCO Fiscal 1991, $849,000 in 1992 and $1,781,000 in 1993 (of which $582,000,
$110,000 and $232,000, respectively, was allocated to continuing operations and
$3,577,000, $739,000 and $1,549,000, respectively, was allocated to discontinued
operations). Such amounts are included in 'Selling, general and administrative
expenses' of continuing operations and 'Loss from discontinued operations, net
of income taxes' in the accompanying consolidated statements of operations.
SEPSCO, through Triarc, leases its corporate office space from a trust for
the benefit of Victor Posner and his children. Rent allocated by Triarc to
SEPSCO amounted to $1,929,000, $1,467,000 and $1,055,000 in SEPSCO Fiscal 1991,
1992 and 1993, respectively, (of which $270,000, $191,000 and $137,000,
respectively, was allocated to continuing operations and $1,659,000, $1,276,000
and $918,000, respectively, was allocated to discontinued operations).
In addition, SEPSCO incurred interest expense at 18% on unpaid balances due
to Triarc for management services and rent of $533,000, $737,000 and $652,000 in
SEPSCO Fiscal 1991, 1992 and 1993, respectively, (of which $75,000, $96,000 and
$85,000, respectively, was allocated to continuing operations and $458,000,
$641,000 and $567,000, respectively, was allocated to discontinued operations).
At February 28, 1992 and 1993, SEPSCO owed $2,023,000 and $2,749,000,
respectively, to Triarc in connection with these arrangements.
Chesapeake Insurance Company Limited ('Chesapeake Insurance') provides
certain insurance coverage and reinsurance of certain risks to SEPSCO. The net
premium expense incurred was $8,565,000 in SEPSCO Fiscal 1991, $9,416,000 in
1992 and $10,688,000 in 1993 (of which $1,093,000, $997,000 and $1,064,000,
respectively, was incurred by continuing operations and $7,472,000, $8,419,000
and $9,624,000, respectively, was incurred by discontinued operations). In
addition, Insurance and Risk Management, Inc., an affiliated company until April
23, 1993, acts as agent or broker in connection with insurance coverage obtained
by SEPSCO and provides claims processing services for the discontinued
businesses. The commissions and payments incurred for such services were
$508,000, $528,000 and $488,000 in SEPSCO Fiscal 1991, 1992 and 1993,
respectively, (of which $65,000, $56,000 and $49,000, respectively, was incurred
by continuing operations and $443,000, $472,000 and $439,000, respectively, was
incurred by discontinued operations).
Certain machinery and automotive equipment of the continuing and
discontinued operations of SEPSCO is leased from an indirect, wholly-owned
subsidiary of Triarc. Interest charges on these lease obligations amounted to
$3,886,000 in SEPSCO Fiscal 1991, $3,629,000 in 1992 and $3,156,000 in 1993 (of
which $88,000, $76,000 and $72,000, respectively, was incurred by continuing
operations and $3,798,000, $3,553,000 and $3,084,000, respectively, was incurred
by discontinued operations).
(15) LEGAL MATTERS
In December 1990, a purported stockholder derivative suit (the 'Ehrman
Litigation'), was brought against SEPSCO's then directors and certain other
corporations, including Triarc, in the United States District Court for the
Southern District of Florida ('the District Court'). The amended complaint in
such action alleges, among other things, that the defendants breached their
fiduciary duties to SEPSCO and RC/Arby's, by (i) causing RC/Arby's to issue
approximately 4.1 million shares of convertible redeemable preferred stock to
Triarc for cash and forgiveness of indebtedness of $41,350,000, which preferred
stock, upon conversion, resulted initially in Triarc owning approximately 88.7%
of CFC Holdings outstanding voting securities and reduced SEPSCO's ownership of
such voting securities from 48% to 5.4%, (ii) causing Chesapeake Insurance to
suffer large losses in the operations of its business
F-66
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
in order to make RC/Arby's seem less successful than it truly was, and (iii)
causing the allegedly unfair sale by SEPSCO in January 1986 of shares of
Graniteville's common stock constituting approximately 51% of Graniteville's
outstanding common stock to Triarc. On April 24, 1993, the Board of Directors of
Triarc approved the terms of a proposed settlement of the Ehrman Litigation (the
'Plaintiff'), in accordance with the terms set forth in a Memorandum of
Understanding dated January 21, 1993 (the 'January Memorandum') entered into by
DWG Acquisition and the plaintiff in the Ehrman Litigation. The proposed
settlement of the Ehrman Litigation contemplated by the January Memorandum
provides, among other things, that SEPSCO would be merged into, or otherwise
acquired by, Triarc, or a subsidiary or affiliate thereof, on the following
terms: each holder of common stock of SEPSCO other than Triarc will receive in
exchange for each share of common stock of SEPSCO, .55 shares of Triarc's common
stock $.10 par value per share (the 'Triarc Class A Common Stock') and a note
(or appropriate portion of a note) payable by Triarc or SEPSCO having a
principal amount of $6.00. As a consequence of such merger, the SEPSCO Common
Stock would be delisted from the Pacific Stock Exchange and would be eligible
for termination of registration pursuant to the Securities and Exchange Act of
1934. Triarc or SEPSCO will pay the reasonable fees and expenses of counsel to
the plaintiff in the action, as awarded by the court, and the stockholders of
SEPSCO will thus receive the merger consideration net of such fees and expenses.
Plaintiff's counsel will be paid, subject to court approval, an amount not to
exceed $650,000 in cash and $650,000 in value of notes (which will be identical
in form and substance to the notes distributed to SEPSCO's stockholders). Such
amount has been accrued by SEPSCO in 1993 and is included in 'Other, expense' in
the accompanying consolidated statement of operations for the year ended
February 28, 1993 and in 'Other accrued expenses' in the accompanying
consolidated balance sheet as of February 28, 1993. The settlement of the Ehrman
Litigation is conditioned on, among other things, approval by the District
Court. As of September 1, 1993, SEPSCO and the Plaintiff in the Ehrman
Litigation are discussing a modification to the Memorandum to provide that the
consideration to be received would consist solely of shares of Triarc Class A
Common Stock based on a revised exchange ratio which is yet to be determined.
Such revised ratio is currently expected to be .80 shares of Triarc Class A
Common Stock for each share of SEPSCO Common Stock, although no assurance can be
given that a definitive agreement can be reached as to such matter. Further, the
$1,300,000 to be paid to Plaintiff's counsel would consist entirely of cash
rather than cash and notes. Following such merger or acquisition, Triarc would
own 100% of SEPSCO Common Stock.
As a result of certain environmental audits, SEPSCO became aware of
possible contamination by hydrocarbons and metals at certain sites of SEPSCO's
refrigeration operations and has filed appropriate notifications with state
environmental authorities and began a study of remediation at such sites. SEPSCO
has removed certain underground storage and other tanks at certain facilities of
its refrigeration operations and has engaged in certain remediation in
connection therewith. Such removal and environmental remediation involved a
variety of remediation actions at various facilities of SEPSCO located in a
number of jurisdictions. Such remediation varied from site to site ranging from
testing of soil and groundwater for contamination, development of remediation
plans and removal in certain instances of certain contaminated soils. Based on
preliminary information and consultations with, and certain reports of,
environmental consultants and others, SEPSCO presently estimates the cost of
such remediation and/or removal described above will approximate $3,661,000 of
which $1,300,000 was provided in SEPSCO Fiscal 1991, $200,000 in 1992 and
$2,161,000 in 1993 included in 'Other, net' in the results of discontinued
operations above. In connection therewith SEPSCO has incurred actual costs of
$803,000 through February 28, 1993 and has a remaining accrual of $2,858,000
included in 'Net non-current assets of discontinued operations' in the balance
sheet above as of February 28, 1993. SEPSCO believes that its current reserves
for remediation costs are adequate.
SEPSCO and its subsidiaries are defendants in certain other legal
proceedings arising out of the conduct of SEPSCO's business. In the opinion of
management and counsel, the ultimate outcome of these legal proceedings will not
have a material adverse effect on the consolidated financial position or results
of operations of SEPSCO.
F-67
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(16) FINANCIAL INSTRUMENTS
As set forth in Note 5, SEPSCO had the Note due from Triarc of $48,952,000
as of February 28, 1993. On April 23, 1993, SEPSCO received a partial prepayment
of the principal of the Note of $22,414,000 and as such the carrying value of
that portion of the Note represents fair value. With respect to the remaining
$26,538,000 principal amount of the Note, SEPSCO estimates that such carrying
value approximates fair value based upon estimated market prices for a security
with a comparable maturity, interest rate and security of principal.
Based on current market prices for the 11 7/8% Debentures (see Note 9) and
market interest rates for similar high yielding securities, the carrying value
of such 11 7/8% Debentures is considered to approximate fair value as of
February 28, 1993.
(17) OTHER MATTERS AND SUBSEQUENT EVENTS
On April 23, 1993, Victor Posner and entities controlled by him disposed of
all Triarc Class A Common Stock previously owned by them. In connection
therewith, DWG Acquisition, a limited partnership of which Nelson Peltz and
Peter W. May are general partners, acquired 28.6% of Triarc's common stock and
Victor Posner received 5,982,866 shares of Triarc's non-voting redeemable
convertible preferred stock (the 'Exchange'). Consummation of the Acquisition
and the Exchange resulted in a change in control of Triarc and resulted in a
change in control of SEPSCO. In connection with such change in control, the
Board of Directors of SEPSCO was reconstituted and new senior executive officers
were elected.
In connection with the Acquisition, Triarc made payments aggregating
$27,115,000 on account of principal and interest owed by Triarc on notes held by
SEPSCO. SEPSCO in turn used $14,426,000 of the funds that it received from
Triarc to repay loans owed by SEPSCO to Chesapeake Insurance and $12,689,000 to
repay in full its then outstanding indebtedness under its accounts receivable
financing arrangement. In addition SEPSCO received $3,535,000 of additional
consideration on the Note from Triarc in the form of offsets of amounts owed to
Triarc.
(18) EVENTS SUBSEQUENT TO DATE OF AUDITORS' REPORT
In the quarter ended November 30, 1993 SEPSCO recorded a provision for the
estimated loss on disposal of discontinued operations of $13,910,000. Such
provision was determined based on (i) the sale of the utility and municipal
services business segment in October 1993, (ii) signing of a letter of intent in
November 1993 to sell the ice operations of SEPSCO's refrigeration segment,
(iii) a re-evaluation of the cold storage operations based on preliminary sales
discussions and experience with respect to negotiating the sale of the other
operations and (iv) estimated losses from operations from July 22, 1993 to the
estimated disposal dates of the discontinued operations. See Note 3 to the
Southeastern Public Service Company and subsidiaries condensed consolidated
financial statements for the nine months ended November 30, 1993 contained
elsewhere herein for further information.
SEPSCO previously reported the liquefied petroleum gas business as a
discontinued operation since it is to be transferred to a subsidiary of Triarc
and the transfer would be accounted for at net book value. The precise method of
such transfer has not been determined and the transfer will not occur until
after the SEPSCO merger. Based on these facts, SEPSCO has reevaluated the
accounting for the liquefied petroleum gas business and retroactively
reclassified the SEPSCO consolidated financial statements for the years ended
February 28 or 29, 1991, 1992 and 1993 to reflect the liquefied petroleum gas
business as a continuing operation.
F-68
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES QUARTERLY INFORMATION(a)
TWO YEARS ENDED FEBRUARY 28, 1993
(UNAUDITED)
<TABLE>
<CAPTION>
MAY 31 AUGUST 31 NOVEMBER 30 FEBRUARY 28
------- --------- ----------- -----------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1992:
Revenues................................................. $ 7,008 $ 5,132 $ 6,892 $10,188
Income (loss) from continuing operations before equity in
cumulative effect of changes in accounting principles
and extraordinary items................................ (1,186) 1,415 734 5,369
Income (loss) from discontinued operations............... 1,273 1,869 (174) (3,193)
Net income............................................... 87 3,284 560 2,176
Income (loss) per share:
Continuing operations............................... (.10) .12 .06 .46
Discontinued operations............................. .11 .16 (.01) (.28)
Net income.......................................... .01 .28 .05 .18
1993:
Revenues................................................. $ 7,165 $ 5,132 $ 6,647 $ 9,576
Income from continuing operations before equity in
cumulative effect of changes in accounting principles
and extraordinary items................................ 2,324 1,815 3,227 5,206(b)
Income (loss) from discontinued operations............... (579) 1,143 374 (6,480)(c)
Equity in cumulative effect of changes in accounting
principles of affiliate, net of taxes.................. (5,954)(d) -- -- --
Equity in extraordinary items of affiliate............... -- -- -- (348)
Net income (loss)........................................ (4,209)(d) 2,958 3,601 (1,622)(b&c)
Income (loss) per share:
Continuing operations............................... .20 .15 .28 .45(b)
Discontinued operations............................. (.05) .10 .03 (.56)(c)
Cumulative effect of changes in accounting
principles of affiliate........................... (.51)(d) -- -- --
Extraordinary items of affiliate.................... -- -- -- (.03)
Net income (loss)................................... (.36)(d) .25 .31 (.14)(b&c)
</TABLE>
- ------------
(a) Quarterly information has been retroactively restated to reflect the
discontinuance of utility and municipal services, refrigeration and natural
gas and oil operations in 1993.
(b) Includes recognition of a deferred gain from sale of marketable security of
$6,000,000 and a $1,300,000 provision for the settlement of certain
litigation.
(c) Includes a provision for anticipated losses on construction contracts in
progress of $1,608,000 and other fourth quarter adjustments of $820,000
related to net realizable value of oil and gas properties and plugging and
abandonment of wells. Includes a $375,000 provision for settlements of
certain litigation and a $2,100,000 provision for environmental costs.
(d) Graniteville adopted SFAS 109 and SFAS 106 in fiscal 1993. The cumulative
effect of such changes in accounting principles has been retroactively
reflected in the May 31, 1992 quarterly information presented above. Net
income previously reported in Form 10-Q was $1,745,000 and income per share
was $.15.
F-69
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
FEBRUARY 28, NOVEMBER 30,
1993 1993
------------ ------------
(IN THOUSANDS)
(A) (UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents............................................................ $ 239 $ 35,847
Restricted cash and equivalents................................................. 5,264 5,264
Receivables, net................................................................ 3,971 3,884
Finished goods inventories...................................................... 733 888
Notes receivable from Triarc (less unamortized deferred discount of $39)........ 25,047 --
Deferred income tax benefit..................................................... -- 1,062
Other current assets............................................................ 1,386 534
Net current assets of discontinued operations................................... 1,987 --
------------ ------------
Total current assets....................................................... 38,627 47,479
Properties, net...................................................................... 7,825 7,298
Note receivable from Triarc.......................................................... 26,538 26,538
Investments in affiliates............................................................ 65,327 68,033
Deferred income tax benefit.......................................................... -- 528
Other assets......................................................................... 1,752 2,483
Net non-current assets of discontinued operations.................................... 66,184 18,771
------------ ------------
$206,253 $171,130
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt............................................... $ 9,312 $ 9,287
Notes payable to affiliate...................................................... 14,043 --
Accounts receivable financing................................................... 9,536 --
Accounts payable................................................................ 2,249 8,690
Other accrued expenses.......................................................... 4,624 4,190
Net current liabilities of discontinued operations.............................. -- 3,406
------------ ------------
Total current liabilities.................................................. 39,764 25,573
Long-term debt (less unamortized deferred discount of $5,282 and $4,312)............. 49,661 50,501
Deferred income taxes................................................................ 7,230 --
Other liabilities.................................................................... 1,368 1,484
Commitments and contingencies
Stockholders' equity:
Preferred stock................................................................. 24 24
Common stock.................................................................... 11,896 11,896
Additional paid-in capital...................................................... 90,539 90,539
Retained earnings (accumulated deficit)......................................... 6,637 (8,021)
Treasury stock.................................................................. (866) (866)
------------ ------------
Total stockholders' equity................................................. 108,230 93,572
------------ ------------
$206,253 $171,130
------------ ------------
------------ ------------
</TABLE>
- ------------
(A) The balance sheet at February 28, 1993 has been derived from audited
financial statements at that date.
See accompanying notes to condensed consolidated financial statements.
F-70
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED
NOVEMBER 30
-------------------
1992 1993
------- --------
(IN THOUSANDS
EXCEPT FOR PER
SHARE AMOUNTS)
(UNAUDITED)
<S> <C> <C>
Net sales.................................................................................. $18,944 $ 19,760
------- --------
Costs and expenses:
Cost of sales......................................................................... 15,783 16,408
Selling, general and administrative expenses.......................................... 1,456 2,998
------- --------
17,239 19,406
------- --------
Operating profit................................................................. 1,705 354
------- --------
Other income (expense):
Interest expense...................................................................... (9,810) (7,521)
Equity in earnings of affiliates before cumulative effect of changes in accounting
principles........................................................................... 9,647 4,310
Write-off of investment in Chesapeake Insurance Company, Ltd.......................... -- (1,500)
Interest income from Triarc........................................................... 5,507 3,141
Other, net............................................................................ 147 608
------- --------
5,491 (962)
------- --------
Income (loss) from continuing operations before income taxes and cumulative effect of
changes in accounting principles..................................................... 7,196 (608)
Benefit from income taxes.................................................................. 170 1,791
------- --------
Income from continuing operations before cumulative effect of changes in accounting
principles........................................................................... 7,366 1,183
Income (loss) from discontinued operations................................................. 938 (23,355)
------- --------
Income (loss) before cumulative effect of changes in accounting principles............ 8,304 (22,172)
Cumulative effect of changes in accounting principles:
The Company........................................................................... -- 7,617
Equity in affiliates.................................................................. (5,954) (102)
------- --------
Net income (loss)..................................................................... $ 2,350 $(14,657)
------- --------
------- --------
Income (loss) per share:
Continuing operations................................................................. $ .63 $ .10
Discontinued operations............................................................... .08 (2.00)
Cumulative effect of changes in accounting principles................................. (.51) .64
------- --------
Net income (loss)..................................................................... $ .20 $ (1.26)
------- --------
------- --------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-71
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED
NOVEMBER 30,
-------------------
1992 1993
------- --------
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)...................................................................... $ 2,350 $(14,657)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating
activities:
Depreciation...................................................................... 922 908
Amortization of deferred financing costs and debt discount........................ 1,038 968
Amortization of deferred discount on notes receivable from Triarc................. (72) (39)
Write-off of investment in Chesapeake Insurance Company Limited................... -- 1,500
Equity in earnings of affiliates before cumulative effect of changes in accounting
principles....................................................................... (9,647) (4,310)
Loss (income) from discontinued operations........................................ (938) 23,355
Dividend from unconsolidated affiliate............................................ 3,004 --
Cumulative effect of changes in accounting principles............................. 5,954 (7,515)
Decrease in deferred income taxes................................................. (2,922) (7,569)
Other, net........................................................................ 774 2,350
Changes in operating assets and liabilities:
Decrease (increase) in receivables........................................... 1,260 (70)
Decrease (increase) in inventories........................................... 115 (155)
Decrease in notes receivable from Triarc..................................... 5,873 --
Decrease (increase) in other current assets.................................. (1,443) 852
Increase (decrease) in accounts payable...................................... (687) 2,826
Increase (decrease) in other accrued expenses................................ 2,869 (434)
------- --------
Net cash provided by (used in) operating activities..................... 8,450 (1,990)
------- --------
Cash flows from investing activities:
Proceeds from sales of subsidiaries.................................................... -- 43,002
Capital expenditures................................................................... (443) (317)
Other.................................................................................. 52 375
------- --------
Net cash provided by (used in) investing activities............................... (391) 43,060
------- --------
Cash flows from financing activities:
Debt repayments........................................................................ (247) (23,579)
Collection of notes receivable from Triarc............................................. -- 25,379
Net proceeds from accounts receivable financing........................................ (990) --
------- --------
Net cash provided (used in) financing activities.................................. (1,237) 1,800
------- --------
Net cash provided by continuing operations.................................................. 6,822 42,870
Net cash used in discontinued operations.................................................... (4,662) (7,262)
------- --------
Net increase in cash........................................................................ 2,160 35,608
Cash at beginning of period................................................................. 282 239
------- --------
Cash at end of period....................................................................... $ 2,442 $ 35,847
------- --------
------- --------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-72
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1993
(UNAUDITED)
1. BASIS OF PRESENTATION
Southeastern Public Service Company and subsidiaries ('SEPSCO') is a 71.1%
owned subsidiary of Triarc Companies, Inc. ('Triarc', formerly DWG Corporation).
The accompanying unaudited condensed consolidated financial statements of
SEPSCO have been prepared in accordance with Rule 10-01 of Regulation S-X
promulgated by the Securities and Exchange Commission and, therefore, do not
include all information and footnotes necessary for a fair presentation of
financial position, results of operations and cash flows in conformity with
generally accepted accounting principles. In the opinion of SEPSCO, however, the
accompanying condensed consolidated financial statements contain all
adjustments, consisting of normal recurring adjustments and certain significant
charges as discussed in Notes 2 and 3, necessary to present fairly SEPSCO's
financial position as of February 28, 1993 and November 30, 1993, its results of
operations for the nine-month periods ended November 30, 1992 and 1993 and its
cash flows for the nine-month periods ended November 30, 1992 and 1993. This
information should be read in conjunction with the consolidated financial
statements and notes thereto included in the SEPSCO annual report on Form 10-K
for the year ended February 28, 1993.
On October 27, 1993 SEPSCO's Board of Directors approved a change in the
fiscal year of SEPSCO ending February 28 to a calendar year ending December 31,
effective for the ten-month period ending December 31, 1993. Graniteville
Company ('Graniteville'), a 49% owned investment, also changed its fiscal year
to a calendar year ending December 31. SEPSCO plans to issue a transition report
on Form 10-K for the ten-month period ended December 31, 1993. As used herein,
'SEPSCO Fiscal 1993' refers to the year ended February 28, 1993 and 'SEPSCO
Transition 1993' refers to the ten months ended December 31, 1993.
2. SIGNIFICANT CHARGES IN THE FIRST SIX MONTHS OF SEPSCO TRANSITION 1993
The accompanying condensed consolidated statement of operations include the
following significant charges recorded in the first six months of SEPSCO
Transition 1993 (in thousands):
<TABLE>
<S> <C>
Estimated cost allocated to SEPSCO by Triarc to terminate the lease on Triarc's existing $2,840
corporate facilities.........................................................................
Costs allocated to SEPSCO by Triarc related to a five-year consulting agreement extending 1,374
through April 1998 between Triarc and the former Vice Chairman of Triarc.....................
Estimated cost to relocate SEPSCO's corporate office........................................... 500
------
Corporate restructuring charges (a)....................................................... 4,714(1)
Estimated cost allocated to SEPSCO by Triarc for compensation paid to the Triarc Special 625(2)
Committee of the Board of Directors of Triarc(b).............................................
Write-down of certain unprofitable properties(c)............................................... 8,000(3)
Income tax benefit relating to the above charges............................................... (4,523)(4)
Provision for income tax contingencies and other income tax matters............................ 600(5)
Equity in significant charges of affiliates, net of taxes(d)................................... 2,260
Cumulative effect of changes in accounting principles(Note 7).................................. (7,515)
------
$4,161
------
------
</TABLE>
- ------------
(1) $782,000 included in 'Selling, general and administrative expenses' of
continuing operations and $3,932,000 included in 'Income (loss) from
discontinued operations.'
(footnotes continued on next page)
F-73
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(footnotes continued from previous page)
(2) $104,000 included in 'Selling, general and administrative expenses' of
continuing operations and $521,000 included in 'Income (loss) from
discontinued operations.'
(3) Included in 'Income (loss) from discontinued operations.'
(4) $(301,000) included in 'Benefit from income taxes' of continuing operations
and $(4,222,000) included in 'Income (loss) from discontinued operations.'
(5) $100,000 included in 'Benefit from income taxes' of continuing operations
and $500,000 included in 'Income (loss) from discontinued operations.'
(a) In the first quarter of SEPSCO Transition 1993, net of adjustments recorded
during the second quarter of SEPSCO Transition 1993, results of operations
were significantly impacted by facilities relocation and corporate
restructuring charges aggregating $4,714,000 consisting of $4,214,000 of
charges allocated to SEPSCO by Triarc: (i) estimated allocated cost of
$2,840,000 to terminate the lease on its existing corporate facilities;
(ii) total allocated costs of $1,374,000 relating to a five-year consulting
agreement (the 'Consulting Agreement') extending through April 1998 between
Triarc and Steven Posner, the former Vice Chairman of Triarc and (iii)
$500,000 of estimated costs to be incurred by SEPSCO to relocate SEPSCO's
corporate office. All of such charges are related to the Change in Control
described in Note 5. In connection with the Change in Control, Victor
Posner and Steven Posner resigned as officers and directors of Triarc. In
order to induce Steven Posner to resign, Triarc entered into the Consulting
Agreement with him. The allocated cost related to the Consulting Agreement
was recorded as a charge in the first quarter of SEPSCO Transition 1993
because the Consulting Agreement does not require any substantial services
and SEPSCO and Triarc do not expect to receive any services that will have
substantial value to them. As a part the Change in Control, the Triarc
Board of Directors was reconstituted. The first meeting of the
reconstituted Triarc Board of Directors was held on April 24, 1993. At that
meeting, based on a report and recommendations from a management consulting
firm that had conducted an extensive review of Triarc and its subsidiaries
operations and management structure, the Triarc Board of Directors approved
a plan of decentralization and restructuring which entailed, among other
things, the following features: (i) the strategic decision to manage Triarc
in the future on a decentralized rather than on a centralized basis; (ii)
the hiring of new executive officers for Triarc; (iii) the termination of a
significant number of employees as a result of both the new management
philosophy and the hiring of an almost entirely new management team and
(iv) the relocation of Triarc and certain subsidiaries, including SEPSCO's
corporate headquarters. SEPSCO's allocated cost to terminate the lease on
Triarc's existing corporate facilities ($2,840,000) and the cost to
relocate SEPSCO's headquarters all stemmed from the decentralization and
restructuring plan formally adopted at the April 24, 1993 meeting of the
reconstituted Triarc Board of Directors and accordingly, were recorded in
the first quarter of SEPSCO Transition 1993.
(b) In accordance with certain court proceedings and related settlements, five
directors, including three court-appointed directors, were appointed in
1991 to serve on a special committee (the 'Triarc Special Committee') of
Triarc's Board of Directors. Such committee was empowered to review and
pass on transactions between Triarc and Victor Posner, the then largest
shareholder of Triarc, and his affiliates. SEPSCO has been charged $625,000
as an allocation of the cash portion of a success fee payable to the Triarc
Special Committee attributable to the closing of the Triarc reorganization
and the resulting Change in Control.
(c) Represents write-downs in the carrying value of certain unprofitable
properties reflecting their estimated impairment as a result of
management's re-evaluation of such assets.
(d) SEPSCO's equity in significant charges recorded in the first quarter of
SEPSCO Transition 1993, net of adjustments recorded during the second
quarter of SEPSCO Transition 1993, which were
(footnotes continued on next page)
F-74
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(footnotes continued from previous page)
allocated by Triarc to Graniteville and CFC Holdings Corp. ('CFC Holdings'),
a 5.4% owned investment and a subsidiary of Triarc, is summarized as
follows (in thousands):
<TABLE>
<CAPTION>
CFC
GRANITEVILLE HOLDINGS TOTAL
------------ -------- ------
<S> <C> <C> <C>
Estimated cost allocated to the affiliates by Triarc to terminate the lease on
Triarc's existing corporate headquarters(a)................................... $ 790 $ 382 $1,172
Total cost allocated to the affiliates related to the Consulting Agreement(a)... 112 79 191
Estimated cost allocated to the affiliates for compensation paid to the Triarc
Special Committee(b).......................................................... 813 97 910
Affiliate's facilities relocation and corporate restructuring................... -- 544 544
Other........................................................................... -- 419 419
Less income tax benefit on the above items...................................... (577) (399) (976)
------------ -------- ------
$1,138 $1,122 $2,260
------------ -------- ------
------------ -------- ------
</TABLE>
3. DISCONTINUED OPERATIONS
On July 22, 1993 SEPSCO's Board of Directors authorized the sale or
liquidation of its utility and municipal services, refrigeration and natural gas
and oil businesses. Accordingly, SEPSCO has presented the accompanying condensed
consolidated financial statements for each of the periods shown to reflect such
businesses as discontinued operations through July 22, 1993. The operating
results of the discontinued operations subsequent to July 22, 1993 have been
deferred and are included in 'Net current liabilities of discontinued
operations'. On December 9, 1993 SEPSCO's Board of Directors decided the natural
gas and oil business will be transferred to Triarc rather than SEPSCO selling it
to an independent third party. Such transfer will be in the form of a sale of
the stock of the entities comprising the natural gas and oil business for cash
of $8,500,000 which is equal to their fair value and approximately $4,500,000
higher than their net book value. It is intended for this sale to occur
following the Merger and the resulting elimination of the minority interest in
SEPSCO (Note 9). However should the Merger not be approved by the SEPSCO
stockholders (Note 9) the sale of the stock of the natural gas and oil entities
for cash to Triarc will be completed prior to July 22, 1994.
On October 15, 1993 SEPSCO sold the assets of its tree maintenance services
operations previously included in its utility and municipal services business
segment for $69,600,000 in cash plus the assumption by the purchaser of
$5,000,000 in current liabilities resulting in a loss of $4,771,000. On October
7, 1993 SEPSCO sold the stock of its two construction related operations
previously included in its utility and municipal services business segment for a
nominal amount subject to adjustments described below. As the related assets are
sold or liquidated the purchasers have agreed to pay, as deferred purchase
price, 75% of the net proceeds received therefrom (cash of $1,515,000 has been
received as of November 30, 1993) plus, in the case of the larger of the two
entities, an amount equal to 1.25 times the adjusted book value of such entity
as of October 5, 1995 (the 'Book Value Adjustment'). As of October 7, 1993, the
adjusted book value of the assets of that entity aggregated approximately
$1,600,000. In addition, SEPSCO paid $2,000,000 in October and November 1993 to
cover the buyer's short-term operating losses and working capital requirements
for the construction related operations. As of November 30, 1993 SEPSCO
estimated the sales of the construction related operations would result in a
gain of $2,030,000 excluding any consideration of the potential Book Value
Adjustment. In January 1994, however, SEPSCO learned that the buyer of such
businesses had successfully negotiated extensions of certain major contracts
with respect to the larger of such businesses and as a result no longer intends
to immediately dispose of the major portion of the assets. Should the buyer hold
such assets through October 5, 1995, the purchase price would effectively be
realized through the Book Value Adjustment. Based on such revised estimates of
asset sales, SEPSCO would approximately break-
F-75
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
even excluding any consideration of the potential Book Value Adjustment, given
its uncertainty. The charge to discontinued operations during the third quarter
of SEPSCO Transition 1993 (see second following paragraph) reflects such
estimated break even on the disposal of the construction related operations.
On November 12, 1993 SEPSCO signed a letter of intent to sell substantially
all of the operating assets of the ice operations of its refrigeration business
segment for $5,000,000 in cash, a $4,000,000 note (discounted value $3,101,000)
and the assumption by the buyer of certain current liabilities which as of
November 30, 1993 would approximate $1,000,000. The note, which bears no
interest during the first year and 5% thereafter, would be payable in
installments of $120,000 at the end of each of the four years following the
closing date with the balance of $3,520,000 due at the end of the fifth year
following the closing date. The precise timetable for the sale and liquidation
of the remaining discontinued operation, the cold storage operations of SEPSCO's
refrigeration business segment, will depend upon SEPSCO's ability to identify
appropriate potential purchasers and to negotiate acceptable terms for the sale
of such operation. SEPSCO currently anticipates completion of such sales by July
31, 1994.
On July 22, 1993 SEPSCO's Board of Directors also authorized the sale or
liquidation of the liquefied petroleum gas business. SEPSCO previously reported
the liquefied petroleum gas business as a discontinued operation since it is to
be transferred to a subsidiary of Triarc and the transfer would be accounted for
at net book value. The precise method of such transfer has not been determined
and the transfer will not occur until after the Merger. Based on these facts,
SEPSCO has reevaluated the accounting for the liquefied petroleum gas business
and retroactively restated the SEPSCO consolidated financial statements to
reflect the liquefied petroleum gas business as a continuing operation. As a
result, for the nine months ended November 30, 1993, SEPSCO has (i) increased
the loss from discontinued operations by $2,909,000 (included in the $13,910,000
in the following paragraph) representing the estimated net income from
operations of the liquefied petroleum gas business from the measurement date to
the expected date of disposition which had previously been used to offset
operating losses of other discontinued operations for the same periods and (ii)
decreased the loss from continuing operations by $572,000 representing the
income from the liquefied petroleum gas business from the measurement date to
November 30, 1993.
In connection with the consummation of the sales of the tree maintenance
services operations and the construction related activities and the signing of
the letter of intent to sell the ice operations discussed above, SEPSCO
reevaluated the estimated gain or loss from the sale of its discontinued
operations and provided $13,910,000 for the revised estimated loss on the sale
of the discontinued operations from an estimated break even position as of
August 31, 1993. The revised estimate principally reflects (i) $4,700,000 of
losses from the sales of the operations comprising the utility and municipal
services business segment previously estimated to be approximately break even,
(ii) $6,600,000 of losses from the sale of operations comprising SEPSCO's
refrigeration business segment previously estimated to be a gain of $1,600,000
and (iii) $2,500,000 of estimated losses from operations from July 22, 1993 to
the actual or estimated disposal dates of the discontinued operations and (iv)
less previously estimated losses of $1,500,000 from the sale of the stock of
SEPSCO's natural gas and oil businesses which now will be sold to Triarc for
cash. Since such sale will be to a company which is within a controlled group it
will be accounted for at net book value. The net loss from the sale of the
utility and municipal services business segment reflects a reduction of
$2,030,000 due to a decrease in asset sales of the construction related
activities by July 31, 1994, a reduction of $1,800,000 in the estimated sales
price for the construction related operations from previous estimates and other
adjustments in finalizing the loss on the sale of the tree maintenance services
operations. The $8,200,000 change relating to the sales of the refrigeration
business segment principally results from (i) a $4,000,000 reduction in the
sales price for the ice operations based on the letter of intent and (ii) a
$4,000,000 reduction in the estimated sales price of the cold storage operations
based on preliminary sales discussions and experience with respect to
negotiating the sale of the other operations.
F-76
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Based on the analysis performed to date, after taking into account (i) a
$4,900,000 pre-tax write-down in the fourth quarter of SEPSCO Fiscal 1993
relating to accruals for environmental remediation and losses on certain
contracts in progress, (ii) a $8,000,000 pre-tax provision for impairment of
certain unprofitable properties in the first quarter of SEPSCO Transition 1993
reflected in operating profit (loss) of discontinued operations summarized below
and (iii) the charge to discontinued operations of $13,910,000 taken in the
three months ended November 30, 1993 SEPSCO expects that all remaining
dispositions, including the results of their operations through the actual or
anticipated disposal dates, will not in the aggregate result in any additional
material loss to SEPSCO.
The income (loss) from discontinued operations consisted of the following
(in thousands):
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
NOVEMBER 30,
--------------------------------------
1992 1993
----------------- -----------------
(IN THOUSANDS)
<S> <C> <C>
Income (loss) from operations of discontinued operations net of income taxes
(benefit) of $460 and $(3,830)................................................. $938 $ (9,445)
Loss on disposal of discontinued operations without income tax benefit........... -- (13,910)
------ -----------------
$938 $(23,355)
------ -----------------
------ -----------------
</TABLE>
F-77
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The income (loss) from discontinued operations up to the July 22, 1993
measurement date and the loss from operations during the period of July 23, 1993
to November 30, 1993, consisted of the following:
<TABLE>
<CAPTION>
NINE MONTHS ENDED NOVEMBER MARCH 1, 1993 TO JULY 22, JULY 23, 1993 TO NOVEMBER
30, 1992 1993 30, 1993
-------------------------- -------------------------- --------------------------
UTILITY AND UTILITY AND UTILITY AND
MUNICIPAL MUNICIPAL MUNICIPAL
NATURAL GAS SERVICES AND NATURAL GAS SERVICES AND NATURAL GAS SERVICES AND
AND OIL REFRIGERATION AND OIL REFRIGERATION AND OIL REFRIGERATION
----------- ------------- ----------- ------------- ----------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Operating revenues:
Net sales.......................... $ 3,547 $ 9,261 $ 2,111 $ 5,943 $ 1,645 $ 2,923
Service revenues................... -- 145,696 -- 75,502 -- 42,585
----------- ------------- ----------- ------------- ----------- -------------
3,547 154,957 2,111 81,445 1,645 45,508
----------- ------------- ----------- ------------- ----------- -------------
Operating costs and expenses:
Cost of sales...................... 2,198 8,425 1,194 5,207 908 3,134
Cost of services................... -- 132,192 -- 70,922 -- 40,566
Selling, general and administrative
expenses......................... 1,232 8,806 1,451 4,439 987 4,638
Write-down of certain unprofitable
properties (Note 2).............. -- -- -- 8,000 -- --
Facilities relocation and corporate
restructuring (Note 2)........... -- -- 161 3,772 -- --
----------- ------------- ----------- ------------- ----------- -------------
3,430 149,423 2,806 92,340 1,895 48,338
----------- ------------- ----------- ------------- ----------- -------------
Operating profit (loss)............ 117 5,534 (695) (10,895) (250) (2,830)
----------- ------------- ----------- ------------- ----------- -------------
Other income (expense):
Interest expense................... (7) (2,783) (3) (1,288) (1) (613)
Other, net......................... 39 (1,502) 108 (502) 47 (79)
----------- ------------- ----------- ------------- ----------- -------------
32 (4,285) 105 (1,790) 46 (692)
----------- ------------- ----------- ------------- ----------- -------------
Income (loss) before income
taxes............................ 149 1,249 (590) (12,685) (204) (3,522)
Benefit from (provision for) income
taxes................................. (45) (415) 258 3,572 (148) 440
----------- ------------- ----------- ------------- ----------- -------------
Net income (loss).................. $ 104 $ 834 $ (332) $ (9,113) $ (352) $ (3,082)
----------- ------------- ----------- ------------- ----------- -------------
----------- ------------- ----------- ------------- ----------- -------------
</TABLE>
F-78
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net current assets (liabilities) and non-current assets of discontinued
operations consist of the following:
<TABLE>
<CAPTION>
FEBRUARY 28, 1993 NOVEMBER 30, 1993
---------------------------- ----------------------------
UTILITY AND UTILITY AND
MUNICIPAL MUNICIPAL
NATURAL GAS SERVICES AND NATURAL GAS SERVICES AND
AND OIL REFRIGERATION AND OIL REFRIGERATION
----------- ------------- ----------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash..................................................... $ -- $ -- $ -- $ 189
Receivables.............................................. 365 26,313 242 1,596
Inventories.............................................. 160 2,894 159 677
Deferred income tax benefit.............................. -- -- 1,137 930
Other current assets..................................... 40 1,939 51 559
Current portion of long-term debt........................ -- (349) -- --
Current portion of capitalized leases due to leasing
affiliate.............................................. (25) (10,245) (57) (448)
Accounts payable......................................... (287) (8,693) (315) (1,284)
Due to Triarc............................................ -- -- (242) (988)
Accrued salaries and wages............................... (29) (2,800) -- --
Accrued expenses......................................... (879) (6,417) (1,083) (4,529)
----------- ------------- ----------- -------------
Net current assets (liabilities) of discontinued
operations............................................. $ (655) $ 2,642 $ (108) $ (3,298)
----------- ------------- ----------- -------------
----------- ------------- ----------- -------------
Properties, net.......................................... $ 7,404 $ 84,476 $ 7,289 $ 18,034
Other assets............................................. 29 1,083 55 296
Long-term debt........................................... -- (172) -- (17)
Capitalized leases due to leasing affiliate.............. (21) (16,799) (17) (243)
Deferred income taxes.................................... (1,303) (5,162) (1,847) (1,810)
Other liabilities........................................ (304) (3,047) (304) (2,665)
----------- ------------- ----------- -------------
Net non-current assets of discontinued operations........ $ 5,805 $ 60,379 $ 5,176 $ 13,595
----------- ------------- ----------- -------------
----------- ------------- ----------- -------------
</TABLE>
4. WRITE-OFF OF INVESTMENT
SEPSCO had a $1,500,000 investment in the preferred stock of Chesapeake
Insurance Company Limited ('Chesapeake Insurance'), a subsidiary of CFC
Holdings, and Graniteville had a $2,500,000 investment in such preferred stock.
During its quarter ended September 30, 1993 Chesapeake Insurance increased its
reserve for insurance and reinsurance losses by $10,000,000 and as result
reduced the stockholders' equity of Chesapeake Insurance to $308,000. In
December 1993 Triarc decided to cease writing insurance and reinsurance of any
kind through Chesapeake Insurance. As a result Chesapeake Insurance will not
have any future operating cash flows and its remaining liabilities, including
payment of claims on insurance previously written, will be liquidated with
assets on hand. Accordingly, the preferred stock investment is not recoverable
and SEPSCO and Graniteville wrote-off their investment in such stock since the
decline in value was deemed to be other than temporary.
5. CHANGE IN CONTROL
As previously reported, a change in control of SEPSCO's parent, Triarc,
occurred on April 23, 1993, which as a result of Triarc's ownership of SEPSCO's
voting securities constituted a change in control of SEPSCO (the 'Change in
Control'). In connection with the Change in Control, the Board of Directors of
SEPSCO was reconstituted and new senior executive officers were elected.
In connection therewith, SEPSCO received from Triarc $27,115,000 in cash
and $3,535,000 in the form of an offset of amounts due to Triarc as of April 23,
1993 in connection with the providing by
F-79
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Triarc of certain management services to SEPSCO. The aggregate $30,650,000 of
payments by Triarc included full payment of $6,806,000 (including $306,000 of
accrued interest) on an unsecured promissory note issued to SEPSCO by Triarc in
connection with the 1988 sale of an investment and partial payment of
$23,844,000 (including $1,430,000 of accrued interest) on a $48,952,000
promissory note (the 'Note') due to SEPSCO. The remaining $26,538,000 principal
balance of the Note is due on August 1, 1998. The Note resulted from the 1986
sale of approximately 51% of the outstanding common shares of Graniteville to
Triarc and is secured by such shares. The Note is subordinated to senior
indebtedness of Triarc to the extent, if any, that the payment of principal and
interest thereon is not satisfied out of proceeds of the pledged Graniteville
shares. SEPSCO used the $27,115,000 of cash proceeds to pay $12,689,000 due
under its accounts receivable financing arrangement which was then terminated
and to pay $14,426,000 (including $383,000 of accrued interest) owed to
Chesapeake Insurance.
6. INVESTMENTS IN AFFILIATES
Investments in affiliates consisted of the following:
<TABLE>
<CAPTION>
FEBRUARY 28, NOVEMBER 30,
1993 1993
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Graniteville............................................................... $ 62,530 $ 67,490
CFC Holdings............................................................... 1,297 543
Chesapeake Insurance (Note 4).............................................. 1,500 --
------------ ------------
$ 65,327 $ 68,033
------------ ------------
------------ ------------
</TABLE>
Equity in earnings of affiliates before cumulative effect of changes in
accounting principles consisted of the following:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
NOVEMBER 30,
----------------
1992 1993
------ ------
(IN THOUSANDS)
<S> <C> <C>
Graniteville......................................................................... $9,371 $4,960(a)
CFC Holdings......................................................................... 276 (650)(a)
------ ------
$9,647 $4,310
------ ------
------ ------
</TABLE>
- ------------
(a) Affected by certain significant charges as set forth in Note 2.
GRANITEVILLE
Effective March 1, 1992 Graniteville adopted the provisions of Statement of
Financial Accounting Standards ('SFAS') No. 109 'Accounting for Income Taxes'
('SFAS 109') (see Note 7 for further discussion of SFAS 109) and SFAS No. 106
'Employers' Accounting for Postretirement Benefits Other than Pensions' ('SFAS
106'). The cumulative effect of the changes in accounting principles resulted in
charges to Graniteville's consolidated statement of earnings amounting to
$12,314,000 for SFAS 109 and $722,000, net of Graniteville's income taxes of
$429,000, for SFAS 106. SEPSCO's equity in such cumulative effect, net of SEPSCO
income taxes of $434,000 on the ultimate distribution of such earnings to
SEPSCO, amounted to a charge of $5,954,000, or $.51 per share and is reported
separately in the condensed consolidated statement of operations for the nine
months ended November 30, 1992.
Under its present credit facility, Graniteville is permitted to pay
dividends or make loans or advances to its stockholders, including SEPSCO, in an
amount equal to 50% of the net income of Graniteville accumulated from the
beginning of the first fiscal year commencing on or after
F-80
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 20, 1994, provided that the outstanding principal balance of
Graniteville's term loan is less than $50,000,000 at the time of the payment
(the outstanding principal balance was $75,000,000 as of November 30, 1993) and
certain other conditions are met. Accordingly, Graniteville is unable to pay any
dividends or make any loans or advances to SEPSCO prior to December 31, 1995.
Summary consolidated results of operations of Graniteville for the nine
months ended November 30, 1992 and 1993 are as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
NOVEMBER 30,
--------------------
1992 1993
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Operating revenues.............................................................. $378,039 $399,870
Operating profit (Note 2)....................................................... 36,028 27,853
Earnings before cumulative effect of changes in accounting principles (Note
2)............................................................................ 19,125 10,127
Net earnings (Note 2)........................................................... 6,089 10,127
</TABLE>
CFC HOLDINGS
Effective January 1, 1993, CFC Holdings adopted SFAS 109 and SFAS 106 with
the cumulative effect of changes in accounting principles resulting in charges
to the CFC Holdings consolidated statement of operations amounting to $1,738,000
and $153,000, respectively. SEPSCO's equity in such cumulative effect amounted
to a charge of $102,000 or $.01 per share and is reported separately in the
condensed consolidated statement of operations for the nine months ended
November 30, 1993.
7. INCOME TAXES
SEPSCO recorded a benefit from income taxes of $1,791,000 during the
nine-month period ended November 30, 1993 despite a pretax loss of $608,000,
representing an effective rate substantially in excess of the 35% Federal
statutory rate, principally due to the equity in earnings of affiliates of
$4,310,000 on which no income taxes were provided.
Effective March 1, 1993 SEPSCO adopted the provisions of SFAS 109 which
requires a change from the deferred method to the asset and liability method of
accounting for income taxes. Under the asset and liability method, deferred
income taxes are recognized for the tax consequences of the temporary
differences between the financial statement carrying amounts and the tax bases
of assets and liabilities. The deferred income tax provision or benefit for each
year represents the decrease or increase, respectively, in the deferred income
tax benefit during such year. The cumulative effect on prior years of this
change in accounting principles was a credit of $7,617,000 or $.65 per share,
and is reported separately in the condensed consolidated statement of operations
for the nine months ended November 30, 1993. Prior years' financial statements
have not been restated.
F-81
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The current and non-current deferred tax assets from continuing operations
and current deferred tax asset and non-current deferred tax (liability) from
discontinued operations consisted of the following components as of March 1,
1993:
<TABLE>
<CAPTION>
CURRENT
--------------------------
CONTINUING DISCONTINUED
OPERATIONS OPERATIONS
---------- ------------
(IN THOUSANDS)
<S> <C> <C>
Net operating loss, alternative minimum tax and depletion carryforwards...... $1,961 $5,667
Allowance for doubtful accounts.............................................. 102 353
Reserve for losses on construction contracts................................. -- 608
Ehrman Litigation settlement reserve (See Note 9)............................ 495 --
Reserve for employee benefit costs........................................... 207 317
Other........................................................................ 20 126
---------- ------------
$2,785 $7,071
---------- ------------
---------- ------------
</TABLE>
<TABLE>
<CAPTION>
NON-CURRENT
--------------------------
CONTINUING DISCONTINUED
OPERATIONS OPERATIONS
---------- ------------
(IN THOUSANDS)
<S> <C> <C>
Accelerated depreciation..................................................... $ (1,567) $(17,071)
Amortization of original issue discount...................................... 1,561 --
Insurance premiums not yet paid to a third party............................. -- 1,437
Reserves for environmental costs............................................. -- 1,115
Reserve for income tax contingencies......................................... -- (951)
Other........................................................................ (4) 317
---------- ------------
$ (10) $(15,153)
---------- ------------
---------- ------------
</TABLE>
Federal income tax returns of SEPSCO have been examined by the Internal
Revenue Service ('IRS') for the tax years 1985 through 1988. Such audit has been
substantially resolved at no material cost to SEPSCO. The IRS has recently
commenced the examination of SEPSCO's Federal income tax returns for the tax
years from 1989 through 1992. The amount and timing of any payments required as
a result of the 1989 through 1992 audit cannot presently be determined. However,
SEPSCO believes that it has adequate aggregate reserves for any tax liabilities,
including interest, that may result from all such examinations.
8. INCOME (LOSS) PER SHARE
The income (loss) per share has been computed by dividing net income
(loss), after the reduction for an insignificant amount of preferred stock
dividends, by the 11,655,067 weighted average common shares outstanding during
the nine-month periods ended November 30, 1992 and 1993.
9. LEGAL MATTERS
In December 1990, a purported shareholder derivative suit (the 'Ehrman
Litigation') was brought against SEPSCO's directors at that time and certain
corporations, including Triarc, in the United States District Court (the
'District Court'). On October 18, 1993, Triarc entered into a settlement
agreement (the 'Settlement Agreement') with the plaintiff (the 'Plaintiff') in
the Ehrman Litigation. The Settlement Agreement provides, among other things,
that SEPSCO would be merged into, or otherwise acquired by, Triarc or an
affiliate thereof, in a transaction in which each holder of shares of SEPSCO's
common stock par value $1.00 per share ('SEPSCO Common Stock') other than Triarc
Companies will receive in exchange for each share of SEPSCO Common Stock, 0.8
shares of Triarc's common stock. On
F-82
<PAGE>
SOUTHEASTERN PUBLIC SERVICE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
November 22, 1993 Triarc and SEPSCO entered into a merger agreement pursuant to
which a subsidiary of Triarc will be merged into SEPSCO in the manner described
in the Settlement Agreement (the 'Merger'). Following the Merger, Triarc
Companies would own 100% of the SEPSCO Common Stock. Consummation of the
Settlement Agreement and the Merger are conditioned on, among other things,
approval by SEPSCO's stockholders other than Triarc Companies. On January 11,
1994 the District Court approved the Settlement Agreement.
The Settlement Agreement also provides that Plaintiff's counsel and
financial advisor will be paid by Triarc, subject to court approval, cash not to
exceed $1,250,000 and $50,000, respectively and that Triarc would be responsible
for other expenses relating to the issuance of Triarc common shares pursuant to
the Merger. SEPSCO had previously accrued such $1,300,000 in the fourth quarter
of SEPSCO Fiscal 1993 and accrued additional expenses related to the settlement
of the Ehrman Litigation of $400,000 and $1,200,000 in the first and second
quarters of SEPSCO Transition 1993, respectively, since SEPSCO originally
anticipated it would be responsible for such fees and expenses. However, as
previously indicated, the Settlement Agreement established that Triarc and not
SEPSCO was responsible for certain of these expenditures and, accordingly,
SEPSCO reversed $1,900,000 of previously accrued expenses in the third quarter
of SEPSCO Transition 1993.
In 1987, Graniteville was notified by the South Carolina Department of
Health and Environmental Control ('DHEC') that it discovered certain
contamination of Langley Pond near Graniteville, South Carolina and DHEC
asserted that Graniteville may be one of the parties responsible for such
contamination. Graniteville entered into a consent decree providing for the
study and investigation of the alleged pollution and its sources. The study
report prepared by Graniteville's environmental consulting firm and filed with
DHEC in April 1990, recommended that pond sediments be left undisturbed and in
place. DHEC responded by requesting that Graniteville submit additional
information concerning potential passive and active remedial alternatives, with
accompanying supportive information. In May 1991 Graniteville provided this
information to DHEC in a report of Graniteville's environmental consulting firm.
The 1990 and 1991 reports concluded that pond sediments should be left
undisturbed and in place and that other less passive remediation alternatives
either provided no significant additional benefits or themselves involved
adverse effects on human health, to existing recreational uses or to the
existing biological communities. Triarc is unable to predict at this time what
further actions, if any, may be required in connection with Langley Pond or what
the cost thereof may be. However, given the passage of time since the submission
of the two reports by DHEC and the absence of desirable remediation
alternatives, other than continuing to leave the Langley Pond sediments in place
and undisturbed as described in the reports, SEPSCO believes the ultimate
outcome of this matter will not have a material adverse effect on SEPSCO's
consolidated results of operations or financial position.
As a result of certain environmental audits in 1991, SEPSCO became aware of
possible contamination by hydrocarbons and metals at certain sites of SEPSCO's
refrigeration operations and has filed appropriate notifications with state
environmental authorities and has begun a study of remediation at such sites.
SEPSCO has removed certain underground storage and other tanks at certain
facilities of its refrigeration operations and has engaged in certain
remediation in connection therewith. Such removal and environmental remediation
involved a variety of remediation actions at various facilities of SEPSCO
located in a number of jurisdictions. Such remediation varied from site to site,
ranging from testing of soil and groundwater for contamination, development of
remediation plans and removal in certain instances of certain contaminated
soils. Based on preliminary information and consultations with, and certain
reports of, environmental consultants and others, SEPSCO presently estimates the
cost of such remediation and/or removal will approximate $3,700,000, all of
which was provided in prior years. In connection therewith, SEPSCO has incurred
actual costs through November 30, 1993 of $1,143,000 and has a remaining accrual
of $2,557,000. SEPSCO believes that after such accrual the ultimate outcome of
this matter will not have a material adverse effect on SEPSCO's consolidated
results of operations or financial position.
F-83
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders,
GRANITEVILLE COMPANY:
We have audited the accompanying consolidated balance sheets of
Graniteville Company (a South Carolina corporation and 49% owned by Southeastern
Public Service Company and 51% owned by Triarc Companies Inc., formerly DWG
Corporation) and subsidiaries as of March 1, 1992 and February 28, 1993, and the
related consolidated statements of income and retained earnings and cash flows
for each of the three years in the period ended February 28, 1993. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Graniteville Company and
subsidiaries as of March 1, 1992 and February 28, 1993, and the results of their
operations and their cash flows for each of the three years in the period ended
February 28, 1993, in conformity with generally accepted accounting principles.
As discussed in Notes 1 and 4 to the consolidated financial statements,
effective March 2, 1992, the Company changed its method of accounting for income
taxes and postretirement benefits other than pensions.
ARTHUR ANDERSEN & CO.
Columbia, South Carolina,
May 4, 1993.
F-84
<PAGE>
GRANITEVILLE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 1, FEBRUARY 28,
-------- ------------
1992 1993
-------- ------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents............................................................... $ 838 $ 1,235
Receivables, net (Notes 1 and 5)................................................... 32,202 65,463
Inventories (Notes 1 and 2)........................................................ 77,674 81,150
Deferred income taxes.............................................................. 2,081 5,084
Other current assets............................................................... 2,006 1,326
-------- ------------
Total current assets.......................................................... 114,801 154,258
-------- ------------
Properties, net (Notes 1 and 3)......................................................... 102,119 105,472
-------- ------------
Other assets............................................................................ 3,422 3,634
-------- ------------
$220,342 $263,364
-------- ------------
-------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (Notes 5 and 13)................................. $ 10,268 $ 9,809
Short-term borrowings (Notes 5 and 13)............................................. 1,959 --
Accounts payable................................................................... 23,382 24,750
Accrued salaries and wages (Note 11)............................................... 4,473 8,275
Accrued restructuring costs (Note 10).............................................. 1,704 --
Deferred income taxes (Notes 1 and 4).............................................. -- 10,566
Other current liabilities.......................................................... 4,995 6,456
-------- ------------
Total current liabilities..................................................... 46,781 59,856
Long-term debt (Notes 5 and 13)......................................................... 41,821 52,896
Deferred income taxes (Notes 1 and 4)................................................... 9,845 21,374
Other liabilities....................................................................... 475 1,626
-------- ------------
Commitments and contingencies (Notes 9 and 13)
Stockholders' equity:
Common stock, $5.00 par value; 10,000,000 shares authorized; 4,984,045 shares
issued............................................................................ 24,920 24,920
Capital in excess of par value..................................................... 41,712 41,712
Retained earnings.................................................................. 54,788 60,980
-------- ------------
Total stockholders' equity.................................................... 121,420 127,612
-------- ------------
$220,342 $263,364
-------- ------------
-------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-85
<PAGE>
GRANITEVILLE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------
MARCH 3, MARCH 1, FEBRUARY 28,
1991 1992 1993
-------- -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating revenues......................................................... $414,538 $456,402 $499,060
-------- -------- ------------
Operating costs and expenses:
Cost of sales......................................................... 374,062 397,843 412,569
Selling, general and administrative expenses (Notes 8 and 11)......... 29,857 27,273 34,902
Restructuring costs (Note 10)......................................... -- 2,500 1,855
-------- -------- ------------
403,919 427,616 449,326
-------- -------- ------------
Operating profit................................................. 10,619 28,786 49,734
-------- -------- ------------
Other expenses (income):
Interest expense...................................................... 10,153 11,941 9,282
Interest income....................................................... (145) (100) (199)
Other, net (Note 7)................................................... 4,615 (280) (41)
-------- -------- ------------
14,623 11,561 9,042
-------- -------- ------------
Income (loss) before income taxes and cumulative effect of
accounting changes............................................. (4,004) 17,225 40,692
Provision for (benefit from) income taxes.................................. (11,982) 4,962 15,332
-------- -------- ------------
Income before cumulative effect of changes in accounting
principles..................................................... 7,978 12,263 25,360
Cumulative effect of changes in accounting for:
Income taxes (Notes 1 and 4).......................................... -- -- (12,314)
Postretirement benefits other than pensions, net of tax of $429 (Note
1).................................................................. -- -- (722)
-------- -------- ------------
Net income............................................................ 7,978 12,263 12,324
Retained earnings at beginning of year..................................... 46,003 44,643 54,788
Cash dividends on common stock................................... (9,338) (2,118) (6,132)
-------- -------- ------------
Retained earnings at end of year........................................... $ 44,643 $ 54,788 $ 60,980
-------- -------- ------------
-------- -------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-86
<PAGE>
GRANITEVILLE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------
MARCH MARCH
3, 1, FEBRUARY 28,
1991 1992 1993
------- ------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................................... $ 7,978 $12,263 $ 12,324
Adjustments to reconcile net income to net cash and equivalents provided
by operating activities:
Depreciation and amortization....................................... 8,364 9,897 10,379
Increase (decrease) in deferred income taxes, net of accounting
changes........................................................... (3,068) 2,996 3,142
Provision for doubtful accounts..................................... 513 314 1,351
Cumulative effect of changes in accounting principles......................... -- -- 13,036
Other, net.................................................................... 97 44 71
Decrease (increase) in:
Receivables.............................................................. 26,506 (169) (34,612)
Inventories.............................................................. (7,628) 221 (3,476)
Other current asset...................................................... (2,124) 2,684 (237)
Increase (decrease) in:
Accounts payable......................................................... 2,748 2,466 1,368
Other liabilities........................................................ (25,029) -- 429
Other current liabilities................................................ 7,452 (7,863) 3,928
------- ------- ------------
Net cash and equivalents provided by operating activities...... 15,809 22,853 7,703
------- ------- ------------
Cash flows from investing activities:
Capital expenditures..................................................... (15,986) (11,384) (9,731)
Proceeds from sale of machinery and equipment............................ 21 245 508
Other, net............................................................... (52) (3,070) (264)
------- ------- ------------
Net cash and equivalents used in investing activities.......... (16,017) (14,209) (9,487)
------- ------- ------------
Cash flows from financing activities:
Increase (decrease) in short-term borrowings............................. -- 1,959 (1,959)
Repayment of long-term debt.............................................. (11,720) (10,378) (8,478)
Additions to long-term debt.............................................. 20,735 702 18,750
Payment of dividends on common stock..................................... (9,338) (2,118) (6,132)
------- ------- ------------
Net cash and equivalents provided by (used in) financing
activities................................................... (323) (9,835) 2,181
------- ------- ------------
Net increase (decrease) in cash and equivalents............................... (531) (1,191) 397
Cash and equivalents at beginning of year..................................... 2,560 2,029 838
------- ------- ------------
Cash and equivalents at end of year........................................... $ 2,029 $ 838 $ 1,235
------- ------- ------------
------- ------- ------------
Supplemental disclosures of cash flow information:
Cash paid (received) during the year for:
Interest............................................................ $10,178 $11,974 $ 9,334
------- ------- ------------
Income taxes........................................................ $(1,338) $(8,516) $ 8,105
------- ------- ------------
------- ------- ------------
Supplemental schedule of non-cash investing and financing activities:
Total capital expenditures.......................................... $16,337 $11,399 $ 10,075
Capital expenditures financed by capital leases..................... (351) (15) (344)
------- ------- ------------
$15,986 $11,384 $ 9,731
------- ------- ------------
------- ------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-87
<PAGE>
GRANITEVILLE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1993
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
In August 1983, Southeastern Public Service Company ('SEPSCO') completed
its tender offer for Graniteville Company's ('Graniteville') common stock and in
July 1984, Graniteville became a wholly-owned subsidiary of SEPSCO. In January
1986, Triarc Companies Inc. ('Triarc', formerly DWG Corporation) purchased from
SEPSCO 2,541,862 shares of common stock of Graniteville, constituting
approximately 51% of Graniteville's outstanding common stock, pursuant to a
Stock Purchase Agreement dated January 30, 1986, between Triarc and SEPSCO. At
February 28, 1993, SEPSCO was 65% owned by Triarc. As a result of the
transaction described in Note 12, SEPSCO is 71.1% owned by Triarc as of April
23, 1993.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Graniteville
and its subsidiaries, C. H. Patrick & Co., Inc. ('C. H. Patrick') and
Graniteville International Sales, Inc. ('Graniteville International'), an
inactive corporation. All significant intercompany balances and transactions
have been eliminated in consolidation.
Certain amounts included in the prior years' consolidated financial
statements have been reclassified to conform with the current year's
presentation.
INVENTORIES
Substantially all inventories, consisting of materials, labor and overhead,
are stated at the lower of cost (last-in, first-out basis) or market.
DEPRECIATION AND AMORTIZATION
Depreciation is computed on the straight-line basis using the estimated
useful lives of the related major classes of properties: 3 to 6 years for
automotive equipment; 12 to 14 years for machinery and equipment; and 15 to 60
years for buildings and improvements. Under this method, gains and losses
arising from disposals are included in current earnings.
RESEARCH AND DEVELOPMENT
Research and development expenses amounted to $652,000 in 1991, $691,000 in
1992, and $744,000 in 1993.
INCOME TAXES
Federal income tax returns for Graniteville and its consolidated
subsidiaries were filed on a consolidated basis with SEPSCO from August 7, 1983
through January 31, 1986. Subsequent to January 31, 1986, Graniteville and its
consolidated subsidiaries have filed separate income tax returns as a result of
the sale by SEPSCO of a portion of Graniteville's common stock as described
above.
Effective March 2, 1992, Graniteville adopted the provisions of Statement
of Financial Accounting Standards ('SFAS') No. 109, 'Accounting for Income
Taxes,' ('SFAS 109') which requires a change from the deferred method to the
asset and liability method of accounting for income taxes. Under the asset and
liability method, deferred income taxes are recognized for the tax consequences
of 'temporary differences' by applying the enacted statutory tax rates to
differences between the financial statement carrying amounts and the tax bases
of existing assets and liabilities. Under SFAS 109, the effect on deferred taxes
of a change in tax rates is recognized in income in the period of enactment.
F-88
<PAGE>
GRANITEVILLE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 28, 1993
Under the deferred method, deferred taxes were recognized using the tax rate
applicable to the year the item arose and were not adjusted for subsequent
changes in tax rates.
Graniteville has reported the cumulative effect of the change in the method
of accounting for income taxes as of the beginning of 1993 in the consolidated
statement of income.
REVENUE RECOGNITION
Graniteville records revenues principally when inventory is shipped.
Graniteville also records revenues to a lesser extent on a bill and hold basis
under which the goods are complete, packaged and ready for shipment; such goods
are effectively segregated from inventory which is available for sale; the risks
of ownership of the goods have passed to the customer; and such underlying
customer orders are supported by written confirmation.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject Graniteville to
concentration of credit risk consist primarily of trade accounts receivable.
Graniteville's customers consist of domestic and foreign apparel producers and
other users of textile products. Graniteville performs ongoing credit
evaluations of its customers' financial condition and establishes an allowance
for doubtful accounts based upon factors surrounding the credit risk of specific
customers, historical trends and other information. In addition, Graniteville
sells, on a non-recourse basis, a significant volume of accounts receivable,
thereby reducing its exposure to credit risk. Historically, Graniteville has not
incurred material credit-related losses.
BUSINESS SEGMENT
Graniteville manufactures, dyes and finishes cotton, synthetic and blended
(cotton and polyester) fabrics, primarily for the apparel trade and mainly for
two consumer end-uses: (1) utility wear and (2) men's, women's, and children's
sportswear, casual wear and outerwear. Through its wholly-owned subsidiary, C.
H. Patrick, Graniteville also is engaged in producing and selling dyes and
chemicals, primarily to the textile trade.
MAJOR CUSTOMER
Sales to a group of customers under common control totaled approximately
14%, 11%, and 14% of Graniteville's sales in 1991, 1992, and 1993, respectively.
No other customer or similar group accounted for more than 10% of Graniteville's
sales in such years.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
In 1993, Graniteville adopted the provisions of SFAS No. 106, 'Employers'
Accounting for Postretirement Benefits Other Than Pensions'. In applying the
provisions of this statement, Graniteville recognized the accumulated
postretirement benefit obligation as of the beginning of 1993 of $1,151,000 as a
change in accounting principle. On an aftertax basis, this charge was $722,000.
FISCAL YEAR
Graniteville's fiscal year is the 52 or 53 week period ending on the Sunday
nearest the last day of February. Fiscal years 1991, 1992, and 1993 ended on
March 3, 1991, March 1, 1992, and February 28, 1993, respectively. As used
herein, February 28 shall mean the last day of Graniteville's fiscal year.
Fiscal year 1991 included 53 weeks, 1992 included 52 weeks, and 1993 included 52
weeks.
F-89
<PAGE>
GRANITEVILLE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 28, 1993
(2) INVENTORIES
The following is a summary of the major classifications of inventories:
<TABLE>
<CAPTION>
FEBRUARY 28,
------------------------
1992 1993
-------- ------------
(IN THOUSANDS)
<S> <C> <C>
Raw materials.................................................................. $ 16,548 $ 15,696
Work in process................................................................ 5,828 5,516
Finished goods................................................................. 52,572 57,512
Supplies....................................................................... 2,726 2,426
-------- ------------
$ 77,674 $ 81,150
-------- ------------
-------- ------------
</TABLE>
Had the first-in, first-out method been used, inventories would have been
$3,800,000 and $2,500,000 higher at March 1, 1992 and February 28, 1993,
respectively.
(3) PROPERTIES
The following is a summary of the major classifications of properties, net:
<TABLE>
<CAPTION>
FEBRUARY 28,
------------------------
1992 1993
-------- ------------
(IN THOUSANDS)
<S> <C> <C>
Land.......................................................................... $ 3,584 $ 4,358
Buildings and improvements.................................................... 18,032 22,603
Machinery and equipment....................................................... 120,394 128,728
Automotive equipment.......................................................... 4,229 4,498
-------- ------------
146,239 160,187
Less accumulated depreciation and amortization................................ 44,120 54,715
-------- ------------
$102,119 $105,472
-------- ------------
-------- ------------
</TABLE>
(4) INCOME TAXES
The provision for (benefit from) income taxes consists of the following
components:
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28,
------------------------------------
1991 1992 1993
-------- -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal....................................................... $ (8,918) $1,974 $ 11,109
State......................................................... (125) 7 835
-------- -------- ------------
(9,043) 1,981 11,944
-------- -------- ------------
Deferred:
Federal....................................................... (2,790) 2,411 2,234
State......................................................... (149) 570 1,154
-------- -------- ------------
(2,939) 2,981 3,388
-------- -------- ------------
$(11,982) $4,962 $ 15,332
-------- -------- ------------
-------- -------- ------------
</TABLE>
As described in Note 1, Graniteville adopted SFAS 109 during 1993. This
accounting change required a restatement of Graniteville's deferred tax accounts
as of the beginning of 1993, which resulted in a charge of $12,314,000 which is
reflected as the cumulative effect of changes in accounting principles in
Graniteville's consolidated statement of earnings. The cumulative effect
adjustment relates
F-90
<PAGE>
GRANITEVILLE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 28, 1993
primarily to recording deferred taxes on the differences in the book basis and
tax basis of assets. The largest portion of these differences arose at the time
of Graniteville's purchase by SEPSCO in 1983 and were accounted for in
accordance with accounting standards in effect at that time.
The difference between the reported tax provision for (benefit from) income
taxes and a computed tax based on income (loss) before income taxes and
cumulative effect of changes in accounting principles at the statutory rate is
reconciled as follows:
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28,
------------------------------------
1991 1992 1993
-------- -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Income (loss) before income taxes and cumulative effect of changes
in accounting principles......................................... $ (4,004) $ 17,225 $ 40,692
-------- -------- ------------
Computed expected tax provision (benefit) at 34%................... $ (1,362) $ 5,857 $ 13,835
Increase (decrease) in Federal taxes resulting from:
Amortization of nontaxable credits resulting from purchase
accounting adjustments...................................... (1,351) (1,350) --
Employee benefit plan payment................................. (8,429) -- --
State income taxes net of federal benefit..................... (181) 380 1,313
Other, net.................................................... (659) 75 184
-------- -------- ------------
$(11,982) $ 4,962 $ 15,332
-------- -------- ------------
-------- -------- ------------
</TABLE>
At February 28, 1993, the deferred tax assets and liabilities are comprised
of:
<TABLE>
<CAPTION>
DEFERRED TAX DEFERRED TAX
ASSETS LIABILITIES
------------ ------------
<S> <C> <C>
Receivables............................................................... $1,386 $ --
Inventory................................................................. -- 10,566
Accrued compensation...................................................... 2,704 --
Other accrued liabilities................................................. 984 --
Property, plant and equipment............................................. -- 19,566
All other................................................................. 10 1,808
------------ ------------
$5,084 $ 31,940
------------ ------------
------------ ------------
Classified as:
Current assets or liabilities........................................ $5,084 $ 10,566
Non-current assets or liabilities.................................... -- 21,374
------------ ------------
$5,084 $ 31,940
------------ ------------
------------ ------------
</TABLE>
F-91
<PAGE>
GRANITEVILLE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 28, 1993
Deferred income taxes (credits) result from timing differences in
recognition of revenue and expense for income tax and financial statement
purposes. The tax effects of the principal timing differences are as follows:
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28,
---------------------------
1991 1992 1993
------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Excess of tax over book depreciation and amortization on properties..... $ 1,996 $ 919 $1,508
Restructuring costs..................................................... -- (850) 320
Book-tax differences resulting from purchase accounting adjustments..... (30) (42) (94)
Employee benefit plan payment........................................... (3,064) 3,064 --
Alternative minimum tax carryforward.................................... (1,576) (976) 2,684
Maintenance accrual not deductible until paid........................... -- -- (373)
Compensation accrual not deductible until paid.......................... 237 756 (1,487)
Inventory capitalization................................................ (171) (171) 43
Bad debt expense........................................................ (162) 3 29
Other................................................................... (169) 278 758
------- ------ ------
$(2,939) $2,981 $3,388
------- ------ ------
------- ------ ------
</TABLE>
Federal income tax returns for the years 1986 through 1988 are currently
under examination and no report has yet been issued by the IRS. Including
amounts accrued in prior years, management believes that adequate provision has
been made for all tax liabilities and interest thereon.
(5) LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
FEBRUARY 28,
----------------------------
1992 1993
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Term loan......................................................................... $ 46,875 $ 60,000
Capitalized lease obligations (Note 6):
With an affiliate............................................................ 558 447
Other........................................................................ 748 330
6.5% Washington National Insurance Company Pollution Control note due 1993 to
1999............................................................................ 1,060 946
Notes collateralized by machinery and equipment maturing at various dates through
1996 with interest at various fixed and floating rates (weighted average
interest rate of 8.5% at March 1, 1992 and 8.2% at February 28, 1993............ 2,848 982
------------ ------------
52,089 62,705
Less current portion of long-term debt.................................. 10,268 9,809
------------ ------------
$ 41,821 $ 52,896
------------ ------------
------------ ------------
</TABLE>
F-92
<PAGE>
GRANITEVILLE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 28, 1993
Aggregate annual maturities of the long-term debt as of February 28, 1993
are as follows (in thousands):
<TABLE>
<S> <C>
1994............................................................................... $ 9,809
1995............................................................................... 9,296
1996............................................................................... 9,080
1997............................................................................... 9,010
1998............................................................................... 25,510
Thereafter......................................................................... --
-------
$62,705
-------
-------
</TABLE>
In December 1992, Graniteville increased its term loan from its commercial
lender from the $41.25 million then outstanding to $60.0 million. Such term loan
bears interest at the prime rate plus 1 1/4% and is payable in quarterly
installments of approximately $1.9 million each through December 1, 1993, and
$2.25 million thereafter, with a final payment of $16.5 million on March 1,
1998. The new note evidencing such increased term loan requires, among other
things, the maintenance of certain financial ratios and includes certain
restrictive covenants and events of default applicable to Graniteville,
including a limitation on the payment of dividends to 50% of its net income
after the end of each fiscal year, except that no such dividends may be paid
unless Graniteville's consolidated working capital exceeds certain levels and
Graniteville is not in default under the note evidencing the term loan, and a
prohibition on loans and advances to other corporations, including Triarc and
SEPSCO, with certain limited exceptions. The note also includes a provision
causing the outstanding principal balance to be payable 13 months after
termination of the accounts receivable financing arrangements described below by
the lender or payable immediately after termination of such arrangements by
Graniteville. This note was repaid in April 1993.
In February 1991, Graniteville entered into a modification of its accounts
receivable financing arrangements with such commercial lender, and C. H. Patrick
entered into a substantially similar arrangement with such lender. Such
arrangements provide for advances against accounts receivable sold to the lender
on a non-recourse basis and for other advances on receivables on a secured
basis. Advances under these arrangements bear interest at 1% above the prime
rate (but not less than 6%), and require the payment of a commission of .50% on
accounts receivable sold without recourse, and .22% on accounts receivable sold
with recourse, under the arrangement. In addition, the arrangements with such
lender provide for loans against Graniteville's cotton inventory based on a
formula providing for advances of between 50 and 75 percent of the value of such
inventory. The financing arrangements entered into by Graniteville are secured
by substantially all of its accounts receivable, cotton inventory, imported
inventory, machinery, equipment and plant site real property and the stock and
accounts receivable of C. H. Patrick.
See Note 13 for a description of Graniteville's refinancing which occurred
subsequent to year end.
On April 1, 1993, the note payable to Washington National Insurance Company
was paid in full.
(6) LEASE COMMITMENTS
Graniteville leases certain machinery and automotive equipment from a
corporation which may be deemed to be an affiliate, and from unrelated third
parties under long-term lease obligations which are accounted for as capital
leases and are included in machinery and automotive equipment amounts presented
in Note 3, in the amount of $4,452,000 and $4,392,000, at February 28, 1992 and
1993, respectively.
F-93
<PAGE>
GRANITEVILLE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 28, 1993
The future minimum lease payments (net of sublease rentals which are not
significant) under capital leases and operating leases with an initial
noncancelable term in excess of one year are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
(IN THOUSANDS)
<S> <C> <C>
1994..................................................................... $ 635 $ 1,954
1995..................................................................... 202 1,887
1996..................................................................... 45 1,808
1997..................................................................... 11 1,624
1998..................................................................... 9 146
Thereafter............................................................... -- 170
------- ---------
Total minimum lease payments............................................. $ 902 $ 7,589
---------
---------
Less amounts representing interest....................................... 125
-------
Present value of minimum lease payments (Note 5)......................... $ 777
-------
-------
</TABLE>
Rental expense under operating leases which is primarily for the rental of
real estate and equipment, was $1,187,000 in 1991, $1,032,000 in 1992, and
$1,794,000 in 1993.
(7) PENSION PLAN AND OTHER POSTRETIREMENT BENEFITS
On April 25, 1983, Triarc's Board of Directors authorized the termination
of Graniteville's pension plans. Simultaneously, Graniteville announced the
commitment to a newly formed Employee Stock Ownership Plan (ESOP) of an amount
equal to the surplus pension assets of approximately $36 million. During May
1983, the ESOP used $9 million contributed to it by Graniteville to purchase
from Graniteville 642,857 shares of Graniteville's authorized but unissued
common stock. Graniteville agreed that it would satisfy the commitment to the
ESOP by contributing to the ESOP and/or another qualified pension or
profit-sharing plan over the next 10 years an aggregate amount equal to the
surplus pension assets, minus $11.25 million (equal to the number of shares of
Graniteville's common stock originally purchased by the ESOP multiplied by
$17.50). Such contributions were to be made without interest in such amounts and
at such times within such 10-year period as determined by the Board of Directors
of Graniteville or as provided in any new plan. Graniteville received a notice
of sufficiency from the Pension Benefit Guaranty Corporation and a favorable
determination letter from the Internal Revenue Service in connection with the
applications which it had filed for the termination of its pension plans and the
distribution of the surplus pension assets.
In April 1986, the United States Department of Labor ('the Department')
commenced an action against Graniteville and certain other parties concerning
this commitment (see Note 9 for details of this litigation). In December 1990,
Graniteville announced a plan of cash payments to the trustee of the
Graniteville Company Retirement Savings Plan as successor to the ESOP.
Graniteville believes that such cash payments completely satisfy Graniteville's
commitment to contribute an amount equal to the surplus pension plan assets to
an employee benefit plan within 10 years. Graniteville paid approximately $20.7
million to the trustee on February 28, 1991, and paid approximately $8.5 million
to the trustee on February 28, 1992.
These cash payments were allocated to eligible participants in the Plan
over the six-year period beginning with the plan year ending February 1985
through the plan year ending February 1990. The allocation formula was
determined through negotiations between Graniteville and the Department and
generally allocated these payments over covered compensation for the calendar
years 1984 through 1989.
Postretirement benefits other than pensions consist of health care and life
insurance benefits provided to a group of former employees who retired prior to
January 1, 1990, and a limited health care
F-94
<PAGE>
GRANITEVILLE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 28, 1993
benefit program provided to early retirees. With the exception of a group of
retirees who retired prior to January 1, 1982, a portion of the cost of these
benefits is paid by the retiree.
Effective March 2, 1992 Graniteville adopted SFAS 106 and accordingly,
provided for the unfunded accumulated postretirement obligation payments on a
pay-as-you-go basis; in 1992 and 1993 such payments were immaterial.
Net other postretirement benefit expense for Fiscal 1993 consisted of the
following:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Service cost -- benefit earned during the period.............................. $ 7
Interest cost on accumulated postretirement benefit obligation................ 88
---
$ 95
---
---
</TABLE>
The accumulated postretirement benefit obligation as of February 28, 1993
(which is equal to the amount which has been recognized in the accompanying
consolidated balance sheet) consists of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Retirees and dependents....................................................... $ 935
Active employees eligible to retire........................................... 88
Active employees not eligible to retire....................................... 112
-------
$1,135
-------
-------
</TABLE>
For purposes of measuring the expected postretirement obligation, a 12%
annual rate of increase in the per capita claims cost was assumed for 1994. This
rate is assumed to decrease by 1% per year to 6% in the year 2000 and remain
level thereafter. The discount rate used in determining the accumulated
postretirement benefit obligation was 8%.
If the health care cost trend rate were increased by 1%, the accumulated
postretirement benefit obligation as of the end of 1993 would have been
increased by 8%. The effect of this change on the service cost and interest cost
for 1993 would be an increase of 9%.
(8) TRANSACTIONS WITH AFFILIATES
Triarc provided management services, excluding the cost of leased space, to
Graniteville in 1991, 1992, and 1993 at a cost of approximately $3,592,000,
$1,792,000, and $2,441,000, respectively. Such amounts include approximately
$2,320,000, $640,000, and $1,299,000, in 1991, 1992 and 1993, respectively,
representing allocations to Graniteville in accordance with the applicable
management services agreement of certain reserves established by Triarc for
amounts owed by certain corporations, which may be deemed to be or, deemed to
have been, affiliates of Graniteville in connection with the providing by Triarc
of such management services. Graniteville, through Triarc, also leased space
from an affiliate for approximately $944,000, $864,000, and $824,000 in 1991,
1992, and 1993, respectively.
Graniteville maintains certain property insurance coverage with Chesapeake
Insurance Company Limited ('Chesapeake Insurance'), an affiliated company
registered in Bermuda. Premiums attributable to such insurance coverage amounted
to $176,000 in 1991, $203,000 in 1992, and $212,000 in 1993. Graniteville also
maintains certain insurance coverage with an unaffiliated insurance company for
which Chesapeake Insurance reinsures a portion of the risk. Net premiums
attributable to such reinsurance were approximately $3,250,000 in 1991,
$3,047,000 in 1992, and $2,619,000 in 1993. In addition, Insurance and Risk
Management Inc., an affiliated company, acts as agent or broker in connection
with insurance coverage obtained by Graniteville and provides claims processing
services for Graniteville. The commissions and payments for such services paid
to such company were $469,000, $455,000, and $459,000 in 1991, 1992, and 1993,
respectively.
F-95
<PAGE>
GRANITEVILLE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 28, 1993
During 1992, Graniteville invested $2,500,000 in the convertible preferred
stock of Chesapeake Insurance. The investment is valued at cost in the
accompanying financial statements and is included in 'Other assets'.
Certain machinery and automotive equipment is leased from an affiliate (see
Note 6). Interest charges on these lease obligations amounted to $158,000 in
1991, $97,000 in 1992, and $71,000 in 1993.
(9) LEGAL MATTERS
In September 1985, Graniteville was notified by the United States
Department of Labor that the Department was prepared to bring suit in Federal
District Court to seek certain corrective action in connection with the
termination of Graniteville's pension plans in April 1983, prior to
Graniteville's acquisition by SEPSCO, unless Graniteville agreed to resolve the
matter through a consent order to be filed simultaneously with the complaint in
Federal Court. In its letter, the Department sought contributions to
Graniteville's ESOP or successor plan equal to the value of the surplus pension
plan assets returned to Graniteville upon termination of the plan (approximately
$36.0 million) plus interest to the date of payment minus the amount of any
contributions (alleged by the Department to aggregate approximately $9 million)
made since April 25, 1983, which were attributable to Graniteville's commitment
with respect to the surplus pension plan assets. Although Graniteville entered
into discussions with the Department, no agreement could be reached.
As a result, in April 1986, the Department commenced an action in the
United States District Court ('The Court') for South Carolina against
Graniteville, SEPSCO, and certain individuals who had been members of the
Executive Committee at the time of the plan termination, and certain other
individuals who are alleged to have been fiduciaries with respect to
Graniteville's Employee Stock Ownership Plan or a successor plan prior to the
acquisition of Graniteville by SEPSCO. In its complaint, the Department alleged
that the individual defendants violated their fiduciary duties under the
provisions of the Employee Retirement Income Security Act of 1974, as amended
('ERISA'), in failing to implement an alleged commitment purportedly made prior
to the acquisition of Graniteville by SEPSCO to utilize the approximately $36
million of surplus assets received from the termination of Graniteville's
pension plans solely for the benefit of participants and beneficiaries of the
ESOP (including a contribution of approximately $7 million which Graniteville
announced in 1986 that it intended to make as a partial satisfaction of its
commitment to the ESOP), by failing to take reasonable steps to acquire control
of property belonging to the ESOP or to realize upon claims held by the ESOP
with respect to such surplus assets. In its action, the Department sought to
enjoin the defendants from serving directly or indirectly as fiduciaries of any
employment plan covered by ERISA for a period of ten years, enjoin the other
individual defendants from committing any future violations of the fiduciary
provisions of ERISA and order the defendants, jointly and severally, to restore
any losses plus interest incurred as a consequence of the alleged fiduciary
violations or participation in such alleged violations.
In December 1990, Graniteville and the Department entered into a settlement
of such litigation. Graniteville agreed to make and subsequently made a payment
of $20.7 million on February 28, 1991, and a payment of $8.5 million on February
28, 1992, to the trustee of the Graniteville Company Retirement Savings Plan as
successor to the ESOP. Graniteville believes that such cash payments completely
satisfy its commitment. Included in 'Other, net' in the accompanying
consolidated statement of earnings for the year ended March 3, 1991, is a
provision of $4.9 million representing the settlement costs in excess of amounts
previously provided.
Graniteville participates in regional waste water treatment facilities and
considers that it is in substantial compliance with water pollution regulations.
Graniteville has, however, been notified by the South Carolina Department of
Health and Environmental Control ('DHEC') that DHEC has found certain
contamination of Langley Pond and has asserted that Graniteville may be
responsible for such contamination. Graniteville entered into a consent decree
providing for the study and investigation of the alleged pollution and its
sources. The first study report was filed with DHEC on April 23, 1990, and
recommended that pond sediments be left undisturbed and in place. DHEC responded
by requesting
F-96
<PAGE>
GRANITEVILLE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 28, 1993
that Graniteville submit additional information concerning potential passive and
active remedial alternatives with accompanying supportive information which
Graniteville provided to DHEC in a report of its independent environmental
consulting firm in May 1991. That report concluded that pond sediments should be
left undisturbed and in place and that other less passive remediation
alternatives either provided no significant additional benefits or themselves
involved adverse effects on human health or to existing recreational uses or the
existing biological communities. Given the passage of time since the submission
of Graniteville's report and the absence of desirable remediation alternatives,
other than continuing to leave the Langley Pond sediments in place and
undisturbed as described in the report, Graniteville believes it unlikely that
such matter will have any material effect on the financial condition and results
of operations of Graniteville.
Graniteville has programs to identify and resolve problems in the area of
emissions into the atmosphere and employee exposure to toxic substances, and
considers that it is presently in substantial compliance with applicable
regulations. Graniteville also has programs to identify and resolve problems in
the area of noise mitigation. Employee testing continues to be pursued
vigorously. Graniteville has responded to occupational safety matters as
regulations have been promulgated. Graniteville considers that it is in
substantial compliance with such safety matters under present standards.
Revised cotton dust standards became effective March 27, 1986. These
standards have required increased capital expenditures, changes in work
practices and monitoring of personnel. Compliance with such standards is
difficult to attain and/or maintain as a technological matter, and Graniteville
believes it may require capital expenditures which are presently expected to
range from $6 million to $8 million. Compliance with such standards may also
require additional changes in manufacturing processes, equipment, product mix,
and installation of additional air cleaning equipment. Even with such actions,
compliance cannot be assured in all areas at all times.
Graniteville and its subsidiaries are defendants in certain other legal
proceedings arising out of the conduct of Graniteville's business. In the
opinion of management and counsel, the ultimate outcome of these legal
proceedings will not have a material adverse effect on the consolidated
financial position or results of operations of Graniteville.
(10) RESTRUCTURING COSTS
In the fourth quarter of 1992, Graniteville recorded a restructuring charge
of $2,500,000 representing costs and expenses associated with plans to cease the
manufacture and sale of cotton yarns and shuttle woven, industrial greige
fabrics. Actual costs and expenses associated with the strategic restructuring
exceeded management's original estimate and 1993 results include an additional
charge of $1,855,000. No further charges for this restructuring are anticipated.
(11) INCENTIVE COMPENSATION PLAN
Graniteville has in effect a Management Incentive Compensation Plan which
provides for the establishment for each fiscal year of two separate incentive
compensation funds, the first to be based primarily on operating earnings and
not to exceed 10% of such earnings, and the second to be based on earnings from
sales or other dispositions of assets, such as sales of subsidiaries, divisions,
investments and other assets not in the ordinary course of business, and not to
exceed 10% of earnings from such sources. At March 1, 1992 and February 28,
1993, an aggregate amount of approximately $2.2 million and $6.6 million was
available under such funds, respectively, and is included in 'Accrued salaries
and wages' in the accompanying consolidated balance sheets. During 1992,
Graniteville reversed $2.0 million of such incentive accruals relating to prior
fiscal years. The Plans are administered by the Compensation Committee and
awards for elected corporate officers are approved by the Board of Directors
following review and recommendation by the Compensation Committee. The Plans set
forth certain objective factors used in determining the allocation of awards to
persons eligible to participate in the Plans. Among such factors are experience,
level of responsibility, efforts expended, participation in decision making,
performance, duties and responsibilities and length of employment. The
objectives of
F-97
<PAGE>
GRANITEVILLE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 28, 1993
the Plans are to encourage the development of aggressive, growth-oriented
business plans and strategies consistent with philosophies of the Board of
Directors, to motivate exemplary commitment and performance of managerial
personnel who have made a meaningful contribution to Graniteville's financial
results and business objectives and to provide Graniteville's stockholders with
an optimum return on their investment by maximizing the long-term growth and
profitability of Graniteville.
(12) FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, 'Disclosure about Fair Value of Financial Instruments,'
requires that the estimated fair value of financial instruments and the
applicable underlying assumptions be disclosed as of February 28, 1993.
Cash and equivalents -- The carrying amount approximates fair value because
of the short maturity of these instruments.
Long-term debt -- Graniteville refinanced substantially all of its
long-term debt in December 1992. Based upon this recent refinancing,
Graniteville estimates that the carrying value of $62,705,000 approximates the
fair value of long-term debt at February 28, 1993.
(13) SUBSEQUENT EVENT
On April 23, 1993, Graniteville and Patrick entered into an $180 million
senior secured credit facility (the 'Graniteville Credit Facility') with The CIT
Group/Commercial Services, Inc. ('CIT'). This refinancing is part of a
transaction, one of the purposes of which is the refinancing of certain
indebtedness of Triac and its subsidiaries on improved terms and conditions.
The Graniteville Credit Facility consists of a senior secured revolving
credit facility of up to $100 million (the 'Revolving Loan') and an $80 million
senior secured term loan (the 'Term Loan'). The proceeds of borrowings under the
Graniteville Credit Facility were used as follows: approximately $78.1 million
was used to refinance existing indebtedness of Graniteville, $66.6 million was
advanced to Triarc, approximately $28.8 million was used to cover Graniteville's
capital expenditure and working capital needs, and approximately $6.5 million
was used to pay fees and expenses associated with the Graniteville Credit
Facility.
As part of the Graniteville Credit Facility, CIT will continue to factor
Graniteville's sales, with credit balances assigned to secure the Graniteville
Credit Facility. The factoring arrangement has a term of three years, subject to
automatic extension for additional one-year periods unless either party gives
six months' prior notice of termination. Graniteville will pay a commission of
0.45% on all credit-approved accounts receivable. A 0.20% bad debt reserve will
be shared equally by CIT and Graniteville after deducting customer credit
losses.
The Revolving Loan has a term of five years and will be in an amount of up
to $100 million with a $5 million sublimit for letters of credit. Borrowings
under the Revolving Loan bear interest, at Graniteville's option, at either the
prime rate plus 1.25% per annum or the 90-day London Interbank Offered Rate (the
'LIBOR rate') plus 3.00% per annum. If the unpaid principal balance of the Term
Loan is less than $55 million, the interest rate on the Revolving Loan will be
reduced to the prime rate plus 1.00% per annum or the 90-day LIBOR rate plus
2.75% per annum. All LIBOR rate loans will have a 90-day interest period and
will be limited to $90 million in total borrowings under the Graniteville Credit
Facility. The borrowing base for the Revolving Loan will be the sum of 90% of
accounts receivable which are credit-approved by the factor, plus 85% of all
other eligible accounts receivable, plus 65% of eligible inventory, provided
that advances against eligible inventory shall not exceed $35 million at any one
time.
The Term Loan has a five-year term in an amount of up to the lesser of (i)
$80 million or (ii) the sum of 75% of the fair market value of real estate and
80% of the orderly liquidation value of machinery and equipment owned by
Graniteville and Patrick. The Term Loan will amortize $2.5 million per quarter
during the first year and $3 million per quarter thereafter, with a final
payment of $22
F-98
<PAGE>
GRANITEVILLE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FEBRUARY 28, 1993
million on the fifth anniversary of the closing. Until the unpaid principal of
the Term Loan is equal to or less than $60 million at the end of any fiscal
year, Graniteville must make mandatory prepayments in an amount equal to 50% of
Excess Cash Flow, as defined, for such fiscal year. The Term Loan bears interest
at the prime rate plus 1.75% per annum or the 90-day LIBOR rate plus 3.50% per
annum. When the unpaid principal balance of the Term Loan is less than $55
million, the interest rate thereon will be reduced to the prime rate plus 1.375%
per annum or the 90-day LIBOR rate plus 3.125% per annum. In each case, the
LIBOR rate is limited to $90 million in total borrowings under the Graniteville
Credit Facility. In the event that Graniteville prepays the Term Loan, in whole
or in part, prior to the end of the third year, then a prepayment fee shall be
payable as follows: 2% of the amount prepaid if the prepayment occurs in the
first year, 1% of the prepayment during the second year and 1/2 of 1% in the
third year.
The Graniteville Credit Facility is secured by all of the assets of
Graniteville and C. H. Patrick, including all accounts receivable, notes
(including the $66.6 million note Graniteville received from Triarc in respect
of the intercompany advance), inventory, machinery and equipment, trademarks,
patents and other intangible assets, and all real estate. Graniteville has also
pledged as collateral the stock of C. H. Patrick. Additionally, Triarc and
Graniteville International have given unlimited and unconditional guarantees of
all obligations under the Graniteville Credit Facility. As collateral for such
guarantee, Triarc pledged (i) 51% of the issued and outstanding stock of
Graniteville (subject only to the existing pledge on such stock held by SEPSCO),
and (ii) at least 70% of the issued and outstanding common stock of SEPSCO.
The Graniteville Credit Facility contains various affirmative and negative
covenants. The affirmative covenants include maintenance of insurance coverage,
payments of indebtedness and taxes when due, compliance with financial reporting
requirements, and delivery of certificates of non-default. The negative
covenants restrict dividends and stock repurchases, investments, incurrence of
indebtedness (purchase money security interests not exceeding $20 million at any
one time outstanding are permitted), additional liens or guarantees, changes in
the nature of the business, mergers and acquisitions, changes in key management
(unless reasonably acceptable to the agent bank), changes in ownership control,
change of fiscal year, creation of new subsidiaries, sales of assets, and
affiliate transactions other than in the normal course of business as presently
conducted. The Graniteville Credit Facility also contains financial covenants,
including covenants relating to current ratio, working capital, debt-to-equity
ratio, net worth, earnings-to-interest ratio, capital expenditures and maximum
loss allowable.
The Graniteville Credit Facility also contains customary default
provisions, including defaults for nonpayment of principal, interest or fees due
under the Graniteville Credit Facility, misrepresentations, noncompliance with
covenants, bankruptcy or insolvency, any of the security interests or liens in
favor of the lenders ceasing to be valid, binding and enforceable, and any
unsatisfied or unstayed judgment in excess of $1 million unless the same is
being contested in good faith.
If Graniteville becomes eligible to join in Triarc's consolidated Federal
income tax return, Graniteville will be permitted to pay to Triarc an amount
equal to the Federal income tax liability that Graniteville and its subsidiaries
would have paid if they had filed a separate consolidated Federal income tax
return. Additionally, Graniteville will be permitted to pay dividends or make
loans or advances to its affiliates in an amount equal to 50% of the net income
of Graniteville accumulated from the beginning of the first fiscal year
commencing on or after December 20, 1994, provided that the outstanding
principal balance of the Term Loan is less than $50 million at the time of the
payments and certain other conditions are met.
F-99
<PAGE>
GRANITEVILLE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
FEBRUARY 28, NOVEMBER 28,
1993(A) 1993
------------ ------------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents............................................................ $ 1,235 $ 3,499
Receivables, net................................................................ 65,463 81,255
Inventories (Note 3)............................................................ 81,150 99,873
Deferred income taxes........................................................... 5,084 5,193
Other current assets............................................................ 1,326 574
------------ ------------
Total current assets....................................................... 154,258 190,394
------------ ------------
Properties, net (Note 4)............................................................. 105,472 110,635
Note receivable from parent (including accrued interest) (Note 2).................... -- 69,817
Other assets......................................................................... 3,634 6,255
------------ ------------
$263,364 $377,101
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt............................................... $ 9,809 $ 11,657
Accounts payable................................................................ 24,750 24,686
Accrued salaries and wages...................................................... 8,275 8,567
Deferred income taxes........................................................... 10,566 10,688
Other current liabilities....................................................... 6,456 10,221
------------ ------------
Total current liabilities.................................................. 59,856 65,819
Revolving debt (Note 2).............................................................. -- 85,195
Long-term debt (Note 2).............................................................. 52,896 64,650
Deferred income taxes................................................................ 21,374 22,072
Other liabilities.................................................................... 1,626 1,626
Commitments and contingencies
Stockholders' equity:
Common stock, $5.00 par value; 10,000,000 shares authorized; 4,984,000 shares
issued......................................................................... 24,920 24,920
Additional paid-in capital...................................................... 41,712 41,712
Retained earnings............................................................... 60,980 71,107
------------ ------------
Total stockholders' equity................................................. 127,612 137,739
------------ ------------
$263,364 $377,101
------------ ------------
------------ ------------
</TABLE>
- ------------
(A) Derived from the audited financial statements as of February 28, 1993.
See accompanying notes to condensed consolidated financial statements.
F-100
<PAGE>
GRANITEVILLE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
----------------------------
NOVEMBER 29, NOVEMBER 28,
1992 1993
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Revenues........................................................................... $378,039 $399,870
------------ ------------
Costs and expenses:
Cost of sales................................................................. 316,342 338,020
Selling, general, and administrative expenses (Note 6)........................ 25,669 32,154
Facilities relocation and corporate restructuring (Note 6).................... -- 1,843
------------ ------------
342,011 372,017
------------ ------------
Operating profit......................................................... 36,028 27,853
------------ ------------
Other income (expense):
Interest expense.............................................................. (7,151) (10,612)
Interest income............................................................... 176 76
Interest income from parent (Note 2).......................................... -- 3,824
Write-off of investment in Chesapeake Insurance Company Limited............... -- (2,500)
Other, net.................................................................... 13 537
------------ ------------
(6,962) (8,675)
------------ ------------
Income before income taxes and cumulative effect of changes in accounting
principles............................................................. 29,066 19,178
Provision for income taxes......................................................... (10,952) (9,051)
------------ ------------
Income before cumulative effect of changes in accounting principles...... 18,114 10,127
Cumulative effect of changes in accounting for:
Income taxes (Note 5)......................................................... (12,314) --
Postretirement benefits other than pensions, net of tax of $429,000 (Note
5)........................................................................... (722) --
------------ ------------
Net income.................................................................... $ 5,078 $ 10,127
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-101
<PAGE>
GRANITEVILLE COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
----------------------------
NOVEMBER 29, NOVEMBER 28,
1992 1993
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net income.................................................................... $ 5,078 $ 10,127
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization............................................ 7,842 10,066
Amortization of deferred loan costs...................................... -- 782
Increase in deferred income taxes, net of accounting changes............. -- 711
Provision for doubtful accounts.......................................... 709 362
Write-off of investment in Chesapeake Insurance Company Limited.................... -- 2,500
Cumulative effect of changes in accounting principles.............................. 13,036 --
Other, net......................................................................... 49 (484)
Decrease (increase) in:
Receivables.............................................................. (20,065) (16,154)
Inventories.............................................................. 5,383 (18,723)
Note receivable from Triarc.............................................. -- (3,217)
Other current assets..................................................... 26 474
Increase (decrease) in:
Accounts payable......................................................... 1,604 (64)
Other current liabilities................................................ 6,266 4,158
Other liabilities........................................................ 429 --
------------ ------------
Net cash and equivalents provided by (used in) operating
activities....................................................... 20,357 (9,462)
------------ ------------
Cash flows from investing activities:
Capital expenditures.......................................................... (4,331) (14,336)
Increase in note receivable from parent....................................... -- (66,600)
Proceeds from the sale of properties.......................................... 471 537
Other, net.................................................................... 30 98
------------ ------------
Net cash and equivalents used in investing activities............... (3,830) (80,301)
------------ ------------
Cash flows from financing activities:
Decrease in short-term borrowings............................................. (1,959) --
Repayment of long-term debt................................................... (5,710) (67,210)
Additions to long-term debt:
Term loan................................................................ -- 80,000
Revolving debt........................................................... -- 85,192
Other.................................................................... -- 45
Increase in deferred financing costs.......................................... -- (6,000)
Payment of dividends on common stock.......................................... (6,132) --
------------ ------------
Net cash and equivalents provided by (used in) financing
activities....................................................... (13,801) 92,027
------------ ------------
Net increase in cash and equivalents............................................... 2,726 2,264
Cash and equivalents at beginning of period........................................ 838 1,235
------------ ------------
Cash and equivalents at end of period.............................................. $ 3,564 $ 3,499
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-102
<PAGE>
GRANITEVILLE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 28, 1993
(UNAUDITED)
(1) BASIS OF PRESENTATION
Graniteville Company ('Graniteville') is 51% owned subsidiary of Triarc
Companies, Inc. (formerly DWG Corporation and referred to herein as 'Triarc')
and 49% owned by Southeastern Public Service Company (a 71% owned subsidiary of
Triarc).
The accompanying unaudited condensed consolidated financial statements of
Graniteville have been prepared in accordance with Rule 10-01 of Regulation S-X
promulgated by the Securities and Exchange Commission and, therefore, do not
include all information and footnotes necessary for a fair presentation of
financial position, results of operations and cash flows in conformity with
generally accepted accounting principles and, accordingly, should be read in
conjunction with Graniteville's annual audited financial statements included
elsewhere herein. In the opinion of Graniteville, however, the accompanying
financial statements contain all adjustments, which include normal recurring
adjustments and certain significant charges (See Note 6), necessary to present
fairly Graniteville's financial position as of February 28, 1993 and November
28, 1993 and its results of operations and its cash flows for the nine months
ended November 29, 1992 and November 28, 1993.
On October 27, 1993, Graniteville's Board of Directors approved a change in
the fiscal year of Graniteville from February 28 to a calendar year ending
December 31 effective for the transition period ended December 31, 1993. As used
herein, 'Graniteville Fiscal 1993' refers to the year ended February 28, 1993
and 'Graniteville Transition 1993' refers to the ten months ended December 31,
1993.
(2) CHANGE IN CONTROL
As previously reported, a change in control of Graniteville's parent,
Triarc, occurred on April 23, 1993, which as a result of Triarc's ownership of
Graniteville's voting securities constituted a change in control of Graniteville
(the 'Change in Control'). In connection with the Change in Control, the Board
of Directors of Graniteville was reconstituted and new senior executive officers
were elected.
On April 23, 1993, Graniteville entered into an $180 million senior secured
credit facility (the 'Graniteville Credit Facility') with the CIT
Group/Commercial Services, Inc. ('CIT'). Proceeds of the Graniteville Credit
Facility in the amount of $66.6 million were advanced to Triarc. In addition,
approximately $78.1 million was used to refinance existing indebtedness, $6.5
million was used to pay fees and expenses associated with the new facility, and
the remaining amount of approximately $28.8 million at April 23, 1993 is
available for future capital expenditure and working capital needs.
(3) INVENTORIES
The following is a summary of the major classifications of inventories:
<TABLE>
<CAPTION>
FEBRUARY 28, NOVEMBER 28,
1993 1993
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Raw materials.............................................................. $ 15,696 $ 17,021
Work in process............................................................ 5,516 6,020
Finished goods............................................................. 57,512 74,230
Supplies................................................................... 2,426 2,602
------------ ------------
$ 81,150 $ 99,873
------------ ------------
------------ ------------
</TABLE>
F-103
<PAGE>
GRANITEVILLE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOVEMBER 28, 1993
(UNAUDITED)
(4) PROPERTIES
The following is a summary of the components of properties, net:
<TABLE>
<CAPTION>
FEBRUARY 28, NOVEMBER 28,
1993 1993
------------ ------------
<S> <C> <C>
Properties, at cost........................................................ $160,187 $170,596
Less accumulated depreciation and amortization............................. 54,715 59,961
------------ ------------
$105,472 $110,635
------------ ------------
------------ ------------
</TABLE>
(5) ACCOUNTING CHANGES
Effective March 1, 1992 Graniteville adopted the provisions of Statement of
Financial Accounting Standards No. 109 'Accounting for Income Taxes' ('SFAS
109') and Statement of Financial Accounting Standards No. 106 'Employers'
Accounting for Postretirement Benefits Other than Pensions' ('SFAS 106'). The
cumulative effect of the changes in accounting principles resulted in charges to
Graniteville's consolidated statement of income amounting to $12,314,000 for
SFAS 109 and $722,000, net of taxes of $429,000, for SFAS 106. These changes
have been retroactively reflected in the condensed consolidated statement of
income in the first quarter of Graniteville Fiscal 1993.
(6) SIGNIFICANT CHARGES IN TRANSITION 1993
The accompanying condensed consolidated statement of income includes the
following significant charges recorded in the first quarter of Graniteville
Transition 1993, net of adjustments recorded during the second quarter of
Graniteville Transition 1993 (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Estimated cost allocated to Graniteville by Triarc to terminate the lease on Triarc's existing
corporate headquarters....................................................................... $1,614
Costs allocated to Graniteville by Triarc related to a five-year consulting agreement extending
through April 1998 between Triarc and the former Vice Chairman of Triarc..................... 229
------
Total facilities relocation and corporate restructuring costs(A).......................... 1,843
Estimated cost allocated to Graniteville by Triarc for compensation paid to the Triarc Special
Committee of the Board of Directors of Triarc................................................ 1,660
Income tax benefit relating to the above charges............................................... (1,179)
------
$2,324
------
------
</TABLE>
- ------------
(A) In the first quarter of Graniteville Transition 1993, net of adjustments
recorded during the second quarter of Graniteville Transition 1993, results
of operations were significantly impacted by facilities relocation and
corporate restructuring charges allocated to Graniteville by Triarc
aggregating $1,843,000 consisting of: (i) estimated allocated costs of
$1,614,000 to relocate Triarc's existing corporate headquarters and to
terminate the lease on its existing corporate facilities; (ii) total
allocated costs of $229,000 relating to a five-year consulting agreement
(the 'Consulting Agreement') extending through April 1998 between Triarc
and Steven Posner, the former Vice Chairman of Triarc. All of such charges
are related to the Change in Control of Triarc described in Note 2. In
connection with the Change in Control, Victor Posner and Steven Posner
resigned as officers and directors of Triarc. In order to induce Steven
Posner to resign, Triarc entered into the Consulting Agreement with him.
The allocated cost related to the Consulting Agreement was recorded as a
charge in the first quarter of Graniteville Transition 1993 because the
Consulting Agreement does not require any substantial services and Triarc
does not expect to receive any services that will have substantial value.
As a part of the Change in Control, Triarc's Board of Directors was
reconstituted. The first meeting of Triarc's reconstituted Board of
Directors was held on April 24, 1993. At that meeting, based on a report
and recommendations from a management consulting firm that had conducted an
extensive review of Triarc's and subsidiaries' operations and management
structure, Triarc's Board of Directors approved a plan of decentralization
and restructuring which entailed, among other things, the following
features: (i) the strategic decision to manage Triarc and its subsidiaries
in the future on a decentralized rather than on a centralized
F-104
<PAGE>
GRANITEVILLE COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOVEMBER 28, 1993
(UNAUDITED)
basis; (ii) the hiring of new executive officers for Triarc; (iii) the
termination of a significant number of employees as a result of both the
new management philosophy and the hiring of an almost entirely new
management team; and (iv) the relocation of the corporate headquarters of
Triarc and certain of its subsidiaries. Graniteville's allocated cost to
relocate the corporate headquarters of Triarc and terminate the lease on
Triarc's existing corporate facilities ($1,614,000) stemmed from the
decentralization and restructuring plan formally adopted at the April 24,
1993 meeting of Triarc's reconstituted Board of Directors and accordingly,
were recorded in the first quarter of Graniteville Transition 1993.
(B) In accordance with certain court proceedings and related settlements, five
directors, including three court-appointed directors, were appointed in
1991 to serve on a special committee (the 'Triarc Special Committee') of
Triarc's Board of Directors. Such committee was empowered to review and
pass on transactions between Triarc and Victor Posner, the then largest
shareholder of Triarc, and his affiliates. Graniteville has been charged
$1,660,000 as an allocation of the cash portion of a success fee payable to
the Triarc Special Committee attributable to the reorganization which
occurred in connection with the Change in Control. Such amount has been
provided in 'Selling, general and administrative expenses' in the
accompanying condensed consolidated statement of earnings in the first
quarter of Graniteville Transition 1993.
F-105
<PAGE>
EXHIBIT 11.1
TRIARC COMPANIES, INC. AND SUBSIDIARIES
LOSS PER SHARE COMPUTATION
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED APRIL 30, OCTOBER 31,
------------------------------------------------------- -------------------
1989 1990 1991 1992 1993 1992 1993
------- -------- -------- -------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Primary
Loss from continuing operations................. $(5,851) $(13,966) $(17,501) $(10,207) $(44,549) $(4,398) $(19,628)
Cumulative preferred stock dividend
requirements:
Redeemable Convertible Preferred Stock....... -- -- -- -- (112) -- (2,916)
$.35 preferred stock......................... (576) (13) (10) (10) (8) (5) --
$.60 preferred stock......................... (4) (1) (1) (1) (1) -- --
------- -------- -------- -------- -------- ------- --------
Adjusted loss from continuing operations........ (6,431) (13,980) (17,512) (10,218) (44,670) (4,403) (22,544)
Discontinued operations......................... 3,250 1,072 (55) 2,705 (2,430) 2,016 (7,168)
Extraordinary items............................. 1,807 1,363 703 -- (6,611) -- (448)
Cumulative effect of changes in accounting
principles................................... -- -- -- -- (6,388) (6,388) --
------- -------- -------- -------- -------- ------- --------
Adjusted net loss....................... $(1,374) $(11,545) $(16,864) $ (7,513) $(60,099) $(8,775) $(30,160)
------- -------- -------- -------- -------- ------- --------
------- -------- -------- -------- -------- ------- --------
Common stock and equivalents:
Average common shares outstanding(1)......... 16,669 25,428 25,853 25,867 25,808 25,893 21,239
------- -------- -------- -------- -------- ------- --------
------- -------- -------- -------- -------- ------- --------
Income (loss) per share:(2)
From continuing operations................... $ (.39) $ (.55) $ (.68) $ (.39) $ (1.73) $ (.17) $ (1.06)
Discontinued operations...................... .20 .04 -- .10 (.09) .08 (.34)
Extraordinary items.......................... .11 .06 .03 -- (.26) -- (.02)
Cumulative effect of changes in accounting
principles................................. -- -- -- -- (.25) (.25) --
------- -------- -------- -------- -------- ------- --------
$ (.08) $ (.45) $ (.65) $ (.29) $ (2.33) $ (.34) $ (1.42)
------- -------- -------- -------- -------- ------- --------
------- -------- -------- -------- -------- ------- --------
</TABLE>
- ------------
(1) The effect of common stock equivalents has not been included since they are
anti-dilutive.
(2) Fully diluted net loss per share was not applicable since contingent
issuances of common shares would have been anti-dilutive.
F-106
<PAGE>
EXHIBIT 11.1
(continued from prior page)
TRIARC COMPANIES, INC. AND SUBSIDIARIES
PRO FORMA LOSS PER SHARE COMPUTATION
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA FOR THE
COMPLETED TRANSACTIONS AND
THE SEPSCO SETTLEMENT
----------------------------------
YEAR ENDED SIX MONTHS ENDED
APRIL 30, 1993 OCTOBER 31, 1993
-------------- ----------------
<S> <C> <C>
Pro forma loss from continuing operations.................................. $(50,114) $(20,574)
Pro forma cumulative preferred stock dividend requirements:
Redeemable Convertible Preferred Stock(1)............................. (5,833) (2,916)
$.35 preferred stock.................................................. (8) --
$.60 preferred stock.................................................. (1) --
-------------- ----------------
Adjusted pro forma income loss from continuing operations............. $(55,956) $(23,490)
-------------- ----------------
-------------- ----------------
Common stock and equivalents:
Average common shares outstanding(2)..................................... 25,808 21,239
Pro forma effects of:
833,332 shares of Triarc Class A Common Stock issued to Merrill
Lynch/DLJ Investors in the Equity Transactions...................... 817 --
5,982,866 shares of Triarc Class A Common Stock acquired by Triarc
from Victor Posner in exchange for the same number of Triarc's
Redeemable Convertible Preferred Stock in the Equity Transactions... (5,868) --
268,000 shares of restricted Triarc Class A Common Stock granted to
certain key employees of Triarc in connection with the
Restructuring....................................................... 263 --
2,691,822 shares of Triarc Class A Common Stock issued to SEPSCO
shareholders other than Triarc in connection with the SEPSCO
Settlement.......................................................... 2,692 2,692
-------------- ----------------
Pro forma adjusted average common shares outstanding....................... 23,712 23,931
-------------- ----------------
-------------- ----------------
Pro forma loss per share:(3)
From continuing operations............................................ $ (2.36) $ (.98)
-------------- ----------------
-------------- ----------------
</TABLE>
- ------------
(1) Reflects the historical preferred stock dividend requirements adjusted as if
the Redeemable Convertible Preferred Stock were issued on May 1, 1992.
(2) The effect of common stock equivalents has not been included since they are
antidilutive.
(3) Fully diluted net loss per share was not applicable since contingent
issuances of common shares would have been antidilutive.
F-107
<PAGE>
ANNEX I
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
SOUTHEASTERN PUBLIC SERVICE COMPANY,
SEPSCO MERGER CORPORATION AND
TRIARC COMPANIES, INC.
DATED AS OF NOVEMBER 22, 1993
A-1
<PAGE>
TABLE OF CONTENTS
------------------------
<TABLE>
<CAPTION>
PAGE
-----
ARTICLE ONE
THE MERGER
<S> <C> <C>
SECTION 1.1 The Merger............................................................................... 1
SECTION 1.2 Certificate of Incorporation............................................................. 1
SECTION 1.3 By-Laws.................................................................................. 1
SECTION 1.4 Board of Directors and Officers.......................................................... 1
SECTION 1.5 Meeting of Company Stockholders.......................................................... 2
SECTION 1.6 SEC Filings.............................................................................. 2
SECTION 1.7 Effective Time of the Merger............................................................. 2
ARTICLE TWO
CONVERSION OF SHARES
SECTION 2.1 Conversion of Shares..................................................................... 3
SECTION 2.2 No Further Transfers..................................................................... 3
SECTION 2.3 Exchange of Shares of Company Common Stock............................................... 3
ARTICLE THREE
ADDITIONAL AGREEMENTS IN CONNECTION WITH THE MERGER
SECTION 3.1 Best Efforts............................................................................. 4
SECTION 3.2 Conduct of Business by the Company Pending the Merger.................................... 5
SECTION 3.3 Restrictions on Issuance of Shares....................................................... 5
SECTION 3.4 Notice of Actions and Proceedings........................................................ 6
SECTION 3.5 Access and Information................................................................... 6
SECTION 3.6 Notification of Certain Other Matters.................................................... 6
ARTICLE FOUR
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 4.1 Organization and Good Standing........................................................... 7
SECTION 4.2 Authorization; Binding Agreement......................................................... 7
SECTION 4.3 Capitalization........................................................................... 7
SECTION 4.4 Reports and Financial Statements......................................................... 7
SECTION 4.5 Litigation............................................................................... 8
SECTION 4.6 Governmental Approvals and Compliance with Law........................................... 8
SECTION 4.7 Absence of Breach........................................................................ 8
SECTION 4.8 Proxy Statement; Registration Statement.................................................. 8
ARTICLE FIVE
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGERCO
SECTION 5.1 Organization and Good Standing........................................................... 9
SECTION 5.2 Authorization; Binding Agreement......................................................... 9
SECTION 5.3 Capitalization........................................................................... 9
SECTION 5.4 Reports and Financial Statements......................................................... 9
SECTION 5.5 Litigation............................................................................... 10
SECTION 5.6 Company Representations.................................................................. 10
SECTION 5.7 Governmental Approvals................................................................... 10
SECTION 5.8 Absence of Breach........................................................................ 10
SECTION 5.9 Proxy Statement; Registration Statement.................................................. 10
</TABLE>
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<TABLE>
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ARTICLE SIX
COVENANTS FOLLOWING THE MERGER
PAGE
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SECTION 6.1 Indemnification.......................................................................... 11
SECTION 6.2 Further Action........................................................................... 11
ARTICLE SEVEN
CONDITIONS
SECTION 7.1 Conditions to Each Party's Obligation to Effect the Merger............................... 12
SECTION 7.2 Conditions to Obligation of the Company to Effect the Merger............................. 12
SECTION 7.3 Conditions to Obligations of Parent and Mergerco to Effect the Merger.................... 13
ARTICLE EIGHT
TERMINATION
SECTION 8.1 Termination.............................................................................. 14
SECTION 8.2 Effect of Termination.................................................................... 14
ARTICLE NINE
GENERAL AGREEMENTS
SECTION 9.1 Non-Survival of Representations, Warranties and Agreements............................... 14
SECTION 9.2 Closing.................................................................................. 15
SECTION 9.3 Expenses................................................................................. 15
SECTION 9.4 Notice................................................................................... 15
SECTION 9.5 Amendments............................................................................... 16
SECTION 9.6 Waiver................................................................................... 16
SECTION 9.7 Brokers.................................................................................. 16
SECTION 9.8 Publicity................................................................................ 16
SECTION 9.9 Subsidiaries............................................................................. 16
SECTION 9.10 Headings................................................................................. 16
SECTION 9.11 Non-Assignability........................................................................ 16
SECTION 9.12 Counterparts............................................................................. 16
SECTION 9.13 Governing Law............................................................................ 17
</TABLE>
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of November 22, 1993 (this 'Merger
Agreement'), by and among Southeastern Public Service Company, a Delaware
corporation (the 'Company'), Triarc Companies, Inc., an Ohio corporation
formerly known as DWG Corporation ('Parent'), and SEPSCO Merger Corporation, a
Delaware corporation and a wholly-owned subsidiary of Parent ('Mergerco').
Mergerco and the Company are hereinafter sometimes collectively referred to as
the 'Constituent Corporations.'
Following the favorable recommendation of the Special Committee of the
Board of Directors of the Company (the 'Special Committee'), the Board of
Directors of each of Parent, Mergerco and the Company has approved the merger of
Mergerco with and into the Company (the 'Merger') pursuant to the terms and
subject to the conditions of this Merger Agreement whereby (i) each of the
issued and outstanding shares of common stock, par value $1.00 per share, of the
Company ('Company Common Stock'), other than shares of Company Common Stock held
by Parent and its subsidiaries (as defined in Section 9.9 hereof) and shares
held in the treasury of the Company and by any of its subsidiaries, will be
converted into the right to receive the Merger Consideration set forth in
Section 2.1(b) hereof, (ii) each of the issued and outstanding shares of
Preferred Stock, Series B, par value $50.00 per share, of the Company (the
'Company Preferred Stock'), all of the issued and outstanding shares of which
are owned by Parent, will be cancelled, and (iii) the Company will become a
wholly-owned subsidiary of the Parent.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1 The Merger. Subject to the terms and conditions hereof, the
Merger shall be consummated in accordance with the DGCL as soon as practicable
following the satisfaction or waiver of the conditions set forth in Article VII
hereof. Upon the terms and subject to the conditions hereof, at the Effective
Time (as defined in Section 1.7 hereof), Mergerco shall be merged with and into
the Company in accordance with the applicable provisions of the DGCL and the
separate existence of Mergerco shall thereupon cease, and the Company, as the
surviving corporation in the Merger (the 'Surviving Corporation'), shall
continue its corporate existence under the laws of the State of Delaware. The
Merger shall have the effects set forth in Section 259 of the DGCL.
SECTION 1.2 Certificate of Incorporation. The Certificate of Incorporation
of the Company as in effect immediately prior to the Effective Time shall be the
Certificate of Incorporation of the Surviving Corporation, until such
Certificate of Incorporation is thereafter further changed or amended as
provided therein or by law, except that at the Effective Time Article Fourth of
the Certificate of Incorporation of the Surviving Corporation shall be amended
to read as follows: 'The total number of shares of stock of all classes which
the Corporation has authority to issue is 1,000 shares of Common Stock, par
value $1.00 per share.'
SECTION 1.3 By-Laws. The by-laws of Mergerco as in effect immediately prior
to the Effective Time shall be the by-laws of the Surviving Corporation until
thereafter changed or amended as provided therein or as otherwise permitted or
required by the Surviving Corporation's Certificate of Incorporation or by law.
SECTION 1.4 Board of Directors and Officers. (a) The directors of Mergerco
at the Effective Time shall be the initial directors of the Surviving
Corporation and shall serve until their respective successors are duly elected
or appointed and qualify in the manner provided in the Certificate of
Incorporation and by-laws of the Surviving Corporation, or as otherwise provided
by law.
(b) The officers of the Company at the Effective Time shall be the officers
of the Surviving Corporation and shall serve until their respective successors
are duly elected or appointed and qualify in the manner provided in the
Certificate of Incorporation and by-laws of the Surviving Corporation, or as
otherwise provided by law.
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SECTION 1.5 Meeting of Company Stockholders. The Company shall take all
necessary action in accordance with applicable law to convene a meeting of its
stockholders (a 'Meeting') to consider and vote upon the Merger and this Merger
Agreement and shall use its best efforts to hold such Meeting as promptly as
practicable after the date hereof. Subject to applicable law and fiduciary
duties, including the duties of loyalty and care, the Board of Directors of the
Company shall recommend that the Company's stockholders vote in favor of the
Merger and the adoption of this Agreement. Parent agrees that it shall vote, or
cause to be voted, in favor of the Merger and the adoption and approval of the
Merger Agreement each share of Company Common Stock and each share of Company
Preferred Stock held by it or by any of its subsidiaries on the record date set
by the Company for determining shares of Company Common Stock and shares of
Company Preferred Stock entitled to vote at the Meeting.
SECTION 1.6 SEC Filings. (a) The Company has filed with the Securities and
Exchange Commission (the 'SEC'), pursuant to the Securities and Exchange Act of
1934, as amended (the 'Exchange Act'), a proxy statement and form of proxy with
respect to the Meeting (the 'Proxy Statement'). Parent and Mergerco shall
provide the Company with the information concerning Parent and Mergerco required
to be included in the Proxy Statement.
(b) As soon as practicable, Parent shall file with the SEC a registration
statement on Form S-4 (the 'Registration Statement') under the Securities Act of
1933, as amended (the 'Securities Act'), which registers the shares of Class A
Common Stock, par value $.10 per share ('Parent Class A Common Stock'), of
Parent to be issued to the Company's stockholders pursuant to the Merger. The
Company and Mergerco shall provide Parent with information concerning the
Company and Mergerco required to be included in the Registration Statement.
(c) The Company and Parent shall (i) provide such cooperation as may be
necessary or useful to cause the Registration Statement to incorporate the Proxy
Statement and shall (ii) use all reasonable efforts to have the Registration
Statement declared effective under the Securities Act and the Proxy Statement
cleared by the SEC as promptly as practicable, and (iii) promptly thereafter
mail the Proxy Statement to stockholders of the Company. The Parent also shall
take any action required to be taken under state blue sky or securities laws in
connection with the Merger and the issuance of the Merger Consideration in
connection therewith. The term 'Registration Statement' shall mean such
Registration Statement at the time it becomes effective and all amendments
thereto duly filed and similarly mailed.
(d) The information provided and to be provided by the Company (with
respect to itself and its subsidiaries), Parent (with respect to itself and its
subsidiaries) and Mergerco, respectively, for use in the Registration Statement
and the Proxy Statement shall, at the time the Registration Statement becomes
effective, on the date the Proxy Statement is first mailed to the Company's
stockholders and on the date of the meeting of the Company's stockholders
referred to in Section 1.5 hereof, be true and correct in all material respects
and shall not omit to state any material fact required to be set forth therein
or necessary in order to make the information set forth therein not misleading
and the Company, Parent and Mergerco each agree to correct any information
provided by it for use in the Registration Statement or the Proxy Statement
which shall have become false and misleading. The Registration Statement and the
Proxy Statement shall comply as to form in all material respects with all
applicable requirements of federal securities laws.
SECTION 1.7 Effective Time of the Merger. As soon as practicable following
the satisfaction or waiver of the conditions set forth in Article VII hereof, a
Certificate of Merger shall be duly executed by the Company and shall be duly
filed with the Secretary of State of Delaware in accordance with the DGCL. The
Merger shall become effective when such Certificate of Merger is so filed with
the Secretary of State of Delaware. Under no circumstances shall such
Certificate of Merger be filed prior to the satisfaction of the condition set
forth in Section 7.1(d) hereof. When used in this Agreement, the term 'Effective
Time' shall mean the time and date at which such Certificate of Merger is so
filed.
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ARTICLE II
CONVERSION OF SHARES
SECTION 2.1 Conversion of Shares. At the Effective Time, by virtue of the
Merger and without any action on the part of the holder thereof:
(a) Each share of Company Common Stock then owned by Parent or
Mergerco or by any direct or indirect subsidiary of Parent and shares held
in the treasury of the Company or by any direct or indirect subsidiary of
the Company (each of the foregoing shares being 'Excluded Shares') shall,
by virtue of the Merger, and without any action on the Company or the
holder thereof, be cancelled.
(b) Each then remaining issued and outstanding share of Company Common
Stock not cancelled pursuant to Section 2.1(a) shall be by virtue of the
Merger, and without any action on the part of the holder thereof, cancelled
and converted solely into the right to receive, upon the surrender of the
certificate formerly representing such share of Company Common Stock in
accordance with Section 2.3 hereof, 0.8 of a fully paid and non-assessable
share of Parent Class A Common Stock, without interest thereon. The shares
of Parent Class A Common Stock to be issued in the Merger in exchange for
certificates which immediately prior to the Effective Time represented
shares of Company Common Stock, together with any cash to be received
pursuant to Paragraph (e) of Section 2.3 in lieu of issuing fractional
shares of Parent Class A Common Stock, are referred to herein as the
'Merger Consideration.'
(c) Each then issued and outstanding share of Preferred Stock, Series
B Convertible par value $50.00 per share ('Company Preferred Stock'), of
the Company, all of which are, as of the date of this Merger Agreement, and
will be, as of the Effective Time, owned by the Parent, will be cancelled.
(d) Each then issued outstanding share of Common Stock, par value
$1.00 per share ('Mergerco Common'), of Mergerco shall be converted into
one fully paid and nonassessable share of common stock, par value $1.00 per
share, of the Surviving Corporation.
SECTION 2.2 No Further Transfers. At the Effective Time, the Company
Common Stock and the Company Preferred Stock transfer books shall be closed
and no further transfer of shares of Company Common Stock or Company
Preferred Stock shall thereafter be made. If, after the Effective Time, any
certificate previously representing shares of Company Common Stock is
presented for transfer, it shall be forwarded to the Exchange Agent (as
defined in Section 2.3 hereof) for cancellation and exchange in accordance
with Section 2.3 hereof.
SECTION 2.3 Exchange of Shares of Company Common Stock.(a) Prior to
the Effective Time, Parent shall designate a bank or trust company to act
as exchange agent (the 'Exchange Agent') for the Merger. Immediately prior
to the Effective Time, Parent will instruct the transfer agent of the
shares of Parent Class A Common Stock to countersign and deliver to the
Exchange Agent a sufficient number of certificates representing the shares
of Parent Class A Stock, all so as to allow for the issuance and delivery
of the Merger Consideration on a timely basis. Parent shall pay all
reasonable charges or expenses, including those of the Exchange Agent, in
connection with the exchange of the shares of Company Common Stock for the
Merger Consideration.
(b) As soon as practicable after the Effective Time, Parent shall
cause the Exchange Agent to mail and/or make available to each holder of a
certificate theretofore representing shares of the Company Common Stock (a
'Certificate') (other than holders of certificates theretofore representing
Excluded Shares) a notice and letter of transmittal advising such holder of
the effectiveness of the Merger and the procedure for surrendering to the
Exchange Agent such Certificate or Certificates for exchange for the Merger
Consideration multiplied by the number of shares of Company Common Stock
represented by such Certificate or Certificates. Upon the surrender to the
Exchange Agent of such Certificate or Certificates, together with a letter
of transmittal, duly executed and completed in accordance with the
instructions thereon, the holder of such Certificate or Certificates shall
be entitled to receive the Merger Consideration. From and after the
Effective Time, until surrendered in accordance with the provisions of this
Section 2.3, each Certificate evidencing shares of Company Common Stock
(other than Certificates represent-
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ing Excluded Shares and Dissenting Shares) shall represent for all purposes
only the right to receive the Merger Consideration, without any interest
thereon. Any portion of the Merger Consideration that shall not have been
paid to stockholders of the Company pursuant to this Section 2.3 prior to
the second anniversary of the Effective Time (including any cash payable
pursuant to Section 2.3(e) hereof) shall be paid to the Parent and any
stockholders of the Company who have not theretofore complied with this
Section 2.3 thereafter shall look, subject to escheat and other similar
laws, solely to the Parent for payment of the Merger Consideration to which
they are entitled under this Agreement.
(c) No dividends or other distributions that are otherwise payable on
the shares of Parent Class A Common Stock constituting any of the Merger
Consideration will be paid to the holder of any unsurrendered Certificate
until such Certificate is properly surrendered as provided herein, but (i)
upon such surrender, there shall be paid to the person in whose name the
shares of Parent Class A Common Stock constituting any of the Merger
Consideration shall be issued the amount of any dividends which shall have
become payable with respect to such shares between the Effective Time and
the time of such surrender and (ii) at the appropriate payment date or as
soon thereafter as practicable, there shall be paid to such person the
amount of any dividends on such shares of Parent Class A Common Stock which
shall have a record or due date prior to such surrender and a payment date
after such surrender, subject in each such case to (x) deduction therefrom
of any amount required by applicable law to be withheld, and (y) any
applicable escheat laws or unclaimed property laws. On surrender of a
Certificate, no interest shall be payable with respect to the payment of
such dividends and no interest shall be payable with respect to the amount
of any cash payable in lieu of a fractional share of Parent Class A Common
Stock pursuant to paragraph (e) of this Section 2.3.
(d) If any cash is to be paid pursuant to Section 2.3(e) to, or
certificates representing shares of Parent Class A Common Stock are to be
issued to, a person other than the person in whose name the Certificate so
surrendered in exchange therefor is registered, it shall be a condition of
the payment or issuance thereof that the Certificate so surrendered shall
be properly endorsed and otherwise in proper form for transfer and that the
person requesting such exchange shall pay any transfer or other taxes
required by reason of the payment of cash to a person other than, or if the
issuance of certificates representing the shares of Parent Class A Common
Stock in any name other than that of, the registered holder of the
Certificate surrendered, or otherwise required, or shall establish to the
satisfaction of the Exchange Agent that such tax has been paid or is not
applicable.
(e) Shares of Parent Class A Common Stock shall be issued only in
whole shares. Former holders of Company Common Stock will not be entitled
to receive fractional shares of Parent Class A Common Stock ('Fractional
Shares') but, instead, will be entitled to receive promptly from the
Exchange Agent a cash payment in lieu of Fractional Shares in an amount
equal to such former holders' proportionate interest in the net proceeds
from the sale or sales in the open market by the Exchange Agent, on behalf
of all such former holders, of the aggregate Fractional Shares. Such sales
shall be made promptly after the Effective Time. Such cash payments will be
made to each such former holder only upon proper surrender of such former
holder's Certificates, together with a properly completed and duly executed
transmittal form and any other required documents.
ARTICLE III
ADDITIONAL AGREEMENTS IN CONNECTION WITH THE MERGER
SECTION 3.1 Best Efforts. Upon the terms and subject to the conditions
herein provided, each of the parties hereto agrees to use its best efforts to
take, or cause to be taken, all lawful action, to do, or cause to be done, and
to assist and cooperate with the other parties hereto in doing, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective, as soon as reasonably practicable, the
transactions contemplated by this Merger Agreement, including (i) the Merger,
(ii) the obtaining of consents, amendments to or waivers under the terms of any
material borrowing arrangements or other material contractual arrangements
required by the transactions contemplated by this Merger Agreement, and (iii)
the defending of any lawsuits or other legal proceedings, whether judicial or
administrative, challenging this Agreement or the consummation of the
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transactions contemplated hereby. Each of the parties hereto agrees not to take
or to fail to take, as the case may be, any action, the taking of which or the
failure of which to take, as the case may be, would be likely to cause any
representation or warranty contained in this Merger Agreement to cease to be
true or accurate in any material respect or that would be reasonably likely to
prevent the performance in all material respects of any covenant or the
satisfaction of any condition contained in this Merger Agreement. In addition,
Parent, either in its capacity as a stockholder of the Company or through its
nominees on the Company's Board of Directors (which shall be understood to mean
those directors of the Company who are not members of the Special Committee), in
each case subject to the exercise of their respective fiduciary duties, if any,
to the Company's stockholders, agrees not to take or fail to take, as the case
may be, any action, the taking or failure of which to take, as the case may be,
would be likely to cause any representation or warranty of the Company contained
in this Merger Agreement to cease to be true or accurate in any material respect
or that would be reasonable likely to prevent the performance in all material
respects by the Company of any covenant or the satisfaction by the Company of
any condition contained in this Merger Agreement.
SECTION 3.2 Conduct of Business by the Company Pending the Merger. Subject
to the last sentence of Section 3.1 hereof, the Company covenants and agrees
that, prior to the Effective Time, unless Parent shall otherwise agree in
writing, or as otherwise contemplated by this Agreement:
(a) neither the Company nor any subsidiary of the Company shall (i)
amend its certificate of incorporation or by-laws, (ii) change the number
of authorized or outstanding shares of its capital stock, as set forth in
Section 4.3 hereof, or (iii) declare, set aside or pay any dividend or
other distribution, or make any payment in cash, stock or property, in
respect of any shares of its capital stock, except for regular dividends
and/or distributions declared and/or paid (x) by any subsidiary of the
Company to the Company or any other subsidiary of the Company, or (y) on
presently outstanding shares of Company Preferred Stock;
(b) neither the Company nor any subsidiary of the Company shall (i)
authorize for issuance, issue, grant, sell, pledge or dispose of or propose
to issue, grant, sell pledge or dispose of any shares of, or warrants,
options, commitments, subscriptions or rights of any kind to acquire any
shares of, the capital stock of the Company or such subsidiary or any
securities convertible into or exchangeable for shares of any such capital
stock, (ii) incur any material indebtedness for borrowed money other than
in the ordinary and usual course of business, consistent with past
practice, or (iii) acquire directly or indirectly by redemption or
otherwise any shares of the capital stock of the Company or any subsidiary
of the Company;
(c) neither the Company nor any subsidiary of the Company shall enter
into any agreement or take any other action to do any of the things
described in paragraphs (a) or (b) of this Section 3.2 or which would make
any representation or warranty of the Company set forth in this Agreement
which is qualified as to materiality untrue or incorrect and any such
representation or warranty which is not so qualified materially untrue or
incorrect.
SECTION 3.3 Restrictions on Issuance of Shares.(a) Parent covenants and
agrees that prior to the Effective Time, unless the Company shall otherwise
agree thereto in writing, Parent shall not issue any shares of its capital stock
(or issue or grant any options, warrants or other securities evidencing the
right to acquire, prior to the Effective Time, shares of its capital stock upon
the exercise or conversion thereof (collectively 'Rights')) to any executive
officer or director of Parent, or any affiliate of Parent or any such person,
other than (i) upon exercise of Rights outstanding on the date of this Merger
Agreement, (ii) pursuant to the Equity Plan (as defined in Section 5.3), or
(iii) upon receipt of consideration equal to at least the fair market value of
the shares of Parent capital stock issued in respect thereof (or, in the case of
the issuance of shares of capital stock upon the exercise of any Right issued
subsequent to the date of this Agreement, upon receipt of consideration
(including the consideration, if any, received by Parent for the issuance of the
Right) equal to at least the fair market value, as of the date of issuance of
the Right, of the shares of Parent capital stock to be issued upon exercise
thereof). Any non-cash consideration shall be valued in good faith by the Board
of Directors of Parent.
(b) Parent covenants and agrees that it shall issue no shares of Parent
Common Stock (as defined in Section 5.3 hereof), or Rights to acquire shares of
Parent Common Stock, subsequent to October 18,
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1993 (the date on which the Stipulation of Settlement (as defined in Section
7.1(d) hereof) was executed) and prior to the Effective Time, which will have a
materially dilutive economic effect upon the Parent Common Stock, except that
the following shall not be deemed to have any such materially dilutive economic
effect for purposes hereof: (i) the granting of stock options or restricted
stock awards so that the aggregate number of shares of Parent's stock to be
issued upon the issuance of such restricted stock awards, and upon the
conversion of such stock options, does not exceed 3,500,000 shares; or (ii) the
issuance or potential issuance of shares of Parent Common Stock, upon the
election to convert by any holders, at such holders' option, of all or some of
the shares of Parent Convertible Preferred Stock or any other series of
convertible preferred stock or other convertible securities of Parent
outstanding on October 18, 1993; or (iii) the issuance or potential issuance of
shares of Parent Common Stock in connection with an underwritten public
offering; or (iv) the issuance or potential issuance of shares of Parent Common
Stock at not less than fair market value, as determined in good faith by the
Board of Directors of Parent; or (v) any other such issuance of shares of Parent
Common Stock, so long as the number of shares of Parent Class A Common Stock to
be received in exchange for each share of SEPSCO Common Stock pursuant to the
terms of the Stipulation of Settlement and this Merger Agreement are
appropriately adjusted.
SECTION 3.4 Notice of Actions and Proceedings. Each party promptly shall
notify the others of any claims, actions, proceedings or investigations
commenced or, to the best of its knowledge, threatened, and any material
developments relating to any such pending claim, action, proceeding or
investigation involving or affecting the parties, or any of their respective
properties or assets, or, to the best of its knowledge, any employee or
consultant of the parties, in his or her capacity as such, or director or
officer, in his or her capacity as such, of the Company or the Parent disclosed
in writing pursuant to Section 4.5 or 5.5 hereof, as the case may be, or which,
if pending on the date hereof, would have been required to have been disclosed
in writing pursuant to Section 4.5 or 5.5 hereof, as the case may be, or which
relate to the consummation of the Merger.
SECTION 3.5 Access and Information. Each party shall, and shall cause its
subsidiaries, officers, directors, employees and agents to, afford to each other
party and such party's accountants, counsel, financial advisors, investment
bankers and other agents and representatives, and its banks and other financial
institutions, full access at all reasonable times throughout the period prior to
the Effective Time to all of the officers, employees, agents, properties, books,
contracts, commitments and records (including but not limited to tax returns) of
such party and its subsidiaries and, during such period, such party shall
furnish promptly to each other party (i) a copy of each report, schedule and
other document filed by it or any of its subsidiaries pursuant to the
requirements of federal or state securities laws, and (ii) all other financial,
operating and other information concerning the business, properties and
personnel of such party and its subsidiaries as each other party may reasonably
request.
SECTION 3.6 Notification of Certain Other Matters. Each party promptly
shall notify the others of: (i) any notice of, or other communication relating
to, a default or event which, with notice or lapse of time or both, would become
a default, received by such party or any of its subsidiaries subsequent to the
date of this Merger Agreement and prior to the Effective Time, under any
agreement, indenture or instrument material to the financial condition,
properties, business or results of operations of such party and its subsidiaries
taken as a whole to which such party or any of its subsidiaries is a party or is
subject; (ii) any notice or other communication from any third party alleging
that the consent of such third party is or may be required in connection with
the transactions contemplated by this Merger Agreement; (iii) any notice or
other communication from any regulatory authority in connection with the
transactions contemplated hereby; (iv) any material adverse change in the
financial condition, properties, businesses or results of operations of such
party and its subsidiaries taken as a whole, or the occurrence of an event
which, so far as reasonably can be foreseen at the time of its occurrence, would
result in any such change; or (v) any matter hereafter arising which, if
existing, occurring or known at the date of this Merger Agreement, would have
been required to be disclosed to such other party.
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ARTICLE IV
Representations and Warranties of the Company
The Company represents and warrants to Parent and Mergerco as follows:
SECTION 4.1 Organization and Good Standing. The Company and each of its
subsidiaries are each a duly incorporated and validly existing corporation in
good standing under the laws of the state of its incorporation, with all
requisite power and authority (corporate and other) to own its properties and
conduct its business and each is duly qualified and in good standing as a
foreign corporation authorized to do business in each of the jurisdictions in
which the character of the properties owned or held under lease by it or the
nature of the business transacted by it makes such qualification necessary,
except where the failure to be so qualified would not in the aggregate have a
material adverse effect on the business, assets, properties, financial condition
or results of operations of the Company and its subsidiaries taken as a whole
(in respect of either the Company and its subsidiaries taken as a whole or
Parent and its subsidiaries taken as a whole, as the case may be, a 'Material
Adverse Effect'). The Company has heretofore delivered to the Parent true and
correct copies of its certificate of incorporation and by-laws as currently in
effect.
SECTION 4.2 Authorization; Binding Agreement. The Company has all requisite
corporate power and authority to execute and deliver this Merger Agreement and
to consummate the transactions contemplated hereby, subject only to the adoption
of the Merger Agreement by the Required Stockholder Votes (as defined below).
The Company's Board of Directors (at a meeting duly called and held) has (a)
duly approved the Merger Agreement and determined that the Merger is fair to and
in the best interests of the Company's stockholders (other than Parent and its
subsidiaries) and (b) adopted resolutions recommending approval of the Merger by
the Company's stockholders. Smith Barney Shearson Inc. ('Smith Barney') has
delivered to the Special Committee of the Board of Directors of the Company its
written opinion in the form of Exhibit A hereto (the 'Fairness Opinion'). The
execution and delivery of this Merger Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
Company's Board of Directors and, except for the adoption of this Merger
Agreement by (i) the stockholders of the Company holding at least a majority of
the outstanding stock of the Company entitled to vote thereon, (ii) the
stockholders of the Company holding at least 66 2/3% of the outstanding stock of
the Company entitled to vote thereon which is not owned by an 'interested
stockholder' of the Company, within the meaning in Section 203 of the DGCL, and
(iii) the holders of not less than two-thirds of the outstanding shares of
Company Preferred Stock (the stockholder votes described in the foregoing
clauses (i), (ii) and (iii) being collectively referred to as the 'Required
Stockholder Votes'), no other corporate proceedings on the part of the Company
are necessary to authorize this Merger Agreement and the transactions
contemplated hereby. This Merger Agreement has been duly and validly executed
and delivered by the Company, and constitutes a legal, valid and binding
agreement of the Company, enforceable against the Company in accordance with its
terms (except as enforceability may be limited by bankruptcy, insolvency,
moratorium or other similar laws affecting creditors' rights generally or by the
principles governing the availability of equitable remedies).
SECTION 4.3 Capitalization. As of the date hereof, the authorized capital
stock of the Company consists of 25,000,000 shares of Company Common Stock and
267,600 shares of Company Preferred Stock. As of the date hereof, (a) 11,655,067
shares of Company Common Stock were outstanding; and (b) 490 shares of Company
Preferred Stock were outstanding. There is not now, and at the Effective Time
there will not be, any existing option, warrant, subscription or other right,
agreement or commitment which either obligates the Company or any of its
subsidiaries to issue, sell or transfer any shares of its capital stock or
restricts the transfer of or otherwise relates to the capital stock of the
Company or any of its subsidiaries.
SECTION 4.4 Reports and Financial Statements. The Company has delivered to
Parent true and complete copies of (i) the Company's Annual Reports on Form 10-K
for the fiscal year ended February 28, 1993, as amended, as filed with the SEC,
(ii) all other reports, statements and registration statements (including
quarterly reports on Form 10-Q and current reports on Form 8-K) filed by it with
the SEC since March 1, 1993 (collectively, the 'SEC Filings'). Except as
expressly amended by a subsequent SEC Filing, and except for information set
forth therein relating to companies which are not
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subsidiaries of the Company ('Non-Subsidiaries of the Company'), as to which no
representation is given by the Company, as of their respective dates, the SEC
Filings did not contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The historical consolidated financial statements of the Company
included in the SEC Filings were prepared in accordance with generally accepted
accounting principles applied on a consistent basis (except as otherwise noted
in such historical financial statements) and present fairly the consolidated
financial position, results of operations and changes in financial position of
the Company and its consolidated subsidiaries as of the dates and for the
periods indicated (subject, in the case of any unaudited interim financial
statements, to normal year end adjustments), except that the footnotes to
quarterly financial statements do not contain all of the disclosures required by
generally accepted accounting principles.
SECTION 4.5 Litigation. Except as may be disclosed in the SEC Filings or
has been disclosed to Parent in writing on or prior to the date hereof, and
except with respect to Non-Subsidiaries of the Company, as to which no
representation is given, as of the date hereof, there are no claims, actions,
proceedings or investigations pending or, to the best knowledge of the Company,
threatened, involving or affecting the Company or any of its subsidiaries or any
of their properties or assets or, to the best of the Company's knowledge, any
employee, consultant, director or officer in his or her capacity as such, of the
Company or any of its subsidiaries before any court or governmental or
regulatory authority or body which, if adversely decided, could have a Material
Adverse Effect. As of the date hereof, neither the Company nor any of its
subsidiaries nor any property or assets of any of them is subject to any order,
judgment, injunction or decree that singly or in the aggregate has a Material
Adverse Effect.
SECTION 4.6 Governmental Approvals and Compliance with Law. No consent,
license, approval, qualification or form of exemption from or authorization of
or declaration, registration or filing with any governmental agency or
regulatory authority, domestic or foreign, on the part of the Company or any
subsidiary of the Company which has not been made is required in connection with
the execution or delivery by the Company of this Merger Agreement, the
consummation by the Company of the transactions contemplated hereby or the
performance by the Company of its obligations hereunder other than (a) the
filing of a Certificate of Merger with the Secretary of State of Delaware in
accordance with the DGCL, (b) filings with the SEC and any applicable national
securities exchanges, (c) filings under state securities, 'Blue Sky' or
anti-takeover laws, (d) any applicable filings required under the laws of
foreign jurisdictions and (e) filings, authorizations, consents or approvals
relating to matters which, in the aggregate, are not material to the Company and
its subsidiaries taken as a whole.
SECTION 4.7 Absence of Breach. Except as has been disclosed to Parent in
writing on or prior to the date hereof, the execution and delivery by the
Company of this Merger Agreement, the consummation of the transactions
contemplated hereby and the performance by the Company of its obligations
hereunder, will not (a) subject to obtaining the Required Stockholder Votes,
conflict with or result in a breach of any of the provisions of its Certificate
of Incorporation or by-laws, (b) subject to the obtaining of the governmental
and other consents referred to in Section 4.6 hereof, contravene any law, rule
or regulations of any state or of the United States or any political subdivision
thereof or therein, or any order, writ, judgment, injunction, decree,
determination or award currently in effect or (c) require any consent, approval
or notice under or result in a violation or breach of or constitute (with or
without due notice or lapse of time or both) a default (or give rise to any
right of termination, cancellation, or acceleration) under any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, license,
agreement or other instrument to which the Company or any of its subsidiaries is
a party or by which any of their other assets are bound, the failure of which to
obtain, in each such case, would have a Material Adverse Effect.
SECTION 4.8 Proxy Statement; Registration Statement. None of the
information included in the Proxy Statement filed by the Company, or provided by
the Company for inclusion in the Registration Statement filed by the Parent,
will be false or misleading with respect to any material fact or will omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading. Except for information supplied or to be supplied by
Parent and Mergerco for inclusion therein, including all information
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concerning subsidiaries of Parent and in which the Company is a minority
stockholder, as to which the Company makes no representation, the Proxy
Statement, including any amendments thereto, will comply in all material
respects with the Exchange Act and the rules and regulations thereunder.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGERCO
Parent and Mergerco, jointly and severally, represent and warrant to the
Company as follows:
SECTION 5.1 Organization and Good Standing. Parent and each of its
subsidiaries (including Mergerco) is a duly incorporated and validly existing
corporation in good standing under the laws of the state of its incorporation,
with all requisite power and authority (corporate and other) to own its
properties and conduct its business and is duly qualified and in good standing
as a foreign corporation authorized to do business in each of the jurisdictions
in which the character of the properties owned or held under lease by it or the
nature of the business transacted by it makes such qualification necessary,
except where the failure to be so qualified would not have a Material Adverse
Effect. Parent and Mergerco have heretofore delivered to the Company accurate
and complete copies of their respective corporate charters and by-laws or
regulations as currently in effect.
SECTION 5.2 Authorization; Binding Agreement. Each of Parent and Mergerco
has the requisite corporate power and authority to execute and deliver this
Merger Agreement and to consummate the transactions contemplated hereby, the
execution and delivery of this Merger Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
Board of Directors of each of Parent and Mergerco and by Parent as the sole
stockholder of Mergerco and no other corporate proceedings on the part of Parent
or Mergerco are necessary to authorize this Merger Agreement and the
transactions contemplated hereby. This Merger Agreement has been duly and
validly executed and delivered by Parent and Mergerco and constitutes a legal,
valid and binding agreement of Parent and Mergerco, enforceable against each of
them in accordance with its terms (except as enforceability may be limited by
bankruptcy, insolvency, moratorium or other similar laws affecting creditors'
rights generally or by the principles governing the availability of equitable
remedies).
SECTION 5.3 Capitalization. As of the date of this Merger Agreement, the
authorized capital stock of Parent consists of 75,000,000 shares of Parent Class
A Common Stock, 12,000,000 shares of Class B Common Stock, par value $.10 per
share ('Parent Class B Common Stock' and together with Parent Class A Common
Stock, 'Parent Common Stock'), 6,000,000 shares of Parent Convertible Preferred
Stock, 5,000,000 shares of Serial Preferred Stock, par value $.10 per share
('Serial Preferred Stock'), and 2,000,000 shares of Junior Serial Preferred
Stock, par value $.10 per share ('Junior Serial Preferred Stock'). As of the
date hereof, 21,323,160 shares of Parent Class A Common Stock and 5,982,866
shares of Convertible Preferred Stock were outstanding, no shares of Parent
Class B Common Stock, Serial Preferred Stock or Junior Serial Preferred Stock
were outstanding, and 4,985,722 shares of Parent Class B Common Stock were
reserved for issuance upon conversion of outstanding shares of Parent
Convertible Preferred Stock. The 1993 Amended and Restated Equity Participation
Plan (the 'Equity Plan') provides for a maximum of 3,500,000 shares of Parent
Class A Common Stock to be granted to officers, directors and key employees of
Parent and subsidiaries, as restricted stock or issued on the exercise of
options. The authorized capital stock of Mergerco consists solely of 1,000
shares of Mergerco Common, all of which, as of the date hereof, are issued and
outstanding and held by Parent. All of the outstanding shares of capital stock
of Parent and its subsidiaries (including Mergerco) have been duly authorized
and validly issued and are fully paid and nonassessable and, in the case of
Parent's capital stock, free of preemptive rights. Upon consummation of the
Merger, each share of Parent Class A Common Stock issued as part of the Merger
Consideration will be duly authorized, validly issued, fully paid and
non-assessable.
SECTION 5.4 Reports and Financial Statements. Parent has delivered to the
Company true and complete copies of (i) Parent's Annual Reports on Form 10-K for
the fiscal year ended April 30, 1993, as filed with the SEC, and (ii) all other
reports, statements and registration statements (including quarterly reports on
Form 10-Q and current reports on Form 8-K) filed by it with the SEC since May 1,
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1993 (collectively, the 'Parent SEC Filings'). Except as expressly amended by
subsequent Parent SEC Filings, and except with respect to the Company and any
subsidiaries of the Company ('Non-Subsidiaries of Parent'), as to which no
representation is given, as of their respective dates, the Parent SEC Filings
did not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The historical consolidated financial statements of Parent included
in the Parent SEC Filings were prepared in accordance with generally accepted
accounting principles applied on a consistent basis (except as otherwise noted
in such historical financial statements) and present fairly the consolidated
financial position, results of operations and changes in financial position of
Parent and its consolidated subsidiaries as of the dates and for the periods
indicated (subject, in the case of any unaudited interim financial statements,
to normal year-end adjustments), except that the footnotes to quarterly
financial statements do not contain all of the disclosures required by generally
accepted accounting principles.
SECTION 5.5 Litigation. Except as may be disclosed in the Parent SEC
Filings or has been disclosed to the Company in writing on or prior to the date
hereof, and except with respect to Non-Subsidiaries of Parent, as to which no
representation is given, as of the date hereof, there are no claims, actions,
proceedings or investigations pending or, to the best knowledge of Parent,
threatened, involving or affecting Parent or any of its subsidiaries (including
Mergerco) or any of their properties or assets before any court or governmental
or regulatory authority or body which, if adversely decided, could have a
Material Adverse Effect. As of the date hereof, neither Parent nor any of its
subsidiaries (including Mergerco) nor any property or assets of any of them is
subject to any order, judgment, injunction or decree that singly or in the
aggregate has a Material Adverse Effect.
SECTION 5.6 Company Representations. As of the date of this Merger
Agreement, Parent does not know of any material inaccuracy in any representation
or warranty of the Company set forth in Article IV of this Merger Agreement.
SECTION 5.7 Governmental Approvals. No consent, license, approval or
authorization of or declaration, regulation or filing with any governmental
agency or regulatory authority, domestic or foreign, on the part of Parent or
Mergerco which has not been made is required in connection with the execution or
delivery by Parent or Mergerco of this Merger Agreement, the consummation by
Parent and Mergerco of the transactions contemplated hereby or the performance
by each of Parent and Mergerco of its respective obligations hereunder other
than (i) the filing of a Certificate of Merger with the Secretary of State of
Delaware in accordance with the DGCL, (ii) filings with the SEC and any
applicable national securities exchanges, (iii) filings under state securities,
'Blue Sky' or antitakeover laws, (iv) any applicable filings required under the
laws of foreign jurisdictions and (v) filings, authorizations, consents or
approvals relating to matters which, in the aggregate, are not material to
Parent and its subsidiaries (including Mergerco but excluding the Company and
its subsidiaries) taken as a whole.
SECTION 5.8 Absence of Breach. Except as has been disclosed to the Company
in writing on or prior to the date hereof, the execution and delivery by Parent
and Mergerco of this Merger Agreement, the consummation of the transactions
contemplated hereby and the performance by Parent and Mergerco of their
respective obligations hereunder, will not (a) require the approval of Parent's
stockholders, (b) conflict with or result in a breach of any of the provisions
of their respective certificates of incorporation or by-laws, (c) subject to the
obtaining of the governmental and other consents referred to in Section 5.7
hereof, contravene any law, rule or regulation of any state or of the United
States or any political subdivision thereof or therein, or any order, writ,
judgment, injunction, decree, determination or award currently in effect or (d)
require any consent, approval or notice under or result in a violation or breach
of or constitute (with or without due notice or lapse of time or both) a
default, or give rise to any right of termination, cancellation or acceleration
under any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, agreement or other instrument to which Parent or any of its
subsidiaries (including Mergerco) is a party or by which any of them or their
assets are bound, the failure of which to obtain could have a Material Adverse
Effect.
SECTION 5.9 Proxy Statement; Registration Statement. None of the
information supplied or to be supplied by Parent or Mergerco for inclusion in
the Proxy Statement or the Registration Statement,
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including any amendments thereto, including all information concerning
subsidiaries of the Parent (but excluding Non-Subsidiaries of the Parent, as to
which no representation is given), will be false or misleading with respect to
any material fact or will omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading.
ARTICLE VI
COVENANTS FOLLOWING THE MERGER
SECTION 6.1 Indemnification. Parent agrees that all rights to
indemnification now existing in favor of the employees, agents, directors or
officers of the Company and its subsidiaries (collectively, the 'Indemnified
Parties') as provided in their respective charters or by-laws, by agreement or
otherwise in effect on the date hereof shall survive the Merger and shall, with
respect to any action or omission occurring prior to the Effective Time,
continue in full force and effect in accordance with their terms for a period of
six (6) years from the Effective Time; provided that, in the event any claim or
claims are asserted or made within such six (6) year period, all rights to
indemnification in respect of any such claim or claims shall continue until the
disposition of any and all such claims. Without limiting the foregoing, in the
event that any Indemnified Party becomes involved in any capacity in any action,
proceeding or investigation in connection with any matter, including the
transactions contemplated hereby, occurring prior to, and including, the
Effective Time, the Company will periodically advance to such Indemnified Party
its legal and other expenses incurred in connection therewith. Parent further
agrees that it shall, jointly and severally with the Surviving Corporation, to
the extent, with respect to each indemnitor, permitted by applicable law, (i)
indemnify each member of the Special Committee and their successors and assigns
from and against any and all issues, claims, judgments and liabilities
(including reasonable fees and disbursements of attorneys and costs of
investigation), relating to this Merger Agreement or the transactions
contemplated hereby and (ii) periodically advance to each member of the Special
Committee legal and other expenses incurred in connection therewith; provided,
however, that Parent's indemnification liabilities (including its obligations to
advance legal and other expenses) shall not apply either (x) in respect of any
liability unless demand for indemnification in respect of such liability is
first made on the Company and the Company does not promptly pay the same or (y)
to amounts paid in any settlement effected without Parent's written consent
(which consent shall not be unreasonably withheld). In any proceeding to
determine whether Parent's consent was unreasonably withheld Parent, shall have
the burden of proof of demonstrating its consent was reasonably withheld. Parent
shall cause to be maintained in effect for a period of six (6) years from the
Effective Time the current policies of the directors' and officers' liability
insurance maintained by the Company (the 'D&O Insurance Coverage') (provided
that Parent may substitute therefor policies of at least the same coverage
containing terms and conditions which are no less advantageous) with respect to
matters occurring prior to the Effective Time; provided, however, that Parent's
obligation to maintain such D&O Insurance Coverage shall be subject to the
Company being able to maintain or obtain insurance at an annual cost not greater
than 150% of the annual premiums currently paid (the annual premiums currently
paid being the 'Current Annual Premiums') by the Company with respect to its D&O
Insurance Coverage and if such D&O Insurance Coverage is not available at such
cost, then Parent shall cause to be maintained the highest level of D&O
Insurance Coverage that can be purchased against payment and annual premiums
equal to 150% of the Current Annual Premiums.
SECTION 6.2 Further Action. In case at any time after the Effective Time,
Parent or the Surviving Corporation or their successors or assigns, shall
determine that any further conveyance, assignment or other document or any
further action is reasonably necessary or desirable in connection with the
matters specified in this Merger Agreement, then the parties hereto, with the
Surviving Corporation acting on behalf of the Company, shall cause to be
executed and delivered, all such deeds, endorsements, assignments and other good
and sufficient instruments of conveyance and transfer, including appropriate
form endorsements to all title and other insurance policies, as shall be valid,
operative and effective to vest in the Surviving Corporation good title to all
of the property, assets and business to be conveyed, transferred, assigned and
delivered hereunder, and will take or cause to be taken such further or other
action as Parent or the Surviving Corporation may deem necessary or
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desirable in order to vest in and confirm the title to and possession of all of
the property, rights, privileges, powers and franchises of the Company and
otherwise to carry out the intent and purposes of this Merger Agreement.
ARTICLE VII
CONDITIONS
SECTION 7.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject to
the fulfillment at or prior to the Effective Time of the following conditions:
(a) this Merger Agreement and the Merger shall have been approved and
adopted at or prior to the Effective Time by the Required Stockholder
Votes;
(b) the Registration Statement shall have become effective under the
Securities Act and no stop order suspending such effectiveness shall have
been issued or proceeding for such purpose shall have been instituted or
threatened;
(c) no order, statute, rule, regulation, executive order, stay,
decree, judgment or injunction shall have been enacted, entered,
promulgated or enforced by any court or governmental authority which
prevents or materially restricts the consummation of the Merger; provided
that Parent, Mergerco and the Company shall use their best efforts to have
such order, decree or injunction vacated;
(d) the United States District Court for the Southern District of
Florida (the 'District Court'), in the action entitled WILLIAM E. EHRMAN,
privately on behalf of nominal defendant SOUTHEASTERN PUBLIC SERVICE
COMPANY, a Delaware corporation, Plaintiff, vs. VICTOR POSNER, ET AL.,
Defendants and SOUTHEASTERN PUBLIC SERVICE COMPANY, a Delaware corporation,
Nominal Defendant, Case No. 90-2822-CIV-KEHOE (the 'Action'), shall have
entered an order and final judgment (the 'Judgment') approving the
Stipulation of Settlement, entered into on October 18, 1993 (the
'Stipulation of Settlement'), and dismissing the Action on the merits with
prejudice and without costs to any party;
(e) the shares of Parent Class A Common Stock to be issued as the
Merger Consideration pursuant to the Merger Agreement shall have been
approved for listing on each stock exchange located in the United States of
America upon which the shares of Parent Class A Common Stock are then
listed, subject to official notice of issuance; and
(f) Smith Barney shall not have withdrawn or in any material way
modified or amended the Fairness Opinion.
SECTION 7.2 Conditions to Obligation of the Company to Effect the
Merger. The obligation of the Company to effect the Merger shall be subject to
the fulfillment at or prior to the Effective Time of the following additional
conditions:
(a) Parent and Mergerco shall have performed in all material respects
their agreements contained in this Merger Agreement required to be
performed at or prior to the Effective Time;
(b) except as contemplated or permitted by this Merger Agreement, the
representations and warranties of the Parent and Mergerco set forth in this
Merger Agreement shall be true and correct in all material respects at and
as of the Effective Time as if made at and as of such date, unless stated
in this Merger Agreement to be true on and as of another date, in which
case such representation and warranty shall have been true in all material
respects on and as of such date; and
(c) since the date of the Merger Agreement, there shall not have been
(a) any material adverse change, or any development, not in the ordinary
course of business, which is likely to result in a material adverse change
in the business, assets, financial condition or the results of operations
of Parent and its subsidiaries, taken as a whole; (b) any change in
accounting methods, principles or practices by Parent materially affecting
its assets, liabilities or business, except insofar as may have been
required by a change in generally accepted accounting principles; (c) any
damage, destruction
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or loss which, after taking into account any insurance proceeds with
respect thereto, would have a Material Adverse Effect on Parent and its
subsidiaries, taken as a whole.
SECTION 7.3 Conditions to Obligations of Parent and Mergerco to Effect the
Merger. The obligations of Parent and Mergerco to effect the Merger shall be
subject to the fulfillment at or prior to the Effective Time of the following
additional conditions:
(a) subject to the last sentence of Section 3.1 hereof, the Company
shall have performed in all material respects its agreements contained in
this Merger Agreement required to be performed at or prior to the Effective
Time;
(b) except as contemplated or permitted by this Merger Agreement, the
representations and warranties of the Company set forth in this Merger
Agreement shall be true and correct in all material respects at and as of
the Effective Time as if made at and as of such date unless stated in this
Merger Agreement to be true on and as of another date, in which case such
representation and warranty shall have been true in all material respects
on and as of such date;
(c) there shall not have occurred and be continuing (i) any general
suspension of trading in, or limitation on prices for, securities on the
New York Stock Exchange, Inc. or on any exchange on which the shares of the
Parent Class A Common Stock are listed for trading, (ii) a declaration of a
banking moratorium or any suspension of payments in respect of banks
generally in the United States, whether or not mandatory, (iii) a
commencement of a war, armed hostilities or other international or national
calamity materially affecting the United States which commenced after the
date of this Agreement, (iv) any limitation (whether or not mandatory) by
any governmental authority on, or any other event which is reasonably
likely to affect the extension of credit by banks or other lending
institutions in the United States or (v) any material adverse change in the
United States securities or financial markets, which material adverse
change shall be deemed to have occurred if the closing Standard and Poor's
500 Stock Index (the 'S&P 500 Index') on the business day immediately
preceding the day on which the Meeting is held and the Required Stockholder
Votes taken, is at least 12% less than the closing S&P 500 Index on the
business day immediately preceding the date of this Merger Agreement;
(d) there shall not have been any action taken, or any statute, rule,
regulation, legislation, interpretation, judgment, order or injunction
enacted, entered, enforced, promulgated, amended, issued or deemed
applicable to the Merger by any domestic legislative body, court,
government or governmental, administrative or regulatory authority or
agency (i) restraining or preventing the carrying out of the transactions
contemplated hereby, (ii) prohibiting Parent's ownership or operation of
all or any material portion of its or the Company's businesses or assets,
or compelling Parent to dispose of or hold separate all or any material
portion of Parent's or the Company's businesses or assets as a result of
the transactions contemplated by this Merger Agreement, (iii) making
acquisition of the shares of Company Common Stock pursuant to the Merger
illegal, (iv) prohibiting Parent effectively from acquiring or holding or
exercising full rights of ownership of the shares of Company Common Stock,
including, without limitation, the right to vote the Shares of Company
Common Stock acquired by it pursuant to the Merger, on all matters properly
presented to the stockholders of the Company, (v) prohibiting Parent or any
of its subsidiaries or affiliates from effectively controlling in any
material respect the businesses or operations of the Company, Parent or
their respective subsidiaries, or (vi) which would impose any condition
which would materially adversely affect the business of the Company or (as
a condition of consummating the transactions contemplated hereby) the
business of Parent and its subsidiaries taken as a whole;
(e) there shall not have been any federal income tax changes
(including any legislation, regulation, or judicial or administrative
interpretations) adopted, or proposed by the United States Treasury
Department or by the Chairman or ranking minority member of either the Ways
and Means Committee (the 'Ways and Means Committee') of the United States
House of Representatives (the 'House') or the Finance Committee (the
'Finance Committee') of the United States Senate (the 'Senate'), or
favorably reported to either the full House or Senate by the Ways and Means
Committee or the Finance Committee, on or subsequent to the date hereof
that would make consummation of the Merger impracticable;
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(f) the Company's Board of Directors shall not have withdrawn or
modified its position with respect to the Merger;
(g) except as set forth below, since the date of the Merger Agreement,
there shall not have been (a) any material adverse change, or any
development, not in the ordinary course of business, which is likely to
result in a material adverse change in the business, assets, financial
condition or the results of operations of the Company and its subsidiaries,
taken as a whole; (b) any change in accounting methods, principles or
practices by the Company materially affecting its assets, liabilities or
business, except insofar as may have been required by a change in generally
accepted accounting principles; (c) any damage, destruction or loss which,
after taking into account any insurance proceeds with respect thereto,
would have a Material Adverse Effect on the Company and its subsidiaries,
taken as a whole. Actions taken by the Company in connection with its
decision to sell substantially all of its businesses and assets as they
exist on the date of the Merger Agreement, and the restatement of the
Company's 1993 audited financial statements and quarterly financial
statements to reflect the discontinuance of such business, shall not be
deemed to constitute events which cause the foregoing condition not to be
satisfied; and
(h) the Judgment shall have become final and non-appealable.
ARTICLE VIII
TERMINATION
SECTION 8.1 Termination. This Agreement may be terminated at any time prior
to the Effective Time, notwithstanding the approval by the stockholders of any
or all of Parent, Mergerco or the Company, (a) by mutual consent of the Board of
Directors of Parent, Mergerco and the Company; (b) by either Parent and Mergerco
or the Company if the Merger shall not have been consummated on or before June
30, 1994 (or such later date as may be agreed to by Parent, Mergerco and the
Company in writing) unless the failure to consummate the Merger on or before
such date shall have resulted from the failure of the party seeking to terminate
the Merger Agreement to satisfy any of the closing conditions which are set
forth in Section 7.2 or 7.3 hereof, as the case may be; (c) by the Company if
Parent or Mergerco fails to perform in any material respect any of their
material obligations under this Merger Agreement; or (d) by Parent or Mergerco
if the Company fails to perform in any material respect any of its material
obligations under this Merger Agreement; provided that in the case of either
clause (c) or (d), if such failure is curable, notice of such failure shall have
been given to the defaulting party and such defaulting party shall not have
cured such failure within 30 days of notice thereof. This Agreement shall
automatically, and without any action by the parties hereto, be terminated at
any time prior to the Effective Time, notwithstanding the approval by the
stockholders of any or all of Parent, Mergerco or the Company, if (i) the
District Court rejects any of the material terms of the Stipulation of
Settlement or (ii) any appeals court having jurisdiction over the matter shall
set aside, overturn or materially modify the Judgment of the District Court
approving the Stipulation of Settlement, or otherwise take any action which
causes the Stipulation of Settlement to fail to become effective according to
its terms.
SECTION 8.2 Effect of Termination. In the event of the termination of this
Agreement by either Parent or Mergerco or by the Company, as provided in Section
8.1 hereof, this Agreement shall thereafter become void and have no effect and
no party hereto shall have any liability to any other party hereto or its
stockholders or directors or officers in respect thereof (except as set forth in
Sections 6.1 and 9.3 hereof).
ARTICLE IX
GENERAL AGREEMENTS
SECTION 9.1 Non-Survival of Representations, Warranties and Agreements. All
representations, warranties and agreements in this Merger Agreement or in any
instrument delivered pursuant to this Merger Agreement shall not survive the
Effective Time, except for the agreements set forth in Article VI hereof.
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SECTION 9.2 Closing. The closing of the Merger shall take place at the
offices of Paul, Weiss, Rifkind, Wharton & Garrison, 1285 Avenue of the
Americas, New York, New York 10019-6064, (or at such other place as the parties
shall agree) as promptly as practicable after the meetings of the Company's
stockholders referred to in Section 1.5 hereof.
SECTION 9.3 Expenses. Whether or not the Merger is consummated, all costs
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such costs and
expenses.
SECTION 9.4 Notice. All notices and other communications hereunder shall be
in writing and shall be deemed to have been duly given if delivered by
messenger, transmitted by telecopier, telex or telegram or mailed by registered
or certified mail, postage prepaid, as follows:
If to Parent or Mergerco, to:
Triarc Companies, Inc.
777 S. Flagler Drive
West Palm Beach, Florida 33401
Attention: Anthony W. Graziano, Jr., Esq.
Telecopier No.: (407) 653-4268
with a copy to:
Brian L. Schorr, Esq.
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Telecopier No.: (212) 757-3990
(b) If to the Company, to:
Southeastern Public Service Company
777 S. Flagler Drive
West Palm Beach, Florida 33401
Attention: Anthony W. Graziano, Jr., Esq.
Telecopier No.: (407) 653-4268
with copies to:
Special Committee
c/o David E. Schwab II, Esq.
Schwab Goldberg Price & Dannay
1185 Avenue of the Americas
New York, NY 10036
Telecopier No.: (212) 719-5276
and
Laurence D. Weltman, Esq.
Willkie Farr & Gallagher
153 East 53rd Street
New York, NY 10022
Telecopier No.: (212) 752-2991
Except as otherwise specified herein, all notices and other communications
shall be to have been duly given on the first to occur of (a) the date of
delivery if delivered personally on a business day during normal business hours,
and if not, on the next occurring business day, (b) five days following posting
if transmitted by mail, (c) the date of transmission with confirmed answer-back
if transmitted by telex on a business day during normal business hours, and if
not, on the next occurring business day, or (d) the date of receipt if
transmitted by telecopier or facsimile on a business day during normal business
hours, and if not, on the next occurring business day. Any party may change his
or its address for purposes hereof by notice to the other party given as
provided in this Section 9.4.
15
<PAGE>
SECTION 9.5 Amendments. This Merger Agreement may be amended by the parties
hereto, by action taken by their respective Boards of Directors, at any time
prior to the Effective Time; provided, however, that after approval of this
Agreement by the stockholders of the Company, no amendment or modification shall
(a) alter or change the amount or kind of shares, securities, cash, property
and/or rights to be received in exchange for or on conversion of all or any of
the shares of any class or series thereof of the Company, (b) alter or change
any term of the certificate of incorporation of the Surviving Corporation to be
effected by the Merger, (c) alter or change any of the terms and conditions of
this Agreement if such alteration or change would adversely affect the holders
of any class or series of capital stock of the Company or (d) amend Section 9.6
hereof so that waiver by the parties of the condition set forth in Section
7.1(d) hereof would be permitted. This Merger Agreement may not be amended,
modified or supplemented except by written agreement of the parties hereto.
SECTION 9.6 Waiver. At any time prior to the Effective Time, the parties
hereto by action taken by their respective Boards of Directors may (a) extend
the time for the performance of any of the obligations or other acts of the
other parties hereto, (b) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant hereto, and
(c) waive compliance with any of the agreements or conditions contained herein;
provided, however, that the parties may not waive compliance with the condition
set forth in Section 7.1(d) hereof. Any agreement on the part of a party hereto
to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party. The Company shall only
take actions with respect to the enforcement of its right under this Merger
Agreement, including, without limitation, the granting of any waivers or the
approval of any amendments, if such actions are authorized by the members of the
Special Committee.
SECTION 9.7 Brokers. The Company represents and warrants that except for
fees payable to Smith Barney as financial advisor to the Special Committee, no
broker, finder or investment banker is entitled to any brokerage, finder's or
other fee or commission in connection with the Merger based upon arrangements
made by or on behalf of the Company. Parent and Mergerco represent and warrant
that no broker, finder or investment banker is entitled to any brokerage,
finder's or other fee or commission in connection with the Merger based upon
arrangements made by or on behalf of Parent and Mergerco.
SECTION 9.8 Publicity. So long as this Agreement is in effect, the parties
hereto shall not, and shall cause their affiliates not to, issue or cause the
publication of any press release or other announcement with respect to the
Merger or this Merger Agreement without the consent of the other party, which
consent shall not be withheld or delayed where such release or announcement is
required by applicable law or any listing agreement with a national securities
exchange.
SECTION 9.9 Subsidiaries. When a reference is made in this Agreement to
subsidiaries of Parent or the Company, the word 'subsidiaries' means any
corporation more than 50% of whose outstanding voting securities are directly or
indirectly owned by Parent or the Company, as the case may be; provided that,
for the purpose of this Agreement, neither the Company nor any subsidiary of the
Company shall be deemed a 'subsidiary' of Parent prior to the Effective Time.
SECTION 9.10 Headings. The headings contained in this Merger Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Merger Agreement.
SECTION 9.11 Non-Assignability. This Merger Agreement shall not be assigned
by operation of law or otherwise, except that at the election of Parent, any
direct or indirect wholly-owned subsidiary of Parent may be substituted for
Mergerco as a Constituent Corporation in the Merger for all purposes of this
Merger Agreement.
SECTION 9.12 Counterparts. This Merger Agreement may be executed in two or
more counterparts each of which shall be deemed to constitute an original and
shall become effective when one or more counterparts have been signed by each of
the parties hereto and delivered to the other parties.
16
<PAGE>
SECTION 9.13 Governing Law. This Merger Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed wholly within such state except to the extent
the provisions of the DGCL apply.
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by
their respective duly authorized officers as of the date first above written.
SOUTHEASTERN PUBLIC SERVICE COMPANY
By: /s/ JOSEPH A. LEVATO
.................................
Title: Executive Vice President and
Chief Financial Officer
Attest:
/s/ CURTIS S. GIMSON
.....................................
Secretary
TRIARC COMPANIES, INC.
By: /s/ ANTHONY W. GRAZIANO, JR.
.................................
Title: Executive Vice President and
General Counsel, and
Assistant Secretary
Attest:
/s/ CURTIS S. GIMSON
.....................................
Secretary
SEPSCO MERGER CORPORATION
By: /s/ ANTHONY W. GRAZIANO, JR.
.................................
Title: Executive Vice President and
General Counsel, and
Assistant Secretary
Attest:
/s/ CURTIS S. GIMSON
.....................................
Secretary
17
<PAGE>
[Smith Barney logo] ANNEX II
November 22, 1993
The Board of Directors
Southeastern Public Service Company
777 S. Flagler Drive
West Palm Beach, FL 33401
Attention: David E. Schwab II, Esq.
Sir Ian McGregor
The Special Committee of
the Board of Directors
Gentlemen:
You have requested our opinion as to the fairness from a financial point of view
of the consideration to be received by the public holders (other than Triarc
Companies, Inc. ('Triarc'), formerly known as DWG Corporation, and its
affiliates) of common stock, par value $1.00 per share ('Company Common Stock')
of Southeastern Public Service Company ('SEPSCO' or the 'Company') pursuant to
the Agreement and Plan of Merger, dated November 22, 1993 (the 'Agreement'),
among SEPSCO, Triarc, and Merger Corporation, a wholly owned subsidiary of
Triarc ('Mergerco'). The Agreement provides for a merger (the 'Merger') of
Mergerco into the Company pursuant to which each outstanding share of Company
Common Stock will be converted into 0.8 shares of Triarc Class A Common Stock,
par value $0.10 per share ('Triarc Common Stock') and the Company will become a
wholly owned subsidiary of Triarc. As described in greater detail in the
preliminary Proxy Statement of the Company and Prospectus of Triarc (the
'Statement'), which the Company has filed with the Securities and Exchange
Commission in connection with the proposed Merger, it is our understanding that
the consummation of the Merger will satisfy certain terms and conditions
contained in a form of Stipulation of Settlement (the 'Settlement Agreement')
(the form of which is annexed to the Statement) to be entered into relating to
the settlement of a purported derivative action brought on behalf of the Company
by William A. Ehrman (the 'Plaintiff'), a SEPSCO shareholder, against Triarc,
certain of its affiliates and certain individuals, including certain former
directors of SEPSCO, which action (the 'Ehrman Litigation') is currently pending
before the United States District Court for the Southern District of Florida. It
is our further understanding that Triarc currently owns 71.1% of the outstanding
shares of Company Common Stock and 100% of the outstanding shares of SEPSCO
5 1/2% Cumulative Convertible Preferred Stock, Series B, par value $50.00 per
share.
You have informed us that the Board of Directors of SEPSCO has authorized the
sale or discontinuance of SEPSCO's businesses and assets, has closed some
transactions for the sale of some assets, and has been actively involved in
Negotiations with a number of potential purchasers with respect to others. For
the purposes hereof, we do not express any opinion as to the fairness of any
individual transaction relating to the sale or discontinuance of the Company's
businesses or assets. We have not been requested to, and have not, reviewed any
of the acquisition proposals submitted by prospective purchasers for any of
SEPSCO's businesses or assets, nor have we solicited the receipt by the Company
of any acquisition proposals relating to its businesses or assets.
In arriving at our opinion we have examined, among other things, (i) the
Statement, (ii) the Agreement, (iii) certain publicly available information
relating to the business, financial condition and operations of SEPSCO, (iv)
certain financial and other information furnished to us by SEPSCO and Triarc
that is not publicly available, including projected financial information
prepared by the managements of the Company and its subsidiaries and Triarc
concerning the business and operations of the Company, (v) certain publicly
available information concerning the trading of, and the trading market for, the
Company Common Stock, (vi) certain publicly available information with respect
to certain other companies we believe to be comparable to the business and
operations of the Company and its
B-1
<PAGE>
subsidiaries, (vii) certain publicly available information concerning the terms
of certain other transactions that we consider relevant to our investigation,
and (viii) certain publicly available information concerning other transactions
involving the buyout of minority stockholders. We have reviewed historical
earnings and cash flow of SEPSCO's businesses. We have also met with certain
senior officers of SEPSCO and Triarc to discuss the operations, financial
condition, history and prospects of SEPSCO. For the purposes of our opinion, we
did not, however, consider the potential value, if any, to SEPSCO of any of the
alleged claims by plaintiff in the Ehrman Litigation.
In connection with rendering our opinion, we have also examined, among other
things, (i) certain publicly available information relating to the business,
financial condition and operations of Triarc and its subsidiaries, (ii) certain
financial and other information furnished to us by Triarc that is not publicly
available, including projected financial information prepared by the management
of Triarc and its subsidiaries concerning the business and operations of Triarc
and its subsidiaries, (iii) certain publicly available information concerning
the trading of, and the trading market for, the Triarc Common Stock, (iv)
certain publicly available information with respect to certain other companies
we believe to be comparable to the business and operations of Triarc and its
subsidiaries, and (v) certain publicly available information concerning the
terms of certain other transactions that we consider relevant to our review of
Triarc and its subsidiaries. We have met with certain senior officers of Triarc
to discuss the operations, financial condition, history and prospects of Triarc
and its subsidiaries. Finally, we have conducted such other analyses and
examinations and considered such other financial, economic and market criteria
as we have deemed necessary in arriving at our opinion.
In the course of our analysis we have relied without independent verification
upon the accuracy and completeness of the financial and other information
publicly available or furnished to or otherwise discussed with us by SEPSCO and
Triarc, which we have not independently verified. With respect to the non-public
financial information, we assumed that it was reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
managements of SEPSCO and Triarc as to the expected future financial performance
of SEPSCO and Triarc and their respective subsidiaries. In rendering our
opinion, we considered the changes in management at certain Triarc subsidiaries,
the changes to the Triarc business plan and the decision by the SEPSCO Board to
pursue the sale or disposition of certain of the businesses and assets of
SEPSCO. We have not made, requested nor received any independent evaluation or
appraisal of the assets or liabilities (contingent or otherwise) of SEPSCO or
Triarc or their respective subsidiaries, nor have we made any physical
inspection of the properties or assets or liabilities of SEPSCO or Triarc or
their respective subsidiaries.
We have not been authorized to, and we have not, solicited or investigated
alternative transactions which might be available to the Company. We were not
requested to, and did not, seek other offers for the shares of SEPSCO not held
by Triarc. In addition, although we evaluated the financial terms of the Merger,
we were not asked to and did not recommend the specific consideration to be paid
by Triarc in the Merger, nor did we participate in any of the negotiations or
discussions regarding the terms of the Merger or the proposed settlement of the
Ehrman Litigation.
It should be noted that this opinion is based upon interest rates, dividend
rates, market conditions and other circumstances and conditions existing and
known to us on the date hereof, and this opinion does not represent our opinion
as to the prospective value of the Triarc Common Stock when it is issued to
stockholders of SEPSCO upon consummation of the Merger. The market value of the
Triarc Common Stock upon consummation of the Merger could be higher or lower
than its current market price depending upon, among other things, changes in
interest rates, dividend rates, market conditions, general economic conditions
and other factors which generally influence the prices of securities.
It is our understanding that this opinion is solely for the use of the Special
Committee and the Board of Directors in consideration of the proposed Merger and
may not be relied upon by any other person, published or otherwise used, nor
shall any public references to Smith Barney be made without our written consent,
other than in the Statement to which this opinion is annexed.
Smith Barney has been engaged by the Company to render its opinion to the
Special Committee of the Board of Directors of the Company and will receive a
fee for our services, which fee is not contingent upon the consummation of the
Merger. in the ordinary course of our business, we trade securities of the
B-2
<PAGE>
Company and Triarc for our own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
Subject to the foregoing, we are of the opinion as of the date hereof that the
consideration to be received by the holders of Company Common Stock other than
Triarc and its affiliates pursuant to the Agreement is fair, from a financial
point of view, to such stockholders.
Very truly yours,
Smith Barney Shearson Inc.
B-3
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article VI of Triarc's Code of Regulations provides for indemnification of
directors, officers and employees of Triarc to the maximum extent permitted by
the General Corporation Law of the State of Ohio.
Section 1701.13 of the General Corporation Law of the State of Ohio permits
indemnification of any director, officer or employee with respect to any
proceeding against such person provided that: (a) such person acted in good
faith, (b) such person reasonably believed that the conduct was in or not
opposed to the best interests of the corporation and (c) in the case of a
criminal proceeding, such person had no reasonable cause to believe that the
conduct was unlawful. Indemnification may be made against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with the proceeding, provided
that if the proceeding is one by or in the right of the corporation,
indemnification may only be made against reasonable expenses (including
attorneys' fees) and may not be made with respect to any proceeding in which the
director, officer or employee has been adjudged to be liable to the corporation
except to the extent that the court in which the proceeding was brought shall
determine, upon application, that such person is, in view of all the
circumstances, entitled to indemnity for such expenses as the court shall deem
proper. The termination of any proceedings by judgment, order, settlement,
conviction or upon a plea of nolo contendere or its equivalent does not, of
itself, create a presumption that the director, officer or employee did not meet
the requisite standard of conduct required for indemnification to be permitted.
Section 1701.13 of the General Corporation Law of the State of Ohio further
provides that indemnification thereunder may not be made by the corporation
unless authorized after a determination has been made that such indemnification
is proper, with that determination to be made by (a) the Board of Directors by
the majority vote of a quorum consisting of directors not parties to the
proceeding, (b) if such quorum is not obtainable, or even if obtainable but a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, (c) by the shareholders or (d) by the court in which the
proceeding was brought.
Finally, Section 1701.13 of the General Corporation law of the State of
Ohio provides that indemnification permitted thereunder is not exclusive of any
other rights to which those seeking indemnification may be entitled under the
Articles of Incorporation, Code of Regulations or any agreement, vote of
shareholders or disinterested directors or otherwise.
Triarc's Directors' and Officers' Insurance and Company Reimbursement
Policy is designed to reimburse Triarc for certain payments made by it pursuant
to the foregoing indemnification. Such policy has a liability limit of
$15,000,000.
21. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- ------------------------------------------------------------------------------------------------------------
<S> <C>
2.1 -- Agreement and Plan of Merger dated as of November 22, 1993 among Southeastern Public Service Company,
SEPSCO Merger Corporation and Triarc Companies, Inc. (included as Annex I to Proxy Statement/Prospectus
that constitutes Part I of the Registration Statement).
2.2 -- Stock Purchase Agreement dated as of October 1, 1992 among DWG Acquisition Group, L.P., Victor Posner,
Security Management Corp. and Victor Posner Trust No. 20 incorporated herein by reference to Exhibit 10 to
Amendment No. 4 dated October 5, 1992 to Triarc's Current Report on Form 8-K dated February 17, 1992 (SEC
file #1-2207).
II-1
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- ------------------------------------------------------------------------------------------------------------
<S> <C>
2.3 -- Amendment dated as of October 1, 1992 between Triarc Companies, Inc., then known as DWG Corporation
('Triarc'), and DWG Acquisition Group, L.P. incorporated herein by reference to Exhibit 11 to Amendment
No. 4 dated October 5, 1992 to Triarc's Current Report on Form 8-K dated February 17, 1992 (SEC file
#1-2207).
2.4 -- Exchange Agreement dated as of October 1, 1992 between Triarc and Security Management Corp. incorporated
herein by reference to Exhibit 12 to Amendment No. 4 dated October 5, 1992 to Triarc's Current Report on
Form 8-K dated February 17, 1992 (SEC file #1-2207).
3.1 -- Articles of Incorporation of Triarc as currently in effect including all amendments thereto incorporated
herein by reference to Exhibit 3.1 to Triarc's Current Report on Form 8-K dated October 27, 1993 (SEC file
#1-2207).
3.2 -- Amended Code of Regulations of Triarc incorporated herein by reference to Exhibit 2 to Triarc's Current
Report on Form 8-K dated April 23, 1993 (SEC file #1-2207).
4.1 -- Southeastern Public Service Company Indenture dated as of February 1, 1993 incorporated herein by
reference to Exhibit 4(a) to Southeastern Public Service Company's Form S-2 dated January 18, 1983 (SEC
file #2-81393).
4.2 -- National Propane Corporation Indenture dated as of March 1, 1984 incorporated herein by reference to
Exhibit 4(a) to National Propane Corporation's Form S-1 dated March 2, 1984 (SEC file #2-88162).
4.3 -- Note Purchase Agreement dated as of April 23, 1993 among RC/Arby's Corporation, then known as Royal Crown
Corporation ('RC/Arby's'), Triarc, RCRB Funding, Inc. and Merrill Lynch, Pierce, Fenner & Smith
Incorporated incorporated herein by reference to Exhibit 4 to Triarc's Current Report on Form 8-K dated
April 23, 1993 (SEC file #1-2207).
4.4 -- Indenture dated as of April 23, 1993, among RC/Arby's, Royal Crown Corporation, then known as Royal Crown
Cola Co., Inc. ('Royal Crown'), Arby's, Inc. and The Bank of New York incorporated herein by reference to
Exhibit 5 to Triarc's Current Report on Form 8-K dated April 23, 1993 (SEC file #1-2207).
4.5 -- Revolving Credit, Term Loan and Security Agreement dated as of April 23, 1993 among Graniteville Company,
C.H. Patrick & Co., Inc. and The CIT Group/Commercial Services, Inc. incorporated herein by reference to
Exhibit 6 to Triarc's Current Report on Form 8-K dated April 23, 1993 (SEC file #1-2207).
4.6 -- Form of Indenture among RC/Arby's, Royal Crown and Arby's Inc. and The Bank of New York, as Trustee,
relating to the 9 3/4% Senior Secured Notes Due 2000 incorporated herein by reference to Exhibit 4.1 to
RC/Arby's Form S-1 (SEC file #33-62778).
5.1 -- Opinion of Baker & Hostetler, special counsel to Triarc.
10.1 -- Employment Agreement dated as of April 24, 1993 between Donald L. Pierce and Arby's, Inc. incorporated
herein by reference to Exhibit 7 to Triarc's Current Report on Form 8-K dated April 23, 1993 (SEC file
#1-2207).
10.2 -- Employment Agreement dated as of April 24, 1993 among John C. Carson, Royal Crown and Triarc incorporated
herein by reference to Exhibit 8 to Triarc's Current Report on Form 8-K dated April 23, 1993 (SEC file
#1-2207).
10.3 -- Employment Agreement dated as of April 24, 1993 between Ronald D. Paliughi and National Propane
Corporation incorporated herein by reference to Exhibit 9 to Triarc's Current Report on Form 8-K dated
April 23, 1993 (SEC file #1-2207).
10.4 -- Employment Agreement dated as of April 24, 1993 between H. Douglas Kingsmore and Graniteville Company
incorporated herein by reference to Exhibit 10 to Triarc's Current Report on Form 8-K dated April 23, 1993
(SEC file #1-2207).
10.5 -- Employment Agreement effective as of November 1, 1993 between Leon Kalvaria and Triarc incorporated
herein by reference to Exhibit 10.01 to Triarc's Quarterly Report on Form 10-Q dated October 31, 1993 (SEC
File #1-2207).
10.6 -- Memorandum of Understanding dated September 13, 1993 between Triarc and William Ehrman, individually and
derivatively on behalf of Southeastern Public Service Company incorporated herein by reference to Exhibit
10.1 to Triarc's Current Report on Form 8-K dated September 13, 1993 (SEC File #1-2207).
10.7 -- Stipulation of Settlement of the Ehrman Litigation dated as of October 18, 1993 incorporated herein by
reference to Exhibit 1 to Triarc's Current Report on Form 8-K dated October 15, 1993 (SEC File #1-2207).
10.8 -- Triarc's Amended and Restated 1993 Equity Participation Plan incorporated herein by reference to Exhibit
10.5 to Triarc's Annual Report on Form 10-K for the Fiscal year ended April 30, 1993 (SEC file #1-2207).
II-2
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- ------------------------------------------------------------------------------------------------------------
<S> <C>
10.9 -- Form of Non-Incentive Stock Option Agreement under Triarc 's Amended and Restated 1993 Equity
Participation Plan incorporated herein by reference to Exhibit 12 to Triarc's Current Report on Form 8-K
dated April 23, 1993 (SEC file #1-2207).
10.10 -- Form of Restricted Stock Agreement under Triarc's Amended and Restated 1993 Equity Participation Plan
incorporated herein by reference to Exhibit 13 to Triarc's Current Report on Form 8-K dated April 23, 1993
(SEC file #1-2207).
10.11 -- Concentrate Sales Agreement dated April 4, 1991 between RC/Arby's and Cott Corporation incorporated
herein by reference to Exhibit 10.7 to RC/Arby's Form S-1 (SEC file #33-62778).
10.12 -- Concentrate Sales Agreement dated as of January 28, 1994 between RC/Arby's and Cott Corporation (filed
herewith with certain confidential information deleted therefrom pending application made pursuant to Rule
406 under the Securities Act).
10.13 -- Supply Agreement dated December 8, 1992 between RC/Arby's and the NutraSweet Company incorporated herein
by reference to Exhibit 10.9 to RC/Arby's Form S-1 (SEC file #33-62778).
10.14 -- Consulting Agreement dated as of April 23, 1993 between Triarc and Steven Posner incorporated herein by
reference to Exhibit 10.8 to Triarc's Annual Report on Form 10-K for the Fiscal year ended April 30, 1993
(SEC file #1-2207).
10.15 -- Lease Agreement dated as of April 1, 1993 between Victor Posner Trust No. 6 and Triarc incorporated
herein by reference to Exhibit 10.9 to Triarc's Annual Report on Form 10-K for the Fiscal year ended April
30, 1993 (SEC file #1-2207).
10.16 -- Form of Former Management Services Agreement between Triarc and certain other corporations incorporated
herein by reference to Exhibit 10.10 to Triarc's Annual Report on Form 10-K for the Fiscal year ended
April 30, 1993 (SEC file #1-2207).
10.17 -- Form of New Management Services Agreement dated as of April 23, 1993 between Triarc and certain of its
subsidiaries incorporated herein by reference to Exhibit 10.11 to Triarc's Annual Report on Form 10-K for
the Fiscal year ended April 30, 1993 (SEC file #1-2207).
10.18 -- Purchase Agreement dated as of October 7, 1993 between Southeastern Public Service Company and
Acquisition Holding Company, Inc. incorporated herein by reference to Exhibit to Southeastern Public
Service Company's Current Report on Form 8-K dated October 7, 1993 (SEC file #1-4351).
10.19 -- Purchase Agreement dated as of October 7, 1993 between Tree Preservation Co., Inc. and Cement Holding
Company, Inc. incorporated herein by reference to Exhibit to Southeastern Public Service Company's
Current Report on Form 8-K dated October 7, 1993 (SEC file # 1-4351).
10.20 -- Purchase Agreement dated as of September 1, 1993 among Southeastern Public Service Company, certain of
its subsidiaries and Asplundh Tree Expert Co. incorporated herein by reference to Exhibit to
Southeastern Public Service Company's Current Report on Form 8-K dated September 1, 1993 (SEC file
#1-4351).
11.1 -- Loss Per Share Computation and Pro Forma Loss Per Share Computation (included on pages F-106 and F-107 of
Part I of this Registration Statement).
23.1 -- Consent of Arthur Andersen & Co.
23.2 -- Consent of Smith Barney Shearson Inc.
23.3 -- Consent of Baker & Hostetler (included in Exhibit 5.1).
25.1 -- Powers of attorney (included in Part II of the Registration Statement).
</TABLE>
(b) Financial Statement Schedules
<TABLE>
<S> <C>
Schedule II. Amounts Receivable from Related Parties -- Three years ended April 30, 1993
Schedule III. Triarc Companies, Inc. (Parent Company Only) Financial Statements -- April 30, 1993
Schedule V. Properties -- Three years ended April 30, 1993
Schedule VI. Accumulated Depreciation of Properties -- Three years ended April 30, 1993
Schedule VIII. Valuation and Qualifying Accounts -- Three years ended April 30, 1993
Schedule IX. Short-Term Borrowings -- Three years ended April 30, 1993
Schedule X. Supplementary Statement of Operations Information -- Three years ended April 30, 1993
Schedule XIV. Supplemental Information Concerning Property -- Casualty Insurance Operations -- Three
years ended April 30, 1993
</TABLE>
II-3
<PAGE>
(c) Reports, Opinions or Appraisals
<TABLE>
<S> <C>
-- Opinion of Smith Barney Shearson Inc. dated November 22, 1993 (included as Annex II to Proxy
Statement/Prospectus that constitutes Part I of this Registration Statement).
</TABLE>
22. UNDERTAKINGS
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(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 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.
The undersigned registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
The registrant undertakes that every prospectus (i) that is filed pursuant
to the immediately preceding paragraph, or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment 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.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 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.
The undersigned registrant hereby undertakes 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. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
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-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of
New York, on March 10, 1994.
TRIARC COMPANIES, INC.
By NELSON PELTZ
...................................
NELSON PELTZ
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
The officers and directors of Triarc Companies, Inc. whose signatures
appear below, hereby constitute and appoint Nelson Peltz and Peter W. May, and
each of them (with full power to each of them to act alone), the true and lawful
attorney-in-fact to sign and execute, on behalf of the undersigned, any
amendment or amendments to this Registration Statement and each of the
undersigned does hereby ratify and confirm all that said attorneys shall do or
cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ------------------------------------------ -------------------------------------------- -------------------
<S> <C> <C>
NELSON PELTZ Chairman and Chief Executive Officer, March 10, 1994
......................................... Director and Principal Executive Officer
(NELSON PELTZ)
PETER W. MAY President and Chief Operating Officer, and March 10, 1994
......................................... Director
(PETER W. MAY)
JOSEPH A. LEVATO Executive Vice President, Chief Financial March 10, 1994
......................................... Officer and Principal Financial Officer
(JOSEPH A. LEVATO)
FRED H. SCHAEFER Vice President, Chief Accounting Officer and March 10, 1994
......................................... Principal Accounting Officer
(FRED H. SCHAEFER)
LEON KALVARIA Vice Chairman and Director March 10, 1994
.........................................
(LEON KALVARIA)
IRVING MITCHELL FELT Director March 10, 1994
.........................................
(IRVING MITCHELL FELT)
HAROLD E. KELLEY Director March 10, 1994
.........................................
(HAROLD E. KELLEY)
RICHARD M. KERGER Director March 10, 1994
.........................................
(RICHARD M. KERGER)
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ------------------------------------------ -------------------------------------------- -------------------
<S> <C> <C>
HAROLD D. KINGSMORE Director March 10, 1994
.........................................
(HAROLD D. KINGSMORE)
DANIEL R. MCCARTHY Director March 10, 1994
.........................................
(DANIEL R. MCCARTHY)
WILLIAM L. PALLOT Director March 10, 1994
.........................................
(WILLIAM L. PALLOT)
THOMAS A. PRENDERGAST Director March 10, 1994
.........................................
(THOMAS A. PRENDERGAST)
MARTIN ROSEN Director March 10, 1994
.........................................
(MARTIN ROSEN)
GERALD TSAI, JR. Director March 10, 1994
.........................................
(GERALD TSAI, JR.)
STEPHEN S. WEISGLASS Director March 10, 1994
.........................................
(STEPHEN S. WEISGLASS)
</TABLE>
II-6
<PAGE>
TRIARC COMPANIES, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
PAGE
------
<S> <C> <C>
Report of Independent Certified Public Accountants on Schedules................................... II-8
II. Amounts Receivable from Related Parties -- Three years ended April 30, 1993....................... II-9
III. Triarc Companies, Inc. (Parent Company Only) Financial Statements -- April 30, 1993............... II-10
V. Properties -- Three years ended April 30, 1993.................................................... II-13
VI. Accumulated Depreciation of Properties -- Three years ended April 30, 1993........................ II-14
VIII. Valuation and Qualifying Accounts -- Three years ended April 30, 1993............................. II-15
IX. Short-Term Borrowings -- Three years ended April 30, 1993......................................... II-16
X. Supplementary Statement of Operations Information -- Three years ended April 30, 1993............. II-17
XIV. Supplemental Information Concerning Property -- Casualty Insurance Operations -- Three years ended
April 30, 1993.................................................................................. II-18
</TABLE>
II-7
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULES
To the Board of Directors and Stockholders,
Triarc Companies, Inc.:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of Triarc Companies, Inc. (an Ohio
corporation, formerly DWG Corporation) and subsidiaries included elsewhere
herein and have issued our report thereon dated August 12, 1993. Our audits were
made for the purpose of forming an opinion on those statements taken as a whole.
The accompanying schedules are the responsibility of the Company's management
and are presented for the purposes of complying with the Securities and Exchange
Commission's rules and are not part of the basic financial statements. These
schedules have been subjected to the auditing procedures applied in the audits
of the basic financial statements and, in our opinion, fairly state in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN & CO.
Miami, Florida,
August 12, 1993.
II-8
<PAGE>
SCHEDULE II
TRIARC COMPANIES, INC. AND SUBSIDIARIES
AMOUNTS RECEIVABLE FROM RELATED PARTIES
THREE YEARS ENDED APRIL 30, 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT END
DEDUCTIONS OF PERIOD
BALANCE AT ------------------------- ---------------------
BEGINNING AMOUNTS AMOUNTS NOT
NAME OF DEBTOR OF PERIOD ADDITIONS COLLECTED WRITTEN-OFF CURRENT CURRENT
- ------------------------------------ ---------- --------- ---------- ----------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
1991 and 1992 :
Not applicable
1993:
Loan receivable from officer:
Leon Kalvaria................ $ -- $ 320 $ -- $ -- $ -- $ 320
---------- --------- ---------- ----------- ---------- -------
---------- --------- ---------- ----------- ---------- -------
</TABLE>
II-9
<PAGE>
SCHEDULE III
TRIARC COMPANIES, INC. (PARENT COMPANY ONLY)
BALANCE SHEETS
APRIL 30, 1992 AND 1993
<TABLE>
<CAPTION>
1992 1993
-------- --------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents................................................................. $ 126 $ 29,520
Due from subsidiaries................................................................ 24,793 22,219
Deferred income taxes................................................................ -- 9,600
Other current assets................................................................. 74 1,230
-------- --------
Total current assets............................................................ 24,993 62,569
-------- --------
Note receivable from subsidiary........................................................... 1,500 1,500
Investments in consolidated subsidiaries, at equity....................................... 257,969 242,762
Properties, net........................................................................... 371 103
Other assets.............................................................................. 1,716 5,503
-------- --------
$286,549 $312,437
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt, net of discount................................... $ 19,753 $ --
Accounts payable..................................................................... 20,299 4,678
Due to subsidiaries.................................................................. 13,123 15,712
Other current liabilities............................................................ 4,679 33,066
-------- --------
Total current liabilities....................................................... 57,854 53,456
-------- --------
Notes and loans payable to subsidiaries, net of discount.................................. 137,195 218,462
Deferred income taxes..................................................................... 4,856 --
Other liabilities......................................................................... 162 4,112
Redeemable preferred stock, $12 stated value; authorized 6,000,000 shares in 1993, issued
5,982,866 shares; aggregate liquidation preference and redemption amount $71,794,000.... -- 71,794
Stockholders' equity (deficit):
Cumulative convertible preferred stock, $1 par value................................. 31 --
Class A common stock, $.10 par value; authorized 40,000,000 and 75,000,000 shares,
issued 27,006,336 and 28,251,805 shares............................................. 2,701 2,825
Class B common stock, $.10 par value; authorized 12,000,000 shares in 1993, none
issued.............................................................................. -- --
Additional paid-in capital........................................................... 37,968 52,372
Retained earnings (deficit).......................................................... 53,920 (6,067)
Less 1,117,274 and 7,100,145 Class A common shares in treasury at cost............... (8,315) (80,109)
Other................................................................................ 177 (4,408)
-------- --------
Total stockholders' equity (deficit)............................................ 86,482 (35,387)
-------- --------
$286,549 $312,437
-------- --------
-------- --------
</TABLE>
II-10
<PAGE>
TRIARC COMPANIES, INC. (PARENT COMPANY ONLY)
STATEMENTS OF OPERATIONS
THREE YEARS ENDED APRIL 30, 1993
<TABLE>
<CAPTION>
1991 1992 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Income and (expenses):
Equity in net (losses) income of continuing operations of subsidiaries... $ (129) $ 12,196 $(15,634)
Interest expense......................................................... (22,973) (22,751) (24,858)
General and administrative expenses...................................... (2,540) (2,961) (4,050)
Facilities relocation and corporate restructuring........................ -- -- (7,200)
Provision for doubtful accounts from former affiliates................... (9,554) (9,221) (3,311)
Shareholder litigation and other (expenses) recovery..................... 2,165 (2,004) (7,025)
Settlements with former affiliates....................................... 2,871 -- 8,900
Interest income.......................................................... 1,248 813 517
-------- -------- --------
Loss from continuing operations before income taxes................. (28,912) (23,928) (52,661)
Benefit from income taxes..................................................... 11,411 13,721 8,112
-------- -------- --------
Loss from continuing operations before equity in extraordinary items and
cumulative effect of changes in accounting principles.................. (17,501) (10,207) (44,549)
Equity in income (losses) of discontinued operations of subsidiaries.......... (55) 2,705 (2,430)
Equity in extraordinary items of subsidiaries................................. 703 -- (6,611)
Cumulative effect of changes in accounting principles from:
Triarc Companies, Inc.................................................... -- -- (3,488)
Equity in subsidiaries................................................... -- -- (2,900)
-------- -------- --------
-- -- (6,388)
-------- -------- --------
Net loss................................................................. (16,853) (7,502) (59,978)
Preferred stock dividend requirements......................................... (11) (11) (121)
-------- -------- --------
Net loss applicable to common stockholders............................... $(16,864) $ (7,513) $(60,099)
-------- -------- --------
-------- -------- --------
Loss per share:
Continuing operations.................................................... $(.68) $(.39) $(1.73)
Discontinued operations.................................................. -- .10 (.09)
Extraordinary items...................................................... .03 -- (.26)
Cumulative effect of changes in accounting principles.................... -- -- (.25)
$(.65) $(.29) $(2.33)
-------- -------- --------
-------- -------- --------
</TABLE>
II-11
<PAGE>
TRIARC COMPANIES, INC. (PARENT COMPANY ONLY)
STATEMENTS OF CASH FLOWS
THREE YEARS ENDED APRIL 30, 1993
<TABLE>
<CAPTION>
1991 1992 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss................................................................. $(16,853) $ (7,502) $(59,978)
Adjustments to reconcile net loss to net cash and equivalents provided
(used) by operating activities:
Equity in net losses (income) of subsidiaries....................... (519) (14,901) 27,575
Dividends from subsidiaries......................................... 4,763 1,080 3,127
Amortization of deferred debt discount and financing costs.......... 1,246 1,248 1,248
Provision for facilities relocation and corporate restructuring..... -- -- 7,200
Provision for doubtful accounts from former affiliates.............. 9,554 9,221 3,311
Cumulative effect of change in accounting principle................. -- -- 3,488
Change in due from/to subsidiaries and other affiliates............. 4,157 3,674 (15,214)
Change in net deferred income taxes................................. 603 (5,130) (2,199)
Decrease (increase) in other current assets......................... (1,288) 9,197 (1,156)
Increase (decrease) in accounts payable and other current
liabilities....................................................... (1,909) 2,182 5,566
Increase (decrease) in other liabilities............................ (53) (62) 3,950
Other, net.......................................................... 790 486 2,913
-------- -------- --------
Net cash and equivalents provided (used) by operating
activities................................................... 491 (507) (20,169)
-------- -------- --------
Cash flows from investing activities:
Purchase of minority interests........................................... -- -- (21,100)
Redemption of investment in affiliate.................................... -- -- 2,100
Capital expenditures, net................................................ (18) (4) (21)
-------- -------- --------
Net cash and equivalents used by investing activities.......... (18) (4) (19,021)
-------- -------- --------
Cash flows from financing activities:
Issuance of Class A common stock......................................... -- -- 9,650
Repayment of long-term debt.............................................. -- (52) (20,907)
Borrowings from subsidiaries............................................. -- -- 141,600
Repayment of notes and loans payable to subsidiaries..................... -- -- (57,115)
Deferred financing costs................................................. -- -- (4,620)
Payment of dividends and redemption of preferred stock................... (11) (11) (24)
-------- -------- --------
Net cash and equivalents provided (used) by financing
activities................................................... (11) (63) 68,584
-------- -------- --------
Net increase (decrease) in cash and equivalents............................... 462 (574) 29,394
Cash and equivalents at beginning of year..................................... 238 700 126
-------- -------- --------
Cash and equivalents at end of year........................................... $ 700 $ 126 $ 29,520
-------- -------- --------
-------- -------- --------
</TABLE>
II-12
<PAGE>
SCHEDULE V
TRIARC COMPANIES, INC. AND SUBSIDIARIES
PROPERTIES
THREE YEARS ENDED APRIL 30, 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
OTHER
BALANCE AT CHANGES -- BALANCE
BEGINNING ADDITIONS RETIREMENTS ADDITIONS AT END
CLASSIFICATION(1) OF YEAR AT COST OR SALES (DEDUCTIONS) OF YEAR
- ---------------------------------------------- ---------- --------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C>
1991:
Land..................................... $ 24,942 $ 464 $ (239) $ -- $ 25,167
Buildings and improvements............... 85,375 12,221 (1,623) (260) 95,713
Machinery and equipment.................. 271,276 25,188 (6,134) (369) 289,961
Automotive and transportation
equipment.............................. 27,312 3,569 (5,186) 361 26,056
---------- --------- ----------- ------------ --------
$408,905 $41,442 $ (13,182) $ (268) $436,897
---------- --------- ----------- ------------ --------
---------- --------- ----------- ------------ --------
1992:
Land..................................... $ 25,167 $ 121 $ (81) $ -- $ 25,207
Buildings and improvements............... 95,713 7,748 (1,285) (1,362) 100,814
Machinery and equipment.................. 289,961 20,061 (5,952) (6,130) 297,940
Automotive and transportation
equipment.............................. 26,056 3,323 (4,292) (26) 25,061
---------- --------- ----------- ------------ --------
$436,897 $31,253 $ (11,610) $ (7,518)(2) $449,022
---------- --------- ----------- ------------ --------
---------- --------- ----------- ------------ --------
1993:
Land..................................... $ 25,207 $ 576 $ (2,979) $ (901) $ 21,903
Buildings and improvements............... 100,814 4,112 (6,812) 1,037 99,151
Machinery and equipment.................. 297,940 19,051 (33,958) 2,623 285,656
Automotive and transportation
equipment.............................. 25,061 3,468 (4,414) (82) 24,033
---------- --------- ----------- ------------ --------
$449,022 $27,207 $ (48,163) $ 2,677(3) $430,743
---------- --------- ----------- ------------ --------
---------- --------- ----------- ------------ --------
</TABLE>
- ------------
(1) Amounts are restated for discontinued operations.
(2) Includes $7,474 of assets held for sale reclassified to 'Other current
assets'.
(3) Includes $10,700 purchase accounting effect of adopting Statement of
Financial Accounting Standards No. 109 partially offset by reclassification
of $8,806 of assets held for sale to 'Other current assets'.
II-13
<PAGE>
SCHEDULE VI
TRIARC COMPANIES, INC. AND SUBSIDIARIES
ACCUMULATED DEPRECIATION OF PROPERTIES
THREE YEARS ENDED APRIL 30, 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS OTHER
BALANCE AT CHARGED CHANGES -- BALANCE
BEGINNING TO COSTS RETIREMENTS ADDITIONS AT END
DESCRIPTION(1) OF YEAR AND EXPENSES OR SALES (DEDUCTIONS) OF YEAR
- ---------------------------------------------- ---------- ------------ ----------- ------------ --------
<S> <C> <C> <C> <C> <C>
1991.......................................... $157,448 $ 28,861 $ (9,214) $ (21) $177,074
---------- ------------ ----------- ------------ --------
---------- ------------ ----------- ------------ --------
1992.......................................... $177,074 $ 31,224 $ (10,034) $ (5,422)(2) $192,842
---------- ------------ ----------- ------------ --------
---------- ------------ ----------- ------------ --------
1993.......................................... $192,842 $ 31,196 $ (33,199) $ 2,051(3) $192,890
---------- ------------ ----------- ------------ --------
---------- ------------ ----------- ------------ --------
</TABLE>
- ------------
(1) It is not practical to present accumulated depreciation by category on the
related assets. Amounts are restated for discontinued operations.
(2) Includes accumulated depreciation of $5,483 of assets held for sale
reclassified to 'Other current assets'.
(3) Includes $6,819 purchase accounting effect of adopting Statement of
Financial Accounting Standards No. 109 partially offset by reclassification
of $5,040 of assets held for sale to 'Other current assets'.
II-14
<PAGE>
SCHEDULE VIII
TRIARC COMPANIES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED APRIL 30, 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
--------------------------
BALANCE AT CHARGED TO CHARGED TO DEDUCTIONS BALANCE AT
BEGINNING COSTS AND OTHER FROM END OF
DESCRIPTION OF YEAR EXPENSES ACCOUNTS RESERVES YEAR
- --------------------------------------------- ---------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1991:
Receivables -- allowance for doubtful
accounts:
Trade(1)........................... $ 7,368 $ 4,315 $ -- $ (4,725) $ 6,958
Affiliate.......................... 26,915 8,037 412 (9,253) 26,111
---------- ------------ ---------- ---------- ----------
Total......................... $ 34,283 $ 12,352 $ 412(2) $(13,978)(3) $ 33,069
---------- ------------ ---------- ---------- ----------
---------- ------------ ---------- ---------- ----------
Other assets -- notes receivable from
affiliates............................ $ 18,041 $ 9,922 $ -- $ (4,588)(3) $ 23,375
---------- ------------ ---------- ---------- ----------
---------- ------------ ---------- ---------- ----------
Insurance loss reserves................. $ 87,149 $ 31,029 $ -- $(29,825)(4) $ 88,353
---------- ------------ ---------- ---------- ----------
---------- ------------ ---------- ---------- ----------
1992:
Receivables -- allowance for doubtful
accounts:
Trade(1)........................... $ 6,958 $ 3,054 $ -- $ (3,122) $ 6,890
Affiliate.......................... 26,111 19,953 1,545 (15,393) 32,216
---------- ------------ ---------- ---------- ----------
Total......................... $ 33,069 $ 23,007 $ 1,545(2) $(18,515)(3) $ 39,106
---------- ------------ ---------- ---------- ----------
---------- ------------ ---------- ---------- ----------
Other assets -- notes receivable from
affiliates............................ $ 23,375 $ 5,733 $ (433) $(18,285)(3) $ 10,390
---------- ------------ ---------- ---------- ----------
---------- ------------ ---------- ---------- ----------
Insurance loss reserves................. $ 88,353 $ 21,469 $ -- $(25,600)(4) $ 84,222
---------- ------------ ---------- ---------- ----------
---------- ------------ ---------- ---------- ----------
1993:
Receivables -- allowance for doubtful
accounts:
Trade(1)........................... $ 6,890 $ 3,783 $ -- $ (3,310) $ 7,363
Affiliate.......................... 32,216 3,321 161 (35,698) --
---------- ------------ ---------- ---------- ----------
Total......................... $ 39,106 $ 7,104 $ 161(2) $(39,008)(3) $ 7,363
---------- ------------ ---------- ---------- ----------
---------- ------------ ---------- ---------- ----------
Other assets -- notes receivable from
affiliates............................ $ 10,390 $ 7,037 $ -- $(17,427)(3) $ --
---------- ------------ ---------- ---------- ----------
---------- ------------ ---------- ---------- ----------
Insurance loss reserves................. $ 84,222 $ 23,950 $ -- $(31,409)(4) $ 76,763
---------- ------------ ---------- ---------- ----------
---------- ------------ ---------- ---------- ----------
</TABLE>
- ------------
(1) Amounts are restated for discontinued operations.
(2) Charged to affiliates.
(3) Accounts determined to be uncollectible.
(4) Payment of claims and/or reclassification to 'Accounts payable'.
II-15
<PAGE>
SCHEDULE IX
TRIARC COMPANIES, INC. AND SUBSIDIARIES
SHORT-TERM BORROWINGS
THREE YEARS ENDED APRIL 30, 1993
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MAXIMUM AVERAGE WEIGHTED
WEIGHTED AMOUNT AMOUNT AVERAGE
BALANCE AVERAGE OUTSTANDING OUTSTANDING INTEREST
CATEGORY OF AGGREGATE AT END INTEREST DURING THE DURING THE RATE DURING
YEAR SHORT-TERM BORROWINGS OF YEAR RATE YEAR YEAR(1) THE YEAR(1)
- ----- ------------------------------------------------- ------- -------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
1991 Factors and other financial institutions......... $ 6,078 23.8% $ 9,016 $ 7,235 24.2%
------- -------- ----------- ----------- -----
------- -------- ----------- ----------- -----
1992 Factors and other financial institutions......... $19,464 16.3% $29,845 $15,919 18.4%
------- -------- ----------- ----------- -----
------- -------- ----------- ----------- -----
1993 Factors and other financial institutions......... $ -- -- % $14,549 $ 9,346 24.5%
------- -------- ----------- ----------- -----
------- -------- ----------- ----------- -----
</TABLE>
- ------------
(1) The average amount outstanding during the year was computed on a daily or
month-end weighted average basis. The weighted average interest rate was
computed by expressing interest and commissions expense applicable to these
borrowings as a percentage of the weighted average outstanding borrowings.
II-16
<PAGE>
SCHEDULE X
TRIARC COMPANIES, INC. AND SUBSIDIARIES
SUPPLEMENTARY STATEMENT OF OPERATIONS INFORMATION
THREE YEARS ENDED APRIL 30, 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
CHARGED TO
COSTS AND EXPENSES
-----------------------------
ITEM 1991 1992 1993
- --------------------------------------------------------------------------------- ------- ------- -------
<S> <C> <C> <C>
Maintenance and repairs.......................................................... $18,520 $17,187 $22,272
------- ------- -------
------- ------- -------
Advertising costs................................................................ $66,030 $76,505 $72,891
------- ------- -------
------- ------- -------
</TABLE>
Note: Other supplementary items are individually less than 1% of consolidated
revenues in each year. Information presented above has been restated for
discontinued operations.
II-17
<PAGE>
SCHEDULE XIV
TRIARC COMPANIES, INC. AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION CONCERNING PROPERTY -- CASUALTY
INSURANCE OPERATIONS
THREE YEARS ENDED APRIL 30, 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
RESERVES
FOR
UNPAID DISCOUNT,
CLAIMS IF ANY,
DEFERRED AND DEDUCTED
POLICY CLAIM IN NET
AFFILIATION WITH ACQUISITION ADJUSTMENT PREVIOUS UNEARNED EARNED INVESTMENT
REGISTRANT COSTS EXPENSES(1) COLUMN PREMIUMS PREMIUMS INCOME
- -------------------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Consolidated property --
casualty entities:
1991.................. $ -- $88,353 $ -- $ -- $ 8,063 $ 1,439
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
1992.................. $ -- $84,222 $ -- $ -- $ 4,400 $ (695)
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
1993.................. $ -- $76,763 $ -- $ -- $ 2,875 $ 705
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
<CAPTION>
CLAIMS AND CLAIM
ADJUSTMENT AMORTIZATION PAID
EXPENSES INCURRED OF CLAIMS
RELATED TO DEFERRED AND
------------------ POLICY CLAIM
AFFILIATION WITH CURRENT PRIOR ACQUISITION ADJUSTMENT PREMIUMS
REGISTRANT YEAR YEARS COSTS EXPENSES WRITTEN
- -------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Consolidated property --
casualty entities:
1991.................. $ 14,874 $ 16,155 $ -- $29,133 $ 8,063
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
1992.................. $ 14,830 $ 6,639 $ -- $25,872 $ 4,400
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
1993.................. $ 10,484 $ 13,466 $ -- $24,773 $ 2,875
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
- ------------
(1) Does not include claims losses payable of $7,663, $7,391 and $14,027 at
April 30, 1991, 1992 and 1993, respectively, which have been classified as
'Accounts payable'.
II-18
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF BAKER & HOSTETLER]
March 10, 1994
Triarc Companies, Inc.
777 South Flagler Drive
West Palm Beach, Florida 33401
Re: Registration Statement on Form S-4
with respect to Class A Common Stock
of Triarc Companies, Inc.
Gentlemen:
As special counsel for Triarc Companies, Inc., an Ohio corporation (the
'Company'), we are familiar with the registration statement on Form S-4 (the
'Registration Statement') being filed this date by the Company with the
Securities and Exchange Commission (the 'Commission') under the Securities Act
of 1933, with respect to 2,691,822 shares of Class A Common Stock, $.10 par
value per share, of the Company (the 'Shares') to be issued pursuant to the
Agreement and Plan of Merger by and among Southeastern Public Service Company, a
Delaware corporation, SEPSCO Merger Corporation, a Delaware corporation and the
Company dated as of November 22, 1993 (the 'Merger Agreement').
In connection with the foregoing, we have examined such documents as we
have deemed necessary to render this opinion, including, without limitation, the
Articles of Incorporation, as amended, of the Company and the Merger Agreement.
Based upon such examination, we are of the opinion that:
1. The Company is a corporation duly organized and validly existing
under the laws of the State of Ohio.
2. The Shares have been duly authorized and, when issued pursuant to
the Merger Agreement and in the manner contemplated by the Registration
Statement, will be validly issued, fully paid and nonassessable.
We hereby consent to the filing of this Opinion as an exhibit to the
Registration Statement and to the reference to us under the caption 'Certain
Legal Matters, Experts and Regulatory Approvals -- Legal Opinions' in the joint
proxy statement and prospectus which is a part of the Registration Statement.
Very truly yours,
BAKER & HOSTETLER
BAKER & HOSTETLER
<PAGE>
EXHIBIT 10.12
ROYAL CROWN COLA CO.
1000 CORPORATE DRIVE
FT. LAUDERDALE, FL 33334
January 28, 1994
Mr. Fraser Latta
Vice Chairman & Chief Operating Officer
Cott Corporation
6526 Viscount Road
Mississauga, Ontario
Mr. Ed Szczepanowski
Vice President
BCB International Limited
Chancery House
High Street
Bridgetown, Barbados
West Indies
RE: RCC/Cott Supply Agreement
Gentlemen:
Reference is made to the Concentrate Sales Agreement between Royal Crown
Cola Co. ('RCC') and Cott Corporation ('Cott') which commenced June 1, 1991 (the
'Supply Agreement'). This letter outlines the terms and conditions upon which
(i) RCC will assign its rights under the Supply Agreement to BCB International
Limited ('BCB'), a wholly owned subsidiary of Cott, and (ii) RCC will enter into
a new concentrate supply agreement (the 'New Supply Agreement') with BCB. Cott
and all of its present and future subsidiaries and affiliates are hereinafter
collectively referred to as the 'Cott Group.'
1. Assignment of Existing RCC Rights. RCC will assign to BCB all of RCC's
rights and obligations under the Supply Agreement, in exchange for BCB agreeing
to enter into this New Supply Agreement and for the payment to RCC of
$[deleted, confidential treatment requested pursuant to Rule 406] upon execution
of the New Supply Agreement. This assignment is to be effective
as of the effective date of the New Supply Agreement and Cott hereby consents to
this assignment.
2. Products and Scope. RCC will manufacture and sell to BCB, and BCB will
purchase, from RCC, all of the Cott Group's worldwide requirements for cola
concentrates, or cola emulsions used in the production of concentrates, which
concentrates and emulsions are used in the production of private label and Cott
Group proprietary label carbonated soft drinks ('CSDs'), which CSDs will be sold
to consumers in bottles, cans or other containers (collectively 'PL Cola
Concentrates') and will be produced, bottled or sold by or on behalf of the Cott
Group. Wherever possible, BCB will use commercially reasonable efforts to
purchase all of the Cott Group's worldwide requirements for non-cola
concentrates, or non-cola emulsions used in the production of concentrates,
which concentrates and emulsions are used in the production of private label and
Cott Group proprietary label CSDs, which CSDs will be sold to consumers in
bottles, cans or other containers (collectively 'PL Non-Cola Concentrates' and,
together with PL Cola Concentrates, 'PL Concentrates') and will be produced,
bottled or sold by or on behalf of the Cott Group. BCB agrees that during
calendar 1995 and each year thereafter, at least 75% of the Cott Group's
aggregate worldwide requirements for PL Concentrates will be purchased from RCC.
On or prior to March 31, 1996 and on or prior to March 31 of each year
thereafter, the Cott Group will deliver a statement based on internal case sales
data of the Cott Group, certified as having been derived from such internal
sales data by the independent auditors of the Cott Group, as to whether such 75%
requirement was met during the immediately preceding year. RCC may, at its
request and at its costs, conduct an audit of such case sales data. If the Cott
Group fails to satisfy the foregoing 75% requirement in any year, RCC will be
permitted to sell PL Concentrates to other
<PAGE>
customers, but BCB will continue to be obligated to buy all of the Cott Group's
requirements for PL Cola Concentrates exclusively from RCC and to use
commercially reasonable efforts to purchase, wherever possible, all of the Cott
Group's requirements for PL Non-Cola Concentrates exclusively from RCC. Subject
to paragraph 6 hereof, in the event that the Cott Group purchases any PL Cola
Concentrates from anyone other than RCC and the Cott Group fails to cure such
breach within 15 days after notice from RCC, RCC, in addition to all of its
other rights and remedies under the New Supply Agreement and applicable law,
shall have the right to terminate the New Supply Agreement upon thirty (30) days
written notice and to pursue all of its rights and remedies under applicable law
against the Cott Group for breach of contract.
3. Use of Name. The Cott Group may advise its customers and other
interested parties that its PL Concentrates are made by RCC. However, the Cott
Group may not state or imply that any particular formula is RC Cola, Diet-Rite,
or any other branded product of RCC. The Cott Group shall not, and the Cott
Group shall cause its customers not to, use any of RCC's trademarks or RCC's
name in any way in connection with the production, labeling, advertising,
display or marketing of the private label and proprietary label CSDs produced or
sold by or on behalf of the Cott Group.
4. Ownership of Formulae. RCC will be the developer, formulator and
supplier of all PL Concentrates for CSDs which will be produced, bottled or sold
by or on behalf of the Cott Group and which are subject to the terms of the New
Supply Agreement. All rights and title to all formulae developed after the date
of the New Supply Agreement, whether developed by RCC, the Cott Group or jointly
by RCC and the Cott Group, shall belong exclusively to RCC. Formulae designed by
the Cott Group prior to the effective date of the New Supply Agreement shall
continue to belong to the Cott Group. Formulae designed by RCC prior to the
effective date of the New Supply Agreement shall continue to belong to RCC.
Formulae designed by RCC and Cott jointly prior to the effective date of the New
Supply Agreement shall continue to be jointly owned. Exhibits B and C hereto
identify the '800' and '900' Series products, the formulae for which are owned
by the Cott Group, and the '200,' '300,' '400,' and '500' Series products, the
formulae for which are owned by RCC. During the term of the New Supply Agreement
and any renewals thereof RCC agrees not to utilize any of the formulae supplied
to BCB for any other purpose without the written consent of BCB. Upon
termination of the New Supply Agreement because one party has elected not to
renew under Paragraph 10 hereof, formulae developed by the non-electing party,
formulae developed by the electing party which are in use at the time and
formulae developed by both parties jointly shall belong to the non-electing
party. Upon termination of the New Supply Agreement as a result of a breach or
failure to perform by one party, formulae developed by the non-breaching party,
formulae developed by the breaching party which are in use at the time and
formulae developed by both parties jointly shall belong to the non-breaching
party.
5. Performance Minimums. Except as provided in the immediately succeeding
sentence, RCC will agree not to sell PL Concentrates to anyone in the world
other than BCB. In the event that BCB fails in any calendar year to purchase PL
Concentrates from RCC which equal or exceed 100 million 12 ounce case
equivalents ('Cases') RCC may by written notice to BCB by April 30 of the
following year elect to sell PL Cola Concentrates and/or PL Non-Cola
Concentrates to other customers. If the volume purchased by BCB from RCC during
any calendar year declines by 20% or more in comparison to the immediately
preceding year for two consecutive years, RCC may by written notice to BCB by
April 30 of the year immediately following the second year in which BCB failed
to purchase the minimum volumes required, elect to sell PL Cola Concentrates
and/or PL Non-Cola Concentrates to other customers. If RCC elects to sell PL
Cola Concentrates to other customers, BCB may, by written notice to RCC within
90 days after receipt of RCC's election, elect to purchase PL Cola Concentrates
from suppliers other than RCC, in which case RCC shall continue to be obligated
to supply PL Cola Concentrates to BCB under the terms and conditions of the New
Supply Agreement. If RCC elects to sell PL Non-Cola Concentrates to other
customers, BCB may, by written notice to RCC within 90 days after receipt of
RCC's election, elect to purchase PL Non-Cola Concentrates from suppliers other
than RCC, in which case RCC shall continue to be obligated to supply PL Non-Cola
Concentrates to BCB under the terms and conditions of the New Supply Agreement.
2
<PAGE>
6. ACQUISITIONS.
6.1 In the event that the Cott Group acquires a business, whether through
an acquisition of stock or assets or some other form of transaction, that
purchases concentrates from a source other than RCC as a result of contractual
obligations and/or commercial relationships not evidenced by contractual
obligations, then notwithstanding the provisions of paragraph 2, (i) the
acquired business shall be permitted to continue to purchase concentrates from
the same non-RCC sources to the extent that it is contractually obligated to do
so or for a period of twelve (12) months after the date of acquisition of such
business by the Cott Group and (ii) in the case of a commercial relationship not
evidenced by a contractual obligation, the acquired business shall be permitted
to continue to purchase concentrates a from the same non-RCC source for a period
not exceeding twelve (12) months after the date of acquisition of such business
by the Cott Group. Concentrates purchased by the acquired business from non-RCC
sources pursuant to the preceding sentence shall not be included in the
calculations of the 75% test under Paragraph 2 for a period of twelve (12)
months after the date of acquisition of such business by the Cott Group.
6.2 Anything in paragraph 6.1 notwithstanding, (a), wherever possible, the
Cott Group shall use commercially reasonable efforts to cause the acquired
business to cease purchasing cola and non-cola concentrates from sources other
than RCC as soon as possible, (b) the acquired business shall not be permitted
to sell cola concentrates manufactured by sources other than RCC or CSDs made
from cola concentrates manufactured by sources other than RCC to any customers
other than the customers it served at the time of its acquisition by the Cott
Group, (c) the Cott Group shall use commercially reasonable efforts to cause the
acquired business to cease selling non-cola concentrates manufactured by sources
other than RCC or CSDs made from non-cola concentrates manufactured by sources
other than RCC to any customers other than the customers it served at the time
of its acquisition by the Cott Group and (d) the Cott Group shall not renew or
extend or permit the renewal or extension of any contractual obligation of an
acquired business to purchase cola concentrates from a source other than RCC.
6.3 RCC will work with BCB to supply to the acquired business concentrates
or emulsions of a quality and taste similar to those which the acquired business
purchased from sources other than RCC (hereinafter 'Replacement Concentrates').
The prices for Replacement Concentrates will be equal to the cost of
ingredients, packaging and freight of $[deleted, confidential treatment
requested pursuant to Rule 406] per Case plus $[deleted, confidential treatment
requested pursuant to Rule 406] per Case. On the third anniversary of the
effective date of the New Supply Agreement and on every third anniversary
thereafter, the $[deleted, confidential treatment requested pursuant to
Rule 406] per Case rate shall be adjusted proportionately in accordance
with the adjustments to the prices set forth in Exhibit A. Thus, if the
prices in Exhibit A are increased 10%, then the $[deleted, confidential
treatment requested pursuant to Rule 406] per Case rate for Replacement
Concentrates shall increase to $[deleted, confidential treatment requested
pursuant to Rule 406]. Replacement Concentrates shall be omitted
from the calculations of the 75% test under Paragraph 2.
6.4 Except as provided by the terms of the New Supply Agreement, in no
event will the Cott Group engage in the business of manufacturing or selling
concentrates or branded CSDs without RCC's prior written consent. For purposes
of this paragraph, branded CSDs refers to CSDs which are marketed, distributed
and priced in substantially the same manner as the products produced by the two
major cola companies. In the event that the Cott Group wishes to acquire a
company or business that is engaged in the business of manufacturing or selling
concentrates or branded CSDs in competition with RCC (a 'Cott Restricted
Business'), then the Cott Group shall discontinue the Cott Restricted Business
or sell the Cott Restricted Business to a third party not affiliated with the
Cott Group within 12 months after the Cott Group acquires the Cott Restricted
Business. RCC shall have a right of first refusal to purchase the Cott
Restricted Business.
6.5 In the event that RCC acquires a company or business that sells PL
Concentrates to customers other than the Cott Group, then notwithstanding the
provisions of paragraph 5, (i) the acquired entity shall be permitted to
continue to sell PL Concentrates to customers other than the Cott Group to the
extent that it is contractually obligated to do so and (ii) in the case of
commercial relationships not evidenced by a contractual obligation, the acquired
entity shall be permitted to sell PL Concentrates to customers other than the
Cott Group for a period not exceeding twelve (12) months from the date of the
acquisition of such entity by RCC. Notwithstanding the foregoing, (a) wherever
possible RCC will use commercially reasonable efforts to cause the acquired
entity to cease selling PL Concentrates to
3
<PAGE>
customers other than the Cott Group as soon as possible (b) the acquired entity
shall not be permitted to sell PL Concentrates to any customers other than the
customers it served at the time of its acquisition by RCC (c) RCC shall not
extend or permit the renewal of any contractual obligation pursuant to which the
acquired entity sells PL Concentrates to customers other than the Cott Group,
and (d) RCC will not undertake any improvement or changes to the PL Concentrates
being manufactured by the acquired entity for sale to customers other than the
Cott Group. For greater certainty, RCC will not supply its concentrates or
emulsions to the acquired entity except for sale to the Cott Group.
6.6 The Cott Group will, wherever possible, use commercially reasonable
efforts to purchase PL Concentrates from the acquired entity in a quantity such
that the acquired entity's sales do not decline as a result of curtailing its
sales of PL Concentrates to customers other than the Cott Group. This paragraph
will not obligate the Cott Group to increase the minimum purchase requirements
contained in paragraph 5 hereof.
6.7 In no event will RCC engage in the business of marketing private label
CSDs to retailers without the Cott Group's prior written consent. In the event
that RCC wishes to acquire a company or business that is engaged in the business
of marketing private label CSDs to retailers (an 'RCC Restricted Business'),
then RCC shall discontinue the RCC Restricted Business or sell the RCC
Restricted Business to a third party not affiliated with RCC within 12 months
after RCC acquires the RCC Restricted Business. The Cott Group shall have a
right of first refusal to purchase the RCC Restricted Business.
7. Fighter Brands. RCC agrees to work with BCB to supply PL Concentrates to
BCB to meet the demands of BCB's customers for 'fighter brands.' The prices for
such fighter brands shall be negotiated in good faith. RCC agrees that it will
not develop a new brand with a full line of low-priced flavors which is
specifically designed for the warehouse retail distribution system.
8. RCC PERFORMANCE OBLIGATIONS.
(a) The PL Concentrates sold by RCC shall comply in all material respects
with all applicable laws, rules and regulations, including the Federal Food,
Drug and Cosmetic Act, at the time of shipment. All PL Concentrates sold by RCC
shall be merchantable and fit for the intended purpose at the time of shipment
and shall be designed to meet the specifications of the customers of the Cott
Group. In the event that RCC's quality control personnel and BCB's
representatives agree that any PL Concentrates sold by RCC do not meet the
foregoing standards, RCC's liability shall be limited to the replacement of the
PL Concentrates and the finished goods made from such defective PL Concentrates
and the reimbursement of costs throughout the supply chain caused by a recall of
products made from such defective PL Concentrates in a fashion consistent with
the policy followed by RCC with respect to a recall of product made from
defective branded concentrate. RCC shall also be responsible for claims by third
parties resulting solely from PL Concentrates proven to be defective. RCC shall
not be responsible for defective PL Concentrates produced by the Barbados
Facility unless RCC's quality control personnel and BCB's representatives
mutually determine in good faith that the emulsions from which such PL
Concentrates were produced were defective.
(b) BCB agrees to furnish RCC with its projected requirements for PL
Concentrates for each calendar year by not later than December 1 of the
preceding calendar year. BCB shall deliver updated projections of its
requirements for PL Concentrates for the next 12 months on or before March 1,
June 1, and September 1 of each year. All such projections shall specify, on a
month by month basis, BCB's requirements for each flavor or product. BCB shall
also (a) deliver monthly reports to RCC on BCB's actual sales for the preceding
month and (b) notify RCC as soon as possible of any significant business
developments which would be likely to cause changes in its projected
requirements. RCC will agree to deliver PL Concentrates as ordered by BCB,
provided that the volumes actually ordered by BCB do not exceed the amounts
specified in BCB's most recent projections, and RCC will use commercially
reasonable efforts to fill orders by BCB for amounts in excess of such
projections. RCC shall accord the same priority to BCB's orders that it accords
to the orders of RCC's franchises for RCC's branded concentrates. In the event
that RCC repeatedly fails to deliver the volumes ordered by BCB in timely
fashion, provided that such volumes do not exceed the amounts specified in BCB's
most recent projections, and such repeated failures are reasonably determined by
the Cott Group to have had, or
4
<PAGE>
may reasonably be expected to have in the future a material adverse effect on
the Cott Group's financial condition or results of operations, then BCB may
notify RCC in writing of such failures. RCC shall have the right to demonstrate
that the Cott Group's expectations of a future material adverse effect are
unreasonable. If, during the first 365 days after RCC receives such written
notice, deliveries by RCC continue to be untimely or in amounts substantially
less than the amounts ordered by BCB, provided that the volumes ordered by BCB
do not exceed the amounts specified in BCB's most recent projections, and the
Cott Group reasonably determines that such failures by RCC continue to have had,
or may reasonably be expected to have in the future, a material adverse effect
on the Cott Group's financial condition or results of operation, then the Cott
Group may, by written notice, elect to terminate the New Supply Agreement
without prejudice to the Cott Group's other legal rights and remedies arising
out of such breach. RCC shall not be responsible for failing to fill orders (i)
for amounts in excess of the amounts specified in the projections or (ii) to the
extent that such failure resulted from RCC's inability to obtain raw materials
because BCB did not give RCC sufficient advance notice of a change in BCB's
requirements.
9. Pricing and Payment. The price structure shall be as set forth in
Exhibit A. BCB shall make all payments to RCC within 30 days of shipment from
RCC's production center.
10. Term. The effective date of the New Supply Agreement shall be January
1, 1994 and the initial term of the New Supply Agreement shall be twenty-one
years. The parties agree to negotiate in good faith the terms of an extension to
the New Supply Agreement during the nineteenth year of the effective date of the
New Supply Agreement. If the parties have not agreed to the terms of an
extension by the twentieth anniversary of the effective date of the New Supply
Agreement, then the term of the New Supply Agreement shall be extended for six
years, and the terms and conditions of the extended agreement shall be the same
as the terms and conditions of the New Supply Agreement. The New Supply
Agreement will be subject to similar six-year extensions as follows: at the end
of the fifth year of each extended term, the parties agree to negotiate in good
faith the terms of another extension to the New Supply Agreement. If the parties
have not agreed to the terms of an extension within six months after the fifth
anniversary of the current extension, then the New Supply Agreement will
automatically be extended for an additional six years on the same terms and
conditions. Such six-year extensions shall continue successively notwithstanding
the failure of the parties during any such extension to agree upon the terms and
conditions of another extension. Notwithstanding the foregoing, either party
may, at its election, refuse to agree to any extension of the New Supply
Agreement, in which case Paragraph 4 hereof shall apply to determine ownership
of formulae.
11. Hiring. The Cott Group and RCC agree not to solicit for hire key
employees from each other's organizations.
12. New International Activities. RCC acknowledges that it presently
supplies the Cott Group with PL Concentrates in Canada and the United States.
RCC further acknowledges that Cott, through BCB, is actively pursuing the sale
of private label beverages in countries outside of Canada and the United States.
In order to enhance this activity, and to satisfy its obligation under paragraph
one (1) of this letter BCB is contemplating the use of an emulsifying finishing
facility (the 'International Facility') in a location outside the United States
or Canada. BCB expects to acquire or construct the International Facility or to
obtain the use of the International Facility through a lease, license, tolling
or other arrangement through a third party. RCC will cooperate with BCB with
respect to the International Facility, on the understanding that RCC, on behalf
of BCB, controls and directs 100% of the supply of all concentrate emulsions
manufactured by RCC and sent to the International Facility. The prices for the
emulsions sold by RCC to BCB shall result in the operating profit per Case,
determined in accordance with generally accepted accounting principles, earned
by RCC being equal to the operating profit per Case earned by RCC on PL
Concentrates manufactured at RCC's Columbus, Georgia facility as of December 31,
1993. The Cott Group will indemnify RCC against any duties, fees or taxes
(including withholding, gross receipts, value added, income or other type of
taxes) imposed by the government of the country in which the International
Facility is located that are attributable to the activities contemplated by the
New Supply Agreement. RCC will not bear any development and construction costs
relating to the International Facility. BCB agrees to retain the services of an
5
<PAGE>
employee or employees of RCC or its subsidiaries to occupy the positions of
plant manager and other key positions (as required) of the International
Facility.
13. Quality Control Services. RCC will provide quality control services at
the same level as provided with respect to RCC's own branded products, including
the provision of technical support to the Cott Group's bottling and canning
locations, including the International Facility, provided, however, that RCC
will not be responsible for the selection, testing or approval of container
closures and other packaging materials for the finished CSDs. In consideration
of such services, during each year of the first ten years of the operation of
the International Facility, BCB will pay to RCC a fee of $[deleted, confidential
treatment requested pursuant to Rule 406]. Such fee will
be payable upon the commencement of operations of the International Facility and
on each of the first [deleted, confidential treatment requested pursuant to Rule
406] anniversaries thereof.
14. Guaranty. Cott will guarantee all of BCB's obligations under the New
Supply Agreement.
15. Use of RCC Bottlers. Cott agrees to use commercially reasonable efforts
to cause the private label and proprietary label CSDs produced in North America
in bottles, cans or other containers by the Cott Group to be bottled by RCC's
franchisees wherever possible, provided, however, that the Cott Group shall be
relieved of such obligation to the extent that a franchisee does not have the
physical or technical capability to meet Cott's requirements on the most
cost-effective basis, as determined by Cott in its sole discretion.
16. Fountain Syrup. During the period January 1, 1994 through December 31,
1995, RCC will manufacture and sell to BCB, and BCB will purchase, all of the
Cott Group's worldwide requirements for cola concentrates or cola emulsions used
in the production of cola concentrates used in the production of private label
and Cott Group proprietary label fountain syrup (collectively 'PL Cola Fountain
Syrup') produced or sold by or on behalf of the Cott Group. Wherever possible,
BCB will during such two-year period use commercially reasonable efforts to
purchase all of the Cott Group's worldwide requirements for non-cola
concentrates or non-cola emulsions used in the production of concentrate used in
the production of private label and Cott Group proprietary label fountain syrup
(collectively 'PL Non-Cola Fountain Syrup' and, together with PL Cola Fountain
Syrup, 'PL Fountain Syrup') produced or sold by or on behalf of the Cott Group.
BCB agrees that during 1995, at least 75% of the Cott Group's aggregate
worldwide requirements for PL Fountain Syrup will be purchased from RCC. During
this two-year period, RCC will not sell PL Fountain Syrup to customers other
than the Cott Group. The pricing for the PL Fountain Syrup will be
$[deleted, confidential treatment requested pursuant to Rule 406] per
Case for regular colas and diet colas, with diet colas adjusted for any
differences in costs of ingredients and direct packaging. Such costs and prices
will be reviewed quarterly and adjusted by the same mechanisms as are set forth
in Exhibit A. Additionally, RCC will provide PL Fountain Syrup packing to Cott
at a rate competitive with the rate charged by other national fountain syrup
packers.
If Cott commits to developing the sales in the fountain syrup segment
during this two-year period, then Cott and RCC will negotiate appropriate
performance minimums for PL Fountain Syrup and PL Fountain Syrup will be made
subject to the New Supply Agreement. If the parties are unable to agree on
appropriate performance minimums for PL Fountain Syrup, then PL Fountain Syrup
will not be subject to the New Supply Agreement and the parties will have no
obligations to each other with respect to PL Fountain Syrup. If the Cott Group
decides during the two-year period not to pursue the development of sales in the
PL Fountain Syrup segment, then BCB will so advise RCC on behalf of itself and
the Cott Group. RCC will be free to sell PL Fountain Syrup to other customers if
the Cott Group decides not to pursue sales in the fountain syrup segment.
17. Miscellaneous. All references herein to '$' or 'dollars' are references
to United States dollars. All references herein to the Cott Group shall be
deemed to be references to each member of the Cott Group and to all members of
the Cott Group collectively. RCC shall have the right to utilize the foreign
sales corporation provisions of the Internal Revenue Code and to assign its
rights and obligations under the New Supply Agreement, provided that RCC fully
guarantees the assignee's obligations thereunder.
6
<PAGE>
The foregoing is a binding contractual obligation of each of RCC and Cott
and BCB. The parties intent to execute and deliver a definitive New Supply
Agreement, but until a definitive New Supply Agreement is executed, this letter
agreement shall be deemed a binding agreement.
Very truly yours,
ROYAL CROWN COLA CO.
/s/
By: .................................
John C. Carson, President
Accepted and agreed:
COTT CORPORATION
/s/
BY: .................................
Fraser Latta
Vice Chairman & COO
BCB INTERNATIONAL LIMITED
/s/
BY: .................................
Ed Szczepanowski
Vice President
7
<PAGE>
RCC/COTT SUPPLY AGREEMENT -- EXHIBIT A
[deleted, confidential treatment requested pursuant to Rule 406]
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the use
of our reports and to all references to our firm included in or made a part of
this registration statement.
ARTHUR ANDERSEN & CO.
Miami, Florida,
March 10, 1994.
<PAGE>
EXHIBIT 23.2
[LOGO]
March 8, 1994
The Board of Directors
Southeastern Public Service Company
777 S. Flagler Drive
West Palm Beach, FL 33401
Attention: David E. Schwab II, Esq.
Sir Ian MacGregor
The Special Committee of
The Board of Directors
The Board of Directors
Triarc Companies Inc.
777 S. Flagler Drive
West Palm Beach, FL 33401
Attention: Curtis S. Gimson, Esq.
Re: Proxy Statement of Southeastern Public Service
Company and Registration Statement of Triarc
Companies, Inc. to be filed with the Securities
and Exchange Commission on March 10, 1994
(the 'Proxy Statement-Prospectus')
Gentlemen:
We hereby consent to the references to Smith Barney Shearson Inc. and the
description of our opinion, valuation analyses of SEPSCO and Triarc and analysis
of certain claims alleged in the Complaint in the Ehrman Litigation contained in
the Proxy Statement-Prospectus under 'SUMMARY-The Merger-Recommendation of the
SEPSCO Board' and '-Opinion of Financial Advisor,' and 'SPECIAL FACTORS -
Recommendation of the SEPSCO Special Committee and the SEPSCO Board' and '-
Opinion of Financial Advisor,' the inclusion of our opinion dated November 22,
1993 as Annex II to the Proxy Statement-Prospectus, and the reference to Smith
Barney Shearson Inc. and our opinion in the copy of the letter to SEPSCO
stockholders proposed to be mailed with the Proxy Statement-Prospectus.
Undefined terms used herein have the meaning set forth in the Proxy Statement-
Prospectus .
Very truly yours,
Smith Barney Shearson Inc.
Smith Barney Shearson Inc.