<PAGE>
As filed with the Securities and Exchange Commission on November 20, 1997
Registration No. 333-38771
======================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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AMENDMENT NO. 1
To
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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AQUAPENN SPRING WATER COMPANY, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 5149 25-1541772
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation Industrial Classification Identification
or organization) Code Number) Number)
One AquaPenn Drive
Milesburg, Pennsylvania 16853
(814) 355-5556
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
Edward J. Lauth, III
One AquaPenn Drive
Milesburg, Pennsylvania 16853
(814) 355-5556
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
-----------------
Copies to:
Brian D. Doerner, Esq. Gregory M. Shaw, Esq.
Ballard Spahr Andrews & Ingersoll Cravath, Swaine & Moore
1735 Market Street, 51st Floor Worldwide Plaza
Philadelphia, PA 19103-7599 825 Eighth Avenue
(215) 665-8500 New York, NY 10019-7475
(212) 474-1000
----------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. |_| _________
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|_________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|__________
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. |_|__________
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
====================================================================================================================================
Title of Each Class of Proposed Maximum Proposed Maximum
Securities to Be Amount to Offering Price Aggregate Amount of
Registered Be Registered Per Share (1) Offering Price (1) Registration Fee
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock (no par value) 4,437,850 shares (2) $16.00 $71,005,600 $21,517(3)
====================================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculation of the registration fee
in accordance with Rule 457 under the Securities Act of 1933, as amended.
(2) Includes 578,850 shares which the Underwriters have the option to
purchase to cover over-allotments, if any.
(3) This amount has previously been paid.
-----------------------------------------
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 this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
===============================================================================
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED , 1997
[LOGO]
Shares
AQUAPENN SPRING WATER COMPANY, INC.
Common Stock
--------------------
Of the Common Stock offered hereby, 2,000,000 shares are being sold by
AquaPenn Spring Water Company, Inc. ("AquaPenn" or the "Company") and 1,859,000
shares are being sold by Weis Markets, Inc. and its subsidiaries (the "Selling
Shareholder"). See "Principal Shareholders and Selling Shareholder." The Company
will not receive any proceeds from the sale of Common Stock by the Selling
Shareholder.
Prior to this offering (the "Offering"), there has been no public market
for the Common Stock. It is currently estimated that the Offering price will be
between $14.00 and $16.00 per share. See "Underwriting" for certain factors to
be considered in determining the Offering price. The Company intends to apply
for listing of the Common Stock on the New York Stock Exchange ("NYSE") under
the symbol "APN."
The shares of Common Stock offered hereby involve a high degree of risk.
See "Risk Factors" beginning on page 7 of this Prospectus for a discussion of
certain factors that should be considered by prospective investors.
--------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
================================================================================================================================
Price to Underwriting Discounts Proceeds to Proceeds to Selling
Public and Commissions (1) Company (2) Shareholder (2)
<S> <C> <C> <C> <C>
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Per Share....................... $ $ $ $
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Total........................... $ $ $ $
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Total Assuming Full
Exercise of Over-Allotment
Option (3)...................... $ $ $ $
================================================================================================================================
</TABLE>
(1) See "Underwriting."
(2) Before deducting expenses estimated at an aggregate of $750,000, which
are payable by the Company and the Selling Shareholder.
(3) Assuming exercise in full of the 30-day option granted by the Company to
the Underwriters to purchase up to 578,850 additional shares, on the same
terms, solely to cover over-allotments. See "Underwriting."
--------------------
The shares of Common Stock are offered by the Underwriters, subject to
prior sale, when, as and if delivered to and accepted by the Underwriters, and
subject to their right to reject any order in whole or in part. It is expected
that delivery of the Common Stock will be made in New York City, on or about
, 1997.
--------------------
PaineWebber Incorporated
Lazard Freres & Co. LLC
Parker/Hunter
Incorporated
--------------------
The date of this Prospectus is , 1997
<PAGE>
[Photographs with the following captions:]
1. (Lauth & Paterno)
AquaPenn President and founder Edward J. Lauth, III with Joe
Paterno, Head Coach of the football team at The Pennsylvania State
University and AquaPenn spokesperson and shareholder. (Mr. Paterno
makes no representation, recommendation or guarantee to investors
with regard to the common stock of AquaPenn offered hereby.)
2. (Krones Bloc Equipment)
The Krones Bloc rinses, fills and caps AquaPenn's PET
(polyethylene terephthalate) bottles at the rate of up to 600
bottles per minute. AquaPenn's Milesburg Facility has two units
installed and a third scheduled for installation in December 1997.
3. (Pure American 20 oz. Case)
Pure American(R) Spring Water is AquaPenn's leading name brand.
AquaPenn's PET bottle designs in 8 oz., 20.0 oz., 24.9 oz., 1
liter and 1.5 liter sizes are proprietary.
4. (Young Child With 8 oz. Bottle)
AquaPenn's innovative 8 oz. PET bottle is popular with parents of
young children because of its ease of handling. Introduced in
January 1997, the "single serve solution" is also served in-flight
on two major United States airlines.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK, INCLUDING
OVER-ALLOTMENT, ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS, AND IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
Unless otherwise indicated, all information in this Prospectus assumes that
the Underwriters' over-allotment option will not be exercised and gives effect
to (a) the 0.6008-for-1 reverse stock split (the "Reverse Stock Split") of each
outstanding share of Common Stock of the Company that will occur immediately
prior to this Offering, (b) an Offering price of $15.00 per share of Common
Stock, (c) no exercise of outstanding options to purchase 844,124 shares of
Common Stock, (d) the exercise of a warrant for 135,180 shares of Common Stock
held by the Selling Shareholder (the "Weis Markets Warrant") and no exercise of
remaining warrants to purchase 105,140 shares of Common Stock issuable pursuant
to the Company's warrant agreements, (e) no purchase of the 75,462 shares of
Common Stock subscribed for under the Company's 1996 Employee Stock Purchase
Plan (the "Stock Purchase Plan") and (f) no conversion of the outstanding shares
of Series A Non-Voting Convertible Preferred Stock (the "Convertible Preferred
Stock") into 1,022,862 shares of Common Stock. Fiscal year references are to the
fiscal year ended September 30. Unless otherwise provided, references to shares
outstanding and to 1997 fiscal year results have been adjusted to give effect to
the acquisition on October 15, 1997 of Dunsmuir Bottling Company d/b/a Castle
Rock Spring Water ("Castle Rock"). All references to the "Company" or "AquaPenn"
refer to AquaPenn Spring Water Company, Inc. and its subsidiaries.
The Company
AquaPenn produces, bottles and sells non-sparkling natural spring water
products to regional and national customers under both retailers' and other
customers' private labels and its proprietary brands Pure American(R), Great
American(R), AquaPenn(R) and Castle Rock. The Company, founded in 1986, is one
of the largest producers of private label natural spring water products in the
United States; private label products accounted for approximately 42.5% of the
Company's 1997 fiscal year net revenues. The Company's private label and branded
customers include, among others, Delta Air Lines, Inc., Gerber Products Company,
Sam's Club and Walgreen Co. The Company's net revenues have grown from $9.3
million in fiscal 1993 to $45.8 million in fiscal 1997, representing a
compounded annual growth rate of 49.1%. Over the same time period, the Company's
net income has grown from approximately $400,000 to approximately $2.3 million,
representing a compounded annual growth rate of 55.1%.
According to Beverage Marketing, the total U.S. market for bottled water has
grown from 1.6 billion gallons sold in 1987 to over 3.1 billion gallons in 1996,
and accounted for approximately $3.6 billion in wholesale sales during 1996.
Non-sparkling water comprises over 87% of the U.S. bottled water market and
generated $2.7 billion of wholesale sales in 1996, and is expected to continue
to grow in the future. PET (an acronym for polyethylene terephthalate, a premium
clear plastic) packaged products comprise approximately 39% of the domestically
produced non-sparkling water market and have grown from approximately 83 million
gallons in 1987 to approximately 580 million gallons in 1996, representing a
compounded annual growth rate of approximately 24%. PET-packaged products
accounted for approximately $921 million of wholesale sales in 1996.
Approximately 81.7% of the Company's 1997 net revenues was generated by products
packaged in PET containers. According to Beverage Marketing, PET bottled water
is among the fastest growing beverage categories in the United States.
Contributing to the growth in the consumption of non-sparkling water are
consumer trends including health and fitness awareness, municipal tap water
quality concern and maturing soft drink demand, as well as consumer demand for
convenience and innovative packaging.
The Company has adopted a strategy of producing regionally and selling its
natural spring water products to both national and regional customers. By
producing both private label and branded products in a full line of sizes and
packaging, the Company can offer its customers "one-stop-shopping" supply
arrangements. The Company's advanced packaging capability allows it to bottle
natural spring water products in a variety of innovative packages. The Company
maintains state-of-the-art production facilities, allowing it to achieve cost
efficiencies, produce
3
<PAGE>
superior quality products, create innovative packaging and rapidly respond to
customer shipment and production demands. The Company's sales and marketing
staff aims to provide its customers with exceptional customer service and market
responsiveness.
AquaPenn's growth strategy includes increasing sales to existing customers,
broadening its current customer base, adding new distribution channels and
expanding its product line. The Company's active acquisition program includes
obtaining the rights to additional spring water sites and acquiring natural
spring water companies. In accordance with this strategy, the Company recently
acquired the rights to natural spring water from Ginnie Springs, a spring
located in north central Florida ("Ginnie Springs"), adjacent to which a new
production facility is expected to be constructed and completed by the Spring of
1998. In addition, on October 15, 1997, the Company acquired Castle Rock, a
bottler and distributor of natural spring water products located in northern
California. The acquisition of the right to Ginnie Springs spring water and the
acquisition of Castle Rock will allow the Company to serve its customers more
efficiently.
The Company's executive offices are located at One AquaPenn Drive,
Milesburg, Pennsylvania 16853. The Company's telephone number is (814) 355-5556
and its web site is www.aquapenn.com.
The Offering
<TABLE>
<S> <C>
Common Stock Offered by:
the Company...................................................... 2,000,000 shares (1)
the Selling Shareholder.......................................... 1,859,000 shares
Common Stock to be Outstanding after the Offering................... 6,744,646 shares (1)(2)
Use of Proceeds..................................................... For capital expenditures, including funding
a portion of the expansion of the Company's
Milesburg, Pennsylvania facility and a
portion of the construction of the Ginnie
Springs facility, repayment of debt
associated with the acquisition of Castle
Rock, repayment of outstanding balances
under the Company's credit facilities and for
other general corporate purposes. See "Use
of Proceeds."
Proposed NYSE symbol................................................ "APN"
</TABLE>
- --------------------
(1) Excludes the Underwriters' over-allotment option to purchase 578,850
shares of Common Stock.
(2) Excludes 2,047,588 shares of Common Stock reserved for issuance upon
exercise of outstanding options, warrants, subscriptions under the Stock
Purchase Plan and conversion of the Convertible Preferred Stock. See
"Management -- Employment Agreements," "Management -- Stock Plans" and
"Description of Capital Stock."
4
<PAGE>
Summary Financial Information
The following summary financial information including pro forma financial
information should be read in conjunction with the Consolidated Financial
Statements of the Company and the notes thereto, the Financial Statements of
Castle Rock (Dunsmuir Bottling Company) and the notes thereto, the Unaudited Pro
Forma Combined Financial Data and the notes thereto and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Years Ended September 30,
--------------------------------------------------------------------------
Pro Forma
1993 1994 1995 1996 1997 1997 (1)
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:.............
Net revenues............................ $9,275,537 $ 13,011,744 $ 22,956,053 $ 28,240,741 $ 38,015,315 $45,819,395
Gross profit............................ 2,136,846 3,032,276 4,802,698 6,969,428 9,698,377 11,427,629
Selling, general and administrative..... 1,389,220 1,994,812 3,290,609 4,313,480 5,126,583 7,276,731
Income from operations.................. 747,626 1,037,464 1,512,089 2,655,948 4,571,794 4,150,898
Net income.............................. $ 400,562 $ 688,995 $ 638,350 $ 1,485,228 $ 2,786,755 $ 2,318,779
Net income per common share (2)......... $ 0.12 $ 0.18 $ 0.16 $ 0.26 $ 0.47 $ 0.38
Weighted average number of common
shares outstanding.................... 3,417,391 3,785,102 3,884,708 5,620,741 5,951,844 6,138,007
Other Operations Data:
EBITDA (3)............................. $ 1,260,940 $ 1,606,457 $ 2,888,231 $ 4,613,823 $ 7,285,186 $ 7,158,553
<CAPTION>
September 30, 1997
-----------------------------------------------------------
Pro Forma
Actual Pro Forma (4) As Adjusted (4) (5)
------ ------------- -------------------
<S> <C> <C> <C>
Consolidated Balance Sheet Data:
Working capital ............................ $ 3,096,318 $ 644,984 $ 21,029,984
Total assets................................ 26,580,185 34,572,900 54,957,900
Notes payable, including current portion.... 4,817,467 9,536,121 1,736,121
Shareholders' equity........................ 18,064,347 20,130,064 48,315,064
</TABLE>
- --------------------
(1) Gives effect to the acquisition of Castle Rock as if it had occurred as
of October 1, 1996. The pro forma financial data set forth above are not
necessarily indicative of the financial position or results of
operations that would have been achieved had such transaction been
consummated as of the date indicated, or that may be achieved in the
future. See "Unaudited Pro Forma Combined Financial Data" for a more
detailed discussion of the pro forma adjustments.
(2) For information concerning the number of shares used in the computation
of net income per common share, see Note 1 to the Consolidated Financial
Statements.
(3) "EBITDA" represents earnings before interest expense, income tax
expense, depreciation and amortization, including amortization of
leasehold improvements, acquisition and development costs, and debt
expense and discount or premium relating to any indebtedness. EBITDA is
not presented herein as an alternative measure of operating results (as
determined in accordance with generally accepted accounting principles
("GAAP")) or cash flow (as determined in accordance with GAAP).
(4) Gives effect to the acquisition of Castle Rock as if it had occurred
as of September 30, 1997.
(5) As adjusted to give effect to the sale of 2,000,000 shares of Common
Stock offered by the Company hereby assuming an Offering price of $15.00
per share and the receipt of proceeds from the exercise of the Weis
Markets Warrant for 135,180 shares of Common Stock and after deducting
estimated underwriting discounts and commissions and Offering expenses
and the application of the estimated net proceeds therefrom. See "Use of
Proceeds" and "Capitalization."
----------------------------------
The preceding summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and Consolidated Financial
Statements of the Company and the notes thereto appearing elsewhere in this
Prospectus. This
5
<PAGE>
Prospectus contains forward-looking statements that involve risks and
uncertainties. Discussions containing such forward-looking statements may be
found in the material set forth under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business." Actual events or results could differ materially
from those discussed herein. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed under "Risk
Factors" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Unless otherwise noted, the source of statistical information relating to
the bottled water industry included in this Prospectus is Beverage Marketing
Corporation of New York, "Bottled Water In The United States", 1997 Edition, as
updated periodically (referred to herein as "Beverage Marketing").
--------------------
Pure American(R), Great American(R) and AquaPenn(R) are registered
trademarks of the Company. All other trademarks appearing in this Prospectus are
the property of their respective holders.
6
<PAGE>
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. Prospective investors should carefully consider the following
risk factors, in addition to the other information set forth in this Prospectus,
before purchasing any of the shares of Common Stock offered hereby.
Competition
The bottled water industry is highly competitive. Many of the Company's
competitors have more experience in the U.S. bottled water market, have greater
financial and management resources and have more established proprietary
trademarks and distribution networks than the Company. The Company currently
competes with established national companies such as The Perrier Group of
America, Inc. (whose brands include Arrowhead Mountain Spring Water, Poland
Spring, Ozarka Spring Water, Great Bear, Deer Park, Ice Mountain and Zephyrhills
Natural Spring Water) and Great Brands of Europe (whose brands include Evian
Natural Spring Water and Dannon Natural Spring Water), as well as numerous
regional bottled water companies located in the United States and Canada. The
Company competes not only with other bottled water producers, but also with
producers of other beverages, including, but not limited to, soft drinks,
coffee, juices, beer, liquor and wine. The bottled water industry also competes
for the same consumer who may, when choosing to drink water, drink tap water or
use a home filtration system to filter tap water for drinking. There can be no
assurance that the Company can compete successfully. See "Business --
Competition."
Ability to Manage Growth
In order to achieve continued growth in its bottled water business, the Company
must meet its strategic objectives of expanding its current capacity to produce
high quality spring water products, expanding its customer base, expanding its
product line and adding new distribution channels. The Company's ability to meet
these objectives depends upon (a) the successful development and construction of
a facility adjacent to Ginnie Springs, (b) the successful integration and
operation of the Company's recent acquisition, Castle Rock, (c) the successful
expansion of its Milesburg, Pennsylvania facility (the "Milesburg Facility"),
(d) the securing of new sources of spring water in strategic locations and
identifying and successfully acquiring and integrating existing water companies,
(e) the degree to which the Company loses sales to competing water suppliers,
(f) the availability of capital and (g) general economic and other factors
beyond the Company's control. The Company has never operated multiple facilities
in multiple states and has never completed and integrated an acquisition of a
significant existing company; the Company may encounter unexpected difficulties
operating multiple facilities or integrating Castle Rock or other acquisitions.
No assurance can be given as to the future growth in the Company's business or
as to its profitability. Further growth of the Company will require employment
and training of new personnel, expansion of facilities and expansion of
management information systems. If the Company is unable to manage its growth
effectively, the Company's profitability and its ability to achieve its
strategic objectives may likely be materially adversely affected.
Fluctuations in Quarterly Operating Results
The Company's revenues are subject to several factors which may result in
fluctuations in the Company's operating results. The Company's business is
highly seasonal, with increased sales during warmer months. In the last three
fiscal years, an average of 38.5% of the Company's net revenues have occurred
during June, July and August. Inclement weather may negatively impact the
Company's business, particularly summers which are unusually cool or rainy.
Fluctuations in retail prices and raw material prices may produce corresponding
fluctuations in the Company's profits. See "Risk Factors -- Raw Material
Prices." In addition, the Company expects to make significant investments from
time to time in capital improvements to, among other things, increase capacity.
Costs associated with such improvements may cause an immediate reduction in
profit margins unless and until sales volume increases. The Company's product
and packaging mix may change from time to time and, depending on certain
factors, may negatively impact profit margins. The Company is subject to
competitive pricing pressures which may affect its financial results.
7
<PAGE>
Due to all the foregoing factors, it is possible that in some future quarter or
quarters, the Company's operating results would likely be below the expectations
of securities analysts and investors. In such event, the price of the Common
Stock would likely be materially adversely affected. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Dependence on Key Personnel
The continued success of the Company is largely dependent on the personal
efforts and abilities of senior management, including Edward J. Lauth, III,
Chairman, President and Chief Executive Officer of the Company, and Geoffrey F.
Feidelberg, Executive Vice President, Chief Operating Officer and Chief
Financial Officer of the Company. Although the Company has entered into
employment agreements with Messrs. Lauth and Feidelberg, the employment
agreements may be terminated by either party effective at the end of each
one-year term upon six months prior notice. The employment agreements contain a
non-compete provision which extends for two years beyond termination of the
employment agreements. The loss of either executive's services could have a
material adverse effect on the Company. See "Management -- Employment
Agreements."
Dependence upon Natural Spring Sources
The Company currently obtains the natural spring water bottled at its Milesburg
Facility from a spring located in Graysville, Pennsylvania (the "Graysville
Spring"). A natural spring located in Dunsmuir, California (the "Castle Rock
Spring") provides the natural spring water for the Company's west coast
operations based in Dunsmuir and Redding, California. The loss of the Graysville
Spring, which generated 83.0% of the Company's fiscal 1997 pro forma net
revenues, or the Castle Rock Spring, which generated 17.0% of the Company's
fiscal 1997 pro forma net revenues, would have a material adverse effect on the
business of the Company. The Company expects to begin bottling water from Ginnie
Springs in 1998. In addition, the Company has acquired the right to purchase
natural spring water from the Bellefonte Big Spring (the "Big Spring") located
in Bellefonte, Pennsylvania, in order to supplement or replace the Graysville
Spring. Subject to completion by the Borough of Bellefonte of a covering over
the spring and the permitting and approval process, the Company expects to begin
bottling Big Spring water in 1999. Occurrences beyond the control of the Company
including, but not limited to, drought, which prevents natural springs from
recharging themselves, and other occurrences, such as contamination of the
springs, geological changes which could interfere with operation of the springs
or failure of the water supply to comply with all applicable governmental
requirements for mineral and chemical concentration, could have a material
adverse effect on the business of the Company. The Company believes that
adequate supplemental commercial sources of spring water exist, but there is no
assurance that such commercial sources will be available in sufficient amounts
or if available, obtainable on commercially reasonable terms. See
"Business -- Spring Water Sources."
Agreements for Water Sources
The Company leases the land on which the Graysville Spring is located. The
Company has an agreement pursuant to which it has access to the source and
purchases the natural spring water it bottles under the Castle Rock label, and
has entered into similar agreements for access and purchase at Ginnie Springs
and the Big Spring. See "Business -- Spring Water Sources." These arrangements
result in the Company exercising less control over its operations than if the
Company had ownership of these assets. If the lessor of the Graysville Spring or
the owner of the relevant water rights to the Castle Rock Spring were to become
bankrupt or fail to observe the terms of its agreement with the Company, such
event could have a material adverse effect on the business of the Company,
particularly with respect to the Company's Pennsylvania operations in the period
prior to the time the Big Spring becomes operational for the Company. Castle
Rock has an agreement with the City of Dunsmuir, California, pursuant to which
the City of Dunsmuir sells natural spring water from the Castle Rock Spring to
Castle Rock. The City of Dunsmuir is not the owner of the land on which the
Castle Rock Spring is located. The deed in the chain of title that enables the
City of Dunsmuir to sell natural spring water to Castle Rock limits the City of
Dunsmuir's water rights to certain specified uses. A third party has questioned
whether the sale of natural spring water by the City of Dunsmuir to Castle Rock
is a
8
<PAGE>
proper use as defined in the deed. Castle Rock's agreement with the City of
Dunsmuir provides that the City will indemnify Castle Rock for losses it
sustains as a result of any claim or challenge regarding the ability of the City
to sell water to Castle Rock. While the Company intends to vigorously oppose any
challenge to the City of Dunsmuir's rights to sell water to Castle Rock under
the agreement, there can be no assurance that such a claim would not have a
material adverse effect on the Company.
Dependence on Key Suppliers
The majority of the Company's natural spring water products are offered in
premium PET bottles. PET bottles are manufactured by a limited number of
suppliers. While the Company believes that its relationships with its suppliers
are good, there can be no assurance that the Company will be able to obtain PET
bottles from its suppliers on commercially reasonable terms, particularly at
periods of peak demand. Failure to obtain the necessary packaging materials
could have a material adverse effect on the business of the Company. In order to
ensure its supply of PET bottles, the Company has entered into an exclusive
supply agreement with Schmalbach-Lubeca Plastic Containers USA, Inc.
("Schmalbach-Lubeca") pursuant to which the Company leases space in its
Milesburg facility to Schmalbach-Lubeca for the on-site production of PET
bottles. Schmalbach-Lubeca has agreed to provide 100% of the Company's PET
bottle requirements at its Milesburg Facility. Castle Rock has entered into a
requirements contract with Containers Northwest Corporation pursuant to which
Castle Rock will purchase 100% of its bottle requirements from Containers
Northwest Corporation. In the event that the agreements with Schmalbach-Lubeca
and Containers Northwest Corporation were terminated or the Company's
requirements were not met under the agreements, there may be a material adverse
effect on the Company until alternative supplies of PET bottles are found.
Raw Material Prices
Due to the wide range of beverages available to consumers, including bottled
water products, the Company has limited ability to raise prices for its
products. From time to time, the Company has been affected by higher prices for
raw materials including PET resin and corrugated boxes. In the past, the Company
generally has not passed such higher costs on to its customers and it generally
would be unlikely to do so in connection with any future price increases. As a
result, the Company's future profitability may be adversely affected by future
increases in raw material prices.
Product Liability
The bottling and distribution of bottled water products entails a risk of
product liability, including liability due to the presence of contaminants in
its products. The Company maintains insurance coverage against the risk of
product liability and product recall. However, the amount of the insurance
carried by the Company is limited, the insurance is subject to certain
exclusions and may or may not be adequate. In addition to direct losses
resulting from product liability and product recall, the Company may suffer
adverse publicity and damage to its reputation in the event of contamination
which could have a material adverse effect on sales and profitability.
Dependence on Trademarks
The Company owns federal registrations for many of the trademarks it uses. The
Company believes that its registered and common law trademarks have significant
value and goodwill and that some of these trademarks are instrumental in its
ability to create demand for and to market its products. There can be no
assurance that the Company's trademarks do not or will not violate the
proprietary rights of others, that they would be upheld if challenged or that
the Company would, in such an event, not be prevented from using the trademarks,
any of which could have a material adverse effect on the Company.
9
<PAGE>
Government Regulation
The Company's operations are subject to numerous federal, state and local laws
and regulations relating to its bottling operations, including the identity,
quality, packaging and labeling of its bottled water. These laws and regulations
and their interpretation and enforcement are subject to change. There can be no
assurance that additional or more stringent requirements will not be imposed on
the Company's operations in the future. Failure to comply with such laws and
regulations could result in fines against the Company, a temporary shutdown of
production, recalls of the product, loss of certification to market the product
or, even in the absence of governmental action, loss of revenue as a result of
adverse market reaction to negative publicity. Any such event could have a
material adverse effect on the Company. See "Business -- Regulation."
Lack of Inventory
The Company maintains a limited amount of finished product inventory. An event
causing the Company's Pennsylvania or California facilities to shut down, even
for a short period, would result in an inability to fill customer orders and
accordingly would have a material adverse effect on the Company's revenues and
customer relations.
Consumer Preferences
The Company believes that the most important factor in the growth of natural
spring water products has been a change in consumer preferences. Consumer
preferences may be influenced, however, by the availability and appeal of
alternative beverages or packaging as well as general economic conditions, among
other things. No assurance can be given that consumer demand for natural spring
water will continue to grow or will not diminish in the future.
Immediate and Substantial Dilution
Purchasers of the Common Stock offered hereby will experience immediate and
substantial dilution in the pro forma net tangible book value per share at
September 30, 1997 of $8.61 at an assumed Offering price of $15.00 per share,
after deducting estimated underwriting discounts and commissions and after
giving effect to the exercise of the Weis Markets Warrant. In addition, as of
September 30, 1997, the Company had issued warrants to purchase 105,140 shares
of Common Stock, options to purchase 832,108 shares of Common Stock, Convertible
Preferred Stock convertible into 1,022,862 shares of Common Stock and 76,254
shares of Common Stock subscribed for under the Company's Stock Purchase Plan.
If such warrants and options are exercised in full and such Convertible
Preferred Stock is converted into Common Stock, and assuming that all shares
subscribed for under the Stock Purchase Plan are purchased and all shares issued
into escrow in the Castle Rock acquisition are released, purchasers of the
Common Stock offered hereby would experience an immediate and substantial
dilution in the pro forma net tangible book value per share of $9.67. See
"Dilution."
Arbitrary Determination of Offering Price; Possible Volatility of Stock Price
The Offering price of the Common Stock has been determined by negotiation
between the Company and the Underwriters and does not necessarily bear any
relationship to the Company's assets, book value, financial condition or any
other recognized criterion of value. There can be no assurance that the market
price of the Common Stock will not decline below the Offering price. The market
price of the Common Stock could be subject to wide fluctuations in response to
actual or anticipated quarterly operating results of the Company, announcements
of the Company or its competitors as well as other factors. In addition, the
stock market has experienced from time to time extreme price and volume
fluctuations that may be unrelated to the operating performance of particular
companies.
10
<PAGE>
No Prior Public Market
Prior to this Offering, there has been no public trading market for the Common
Stock. Accordingly, there can be no assurance that an active trading market in
the Common Stock will develop, or if such a trading market develops, that it
will be sustained.
No Cash Dividends
Since the Company commenced operations in 1986, the Company has not paid any
cash dividends on its capital stock. The Company anticipates that its future
earnings, if any, will be retained for use in the business, or for other
corporate purposes, and it is not anticipated that any cash dividends on the
Common Stock will be paid in the foreseeable future. See "Dividend Policy" and
"Description of Capital Stock."
Control by Current Shareholders; Anti-Takeover Devices
Upon the consummation of this Offering, including the sale of Common Stock by
the Selling Shareholder, the Company's shareholders as of September 30, 1997,
together with those persons who acquired shares in the Castle Rock acquisition,
will own 42.8% of the outstanding shares of Common Stock (39.4% if the
Underwriters' over-allotment option is exercised in full). Accordingly, such
persons, acting in concert, may be able to elect the Company's directors,
increase the Company's authorized capital, dissolve, merge or sell the assets of
the Company and generally direct the affairs of the Company. In addition, the
Board of Directors and officers of the Company will own 17.5% of the outstanding
shares of Common Stock (32.6% upon the exercise of currently exercisable options
and warrants and conversion of the Convertible Preferred Stock owned by the
Board of Directors and officers). See "Principal Shareholders and Selling
Shareholder."
In addition, certain provisions in the Company's Articles of Incorporation and
certain provisions of applicable Pennsylvania law may, under certain
circumstances, have the effect of discouraging, delaying or preventing a change
in control of the Company. See "Description of Capital Stock -- Preferred Stock"
and "Description of Capital Stock -- Pennsylvania Corporate Law Provisions."
Shares Eligible for Future Sale
After the completion of this Offering, 6,744,646 shares of Common Stock will be
outstanding. Of such shares, the 3,859,000 shares sold pursuant to this Offering
will be tradable without restriction by persons other than "affiliates" of the
Company. The remaining 2,885,645 shares of Common Stock to be outstanding after
this Offering are "restricted securities" within the meaning of Rule 144 under
the Securities Act of 1933, as amended (the "Securities Act"), and may not be
publicly resold, except in compliance with the registration requirements of the
Securities Act or pursuant to an exemption from registration, including that
provided by Rule 144 promulgated under the Securities Act. shares
of Common Stock will be available for immediate resale upon the consummation of
this Offering without restriction pursuant to the exemption provided by Rule
144(k). The directors and executive officers of the Company and other
shareholders of the Company, who collectively hold shares, or
approximately % of the outstanding shares of Common Stock prior
to this Offering, have agreed not to offer to sell, sell, contract to sell,
grant any option to sell, encumber, pledge or otherwise dispose of, or exercise
any demand rights with respect to, any Common Stock or securities convertible
into or exercisable or exchangeable for Common Stock for a period of 180 days
after the date of this Prospectus without the prior written consent of
PaineWebber Incorporated. Upon expiration of the 180-day period,
shares of Common Stock will be eligible for immediate resale
under the Securities Act, subject, in certain cases, to certain volume, manner
of sale and other requirements of Rule 144 promulgated under the Securities Act.
The Company may file one or more Registration Statements on Form S-8 immediately
following this Offering, registering under the Securities Act shares of Common
Stock covered by the Company's stock option and stock purchase plans. No
prediction can be made as to the effect, if any, that future sales of shares, or
the availability
11
<PAGE>
of shares for future sale, will have on the market price of the Common Stock
prevailing from time to time. Sales of substantial amounts of Common Stock, or
the perception that such sales could occur, could adversely affect the
prevailing market price of the Common Stock. See "Principal Shareholders and
Selling Shareholder," "Shares Eligible for Future Sale" and "Underwriting."
12
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 shares of Common
Stock offered by the Company hereby are estimated to be approximately $27.5
million, after deducting underwriting discounts and commissions and estimated
Offering expenses, and, together with $675,000 from the exercise of the Weis
Markets Warrant, result in total proceeds of $28.2 million. The Company intends
to use $19.1 million of such proceeds to fund a portion of the capital
expenditures associated with the expansion of the Milesburg Facility (the total
estimated cost of which is $17.8 million) and the construction of the Ginnie
Springs bottling facility (the total estimated cost of which is $6.6 million).
The Company intends to use approximately $5.9 million of the net proceeds to
repay borrowings under its credit facilities used to fund a portion of the
purchase price and repay certain liabilities associated with the acquisition of
Castle Rock. Net proceeds of $3.1 million are expected to be used to repay
certain borrowings under the Company's credit facilities which incur interest at
rates between LIBOR plus 1.0% and LIBOR plus 1.7%. At September 30, 1997, the
Company had approximately $3.1 million of such borrowings outstanding, $2.9
million of which will begin to amortize in February 1999 and $200,000 of which
is due upon demand. In connection with the acquisition of Castle Rock, the
Company made additional borrowings under its credit facilities. The balance, if
any, of the net proceeds from this Offering will be used for working capital and
general corporate purposes. Pending such uses, the total proceeds will be
invested in short-term, interest-bearing investment grade securities or
commercial paper.
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its Common Stock. The
Company currently intends to retain its earnings, if any, to provide funds for
the operation and expansion of its business and, therefore, does not anticipate
declaring or paying cash dividends in the foreseeable future. Any payment of
future dividends will be at the discretion of the Board of Directors and will
depend upon, among other things, the Company's earnings, financial condition,
capital requirements, level of indebtedness, contractual restrictions with
respect to the payment of dividends and other relevant factors. Further,
pursuant to the terms of its existing credit facilities, the Company is
restricted in its ability to pay cash dividends on its Common Stock. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
13
<PAGE>
DILUTION
The difference between the Offering price per share of Common Stock and the
adjusted net tangible book value per share of Common Stock after this Offering
constitutes the dilution to investors in this Offering. Net tangible book value
per share on any given date is determined by dividing the net tangible book
value (total tangible assets less total liabilities and book value attributable
to preferred stock) of the Company on such date by the number of shares of
Common Stock outstanding on such date.
The net tangible book value of the Company at September 30, 1997 prior to the
acquisition of Castle Rock was approximately $18.1 million ($16.4 million
attributable to Common Stock). The net tangible book value of the Company at
September 30, 1997 was $3.70 per share of outstanding Common Stock, excluding
net tangible book value attributable to, and shares issued in connection with,
the acquisition of Castle Rock. After giving effect to the acquisition of Castle
Rock as if it occurred on September 30, 1997, and the exercise of the Weis
Markets Warrant and the application of the net proceeds therefrom, the pro forma
net tangible book value of the Company at September 30, 1997 would have been
approximately $15.6 million or $3.29 per share of outstanding Common Stock. This
represents an immediate decrease in pro forma net tangible book value of $0.41
per share to existing shareholders due to the recognition of $3.8 million in
goodwill resulting from the acquisition of Castle Rock. After giving effect to
the sale of the 2,000,000 shares of Common Stock being offered by the Company,
the pro forma net tangible book value of the Company at September 30, 1997 would
have been $43.1 million, or $6.39 per share. This represents an immediate
increase in pro forma net tangible book value of $3.10 per share to existing
shareholders and an immediate dilution of $8.61 per share to new shareholders
purchasing shares of Common Stock in this Offering. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed Offering price per share........................................................ $15.00
Net tangible book value per share at September 30, 1997............................ $ 3.70
Decrease per share attributable to the acquisition of Castle Rock.................. (.46)
Increase per share attributable to the exercise of the Weis Markets Warrant........ .05
------
Pro forma net tangible book value per share at September 30, 1997.................. 3.29
Increase to pro forma net tangible book value per share attributable
to this Offering................................................................ 3.10
------
Pro forma net tangible book value per share after this Offering......................... 6.39
------
Dilution per share to new shareholders.................................................. $ 8.61
======
</TABLE>
The following table sets forth the pro forma number of shares of Common Stock
purchased from the Company, the total consideration paid to the Company
(including proceeds from the exercise of the Weis Markets Warrant) and the
average price per share paid by existing shareholders, and by purchasers of the
shares offered hereby, at an assumed Offering price of $15.00 per share, before
deducting underwriting discounts and commissions and Offering expenses, and as
if this Offering had occurred as of September 30, 1997.
<TABLE>
<CAPTION>
Pro Forma Shares Purchased (1) Total Consideration
------------------------------ ----------------------------- Average Price
Number Percent Amount Percent Per Share
------ ------- ------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders............. 4,742,052 70.3% $15,202,300 33.6% $ 3.21
New shareholders.................. 2,000,000 29.7% 30,000,000 66.4% 15.00
--------- ----- ----------- -----
6,742,052 100.0% $45,202,300 100.0%
========= ===== =========== =====
</TABLE>
- ---------------
(1) If the Underwriters' over-allotment option is exercised in full, the
total number of shares outstanding after this Offering held by new
investors would increase to 2,578,850 shares, or approximately 35.2% of
the total number of shares outstanding after this Offering.
The above tables exclude (i) 937,248 shares of Common Stock issuable upon
exercise of outstanding options and warrants, (ii) 1,022,862 shares of Common
Stock reserved for issuance upon conversion of the Convertible Preferred Stock
and (iii) 76,254 shares of Common Stock currently subscribed for under the
Company's Stock Purchase Plan. The exercise and purchase of the total 2,036,364
shares would result in further dilution of $1.06 per share to new shareholders.
See "Management -- Employment Agreements," "Management -- Stock Plans", "Certain
Transactions" and "Description of Capital Stock."
14
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1997 on an actual basis, on a pro forma basis which gives effect
to the acquisition of Castle Rock as if it had occurred as of September 30, 1997
and on a pro forma as adjusted basis, giving effect to the sale of 2,000,000
shares of Common Stock offered by the Company hereby at an assumed Offering
price of $15.00 per share, the exercise of the Weis Markets Warrant and the
application of the estimated net proceeds therefrom after deducting estimated
underwriting discounts and commissions and Offering expenses. This table should
be read in conjunction with the Consolidated Financial Statements of the Company
and the notes thereto, the Financial Statements of Castle Rock (Dunsmuir
Bottling Company) and the notes thereto and the Unaudited Pro Forma Combined
Financial Data and the notes thereto included elsewhere in this Prospectus. See
"Description of Capital Stock."
<TABLE>
<CAPTION>
September 30, 1997
--------------------------------------
Pro Forma
Actual Pro Forma As Adjusted
------- --------- -----------
<S> <C> <C> <C>
Notes payable:
Notes payable, current.................................................. $ 298,966 $ 2,649,476 $ 95,476
Notes payable, excluding current portion................................ 4,518,501 6,886,645 1,640,645
--------- --------- ---------
Total notes payable.................................................. 4,817,467 9,536,121 1,736,121
Shareholders' equity:
Series A Non-Voting Convertible Preferred Stock, $1 par value, 2,000,000
shares authorized, 1,713,750 shares issued; 1,713,750 shares issued,
as adjusted ............................................................ 1,713,750 1,713,750 1,713,750
Common Stock, no par value, 100,000,000 shares authorized,
4,423,712 shares issued; 4,609,876 shares issued pro forma;
6,745,056 shares issued pro forma as adjusted (1)....................... -- -- --
Additional paid-in capital.............................................. 12,196,269 14,261,986 42,446,986
Retained earnings....................................................... 4,242,456 4,242,456 4,242,456
Less 11,250 shares of preferred stock in treasury, at cost.............. (11,250) (11,250) (11,250)
Less 3,004 shares of common stock in treasury, at cost.................. (5,000) (5,000) (5,000)
Subscriptions receivable................................................ (71,878) (71,878) (71,878)
Total shareholders' equity........................................... 18,064,347 20,130,064 48,315,064
---------- ---------- ----------
Total capitalization.............................................. $22,881,814 $29,666,185 $50,051,185
=========== =========== ===========
</TABLE>
- ---------------
(1) Excludes (i) 937,248 shares of Common Stock issuable upon exercise of
outstanding options and warrants, (ii) 1,022,862 shares of Common Stock
reserved for issuance upon conversion of the Convertible Preferred
Stock and (iii) 76,254 shares of Common Stock currently subscribed for
under the Stock Purchase Plan. See "Management -- Employment
Agreements," "Management -- Stock Plans," "Certain Transactions" and
"Description of Capital Stock."
15
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below as of and for the
years ended September 30, 1993, 1994, 1995, 1996 and 1997 have been derived from
the Company's financial statements, which have been audited by KPMG Peat Marwick
LLP, independent certified public accountants. The consolidated financial
statements of the Company for each of the three years in the period ended
September 30, 1997 and the related balance sheets at September 30, 1996 and
1997, which have been audited by KPMG Peat Marwick LLP, have been included
elsewhere in this Prospectus. The selected consolidated financial data set forth
below should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the Consolidated Financial
Statements of the Company and the notes thereto included elsewhere in this
Prospectus. The pro forma Statement of Operations data (which gives effect to
the acquisition of Castle Rock as if it had occurred as of October 1, 1996) and
the pro forma Balance Sheet data (which gives effect to the acquisition of
Castle Rock as if it had occurred as of September 30, 1997) set forth below
should be read in conjunction with the Financial Statements of Castle Rock
(Dunsmuir Bottling Company) and the notes thereto and Unaudited Pro Forma
Combined Financial Data and the notes thereto included elsewhere in this
Prospectus. The pro forma financial data set forth below are not necessarily
indicative of the financial position or results of operations that would have
been achieved had the acquisition of Castle Rock been consummated as of such
date, or that may be achieved in the future.
<TABLE>
Years Ended September 30,
-------------------------------------------------------------------------------
Pro Forma
1993 1994 1995 1996 1997 1997
---------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net revenues......................... $9,275,537 $13,011,744 $22,956,053 $28,240,741 $38,015,315 $45,819,395
Cost of goods sold................... 7,138,691 9,979,468 18,153,355 21,271,313 28,316,938 34,391,766
--------- --------- ---------- ---------- ---------- ----------
Gross profit......................... 2,136,846 3,032,276 4,802,698 6,969,428 9,698,377 11,427,629
Selling, general and
administrative..................... 1,389,220 1,994,812 3,290,609 4,313,480 5,126,583 7,276,731
--------- --------- --------- --------- --------- ---------
Income from operations............... 747,626 1,037,464 1,512,089 2,655,948 4,571,794 4,150,898
Non-operating income
(expense), net..................... (228,664) (226,469) (738,739) (180,720) 119,713 (117,796)
-------- -------- -------- --------- --------- ---------
Income before income taxes
and cumulative effect of change
in accounting principle............ 518,962 810,995 773,350 2,475,228 4,691,507 4,033,102
Income tax expense................... 69,400 122,000 135,000 990,000 1,904,752 1,714,323
------ ------- ------- ------- --------- ---------
Income before cumulative
effect of change in
accounting principle............... 449,562 688,995 638,350 1,485,228 2,786,755 2,318,779
Cumulative effect of change in
accounting for income taxes
in accordance with FASB 109........ 49,000 -- -- -- -- --
________ ________ ________ _________ _________ _________
Net income........................... $ 400,562 $ 688,995 $ 638,350 $1,485,228 $2,786,755 $2,318,779
========== ========== ========== ========== ========== ==========
Net income per common
share (1).......................... $ 0.12 $ 0.18 $ 0.16 $ 0.26 $ 0.47 $ 0.38
========== ========== ========== ========== ========== ==========
Weighted average number of
common shares outstanding.......... 3,417,391 3,785,102 3,884,708 5,620,741 5,951,844 6,138,007
16
<PAGE>
Other Operations Data:
EBITDA (2).......................... $1,260,940 $1,606,457 $2,888,231 $4,613,823 $7,285,186 $7,158,553
Consolidated Balance Sheet Data:
Working capital...................... $ 901,761 $1,498,399 $ 2,068,414 $ 2,304,684 $ 3,096,318 $ 644,984
Total assets......................... 6,101,103 7,098,447 17,916,037 19,516,355 26,580,185 34,572,900
Notes payable, including
current portion.................... 2,220,062 2,836,604 2,830,872 1,808,464 4,817,467 9,536,121
Shareholders' equity................. 2,779,804 3,507,290 12,796,169 14,649,421 18,064,347 20,130,064
</TABLE>
- ---------------
(1) For information concerning the number of shares used in the computation of
net income per common share, see Note 1 to the Consolidated Financial
Statements.
(2) "EBITDA" represents earnings before interest expense, income tax expense,
depreciation and amortization, including amortization of leasehold
improvements, acquisition and development costs, and debt expense and
discount or premium relating to any indebtedness. EBITDA is not presented
herein as an alternative measure of operating results (as determined in
accordance with GAAP) or cash flow (as determined in accordance with GAAP).
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations should be read in conjunction with the Consolidated
Financial Statements and the related notes thereto included elsewhere in this
Prospectus. This Prospectus contains forward-looking statements regarding
matters that involve risks and uncertainties. The Company's actual results may
differ materially from those anticipated by the forward-looking statements as a
result of certain factors, including, but not limited to, those set forth in
Risk Factors and elsewhere in this Prospectus.
The financial results discussed in "Overview," "Results of Operations" and
"Liquidity and Capital Resources" are for the Company excluding Castle Rock.
Overview
AquaPenn produces, bottles and sells non-sparkling natural spring water. The
Company has adopted a strategy of producing regionally and selling its natural
spring water products to national and regional customers, offering both private
label and branded products to allow its customers "one-stop-shopping," creating
innovative packaging, maintaining state-of-the-art production facilities which
allow it to achieve cost effectiveness and producing superior quality products.
Part of the Company's strategy includes acquiring the rights to additional
spring water sites and acquiring natural spring water companies.
History. The Company commenced operations in fiscal 1987 as a distributor of 5
gallon containers of natural spring water to the home and office market, and in
fiscal 1988 the Company commenced manufacturing and selling spring water ice to
supermarkets and other customers. In fiscal 1989, the Company began to refocus
its product and distribution strategies by bottling natural spring water in
containers for sale directly or through wholesalers to the off-premise retail
market in 1 gallon and 2 1/2 gallon sizes. In fiscal 1991, the Company sold
assets used in its 5 gallon home and office delivery business, and in fiscal
1994 the Company sold assets used in its ice business. In August 1990, the
Company commenced shipping premium PET products, and since that time the Company
has primarily focused its efforts on premium PET natural spring water products,
which accounted for approximately 81% of the Company's net revenues in fiscal
1997. During fiscal 1995 and 1996, the Company completed a private placement of
Common Stock, with proceeds of $8.9 million, which were used to build the
Milesburg Facility. This facility was expanded in February 1997, and, as part of
the use of net proceeds from this Offering, the Company expects to spend an
additional $17.8 million to add additional production capacity and warehouse
space. The current expansion is expected to be completed by the end of the
Spring of 1998.
Factors Affecting Operating Results. Because the Company has limited ability to
change the price of its products, the Company's profits are based on generating
sufficient sales volume to exceed its costs, including its relatively high fixed
costs of production. As the Company completes its capital expenditures in the
near term, its profit margins will likely be negatively impacted until sales
volumes increase. The Company's largest variable cost is packaging, principally
PET bottles, caps and corrugated boxes. Variations in raw materials prices may
cause the Company's results to fluctuate. The Company maintains a relatively low
level of raw material and finished goods inventory averaging $1.5 million in
fiscal 1997. This inventory consists primarily of raw materials, which the
Company finds cost effective to purchase in bulk. The Company maintains a
limited product inventory because the Company tailors much of its production
specifically to customer orders. The Company's PET bottle supplier,
Schmalbach-Lubeca, produces PET bottles as needed for the Company on site at the
Milesburg Facility. Disruptions in supplies of certain raw materials may
negatively impact the Company's ability to deliver finished products to its
customers. Competitive pricing pressures may also negatively impact the
Company's performance. Finally, the mix of products and packaging sizes sold by
the Company may change, particularly as new customers and distribution channels
are obtained or as a different mix of products is sold to existing customers.
Changes in these aspects of the Company's sales profile may impact profit
margins. The Company does not believe that inflation has had a material effect
on the Company's operating results during the past three fiscal years.
18
<PAGE>
Seasonality. The Company's business is highly seasonal, with a concentration of
sales in summer months. In the past, inclement weather has negatively impacted
the Company's net revenues, particularly in summers that are unusually cool or
rainy. In the last three fiscal years, an average of 41.5% of the Company's
sales have occurred during June, July and August.
Results of Operations
The following table sets forth for the periods indicated certain financial data
for the Company, excluding Castle Rock, as a percentage of net revenues.
<TABLE>
<CAPTION>
Years Ended September 30,
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Net revenues.................................................. 100.0% 100.0% 100.0%
Cost of goods sold............................................ 79.1 75.3 74.5
------- ------- -------
Gross profit.................................................. 20.9 24.7 25.5
Selling, general and administrative........................... 14.3 15.3 13.5
------- ------- -------
Income from operations........................................ 6.6 9.4 12.0
Other income (expense)........................................ (3.2) (0.6) 0.3
-------- -------- -------
Income before income tax expense.............................. 3.4 8.8 12.3
Income tax expense............................................ 0.6 3.5 5.0
------- ------- -------
Net income.................................................... 2.8% 5.3% 7.3%
======== ======== ========
</TABLE>
Fiscal 1997 Compared with Fiscal 1996
Net Revenues. The Company's net revenues increased from $28.2 million in
fiscal 1996 to $38.0 million in fiscal 1997, an increase of $9.8 million, or
34.6%. This increase resulted principally from increased sales volume to the
Company's existing customer base as well as from sales to new customers. This
increase also resulted from the introduction of the Company's new 8 ounce
product which accounted for 33.0% of the Company's fiscal 1997 growth. During
the fourth quarter of fiscal 1997, the Company experienced a decrease in net
revenues from the prior quarter which, in part, was a result of unseasonably
cool weather in select markets and the loss of net revenues from two customers
which were acquired by other entities.
Gross Profit. Gross profit increased from $7.0 million in fiscal 1996 to $9.7
million in fiscal 1997. The gross margin increased from 24.7% in fiscal 1996 to
25.5% in fiscal 1997. Cost of goods sold includes direct materials, direct
labor, overhead, depreciation, amortization and transportation. This percentage
increase was largely attributable to a new bottle supply contract which went
into effect on April 1, 1996. In addition, the Company's direct labor costs and
overhead were spread over a greater sales volume, decreasing the cost per unit
produced. Transportation expenses, which represent outbound delivery costs,
remained relatively unchanged as a percentage of net revenues. Depreciation and
amortization was $1.8 million in fiscal 1996 compared to $2.4 million in fiscal
1997, and decreased from 6.5% of net revenues in fiscal 1996 to 6.3% in fiscal
1997. During the fourth quarter of fiscal 1997, the Company experienced a
decrease in gross margins. Factors impacting this decrease included a
disproportionate increase in certain expenses in addition to a shift in product
mix. In particular, transportation expenses were higher due, in part, to an
increase in deliveries to the West and Southwest; direct labor expenses were
higher due to more labor-intensive requirements for certain packaging; and raw
material expenses were higher due to PET resin and corrugated box price
increases. Product mix shifts occurred as the Company obtained new customers in
different distribution channels, introduced new product sizes and sold a
different mix of products to existing customers.
19
<PAGE>
Selling, General and Administrative. Selling, general and administrative
expenses increased from $4.3 million in fiscal 1996 to $5.1 million in fiscal
1997 but decreased from 15.3% of net revenues in fiscal 1996 to 13.5% in fiscal
1997. This decrease was primarily attributable to a greater percentage increase
in net revenues.
Other Income (Expense). Other income increased from $116,484 in fiscal 1996 to
$328,180 in fiscal 1997. Other income consists primarily of rental income from
the lease of the Company's former State College location and the lease of space
in the Milesburg Facility to Schmalbach-Lubeca for production of blow-molding
products.
Interest Expense, Net. Net interest expense decreased from $297,204 in fiscal
1996 to $208,467 in fiscal 1997. This decrease was due to a lower average
outstanding revolver balance and more favorable interest rate terms.
Income Tax Expense. The Company's effective tax rate was 40.0% for fiscal
1996 and 40.6% for fiscal 1997.
Fiscal 1996 Compared with Fiscal 1995
Net Revenues. The Company's net revenues increased from $23.0 million in
fiscal 1995 to $28.2 million in fiscal 1996, an increase of $5.2 million, or
23.0%. This increase resulted principally from increased sales volume to
existing customers as well as from sales to new customers.
Gross Profit. Gross profit increased from $4.8 million in fiscal 1995 to $7.0
million in fiscal 1996. The gross margin increased from 20.9% in fiscal 1995 to
24.7% in fiscal 1996. This percentage increase was largely due to a decrease in
cost of direct materials attributable to the new bottle supply contract which
went into effect on April 1, 1996. Depreciation and amortization increased from
$1.4 million in fiscal 1995 to $1.8 million in fiscal 1996, and increased from
5.9% of net revenues in fiscal 1995 to 6.5% in fiscal 1996. Substantially all of
this increase is attributable to the Milesburg Facility which opened in May
1995.
Selling, General and Administrative. Selling, general and administrative
expenses increased from $3.3 million in fiscal 1995 to $4.3 million in fiscal
1996, and increased from 14.3% of net revenues in fiscal 1995 to 15.3% in fiscal
1996. This increase resulted primarily from a larger percentage increase of
sales volume being sold through food brokers, a greater percentage of net
revenues attributable to sales rebates and accruals, and an increase in
personnel expenses.
Other Income (Expense). Other income increased from $7,090 in fiscal 1995 to
$116,484 in fiscal 1996. This increase is the result of commencement of the
lease of the Company's former State College location and rental income
therefrom.
Interest Expense, Net. Net interest expense decreased from $745,829 in fiscal
1995 to $297,204 in fiscal 1996 as a result of the repayment of an $8.0 million
interim loan from the proceeds of the Company's private placement of Common
Stock in fiscal 1995.
Income Tax Expense. The Company's effective tax rate was 17.5% in fiscal 1995
and 40.0% in fiscal 1996. The effective tax rate in fiscal 1995 differed from
the statutory tax rate primarily due to the use of net operating loss
carryforwards. As of September 30, 1995, substantially all of the Company's
federal net operating loss carryforwards were fully utilized.
Quarterly Results
The following table sets forth certain quarterly information for the Company's
two most recent years. This unaudited quarterly information has been prepared on
the same basis as the audited Consolidated Financial Statements included
elsewhere in this Prospectus, and, in the opinion of the Company, reflects a
fair presentation of the financial
20
<PAGE>
results for the period covered. The table should be read in conjunction with the
Consolidated Financial Statements of the Company and the notes thereto. The
operating results for any quarter may not necessarily be indicative of results
for any future periods.
<TABLE>
<CAPTION>
Quarters Ended
------------------------------------------------------------------------------------------------------
Dec. 31, March 31, June 30, Sept. 30, Dec. 31, March 31, June 30, Sept. 30,
1995 1996 1996 1996 1996 1997 1997 1997
-------- -------- -------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues........ $3,413,572 $5,788,242 $9,173,126 $9,865,801 $5,002,521 $7,419,815 $12,889,053 $12,703,926
Cost of goods sold.. 3,267,086 4,999,297 6,388,573 6,616,357 4,025,163 5,712,637 9,209,757 9,369,381
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Gross profit........ 146,486 788,945 2,784,553 3,249,444 977,358 1,707,178 3,679,296 3,334,545
Selling, general and
administrative..... 832,406 876,453 1,258,246 1,346,375 943,952 1,050,679 1,504,633 1,627,319
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) from
operations......... (685,920) (87,508) 1,526,307 1,903,069 33,406 656,499 2,174,663 1,707,226
Non-operating
expense (income),
net................ 71,361 49,211 46,163 13,985 (38,670) (21,247) (19,302) (40,494)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before
income taxes....... (757,281) (136,719) 1,480,144 1,889,084 72,076 677,746 2,193,965 1,747,720
Income tax expense
(benefit).......... (302,000) (54,000) 591,000 755,000 32,400 272,600 878,717 721,035
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss)... $ (455,281) $ (82,719) $ 889,144 $1,134,084 $ 39,676 $ 405,146 $ 1,315,248 $ 1,026,685
=========== =========== ========== ========== =========== =========== =========== ===========
Net income (loss)
per common
share.............. $ (0.11) $ (0.02) $ 0.16 $ 0.20 $ 0.01 $ 0.07 $ 0.22 $ 0.17
=========== =========== ========== ========== =========== =========== =========== ===========
Weighted average
number of common
shares
outstanding(1)..... 4,226,985 4,259,071 5,624,606 5,642,211 5,806,796 5,811,092 5,919,765 5,951,844
=========== =========== ========== ========== =========== =========== =========== ===========
</TABLE>
- ----------------------------------
(1) The weighted average number of common shares outstanding in loss periods
does not include the Convertible Preferred Stock or Common Stock options or
warrants under the treasury stock method as outstanding since these
securities have an anti-dilutive effect on per share information.
Liquidity and Capital Resources
The Company's primary capital needs have been to fund its working capital
requirements and capital expenditures necessitated by its growth. The Company's
net cash provided by operating activities was $2.1 million, $3.6 million and
$4.8 million in fiscal 1995, 1996 and 1997, respectively.
The Company's capital expenditures totaled $7.9 million in fiscal 1997,
primarily incurred for the expansion of the Milesburg Facility, including the
purchase of and progress payments on new equipment.
The Company's capital expenditures totaled $2.9 million in fiscal 1996,
primarily incurred for the completion of the Milesburg Facility and for the
purchase of new box-forming and shrink-wrapping equipment. The Company's capital
expenditures totaled $10.4 million in fiscal 1995 for the purchase of property,
plant and equipment, primarily related to the opening of the Milesburg Facility
in May 1995.
21
<PAGE>
The Company utilized bridge debt financing as well as other debt borrowings to
finance the construction of the Milesburg Facility and the procurement of new
equipment. During September 1995 and the beginning of fiscal 1996, the Company
privately placed 1.8 million shares of its Common Stock in exchange for an
aggregate of $8.9 million (net of $171,042 of aggregate offering costs). The
Company used the proceeds of the private placement, together with operating cash
flow, to repay substantially all of the debt borrowings used to finance the
Milesburg Facility. In addition, the Company borrowed $1.8 million from the
Pennsylvania Industrial Development Authority, through which the Commonwealth of
Pennsylvania provides low cost financing to job-creating enterprises. This
financing bears an annual fixed rate of interest of 5%, payable monthly, and
amortizes over a 15 year period.
The Company's future capital requirements include $6.6 million to procure land
and spring water sources and construct a new bottled water facility in Florida
and $17.8 million to expand the Milesburg Facility, to build additional
warehouse and blow-molding space, to purchase additional production lines and
equipment, to install a pipeline from the Big Spring to its facility and to
purchase other equipment. In addition, the Company's future capital requirements
will require the financing and growth of working capital items such as accounts
receivable and inventories. The Company anticipates that the funds available
from this Offering should support the Company's existing operations at least
through fiscal 1998. Long-term capital expenditures are expected to be funded
through additional debt borrowings and operating cash flow.
The Company has $22 million in revolving credit facilities, lines of credit and
demand notes which incur interest at annual rates between LIBOR plus 1.0% and
LIBOR plus 1.7%. At September 30, 1997, the Company had $3.1 million of such
borrowings outstanding which are expected to be repaid with the proceeds of this
Offering.
Lease of Spring Water Sources and Acquisitions. On July 10, 1995, the Company
entered into an agreement with the Borough of Bellefonte, Pennsylvania to
purchase natural spring water from the Big Spring. The term of the Company's
agreement with the Borough of Bellefonte is 50 years with a five year, automatic
renewal unless prior notice of termination is given. Subject to the Borough of
Bellefonte obtaining certain permits, construction of a cover over the spring
and all other permits and approvals being obtained, the Company expects to begin
bottling Big Spring water in the Spring of 1999. On July 30, 1997, the Company
entered into an agreement with Seven Springs Water Company ("Seven Springs") to
purchase natural spring water from Ginnie Springs, and to purchase land adjacent
to Ginnie Springs to construct a new bottling facility. The Company expects that
the construction of this state-of-the-art facility will require approximately
$6.6 million of capital expenditures and production will be concluded in the
Spring of 1998. On October 15, 1997, the Company acquired Castle Rock, providing
a West Coast production facility, natural spring water source and brand name.
The purchase price for all of the outstanding common stock of Castle Rock was
$3.0 million, subject to certain post-closing adjustments, consisting of
approximately $1.45 million in cash and approximately $1.55 million in Common
Stock to be valued at 75.0% of the Offering price. One half of the cash
consideration and one half of the Common Stock consideration were paid into
escrow pending adjustments based on a final determination of Castle Rock's
liabilities and the determination of Offering price. As part of the acquisition
of Castle Rock, the Company assumed up to $4.65 million of the liabilities of
Castle Rock, a substantial portion of which the Company repaid shortly after
closing.
Subsequent Event - Acquisition of Castle Rock
The acquisition of Castle Rock represents the implementation, in part, of
the Company's strategy to acquire natural spring bottled water companies or the
rights to spring water sites. In evaluating Castle Rock, the Company considered
many factors including the quality of the natural spring water, Castle Rock's
established customer base, the ability to increase sales to both Castle Rock's
and the Company's existing customer base, Castle Rock's brand name, available
production capacity and Castle Rock's historical levels of revenues and net loss
in fiscal 1997. The Company also considered the costs of acquiring the rights to
a natural spring source on the West Coast and independently constructing a
bottling facility.
22
<PAGE>
The Company's objectives for Castle Rock include increasing sales to certain of
the Company's national customers which it currently may not serve on the West
Coast, reducing per unit production costs by increasing production volume at the
Castle Rock facility, and broadening the Castle Rock product line. The Company
also expects to achieve reductions in certain selling and administrative
expenses. The Company's ability to achieve profitability for the Castle Rock
operations is primarily dependent on Castle Rock's achieving higher sales volume
without significantly increasing Castle Rock's operating costs.
Castle Rock Financial Data
Castle Rock's net revenues were $7.8 million in fiscal 1997, resulting in gross
profit of $2.8 million and a gross margin of 35.9% in fiscal 1997. After pro
forma reclassification of certain operating expenses to be consistent with the
Company's presentation, Castle Rock's gross profit is $1.7 million and the gross
margin is 22.2% in fiscal 1997. Cost of goods sold for Castle Rock includes
direct materials, direct labor, overhead, depreciation, amortization and
transportation. Castle Rock had substantial operating expenses in fiscal 1997 of
$2.0 million (after pro forma reclassification of certain operating expenses to
be consistent with the Company's presentation), or 26.1% of net revenues,
primarily because of substantial sales discounts and costs associated with and
the installation of new production lines. Because these lines were not fully
operational during the 1997 peak summer season, Castle Rock was unable to offset
such operating expenses with higher revenues from increased production volume.
These factors, plus interest expense of $200,793, resulted in Castle Rock
incurring a loss of $511,033 in fiscal 1997.
Castle Rock's net cash provided by operating activities was $113,737 in fiscal
1997, largely due to an increase in accounts payable of $525,503. Capital
expenditures totaled $1.5 million in fiscal 1997, primarily incurred for the
purchase of new bottling equipment at Castle Rock's facility located in
Dunsmuir, California. Castle Rock financed such capital expenditures through
long-term financing and its line of credit.
AquaPenn Unaudited Pro Forma Combined Financial Data
Unaudited Pro Forma Combined Results of Operations
The following table sets forth for the period indicated certain pro forma
financial data for the Company as a percentage of net revenues, adjusted to give
effect to the Castle Rock acquisition as if it occurred October 1, 1996. The pro
forma financial data set forth below are not necessarily indicative of the
financial position or results of operations that would have been achieved had
such transaction been consummated at the beginning of fiscal 1997, or that may
be achieved in the future.
<TABLE>
<CAPTION>
Pro Forma
Year Ended September 30, 1997
-----------------------------
<S> <C>
Net revenues.................................................. 100.0%
Cost of goods sold............................................ 75.1
----
Gross profit.................................................. 24.9
Selling, general and administrative........................... 15.9
----
Income from operations........................................ 9.0
Other income (expense)........................................ (0.3)
-----
Income before income tax expense.............................. 8.7
Income tax expense............................................ 3.7
Net income.................................................... 5.0%
========
</TABLE>
The Company's net revenues on a pro forma basis for fiscal 1997 were $45.8
million, an increase of $17.6 million or 62.2% from the Company's actual net
revenues for fiscal 1996. The gross profit for the Company on a pro forma basis
for 1997 was $11.4 million, an increase of $4.5 million or 63.9% from actual
gross profit for fiscal 1996. Net income for the Company on a pro forma basis
for fiscal 1997, as adjusted for the income tax
23
<PAGE>
benefit due to the net loss of Castle Rock, as if Castle Rock's results had been
consolidated with the Company's income tax provision, was $2.3 million, an
increase of $833,551 or 56.1% from the actual net income of the Company for
fiscal 1996. Net income was also adjusted due to the amortization of the
estimated goodwill of $3,786,743 relating to the Castle Rock acquisition.
Unaudited Pro Forma Liquidity and Capital Resources
The Company's pro forma net cash provided by operating activities was $4.9
million in fiscal 1997, compared to $3.6 million actual in fiscal 1996. The
Company's pro forma capital expenditures totaled $9.4 million in fiscal 1997,
primarily due to the expansion of the Milesburg Facility and the purchase of
bottling equipment for the Castle Rock facility.
There are no significant short-term capital expenditures planned for Castle
Rock. The Company is currently evaluating the long-term capital expenditures
that may be necessary for Castle Rock. After the merger of Castle Rock into a
subsidiary of the Company, the Company repaid Castle Rock's line of credit and
all of Castle Rock's long-term debt other than its equipment leases. Such
payments, including amounts paid for accounts payable, totaled approximately
$3.8 million as of November 15, 1997. At September 30, 1997, the Company's pro
forma amount of long term liabilities was approximately $7.5 million and total
debt was $9.5 million.
Recent Accounting Pronouncements
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of and SFAS No. 123, Accounting for Stock-Based
Compensation during fiscal 1997. SFAS No. 121 was adopted in the beginning of
fiscal 1997 and there was no impact on the consolidated statements of operations
upon the adoption of this statement. The Company elected to adopt the
disclosure requirements of SFAS No. 123 as allowed by the Statement.
In February 1997, SFAS No. 128, Earnings Per Share, was issued and requires
dual presentation of basic and diluted earnings per share for complex capital
structures on the face of the consolidated statement of operations. According to
SFAS No. 128, basic earnings per share, which replaces primary earnings per
share, is calculated by dividing net income available to common stockholders by
the weighted average number of common shares outstanding for the period. Diluted
earnings per share, which replaces fully diluted earnings per share, reflects
the potential dilution for the exercise or conversion of securities into common
stock. SFAS No. 128 is required to be adopted for the Company's fiscal 1998 year
end financial statements and it is expected to have no significant impact on the
Company's financial position or results of operations.
In June 1997, SFAS No. 130, Reporting Comprehensive Income, and SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information were issued.
SFAS No. 130 establishes standards for reporting and display of comprehensive
income and its components including revenues, expenses, gains and losses in a
full set of general-purpose financial statements and requires that all items
that are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. SFAS No. 130 is required to
be adopted for the Company's fiscal 1999 year end financial statements.
SFAS No. 131 establishes standards for the way that public companies report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports issued to stockholders. It also establishes standards
for related disclosures about products and services, geographic areas, and major
customers. SFAS No. 131 is required to be adopted for the Company's fiscal 1999
financial statements. The Company is currently evaluating the impact, if any, of
the adoption of this pronouncement on the Company's existing disclosures.
24
<PAGE>
BUSINESS
The Company
AquaPenn produces, bottles and sells non-sparkling natural spring water
products to regional and national customers under both retailers' and other
customers' private labels and its proprietary brands Pure American, Great
American, AquaPenn and Castle Rock. The Company, founded in 1986, is one of the
largest producers of private label natural spring water products in the United
States; private label products accounted for approximately 42.5% of the
Company's 1997 fiscal year net revenues. The Company's private label and branded
customers include, among others, Delta Air Lines, Inc., Gerber Products Company,
Sam's Club and Walgreen Co. The Company's net revenues have grown from $9.3
million in fiscal 1993 to $45.8 million in fiscal 1997, representing a
compounded annual growth rate of 49.1%. Over the same time period, the Company's
net income has grown from approximately $400,000 to approximately $2.3 million,
representing a compounded annual growth rate of 55.1%.
Industry Overview
Market Overview. The U.S. bottled water market is comprised of three segments:
domestically produced non-sparkling water, domestically produced sparkling water
and imported water, which constituted approximately 65%, 21% and 14%,
respectively, of 1996 U.S. bottled water wholesale sales, according to Beverage
Marketing. The domestically produced non-sparkling water category includes
natural spring water obtained from naturally occurring springs, well water,
distilled water and purified water. Unlike other beverages, bottled water serves
both as a tap water substitute and a refreshment beverage.
According to Beverage Marketing, the total U.S. market for bottled water has
grown from 1.6 billion gallons sold in 1987 to over 3.1 billion gallons in 1996,
and accounted for approximately $3.6 billion in wholesale sales during 1996.
Non-sparkling water comprises over 87% of the U.S. bottled water market and
generated $2.7 billion of wholesale sales in 1996, and is expected to continue
to grow in the future. PET-packaged products comprise approximately 39% of the
domestically produced non-sparkling water market and have grown from
approximately 83 million gallons in 1987 to approximately 580 million gallons in
1996, representing a compounded annual growth rate of approximately 24%.
PET-packaged products accounted for approximately $921 million of wholesale
sales in 1996. Approximately 81.7% of the Company's 1997 net revenues was
generated by products packaged in PET containers. According to Beverage
Marketing, PET bottled water is among the fastest growing beverage categories in
the United States.
Consumer Trends. Contributing to the growth in consumption of non-sparkling
water are consumer trends including health and fitness awareness, municipal tap
water quality concern and maturing soft drink demand, as well as consumer demand
for convenience and innovative packaging. Bottled water, particularly when
packaged in premium PET bottles with sport caps, appeals to consumers who are
sports enthusiasts or whose lifestyles are oriented to health and fitness.
According to Beverage Marketing, consumers' concern over the quality of
municipal water supplies has also contributed to an increase in bottled water
consumption.
Bottled water has also become an alternative to other beverages, including soft
drinks. According to Information Resources, Inc. ("IRI"), total U.S. gallons
sold of soft drinks through food store channels has increased approximately 10%
from 1994 through 1996. Over the same time period, gallons sold of
ready-to-drink juices have increased approximately 1%. In contrast,
non-sparkling bottled water gallons sold have increased approximately 21% from
1994 to 1996, according to Beverage Marketing. Bottled spring water is natural
and caffeine and additive free. These attributes and the increased availability
of convenient packaging for natural spring water have contributed to the
increase in bottled water consumption.
25
<PAGE>
Distribution Channels. Non-sparkling bottled water is generally sold to
end users through four channels. According to Beverage Marketing, the
total share of the bottled water market for each channel is as follows:
(i) off-premise retail, which consists of supermarket, convenience store
and drug store chains and other similar retail outlets (44.9%); (ii)
home and office delivery which primarily consists of 5 gallon containers
(39.0%); (iii) on-premise retail, which includes restaurants,
delicatessens and other similar sites (8.3%); and (iv) vending (7.8%).
Non-sparkling bottled water is generally delivered to customer locations
through direct-store-delivery ("DSD") or warehouse distribution systems. DSD
involves delivery of the product directly to the store's location where
consumers may purchase the product. Warehouse distribution systems involve the
delivery of truckloads of palletized products to the warehouses of regional
customers which, in turn, deliver the product directly to the customer's retail
sales locations.
Private Label. Private label products have become increasingly popular among
retailers and other customers. For example, supermarket sales of private label
products grew 8.5% in 1996 versus 1.4% growth among branded products, according
to IRI. Retailers benefit from having a range of private label and branded
products as well as from the customer affinity developed from the reinforcement
of the retailer's own brand. Other non-retailing customers find it more
efficient to source products from a private label manufacturer than to produce
the products themselves. Both types of customers often choose private label
bottled water producers on the basis of price, consistent product quality,
packaging capability, distribution capability and customer service.
Consolidation. The trend toward consolidation in the bottled water industry is
evidenced by the reduction in the number of bottled water filling locations and
the corresponding increase in volume produced at most locations over the past
ten years. According to Beverage Marketing, in 1996 there were approximately 350
filling locations in the United States versus approximately 425 in 1986, a
decrease of 17.6%. The number of filling locations with sales over $75 million
doubled to eight from 1995 to 1996. Larger companies are seeking to expand their
share within a market, obtain broader distribution and achieve economies of
scale with larger volume production.
Strategy
The Company's objective is to be the leading producer and bottler of natural
spring water for customers on a national basis. Aspects of the Company's
strategy include the following:
Focus on Premium PET Packaging. While the Company uses numerous types of
packaging, it is focused on bottling its natural spring water products in
premium PET plastic bottles which accounted for approximately 81.7% of its net
revenues in fiscal 1997. According to Beverage Marketing, PET is the fastest
growing segment of the bottled water market, having grown at a compounded annual
rate of approximately 24% from 1987 to 1996, representing $921 million of
wholesale sales in 1996. The Company currently offers eight premium PET bottle
sizes to its customers, with five of those sizes offered in the Company's
proprietary bottle designs.
Produce Regionally and Sell to National and Regional Customers. With the
acquisition of Castle Rock and the Ginnie Springs source, the Company is
implementing its strategy of developing regional production capacity to provide
bottled water products to national and regional customers throughout the United
States. The ability to provide products to its customers from multiple sites
allows the Company to service more effectively national customers such as
supermarket chains, drug stores, convenience stores, hotel chains, airlines and
restaurant chains, while reducing distribution costs.
Invest in State-of-the-Art Production Facilities. The Company has invested in
state-of-the-art production facilities which it believes are comparable or
superior in sophistication to those used by its competitors. These facilities
allow the Company to produce high quality natural spring water products in a
cost efficient manner while also providing the flexibility to respond rapidly to
the changing shipment and production demands of its customers.
26
<PAGE>
Create Innovative Packaging. The Company incorporates innovative packaging into
its natural spring water products in order to differentiate its products from
those offered by its competitors and to better meet its customers' demands. The
Company is a package design leader, having been one of the first to offer
premium PET bottles with sport caps; tamper-evident shrink wrap bands; 20 ounce
sports bottles; 8 ounce bottles designed for airlines, food service and other
distribution channels; and 24.9 ounce bottles designed to compete with the 24
ounce bottle.
Provide "One-Stop-Shopping" to Customers. By producing both private label and
branded products in a full line of sizes and packages, the Company can offer to
its customers "one-stop-shopping" supply arrangements. Customers are able to
stock their shelves with a variety of branded water products, while also
strengthening their own customer affinity with private label. Private label
customers are able to design their own packaging to their specifications.
Additionally, because the Company distributes its products throughout the
continental United States, the Company's customers need not rely on multiple
regional suppliers.
Provide Superior Customer Service. The Company is focused on providing the
highest level of service to its customers. The Company provides flexibility to
its customers in terms of order size, delivery timing and method, and, in the
case of private label, label design. The Company believes that by remaining
responsive to its customers' needs, it will encourage further sales penetration
with existing and new customers.
Growth Strategy. AquaPenn's growth strategy is to increase sales to existing
customers, broaden its current customer base, add new distribution channels and
expand its product line. The Company's active acquisition program includes
obtaining the rights to additional spring water sites and acquiring natural
spring water companies. In accordance with this strategy, the Company recently
acquired the rights to natural spring water from Ginnie Springs, adjacent to
which a new production facility is expected to be constructed and completed by
the Spring of 1998. In addition, the Company acquired Castle Rock, a bottler and
distributor of natural spring water products located in northern California. The
acquisition of the right to Ginnie Springs spring water and the acquisition of
Castle Rock will allow the Company to serve its customers more efficiently.
Product Categories
The Company offers both proprietary brands and private label products in each
of the categories described below. The Company estimates that approximately
42.5% of fiscal 1997 net revenues were derived from its private label business
and approximately 57.5% of net revenues were derived from its proprietary
brands.
Natural Spring Water. The Company's natural spring water is sodium and chlorine
free. The Company estimates that natural spring water products accounted for
approximately 88% of its net revenues in fiscal 1997.
Distilled Water. The AquaPenn and Great American branded and private label
distilled water is primarily used by consumers as a water source for batteries,
humidifiers and irons, and for drinking. The Company estimates that distilled
water accounted for approximately 4% of its net revenues in fiscal 1997.
Fluoridated Spring Water. The Company has developed spring water products
containing fluoride. AquaPenn currently packages fluoridated spring water for
Beech-Nut Nutrition Corporation under the name Beech-Nut(R) Spring Water and for
Gerber Products Company under the name Gerber(R) Baby Water with Fluoride, which
is marketed primarily to infants and children. Fluoride-related products
accounted for approximately 8% of the Company's net revenues in fiscal 1997.
Distribution
The Company distributes nearly all of its products from its Milesburg Facility
by shipping to the regional warehouses of its customers. Unlike a DSD
distribution system in which products are delivered via a company's local
delivery trucks to individual outlets, AquaPenn distributes to warehouses that
service its customers. This approach to distribution
27
<PAGE>
results in reduced distribution costs compared to DSD distribution costs, while
providing those companies that distribute via warehouse systems, according to
Beverage Marketing, access to nearly 80% of all off-premise retail channels. The
Company's Castle Rock subsidiary utilizes primarily a DSD distribution system.
The Company intends to continue to distribute natural spring water products
under the Castle Rock label through the DSD distribution system and private
label and other proprietary brands through the warehouse distribution system. In
fiscal 1997, sales to Sam's Club and Walgreen Co. accounted for approximately
12% and 10% of net revenues, respectively; no other customer accounted for more
than 10% of the Company's net revenues. As of September 30, 1997, the Company
believes its products were sold in all 50 states.
Marketing
The Company advertises at the wholesale level and participates in approximately
20 trade shows annually. The Company's products are also marketed through food
wholesalers, which deliver to single and chain stores such as convenience stores
and delicatessens, and through food brokers, which receive commissions based on
a percentage of net revenues for products sold. When possible, the Company
attempts to cross-market its private label and branded products.
The Company has full Electronic Data Interchange ("EDI") capability. EDI is a
system which permits customers to place orders and receive invoices
electronically. EDI reduces the administrative costs of the Company's customers
such as drug store chains and warehouse retailers by eliminating paperwork and
reducing processing time. Certain customers and potential customers will only
order products from EDI-capable suppliers. The Company currently receives 21.3%
of its orders via EDI. The Company believes that its EDI capability permits it
to compete better on a national level.
Spring Water Sources
The geographical distribution of the Company's natural spring water sources is
essential to its strategy of producing regionally and selling to national and
regional customers. By developing sources in the Northeast, Southeast and West,
the Company will be able to distribute more efficiently to the most significant
population areas in the United States. The Company believes that these sources
provide high quality natural spring water. "Spring water" is defined by the FDA
as water derived from an underground formation from which water flows naturally
to the surface of the earth. Under FDA guidelines, bottled water must contain
fewer than 500 parts per million ("ppm") in total dissolved solids. Varying
amounts of solids provide different "tastes" to water.
Graysville Spring. The Company's sources include the Graysville Spring with an
estimated flow of over 500,000 gallons per day, well in excess of the Company's
current and anticipated requirements for the Milesburg Facility. The Company has
exclusive use of the leased premises and may draw the full amount of the flow
for its bottling needs, except a minimal amount drawn for use by two existing
residences. The total dissolved solids of the water from this spring is
approximately 120 ppm. The Company leases the spring from the owner of the land
on which the spring is located pursuant to a 20 year lease expiring in the year
2017. The Company also has the right of first refusal to buy or lease the land
expiring in the year 2026. The land abuts state game lands which reduces the
risk of contamination or pollution from external sources. The Graysville Spring
is approximately 32 miles from the Milesburg Facility and water is transported
from the spring to the facility in the Company's stainless steel tanker trucks.
Big Spring. The Company has entered into an agreement with the Borough of
Bellefonte, Pennsylvania to purchase natural spring water from the Big Spring.
The estimated total flow of the Big Spring is approximately 14 million gallons
per day, and the Company has rights to purchase up to one million gallons per
day. The total dissolved solids of the water from this spring is approximately
140 ppm. The term of the Company's agreement with the Borough of Bellefonte is
50 years with a five year automatic renewal unless prior notice of termination
is given. The Company's rights to draw water from the Big Spring are subject to
the satisfaction of the water demands of the Borough of Bellefonte water system.
There is no restriction on sale by the Borough of Bellefonte of Big Spring water
to other purchasers. The Company is working with the Borough of Bellefonte to
obtain the necessary permits and approvals
28
<PAGE>
to carry out the agreement and enable the Company to construct an approximately
five-mile pipeline to transport water from the Big Spring to the Milesburg
Facility. As part of the process, the Borough of Bellefonte must obtain a new
water allocation permit to reflect an increase in the draw on Big Spring for
both the Borough's own needs and for the sale of spring water to the Company. In
addition, subsequent to the signing of the agreement with the Company, the
Borough of Bellefonte has been directed by the Pennsylvania Department of
Environmental Protection to construct a permanent cover over Big Spring.
Although there can be no assurance that the Borough of Bellefonte will obtain
all necessary permits or approvals, or obtain them in a timely manner, the
Company believes that such permits and approvals are obtainable, and if
obtained, the pipeline will be built and bottling of Big Spring water will
commence in the Spring of 1999.
Ginnie Springs. The Company has entered into an agreement with Seven Springs to
purchase natural spring water from Ginnie Springs. Pursuant to the agreement,
Seven Springs will sell 40 acres of land adjacent to Ginnie Springs to the
Company for the construction of a water bottling facility. The Company also has
a ten year option to purchase an additional 40 acres. The estimated total daily
flow of Ginnie Springs is 25 million gallons, and pursuant to state regulations
Seven Springs is permitted to sell an annual average of up to 1.15 million
gallons per day. The total dissolved solids of the water from Ginnie Springs is
approximately 140 ppm. The term of the agreement between the Company and Seven
Springs is 99 years. The Company has obtained the necessary permits from the
water management district and Gilchrist County and is expected to begin
construction of the new bottling facility in the near future. The Company
intends to pipe natural spring water from Ginnie Springs to the new bottling
facility and begin bottling water in the Spring of 1998.
Castle Rock. The Company's wholly owned subsidiary, Castle Rock, has an
agreement with the City of Dunsmuir, California, pursuant to which Castle Rock
purchases natural spring water from the City of Dunsmuir's spring source. The
estimated total daily flow from the Castle Rock Spring is approximately one
million gallons per day and the total dissolved solids of the water is
approximately 95 ppm. The agreement permits Castle Rock to capture water from
the source, and then pipe it approximately 1,800 feet to Castle Rock's bottling
facility. The term of the agreement is 25 years (until 2015) and Castle Rock has
an option to renew for an additional 25 years. The Company may purchase not more
than 50 million gallons per year, provided that any daily amount drawn by the
Company does not interfere with the domestic use of the City's current and
future residential users. The deed in the chain of title that enables the City
of Dunsmuir to sell natural spring water to Castle Rock contains limiting
language that may restrict the City's ability to sell water to the Company. See
"Risk Factors."
Production
The Company has fully equipped, highly automated state-of-the-art production
facilities in Pennsylvania and California and intends to construct a
state-of-the-art facility in Florida which is scheduled for completion in the
Spring of 1998. The Company continuously upgrades and improves its production
facilities to provide high speed, flexible bottling capabilities which permit
the Company to be responsive to customers' shipment and production demands, and
to supply a premium quality product.
Spring Water Treatment and Bottling. Upon delivery to the Company's Milesburg
and Castle Rock facilities, the spring water is filtered through 0.2 micron
filters and then ozonated during storage in stainless steel storage tanks. Ozone
is an unbalanced form of oxygen which, unlike regular oxygen, kills bacteria and
micro-organisms 3,000 times faster than chlorine. Unlike chlorine, ozone
naturally breaks down to simple oxygen in a few hours and leaves no traces or
residues. At the Milesburg Facility, when the spring water leaves the storage
tanks it is filtered through a one micron absolute filter and then run through
an ultraviolet (UV) light disinfection unit. After exposure to UV light, the
water is treated with ozone again. The ozonated water is then piped to the clean
room bottling area where the various products are filled and capped. The
residual ozone in the bottled products sanitizes the containers as well as the
water, making certain the water is pure. The clean room is filled and
pressurized with air from two high-volume HEPA (High-Efficiency Particulate Air)
air handlers that filter 99.97% of particulates out of the air.
29
<PAGE>
Packaging. The Company's 160,000 square foot Milesburg bottling facility is
equipped with stainless steel equipment and has several bottling lines. The
large space provides the Company with the flexibility to operate existing
bottling lines at high speeds. The Company has equipment for multi-packing and
is adding multi-pack shrink wrap equipment. The Company's products come in a
wide range of bottle sizes including PET bottles in 8 ounce, 12 ounce, .5 liter,
20 ounce, 24.9 ounce, 1 liter, 1.5 liter and 2.0 liter sizes, and .5 gallon, 1
gallon, 2.5 gallon and 5 gallon sizes. The Company believes that it is an
industry leader and innovator in packaging.
The manufacturing process is highly automated. Bottles are mechanically
de-palletized, cleaned, rinsed, filled and capped. The bottles are automatically
labeled, tamper banded, assembled and packed in cases. After palletizing and
stretch wrapping, the product is either loaded directly onto a truck for
immediate shipment or is stored in a warehouse for future shipment. Most
products are shipped within 48 to 72 hours after production via outside
carriers.
Quality Control. The Company maintains exacting internal quality control
standards. Each batch of bottled natural spring water is tested for at least
nine chemical and physical parameters as well as five microbiological
parameters. The Graysville Spring source and critical points in the Milesburg
Facility bottling process are evaluated weekly. Water from the Castle Rock
Spring is tested daily and the spring source is inspected weekly. In addition,
the Company's spring water is tested annually for over 140 contaminants by an
independent testing laboratory. The Company uses stainless steel equipment in
order to maximize quality control and cleanliness, and maintains an in-house
microbiological laboratory at both its Milesburg and Castle Rock facilities. The
Company believes that its quality control standards are equal or superior to the
standards of most bottled water producers.
The Company's products are certified by the National Sanitation Foundation (the
"NSF"), an independent agency serving industry, government and consumers in
areas relating to public health and the environment. The NSF conducts annual
unannounced inspections and extensive product and raw material testing. The
Company was awarded the "excellence in manufacturing" award by the International
Bottled Water Association, an award which recognizes the Company's commitment to
quality and purity.
Competition
The bottled water industry is highly competitive. According to Beverage
Marketing, there are approximately 350 bottled water filling locations in the
United States with sales increasingly concentrated among the larger firms.
According to Beverage Marketing, the ten largest bottled water companies
accounted for approximately 58.4% of wholesale dollar sales in 1996. Many of the
Company's competitors are more experienced, have greater financial and
management resources and have more established proprietary trademarks and
distribution networks than the Company. On a national basis, the Company
competes with bottled water companies such as The Perrier Group of America, Inc.
(which includes Arrowhead Mountain Spring Water, Poland Spring, Ozarka Spring
Water, Zephyrhills Natural Spring Water, Deer Park, Great Bear and Ice Mountain)
and Great Brands of Europe (which includes Evian Natural Spring Water and Dannon
Natural Spring Water). The Company also competes with numerous regional bottled
water companies located in the United States and Canada. AquaPenn has chosen to
compete by focusing on innovative packaging, customer service and pricing.
Facilities
The Company's Pennsylvania bottling facility, opened in May 1995 and expanded
in February 1997, is located in Milesburg, Pennsylvania, on a 30-acre parcel of
land owned by the Company. The February 1997 addition expanded the Company's
facility by 52,000 square feet for a total size of 160,000 square feet. This
addition has been used for the manufacture of both PET and high density
polyethylene (1 gallon) bottles. The Company is currently increasing the size of
the Milesburg Facility to 345,000 square feet. Two new sections measuring
115,000 square feet and 70,000 square feet will be added to each end of the
existing facility. These additions are scheduled to be completed by February
1998. The Company also leases approximately 11,000 square feet of warehouse
space located in Boggs Township, Pennsylvania pursuant to a lease expiring on
January 15, 1998.
30
<PAGE>
The Company's wholly owned subsidiary, Castle Rock, leases a 26,000 square foot
office and warehouse in Redding, California pursuant to a lease expiring
November 30, 1999. In addition, Castle Rock owns a 20,000 square foot bottling
facility in Dunsmuir, California. Castle Rock also separately leases a 2,000
square foot storage space.
The Company intends to construct, own and operate a 52,500 square foot
expandable state-of-the-art water bottling facility on 40 acres adjacent to
Ginnie Springs. The new facility will feature all stainless steel production
equipment and computerized systems similar to those in place at the Milesburg
Facility. The Company expects the facility to be completed in the Spring of
1998.
Management Information Systems
The Company utilizes a software package which runs on an IBM platform and
integrates all financial, reporting, warehousing, production, and other
applications including EDI ordering. The Company believes that its management
information systems are adequate to handle the Company's current growth plans.
Trademarks
The Company has registrations in the U.S. Patent and Trademark Office for many
of the trademarks that it uses, including Pure American, Great American and
AquaPenn. The Company believes that its common law and registered trademarks
have significant value and goodwill and that some of these trademarks are
instrumental in its ability to create demand for and market its products. There
can be no assurance that the Company's common law or registered trademarks do
not or will not violate the proprietary rights of others, that they would be
upheld if challenged or that the Company would, in such an event, not be
prevented from using the trademarks, any of which could have an adverse effect
on the Company.
Regulation
The Company's operations are subject to numerous federal, state and local laws
and regulations relating to its bottling operations, including the identity,
quality, packaging and labeling of its bottled water. The Company's bottled
water must satisfy FDA standards, which may be periodically revised, for
chemical and biological purity. The Company's bottling operations must meet FDA
"good manufacturing practices," and the labels affixed to the Company's products
are subject to FDA restrictions on health and nutritional claims. In addition,
bottled water must originate from an "approved source" in accordance with
federal and state standards.
State health and environmental agencies also regulate water quality and the
manufacturing practices of producers. The Pennsylvania Department of
Environmental Protection ("DEP") requires the Company to submit one finished
product sample and one source sample of water from the Graysville Spring each
week to DEP from a certified microbiological lab for certified bacteriological
analysis. In California, the Department of Health Services ("DHS") is the
principal agency with regulatory authority over bottled water producers, and DHS
regulations generally incorporate FDA requirements.
The Company is a member of the International Bottled Water Associations
("IBWA"), a trade organization which promulgates regulations regarding the
quality of water which its members may market. The Company is currently in
compliance with the IBWA regulations; however, there can be no assurance that
the spring water sourced by the Company will continue to meet IBWA regulations.
The Company has satisfied applicable state and federal requirements and
therefore is permitted to sell its bottled water in all 50 states. These laws
and regulations are subject to change, however, and there can be no assurance
that additional or more stringent requirements will not be imposed on the
Company's operations in the future. Although the Company believes that its water
supply, products and bottling facilities are in substantial compliance with all
31
<PAGE>
applicable governmental regulations, failure to comply with such laws and
regulations could have a material adverse effect on the Company.
Legal Proceedings
The Company is not a party to any material legal proceedings.
Employees
The Company currently employs approximately 225 full-time employees, including
Castle Rock employees, none of whom are covered by collective bargaining
agreements. During peak production periods, the Company supplements its
full-time work force with part-time employees. The Company believes that its
relations with its employees are good.
32
<PAGE>
MANAGEMENT
Executive Officers and Directors
The officers and directors of the Company, together with their ages and
business backgrounds, are as follows:
<TABLE>
<CAPTION>
Name Age Position with Company
---- --- ---------------------
<S> <C> <C>
Edward J. Lauth, III................... 43 Chairman, President, Chief Executive Officer and
Director
Geoffrey F. Feidelberg................. 42 Executive Vice President, Chief Operating Officer and
Chief Financial Officer and Director
Dennis B. Nisewonger................... 49 Controller and Assistant Secretary
Calvin J. Wagner, Jr.(1)............... 38 Secretary and Director
Walter Bruce(2)........................ 58 Director
Nancy Jean Davis....................... 45 Director
Richard F. DeFluri(1).................. 47 Director
John H. Gutfreund...................... 68 Director
James D. Hammond(1).................... 63 Director
Robert E. Poole, Jr.(1)................ 46 Director
Norman S. Rich(2)...................... 59 Director
Henry S. Shatkin....................... 69 Director
Matthew J. Suhey....................... 39 Director
</TABLE>
- ---------------
(1) A member of the Compensation Committee.
(2) Assuming that the Selling Shareholder sells all of its shares of Common
Stock in this Offering, the Selling Shareholder shall cause Messrs. Bruce
and Rich to resign from the Board effective immediately thereafter.
Edward J. Lauth, III is the founder of the Company and has been Chairman,
President, Chief Executive Officer and a director of the Company since the
Company's founding in 1986. Prior to founding the Company, Mr. Lauth spent
several years developing and selling commercial real estate, in addition to
founding and selling two businesses in State College, Pennsylvania. Mr. Lauth
received a B.S. from Rollins College. Mr. Lauth is also a member of the
Regional Board of Directors of Mid-State Bank and Trust Company ("Mid-State
Bank"), a subsidiary of Keystone Financial, Inc. Mr. Lauth is responsible for
sales, marketing and strategic planning of the Company.
Geoffrey F. Feidelberg has been Executive Vice President and Chief Financial
Officer since 1989 and Chief Operating Officer and a director of the Company
since 1993. Prior thereto, Mr. Feidelberg was a Senior Manager in
33
<PAGE>
the Fort Lauderdale office of Price Waterhouse. Mr. Feidelberg received a B.S.
in Accounting from the State University of New York at Binghamton and is a
Certified Public Accountant. Mr. Feidelberg is also currently the President and
a director of SPE Federal Credit Union. Mr. Feidelberg is responsible for the
Company's administration, finance, manufacturing and strategic planning.
Dennis B. Nisewonger has been Controller of the Company since 1993 and
Assistant Secretary since 1995. Prior to joining the Company, Mr. Nisewonger
was the fiscal officer for Dauphin County. From 1982 to 1989, Mr. Nisewonger
was Controller of Murata Electronics, Inc. Mr. Nisewonger is responsible for
the Company's internal accounting and auditing function.
Calvin J. Wagner, Jr. has been Secretary and a director of the Company since
1988. Mr. Wagner is a Certified Public Accountant and is currently a partner in
the accounting firm of Seligman, Friedman & Co., P.C. From 1991 to 1994, Mr.
Wagner was a partner in the accounting firm of Wagner, Mock and Martella.
Walter Bruce has been a director of the Company since 1995. Mr. Bruce has been
the Vice President-Private Label for Weis Markets, Inc., a publicly owned
supermarket chain, since 1976.
Nancy Jean Davis has been a director of the Company since 1987. Since 1986, Ms.
Davis has been the President and Chairman of McArthur Farms, Inc., a corporation
engaged in the distribution of dairy, citrus, beef and feed ingredient
commodities.
Richard F. DeFluri has been a director of the Company since 1987. Mr. DeFluri
has been a Senior Associate of the Pennsylvania Financial Group since 1974. In
addition, Mr. DeFluri is a director of The Abbey Company, Aris Corporation,
Nittany Health Care, Inc., Joyner Sports Medicine, Inc. and PFG Capital.
John H. Gutfreund, former Chairman and Chief Executive Officer of Salomon
Brothers, Inc. from 1984 to 1991, has been a director of the Company since 1995.
Since 1993, Mr. Gutfreund has been President of Gutfreund & Company, a New
York-based financial consulting firm. Mr. Gutfreund is also a director of LCA
Vision, Inc.
James D. Hammond, Ph.D. has been a director of the Company since 1994. Since
1988, Mr. Hammond has been Dean of the Smeal College of Business Administration
at Pennsylvania State University. Mr. Hammond is a director of Atlantic Mutual
Insurance Company and a trustee of the Scudder Variable Life Fund, the Scudder
Pathway Funds and the Scudder Institutional Fund.
Robert E. Poole, Jr. has been a director of the Company since 1994. He has
been the Chief Executive Officer and President of S&A Custom Built Homes, Inc.,
one of the 100 largest homebuilders in the United States, since 1992. Mr. Poole
is also on the Advisory Board of PNC Bank of Central Pennsylvania.
Norman S. Rich, a director of the Company since 1989, has been President of
Weis Markets, Inc. since 1995. He has served on Weis Markets' Board of Directors
since 1990. From 1980 to 1995 Mr. Rich was Vice President of Operations for
Weis Markets, Inc.
Henry S. Shatkin has been a director of the Company since 1995. Mr. Shatkin
has been the Chief Executive Officer of Shatkin, Arbor, Karlov, a commodities
firm in Chicago, since 1992.
Matthew J. Suhey has been a director of the Company since 1993. Mr. Suhey has
been an independent commodities trader at the Chicago Board of Trade since 1990.
In addition, Mr. Suhey has been an independent food broker on behalf of the
Company since 1992.
The directors of the Company are elected at the annual meeting of shareholders
and each director so elected holds office until his or her successor is elected
and shall qualify, or until his or her earlier resignation or removal. The
34
<PAGE>
executive officers of the Company are elected by the Board of Directors and
serve at the discretion of the Board of Directors. There are no family
relationships among any of the directors or executive officers of the Company.
Committees of the Board of Directors; Compensation Committee Interlocks
The Board of Directors will elect an Audit Committee and has a standing
Compensation Committee. Among other functions, the Audit Committee will make
recommendations to the Board of Directors regarding the selection of independent
auditors, review the results and scope of the audit and other services provided
by the Company's independent auditors, review the Company's financial statements
and review and evaluate the Company's internal control functions. The
Compensation Committee periodically reviews and evaluates the compensation of
the Company's officers and establish guidelines for compensation and benefits
for the Company's personnel. The Compensation Committee is comprised of Messrs.
DeFluri, Poole, Hammond and Wagner. Mr. Wagner has a stock subscription payable
to the Company in the amount of $71,878.
Compensation of Directors
Each director receives 901 shares of Common Stock per year plus reimbursement
of reasonable expenses incurred to attend meetings of the Board of Directors.
35
<PAGE>
Executive Compensation
The following table sets forth a summary of certain information regarding the
compensation paid or to be paid by the Company for services rendered to the
Company during the fiscal year ended September 30, 1997 with respect to the
Company's Chief Executive Officer and all other executive officers whose total
annual salary and bonus exceeded $100,000 for such period (the "Named
Executives").
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
------------------- ------------
Securities
Underlying All Other
Name and Principal Position Year Salary(1) Options(2) Compensation
- --------------------------- ---- ------------------- ------------ ------------
<S> <C> <C> <C> <C>
Edward J. Lauth, III 1997 $201,250 30,040 $ 41,789(3)
Chairman, President and Chief
Executive Officer
Geoffrey F. Feidelberg, 1997 $161,000 30,040 $ 27,192(4)
Executive Vice President,
Chief Operating Officer and
Chief Financial Officer
</TABLE>
- -----------
(1) Includes deferred income of 15% of each officer's base annual salary.
(2) Granted pursuant to employment agreements which provide for such grants
each fiscal year in which the Company's after-tax profits exceed $1
million.
(3) Includes the following amounts: $3,960 (matching 401(k) contribution);
$5,753 (life insurance premiums); $1,000 (award for annual service for 10
years); $21,711 (health insurance coverage); $5,850 (value of shares
received for Board membership); and $3,515 (long-term disability
insurance).
(4) Includes the following amounts: $3,209 (matching 401(k) contribution);
$4,739 (life insurance premium); $700 (award for annual service for 7
years); $7,537 (health insurance coverage); $5,850 (value of shares
received for Board membership); and $5,157 (long-term disability
insurance).
36
<PAGE>
Option Grants in Last Fiscal Year
The following table summarizes certain information with respect to Company
stock options granted to the Named Executives during the fiscal year ended
September 30, 1997.
<TABLE>
<CAPTION>
Individual Grants
---------------------------------------------------------
Percent of Potential Realizable
Total Value at Assumed
Number of Options Annual Rates of Stock
Securities Granted to Exercise Price Appreciation for
Underlying Employees or Base Price Option Term(1)
Options in Fiscal Per ----------------------
Name Granted Year 1997 Share Expiration Date 5% 10%
---- ---------- ----------- ------------- --------------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Edward J. Lauth, III 30,040(2) 50% $7.07 9/30/2007 $133,757 $338,787
Geoffrey F. Feidelberg 30,040(3) 50% $7.07 9/30/2007 $133,757 $338,787
</TABLE>
- -----------------------
(1) This column shows the hypothetical gains on the options granted based on
assumed annual compound stock appreciation rates of 5% and 10% over the
full ten-year term of the options. The assumed rates of appreciation are
mandated by the rules of the Securities and Exchange Commission (the
"Commission") and do not represent the Company's estimate or projection of
future Common Stock prices.
(2) Granted pursuant to an Employment Agreement dated September 16, 1994
between the Company and Mr. Lauth which provides for a grant of an option
to purchase 30,040 shares of Common Stock to Mr. Lauth for each fiscal year
in which after-tax profits of the Company exceed $1 million.
(3) Granted pursuant to an Employment Agreement dated September 16, 1994
between the Company and Mr. Feidelberg which provides for a grant of an
option to purchase 30,040 shares of Common Stock to Mr. Feidelberg for each
fiscal year in which after-tax profits of the Company exceed $1 million.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The following table sets forth information concerning the number and value
of exercisable and unexercised options to purchase Common Stock held by the
Named Executives as of September 30, 1997. No Named Executive exercised any
options for Company Stock during fiscal 1997.
37
<PAGE>
Aggregated Option Exercises in the Fiscal Year ended September 30, 1997
and Option Values at September 30, 1997
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options at September 30, 1997 Options at September 30,1997(1)
----------------------------- -------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Edward J. Lauth, III 90,120 -- $ 939,300 $ --
Geoffrey F. Feidelberg 330,440 -- $4,081,100 $ --
</TABLE>
- -----------------------
(1) Value determined based on the difference between an assumed fair market
value on September 30, 1997 of $15.00 per share (equal to the assumed
Offering price per share) and the option exercise price for each
above-stated option.
Employment Agreements
Edward J. Lauth, III. In September 1994, the Company and Mr. Lauth entered
into an employment agreement pursuant to which Mr. Lauth receives a salary,
adjusted as of September 1996, of $175,000 per year and deferred compensation in
the amount of 15.0% of his annual salary. The employment agreement also provides
for Mr. Lauth to receive options to purchase 30,040 shares of Common Stock for
each fiscal year in which AquaPenn's after-tax profits exceed $1 million. Such
after-tax profits were attained for the fiscal years ended September 30, 1996
and 1997. Such options are immediately exercisable, have a term of ten years and
an exercise price equal to the fair market value of the Common Stock on the date
of grant. The initial term of the employment agreement ended December 31, 1995,
but the employment agreement automatically renews for an unlimited number of
successive one-year terms unless six months written notice of termination is
given by either party. The employment agreement contains a non-compete provision
which extends for two years beyond termination of the employment agreement.
The Company and Mr. Lauth also entered into a change in control agreement in
September 1994, which provides that if, within one year of a "change in control"
(as defined in the agreement) of AquaPenn, Mr. Lauth is terminated or resigns
because his responsibilities have diminished or been significantly changed or
his salary has been reduced by more than 15.0%, Mr. Lauth shall be entitled to
receive one year's salary and benefits and all outstanding stock options held by
Mr. Lauth shall become immediately exercisable. The change in control agreement
terminates if Mr. Lauth ceases to be employed by the Company prior to a change
in control.
Geoffrey F. Feidelberg. In September 1994, the Company and Mr. Feidelberg
entered into an employment agreement, pursuant to which Mr. Feidelberg receives
a salary, adjusted as of September 1996, of $140,000 per year and deferred
compensation in the amount of 15.0% of his annual salary. The employment
agreement also provides for Mr. Feidelberg to receive options to purchase 30,040
shares of Common Stock for each fiscal year in which AquaPenn's after-tax
profits exceed $1 million. Such after-tax profits were attained for the fiscal
years ended September 30, 1996 and 1997. Such options are immediately
exercisable, have a term of ten years and an exercise price equal to the fair
market value of the Common Stock on the date of grant. The initial term of the
employment agreement ended December 31, 1995, but the employment agreement
automatically renews for an unlimited number of successive one-year terms unless
six months written notice of termination is given by either party. The
employment agreement contains a non-compete provision which extends for two
years beyond termination of the employment agreement.
38
<PAGE>
The Company and Mr. Feidelberg have also entered into a change in control
agreement in September 1994 on substantially the same terms as the change in
control agreement entered into with Mr. Lauth.
Stock Plans
The Company's 1992 Stock Option Plan (the "Option Plan") was adopted by the
Company's Board of Directors in November 1992 and approved by its shareholders
in March 1993. Options exercisable for a total of 300,400 shares of Common Stock
are issuable under the Option Plan. The Option Plan provides for the grant to
employees of either "incentive stock options" within the meaning of Sections 421
and 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or
nonqualified stock options. Under the Option Plan, only employees (including
officers) of the Company are eligible to receive options under the Option Plan.
The exercise price of incentive stock options must at least equal the fair
market value for the underlying shares on the date of grant or, in the case of
options granted to holders of 10.0% or more of the outstanding Common Stock,
110.0% of the fair market value on the date of grant. The exercise price of
nonqualified stock options must not be less than the fair market value of the
underlying shares on the date of grant. To date, no stock options have been
granted under the Option Plan.
The Option Plan is administered by a committee of four persons appointed by
the Board of Directors of the Company which determines the terms of options
granted under the Option Plan, including the exercise price and the number of
shares subject to the option. The Option Plan provides the Board of Directors
with the discretion to determine when options granted thereunder shall become
exercisable. Generally, for options granted to employees, such options may be
exercised at any time prior to expiration, so long as the optionee continues to
be employed by the Company. No option granted under the Option Plan is
transferable by the optionee other than by will or the laws of descent and
distribution, and each option is exercisable during the life of the optionee
only by the optionee.
The Company's Stock Purchase Plan was adopted by the Company's Board of
Directors in February 1996 and approved by its shareholders in April 1996. A
total of one million shares of Common Stock are issuable under the Stock
Purchase Plan. No employee will be granted an option if, immediately after the
option is granted, such employee will own 5.0% or more of the total voting power
or value of all classes of the Company's stock. In addition, no employee will be
granted an option if such employee's rights to purchase shares exceeds $25,000
of the fair market value of such shares for such calendar year.
Under the terms of the Stock Purchase Plan, eligible employees may purchase
shares of the Company's Common Stock at 85% of the fair market value at the
offering date. Payment for the shares must be made within one year of the
offering date. An employee may cancel his or her subscription any time prior to
payment in full for the shares. No rights under the Stock Purchase Plan are
assignable or transferrable by the employee other than by will or the laws of
descent and distribution, and only the employee may exercise such rights during
his or her lifetime. The employee's rights under the Stock Option Plan terminate
immediately in the event the employment of the employee is terminated for any
reason other than death, temporary layoff or retirement with the consent of the
Company. Upon termination due to death or retirement with consent of the Company
the employee or the employee's estate has one year to pay any amounts due for
purchase of shares. If the employee is subjected to temporary layoff and is
subsequently rehired within six months, the employee may continue to pay for
shares subscribed to by such employee.
At September 30, 1997, approximately 76,254 shares were subscribed for by
eligible employees under the Stock Purchase Plan.
39
<PAGE>
CERTAIN TRANSACTIONS
The Company and Matthew J. Suhey, a director of the Company, have entered
into an agreement pursuant to which Mr. Suhey acts as an independent food broker
with the Company. Mr. Suhey received compensation of $250,000 in fiscal year
1997 for his services as an independent food broker on behalf of the Company. In
addition, accrued commissions to Mr. Suhey as of September 30, 1997, were
$20,833. In September 1995, the Board of Directors of the Company resolved to
grant to Mr. Suhey options to purchase 30,040 shares of Common Stock of the
Company for each year in which AquaPenn's after-tax profits exceed $1 million.
Such after-tax profits have been achieved for fiscal years 1996 and 1997.
Norman S. Rich, a Director of the Company, is the President of Weis Markets,
Inc., the ultimate parent of Aqua Works, Inc., a 40.3% shareholder of the
Company. Weis Markets, Inc., which owns and operates supermarkets, purchases
natural spring water products from the Company at market prices. Such purchases
constituted approximately 1.6% of the Company's total net revenues in fiscal
1997.
On August 29, 1997 the Company entered into a Credit Agreement with
Mid-State Bank, pursuant to which Mid-State Bank has extended a $10.0 million
revolving credit line and a $6.0 million line of credit to the Company. Edward
J. Lauth, III, President and a director of the Company, is on the Regional Board
of Directors of Mid-State Bank.
As of September 30, 1997, Calvin J. Wagner, Jr., a director of the Company,
had a stock subscription payable to the Company in the amount of $71,878.
40
<PAGE>
PRINCIPAL SHAREHOLDERS AND SELLING SHAREHOLDER
The table below sets forth as of November 19, 1997 certain information
regarding the beneficial ownership of shares of Common Stock (i) by each
director and executive officer of the Company, (ii) by all the directors and
officers as a group, (iii) by each person who is known by the Company to be the
owner (or beneficial owner) of 5.0% or more of the Company's outstanding shares
of Common Stock and (iv) by one of the Company's current shareholders who is
offering to sell shares in this Offering.
<TABLE>
<CAPTION>
Beneficial Ownership(1) Beneficial Ownership(1)
Prior to the Offering After the Offering
--------------------------- Shares to --------------------------
Shares Percent be sold Shares Percent
------ ------- --------- ------ -------
<S> <C> <C> <C> <C> <C>
Directors and Officers(2):
Norman S. Rich...................... 1,867,587 (3)(14) 40.5% 1,859,000 8,587 * %
Edward J. Lauth, III ............... 1,249,592 (4) 26.2 -- 1,249,592 18.1
Matthew J. Suhey ................... 361,231 (5) 7.3 -- 361,231 5.1
Geoffrey F. Feidelberg.............. 356,876 (6) 7.2 -- 356,876 5.0
Nancy Jean Davis ................... 249,615 (7) 5.4 -- 249,615 3.7
Calvin J. Wagner, Jr. .............. 127,129 (8) 2.7 -- 127,129 1.9
Henry S. Shatkin ................... 85,013 (9) 1.8 -- 85,013 1.3
Robert E. Poole .................... 38,451 (10) * -- 38,451 *
Richard F. DeFluri ................. 36,048 (11) * -- 36,048 *
James D. Hammond ................... 24,107 (12) * -- 24,107 *
John H. Gutfreund .................. 23,431 * -- 23,431 *
Walter Bruce ....................... 1,802 (13) * -- 1,802 *
All Directors and Officers as
a Group (13 persons)............... 4,426,144 77.2% -- 2,567,145 32.6
Other Principal and Selling
Shareholder:
Aqua Works, Inc. (14)............... 1,859,476 (14) 40.3% 1,859,000 476 *
</TABLE>
- ---------------------
* Less than one percent.
(1) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from the date of this Prospectus
upon the exercise of options or warrants. Each beneficial owner's
percentage ownership is determined by assuming that options or warrants
that are held by such person (but not those held by any other person) and
that are exercisable within 60 days from the date of this Prospectus have
been exercised. Unless otherwise noted, the Company believes that all
persons named in the table have sole voting and investment power with
respect to all shares of Common Stock beneficially owned by them. For
purposes of the table, shares of Common Stock are considered beneficially
owned by a person if such person has or shares voting or investment power
with respect to such stock. As a result, the same security may be
beneficially owned by more than one person and, accordingly, in some
cases, the same shares are listed opposite more than one name in the
table.
(2) Address is c/o One AquaPenn Drive, Milesburg, Pennsylvania, 16853.
(3) Mr. Rich is the President of Aqua Works, Inc. and Weis Markets, Inc., the
ultimate parent of Aqua Works, Inc., the holder of 1,859,476 shares of
Common Stock. Because as President of Aqua Works, Inc. and Weis
Markets, Inc. Mr. Rich controls the voting and investment power of
such shares, for purposes of computing
41
<PAGE>
beneficial ownership Mr. Rich is considered to be the beneficial owner
of the 1,859,476 shares of Common Stock held by Aqua Works, Inc. Mr.
Rich disclaims beneficial ownership of any shares held by Aqua Works,
Inc.
(4) Includes 30,653 shares of Common Stock held by the Lauth Family Limited
Partnership, 13,067 shares of Common Stock in a Rabbi Trust for the
benefit of Mr. Lauth, options and warrants to purchase 165,220 shares of
Common Stock and 114,512 shares of Common Stock held by ASW Investors, a
Pennsylvania general partnership which has granted Mr. Lauth a proxy to
vote all of its shares.
(5) Includes options to purchase 330,440 shares of Common Stock and 15,020
shares of Common Stock held through ASW Investors, in which Mr. Suhey has
a 13.1% general partner interest.
(6) Includes 10,814 shares of Common Stock in a Rabbi Trust for the benefit of
Mr. Feidelberg, 180 shares of Common Stock held in trusts for which Mr.
Feidelberg is trustee, 6,008 shares of Common Stock held by his spouse and
330,440 shares of Common Stock exercisable pursuant to options. Mr.
Feidelberg disclaims beneficial ownership of the 6,008 shares of Common
Stock held by his spouse.
(7) Includes 39,334 shares of Common Stock and warrants for 21,028 shares of
Common Stock held by the Nancy Jean Davis Trust and 189,252 shares of
Convertible Preferred Stock held by the Nancy Jean Davis Trust.
(8) Includes 12,617 shares of Convertible Preferred Stock and 114,512 shares
of Common Stock held through ASW Investors, in which Mr. Wagner has a 0.3%
general partner interest and, as managing partner, has the power to sell
all of the shares.
(9) Includes 10,814 shares of Common Stock held by M-S Capital Fund and 15,020
shares of Common Stock held through ASW Investors, in which Mr. Shatkin
has a 13.1% general partner interest.
(10) Includes 10,814 shares of Common Stock and 24,032 shares of Convertible
Preferred Stock held jointly by Mr. Poole with his spouse.
(11) Includes 9,012 shares of Common Stock held by Adicus, L.P. and 27,036
shares of Convertible Preferred Stock held by Adicus, L.P.
(12) Includes warrants for 9,012 shares of Common Stock, and 4,731 shares of
Common Stock and 6,759 shares of Convertible Preferred Stock held jointly
by Mr. Hammond with his spouse.
(13) Mr. Bruce is a Vice President of Weis Markets, Inc., the ultimate
parent of Aqua Works, Inc., the holder of 1,859,476 shares of Common
Stock. Mr. Bruce disclaims beneficial ownership of any shares held by
Aqua Works, Inc.
(14) Includes warrants for 135,180 shares of Common Stock. The address of
Aqua Works, Inc. is 1000 S. Second Street, Sunbury, Pennsylvania,
17801-0471. Weis Markets, Inc. is the ultimate parent of Aqua Works, Inc.
42
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following description of the Company's capital stock does not purport to
be complete and is subject in all respects to applicable Pennsylvania law and to
the provisions of the Company's Articles of Incorporation, as amended, and
By-laws, copies of which have been filed as exhibits to the Registration
Statement of which this Prospectus is a part.
The authorized capital stock of the Company consists of 100,000,000 shares
of Common Stock, no par value, and 2,000,000 shares of Convertible Preferred
Stock, par value $1.00 per share. Immediately following the completion of this
Offering, the Company estimates that there will be outstanding an aggregate of
6,744,646 shares of Common Stock and 1,702,500 shares of Convertible Preferred
Stock which are convertible into 1,022,862 shares of Common Stock.
Common Stock
Holders of the Common Stock are entitled to one vote per share on all
matters to be voted upon by the shareholders. Holders of Common Stock do not
have cumulative voting rights, and therefore holders of a majority of the shares
voting for the election of directors can elect all of the directors. In such
event, the holders of the remaining shares will not be able to elect any
directors.
Holders of the Common Stock are entitled to receive such dividends as may be
declared from time to time by the Board of Directors out of funds legally
available therefor, subject to the terms of the agreements governing the
Company's long-term debt. The Company does not anticipate paying cash dividends
in the foreseeable future. See "Dividend Policy." In the event of the
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to share ratably in all assets remaining after payment of
liabilities and payments to holders of the Convertible Preferred Stock.
Holders of the Common Stock have no preemptive, conversion or redemption
rights and are not subject to further calls or assessments by the Company.
Immediately upon consummation of this Offering, all of the then outstanding
shares of Common Stock will be validly issued, fully paid and nonassessable.
The Transfer Agent and Registrar for the Common Stock is American Securities
Transfer & Trust, Inc.
Preferred Stock
The Board of Directors has the authority, without any vote or action by the
shareholders, to issue Preferred Stock in one or more series and to fix the
designations, preferences, rights, qualifications, limitations and restrictions
thereof, including the voting rights, dividend rights, dividend rate, conversion
rights, terms of redemption (including sinking fund provisions), redemption
price or prices, liquidation preferences and the number of shares constituting
any series. In addition, the issuance of Preferred Stock by the Board of
Directors could be utilized, under certain circumstances, as a method of
preventing a takeover of the Company at a premium above the then prevailing
market price.
Convertible Preferred Stock
The Convertible Preferred Stock is convertible at the option of the holder
at any time into shares of Common Stock at the rate of one share of Convertible
Preferred Stock per share of Common Stock. Giving effect to the 0.6008-for-1
Reverse Stock Split that will occur immediately prior to this Offering, each
share of Convertible Preferred Stock is convertible into 0.6008 shares of Common
Stock. The number of shares of Common Stock into which the Convertible Preferred
Stock is converted shall be adjusted to take into account increases or
reductions
43
<PAGE>
in the number of shares of outstanding Common Stock by reason of a split, share
dividend, merger or consolidation. The Convertible Preferred Stock has no
redemption features, but does have a preference in liquidation.
Pennsylvania Corporate Law Provisions
The Company's Articles of Incorporation and By-laws contain certain
provisions which may have the effect of deterring or discouraging, among other
things, a non-negotiated tender or exchange offer for Company stock, a proxy
contest for control of the Company, the assumption of control of the Company by
a holder of a large block of the Company's stock and the removal of the
Company's management. These provisions empower the Board of Directors, without
shareholder approval, to issue Preferred Stock the terms of which, including
voting power, are set by the Board.
The Pennsylvania Business Corporation law contains certain provisions
applicable to the Company which may have similar effects. These provisions,
among other things: (1) require that, following any acquisition by any person or
group of 20% of a public corporation's voting power, the remaining shareholders
have the right to receive payment for their shares, in cash, from such person or
group in an amount equal to the "fair value" of the shares, including an
increment representing a proportion of any value payable for control of the
corporation; (2) prohibit for five years, subject to certain exceptions, a
"business combination" (which includes a merger or consolidation of the
corporation or a sale, lease or exchange of assets) with a shareholder or group
of shareholders beneficially owning 20% or more of a public corporation's voting
power; (3) suspend the voting rights of the shares acquired by a person or group
acquiring 20% or more of the voting power of the corporation; (4) require that a
person or group who acquired, offered to acquire or publicly disclosed the
intention of acquiring at least 20% of the voting power of the corporation
disgorge "greenmail" profits or profits realized from the disposition of the
corporation's securities within 18 months after acquiring at least 20% of the
voting power if the security had been acquired by such person or group within 24
months before or 18 months after such person or group acquired 20% of the voting
power of the corporation; (5) allow the corporation to adopt shareholders'
rights plans with discriminatory provisions (sometimes referred to as "poison
pills") whereby options to acquire shares of corporate assets are created and
issued which contain terms that limit persons owning or offering to acquire a
specified percentage of outstanding shares from exercising, converting,
transferring or receiving options and allow the exercise of options to be
limited to shareholders or triggered based upon control transactions; (6)
shareholders of a corporation would no longer have a statutory right to call
special meetings of shareholders or to propose amendments to the articles of
incorporation; and (7) in discharging the duties of their respective positions,
the board of directors, committees of the board and individual directors may, in
considering the best interests of the corporation, consider to the extent they
deem appropriate, (i) the effects of any action upon shareholders, employees,
suppliers, customers and creditors of the corporation and upon the communities
in which offices or other establishments of the corporation are located, (ii)
the short-term and long-term interests of the corporation, including benefits
that may accrue to the corporation from its long-term plans and the possibility
that these interests may be best served by the continued independence of the
corporation, (iii) the resources, intent and conduct (past, stated and
potential) of any person seeking to acquire control of the corporation, (iv) and
all other pertinent factors. Further, the board of directors, committees of the
board and individual directors are not required, in considering the best
interests of the corporation or the effects of any action, to regard any
corporate interest or the interests of any particular group affected by such
action as a dominant or controlling interest or factor. The consideration of the
foregoing factors shall not constitute a violation of the board's applicable
standard of care.
Amendment of Articles of Incorporation. The Pennsylvania Business
Corporation Law provides that the Articles of Incorporation of a Pennsylvania
corporation may be amended by the affirmative vote of a majority of the
outstanding voting stock of such corporation, except as otherwise provided by
such corporation's Articles of Incorporation.
44
<PAGE>
General Effect of Anti-Takeover Provisions. The overall effect of these
provisions and the existing change in control agreements (see
"Management--Employment Agreements") may be to deter a future tender offer or
other takeover attempt that some shareholders might view to be in their best
interests as the offer might include a premium over the market price of the
Common Stock at that time. In addition, these provisions may have the effect of
assisting the Company's current management in retaining its position and place
it in a better position to resist changes which some shareholders may want to
make if dissatisfied with the conduct of the Company's business.
45
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have 6,744,646 shares of
Common Stock issued and outstanding (assuming the Underwriters' over-allotment
option is not exercised). Of these shares, all 3,859,000 of the shares sold in
this Offering (plus any additional shares sold upon the exercise of the
Underwriters' over-allotment option) will be freely tradable under the
Securities Act, except for shares purchased by "affiliates" of the Company
within the meaning of the rules and regulations under the Securities Act.
The remaining 2,885,646 outstanding shares (the "Restricted Shares"), which
were issued by the Company in reliance upon the "private placement" exemption
provided by Section 4(2) of the Securities Act, will be deemed restricted
securities within the meaning of Rule 144. Restricted Shares may not be sold
unless they are registered under the Securities Act or are sold pursuant to an
applicable exemption from registration, including an exemption under Rule 144.
In general, Rule 144 permits any person who has beneficially owned shares of
Common Stock for at least one year to sell without registration, within any
three-month period, a number of such shares not exceeding the greater of one
percent of the then outstanding shares of Common Stock or the average weekly
trading volume in the Common Stock during the four calendar weeks preceding such
sale. Sales under Rule 144 also are subject to certain manner of sale
provisions, notice requirements and the availability of current public
information about the Company. After they have been paid for and held for more
than two years, Restricted Shares held by persons who are not affiliates of the
Company may be sold without limitation.
Certain current shareholders of the Company who in the aggregate hold
shares of Common Stock have agreed that they will not sell
shares of Common Stock prior to the expiration of 180 days from the date of this
Prospectus except with the written consent of the Representatives of the
Underwriters. See "Underwriting." Commencing , 1997,
shares of Common Stock held by such current shareholders will be
eligible for sale in accordance with Rule 144, subject to the volume limitations
thereof.
Options and warrants (excluding the Weis Markets Warrant) to purchase a
total of 937,248 shares of Common Stock have been granted to certain officers,
directors and shareholders under pre-existing agreements. A total of 300,400
shares of Common Stock are reserved for issuance under the Option Plan, of which
none will have been issued on the date of this Prospectus. A total of 600,800
shares of Common Stock has been reserved for issuance under the Stock Purchase
Plan and as of , 1997, shares have been
purchased by employees. See "Management -- Stock Plans." The Company may file
one or more registration statements on Form S-8 immediately following this
Offering, registering under the Securities Act shares issued or to be issued
pursuant to these options or the Stock Purchase Plan. The holders of the options
referred to in this paragraph have also agreed that they will not sell any
shares of Common Stock acquired by them upon the exercise of their options
during the 180 day period following the date of this Prospectus except with the
written consent of the Representatives of the Underwriters. Thereafter, shares
issued upon exercise of outstanding stock options generally may be sold in the
open market.
Prior to this Offering, there has been no market for the Common Stock, and
no precise prediction can be made of the effect, if any, that market sales of
shares or the availability of shares for sale will have on the market price
prevailing from time to time. Nevertheless, sales of substantial amounts of the
Common Stock in the public market could adversely affect prevailing market
prices and limit the Company's ability to raise additional capital. See "Risk
Factors -- Arbitrary Determination of Offering Price; Possible Volatility of
Stock Price" and "Risk Factors -- No Prior Public Market."
46
<PAGE>
UNDERWRITING
The Underwriters named below, acting through PaineWebber Incorporated,
Lazard Freres & Co. LLC and Parker/Hunter Incorporated (the "Representatives"),
have severally agreed, subject to the terms and conditions set forth in the
Underwriting Agreement by and among the Company, the Selling Shareholder and the
Representatives (the "Underwriting Agreement"), to purchase from the Company and
the Selling Shareholder, and the Company and the Selling Shareholder have agreed
to sell to the Underwriters, the number of shares of Common Stock set forth
opposite the names of such Underwriters below:
<TABLE>
<CAPTION>
Number
Underwriter of Shares
----------- ---------
<S> <C>
PaineWebber Incorporated........
Lazard Freres & Co. LLC.........
Parker/Hunter Incorporated......
---------
Total....................
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters to purchase all of the shares of Common Stock are subject to
certain conditions. The Underwriters are committed to purchase, and the Company
and the Selling Shareholder are obligated to sell, all shares of Common Stock
offered by this Prospectus if any of the shares of Common Stock being sold
pursuant to the Underwriting Agreement are purchased.
The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of Common Stock to the public initially at the
Offering price set forth on the cover page of this Prospectus and to certain
securities dealers at such price less a concession not in excess of $ per
share. The Underwriters may allow, and such dealers may reallow, a discount
not in excess of $ per share. After the Offering, the Offering price and the
concessions and discounts may be changed by the Representatives.
The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to 578,850
additional shares of Common Stock at the Offering price less the underwriting
discount and commissions set forth on the cover page of this Prospectus. The
Underwriters may exercise such option only to cover over-allotments in the sale
of the shares that the Underwriters have agreed to purchase. To the extent that
the Underwriters exercise such option, each of the Underwriters will become
obligated, subject to certain conditions, to purchase approximately the same
percentage of such additional shares as is approximately the percentage of
shares of Common Stock that it is obligated to purchase of the total number of
the shares under the Underwriting Agreement as shown in the table set forth
above. The Underwriters may exercise the option only for the purposes of
covering over-allotments, if any, made in connection with the distribution of
the shares of Common Stock to the public.
The Company and the Selling Shareholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act or to contribute payments that the Underwriters may be required
to make in respect thereof.
The Company, its directors and executive officers and certain shareholders,
including the Selling Shareholder, have agreed not to offer, sell, contract to
sell or grant any option to purchase or otherwise dispose of any shares of
Common Stock owned by them prior to the expiration of 180 days from the date of
this Prospectus, except: (i) for shares of Common Stock offered hereby; (ii)
with the prior written consent of PaineWebber Incorporated; and (iii) in the
case of the Company, for the issuance of shares of Common Stock upon the
exercise of options or the grant of options to purchase shares of Common Stock.
47
<PAGE>
Prior to this Offering, there has been no public market for the Common Stock
of the Company. Accordingly, the Offering price will be determined by
negotiations among the Company, the Selling Shareholder and the Representatives
of the Underwriters. Among the factors to be considered in determining the
Offering price will be the Company's record of operations, its current financial
condition, its future prospects, the market for its products, the experience of
its management, the economic conditions of the Company's industry in general,
the general condition of the equity securities market, the demand for similar
securities of companies considered comparable to the Company and other relevant
factors.
In order to facilitate this Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock. Specifically, the Underwriters may over-allot in connection with
this Offering, creating a short position in the Common Stock for their own
account. In addition, to cover over-allotments or to stabilize the price of the
Common Stock, the Underwriters may bid for, and purchase, shares of the Common
Stock in the open market. The Underwriters may also reclaim selling concessions
allowed to an underwriter or a dealer for distributing the Common Stock in
transactions to cover their short positions, in stabilization transactions or
otherwise. Finally, the Underwriters may bid for, and purchase, shares of the
Common Stock in market-making transactions and impose penalty bids. These
activities may stabilize or maintain the market price of the Common Stock above
market levels that may otherwise prevail. The Underwriters are not required to
engage in these activities, and may end any of these activities at any time.
The Underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
LEGAL MATTERS
The legality of the shares offered hereby will be passed upon for the
Company by Ballard Spahr Andrews & Ingersoll, Philadelphia, Pennsylvania.
Certain legal matters will be passed upon for the Underwriters by Cravath,
Swaine & Moore, New York, New York.
EXPERTS
The audited consolidated financial statements of AquaPenn Spring Water
Company, Inc. as of September 30, 1996 and 1997, and for each of the years in
the three-year period ended September 30, 1997, included in the Prospectus and
in the Registration Statement have been audited by KPMG Peat Marwick LLP,
independent certified public accountants, as indicated in their report with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in accounting and auditing.
The audited financial statements of Dunsmuir Bottling Company as of and for
the year ended September 30, 1997, included in the Prospectus have been audited
by Matson and Isom Accountancy Corporation, independent certified public
accountants, as indicated in their report with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in accounting and
auditing.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 (together with all amendments thereto, the "Registration Statement") under
the Securities Act, with respect to the shares of Common Stock offered hereby.
This Prospectus, filed as part of the Registration Statement, does not contain
all of the information set forth in the Registration Statement and the exhibits
and schedules thereto, certain portions of which have been omitted as permitted
by the rules and regulations of the Commission. For further information with
respect to the Company and the Common Stock offered hereby, reference is hereby
made to the Registration
48
<PAGE>
Statement and the exhibits and schedules thereto, which may be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Room 1024, Washington D.C. 20549, and at the regional
offices of the Commission located at 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661, and 7 World Trade Center, Suite 1300, New York, New
York 10048. Copies of such material may be obtained from the Public Reference
Section of the Commission located at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549 at prescribed rates. The Commission maintains a web site
(http://www.sec.gov) that contains material regarding issuers that file
electronically with the Commission.
Statements made in this Prospectus as to the contents of any contract,
agreement or other document referred to herein or therein, are not necessarily
complete, and in each such instance reference is made to the copy of such
contract, agreement or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference.
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by independent accountants and with
quarterly reports containing updated summary financial information for each of
the first three quarters of each fiscal year.
49
<PAGE>
AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Consolidated Financial Statements of AquaPenn Spring Water Company, Inc. and Subsidiaries
Independent Auditors' Report............................................................................. F-2
Consolidated Balance Sheets.............................................................................. F-3
Consolidated Statements of Operations.................................................................... F-4
Consolidated Statements of Shareholders' Equity.......................................................... F-5
Consolidated Statements of Cash Flows.................................................................... F-6
Notes to Consolidated Financial Statements............................................................... F-7
Financial Statements of Dunsmuir Bottling Company
Independent Auditors' Report............................................................................. F-20
Balance Sheet............................................................................................ F-21
Statement of Operations and Retained Earnings (Deficit).................................................. F-22
Statement of Cash Flows.................................................................................. F-23
Notes to the Financial Statements........................................................................ F-25
AquaPenn Spring Water Company, Inc. Unaudited Pro Forma Combined Financial Data (Unaudited)
Unaudited Pro Forma Combined Financial Data.............................................................. F-34
Pro Forma Combined Balance Sheet......................................................................... F-35
Pro Forma Combined Statement of Operations............................................................... F-36
Notes to Unaudited Pro Forma Combined Financial Data..................................................... F-37
</TABLE>
F-1
<PAGE>
Independent Auditors' Report
To the Board of Directors and Shareholders of
AquaPenn Spring Water Company, Inc.:
We have audited the accompanying consolidated balance sheets of AquaPenn Spring
Water Company, Inc. and subsidiaries as of September 30, 1996 and 1997, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years in the three-year period ended September 30, 1997.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of AquaPenn Spring
Water Company, Inc. and subsidiaries as of September 30, 1996 and 1997, and the
results of their operations and their cash flows for each of the years in the
three-year period ended September 30, 1997 in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
State College, Pennsylvania
October 21, 1997, except for note 15
which is as of October 24, 1997
F-2
<PAGE>
AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30,
1996 1997
----------- ----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............................................ $ 185,535 $687,035
Accounts receivable, net............................................. 2,794,776 3,604,524
Inventories.......................................................... 1,331,388 1,533,617
Prepaid expenses and other current assets............................ 278,595 425,279
Deferred income taxes................................................ 326,900 243,400
-------------- ----------
Total current assets............................................. 4,917,194 6,493,855
Property, plant, and equipment, net.................................... 14,554,929 20,030,909
Other.................................................................. 44,232 55,421
-------------- ----------
Total assets..................................................... $ 19,516,355 $26,580,185
============== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of notes payable..................................... $ 90,840 $ 298,966
Accounts payable and accrued liabilities............................. 2,521,670 3,098,571
-------------- ----------
Total current liabilities........................................ 2,612,510 3,397,537
Notes payable.......................................................... 1,717,624 4,518,501
Deferred income taxes.................................................. 536,800 599,800
-------------- ----------
Total liabilities................................................ 4,866,934 8,515,838
-------------- ----------
Stockholders' Equity:
Series A, non-voting convertible preferred stock,
$1 par value; 2,000,000 shares authorized,
1,713,750 shares issued............................................ 1,713,750 1,713,750
Common stock, no par value, 100,000,000 shares
authorized; 4,283,760, and 4,423,712 shares
issued, respectively .............................................. -- --
Additional paid-in capital........................................... 11,560,834 12,196,269
Retained earnings ................................................... 1,455,701 4,242,456
Less 11,250 shares of preferred stock in
treasury, at cost.................................................. (11,250) (11,250)
Less 3,004 shares of common stock in
treasury, at cost.................................................. (5,000) (5,000)
Less stock subscriptions receivable.................................. (64,614) (71,878)
-------------- ----------
Total stockholders' equity....................................... 14,649,421 18,064,347
-------------- ----------
Total liabilities and stockholders' equity....................... $ 19,516,355 $26,580,185
============== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years ended September 30,
-------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Revenues:
Product sales.............................................. $ 22,617,746 $ 27,931,308 $ 37,526,028
Other sales................................................ 338,307 309,433 489,287
------------- ------------ -------------
Net revenues.................................................. 22,956,053 28,240,741 38,015,315
Cost of goods sold............................................ 18,153,355 21,271,313 28,316,938
------------- ------------ -------------
Gross profit.................................................. 4,802,698 6,969,428 9,698,377
Selling, general and administrative........................... 3,290,609 4,313,480 5,126,583
------------- ------------ -------------
Income from operations........................................ 1,512,089 2,655,948 4,571,794
Other income (expense):
Other income............................................... 7,090 116,484 328,180
Interest expense, net...................................... (745,829) (297,204) (208,467)
------------- ------------ -------------
(738,739) (180,720) 119,713
------------- ------------ -------------
Income before income tax expense.............................. 773,350 2,475,228 4,691,507
Income tax expense............................................ 135,000 990,000 1,904,752
------------- ------------ -------------
Net income.................................................... $ 638,350 $ 1,485,228 $ 2,786,755
============= ============ =============
Net income per common share................................... $ .16 $ .26 $ .47
============= ============ =============
Weighted average number of common shares
outstanding................................................... 3,884,708 5,620,741 5,951,844
============= ============ =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Number of
Shares of
Series A Common Additional Retained
Preferred Stock Paid-In Earnings Treasury Subscription
Stock Issued Capital (Deficit) Stock Receivable Total
--------- --------- ---------- ---------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, SEPTEMBER 30,
1994................................ $1,713,750 2,424,886 $2,529,881 $(667,877) $(16,250) $ (52,214) $ 3,507,290
Issuance of Common Stock for
services rendered by the
Company's Board of Directors...... -- 10,814 54,000 -- -- -- 54,000
Common Stock Options
Exercised......................... -- 24,032 40,000 -- -- -- 40,000
Issuance of Common Stock
for Private Placement............. -- 1,748,328 8,562,384 -- -- -- 8,562,384
Interest Accrued on
Subscription Receivable........... -- -- -- -- -- (5,855) (5,855)
Net Income.......................... -- -- -- 638,350 -- -- 638,350
----------- ----------- ------------ ----------- ---------- ---------- -----------
BALANCE, SEPTEMBER
30, 1995............................ 1,713,750 4,208,060 11,186,265 (29,527) (16,250) (58,069) 12,796,169
Issuance of Common Stock for
services rendered by the
Company's Board of Directors...... -- 10,814 54,000 -- -- -- 54,000
Issuance of Common Stock
in Private Placement.............. -- 64,886 320,569 -- -- -- 320,569
Interest Accrued on
Subscription Receivable........... -- -- -- -- -- (6,545) (6,545)
Net Income.......................... -- -- -- 1,485,228 -- -- 1,485,228
----------- ----------- ------------ ----------- ---------- ---------- -----------
BALANCE, SEPTEMBER
30, 1996............................ 1,713,750 4,283,760 11,560,834 1,455,701 (16,250) (64,614) 14,649,421
Issuance of Common Stock for
services rendered by the
Company's Board of Directors...... -- 10,814 70,200 -- -- -- 70,200
Issuance of Common Stock
for Employee Stock
Purchase Plan..................... -- 105,256 445,985 -- -- -- 445,985
Issuance of Common Stock
for Rabbi Trust................... -- 23,882 119,250 -- -- -- 119,250
Interest Accrued on
Subscription Receivable........... -- -- -- -- -- (7,264) (7,264)
Net Income.......................... -- -- -- 2,786,755 -- -- 2,786,755
------------ ----------- ------------- ----------- ----------- ----------- -----------
BALANCE, SEPTEMBER
30, 1997............................ $1,713,750 4,423,712 $12,196,269 $4,242,456 $(16,250) $ (71,878) $18,064,347
========== ========= =========== ========== ========= ========= ===========
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE>
AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended September 30,
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................. $ 638,350 $ 1,485,228 $ 2,786,755
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization........................... 1,352,826 1,831,626 2,385,212
Provision for doubtful accounts......................... 15,000 25,000 --
Provision for deferred income taxes, net................ (194,500) 372,000 146,500
Issuance of common stock for services................... 54,000 54,000 70,200
(Increase) in accounts receivable....................... (413,298) (663,986) (809,748)
(Increase) decrease in inventories...................... (959,287) 373,407 (202,229)
(Increase) decrease in prepaid expenses and
other current assets................................. 107 (141,482) (146,684)
(Increase) in other assets.............................. (13,520) (4,615) (11,189)
Decrease in certificates of deposit -
pledged.............................................. 15,814 -- --
Increase in accounts payable
and accrued liabilities.............................. 1,566,843 232,674 576,901
----------- ---------- ----------
Net cash provided by operating activities.......... 2,062,335 3,563,852 4,795,718
----------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant, and equipment................. (10,430,942) (2,949,010) (7,861,192)
----------- ---------- ----------
Net cash used in investing activities.............. (10,430,942) (2,949,010) (7,861,192)
----------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable................................ 10,925,000 4,913,536 7,301,460
Repayments of notes payable................................ (10,930,732) (5,935,944) (4,292,457)
Proceeds from exercise of stock options.................... 40,000 -- --
Proceeds from issuance of common stock..................... -- -- 565,235
Proceeds from private stock offering, net.................. 8,562,384 320,569 --
Interest accrued on stock subscriptions receivable......... (5,855) (6,545) (7,264)
----------- ---------- ----------
Net cash provided by (used in) financing activities 8,590,797 (708,384) 3,566,974
----------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................................ 222,190 (93,542) 501,500
CASH AND CASH EQUIVALENTS AT BEGINNING OF
YEAR ..................................................... 56,887 279,077 185,535
----------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR...................... $ 279,077 $ 185,535 $ 687,035
============ ============ ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest, net of
$101,923 in capitalized interest in 1995................. $ 762,055 $ 307,720 $ 192,299
Cash paid during the year for income taxes................. 68,342 174,568 1,627,100
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
Background of Business
AquaPenn Spring Water Company, Inc. (the Company), was formed as a
Pennsylvania corporation during November 1986. The Company bottles and
distributes non-sparkling natural spring water.
The Company's water products are sold to both regional and national
customers under retailers' and other customers' private labels and
under its proprietary brand labels.
Principles of Consolidation
The consolidated financial statements include the financial statements
of the Company and its wholly-owned subsidiaries.
Cash and Cash Equivalents
For purposes of reporting cash flows, the Company considers all highly
liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents.
Inventories
Inventories are stated at the lower of cost or market with cost
determined using the first-in first-out (FIFO) method.
Property, Plant, and Equipment
Property, plant, and equipment are recorded at cost. Depreciation and
amortization on property, plant, and equipment are provided utilizing
the straight-line method over the estimated useful lives of the related
assets.
Repairs and maintenance are charged to expense and betterments are
capitalized; any gain or loss on dispositions is recognized currently.
The Company adopted Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" (Statement No. 121) in the
beginning of fiscal 1997. There was no impact on the consolidated
statements of operations upon the adoption of Statement No. 121.
Revenue Recognition
Revenue is recognized when products are shipped.
F-7
<PAGE>
AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Continued
Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered
or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes
the enactment date.
Use of Estimates
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the recorded amounts of
revenues and expenses during the reporting period. Actual results could
differ from these estimates.
Net Income Per Share
Net income per share is based on the weighted average number of shares
of common stock outstanding during the periods increased by convertible
preferred stock and dilutive common stock equivalents using the
treasury stock method. Common shares issued and stock options granted
within one year prior to the Offering have been included in the
calculation of shares used in computing net income per common share as
if they were outstanding for all periods presented.
Reclassification
Certain prior year amounts have been reclassified to conform with
current year presentations.
(2) Related Party Transactions
The Company has entered into the following transactions with related
parties:
o The Company sold product to a corporate investor in the
Company at normal sales prices in the amount of approximately
$625,000, $696,000 and $738,000 in fiscal 1995, 1996, and
1997, respectively. Accounts receivable from this investor at
September 30, 1996 and 1997 were approximately $75,000 and
$68,000, respectively.
o The Company recorded compensation expense to a director of
$208,305, $214,981 and $250,000 in fiscal 1995, 1996, and
1997, respectively, for his services as an independent food
broker. Accrued commissions to this director at September 30,
1996 and 1997 were $20,833 each year.
o The Company had stock subscriptions receivable from a
director of $64,614 and $71,878 at September 30, 1996 and
1997, respectively. In addition, the Company recorded
$23,625 in fees
F-8
<PAGE>
AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(2) Continued
relating to this director's services associated with the
Company's private placement transaction (see note 13) during
fiscal 1995.
o In April 1995, the Company borrowed $8,000,000 from a
corporate investor in the Company. The loan was repaid in
September 1995 out of the proceeds of the private placement
transaction (see note 13). In addition, interest expense of
$292,000 was incurred and paid by the Company on this loan. In
connection with this loan, 135,180 common stock warrants were
issued to this corporate investor exercisable at $4.99 per
warrant. These warrants may be exercised in part or in whole
at any time. None of these warrants were exercised in fiscal
1996 or 1997.
o The Company issued 105,140 common stock warrants to the
President exercisable at $4.99 per warrant. These warrants may
be exercised in part or in whole at any time. These warrants
were issued as consideration for the President's personal
guarantee given on a portion of the $8,000,000 borrowing.
During fiscal 1996, 30,040 of those warrants were sold to two
Directors of the Company by the President.
(3) Accounts Receivable
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
September 30,
-------------------------------
1996 1997
---- ----
<S> <C> <C>
Accounts receivable - trade................................... $2,868,525 $3,676,555
Other......................................................... 26,251 27,969
---------- ----------
2,894,776 3,704,524
Less allowance for doubtful accounts.......................... 100,000 100,000
---------- ----------
$2,794,776 $3,604,524
========== ==========
</TABLE>
(4) Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
September 30,
--------------------------------
1996 1997
---- ----
<S> <C> <C>
Raw materials................................................. $ 910,988 $1,087,507
Finished goods................................................ 420,400 446,110
----------- ----------
$ 1,331,388 $1,533,617
=========== ==========
</TABLE>
F-9
<PAGE>
AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) Property, Plant, and Equipment
Major classifications of these assets are summarized as follows:
<TABLE>
<CAPTION>
Estimated
useful September 30,
lives in --------------------------------
years 1996 1997
----------- ---- ----
<S> <C> <C> <C>
Land........................................ - $ 1,140,850 $ 1,190,850
Land improvements........................... 20 129,819 154,121
Buildings................................... 30 5,565,101 7,729,748
Machinery and equipment..................... 3-10 9,532,609 13,941,998
Transportation equipment.................... 3-5 497,943 497,943
Construction in progress.................... - 1,664,776 2,877,630
----------- -----------
18,531,098 26,392,290
Less accumulated depreciation
and amortization............................ 3,976,169 6,361,381
---------- ----------
$ 14,554,929 $20,030,909
============ ===========
</TABLE>
Property held for rental is classified as property, plant, and
equipment. This property relates to the Company's former manufacturing
facility in State College, Pennsylvania which has a net book value of
approximately $1,184,000, which is net of approximately $483,000 in
accumulated depreciation at September 30, 1997.
Interest costs for the construction and purchase of certain long-term
assets relating to the Company's new facility in Milesburg,
Pennsylvania, were capitalized and are being amortized over the related
assets' estimated useful lives. The Company capitalized net interest
costs of $101,923 in fiscal 1995 and $0 in fiscal 1996 and 1997.
Total depreciation and amortization expense was $1,352,826, $1,831,626
and $2,385,212 in fiscal 1995, 1996, and 1997, respectively.
F-10
<PAGE>
AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6) Notes Payable
<TABLE>
<CAPTION>
September 30,
-------------------------
1996 1997
---- ----
<S> <C> <C>
Unsecured note payable to a bank, $10,000,000 revolving credit note -
interest at London Interbank Offered Rate (LIBOR) plus 1.7% (7.325% at
September 30, 1997), requires interest only through February 1999 with
principal and interest due monthly thereafter with maturity in 2004.... -- $ 2,900,000
Mortgage funding payable in monthly installments of principal and
interest to the Pennsylvania Industrial Development Authority at 5%,
due through May 2011................................................... 1,785,950 1,700,383
Note payable to a bank, $6,000,000 line of credit at LIBOR plus 1.0%
(6.6875% at September 30, 1997), payable on demand and requires a
negative pledge on the Company's accounts receivable and inventories... -- 200,000
Various installment loan obligations at interest rates between 9% and
10%, due through September 1999, payable to various companies, secured
by machinery and equipment............................................. 22,514 15,624
Unsecured note payable to a bank, $6,000,000 line of credit, interest
at LIBOR plus 1.2% (6.825% at September 30,1997), and is due February
1998................................................................... -- 1,460
----------- -----------
1,808,464 4,817,467
Less portion due within one year....................................... 90,840 298,966
----------- -----------
$ 1,717,624 $ 4,518,501
=========== ===========
</TABLE>
Interest expense was $762,055, $306,970 and $208,467 in 1995, 1996, and
1997, respectively, and is recorded in other income (expense) in the
consolidated statements of operations.
F-11
<PAGE>
AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6) Continued
Based on current payment terms, the required principal reduction of the
above debt is as follows:
Year ending
September 30, Amount
------------- ----------
1998 $ 298,966
1999 237,000
2000 313,000
2001 335,000
2002 358,000
Thereafter 3,275,501
----------
$4,817,467
==========
(7) Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consist of the following:
September 30,
-------------------------
1996 1997
---- ----
Accounts payable................... $ 868,436 $1,021,471
Accrued expenses................... 874,093 860,825
Accrued payroll.................... 96,513 142,224
Income taxes payable............... 595,319 822,322
Other.............................. 87,309 251,729
---------- ----------
$2,521,670 $3,098,571
========== ==========
(8) Employee Benefit Plan
Effective March 1, 1994, the Company adopted a deferred 401(k) Salary
Savings Plan for the benefit of its employees and their beneficiaries.
Generally, any employee who has completed six months of service and is
over 21 years of age is eligible to participate in the Plan. Each
eligible employee may elect to contribute up to 15% of his or her
compensation for services rendered in any year. The Company matches
employee contributions in an amount equal to 100% of the first 1%, 75%
of the second 1%, and 50% of the third 1% of each participant's
contributions. The Company contributed approximately $10,000, $24,000
and $52,000 in fiscal 1995, 1996, and 1997, respectively.
F-12
<PAGE>
AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(9) Sales to Major Customers
During fiscal 1995 and 1996, sales to one customer accounted for
approximately 17% and 23%, respectively, of net revenues. During fiscal
1997, sales to two customers accounted for approximately 15% and 11% of
net revenues. Accounts receivable from these customers totaled
approximately $665,000 and $459,000, respectively, at September 30,
1997.
(10) Income Taxes
The provision for income taxes attributable to income from operations
consists of the following:
Years ended September 30,
---------------------------------------
1995 1996 1997
---- ---- ----
Currently payable:
Federal.............. $ 254,500 $ 483,900 $1,452,000
State................ 75,000 134,100 306,252
--------- --------- ---------
329,500 618,000 1,758,252
--------- --------- ---------
Deferred (benefit):
Federal.............. (153,700) 274,600 108,100
State................ (40,800) 97,400 38,400
---------- --------- ----------
(194,500) 372,000 146,500
--------- --------- ----------
$ 135,000 $ 990,000 $1,904,752
========= ========= ==========
Total income tax expense was $135,000, $990,000 and $1,904,752 for the
years ended September 30, 1995, 1996, and 1997, respectively, and
differed from the amounts computed by applying the U.S. federal income
tax rate of 35 percent to pretax income as a result of the following:
Years ended September 30,
---------------------------------------
1995 1996 1997
---- ---- ----
Computed "expected" tax
expense.............. $ 270,500 $ 866,000 $1,642,000
State income tax, net
of federal benefit... 60,000 153,000 227,000
Change in valuation
allowance............ (262,500) (27,000) --
Other, net............. 67,000 (2,000) 35,752
--------- -------- ----------
$ 135,000 $990,000 $1,904,752
========= ======== ==========
F-13
<PAGE>
AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(10) Continued
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
September 30, 1996 and 1997 are presented below:
<TABLE>
<CAPTION>
September 30,
-------------------------
1996 1997
---- ----
<S> <C> <C>
Deferred tax assets:
Accounts receivable, due to allowance for
doubtful accounts ........................................ $ 40,600 $ 40,600
Inventories................................................ 78,800 70,100
Deferred compensation...................................... 44,000 62,500
Net operating loss carryforwards........................... 39,000 5,300
Alternative minimum tax credit carryforwards............... 104,500 --
Other, principally due to accruals for financial
reporting purposes........................................ 72,100 131,500
------- -------
Total gross deferred tax assets............................... 379,000 310,000
Less valuation allowance...................................... -- --
-------- --------
Total deferred tax assets..................................... 379,000 310,000
-------- --------
Deferred tax liabilities:
Plant and equipment, principally due to
differences in depreciation............................... 580,800 662,400
Other...................................................... 8,100 4,000
-------- --------
Total gross deferred tax liabilities.......................... 588,900 666,400
-------- --------
Net deferred tax liability.................................... $209,900 $356,400
======== ========
</TABLE>
Deferred tax assets and liabilities are reported net within deferred
income taxes on the consolidated balance sheets at September 30, 1996
and 1997.
Under Statement of Financial Accounting Standards No. 109 "Accounting
for Income Taxes" (Statement 109), a valuation allowance is recognized
if, based on the weight of the evidence, it is more likely than not
that some portion or all of the deferred tax asset will not be
recognized. Based on the weight of all available evidence, the Company
concludes that a valuation allowance is not needed.
At September 30, 1997, the Company has Pennsylvania net operating loss
carryforwards for state income tax purposes of approximately $89,000
which are available to offset future Pennsylvania taxable income, if
any, through the fiscal year ending September 30, 1998 subject to
limitation.
F-14
<PAGE>
AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(11) Commitments
The Company rents certain land, office equipment, and transportation
equipment under noncancellable operating leases. Rent expense for these
leases amounted to approximately $127,000, $152,000 and $138,000 for
fiscal 1995, 1996, and 1997, respectively. The future minimum annual
rent commitments under these leases are approximately as follows:
Year ending
September 30, Amount
------------- ------
1998 $110,000
1999 63,000
2000 41,000
2001 15,000
2002 16,000
Thereafter 37,000
--------
$282,000
========
At September 30, 1997, the Company has entered into a commitment to
purchase land and construct a production facility in North Central
Florida. The facility, which is expected to be completed in fiscal
1998, is estimated to cost approximately $6,588,000.
In addition, the Company has made certain commitments to expand the
Milesburg Facility. These commitments are for buildings, building
improvements and equipment. As of September 30, 1997, the open
commitments relating to this facility are approximately $8,250,000.
(12) Shareholders' Equity
Common Stock
The Company maintains various stock option agreements and plans. Stock
options have been granted at prices at or above the fair market value
as of the date of the grant. Options vest and expire according to terms
established at the grant date.
In fiscal year 1997, the Company adopted the disclosure requirements of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (Statement No. 123). As allowed by Statement No. 123, the
Company has chosen to continue to account for stock based compensation
using Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," and related interpretations. Accordingly,
compensation cost for stock options is measured as the excess, if any,
of the quoted market price of the Company's stock at the grant date
over the amount employees must pay to acquire the stock. Accordingly,
no compensation cost has been recognized. Had compensation cost for the
Company's Plans been determined under Statement No. 123, the Company's
net income and net income per share would have been reduced to the pro
forma amounts indicated below:
F-15
<PAGE>
AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(12) Continued
<TABLE>
<CAPTION>
September 30,
---------------------------
1996 1997
---- ----
<S> <C> <C>
Net income as reported............................... $1,485,000 $2,787,000
Pro forma................................. 1,104,000 2,396,000
Net income per share as reported..................... $0.26 $0.47
Pro forma................................. 0.20 0.40
</TABLE>
The 1996 and 1997 pro forma amounts include the effect of the common
shares issued under the Stock Purchase Plan as if they were accounted
for under Statement 123.
The per share weighted-average fair values of stock options granted
during fiscal years 1996 and 1997 were $4.54 and $4.41, respectively,
on the date of grant using the Black-Scholes option-pricing model with
the following weighted-average assumptions: fiscal year 1996 expected
dividend yield 0%, risk-free interest rate of 5.945%, a volatility
factor of the expected market price of the Company's common stock of
.4166, and a weighted-average expected life of approximately 9 years;
fiscal year 1997 expected dividend yield 0%, risk-free interest rate of
5.945%, a volatility factor of the expected market price of the
Company's common stock of .4166, and a weighted-average expected life
of approximately 10 years.
The fair market value of stock options included in the pro forma
amounts for fiscal years 1996 and 1997 is not necessarily indicative of
future effects on net income and net income per share.
A summary of the status of the Company's stock option plans and changes
during the years ended on those dates is presented below:
<TABLE>
<CAPTION>
Fiscal years ended: September 30, 1995 September 30, 1996 September 30, 1997
------------------ ------------------ ------------------ ------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
----------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year....................... 570,760 $2.18 570,760 $1.89 696,928 $2.45
Granted........................ 300,400 1.87 126,168 4.99 135,180 7.49
Exercised...................... 24,032 1.66 -- -- -- --
Cancelled...................... 276,368 2.50 -- -- -- --
------- ---- -------- ---- -------- ----
Outstanding at end of year..... 570,760 1.89 696,928 2.45 832,108 3.26
======= ==== ======= ==== ======= ====
Options exercisable at
year-end..................... 570,760 1.69 696,928 2.45 832,108 3.26
======= ==== ======= ==== ======= ====
</TABLE>
F-16
<PAGE>
AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(12) Continued
The following table summarizes information about the Company's stock
option plans as of September 30, 1997:
<TABLE>
<CAPTION>
Options outstanding Options exercisable
----------------------- -------------------------
Weighted
Number Average Weighted Number Weighted
Range of Outstanding on Remaining Average Exercisable on Average
exercise September 30, Contractual Exercise September 30, Exercise
prices 1997 Life Price 1997 Price
---------- -------------- ----------- -------- -------------- ---------
<S> <C> <C> <C> <C> <C>
$ 1.90 270,360 2 years $ 1.90 270,360 $ 1.90
4.99 36,048 4 years 4.99 36,048 4.99
1.66-1.90 300,400 7 years 1.88 300,400 1.88
4.99 90,120 9 years 4.99 90,120 4.99
7.07-8.32 135,180 10 years 7.49 135,180 $7.49
------- -------
$1.66-8.32 832,108 832,108
======= =======
</TABLE>
Series A Non-Voting Convertible Preferred Stock
Series A Non-Voting Convertible Preferred Stock (the Preferred Stock)
is convertible at the option of the holder at any time into shares of
the Company's common stock at the rate of one share of Preferred Stock
for .6008 shares of common stock (See Note 15). The Preferred Stock has
no redemption features but does have a preference in liquidation.
(13) Private Placement
In fiscal 1995, the Company sold 1,748,328 shares of its common stock
in exchange for $8,562,384, net of $167,616 of offering costs as part
of a private placement transaction. As part of the private placement
transaction during fiscal 1996, the Company also sold 64,886 shares of
its common stock in exchange for $320,569. The offering under this
private placement transaction ceased during fiscal 1996.
(14) Stock Purchase Plan
Under the terms of the Company's Stock Purchase Plan, eligible
employees may purchase shares of the Company's common stock at 85% of
the estimated fair market value at the offering date. At September 30,
1997, there were 89,565 shares set aside for eligible employees under
this plan of which 76,254 shares had been subscribed for at $5.41 per
share and 6,409 shares were purchased by employees during fiscal
September 30, 1997. The remaining 6,902 common shares were not
subscribed for by the eligible employees. Payment for the subscribed
shares must be made by January 1, 1998. Employees may choose to pay for
their subscribed shares by using the proceeds from bank loans
guaranteed by the Company. The common stock purchased with the proceeds
of the loans will serve as collateral for these loans. The loans defer
principal and interest payments for 5 years.
F-17
<PAGE>
AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(14) Continued
Under the terms of the Company's Stock Purchase Plan, a total of 98,847
shares of common stock which were subscribed for in fiscal 1996 and
were issued during fiscal 1997 at $4.16 per share for a total of
$411,312. Of this amount, the Company is contingently liable for
$385,015 as a result of bank loans guaranteed by the Company.
(15) Reverse Stock Split
On October 24, 1997, the Company's Board of Directors approved a
0.6008-for-1 reverse stock split of each outstanding share of Common
Stock of the Company. All share and per share data, including stock
option and stock purchase plan information, have been restated to
reflect this split.
(16) Subsequent Event - Acquisition of Dunsmuir Bottling Company, Inc.
(Unaudited)
On October 15, 1997, the Company entered into a merger agreement to
purchase all of the stock of Dunsmuir Bottling Company, Inc.
("Dunsmuir", also known as Castle Rock Spring Water). Under terms of
this agreement, the Company purchased Dunsmuir for approximately
$1,451,000 in cash and approximately $1,550,000 in shares of Common
Stock to be valued at a price determined in accordance with the merger
agreement and subject to certain other post-closing adjustments, plus
the assumption of up to $4,500,000 in Dunsmuir's liabilities. Valuing
the Common Stock at the assumed initial public offering price of $15.00
per share, the Common Stock would have an aggregate value of
approximately $2,066,000 and the total purchase price for Dunsmuir
would be approximately $3,517,000 plus the assumption of Dunsmuir
liabilities.
The following pro forma, condensed, combined balance sheet assumes the
acquisition occurred at September 30, 1997 and the pro forma,
condensed, combined statement of operations assumes the acquisition
occurred at the beginning of fiscal 1997. This financial information
does not purport to be indicative of what would have occurred had the
acquisition been made at the beginning of fiscal 1997, or of the
results which may occur in the future.
Proforma Condensed Combined Balance Sheet
(Unaudited)
September 30, 1997
<TABLE>
<CAPTION>
Pro Forma Pro
AquaPenn Dunsmuir Adjustments Forma
-------- -------- ----------- -----
<S> <C> <C> <C> <C>
Assets:
Current assets..................... $ 6,494,000 $ 1,108,000 $ -- $ 7,602,000
Property, plant and equipment ..... 20,031,000 3,092,000 -- 23,123,000
Other noncurrent assets........... 55,000 6,000 3,787,000 (a) 3,848,000
-- -- -- --
------------- ------------ ------------ ------------
$ 26,580,000 $ 4,206,000 $ 3,787,000 $ 34,573,000
============= ============ ============ ============
Liabilities and Stockholders' Equity:
Current liabilities................ $ 3,398,000 $ 2,108,000 1,451,000 (a) $ 6,957,000
Long-term liabilities.............. 4,518,000 2,368,000 -- 6,886,000
Other noncurrent liabilities....... 600,000 -- -- 600,000
Stockholders' equity............... 18,064,000 (270,000) 2,336,000 (a) 20,130,000
-- -- -- --
------------- ------------ ------------ ------------
$ 26,580,000 $ 4,206,000 $ 3,787,000 $ 34,573,000
============= ============ ============ ============
</TABLE>
F-18
<PAGE>
AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Proforma Condensed Combined Statement of Operations
(Unaudited)
Year Ended
September 30, 1997
<TABLE>
<CAPTION>
Pro Forma Pro
AquaPenn Dunsmuir Adjustments Forma
-------- -------- ----------- -----
<S> <C> <C> <C> <C>
Sales .......................... $38,015,000 $7,804,000 -- $45,819,000
Gross profit....................... 9,698,000 2,801,000 (1,071,000)(b) 11,428,000
Other costs and expenses........... 6,911,000 3,312,000 (1,114,000)(b) 9,109,000
----------- --------- --------- -----------
Net income (loss).................. $ 2,787,000 $ (511,000)(c) $ 43,000 (b) $ 2,319,000
=========== ========= ========= ===========
</TABLE>
(a) The aggregate purchase price of $3,517,000 was assumed to be paid through
the issuance of shares of the Company's Common Stock of $2,066,000 and the
remainder through available credit facilities of $1,451,000. Since the
purchase price allocation will not be finalized until after the Offering
and the determination of the Offering price, the approximate excess of
purchase price over assets acquired of $270,000 is recorded in other
noncurrent assets.
(b) Reclassification of certain Dunsmuir operating expenses of $1,071,000 to
conform with AquaPenn's presentation. Also includes $43,000 in net savings
relating to 1) interest savings on the refinancing of Dunsmuir debt with
lower interest rate debt, 2) income tax benefit of Dunsmuir as if its
results had been consolidated with AquaPenn's tax provision, and
3) amortization of goodwill.
F-19
<PAGE>
Independent Auditors' Report
To the Shareholders of
Dunsmuir Bottling Company
Redding, California
We have audited the accompanying balance sheet of Dunsmuir Bottling Company (an
S corporation) as of September 30, 1997, and the related statements of
operations and retained earnings (deficit), and cash flows for the year ended
September 30, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit 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 audit provides 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 Dunsmuir Bottling Company as of
September 30, 1997, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
Matson & Isom Accountancy Corporation
October 31, 1997
F-20
<PAGE>
DUNSMUIR BOTTLING COMPANY
BALANCE SHEET
<TABLE>
<CAPTION>
September 30, 1997
------------------
<S> <C>
ASSETS
Current Assets:
Cash................................................ $ 166,764
Accounts receivable................................. 404,514
Inventories......................................... 426,995
Prepaid expenses ................................... 109,247
-------------
Total current assets............................ 1,107,520
-------------
Property, plant, and equipment - net ................. 3,092,296
Other assets - net.................................... 6,156
-------------
Total assets.................................... $ 4,205,972
==============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Current maturities of long-term debt................ $ 553,504
Current portion of capital lease obligations........ 46,636
Line of credit...................................... 299,658
Accounts payable and accrued expenses............... 1,208,344
------------
Total current liabilities....................... 2,108,142
------------
Long-term debt - net of current maturities............ 2,283,345
Capital lease obligations - net of current portion.... 84,799
------------
Total liabilities............................... 4,476,286
------------
Stockholders' Equity (Deficit):
Capital stock....................................... 100,000
Retained earnings (deficit)......................... (370,314)
------------
Total stockholders' equity (deficit).............. (270,314)
------------
Total liabilities and stockholders' equity
(deficit)..................................... $ 4,205,972
=============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE>
DUNSMUIR BOTTLING COMPANY
STATEMENT OF OPERATIONS AND RETAINED EARNINGS (DEFICIT)
<TABLE>
<CAPTION>
Year Ended
September 30, 1997
------------------
<S> <C>
Revenue........................................... $ 7,804,080
Cost of goods sold................................ 5,003,570
------------
Gross profit...................................... 2,800,510
Operating expenses................................ 3,108,569
------------
Loss from operations.............................. (308,059)
Other income (expense):
Interest expense................................ (200,793)
Other, net...................................... (1,381)
------------
Loss before income tax provision.................. (510,233)
Income tax provision.............................. 800
------------
Net loss.......................................... (511,033)
Retained earnings - beginning of year............. 167,319
Dividends paid.................................... (26,600)
-------------
Retained earnings (deficit) - end of year......... $ (370,314)
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-22
<PAGE>
DUNSMUIR BOTTLING COMPANY
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended
September 30, 1997
------------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................ $ (511,033)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation and amortization................. 182,807
Changes in operating assets and liabilities:
Accounts receivable......................... (64,178)
Inventories................................. 27,842
Prepaid expenses and other assets........... (47,204)
Accounts payable and accrued expenses....... 525,503
------------
Net cash provided by operating activities. 113,737
------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant, and equipment..... (1,483,671)
------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from line of credit................ 199,658
Net proceeds from long-term financing........... 1,473,847
Payment on long-term financing.................. (132,608)
Dividends paid.................................. (24,186)
------------
Net cash provided by financing activities..... 1,516,711
------------
NET INCREASE IN CASH.............................. 146,777
CASH AT BEGINNING OF YEAR......................... 19,987
------------
CASH AT END OF YEAR............................... $ 166,764
=============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-23
<PAGE>
DUNSMUIR BOTTLING COMPANY
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended
September 30, 1997
------------------
<S> <C>
SUPPLEMENTAL SCHEDULES OF NONCASH INVESTING AND
FINANCING TRANSACTIONS:
Property, plant, and equipment additions:
Cost of property, plant, and equipment................................................. $ (1,660,119)
Acquired with debt proceeds............................................................ 176,448
------------
Cash used for purchase of property, plant, and equipment............................. $ (1,483,671)
=============
Proceeds from long-term debt:
Total additional debt incurred......................................................... $ 1,650,295
Incurred through acquisition of property, plant and equipment.......................... (176,448)
------------
Cash provided from long-term debt.................................................... $ 1,473,847
============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest (net of amounts capitalized)...................................... $ 158,244
------------
Cash paid for income taxes............................................................... $ 800
============
</TABLE>
During the year ended September 30, 1997, capital lease obligations totaling
$24,247 were incurred for the use of equipment.
The accompanying notes are an integral part of these financial statements.
F-24
<PAGE>
DUNSMUIR BOTTLING COMPANY
NOTES TO THE FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
Operations
Dunsmuir Bottling Company ("Dunsmuir") (a California corporation)
bottles and distributes spring water in the western United States.
Accounts Receivable
Dunsmuir utilizes the allowance method with respect to its accounts
receivable. No allowance was deemed necessary at September 30, 1997. It
is customary for Dunsmuir to have accounts receivable balances which
are individually significant.
Inventories
Inventories consist of raw materials and finished goods and are stated
at the lower of cost, or market, determined on a first-in, first-out
basis.
Property, Plant, and Equipment
Property, plant, and equipment are stated at cost. Depreciation is
provided for in amounts sufficient to relate the cost of depreciable
assets to operations over their estimated service lives (ranging from
five to forty years), using the straight-line method. When assets are
retired or otherwise disposed of, the cost and related accumulated
depreciation are removed from the accounts and any resulting gain or
loss is recognized in income for the period. The cost of maintenance
and repairs is charged to income as incurred; significant renewals and
betterments are capitalized.
Revenue Recognition
Revenue is recognized when products are shipped.
Income Taxes
Dunsmuir and its shareholders have elected to be taxed under the S
Corporation provisions of the Internal Revenue Code and the California
Revenue and Taxation Code. As a result, the taxable income or loss of
Dunsmuir will be reported by the shareholders. Dunsmuir is subject to a
minimum franchise tax of the greater of $800 or 1.50% of net income.
Cash
As of September 30, 1997, Dunsmuir maintained bank balances in one
northern California bank in excess of $100,000.
Advertising Costs
Dunsmuir's accounting policy is to charge advertising costs to expense
as incurred. Advertising expense was $56,198 for the year ended
September 30, 1997.
F-25
<PAGE>
DUNSMUIR BOTTLING COMPANY
NOTES TO THE FINANCIAL STATEMENTS
(1) Continued
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
(2) Inventories
<TABLE>
<CAPTION>
September 30, 1997
------------------
<S> <C>
Inventories consist of the following:
Finished goods........................................................ $ 95,614
Raw materials......................................................... 331,381
----------
$ 426,995
==========
</TABLE>
(3) Property, Plant, and Equipment
<TABLE>
<CAPTION>
September 30, 1997
------------------
<S> <C>
Property, plant, and equipment consisted of the following:
Land.................................................................. $ 53,439
Building and improvements............................................. 1,239,717
Machinery and equipment............................................... 1,896,403
Office Equipment...................................................... 45,395
Vehicles.............................................................. 207,274
----------
3,442,228
Less accumulated depreciation......................................... (349,932)
----------
Property, Plant, and Equipment - Net.................................. $3,092,296
==========
</TABLE>
During the year ended September 30, 1997, Dunsmuir completed its plant
expansion project. Dunsmuir capitalized interest totaling $60,991 as a
component of the plant expansion project during the year ended
September 30, 1997. Also, during the year ended September 30, 1997,
Dunsmuir purchased the remaining one half interest in the real property
which contains the Dunsmuir bottling facility from the Ray and Sharon
Kassis Family Trust (a related party) for $150,000.
Total depreciation expense was $182,177 for the year ended September
30, 1997.
(4) Line of Credit
Dunsmuir has a revolving line of credit with Tri Counties Bank which
matures on January 9, 1998. The line has a maximum limit of $300,000
and is secured by inventories and accounts receivable. Outstanding
balances bear interest at the prime lending rate plus 1.75%, payable
monthly. At September 30, 1997, the rate was 10.25% and $299,658 was
outstanding. The credit agreement contains restrictive covenants
regarding the Dunsmuir's working capital, equity, and ability to incur
other debt. The measurement date for the financial covenants is
December 31, 1997. At September 30, 1997, Dunsmuir did not meet the
covenant requirements (see Note (12)). The majority stockholders at
September 30, 1997 have personally guaranteed the outstanding balance.
F-26
<PAGE>
DUNSMUIR BOTTLING COMPANY
NOTES TO THE FINANCIAL STATEMENTS
(5) Long-Term Debt
<TABLE>
<CAPTION>
September 30, 1997
------------------
<S> <C>
Long-term debt consisted of the following:
Note payable to the City of Dunsmuir for California Development Block
Grant funds in the amount of $230,000. The note was renegotiated in
1993 and was increased for interest of $29,416. Payable in monthly
installments of $3,605 including interest at 8.00% per annum. The note
is due March 1, 2001. A portion of past due principal, interest and
water charges under the original terms of the note were due and payable
under the receipt of proceeds from a legal settlement. In February,
1995, $68,891 was paid in satisfaction of the agreement. The note is
secured by a second deed of trust on Dunsmuir's real property and
equipment, a second deed of trust on real property of a shareholder,
and by personal guarantees of the shareholders........................ $ 88,780
Two notes payable to Superior California Economic Development District
in monthly installments of $3,122 including interest at 8.00% per
annum. The notes are due February 1, 2004, and are secured by bottling
equipment............................................................. 187,587
Mortgage note payable to the Lidster Trust (a related party) in monthly
installments of $1,465 including interest at 10.00% per annum. The note
is secured by a deed of trust on real property and due June, 2005...... 94,571
Mortgage note payable to Ray & Sharon Kassis Family Trust (a related
party) in monthly installments of $1,325 including interest at 10.00%
per annum. The note is due July 1, 2007, and secured by a deed of trust
on real property....................................................... 149,555
Note payable to GMAC in monthly installments of $589 including interest
at 9.15% per annum. The note is secured by a vehicle................... 16,578
Note payable to Tri Counties Bank in monthly installments of $533
including interest at 9.45% per annum. The note is due April, 2000, and
is secured by a vehicle................................................ 14,594
Note payable to Tri Counties Bank in monthly installments of $780
including interest at 11.25% per annum. The note is due May,
1999, and is secured by a truck and trailer............................ 14,747
----------
Balance forward...................................................... $ 566,412
----------
</TABLE>
F-27
<PAGE>
DUNSMUIR BOTTLING COMPANY
NOTES TO THE FINANCIAL STATEMENTS
(5) Continued
<TABLE>
<S> <C>
Balance brought forward.............................................. $ 566,412
Note payable to Tri Counties Bank in monthly installments of $691
including interest at 11.25% per annum. The note is due June, 1999, and
is secured by two trailers............................................. 13,109
Note payable to Union Bank in monthly installments of $579 including
interest at 9.00% per annum. The note is due June, 2000, and is secured
by a vehicle........................................................... 16,873
Note payable to the Lidster Trust (a related party) in monthly
installments of $971 including interest at 10.00% per annum. The note
is unsecured and due June, 2005........................................ 62,676
Note payable to the Ray and Sharon Kassis Family Trust (a related
party) in monthly installments of $1,647 including interest at 10.00%
per annum. The note is unsecured and due June, 2005.................... 106,304
Note payable to the Lidster Trust (a related party) with interest at
10.00% per annum. Principal and interest is payable in three equal
annual installments of $37,100 on July 1, 1998, 1999 and 2000 and sixty
monthly installments of $1,839 beginning July 1, 2000. The note is
unsecured and due June 1, 2005.......................................... 130,000
Note payable to the Ray & Sharon Kassis Family Trust (a related party)
with interest at 10.00% per annum. Principal and interest is payable in
three equal annual installments of $37,100 on July 1, 1998, 1999 and
2000, and sixty monthly installments of $1,839 beginning July 1, 2000.
The note is unsecured and due June 1, 2005............................. 130,000
Note payable to Tri Counties Bank in monthly interest only installments
at prime plus 2.00%. The rate at September 30, 1997, was 10.50%. The
note is secured by a first deed of trust on real property and was due
September 19, 1997..................................................... 255,000
Note payable to Tri Counties Bank in monthly installments of $3,690
including interest at prime plus 2.00%. The rate at September 30, 1997,
was 10.50%. The note is secured by a second deed of trust on real
property and is due August 17, 2017.................................... 365,000
----------
Balance forward..................................................... $1,645,374
----------
</TABLE>
F-28
<PAGE>
DUNSMUIR BOTTLING COMPANY
NOTES TO THE FINANCIAL STATEMENTS
(5) Continued
<TABLE>
<S> <C>
Balance brought forward.............................................. $1,645,374
Note payable to Tri Counties Bank in monthly installments of $14,286
plus interest at prime plus 1.75%. The rate at September 30, 1997, was
10.25%. The note is secured by equipment and is due June 2, 2004....... 1,156,321
Note payable to Tri Counties Bank in monthly installments of $392
including interest at prime plus 1.50%. The rate at September 30, 1997,
was 10.00%. The note is due April, 2001, and secured by a truck......... 14,032
Note payable to Transport International Pool, Inc. in monthly installments
of $356 including interest at 10.72% per annum. The note is due November,
1998, and is secured by equipment........................................ 4,960
Note payable to an individual in monthly installments of $1,000 including
interest at 7.50% per annum. The note is due in February, 1999, and is
unsecured................................................................ 16,162
----------
2,836,849
Less current maturities.................................................. (553,504)
----------
Long-Term Debt - Net.................................................... $2,283,345
==========
</TABLE>
The majority of the above notes are secured by personal guarantees of
the shareholders at September 30, 1997.
Maturities of long-term debt for the next five years are as follows:
<TABLE>
<CAPTION>
Long-Term Debt
--------------
<S> <C>
1998.................................... $553,504
1999.................................... $341,920
2000.................................... $338,563
2001.................................... $287,364
2002.................................... $280,420
</TABLE>
F-29
<PAGE>
DUNSMUIR BOTTLING COMPANY
NOTES TO THE FINANCIAL STATEMENTS
(6) Capital Leases Obligations
Leases that meet the criteria of capital leases have been capitalized.
The related assets are included in property, plant, and equipment.
Capitalized lease obligations are summarized as follows:
<TABLE>
<CAPTION>
September 30, 1997
<S> <C>
Capital lease payable to JLA Credit Corporation in monthly installments
of $842 including interest at 11.94% per annum. The lease expires in
February, 2001, and is secured by equipment................................................... $ 28,290
Capital lease payable to Nations Credit in monthly installments of
$1,118 including interest of 18.00% per annum. The lease is secured by
bottling equipment and expires September, 1998................................................ 15,802
Capital lease payable to AEL Leasing in monthly installments of $574
including interest at 9.28% per annum. The lease is secured by
equipment and expires in April, 2000.......................................................... 15,776
Capital lease payable to AEL Leasing in monthly installments of $208
including interest at 10.75% per annum. The lease is secured by
equipment and expires in September, 2000...................................................... 6,368
Capital lease payable to Bank of the West in monthly installments of
$620 including interest at 10.31% per annum. The lease expires in
February, 2001, and is secured by equipment................................................... 20,913
Capital lease payable to Bank of the West in monthly installments of
$1,286 including interest at 10.31% per annum. The lease expires in
January, 2001, and is secured by equipment.................................................... 44,286
-------
131,435
Less current portion.......................................................................... (46,636)
---------
Capital Lease Obligations - Net............................................................... $ 84,799
========
</TABLE>
F-30
<PAGE>
DUNSMUIR BOTTLING COMPANY
NOTES TO THE FINANCIAL STATEMENTS
(6) Continued
The following is a schedule of future minimum payments on capital
leases:
<TABLE>
<S> <C>
1998.................................... $ 55,788
1999.................................... 46,839
2000.................................... 39,496
2001.................................... 13,120
--------
Total Minimum Lease Payments............ $ 155,243
Less amount of payments representing
interest................................ $ 23,808
---------
Present Value of Net Minimum
Lease Payments.......................... $ 131,435
==========
</TABLE>
Following is a summary of property held under capital leases:
<TABLE>
<S> <C>
Bottling equipment...................... $ 200,183
Accumulated amortization................ (30,462)
---------
Net................................... $ 169,721
==========
</TABLE>
Amortization of equipment under capital leases is included in
depreciation expense for the year ended September 30, 1997.
(7) Debt Consolidation
On January 4, 1996, Dunsmuir consummated agreements with The Lidster
Trust (a related party) and the Ray and Sharon Kassis Family Trust (a
related party) to consolidate the debts owed by Dunsmuir to them. Under
the agreements, Dunsmuir consolidated various debts and accrued
payables due to the lenders through February, 1995, into three new
promissory notes including unsecured loans, a mortgage note payable,
unpaid equipment and building lease rentals, and accrued interest. The
notes contain new terms for repayment beginning on July 1, 1995, (see
Note 5). Dunsmuir elected to comply with the modified terms of these
notes beginning in 1995.
In consideration for extending and modifying the terms of the debts and
for subordinating their collateral position to other debtors, the
agreements required Dunsmuir to issue shares of its stock and
additional promissory notes. The lenders received 92 shares of
Dunsmuir's newly authorized Series B common stock. The shares represent
approximately 11% of the outstanding stock ownership of Dunsmuir. No
fair market value was established for the shares which were issued in
January and July, 1997.
In January, 1996, pursuant to the agreements, Dunsmuir issued two
promissory notes for $130,000 each bearing interest at 10.00% per
annum. Each note requires annual installments of $37,100 on July 1,
1998, 1999, and 2000 and monthly installments of $1,839 beginning July
1, 2000 (see Note 5).
F-31
<PAGE>
DUNSMUIR BOTTLING COMPANY
NOTES TO THE FINANCIAL STATEMENTS
(8) Income Tax Provision
The income tax provision consisted of the following:
<TABLE>
<CAPTION>
CURRENT EXPENSE
<S> <C>
State franchise tax.............................. $ 800
----------
Total income tax provision....................... $ 800
==========
</TABLE>
(9) Commitments
Dunsmuir leases an office and warehouse facility in Redding, California
under an agreement that expires on November 30, 1999. The lease
agreement calls for monthly rental payments of $6,394.
In 1992, Dunsmuir entered into two agreements to lease bottling
equipment from parents of two of the shareholders, related parties.
Monthly lease rentals under the agreements total $2,150. The agreements
expire in February and March, 1999. Dunsmuir has an option to purchase
the equipment at fair market value at the end of the lease terms. Total
rental expense under these leases was $25,800 for the twelve months
ended September 30, 1997.
Dunsmuir also leases office equipment under various operating lease
agreements. Monthly lease rentals under those agreements total $3,302.
Future minimum rental payments required under the above agreements for
the next five years are as follows:
<TABLE>
<S> <C>
1998.................................... $ 127,527
1999.................................... $ 68,665
2000.................................... $ 33,109
2001.................................... $ 29,674
2002.................................... $ 25,800
</TABLE>
(10) Sales to Major Customer
During the year ended September 30, 1997, sales to one customer
accounted for approximately 10% of net sales. Accounts receivable from
this customer totaled $96,138 at September 30, 1997.
(11) Common Stock Transactions
Dunsmuir is authorized to issue 10,000 shares of Series A common stock
and 10,000 shares of Series B common stock. The rights and privileges
of the Series B stock are identical to those of Series A except that
the Series B shares are non-voting. During the year ended September 30,
1997, Dunsmuir issued 92 shares of Series B common stock. At September
30, 1997, Dunsmuir had 750 shares of Series A common stock outstanding
and 92 shares of Series B common stock outstanding.
F-32
<PAGE>
DUNSMUIR BOTTLING COMPANY
NOTES TO THE FINANCIAL STATEMENTS
(12) Subsequent Events
On October 15, 1997, the shareholders of Dunsmuir entered into a merger
agreement to sell all of Dunsmuir stock to Castle Rock Spring Water
Company, Inc., a California corporation and wholly owned subsidiary of
AquaPenn Spring Water Company, Inc., (AquaPenn) a Pennsylvania
corporation. Pursuant to the plan of merger, Dunsmuir was merged with
and into Castle Rock Spring Water Company as a tax-free reorganization
under the provisions of Section 368 of the Internal Revenue Code.
Dunsmuir's shareholders received a combination of cash and common stock
of AquaPenn. Upon completion of the merger, Dunsmuir Bottling Company
ceased to exist. As part of the merger, the outstanding balance on
Dunsmuir's revolving line of credit with Tri Counties Bank was paid in
full.
F-33
<PAGE>
AQUAPENN SPRING WATER COMPANY, INC.
UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following unaudited pro forma combined Statement of Operations for the
year ended September 30, 1997 presents unaudited pro forma operating results for
the Company as if the Dunsmuir acquisition had occurred as of the beginning of
the period presented. The following unaudited pro forma Combined Balance Sheet
presents the unaudited pro forma financial condition of the Company as if the
Dunsmuir acquisition had occurred as of September 30, 1997.
The unaudited pro forma combined financial data are based on available
information and on certain assumptions and adjustments described in the
accompanying notes which the Company believes are reasonable. The unaudited pro
forma combined financial data are provided for informational purposes only and
do not purport to present the results of operations of the Company had the
transaction assumed therein occurred on or as of the dates indicated, nor are
they necessarily indicative of the results of operations which may be achieved
in the future. The unaudited pro forma combined financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements of the Company and
Dunsmuir Bottling Company, including the notes thereto, included elsewhere in
this Prospectus.
F-34
<PAGE>
AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES
PRO FORMA COMBINED BALANCE SHEET
SEPTEMBER 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
AquaPenn Dunsmuir Adjustments Combined
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents..................................... $ 687,035 $ 166,764 $(1,450,712)(A) $ 853,799
1,450,712 (B)
Accounts receivable, net...................................... 3,604,524 404,514 -- 4,009,038
Inventories................................................... 1,533,617 426,995 -- 1,960,612
Prepaid expenses and other current assets..................... 425,279 109,247 -- 534,526
Deferred income taxes......................................... 243,400 -- -- 243,400
----------- ------------- ----------- -----------
Total current assets....................................... 6,493,855 1,107,520 -- 7,601,375
Property, plant, and equipment, net............................... 20,030,909 3,092,296 23,123,205
Other............................................................. 55,421 6,156 3,516,429 (A) 3,848,320
270,314 (C)
----------- ------------- ----------- -----------
Total assets............................................... $26,580,185 $ 4,205,972 $ 3,786,743 $34,572,900
=========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of notes payable.............................. $ 298,966 $ 899,798 $1,450,712 (B) $ 2,649,476
Accounts payable and accrued liabilities...................... 3,098,571 1,208,344 -- 4,306,915
Total current liabilities.................................. 3,397,537 2,108,142 1,450,712 6,956,391
Notes payable..................................................... 4,518,501 2,368,144 -- 6,886,645
Deferred income taxes............................................. 599,800 -- -- 599,800
------------ ------------ ---------- -----------
Total liabilities.......................................... 8,515,838 4,476,286 1,450,712 14,442,836
Stockholders' Equity:
Series A, non-voting convertible preferred stock,
$1 par value; 2,000,000 shares authorized,
1,713,750 shares issued.................................... 1,713,750 -- -- 1,713,750
Common stock, no par value, 100,000,000 shares
authorized; 4,423,712 shares issued, and 4,609,876 shares
issued, pro forma.......................................... -- -- -- --
Capital stock................................................. -- 100,000 (100,000)(C) --
Additional paid-in capital.................................... 12,196,269 -- 2,065,717 (A) 14,261,986
Retained earnings (deficit)................................... 4,242,456 (370,314) 370,314 (C) 4,242,456
Less 11,250 shares of preferred stock in
treasury, at cost.......................................... (11,250) -- -- (11,250)
Less 3,004 shares of common stock in
treasury, at cost.......................................... (5,000) -- -- (5,000)
Less stock subscriptions receivable........................... (71,878) -- -- (71,878)
----------- ------------ ---------- -----------
Total stockholders' equity................................. 18,064,347 (270,314) 2,336,031 20,130,064
----------- ----------- ---------- -----------
Total liabilities and stockholders' equity................. $26,580,185 $ 4,205,972 $3,786,743 $34,572,900
=========== =========== ========== ===========
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements
F-35
<PAGE>
AQUAPENN SPRING WATER COMPANY, INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
Pro Forma Pro Forma
AquaPenn Dunsmuir Adjustments Combined
<S>
Revenues: <C> <C> <C> <C>
Product sales................................................. $ 37,526,028 $ 7,804,080 -- $ 45,330,108
Other sales................................................... 489,287 -- -- 489,287
----------- ------------ ---------- ------------
Net revenues...................................................... 38,015,315 7,804,080 -- 45,819,395
----------- ----------- ----------- ------------
Cost of goods sold................................................ 28,316,938 5,003,570 1,071,258 (D) 34,391,766
----------- ----------- ---------- ------------
Gross profit...................................................... 9,698,377 2,800,510 (1,071,258) 11,427,629
----------- ----------- ----------- ------------
Selling, general and
administrative................................................ 5,126,583 3,108,569 112,837 (E) 7,276,731
(1,071,258)(D)
Income (loss) from operations..................................... 4,571,794 (308,059) (112,837) 4,150,898
Other income (expense)............................................
Other income.................................................. 328,180 (1,381) -- 326,799
Interest expense, net......................................... (208,467) (200,793) 67,811 (F) (444,595)
(103,146)(G)
----------- ----------- ----------- ------------
Income (loss) before income
tax expense................................................... 4,691,507 (510,233) (148,172) 4,033,102
Income tax benefit (expense)...................................... (1,904,752) (800) 178,862 (H) (1,714,323)
12,367 (I)
----------- ----------- ----------- ------------
Net income (loss)................................................. $ 2,786,755 $ (511,033) $ 43,057 $ 2,318,779
============ ============ =========== ===========
Net income per
common share.................................................. $ 0.47 $ 0.38
Weighted average number
of shares outstanding......................................... 5,951,844 6,138,007
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
F-36
<PAGE>
AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
(A) The purchase price of $3,516,429 paid through the issuance of
AquaPenn's Common Stock and $1,450,712 in cash. The number of shares
is subject to adjustment after completion of the Offering, currently
estimated at 137,714 shares (valued at $15.00 per share).
(B) Additional borrowings incurred to fund the cash portion of the purchase
price of Dunsmuir.
(C) The amount of the purchase price which exceeds the net book value of
Dunsmuir and the elimination of Dunsmuir equity.
(D) Reclassification of certain Dunsmuir operating expenses to conform with
AquaPenn's presentation.
(E) Amortization of the amount of the purchase price which exceeds the net
book value.
(F) Interest savings from refinancing of Dunsmuir debt with AquaPenn's
lower interest rate debt.
(G) Interest cost for additional estimated borrowing to fund cash portion
of Dunsmuir purchase.
(H) Income tax benefit of Dunsmuir as if its results had been consolidated
with AquaPenn's income tax provision net of the effect of goodwill
amortization.
(I) Income tax benefit of pro forma adjustments.
F-37
<PAGE>
[Photographs to appear on inside back cover with the following captions:]
1. (Lauth With Pure American Bottles)
AquaPenn President and founder Edward J. Lauth, III was named
Entrepreneur of the Year for Western Pennsylvania in 1996 in a
competition sponsored by Ernst & Young LLP and its co-sponsors
Entrepreneur of the Year(R) Institute and the Center for Entrepreneur
Leadership at the Ewing Marion Kauffman Foundation.
2. (Gerber Baby Water Bottle)
AquaPenn was selected by the Gerber Products Company, in June 1996 to
produce Gerber(R) Baby Water for the United States market.
3. (Steel Silos Against Sky)
Four 60,000-gallon stainless steel silos store spring water at
AquaPenn's Milesburg Facility until it is needed for bottling.
4. (Feidelberg With Pure American Vending Machine)
Geoffrey F. Feidelberg, Chief Operating Officer and Chief Financial
Officer, joined AquaPenn in 1989 following 13 years with the
international accounting firm of Price Waterhouse.
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
No person has been authorized to give any information or to make any
representations in connection with this offering other than those contained in
this Prospectus and, if given or made, such information and representations must
not be relied upon as having been authorized by the Company or the Underwriters.
Neither the delivery of this Prospectus nor any sale made hereunder shall under
any circumstances create any implication that there has been no change in the
affairs of the Company since the date hereof or that the information contained
herein is correct as of any time subsequent to its date. This Prospectus does
not constitute an offer to sell or a solicitation of an offer to buy any
security other than the registered securities to which it relates. This
Prospectus does not constitute an offer to sell or a solicitation of an offer to
buy such securities in any circumstances in which such offer or solicitation is
unlawful.
--------------------
TABLE OF CONTENTS
Page
Prospectus Summary........................................................... 3
Risk Factors................................................................. 7
Use Of Proceeds.............................................................. 13
Dividend Policy.............................................................. 13
Dilution..................................................................... 14
Capitalization............................................................... 15
Selected Consolidated Financial Data......................................... 16
Management's Discussion and Analysis
of Financial Condition and Results of
Operations................................................................. 18
Business..................................................................... 25
Management................................................................... 33
Certain Transactions......................................................... 40
Principal Shareholders and Selling
Shareholder................................................................ 41
Description of Capital Stock................................................. 43
Shares Eligible for Future Sale.............................................. 46
Underwriting................................................................. 47
Legal Matters................................................................ 48
Experts...................................................................... 48
Available Information........................................................ 48
Index to Financial Statements................................................F-1
--------------------------
Until _______________, 1997, all dealers effecting transactions in the
registered securities, whether or not participating in this distribution, may be
required to deliver a Prospectus. This is in addition to the obligation of
dealers to deliver a Prospectus when acting as underwriters and with respect to
their unsold allotments or subscriptions.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[LOGO]
Shares
AQUAPENN SPRING
WATER COMPANY, INC.
Common Stock
--------------------------
PROSPECTUS
--------------------------
PaineWebber Incorporated
Lazard Freres & Co. LLC
Parker/Hunter
Incorporated
--------------------------
, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth the estimated amounts of various expenses
payable by the Company and the Selling Shareholder in connection with the
registration of the Common Stock offered hereby, other than underwriting
discounts and commissions:
<TABLE>
<CAPTION>
Selling
Company Shareholder
<S> <C> <C>
Securities and Exchange Commission fee......................... $12,504 $9,013
NASD filing fee................................................ * *
New York Stock Exchange listing fee............................ * *
Printing and engraving expenses................................ * *
Blue sky fees and expenses..................................... * *
Legal fees and expenses........................................ * *
Accounting fees and expenses................................... * *
Transfer agent and registrar fees.............................. * *
Miscellaneous.................................................. * *
------- -------
Total........................................................ $ * $ *
========= ========
</TABLE>
- --------------------
* To be provided by amendment.
Item 14. Indemnification of Directors and Officers.
The Pennsylvania Business Corporation Law of 1988 authorizes the Company to
indemnify its directors and officers in terms sufficiently broad to permit
indemnification of such persons under certain circumstances for liabilities
(including reimbursement for expenses incurred) arising under the Securities Act
of 1933.
The Company's By-Laws provide as follows:
"Section 7.01. Indemnification of Directors and Officers. The Corporation
shall indemnify any director or officer or employee or agent of the Corporation
or any of its subsidiaries who was or is an "authorized representative" of the
Corporation (which shall mean, for the purposes of this Article, a director or
officer of the Corporation, or a person serving at the request of the
Corporation as a director, officer, partner, fiduciary or trustee of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise) and who was or is a "party" (which shall include for purpose of this
Article the giving of testimony or similar involvement) or is threatened to be
made a party to any "proceeding" (which shall mean for purposes of this Article
any threatened, pending or completed action, suit, appeal or other proceeding of
any nature, whether civil, criminal, administrative or investigative, whether
formal or informal, and whether brought by or in the right of the Corporation,
its shareholders or otherwise) by reason of the fact that such person was or is
an authorized representative of the Corporation to the fullest extent permitted
by law including, without limitation, indemnification against expenses (which
shall include for purposes of this Article, attorneys' fees and disbursements),
damages, punitive damages, judgments, penalties, fines and
II-1
<PAGE>
amounts paid in settlement actually and reasonably incurred by such person in
connection with such proceeding unless the act or failure to act giving rise to
the claim is finally determined by a court to have constituted willful
misconduct or recklessness. If an authorized representative is not entitled to
indemnification with respect to a portion of any liabilities to which such
person may be subject, the Corporation shall nonetheless indemnify such person
to the maximum extent for the remaining portion of the liabilities."
Item 15. Recent Sales of Unregistered Securities.
Within the past three years, the Company has issued and sold the securities
described below in reliance upon the exemption from registration under Section
4(2) of the Securities Act of 1933, except as may otherwise be noted.
In October 1994, the Company granted an option to purchase 270,360 shares
at $1.90 per share to Matthew J. Suhey in consideration for the termination of
an agreement under which Mr. Suhey served as a sales representative to the
Company.
In December 1994, the Company issued 901 shares of Common Stock to each of
its nine directors for a total of 8,111 shares as compensation for serving on
the Board of Directors in 1994.
In December 1994, the Company granted an option to purchase 30,040 shares
of Common Stock at $1.66 per share to Edward J. Lauth, III, to replace shares
previously transferred by Mr. Lauth to an individual for services rendered to
the Company.
In April 1995, the Company issued a warrant to purchase 105,140 shares of
Common Stock at $4.99 per share to Edward J. Lauth, III, in consideration for
Mr. Lauth's guarantee of a portion of the Company's borrowings. Mr. Lauth
subsequently assigned the rights to purchase 30,040 shares under the warrant to
other individuals. To effect the assignment, the Company issued a warrant in the
amount of 75,100 to Mr. Lauth and warrants in the amounts of 21,028 and 9,012 to
the assignees.
In April 1995, the Company issued a warrant to purchase 135,180 shares of
Common Stock at an exercise price of $4.99 per share to AquaWorks, Inc. in
connection with loans to the Company from AquaWorks, Inc.
In June 1995, the Company issued 24,032 shares of Common Stock at $1.66 per
share upon the exercise of options received by an individual as compensation for
services rendered to the Company.
In September 1995, the Company issued 2,704 shares of Common Stock to a
former director in consideration for past services as a member of the Board of
Directors.
In September 1995, the Company issued 1,748,328 shares of Common Stock at
$4.99 per share to purchasers in a private placement under Section 4(2) of the
Securities Act of 1933 and Rule 506 of Regulation D of the Securities Act of
1933 for an aggregate price of $8,730,000.
In September 1995, the Company issued 901 shares of Common Stock to each of
its nine directors for a total of 8,111 shares as compensation for serving on
the Board of Directors in 1995.
In October 1995, the Company issued 21,629 shares of Common Stock for an
aggregate price of $108,000 to the Davis Trust UAD 2/5/77 in a private
placement.
II-2
<PAGE>
In December 1995, the Company issued 10,814 shares of Common Stock to M-S
Capital Fund for an aggregate price of $54,000 in connection with a private
placement.
In January 1996, the Company issued 21,629 shares of Common Stock to an
individual for an aggregate price of $108,000 in connection with a private
placement.
In June 1996, the Company granted an option to purchase 36,048 shares of
Common Stock at $4.99 per share to an individual as compensation for services
rendered to the Company.
In July 1996, the Company issued 901 shares of Common Stock to each of its
twelve directors for a total of 10,814 shares as compensation for serving on the
Board of Directors in 1996.
In July 1996, the Company issued 10,814 shares to individuals for an
aggregate price of $54,000 in connection with a private placement.
In September 1996, the Company granted options to purchase 30,040 shares of
Common Stock at $4.99 per share to Edward J. Lauth, III, Geoffrey F. Feidelberg
and Matthew J. Suhey in consideration for services rendered to the Company.
In October 1996, the Company issued 13,068 shares of Common Stock to the
Lauth Rabbi Trust and 10,815 shares of Common Stock to the Feidelberg Rabbi
Trust for an aggregate price of $119,250 in connection with deferred
compensation plans.
In May 1997, the Company issued 901 shares of Common Stock to each of its
twelve directors for a total of 10,814 shares as compensation for serving on the
Board of Directors in 1997.
From March 1997 until August 1997, the Company issued 98,847 shares of
Common Stock at a price of $4.16 per share and 6,409 shares of Common Stock at
$5.41 per share to employees purchasing stock under the 1996 Employee Stock
Purchase Plan.
In September 1997, the Company granted options to purchase 30,040 shares of
Common Stock at $7.07 per share to Edward J. Lauth, III, Geoffrey F. Feidelberg
and Matthew J. Suhey in consideration for services rendered to the Company.
In October 1997, the Company granted 186,163 shares of Common Stock to
selling shareholders in connection with a merger of a wholly owned subsidiary of
the Company with and into another company (the number of shares subject to
adjustment after completion of the Offering, currently estimated at 137,715
shares).
In October 1997, the Company issued 1,803 shares of Common Stock and
options to purchase 12,016 shares of Common Stock at an exercise price of $8.32
per share in connection with a real estate transaction.
In November 1997, the Company issued options to purchase 45,060 shares of
Common Stock at an exercise price of $8.32 per share in connection with a real
estate transaction.
In November 1997, the Company issued 792 shares of Common Stock at a price
of $5.41 per share to an employee purchasing stock under the 1996 Employee Stock
Purchase Plan.
II-3
<PAGE>
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibit
<TABLE>
<CAPTION>
Exhibit
Number
<S> <C>
1 Form of Underwriting Agreement*
3.1 Restated Articles of Incorporation of the Company
3.2 Amended and Restated By-laws of the Company**
4.1 Form of Certificate evidencing Common Stock of the Company*
4.2 Registration and Holdback Agreement dated as of October 17, 1997 between the Company and Weis
Markets, Inc., Dutch Valley Foods, Inc. and Aqua Works, Inc.**
5 Opinion of Ballard Spahr Andrews & Ingersoll regarding the legality of the securities being
registered*
10.1 Termination Agreement dated October 3, 1994 between Matthew J. Suhey and the Company**
10.2 1996 Employee Stock Purchase Plan**
10.3 Form of Warrant issued to Edward J. Lauth, III, Nancy Jean Davis and James D. Hammond
and Marian I. Hammond**
10.4 Employment Agreement dated September 16, 1994 between Edward J. Lauth, III, and
the Company**
10.5 Employment Agreement dated September 16, 1994 between Geoffrey F. Feidelberg
and the Company**
10.6 Change in Control Agreement dated September 16, 1994 between Edward J. Lauth, III,
and the Company**
10.7 Change in Control Agreement dated September 16, 1994 between Geoffrey F. Feidelberg
and the Company**
10.8 Amendment No. 1 to Employment Agreement dated October 27, 1997 between Edward J. Lauth, III
and the Company
10.9 Amendment No. 1 to Employment Agreement dated October 27, 1997 between Geoffrey F.
Feidelberg and the Company
10.10 Agreement of Lease dated July 19, 1996 between Johnson Controls, Inc. and the Company+
10.11 Assignment of Lease dated February 28, 1997 between Johnson Controls, Inc.
and Schmalbach-Lubeca Plastic Containers USA, Inc.**
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
10.12 Letter Agreement dated September 10, 1997 between Schmalbach-Lubeca Plastic Containers USA,
Inc. and the Company+
10.13 Agreement dated July 30, 1997 between Seven Springs Water Company and the Company+
10.14 Water Agreement dated July 10, 1995 between Bellefonte Borough and the Company**
10.15 Amended and Restated Lease Agreement dated October 14, 1997 among Roy Bresler and Ida Bresler
and the Company+
10.16 Water Contract dated August 8, 1990 between City of Dunsmuir and Dunsmuir Bottling Company**
10.17 Agreement and Plan of Merger dated October 15, 1997 between the Company, Castle Rock Spring
Water Company, Inc. and Dunsmuir Bottling Company and certain shareholders of Dunsmuir Bottling
Company**
10.18 1992 Stock Option Plan**
10.19 Letter Agreement dated December 29, 1995 between the Company and Matthew J. Suhey
21 Subsidiaries of the Company
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Matson and Isom
23.3 Consent of Ballard Spahr Andrews & Ingersoll (included in Exhibit 5)*
24 Power of Attorney (included in signature page)**
27 Financial Data Schedule**
</TABLE>
- --------------------
* To be filed by amendment
** Previously filed
+ Previously filed, confidential treatment requested
Item 17. Undertakings.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating
II-5
<PAGE>
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 to provide to the underwriter
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names required by the underwriter to permit
prompt delivery to each purchaser.
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.
II-6
<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 Milesburg, Pennsylvania, on November
20, 1997.
AQUAPENN SPRING WATER COMPANY, INC.
By: /s/ Geoffrey F. Feidelberg
---------------------------------
Name: Geoffrey F. Feidelberg
Title: Executive Vice President,
Chief Financial Officer and
Chief Operating Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
* Chairman, President, Chief Executive Officer
Edward J. Lauth, III and Director
(principal executive officer)
/s/ Geoffrey F. Feidelberg Executive Vice President,
- ------------------------- Chief Financial Officer,
Geoffrey F. Feidelberg Chief Operating Officer and Director
(principal financial and
accounting officer)
* Director
Walter Bruce
* Director
Nancy Jean Davis
* Director
Richard F. DeFluri
* Director
John H. Gutfreund
<PAGE>
* Director
James D. Hammond
* Director
Robert E. Poole, Jr.
* Director
Norman S. Rich
* Director
Henry S. Shatkin
* Director
Matthew J. Suhey
* Director
Calvin J. Wagner, Jr.
*By: /s/ Geoffrey F. Feidelberg November 20, 1997
---------------------------
Geoffrey F. Feidelberg
pursuant to a power of
attorney previously filed
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Page
<S> <C> <C>
1 Form of Underwriting Agreement*
3.1 Restated Articles of Incorporation of the Company
3.2 Amended and Restated By-laws of the Company**
4.1 Form of Certificate evidencing Common Stock of the Company*
4.2 Registration and Holdback Agreement dated as of October 17, 1997 by and between the Company and
Weis Markets, Inc., Dutch Valley Foods, Inc. and Aqua Works, Inc.**
5 Opinion of Ballard Spahr Andrews & Ingersoll regarding the legality of the securities being
registered*
10.1 Termination Agreement dated October 3, 1994 between Matthew J. Suhey and the Company**
10.2 1996 Employee Stock Purchase Plan**
10.3 Form of Warrant issued to Edward J. Lauth, III, Nancy Jean Davis and James D. Hammond
and Marian I. Hammond**
10.4 Employment Agreement dated September 16, 1994 between Edward J. Lauth, III, and
the Company**
10.5 Employment Agreement dated September 16, 1994 between Geoffrey F. Feidelberg
and the Company**
10.6 Change in Control Agreement dated September 16, 1994 between Edward J. Lauth, III,
and the Company**
10.7 Change in Control Agreement dated September 16, 1994 between Geoffrey F. Feidelberg
and the Company**
10.8 Amendment No. 1 to Employment Agreement dated October 27, 1997 between Edward J. Lauth, III and
the Company
10.9 Amendment No. 1 to Employment Agreement dated October 27, 1997 between Geoffrey F. Feidelberg and
the Company
10.10 Agreement of Lease dated July 19, 1996 between Johnson Controls, Inc. and the Company+
10.11 Assignment of Lease dated February 28, 1997 between Johnson Controls, Inc.
and Schmalbach-Lubeca Plastic Containers USA, Inc.**
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Page
<S> <C> <C>
10.12 Letter Agreement dated September 10, 1997 between Schmalbach-Lubeca Plastic Containers USA, Inc.
and the Company+
10.13 Agreement dated July 30, 1997 between Seven Springs Water Company and the Company+
10.14 Water Agreement dated July 10, 1995 between Bellefonte Borough and the Company**
10.15 Amended and Restated Lease Agreement dated October 14, 1997 among Roy Bresler and Ida Bresler and
the Company+
10.16 Water Contract dated August 8, 1990 between City of Dunsmuir and Dunsmuir Bottling Company**
10.17 Agreement and Plan of Merger dated October 15, 1997 by and among the Company, Castle Rock Spring
Water Company, Inc. and Dunsmuir Bottling Company and Certain Shareholders of Dunsmuir Bottling
Company**
10.18 1992 Stock Option Plan**
10.19 Letter Agreement dated December 29, 1995 between the Company and Matthew J. Suhey
21 Subsidiaries of the Company
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Matson and Isom
23.3 Consent of Ballard Spahr Andrews & Ingersoll (included in Exhibit 5)*
24 Power of Attorney (included in signature page)**
27 Financial Data Schedule**
</TABLE>
- --------------------
* To be filed by amendment
** Previously filed herewith
+ Previously filed confidential treatment requested
<PAGE>
EXHIBIT 3.1
RESTATED ARTICLES OF INCORPORATION
OF
AQUAPENN SPRING WATER COMPANY, INC.
AquaPenn Spring Water Company, Inc., a corporation organized and
existing under and by virtue of the Business Corporation Law of Pennsylvania,
DOES HEREBY CERTIFY:
A. The corporation was incorporated in Pennsylvania on
November 5, 1986.
B. These Restated Articles of Incorporation restate and integrate but
do not further amend the Articles of Incorporation, as amended, of the
Corporation, and there is no discrepancy between those provisions and the
provisions of these Restated Articles of Incorporation.
C. These Restated Articles of Incorporation were duly adopted by the
Board of Directors of the corporation without a vote of the shareholders in
accordance with the provisions of Section 1914(c) of the Business Corporation
Law of Pennsylvania.
D. The text of the Articles of Incorporation as amended or
supplemented heretofore is hereby integrated and restated to read
as herein set forth in full:
1. The name of the corporation is: AquaPenn Spring Water
Company, Inc.
2. The address of the corporation's registered office in the
Commonwealth of Pennsylvania is: One AquaPenn Drive,
Milesburg, Pennsylvania 16853 (Centre County)
3. The corporation is incorporated under the provisions of the
Business Corporation Law, Act of May 5, 1933, as amended.
4. The purpose of the corporation is to engage in and to do any
lawful act or acts concerning any or all lawful businesses
for which corporations may be incorporated under the
provision of the Business Corporation Law of Pennsylvania,
Act of May 5, 1933, P.L. 364, as amended and supplemented,
and to do all things and exercise all powers, rights and
privileges which a business corporation may now or hereafter
be organized or authorized to do or to exercise under the
said Business Corporation Law of Pennsylvania, as amended
and supplemented from time to time.
5. The term for which the corporation is to exist is perpetual.
<PAGE>
6. The aggregate number of shares which the Corporation shall have the
authority to issue is 102,000,000, comprised of two classes of stock:
100,000,000 shares of common stock, no par value, and 2,000,000 shares
of preferred stock, par value $1.00 per share.
The designations, preferences, qualifications, limitations,
restrictions and special or relative rights in respect of the shares of
each class are as follows:
Common Stock:
(a) Voting Rights. The holders of shares of the common stock of the
Corporation shall not have cumulative voting rights in the election of
directors.
Preferred Stock:
(a) Issuance of Preferred Shares in Series; First Series. The preferred
shares shall be non-voting shares and shall be issued from time to time
in series. The first series shall be designated Series A Preferred,
shall consist of 2,000,000 shares, shall have no dividend preference,
shall not be redeemable, shall grant to the holders thereof certain
liquidation privileges as set forth in subparagraph (d) hereof, and
shall be convertible to common shares as provided in subparagraph (e)
hereof. The shares of such series shall otherwise be subject to the
provisions of this Article applicable to all series of the preferred
shares, and additional provisions with respect to such series shall be
fixed by the Board of Directors as provided in subparagraph (b) of this
Article.
(b) Authority of Board of Directors to Fix Terms of Series. All
preferred shares shall be of equal rank and identical, except in the
particulars that may be fixed by the Board of Directors as provided in
this subparagraph (b). The Board of Directors is hereby authorized and
required to fix, in the manner and to the full extent provided and
permitted by law, all provisions of the shares of each series not
otherwise set forth in these Articles and insofar as such provisions
shall not be inconsistent with the provisions of this Article
applicable to all series of preferred shares, including, but not
limited to:
(i) Series Designation. The distinctive designation of all
series and the number of shares which shall constitute such series
(except the first series, the designation, and number of shares of
which are set forth in subparagraph (a) above), which number may be
increased (except where otherwise provided by the Board of Directors in
its resolution creating such series) or decreased (but
2
<PAGE>
not below the number of shares thereof then-outstanding)
from time to time by resolution of the Board of Directors;
(ii) Dividend Rate and Rights. The annual rate of dividends
payable on the shares of all series (except the first series, which
shall have no dividend preference), the date from which dividends shall
be cumulative on all shares of any series issued prior to the record
date for the first dividend on shares of such series, and the dividend
rights applicable to the shares of all series;
(iii) Redemption Price. The redemption price or prices, if
any, for the shares of each, any or all series;
(iv) Sinking Fund. The obligation, if any, of the
Corporation to maintain a sinking fund for the periodic redemption of
shares of any series and to apply the sinking fund to the redemption
of such shares;
(v) Voluntary Liquidation Preferences. The amount payable
on shares of each series in the event of any voluntary liquidation,
dissolution or winding up of the affairs of the Corporation;
(vi) Conversion Rights. The rights, if any, of the holders
of shares of each series to convert such shares into common shares
and the terms and conditions of such conversion.
(c) Dividends. The holders of the Series A Preferred Shares shall not
be entitled to any dividend preference. The holders of the preferred
shares of each other series in preference to the holders of the Class A
Preferred Shares or the common shares, shall be entitled to receive
dividends, out of any funds legally available therefor, as and when
declared by the Board of Directors, at the rate for such series as
provided in subparagraph (b) hereof, payable quarterly on the last day
of January, April, July and October, respectively, in each year, with
respect to the quarterly period ending on such respective payment date,
except that the first dividend on such initial issue of any series of
preferred shares shall be payable on the quarterly dividend payment
date next succeeding the expiration of thirty (30) days after the date
any shares of such series are issued.
(d) Liquidation Preference.
(i) Voluntary or Involuntary Dissolution. In the
event of the voluntary or involuntary dissolution,
liquidation or winding up of the affairs of the Corporation,
then, before any distribution or payment shall be made to
the holders of the common shares, the holders of the
3
<PAGE>
preferred shares shall be entitled to be paid in full the respective
amounts fixed in allowance with the provisions of subparagraph (b)
hereof.
(ii) Insufficient Assets. If, on any voluntary or involuntary
liquidation, dissolution, or winding up of the affairs of the
Corporation, the assets of the Corporation are insufficient to permit
full payment to the preferred shareholders as herein provided, then,
the holders of any series of the preferred shares shall share ratably
in any distribution of assets in proportion to the full amounts to
which they would otherwise be respectively entitled.
(iii) Participation Rights Where Assets Sufficient. If, on any
liquidation, dissolution, or winding up of the affairs of the
Corporation, payment shall have been made in full to the holders of the
preferred shares, as provided in subparagraph (d)(i), above, the
remaining assets and funds of the Corporation shall be distributed
equally to all outstanding shares, preferred and common, share for
share.
(iv) Dissolution as Not Involving Consolidation or Merger.
Neither the consolidation or merger of the Corporation, nor the lease
or conveyance of all or substantially all of its assets, shall be
deemed a liquidation, dissolution, or winding up of the affairs of the
Corporation within the meaning of this subparagraph (d) or within the
meaning of the provisions of subparagraph (b) hereof.
(e) Conversion Rights of First Series.
(i) Conversion Rights. The holder of any shares of the first
series of Preferred Shares at any time shall, at his option on delivery
to the Corporation of his written notice electing to convert said
shares to common shares and on surrender at the office of the
Corporation or office of the transfer agent for such shares of the
certificate or certificates for such preferred shares, duly endorsed to
the Corporation, be entitled to receive one (1) common shares for each
preferred share so converted.
(ii) Adjustments. Provided, however, that the conversion
ratio of common shares to be issued pursuant to a conversion of
preferred shares under subparagraph (i) of this subparagraph (e)
shall be adjusted only in the event of a stock dividend or stock
split so as to preserve, so far as is reasonably possible, the
original conversion rights of the preferred shares. No adjustment to
the conversion ratio under subparagraph (i) shall be made by reason
of any increase in the authorized shares of common stock of the
Corporation or by reason of the issuance of common stock for cash,
property or services.
4
<PAGE>
(iii) Fractional Shares. When required for a complete
conversion of the preferred shares, the Corporation shall issue
fractional shares, or certificates evidencing such fractional shares,
calculated to the nearest 1/100th of a share, fractions of less than
1/100th of a share being disregarded, on such terms and subject to such
conditions as may be fixed by the Board of Directors. Fractional shares
shall entitle the holder to exercise fractional voting rights, to
receive dividends thereon and to participate in any of the assets of
the Corporation in the event of liquidation.
(iv) Cancellation of Converted Shares. The initial
series of shares so converted shall not be reissued and shall cease
to be part of the authorized shares of the Corporation.
(v) Reservation of Sufficient Common Shares for Conversion.
The Corporation shall at all times, reserve and keep available out of
its authorized but unissued common shares, solely for the purpose of
effecting conversion of its initial series of shares, the full number
of common shares deliverable on conversion of all preferred shares from
time to time outstanding.
(f) Voting. Except as otherwise expressly required by law, in all
matters as to which the vote or consent of the Corporation shall be
required or be taken, including any increase or decrease in the amount
of authorized capital stock of the Corporation, the respective holders
of the shares of common stock only shall each be entitled to one vote
for each share of such stock held by them, respectively.
7. These articles of incorporation may be amended in the manner now or
hereafter prescribed by statute, and all rights conferred upon
shareholders herein are granted subject to this reservation.
5
<PAGE>
EXHIBIT 10.8
AMENDMENT NO. 1
TO
EMPLOYMENT AGREEMENT
This Amendment No. 1 to the Employment Agreement dated as of September
16, 1994 (the "Employment Agreement"), by and between AQUAPENN SPRING WATER
COMPANY, INC., a Pennsylvania business corporation (the "Employer") and Edward
J. Lauth, III ("Employee"), is made as of this 27th day of October, 1997.
Intending to be legally bound hereby, and in consideration of the
mutual covenants contained herein, the parties hereto agree as follows:
1. Terms. Capitalized terms used herein and not otherwise defined
herein shall have the meanings given to such terms in the Employment Agreement.
2. Amendments to Employment Agreement. The Employment Agreement is
hereby amended as follows:
(a) Section 1A is hereby added to the Employment Agreement to
immediately follow Section 1 and to read in full as follows:
1A. Termination. In the event that Employee's employment by
Employer terminates at any time (including a termination which results
from Employee's or Employer's failure to renew the Employment
Agreement), but excluding a termination of Employee by Employer with
Cause, Employer shall continue to pay Employee's base salary and
benefits for two years from the date of termination to be paid at the
same regular intervals as Employer's normal payroll.
"Cause" shall be determined by the Employer's Board of
Directors in the exercise of good faith and reasonable judgment, and
shall include the occurrence of any one or more of the following:
(i) The willful and continued failure by the Employee to
substantially perform his duties of employment,
provided that Employer gives Employee at least 30 days
prior notice and an opportunity to cure such failure;
(ii) The Employee's commission of an act of fraud,
embezzlement, theft or other act constituting a felony
involving moral turpitude;
(iii) The willful engaging by the Employee in gross
misconduct or the willful violation of an Employer
policy;
<PAGE>
(iv) The Employee's insobriety or unlawful use of a
controlled substance during business hours;
(v) The breach by the Employee of any covenants contained
in Sections 12 or 13 of this Agreement;
(vi) Gross negligence of the Employee; or
(vii) Dishonest conduct by the Employee.
(b) Section 12 is hereby added to the Employment Agreement to read in
full as follows:
12. Confidentiality. During the term of his employment and
indefinitely thereafter, Employee shall not use any proprietary or
confidential information of the Company acquired during the course of
his employment for his own benefit, nor shall he disclose it to any
other person or organization except as authorized in writing by the
Employer.
(c) Section 13 is hereby added to the Employment Agreement to read in
full as follows:
13. Covenant Not To Compete.
a. During the term of Employee's employment and for two
(2) years thereafter, Employee shall not become employed by, act as
consultant for, contract with, obtain a beneficial ownership interest
in or otherwise enter into any form of business relationship with any
person, firm, company, partnership, association, organization or other
legal entity, for the purpose of offering or providing services or
products substantially similar to the Employer's services and products
in the territories in which Employer markets and sells its services and
products.
b. During the term of Employee's employment and for two
(2) years thereafter, Employee shall not, directly or indirectly,
render services to or contact or attempt to solicit business with
regard to the business of bottling and selling water from any customer
of Employer on Employee's own behalf or on behalf of any other person,
firm, company, partnership, association or other organization.
c. During the term of Employee's employment and for two
(2) years thereafter, Employee shall not employ, engage the services of
or solicit any employee or representative of Employer to terminate his
or her employment or representation or to otherwise seek to engage the
services of such employee or representative.
2
<PAGE>
3. Miscellaneous.
(a) All terms, conditions, provisions and covenants in the
Employment Agreement, shall remain unaltered and in full force and effect except
as modified or amended hereby.
(b) This Amendment may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument. Any facsimile signature of any party
hereto shall constitute a legal, valid and binding execution hereof by such
party.
IN WITNESS WHEREOF, the undersigned have executed this
Amendment as of the day and year first written above.
AQUAPENN SPRING WATER COMPANY, INC.
By: /s/ Geoffrey F. Feidelberg
-----------------------------
Geoffrey F. Feidelberg
Executive Vice President
WITNESS: EMPLOYEE:
/s/ Tina M. Kelly /s/ Edward J. Lauth, III (SEAL)
- ------------------------ --------------------------------
Edward J. Lauth, III
3
<PAGE>
EXHIBIT 10.9
AMENDMENT NO. 1
TO
EMPLOYMENT AGREEMENT
This Amendment No. 1 to the Employment Agreement dated as of September
16, 1994 (the "Employment Agreement"), by and between AQUAPENN SPRING WATER
COMPANY, INC., a Pennsylvania business corporation (the "Employer") and Geoffrey
F. Feidelberg ("Employee"), is made as of this 27th day of October, 1997.
Intending to be legally bound hereby, and in consideration of the
mutual covenants contained herein, the parties hereto agree as follows:
1. Terms. Capitalized terms used herein and not otherwise defined
herein shall have the meanings given to such terms in the Employment Agreement.
2. Amendments to Employment Agreement. The Employment Agreement is
hereby amended as follows:
(a) Section 1A is hereby added to the Employment Agreement to
immediately follow Section 1 and to read in full as follows:
1A. Termination. In the event that Employee's employment by
Employer terminates at any time (including a termination which results
from Employee's or Employer's failure to renew the Employment
Agreement), but excluding a termination of Employee by Employer with
Cause, Employer shall continue to pay Employee's base salary and
benefits for two years from the date of termination to be paid at the
same regular intervals as Employer's normal payroll.
"Cause" shall be determined by the Employer's Board of Directors in
the exercise of good faith and reasonable judgment, and shall include
the occurrence of any one or more of the following:
(i) The willful and continued failure by the Employee to
substantially perform his duties of employment,
provided that Employer gives Employee at least 30 days
prior notice and an opportunity to cure such failure;
(ii) The Employee's commission of an act of fraud,
embezzlement, theft or other act constituting a felony
involving moral turpitude;
(iii) The willful engaging by the Employee in gross
misconduct or the willful violation of an Employer
policy;
<PAGE>
(iv) The Employee's insobriety or unlawful use of a
controlled substance during business hours;
(v) The breach by the Employee of any covenants contained
in Sections 12 or 13 of this Agreement;
(vi) Gross negligence of the Employee; or
(vii) Dishonest conduct by the Employee.
(b) Section 12 is hereby added to the Employment Agreement to read in
full as follows:
12. Confidentiality. During the term of his employment and
indefinitely thereafter, Employee shall not use any proprietary or
confidential information of the Company acquired during the course of
his employment for his own benefit, nor shall he disclose it to any
other person or organization except as authorized in writing by the
Employer.
(c) Section 13 is hereby added to the Employment Agreement to read in
full as follows:
13. Covenant Not To Compete.
a. During the term of Employee's employment and for two
(2) years thereafter, Employee shall not become employed by, act as
consultant for, contract with, obtain a beneficial ownership interest
in or otherwise enter into any form of business relationship with any
person, firm, company, partnership, association, organization or other
legal entity, for the purpose of offering or providing services or
products substantially similar to the Employer's services and products
in the territories in which Employer markets and sells its services
and products.
b. During the term of Employee's employment and for two
(2) years thereafter, Employee shall not, directly or indirectly,
render services to or contact or attempt to solicit business with
regard to the business of bottling and selling water from any customer
of Employer on Employee's own behalf or on behalf of any other person,
firm, company, partnership, association or other organization.
c. During the term of Employee's employment and for two
(2) years thereafter, Employee shall not employ, engage the services
of or solicit any employee or representative of Employer to terminate
his or her employment or representation or to otherwise seek to engage
the services of such employee or representative.
2
<PAGE>
3. Miscellaneous.
(a) All terms, conditions, provisions and covenants in the
Employment Agreement, shall remain unaltered and in full force and effect except
as modified or amended hereby.
(b) This Amendment may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. Any facsimile signature
of any party hereto shall constitute a legal, valid and binding execution hereof
by such party.
IN WITNESS WHEREOF, the undersigned have executed this
Amendment as of the day and year first written above.
AQUAPENN SPRING WATER COMPANY, INC.
By: /s/ Edward J. Lauth, III
---------------------------
Edward J. Lauth, III
President
WITNESS: EMPLOYEE:
/s/ Traci K. Watson /s/ Geoffrey F. Feidelberg (SEAL)
- ----------------------- ------------------------------
Geoffrey F. Feidelberg
3
<PAGE>
EXHIBIT 10.19
AquaPenn Spring Water Company
December 29, 1995
Mr. Matthew J. Suhey
550 Carriage Way
Deerfield, IL 60015
Dear Matt:
Please be advised from our telephone conversations that AquaPenn Spring Water
Company is in agreement with you to cap your commissions on an ongoing basis to
a total of minimum and maximum of $20,833.33 per month. This would be effective
January 1, 1996. It is my understanding, from you, that you will continue to
give the same effort on an ongoing basis to service existing accounts and to
continue to strive to bring in new accounts. For new accounts that are currently
not doing business with AquaPenn Spring Water Company, we will pay any expenses
associated with the initial selling of those accounts.
I appreciate very much your consideration to this new arrangement and it will
certainly help us reduce our expenses long term in sales and marketing. The
above is subject to the Board of Directors approval on February 8, 1996.
Please advise.
With best regards,
/s/ Eddie
- ------------------------------------
Edward J. Lauth, III President
EJL:tk
/s/ Matthew J. Suhey 1/3/96
- ----------------------------- ---------------------------
*Accepted by: Date
Matthew J. Suhey
*Subject to AquaPenn Spring Water Company, Inc. Board of Directors
approval.
P.O. Box 938. One AquaPenn Drive, Milesburg, Pennsylvania 16853.
Phone 814.355.5556.Fax 814.355.7810
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
AquaPenn Spring Water Company South, Inc. (Pennsylvania Corporation) (Formerly
known as Great American Spring Water Ice Company, Inc.)
Pure American, Inc. (Pennsylvania Corporation) (Formerly S C Acquisition
Company, Inc.)
AquaPenn Spring Water Industries, Inc. (Pennsylvania Corporation)
The Eight (8) Ounce Company, Inc. (Pennsylvania Corporation)
IAPSW, Inc. (Delaware Corporation)
RAPSW, Inc., a wholly owned subsidiary of IAPSW, Inc. (Delaware Corporation)
Castle Rock Spring Water Company, Inc. (California Corporation)
AquaPenn Spring Water Company West, Inc. (California Corporation)
<PAGE>
Exhibit 23.1
Accountants' Consent
To the Board of Directors
AquaPenn Spring Water Company, Inc.:
We consent to the use of our report dated October 21, 1997, except for note 15
which is as of October 24, 1997, included in this Amendment No. 1 to the
Registration Statement on Form S-1 of AquaPenn Spring Water Company, Inc. and to
the reference to our firm under the headings "Experts" and "Selected
Consolidated Financial Data."
/s/ KPMG Peat Marwick LLP
State College, Pennsylvania
November 19, 1997
<PAGE>
Exhibit 23.2
Accountants' Consent
To the Board of Directors
AquaPenn Spring Water Co., Inc.:
We consent to the use of our report dated October 31, 1997, included in this
Amendment Number 1 to Registration Statement of Form S-1 of AquaPenn Spring
Water Co., Inc. and to the reference to our firm under the heading "Experts".
/s/ Matson and Isom
Accountancy Corporation
Redding, California
November 18, 1997
