<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 2, 1998
REGISTRATION NO. 333-38771
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------------
AQUAPENN SPRING WATER COMPANY, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
PENNSYLVANIA 5149 25-1541772
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
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:
<TABLE>
<S> <C>
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
</TABLE>
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. / / _______________
---------------------------
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>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JANUARY 2, 1998
4,071,117 SHARES
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 2,071,117
shares are being sold by certain shareholders of the Company (the "Selling
Shareholders"). See "Principal Shareholders and Selling Shareholders." The
Company will not receive any proceeds from the sale of Common Stock by the
Selling Shareholders.
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 $13.00 and $15.00 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>
| | Underwriting | | Proceeds to
| Price to | Discounts and | Proceeds to | Selling
| Public | Commissions(1)| Company(2) | Shareholder(2)
<S> <C> <C> <C> <C>
Per Share.................. | $ | $ | $ | $
Total...................... | $ | $ | $ | $
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 Shareholders.
(3) Assuming exercise in full of the 30-day option granted by the Company to the
Underwriters to purchase up to 610,668 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
, 1998.
------------------------
PAINEWEBBER INCORPORATED
LAZARD FRERES & CO. LLC
PARKER/HUNTER
INCORPORATED
------------------------
THE DATE OF THIS PROSPECTUS IS , 1998
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.
<PAGE>
Photographs of:
1. Woman drinking Pure American(Registered) Spring Water from 20 ounce bottle
with sport cap.
2. Pure American(Registered) Spring Water in 20 ounce bottle.
3. Pure American(Registered) Spring Water bottle with tamper-evident seal.
4. Pure American(Registered) Spring Water in 8 ounce bottles packaged in
shrink-wrap packs of 8 bottles.
5. Pure American(Registered) Spring Water in 20 ounce bottles packaged in trays
of 24 bottles.
6. Gerber(Registered) Baby Water with Fluoride in 1.5 liter bottle size;
Beech-Nut(Registered) Spring Water -- Fluoride Added in 1.0 liter bottle
size.
7. Castle Rock(Registered) Spring Water in 12 ounce, 16.9 ounce, 1 liter and 1.5
liter bottle sizes.
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 $14.00 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 Weis Markets, Inc. and its subsidiaries (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 and (e) no purchase of the
74,965 shares of Common Stock subscribed for under the Company's 1996 Employee
Stock Purchase Plan (the "Stock Purchase Plan"). 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(Registered),
Great American(Registered), AquaPenn(Registered) 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, according to Beverage Marketing. Private
label products accounted for approximately 43% 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 as a percentage of gallons sold in the future, according to
Beverage Marketing. 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 82% 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 superior quality products, create innovative packaging and
respond rapidly to customer shipment and production demands. The
3
<PAGE>
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 being constructed which is expected to be 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. Castle Rock has been distributing its natural spring
water products throughout the western United States since it was incorporated
under California law in 1990. 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 Shareholders.................... 2,071,117 shares
Common Stock to be Outstanding after the
Offering.................................... 7,729,392 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 610,668 shares
of Common Stock.
(2) Excludes 1,024,229 shares of Common Stock reserved for issuance upon
exercise of outstanding options, warrants and subscriptions under the Stock
Purchase Plan but gives effect to the conversion of all outstanding shares
of the Company's Series A Non-Voting Convertible Preferred Stock (the
"Convertible Preferred Stock") into 1,022,862 shares (after the Reverse
Stock Split) of Common Stock effected in December 1997 (the "Preferred Stock
Conversion"). 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. 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 the dates 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.
<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 6,099,395
OTHER OPERATIONS DATA:
EBITDA (3)............... $1,260,940 $ 1,606,457 $ 2,888,231 $ 4,613,823 $ 7,285,186 $ 7,158,553
</TABLE>
<TABLE>
<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 $21,743,984
Total assets.......................... 26,580,185 34,740,069 53,285,069
Notes payable, including current
portion............................. 4,817,467 9,536,121 1,736,121
Stockholders' equity.................. 18,064,347 20,130,064 46,475,064
</TABLE>
- ------------------
(1) Gives effect to the acquisition of Castle Rock as if it had occurred as of
October 1, 1996.
(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). See the Consolidated
Statements of Cash Flows of the Company for the amounts of cash flows from
each of investing, financing and operating activities for fiscal 1995, 1996
and 1997.
(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 (i) the sale of 2,000,000 shares of Common
Stock offered by the Company hereby assuming an Offering price of $14.00 per
share, (ii) the receipt of proceeds from the exercise of the Weis Markets
Warrant for 135,180 shares of Common Stock, (iii) the Preferred Stock
Conversion, (iv) the payment of estimated underwriting discounts and
commissions and Offering expenses and (v) the application of the estimated
net proceeds from the Offering. See "Use of Proceeds" and "Capitalization."
5
<PAGE>
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 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(Registered), Great American(Registered) and AquaPenn(Registered)
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.
HIGHLY COMPETITIVE INDUSTRY
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 ACHIEVE AND 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, 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 capital, 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 40.8% 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. Due to all
the foregoing factors, it is possible
7
<PAGE>
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, as well as the efforts of its principal food
broker, Matthew J. Suhey (who is also a director 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 or Mr. Suhey's services could have a material adverse effect on the
Company. See "Management -- Employment Agreements."
DEPENDENCE UPON EXISTING 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 approximately 83% of the Company's fiscal
1997 pro forma net revenues, or the Castle Rock Spring, which generated
approximately 17% 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."
LIMITED OWNERSHIP AND CONTROL OF WATER SOURCES AND CHALLENGE TO USE OF CASTLE
ROCK SPRING WATER
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
8
<PAGE>
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 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.
LIMITED ABILITY TO RAISE 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.
POTENTIAL FOR 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. The
Company currently does not own federal trademark registrations for its
proprietary bottle shapes and label designs. The Company's 20 ounce bottle shape
and label design is the subject of a pending application for registration. 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>
CHANGES IN 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.
CHANGES IN 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 $8.47 at an assumed Offering price of $14.00 per share,
after deducting estimated underwriting discounts and commissions and after
giving effect to the exercise of the Weis Markets Warrant and the Preferred
Stock Conversion. 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, and 76,254 shares of Common Stock were subscribed for
under the Company's Stock Purchase Plan. If such warrants and options are
exercised in full, and assuming that all shares subscribed for under the Stock
Purchase Plan are purchased and a portion of the shares issued into escrow in
the Castle Rock acquisition are released based on the assumed Offering price of
$14.00 per share, 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 $8.64. 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.
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.
10
<PAGE>
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 Shareholders and the Preferred Stock Conversion, the Company's
common and preferred shareholders as of September 30, 1997, together with those
persons who acquired shares in the Castle Rock acquisition, will own 47.3% of
the outstanding shares of Common Stock (43.8% 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 19.4% of the outstanding shares of Common
Stock (27.4% upon the exercise of currently exercisable options and warrants
owned by the Board of Directors and officers). See "Principal Shareholders and
Selling Shareholders."
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, 7,729,392 shares of Common Stock
will be outstanding. Of such shares, the 4,071,117 shares sold pursuant to this
Offering will be tradable without restriction by persons other than "affiliates"
of the Company. The remaining 3,658,275 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. Common Stock in the
amount of 1,897,232 shares 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 2,960,774 shares, or
approximately 52% 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, 2,813,222 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 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
Shareholders," "Shares Eligible for Future Sale" and "Underwriting."
11
<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
$25.67 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 $26.3 million. The Company
intends to use a portion of the net proceeds to repay certain borrowings under
its credit facilities which incur interest at rates between LIBOR plus 1.0% and
LIBOR plus 1.7%. At December 29, 1997 the Company had approximately $13.2
million of such borrowings outstanding, $7.0 million of which begins to amortize
in November 2001, $6.0 million of which begins to amortize in February 1999 and
$200,000 of which is due upon demand. Approximately $5.9 million of such
borrowings arose from the acquisition of Castle Rock and the repayment of
associated liabilities, approximately $4.2 million of such borrowings arose from
capital expenditures associated with the expansion of the Milesburg Facility and
the construction of the Ginnie Springs bottling facility and approximately $3.1
million of such borrowings arose from general operating expenses. The Company
intends to use an aggregate of $13.0 million of the proceeds to fund a portion
of the capital expenditures associated with the expansion of the Milesburg
Facility (including repayment of $2.5 million currently borrowed under the
credit facilities as described above) and $4.3 million of the proceeds to fund a
portion of the capital expenditures associated with the construction of the
Ginnie Springs bottling facility (including repayment of $1.7 million currently
borrowed under the credit facilities as described above). The Company estimates
that the total cost of the capital expenditures associated with the expansion of
the Milesburg Facility will be approximately $17.8 million and the construction
of the Ginnie Springs bottling facility will be approximately $6.6 million. The
amount of net proceeds to be used for each project, however, depends on the
closing date of the Offering and the portion of each of the projects remaining
to be completed at that date. The additional amounts that may be required to
complete each project will come from borrowings under the Company's existing
credit facilities and cash generated from the Company's operations. The balance,
if any, of the net proceeds from the 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."
12
<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, the exercise of the Weis Markets
Warrant and the application of the net proceeds therefrom and the Preferred
Stock Conversion, the pro forma net tangible book value of the Company at
September 30, 1997 would have been approximately $17.0 million or $2.97 per
share of outstanding Common Stock. This represents an immediate decrease in pro
forma net tangible book value of $0.73 per share to existing shareholders due to
the recognition of $3.8 million in goodwill resulting from the acquisition of
Castle Rock and the Preferred Stock Conversion. 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 $42.7 million, or $5.53 per share. This represents an immediate increase in
pro forma net tangible book value of $2.56 per share to existing shareholders
and an immediate dilution of $8.47 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............................ $14.00
Net tangible book value per share at September 30, 1997... $ 3.70
Decrease per share attributable to the acquisition of
Castle Rock............................................ (0.50)
Increase per share attributable to the exercise of the
Weis Markets Warrant................................... 0.06
Decrease per share attributable to the Preferred Stock
Conversion............................................. (0.29)
------
Pro forma net tangible book value per share at September
30,
1997................................................... 2.97
Increase to pro forma net tangible book value per share
attributable to this Offering.......................... 2.56
------
Pro forma net tangible book value per share after this
Offering.................................................. 5.53
------
Dilution per share to new shareholders...................... $ 8.47
======
</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, by shareholders receiving
Common Stock in the Preferred Stock Conversion and by purchasers of the shares
offered
13
<PAGE>
hereby, at an assumed Offering price of $14.00 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...... 4,703,440 60.9% $14,931,986 33.5% $ 3.17
Conversion of Preferred.... 1,022,862 13.2 1,702,500 3.8 1.66
New shareholders........... 2,000,000 25.9 28,000,000 62.7 14.00
--------- ----- ----------- -----
7,726,302 100.0% $44,634,486 100.0%
========= ===== =========== =====
</TABLE>
- ------------------
(1) If the Underwriters' over-allotment option is exercised in full, the total
number of shares outstanding after the Offering held by new investors would
increase to 2,610,668 shares, or approximately 31.3% 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 and (ii) 76,254 shares of Common
Stock subscribed for under the Company's Stock Purchase Plan. The exercise and
purchase of the total 1,013,502 shares would result in further dilution of $0.17
per share to new shareholders. See "Management -- Employment Agreements,"
"Management -- Stock Plans," "Certain Transactions" and "Description of Capital
Stock." The above tables also exclude 3,004 shares of common stock held in
treasury.
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 $14.00 per share, the exercise of the Weis Markets Warrant and the
application of the estimated net proceeds therefrom, the Preferred Stock
Conversion and 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; no
shares issued, as adjusted.............. 1,713,750 1,713,750 --
Common Stock, no par value, 100,000,000
shares authorized, 4,423,712 shares
issued; 4,571,263 shares issued pro
forma; 7,726,302 shares issued pro forma
as adjusted (1)......................... -- -- --
Additional paid-in capital................. 12,196,269 14,261,986 42,309,486
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) --
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 46,475,064
----------- ----------- -----------
Total capitalization................. $22,881,814 $29,666,185 $48,211,185
=========== =========== ===========
</TABLE>
- ------------------
(1) Excludes 937,248 shares of Common Stock issuable upon exercise of
outstanding options and warrants and 76,254 shares of Common Stock
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 the 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
dates, or that may be achieved in the future.
<TABLE>
<CAPTION>
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 6,099,395
OTHER OPERATIONS DATA:
EBITDA (2)......................... $1,260,940 $ 1,606,457 $ 2,888,231 $ 4,613,823 $ 7,285,186 $ 7,158,553
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------------------------------------------------------------
PRO FORMA
1993 1994 1995 1996 1997 1997
---------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
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 34,740,069
Notes payable, including current
portion.......................... 2,220,062 2,836,604 2,830,872 1,808,464 4,817,467 9,536,121
Stockholders' 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).
See the Consolidated Statements of Cash Flows of the Company for the amounts
of cash flows from each of investing, financing and operating activities for
fiscal 1995, 1996 and 1997.
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 82% 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. Since 1994, distribution of the Company's products has increased
from 26 states to 49 states. Approximately 80% of the Company's net revenues in
fiscal 1994 were in five states: Pennsylvania, Illinois, Ohio, New York and
Michigan. In fiscal 1997, the same five states accounted for approximately 57%
of the Company's net revenues.
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
18
<PAGE>
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.
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, a weighted average of
40.8% of the Company's net revenues 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. The acquirors of these two customers had
existing relationships with other bottled water suppliers and have maintained
such existing relationships for the combined companies, although the Company is
actively trying to obtain business from them.
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
19
<PAGE>
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.
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 was 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.
20
<PAGE>
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 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 completed in
February 1997, 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.
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
21
<PAGE>
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 production
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 begun to address possible remedial efforts in connection
with computer software that could be affected by the Year 2000 problem. The Year
2000 problem is the result of computer programs being written using two digits
rather than four to define the applicable year. Any programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in a major system failure or
miscalculations. The Company has been informed by the supplier of substantially
all of the Company's software that all of such supplier's software that is used
by the Company is Year 2000 compliant. The software from this supplier is not
used in the Company's manufacturing process but is used in other areas of the
Company's operations such as for financial, sales, warehousing and
administrative purposes. The Company has no internally generated software and,
other than software used in its manufacturing process, obtains a minimal amount
of software from other sources. The Company believes that the software used in
its manufacturing process does not have a Year 2000 problem that would
materially delay production or result in material additional expenditures. After
reasonable investigation, the Company has not yet identified any Year 2000
problem but will continue to monitor the issue. However, there can be no
assurances that Year 2000 problems will not occur with respect to the Company's
computer systems. The Year 2000 problem may impact other entities with which the
Company transacts business, and the Company cannot predict the effect of the
Year 2000 problem on such entities.
The Company has $38.0 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%. The aggregate amount that the Company may borrow under
its credit facilities is limited by financial covenants contained in one of the
credit agreements. These covenants would have limited the Company's borrowings
to approximately $29.1 million at September 30, 1997 (assuming all such credit
facilities were in place as of September 30, 1997). 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. One of the Company's credit
agreements contains a direct prohibition on payment of dividends by the Company.
Two credit agreements require the Company to maintain certain financial ratios
which currently restrict and may restrict in the future the Company's ability to
pay dividends. The terms of these credit agreements require that a ratio of not
greater than 2.0 to 1.0 be maintained for the Company's total liabilities to
stockholders' equity (excluding all intangible assets) determined in accordance
with GAAP as of the end of each fiscal year with respect to one agreement, and
as of the end of each quarter of each fiscal year with respect to the other
agreement.
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. 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 construction 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
22
<PAGE>
source and brand name. Valuing the Common Stock issued to the Castle Rock
shareholders at the assumed Offering price of $14.00, the purchase price for all
of the outstanding common stock of Castle Rock was $3.5 million, subject to
certain post-closing adjustments, consisting of approximately $1.45 million in
cash and approximately $2.07 million in Common Stock. 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 the 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 and the
rights to spring water sites. The Company's objectives for Castle Rock include
increasing sales to certain of the Company's national customers which it
currently does 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 was $1.7 million and the
gross margin was 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 due to 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 and accrued expenses
of $604,003. Capital expenditures totaled $1.7 million in fiscal 1997, primarily
incurred for the purchase of new bottling equipment at Castle Rock's production
facility. Castle Rock financed such capital expenditures through long-term
financing and its line of credit.
23
<PAGE>
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 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 $3.8 million
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 $9.5 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 total debt was $9.5 million, of which the current portion was
$2.6 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.
24
<PAGE>
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 and, as a reporting standard, SFAS No. 130 will have no impact on the
Company's financial position or results of operations.
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.
25
<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, according to Beverage Marketing. Private label products accounted for
approximately 43% 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%.
On October 15, 1997, the Company acquired Castle Rock, a bottler and
distributor of natural spring water products located in northern California.
Castle Rock was first incorporated in California in 1990. Castle Rock has
focused on expanding distribution of its natural spring water products
throughout the western United States. Castle Rock Spring Water comes in a range
of PET bottle sizes, with regular or sport cap, and a one gallon HDPE bottle
size. The Company intends to integrate Castle Rock as part of the Company's
strategy of developing regional production capacity to provide bottled water
products to national and regional customers throughout the United States. See
"Business -- Strategy."
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 as a percentage of gallons sold in the future, according to
Beverage Marketing. 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 82% 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.
26
<PAGE>
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.
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 82% 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 shapes and label 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
27
<PAGE>
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.
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
43% of fiscal 1997 net revenues were derived from its private label business and
approximately 58% 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.
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<PAGE>
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(Registered) Spring
Water and for Gerber Products Company under the name Gerber(Registered) 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 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. In fiscal 1997, sales to Wal-Mart
Stores, Inc. accounted for approximately 10% of Castle Rock's net revenues. As
of September 30, 1997, the Company believes its products were sold in 49 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. In connection with the recent renewal of the lease,
the Company granted to the lessors a ten year option to purchase up to 12,016
shares of the Company's Common Stock at a price of $8.32 per share. The land
abuts state game lands which reduces the risk of
29
<PAGE>
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 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 subsequently sold 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. In
connection with the execution of the agreement with Seven Springs, the Company
granted to Seven Springs a ten year option to purchase up to 45,060 shares of
the Company's Common Stock at a price of $8.32 per share. 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. Pursuant to the agreement with Seven Springs, the
Company has agreed to purchase from Seven Springs all water to be processed,
purchased or sold at the bottling plant being constructed by the Company
adjacent to Ginnie Springs or at any bottling plant within 100 miles of such
bottling plant. However, this purchase requirement will be suspended if the
spring water quality at Ginnie Springs does not meet the guidelines for drinking
water established by the EPA, the FDA or the International Bottled Water
Association ("IBWA"). 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 has begun
construction of the new bottling facility. 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."
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<PAGE>
PRODUCTION
The Company has fully equipped, highly automated state-of-the-art
production facilities in Pennsylvania and California and is constructing 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 a
UV (ultraviolet) 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.
Packaging. The Company's 160,000 square foot Milesburg 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.
Materials required for the production and packaging of the Company's
products include bottles, bottle caps, labels and boxes. The Company maintains a
supply on hand of bottle caps, labels and boxes, which are available from
numerous suppliers, and has agreements with its principal bottle suppliers for
its bottle requirements. The primary raw material used in the manufacture of PET
bottles is PET resin, which is produced by several large companies and is
generally readily available. See "Risk Factors -- Dependence on Key Suppliers."
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 IBWA, an
award which recognizes the Company's commitment to quality and purity.
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<PAGE>
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% 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.
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 is constructing 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 (the
"PTO") for many of the trademarks that it uses, including Pure American, Great
American and AquaPenn. The Company has a registered trademark in the Castle Rock
logo and intends to file an application for registration of the Castle Rock
name. 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. The
Company also has common law proprietary rights in the shapes and label designs
of several of its bottles. The Company has applied for registration in the PTO
of its 20 ounce bottle shape and label design. The combination of the bottle
shape and label design is unique to AquaPenn and helps to provide brand
recognition of the Company's product. Brand recognition is one of several
factors which are important to the Company in maintaining its competitive market
position. The Company's proprietary bottle shapes and label designs are
protected statutorily as well as under the common law which permits the Company
to sue an infringer for money
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<PAGE>
damages and equitable remedies. Upon registration with the PTO of the 20 ounce
bottle shape and label design, the Company will have additional protection
against infringers, including certain statutory presumptions of ownership,
exclusive use and validity of the proprietary mark. The Company's application
for registration of the 20 ounce bottle shape and label design was originally
rejected by the PTO but is now pending following submission of additional
information by the Company to the PTO. Common law trademark protection exists so
long as the Company uses its proprietary bottle shapes and label designs in
commerce. Registered trademark protection is for a period of ten years, which is
renewable so long as the mark is used in commerce. 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 a certified microbiological lab for certified bacteriological analysis,
a summary of which is sent monthly to DEP. 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 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
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.
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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...................... 50 Controller and Assistant Secretary
Calvin J. Wagner, Jr. (1)................. 39 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)...................... 64 Director
Robert E. Poole, Jr. (1).................. 47 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 Weis Markets, Inc. and its subsidiaries sells all of its
shares of Common Stock in this Offering, Weis Markets, Inc. 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 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,
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<PAGE>
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 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.
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<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
COMPENSATION
ANNUAL 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).
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 PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OPTION TERM (1)
OPTIONS IN FISCAL OR BASE PRICE -----------------------
NAME GRANTED YEAR 1997 PER SHARE EXPIRATION DATE 5% 10%
---- ---------- ---------- ------------- --------------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Edward J. Lauth, III........ 30,040 (2) 50% $12.60 9/30/2007 $238,039 $603,238
Geoffrey F. Feidelberg...... 30,040 (3) 50% $12.60 9/30/2007 $238,039 $603,238
</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.
36
<PAGE>
(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.
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 -- $ 683,410 $ --
Geoffrey F. Feidelberg......... 330,440 -- $3,584,656 $ --
</TABLE>
- ------------------
(1) Value determined based on the difference between an assumed fair market
value on September 30, 1997 of $14.00 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
37
<PAGE>
party. The employment agreement contains a non-compete provision which extends
for two years beyond termination of the employment agreement.
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. The period during which
employees must pay for the subscribed shares terminates on January 5, 1998.
38
<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 32.6% 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.
39
<PAGE>
PRINCIPAL SHAREHOLDERS AND SELLING SHAREHOLDERS
The table below sets forth as of December 22, 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 each of the Company's current shareholders who is
offering to sell shares in this Offering.
<TABLE>
<CAPTION>
BENEFICIAL
BENEFICIAL OWNERSHIP (1) 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) 32.6% 1,859,000 8,587 *%
Edward J. Lauth, III........................ 1,249,592(4) 21.6 70,000 1,179,592 14.9
Matthew J. Suhey............................ 361,231(5) 6.1 -- 361,231 4.5
Geoffrey F. Feidelberg...................... 356,876(6) 6.0 -- 356,876 4.4
Nancy Jean Davis............................ 249,615(7) 4.4 -- 249,615 3.2
Calvin J. Wagner, Jr........................ 127,129(8) 2.3 -- 127,129 1.6
Henry S. Shatkin............................ 85,013(9) 1.5 -- 85,013 1.1
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).............................. 4,281,592 65.0% -- 2,352,592 27.4%
OTHER PRINCIPAL AND SELLING SHAREHOLDERS:
Aqua Works, Inc. (14)....................... 1,859,476(14) 40.7% 1,859,000 476 *
Lowell S. Fixler............................ 32,444 * 32,444 -- --
Sandy & Rockoff Urological Assoc............ 27,036 * 27,036 -- --
Lester H. Petnick........................... 27,036 * 14,420 12,616 *
Valassis Enterprises, L.P................... 21,629 * 12,016 9,613 *
Mark S. and Frances Ann Wagner.............. 21,629 * 9,613 12,016 *
Carol L. Barash............................. 27,036 * 9,012 18,024 *
Scottie Pippen.............................. 43,258 * 8,111 35,147 *
John H. Persing, M.D., Inc.................. 27,036 * 7,811 19,225 *
Ronald G. Berman............................ 21,629 * 6,609 15,020 *
Kirk H. Gibson.............................. 21,629 * 6,008 15,621 *
Donald Lord and Myrna Lord.................. 21,629 * 5,408 16,221 *
K.R. Schleiden and Joan E. Schleiden........ 21,629 * 3,629 18,000 *
</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.
40
<PAGE>
(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 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 228,586 shares of Common Stock and warrants for
21,028 shares of Common Stock held by the Nancy Jean Davis
Trust.
(8) Includes 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 69,993 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 34,846 shares of Common Stock held jointly by Mr.
Poole with his spouse.
(11) Includes 36,048 shares of Common Stock held by Adicus, L.P.
Mr. DeFluri is a general partner of Adicus, L.P.
(12) Includes warrants for 9,012 shares of Common Stock, and
11,490 shares of Common Stock and 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.
41
<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 Preferred Stock, par
value $1.00 per share, of which 2,000,000 shares were designated as a series of
convertible preferred stock. Immediately following the completion of this
Offering, the Company estimates that there will be outstanding an aggregate of
7,729,392 shares of Common Stock and no shares of Convertible Preferred 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. 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 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. As of December 31, 1997, all of the holders had
converted or agreed to convert their Convertible Preferred Stock into Common
Stock.
42
<PAGE>
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.
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.
43
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have 7,729,392 shares of
Common Stock issued and outstanding (assuming the Underwriters' over-allotment
option is not exercised). Of these shares, all 4,071,117 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 3,658,275 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
2,960,774 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, 2,813,222
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 949,264 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 December 22, 1997, 106,547 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. Certain 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."
44
<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 Shareholders and
the Representatives (the "Underwriting Agreement"), to purchase from the Company
and the Selling Shareholders, and the Company and the Selling Shareholders 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
OF SHARES
UNDERWRITER ---------
<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 Shareholders 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 610,668
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 Shareholders 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 Shareholders, 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.
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
45
<PAGE>
Shareholders 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.
46
<PAGE>
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 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.
47
<PAGE>
[This page intentionally left blank]
<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 Stockholders' 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-17
Balance Sheet............................................. F-18
Statement of Operations and Retained Earnings (Deficit)... F-19
Statement of Cash Flows................................... F-20
Notes to the Financial Statements......................... F-21
AquaPenn Spring Water Company, Inc. Unaudited Pro Forma
Combined Financial Data
Unaudited Pro Forma Combined Financial Data............... F-29
Pro Forma Combined Balance Sheet.......................... F-30
Pro Forma Combined Statement of Operations................ F-31
Notes to Unaudited Pro Forma Combined Financial Data...... F-32
</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 STOCKHOLDERS' 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.
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
F-7
<PAGE>
AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
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 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.
F-8
<PAGE>
AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(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>
(5) PROPERTY, PLANT, AND EQUIPMENT
Major classifications of these assets are summarized as follows:
<TABLE>
<CAPTION>
ESTIMATED SEPTEMBER 30,
USEFUL 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-9
<PAGE>
AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(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% (6.625% 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.
Based on current payment terms, the required principal reduction of the
above debt is as follows:
<TABLE>
<CAPTION>
YEAR ENDING SEPTEMBER 30, AMOUNT
- ------------------------- ----------
<S> <C>
1998............................................ $ 298,966
1999............................................ 237,000
2000............................................ 313,000
2001............................................ 335,000
2002............................................ 358,000
Thereafter...................................... 3,275,501
----------
$4,817,467
==========
</TABLE>
(7) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------------
1996 1997
---------- ----------
<S> <C> <C>
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
========== ==========
</TABLE>
F-10
<PAGE>
AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(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.
(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:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
------------------------------------------
1995 1996 1997
--------- --------- ----------
<S> <C> <C> <C>
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
========= ========= ==========
</TABLE>
F-11
<PAGE>
AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(10) INCOME TAXES -- CONTINUED
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:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
------------------------------------------
1995 1996 1997
--------- --------- ----------
Computed "expected" tax expense...... $ 270,500 $ 866,000 $1,642,000
<S> <C> <C> <C>
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
========= ========= ==========
</TABLE>
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-12
<PAGE>
AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(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:
<TABLE>
<CAPTION>
YEAR ENDING SEPTEMBER 30, AMOUNT
- ------------------------- --------
<S> <C>
1998.............................................. $110,000
1999.............................................. 63,000
2000.............................................. 41,000
2001.............................................. 15,000
2002.............................................. 16,000
Thereafter........................................ 37,000
--------
$282,000
========
</TABLE>
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) STOCKHOLDERS' 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:
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------------
1996 1997
---------- ----------
<S> <C> <C>
Net income as reported............................. $1,485,000 $2,787,000
Pro forma.................................. 1,104,000 2,247,000
Net income per share as reported................... $ 0.26 $ 0.47
Pro forma.................................. 0.20 0.38
</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.
F-13
<PAGE>
AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(12) STOCKHOLDERS' EQUITY -- CONTINUED
The per share weighted-average fair values of stock options granted during
fiscal years 1996 and 1997 were $4.54 and $6.75, 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>
SEPTEMBER 30, 1995 SEPTEMBER 30, 1996 SEPTEMBER 30, 1997
--------------------- --------------------- ---------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
FISCAL YEAR ENDED: 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 11.17
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 3.87
======= ===== ======= ===== ======= =====
Options exercisable at year-end......... 570,760 1.69 696,928 2.45 832,108 3.87
======= ===== ======= ===== ======= =====
</TABLE>
The following table summarizes information about the Company's stock option
plans as of September 30, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------- -----------------------------
NUMBER WEIGHTED WEIGHTED NUMBER WEIGHTED
RANGE OF OUTSTANDING ON AVERAGE AVERAGE EXERCISABLE ON AVERAGE
EXERCISE SEPTEMBER 30, REMAINING EXERCISE SEPTEMBER 30, EXERCISE
PRICES 1997 CONTRACTUAL 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
8.32-12.60.............. 135,180 10 years 11.17 135,180 11.17
------- -------
$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.
F-14
<PAGE>
AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(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.
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
$1,549,000 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 $4,650,000 in Dunsmuir's liabilities.
Valuing the Common Stock at the assumed initial public offering price of $14.00
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.
F-15
<PAGE>
AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(16) SUBSEQUENT EVENT -- ACQUISITION OF DUNSMUIR BOTTLING COMPANY, INC.
(UNAUDITED) -- CONTINUED
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.
PRO FORMA 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 $1,275,000 $ -- $ 7,769,000
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 $4,373,000 $ 3,787,000 $34,740,000
=========== ========== ============ ===========
Liabilities and Stockholders' Equity:
Current liabilities......................... $ 3,398,000 $2,275,000 $ 1,451,000 (a) $ 7,124,000
Long-term liabilities....................... 4,519,000 2,368,000 -- 6,887,000
Other noncurrent liabilities................ 599,000 -- -- 599,000
Stockholders' equity........................ 18,064,000 (270,000) (100,000)(a) 20,130,000
-- -- 2,436,000 (a) --
----------- ---------- ------------ -----------
$26,580,000 $4,373,000 $ 3,787,000 $34,740,000
=========== ========== ============ ===========
</TABLE>
PRO FORMA 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, and 2) amortization of goodwill.
(c) The net loss of Dunsmuir has been adjusted for an income tax benefit of
Dunsmuir as if its results had been consolidated with AquaPenn's tax
provision.
F-16
<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-17
<PAGE>
DUNSMUIR BOTTLING COMPANY
BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------
<S> <C>
ASSETS
Current Assets:
Cash...................................................... $ 166,764
Accounts receivable....................................... 571,683
Inventories............................................... 426,995
Prepaid expenses.......................................... 109,247
----------
Total current assets................................ 1,274,689
Property, plant, and equipment -- net....................... 3,092,296
Other assets -- net......................................... 6,156
----------
Total assets........................................ $4,373,141
==========
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..................... 1,375,513
----------
Total current liabilities........................... 2,275,311
----------
Long-term debt -- net of current maturities................. 2,283,345
Capital lease obligations -- net of current portion......... 84,799
----------
Total liabilities................................... 4,643,455
----------
Stockholders' Equity (Deficit):
Capital stock............................................. 100,000
Retained earnings (deficit)............................... (370,314)
----------
Total stockholders' equity (deficit)................... (270,314)
----------
Total liabilities and stockholders' equity
(deficit)......................................... $4,373,141
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-18
<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-19
<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................................. (142,678)
Inventories......................................... 27,842
Prepaid expenses and other assets................... (47,204)
Accounts payable and accrued expenses............... 604,003
-----------
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
===========
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-20
<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.
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
F-21
<PAGE>
DUNSMUIR BOTTLING COMPANY
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
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-22
<PAGE>
DUNSMUIR BOTTLING COMPANY
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
(5) LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------
<S> <C>
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-23
<PAGE>
DUNSMUIR BOTTLING COMPANY
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<S> <C>
(5) LONG-TERM DEBT -- CONTINUED
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-24
<PAGE>
DUNSMUIR BOTTLING COMPANY
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<S> <C>
(5) LONG-TERM DEBT -- CONTINUED
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-25
<PAGE>
DUNSMUIR BOTTLING COMPANY
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
(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-26
<PAGE>
DUNSMUIR BOTTLING COMPANY
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
(6) CAPITAL LEASES OBLIGATIONS -- 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).
(8) INCOME TAX PROVISION
The income tax provision consisted of the following:
<TABLE>
<S> <C>
CURRENT EXPENSE
State franchise tax....................................... $ 800
--------
Total income tax provision................................ $ 800
========
</TABLE>
F-27
<PAGE>
DUNSMUIR BOTTLING COMPANY
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
(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.
(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-28
<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-29
<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........................ 3,604,524 571,683 -- 4,176,207
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 1,274,689 -- 7,768,544
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 $4,373,141 $3,786,743 $34,740,069
=========== ========== =========== ===========
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 1,375,513 -- 4,474,084
----------- ---------- ----------- -----------
Total current liabilities..................... 3,397,537 2,275,311 1,450,712 7,123,560
Notes payable..................................... 4,518,501 2,368,144 -- 6,886,645
Deferred income taxes............................. 599,800 -- -- 599,800
----------- ---------- ----------- -----------
Total liabilities............................... 8,515,838 4,643,455 1,450,712 14,610,005
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
4,571,263 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 $4,373,141 $3,786,743 $34,740,069
=========== ========== =========== ===========
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements
F-30
<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> <C> <C> <C> <C>
Revenues:
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, net ............................ 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 6,099,395
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements
F-31
<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 147,551
shares (valued at $14.00 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-32
<PAGE>
Photographs of:
8. Graysville Spring
9. Big Spring
10. Castle Rock Spring
11. Ginnie Springs
12. Krones Bloc rinsing, filling and bottle capping equipment at the Milesburg
facility.
13. Pure American(Registered) Spring Water in 8 ounce, 12 ounce, 16.9 ounce, 20
ounce, 25 ounce, 1 liter and 1.5 liter bottle sizes.
14. Delivery truck for Castle Rock(Trademark) Spring Water products.
<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
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................... 3
Risk Factors............................. 7
Use of Proceeds.......................... 12
Dividend Policy.......................... 12
Dilution................................. 13
Capitalization........................... 15
Selected Consolidated Financial Data..... 16
Management's Discussion and Analysis of
Financial Condition and Results
of Operations.......................... 18
Business................................. 26
Management............................... 34
Certain Transactions..................... 39
Principal Shareholders and Selling
Shareholders........................... 40
Description of Capital Stock............. 42
Shares Eligible for Future Sale.......... 44
Underwriting............................. 45
Legal Matters............................ 46
Experts.................................. 46
Available Information.................... 47
Index to Consolidated Financial
Statements............................. F-1
</TABLE>
------------------------
UNTIL _____________, 1998, 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.
================================================================================
================================================================================
4,071,117 SHARES
[AquaPenn LOGO]
COMMON STOCK
------------------------
PROSPECTUS
------------------------
PAINEWEBBER INCORPORATED
LAZARD FRERES & CO. LLC
PARKER/HUNTER
INCORPORATED
------------------------
, 1998
<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 Shareholders in connection with the
registration of the Common Stock offered hereby, other than underwriting
discounts and commissions:
<TABLE>
<CAPTION>
SELLING
COMPANY SHAREHOLDERS
-------- ------------
<S> <C> <C>
Securities and Exchange Commission fee................. $ 11,137 $ 11,532
NASD filing fee........................................ 3,925 4,065
New York Stock Exchange listing fee.................... 41,561 43,039
Printing and engraving expenses........................ 71,234 73,766
Blue sky fees and expenses............................. 2,456 2,544
Legal fees and expenses................................ 171,945 178,055
Accounting fees and expenses........................... 59,886 62,014
Transfer agent and registrar fees...................... 737 763
Miscellaneous.......................................... 5,572 5,769
-------- --------
Total................................................ $368,453 $381,547
======== ========
</TABLE>
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 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.
II-1
<PAGE>
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.
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.
II-2
<PAGE>
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 $12.60 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 147,551
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.
In December 1997, the Company issued 497 shares of Common Stock at a price
of $5.41 per share to an employee purchasing stock under the 1996 Employee Stock
Purchase Plan.
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**
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- ---------------------
<S> <C>
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.**
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**
10.16(a) Memorandum of Understanding dated October 6, 1993 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**
10.20 Letter Agreement dated November 18, 1996 between CoreStates
Bank, N.A. and the Company**
10.21 6,000,000 Master Demand Note from the Company to CoreStates
Bank, N.A.**
10.22 Letter dated February 12, 1997 from CoreStates Hamilton Bank
to the Company**
10.23 Credit Agreement and related Revolving Credit Note and Line
of Credit Note dated August 29, 1997 between Mid-State Bank
and Trust Company and the Company**
10.24 Credit Agreement among the Company and PNC Bank, National
Association dated as of December 22, 1997 and related
Revolving Line of Credit Note and Reducing Revolving Line of
Credit Note
10.25 Addendum to Lease Agreement dated December 1, 1997 between
the Company and Schmalbach-Lubeca Plastic Containers USA,
Inc.
21 Subsidiaries of the Company**
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Matson and Isom Accountancy Corporation
23.3 Consent of Ballard Spahr Andrews & Ingersoll (included in
Exhibit 5)
23.4 Consent of Beverage Marketing**
23.5 Consent of Information Resources, Inc.**
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
II-4
<PAGE>
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 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-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 3 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in Milesburg,
Pennsylvania, on January 2, 1998.
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.
<TABLE>
<S> <C> <C>
* Chairman, President, Chief
- ----------------------------------- Executive Officer and
Edward J. Lauth, III 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
* Director
- -----------------------------------
James D. Hammond
* Director
- -----------------------------------
Robert E. Poole, Jr.
* Director
- -----------------------------------
Norman S. Rich
* Director
- -----------------------------------
Henry S. Shatkin
* Director
- -----------------------------------
Matthew J. Suhey
* Secretary and Director
- -----------------------------------
Calvin J. Wagner, Jr.
*By: /s/ Geoffrey F. Feidelberg January 2, 1998
------------------------------
Geoffrey F. Feidelberg
pursuant to a power of
attorney previously filed
</TABLE>
II-6
<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.**
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**
10.16(a) Memorandum of Understanding dated October 6, 1993 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**
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
10.19 Letter Agreement dated December 29, 1995 between the Company
and Matthew J. Suhey**
10.20 Letter Agreement dated November 18, 1996 between CoreStates
Bank, N.A. and the Company**
EXHIBIT
NUMBER PAGE
- --------------------- ----
<S> <C> <C>
10.21 6,000,000 Master Demand Note from the Company to CoreStates
Bank, N.A.**
10.22 Letter dated February 12, 1997 from CoreStates Hamilton Bank
to the Company**
10.23 Credit Agreement and related Revolving Credit Note and Line
of Credit Note dated August 29, 1997 between Mid-State Bank
and Trust Company and the Company**
10.24 Credit Agreement among the Company and PNC Bank, National
Association dated as of December 22, 1997 and related
Revolving Line of Credit Note and Reducing Revolving Line of
Credit Note
10.25 Addendum to Lease Agreement dated December 1, 1997 between
the Company and Schmalbach-Lubeca Plastic Containers USA,
Inc.
21 Subsidiaries of the Company**
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Matson and Isom Accountancy Corporation
23.3 Consent of Ballard Spahr Andrews & Ingersoll (included in
Exhibit 5)
23.4 Consent of Beverage Marketing**
23.5 Consent of Information Resources, Inc.**
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
COMMON STOCK COMMON STOCK
NUMBER [VIGNETTE] SHARES
AS
INCORPORATED UNDER THE LAWS THIS CERTIFICATE IS TRANSFERABLE
OF THE IN DENVER, COLORADO OR IN
COMMONWEALTH OF PENNSYLVANIA NEW YORK, NEW YORK
SEE REVERSE SIDE FOR CUSIP 000000 00 0
CERTAIN DEFINITIONS
AQUAPENN SPRING WATER COMPANY, INC.
This Certifies that
is the registered owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, WITHOUT
PAR VALUE, OF AQUAPENN SPRING WATER COMPANY, INC., transferable on the books of
the Corporation by the holder hereof in person or by duly authorized attorney
upon surrender of this certificate properly endorsed. This certificate and the
shares represented hereby are issued and shall be held subject to all the
provisions of the Articles of Incorporation of the Corporation, as amended, to
all of which the holder by acceptance hereof assents. This certificate is not
valid unless countersigned and registered by the Transfer Agent and Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
Dated
COUNTERSIGNED AND REGISTERED:
AMERICAN SECURITIES TRANSFER & TRUST, INC.
P.O. Box 1596
DENVER, COLORADO 80201 PRESIDENT
TRANSFER AGENT
AND REGISTRAR [LOGO]
BY AquaPenn
AUTHORIZED SIGNATURE spring water company SECRETARY/TREASURER
<PAGE>
AQUAPENN SPRING WATER COMPANY, INC.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of survivorship
and not as tenants in common
UNIF GIFT MIN ACT -- __________ Custodian __________
(Cust) (Minor)
under Uniform Gifts to Minors
Act____________________
(State)
Additional abbreviations may also be used though not in the above list.
For value received, ____________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- -------------------------------------------
- -------------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
shares
- -------------------------------------------------------------------------
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint ____________________ Attorney to transfer the
said stock on the books of the within-named Corporation with full power of
substitution in the premises.
Dated, __________ SIGNATURE(S)_______________________________________
----------------------------------------------------------------
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH
THE NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE
WHATEVER.
SIGNATURE(S) GUARANTEED BY
-----------------------------------------------------
THE SIGNATURES MUST BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION, (Banks, Stockbrokers, Savings
and Loan Associations and Credit Unions) WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM PURSUANT TO S.E.C. RULE 17Ad-15.
KEEP THIS CERTIFICATE IN A SAFE PLACE, IF IT IS LOST, STOLEN, MUTILATED OR
DESTROYED, THE CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO
THE ISSUANCE OF A REPLACEMENT CERTIFICATE.
<PAGE>
Exhibit 5
January 2, 1998
AquaPenn Spring Water Company, Inc.
One AquaPenn Drive
Milesburg, Pennsylvania 16853
Re: AquaPenn Spring Water Company, Inc.
Registration Statement on Form S-1
(Registration No. 333-38771)
-----------------------------------
Ladies and Gentlemen:
We have acted as counsel to AquaPenn Spring Water Company, Inc., a
Pennsylvania corporation (the "Company"), in connection with the preparation of
the Registration Statement, as amended to the date hereof, filed on Form S-1
(the "Registration Statement") with the Securities and Exchange Commission (the
"Commission") in connection with the registration under the Securities Act of
1933, as amended, of 4,681,785 shares (including up to 610,668 shares subject to
an over-allotment option granted by the Company to the underwriters) of the
Company's common stock, no par value (the "Shares"), being sold by the Company
and certain selling shareholders.
We are familiar with the proceedings taken and proposed to be taken by
the Company in connection with the proposed authorization, issuance and sale of
the Shares. In this connection, we have examined and relied upon such corporate
records and other documents, instruments and certificates and have made such
other investigation as we deemed appropriate as the basis for the opinion set
forth below. In our examination, we have assumed legal capacity of all natural
persons, the genuineness of all signatures, the authenticity of all documents
submitted to us as originals, the conformity to original documents of documents
submitted to us as certified, conformed or photostatic copies and the
authenticity of such original documents.
<PAGE>
AquaPenn Spring Water Company, Inc.
January 2, 1998
Page 2
The opinion expressed below is based on the assumption that the
Registration Statement will become effective.
Based upon the foregoing, we are of the opinion that when the shares of
common stock to be sold by the Company are issued, delivered and paid for in
accordance with the terms of the Underwriting Agreement, the form of which is
Exhibit 1 to the Registration Statement, and upon satisfaction of all conditions
contained therein, the Shares will be legally issued, fully paid and
nonassessable.
This opinion may be relied upon by you only in connection with the
offering of the Shares and may not be used or relied upon by you or any other
person for any other purpose, without in each instance our prior written
consent.
This opinion is limited to the matters expressly stated herein. No
implied opinion may be inferred to extend this opinion beyond the matters
expressly stated herein. We do not undertake to advise you or anyone else of any
changes in the opinions expressed herein resulting from changes in law, changes
in facts or any other matters that hereafter might occur or be brought to our
attention.
We hereby consent to the filing of this opinion as Exhibit 5 to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the Prospectus forming a part thereof.
Very truly yours,
/s/ Ballard Spahr Andrews & Ingersoll
<PAGE>
EXHIBIT 10.24
$6,000,000 REVOLVING CREDIT FACILITY
$10,000,000 REDUCING REVOLVING CREDIT FACILITY
CREDIT AGREEMENT
by and among
AQUAPENN SPRING WATER COMPANY, INC.
and
PNC BANK, NATIONAL ASSOCIATION
Dated as of December 22, 1997
<PAGE>
TABLE OF CONTENTS
Section Page
- ------- ----
1. CERTAIN DEFINITIONS................................................1
1.1 Certain Definitions...........................................1
1.2 Construction.................................................12
1.2.1 Number; Inclusion......................................12
1.2.2 Determination..........................................12
1.2.3 Bank's Discretion and Consent..........................13
1.2.4 Documents Taken as a Whole.............................13
1.2.5 Headings...............................................13
1.2.6 Implied References to this Agreement...................13
1.2.7 Persons................................................13
1.2.8 Modifications to Documents.............................13
1.2.9 From, To and Through...................................14
1.2.10 Shall: Will............................................14
1.3 Accounting Principles........................................14
2. REVOLVING CREDIT LINE.............................................14
2.1 Revolving Credit Commitment..................................14
2.1.1 Advances................................................14
2.2 Commitment Fees..............................................15
2.3 Revolving Credit Line Requests...............................15
2.3.1 Advance Requests........................................15
2.4 Making Revolving Line Advances...............................16
2.4.1 Making Advances.........................................16
2.5 Revolving Line Note..........................................17
2.6 Extension by Bank of the Revolving Line Expiration Date......17
2.6.1 Requests; Approval by Bank..............................17
2.7 Use of Proceeds..............................................17
i
<PAGE>
3. REDUCING REVOLVING LINE...........................................17
3.1 Reducing Revolving Credit Commitment.........................17
3.1.1 Advances................................................17
3.2 Commitment Fees..............................................18
3.3 Reducing Revolving Credit Line Requests......................19
3.3.1 Advance Requests........................................19
3.4 Making Reducing Revolving Line Advances......................19
3.4.1 Making Advances.........................................19
3.5 Reducing Revolving Line Note.................................20
3.6 Use of Proceeds..............................................20
4. INTEREST RATES....................................................20
4.1 Interest Rate Options........................................20
4.1.1 Revolving Line Interest Rate Options....................20
4.1.2 Reducing Revolving Line Interest Rate Options...........21
4.1.3 Rate Quotations.........................................21
4.1.4 Additional Interest.....................................22
4.1.5 Refund..................................................22
4.2 Interest Periods.............................................22
4.2.1 Ending Date and Business Day............................22
4.2.2 Amount of Borrowing Tranche.............................23
4.2.3 Termination Before Expiration Date......................23
4.2.4 Renewals................................................23
4.3 Interest After Default.......................................23
4.3.1 Interest Rate...........................................23
4.3.2 Acknowledgment..........................................23
4.4 Euro-Rate Unascertainable; Illegality: Increased Costs:
Deposits Not..................................................24
4.4.1 Unascertainable.........................................24
4.4.2 Illegality: Increased Costs: Deposits Not Available.....24
4.4.3 Bank's and Bank's Rights................................24
4.5 Selection of Interest Rate Options...........................25
ii
<PAGE>
5. PAYMENTS..........................................................25
5.1 Payments.....................................................25
5.2 Interest Payment Dates: Maturity of Principal................26
5.2.1 Interest................................................26
5.2.2 Principal Maturity......................................26
5.3 Voluntary Prepayments........................................26
5.3.1 Right to Prepay.........................................26
5.3.2 Change of Lending Office................................27
5.4 Additional Compensation in Certain Circumstances.............28
5.4.1 Increased Costs or Reduced Return Resulting from Taxes,
Reserves, Capital Adequacy Requirements, Expenses. Etc........28
5.4.2 Indemnity...............................................29
5.4.3 Stamp Taxes.............................................29
5.4.4 Indemnification for Taxes Paid by a Bank................30
5.4.5 Survival................................................30
6. REPRESENTATIONS AND WARRANTIES....................................30
6.1 Representations and Warranties...............................30
6.1.1 Organization and Qualification.........................30
6.1.2 Capitalization and Ownership...........................30
6.1.3 Subsidiaries...........................................31
6.1.4 Power and Authority....................................31
6.1.5 Validity and Binding Effect............................31
6.1.6 No Conflict............................................32
6.1.7 Litigation.............................................32
6.1.8 Title to Properties....................................32
6.1.9 Financial Statements...................................33
6.1.10 Use of Proceeds: Margin Stock: Section 20 Subsidiaries.33
6.1.11 Full Disclosure........................................34
6.1.12 Taxes..................................................34
6.1.13 Consents and Approvals.................................35
6.1.14 No Event of Default: Compliance with Instruments.......35
6.1.15 Patents Trademarks. Copyrights. Licenses Etc...........35
6.1.16 Insurance..............................................35
6.1.17 Compliance with Laws...................................36
6.1.18 Material Contracts; Burdensome Restrictions ...........36
6.1.19 Investment Companies. Regulated Entities...............36
6.1.20 Plans and Benefit Arrangements.........................36
6.1.21 Employment Matters.....................................37
6.1.22 Environmental Matters..................................38
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6.1.23 Senior Debt Status.....................................39
6.2 Continuation of Representations..................................39
6.3 Updates to Schedules.............................................39
7. CONDITIONS OF LENDING.............................................39
7.1 First Advances Under Loans...................................40
7.1.1 Officer's Certificate..................................40
7.1.2 Secretary's Certificate................................40
7.1.3 Inter-Creditor Agreement; Other Financing Documents....41
7.1.4 Opinion of Counsel.....................................41
7.1.5 Legal Details..........................................41
7.1.6 Payment of Fees........................................41
7.1.7 Other Loan Documentation Review........................41
7.1.8 Material Consents......................................42
7.1.9 Officer's Certificate Regarding MACs...................42
7.1.10 No Violation of Laws...................................42
7.1.11 No Actions or Proceedings..............................42
7.1.12 Insurance Policies: Certificates of Insurance;
Endorsements...........................................42
7.2 Each Additional Advance......................................43
8. COVENANTS.........................................................43
8.1 Affirmative Covenants........................................43
8.1.1 Preservation of Existence Etc..........................43
8.1.2 Payment of Liabilities Including Taxes Etc.............43
8.1.3 Maintenance of Insurance...............................44
8.1.4 Maintenance of Properties and Leases...................44
8.1.5 Maintenance of Patents, Trademarks. Etc................44
8.1.6 Visitation Rights......................................45
8.1.7 Keeping of Records and Books of Account................45
8.1.8 Plans and Benefit Arrangements.........................45
8.1.9 Compliance with Laws...................................45
8.1.10 Use of Proceeds........................................46
8.1.11 Operating Accounts.....................................46
8.2 Negative Covenants...........................................46
8.2.1 Indebtedness............................................46
8.2.2 Liens...................................................47
8.2.3 Guaranties..............................................47
8.2.4 Loans and Investments...................................47
8.2.5 Dividends and Related Distributions.....................47
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8.2.6 Liquidations, Mergers, Consolidations, Acquisitions....48
8.2.7 Dispositions of Assets or Subsidiaries.................49
8.2.8 Affiliate Transactions.................................49
8.2.9 Subsidiaries. Partnerships and Joint Ventures..........50
8.2.10 Continuation of or Change in Business..................50
8.2.11 Plans and Benefit Arrangements.........................50
8.2.12 Fiscal Year............................................50
8.2.13 Changes in Organizational Documents....................50
8.2.14 Negative Covenants Prohibition.........................51
8.2.15 Minimum EBITDA to Fixed Charge Ratio...................51
8.2.16 Maximum Leverage Ratio.................................51
8.2.17 Minimum EBITDA Ratio...................................51
8.2.18 No Change in Control...................................51
8.3 Reporting Requirements.......................................52
8.3.1 Quarterly Financial Statements..........................52
8.3.2 Annual Financial Statements.............................52
8.3.3 Certificate of the Borrower.............................53
8.3.4 Notice of Default.......................................53
8.3.5 Notice of Litigation....................................53
8.3.6 Budgets. Forecasts. Other Reports and Information.......54
8.3.7 Notices Regarding Plans and Benefit Arrangements........54
9. DEFAULT...........................................................56
9.1 Events of Default............................................56
9.1.1 Payments Under Loan Documents..........................56
9.1.2 Breach of Warranty.....................................56
9.1.3 Breach of Negative Covenants or Visitation Rights......57
9.1.4 Breach of Other Covenants..............................57
9.1.5 Defaults in Other Agreements or Indebtedness...........57
9.1.6 Final Judgments or Orders..............................57
9.1.7 Loan Document Unenforceable............................57
9.1.8 Uninsured Losses: Proceedings Against Assets...........58
9.1.9 Notice of Lien or Assessment...........................58
9.1.10 Insolvency.............................................58
9.1.11 Events Relating to Plans and Benefit Arrangements......58
9.1.12 Cessation of Business..................................59
9.1.13 Change of Control......................................59
9.1.14 Involuntary Proceedings................................59
9.1.15 Voluntary Proceedings..................................60
9.2 Consequences of Event of Default.............................60
9.2.1 Events of Default Other Than Bankruptcy. Insolvency or
Reorganization Proceedings...............................60
9.2.2 Bankruptcy. Insolvency or Reorganization Proceedings....60
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9.2.3 Set-off.................................................61
9.2.4 Suits, Actions, Proceedings.............................61
9.2.5 Application of Proceeds.................................61
9.2.6 Other Rights and Remedies...............................62
10. THE BANK.........................................................62
10.1 Reimbursement and Indemnification of Bank by the Borrower...62
10.2 Exculpatory Provisions: Limitation of Liability.............63
10.3 Reliance by Bank............................................63
10.4 Notice of Default...........................................64
11. MISCELLANEOUS....................................................64
11.1 Modifications. Amendments or Waivers........................64
11.2 No Implied Waivers: Cumulative Remedies; Writing Required...64
11.3 Holidays....................................................64
11.4 Funding by Branch Subsidiary or Affiliate...................65
11.4.1 Notional Funding.......................................65
11.4.2 Actual Funding.........................................65
11.5 Notices: Lending Offices....................................66
11.6 Severability................................................66
11.7 Governing Law...............................................66
11.8 Prior Understandings........................................66
11.9 Duration; Survival..........................................67
11.10 Successors and Assigns.....................................67
11.11 Counterparts...............................................67
11.12 Bank's or Bank's Consent...................................68
11.13 Exceptions.................................................68
11.14 CONSENT TO FORUM...........................................68
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LIST OF SCHEDULES AND EXHIBITS
SCHEDULES
SCHEDULE 1.1 (A) - PRICING GRID
SCHEDULE l.l (B) - NOTICES
SCHEDULE l.l (P) - PERMITTED LIENS
SCHEDULE 6.1.2 - ISSUED AND OUTSTANDING STOCK
SCHEDULE 6.1.3 - SUBSIDIARIES AND AFFILIATES
SCHEDULE 6.1.13 - CONSENTS AND APPROVALS
SCHEDULE 6.1.16 - INSURANCE
SCHEDULE 8.2.1 - PERMITTED INDEBTEDNESS
EXHIBITS
EXHIBIT A - REDUCING REVOLVING LINE NOTE
EXHIBIT B - REVOLVING LINE NOTE
EXHIBIT C - LOAN REQUEST
EXHIBIT D - REDUCING LINE LOAN REQUEST
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CREDIT AGREEMENT
THIS CREDIT AGREEMENT is dated as of December 22, 1997 and is made by and
between AQUAPENN SPRING WATER COMPANY, INC., a corporation, (the "Borrower"),
and PNC BANK, NATIONAL ASSOCIATION (the "Bank").
WITNESSETH:
WHEREAS, the Borrower has requested the Bank to provide to the Borrower (i)
a revolving credit facility in an aggregate principal amount not to exceed
$6,000,000 (the "Revolving Line") and (ii) a reducing revolving credit facility
in an initial aggregate principal amount not to exceed $10,000,000 (the
"Reducing Revolving Line") (the Revolving Line and the Reducing Revolving Line
are herein sometimes referred to individually as a "Loan" and jointly as the
"Loans"); and
WHEREAS, the Revolving Line shall be used for working capital and general
corporate financing needs of the Borrower and the Reducing Revolving Line will
be used for general corporate financing purposes, including, without limitation,
planned capital projects, general capital expenditures and acquisitions; and
WHEREAS, the Bank is willing to provide such credit upon the terms and
conditions hereinafter set forth;
NOW, THEREFORE, the parties hereto, in consideration of their mutual
covenants and agreements hereinafter set forth and intending to be legally bound
hereby, covenant and agree as follows:
1. CERTAIN DEFINITIONS
1.1 Certain Definitions.
In addition to words and terms defined elsewhere in this Agreement, the
following words and terms shall have the following meanings, respectively,
unless the context hereof clearly requires otherwise:
Affiliate as to any Person shall mean any other Person (i) which directly
or indirectly controls, is controlled by, or is under common control with such
Person, (ii) which beneficially owns or holds 10% or more of any class of the
voting or other equity interests of such Person, or
<PAGE>
(iii) 10% or more of any class of voting interests or other equity interests of
which is beneficially owned or held, directly or indirectly, by such Person.
Control, as used in this definition, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of a Person, whether through the ownership of voting securities, by
contract or otherwise, including the power to elect a majority of the directors
or trustees of a corporation or trust, as the case may be.
Bank shall mean PNC Bank, National Association, and its successors and
assigns.
Agreement shall mean this Credit Agreement, as the same may be supplemented
or amended from time to time, including all schedules and exhibits.
Applicable Reducing Revolving Line Commitment Fee Rate shall mean the
percentage rate per annum at the indicated EBITDA Ratio (measured as of the end
of the Borrower's most recently ended fiscal quarter) in the pricing grid on
Schedule 1.1(A) below the heading "Commitment Fee." The Applicable Reducing
Revolving Line Commitment Fee Rate shall be computed in accordance with the
parameters set forth on Schedule 1.1(A).
Applicable Margin shall mean, as applicable:
(A) the applicable percentage spread to be added to Base Rate under the
Base Rate Option at the indicated EBITDA Ratio (measured as of the end of the
Borrower's most recently ended fiscal quarter) in the pricing grid on Schedule
1.1(A) below the heading "Base Rate Spread," or
(B) the percentage spread to be added to Euro-Rate under the EuroRate
Option at the indicated EBITDA Ratio (measured as of the end of the Borrower's
most recently ended fiscal quarter) in the pricing grid on Schedule 1.1(A)
below the heading "EuroRate Spread."
The Applicable Margin on the Loans shall be computed in accordance with the
parameters set forth on Schedule 1.1(A), provided, that any changes in the
Applicable Margin shall become effective from the fifth day after the Bank shall
have received the Applicable Margin Certificate in respect of such fiscal
quarter. In the event that the Applicable Margin Certificate required pursuant
to subsection 8.3.7.4 for any fiscal quarter is not timely delivered, then the
Applicable Margin Percentage shall be determined by reference to Level VI on the
pricing grid, commencing as of the date such certificate was required to be
delivered until the delivery of such certificate. In the event that the actual
EBITDA Ratio referred to in the pricing grid is subsequently determined to be
different than as shown on the Applicable Margin Certificate for any fiscal
quarter, the interest rate that was based on such Applicable Margin Certificate
shall be recalculated for the applicable period based on such actual EBITDA
Ratio.
Applicable Margin Certificate shall have the meaning set forth in Section
8.3.7.4.
Authorized Officer shall mean those individuals, designated by written
notice to the Bank from the Borrower, authorized to execute notices, reports and
other documents on behalf of
2
<PAGE>
the Borrower required hereunder. The Borrower may amend such list of individuals
from time to time by giving written notice of such amendment to the Bank.
Base Rate shall mean the greater of (i) the interest rate per annum
announced from time to time by the Bank at its Principal Office as its then
prime rate, which rate may not be the lowest rate then being charged commercial
borrowers by the Bank, or (ii) the Federal Funds Effective Rate plus .5% per
annum.
Base Rate Option shall mean the option of the Borrower to have the Loans,
or either of them, bear interest at the rate and under the terms and conditions
set forth in Section 4.1.1(i).
Benefit Arrangement shall mean at any time an "employee benefit plan,"
within the meaning of Section 3(3) of ERISA, which is neither a Plan nor a
Multiemployer Plan and which is maintained, sponsored or otherwise contributed
to by any member of the ERISA Group.
Borrowing Date shall mean, with respect to any Loan, the date for the
making thereof or the renewal or conversion thereof at or to the same or a
different Interest Rate Option, which shall be a Business Day.
Borrowing Tranche shall mean specified portions or advances of Loans
outstanding as follows: (i) all advances under the Loans to which a Euro-Rate
Option applies which become subject to the same Interest Rate Option under the
same Loan Request by the Borrower and which have the same Interest Period shall
constitute one Borrowing Tranche, (ii) all advances under the Loans to which a
Base Rate Option applies shall constitute one Borrowing Tranche and (iii) all
advances under the Revolving Line to which an Offered Rate Option applies under
the same Loan Request and which have the same Interest Period shall constitute
one Borrowing Tranche.
Business Day shall mean any day other than a Saturday or Sunday or a legal
holiday on which commercial banks are authorized or required to be closed for
business in Pittsburgh, Pennsylvania; and if the applicable Business Day relates
to any Loan to which the Euro-Rate Option applies, such day must also be a day
on which dealings are carried on in the London interbank market
Closing Date shall mean the Business Day on which the first advance under
the Loans shall be made, which shall be December __, 1997 or, if all the
conditions specified in Article 7 have not been satisfied or waived by such
date, not later than January 15, 1997, as designated by the Borrower by at least
3 Business Days' advance notice to the Bank at its Principal Office, or such
other date as the parties agree. The closing shall take place at such time and
place as may be mutually acceptable to the parties hereto.
Consideration shall mean with respect to any Permitted Acquisition, the
aggregate of (i) the cash paid by the Borrower, directly or indirectly, to the
seller in connection therewith, (ii) the Indebtedness incurred or assumed by the
Borrower, whether in favor of the seller or otherwise and whether fixed or
contingent, (iii) any Guaranty given or incurred by Borrower in connection
3
<PAGE>
therewith, and (iv) any other consideration given or obligation incurred by the
Borrower in connection therewith.
Consolidated Total Indebtedness shall mean as of any date of determination
all Indebtedness, as defined below in this Section 1.1, of the Borrower and its
Subsidiaries as of such date determined and consolidated in accordance with
GAAP.
Consolidated Tangible Net Worth shall mean as of any date of determination
total stockholders' equity less intangible assets of the Borrower and its
Subsidiaries as of such date determined and consolidated in accordance with
GAAP.
Dollar, Dollars, U.S. Dollars and the symbol $ shall mean lawful money of
the United States of America.
EBITDA shall mean for any period of determination Borrower's consolidated
net income (before extraordinary items) plus income tax expense, interest
expense, depreciation and amortization expense, all determined in accordance
with GAAP.
EBITDA Ratio shall mean as of any date of determination the ratio of
Borrower's (i) Consolidated Total Indebtedness as of such date to (ii) the sum
of EBITDA as of the end of each of Borrower's four (4) fiscal year quarters
immediately preceding the date of determination.
Environmental Complaint shall mean any written complaint setting forth a
cause of action for personal or property damage or natural resource damage or
equitable relief, order, notice of violation, citation, request for information
issued pursuant to any Environmental Laws by an Official Body, subpoena or other
written notice of any type relating to, arising out of, or issued pursuant to,
any of the Environmental Laws or any Environmental Conditions, as the case may
be.
Environmental Conditions shall mean any conditions of the environment,
including the workplace, the ocean, natural resources (including flora or
fauna), soil, surface water, groundwater, any actual or potential drinking water
supply sources, substrata or the ambient air, relating to or arising out of, or
caused by, the use, handling, storage, treatment, recycling, generation,
transportation, release, spilling, leaking, pumping, emptying, discharging,
injecting, escaping, leaching, disposal, dumping, threatened release or other
management or mismanagement of Regulated Substances resulting from the use of,
or operations on, any Property.
Environmental Laws shall mean all federal, state, local and foreign Laws
and regulations, including permits, licenses, authorizations, bonds, orders,
judgments, and consent decrees issued, or entered into, pursuant thereto,
relating to pollution or protection of human health or the environment or
employee safety in the workplace.
4
<PAGE>
ERISA shall mean the Employee Retirement Income Security Act of 1974, as
the same may be amended or supplemented from time to time, and any successor
statute of similar import, and the rules and regulations thereunder, as from
time to time in effect.
ERISA Group shall mean, at any time, the Borrower and all members of a
controlled group of corporations and all trades or businesses (whether or not
incorporated) under common control and all other entities which, together with
the Borrower, are treated as a single employer under Section 414 of the Internal
Revenue Code.
Euro-Rate shall mean, with respect to Loans comprising any Borrowing
Tranche to which the Euro-Rate Option applies for any Interest Period, the
interest rate per annum determined by the Bank by dividing (the resulting
quotient rounded upward to the nearest 1/100th of 1% per annum) (i) the rate of
interest determined by the Bank in accordance with its usual procedures (which
determination shall be conclusive absent manifest error) to be the average of
the London interbank offered rates of interest per annum for U.S. Dollars set
forth on Telerate display page 3750 or such other display page on the Telerate
System as may replace such page to evidence the average of rates quoted by banks
designated by the British Bankers' Association (or appropriate successor or, if
the British Bankers' Association or its successor ceases to provide such quotes,
a comparable replacement determined by the Bank) two (2) Business Days prior to
the first day of such Interest Period for an amount comparable to such Borrowing
Tranche and having a borrowing date and a maturity comparable to such Interest
Period by (ii) a number equal to 1.00 minus the Euro-Rate Reserve Percentage.
Euro-Rate may also be expressed by the following formula:
Telerate page 3750 quoted by British Bankers'
Euro-Rate = Association or appropriate successor
------------------------------------
1.00 - Euro-Rate Reserve Percentage
The Euro-Rate shall be adjusted with respect to any Euro-Rate Option outstanding
on the effective date of any change in the Euro-Rate Reserve Percentage as of
such effective date. The Bank shall give prompt notice to the Borrower of the
Euro-Rate as determined or adjusted in accordance herewith. which determination
shall be conclusive absent manifest error.
Euro-Rate Option shall mean the option of the Borrower to have Loans bear
interest at a Euro-Rate under the terms and conditions set forth in Section
4.1.1(ii) and Section 4.1.2(ii).
Euro-Rate Reserve Percentage shall mean the maximum percentage (expressed
as a decimal rounded upward to the nearest 1/100 of 1%) as determined by the
Bank which is in effect during any relevant period as prescribed by the Board of
Governors of the Federal Reserve System (or any successor) for determining the
reserve requirements (including supplemental, marginal and emergency reserve
requirements) with respect to eurocurrency funding (currently referred to as
"Eurocurrency Liabilities") of a member bank in such System.
Event of Default shall mean any of the events described in Section 9.1 and
referred to therein as an "Event of Default."
5
<PAGE>
Federal Funds Effective Rate for any day shall mean the rate per annum
(based on a year of 360 days and actual days elapsed and rounded upward to the
nearest 1/100 of 1%) announced by the Federal Reserve Bank of New York (or any
successor) on such day as being the weighted average of the rates on overnight
federal funds transactions arranged by federal funds brokers on the previous
trading day, as computed and announced by such Federal Reserve Bank (or any
successor) in substantially the same manner as such Federal Reserve Bank
computes and announces the weighted average it refers to as the "Federal Funds
Effective Rate" as of the date of this Agreement; provided, if such Federal
Reserve Bank (or its successor) does not announce such rate on any day, the
"Federal Funds Effective Rate" for such day shall be the Federal Funds Effective
Rate for the last day on which such rate was announced.
Fixed Charges shall mean for any period of determination the sum of
interest expense, income taxes, scheduled principal installments on Indebtedness
(as adjusted for prepayments) and payments under capitalized leases, in each
case of the Borrower and its Subsidiaries for such period determined and
consolidated in accordance with GAAP.
GAAP shall mean generally accepted accounting principles as are in effect
in the United States from time to time, subject to the provisions of Section
1.3, and applied on a consistent basis both as to classification of items and
amounts.
Guaranty of any Person shall mean any obligation of such Person
guaranteeing or in effect guaranteeing any liability or obligation of any other
Person in any manner, whether directly or indirectly, including any agreement to
indemnify or hold harmless any other Person, any performance bond or other
suretyship arrangement and any other form of assurance against loss, except
endorsement of negotiable or other instruments for deposit or collection in the
ordinary course of business.
Indebtedness shall mean, as to any Person at any time, any and all
indebtedness, obligations or liabilities (whether matured or unmatured,
liquidated or unliquidated, direct or indirect, absolute or contingent, or joint
or several) of such Person for or in respect of: (i) borrowed money, (ii)
amounts raised under or liabilities in respect of any note purchase or
acceptance credit facility, (iii) reimbursement obligations (contingent or
otherwise) under any letter of credit, currency swap agreement, interest rate
swap, cap, collar or floor agreement or other interest rate management device,
(iv) any other transaction (including forward sale or purchase agreements,
capitalized leases and conditional sales agreements) having the commercial
effect of a borrowing of money entered into by such Person to finance its
operations or capital requirements (but not including trade payables and accrued
expenses incurred in the ordinary course of business which are not represented
by a promissory note or other evidence of indebtedness and which are not more
than thirty (30) days past due), or (v) any Guaranty of Indebtedness for
borrowed money.
Ineligible Security shall mean any security which may not be underwritten
or dealt in by member bank of the Federal Reserve System under Section 16 of the
Banking Act of 1933 (12 U.S.C. Section 24, Seventh), as amended.
6
<PAGE>
Insolvency Proceeding shall mean, with respect to any Person, (a) a case,
action or proceeding with respect to such Person (i) before any court or any
other Official Body under any bankruptcy, insolvency, reorganization or other
similar Law now or hereafter in effect, or (ii) for the appointment of a
receiver, liquidator, assignee, custodian, trustee, sequestrator, conservator
(or similar official) of any Borrower or otherwise relating to the liquidation,
dissolution, winding-up or relief of such Person, or (b) any general assignment
for the benefit of creditors, composition, marshaling of assets for creditors,
or other, similar arrangement in respect of such Person's creditors generally or
any substantial portion of its creditors undertaken under any Law.
Inter-Creditor Agreement shall mean that Inter-Creditor Agreement between
Mid-State Bank and Trust Company and Bank required under Section 7.1.3 hereof.
Interest Rate Option shall mean (i) with respect to the Revolving Line, any
Euro-Rate Option, Offered Rate Option or Base Rate Option and (ii) with respect
to the Reducing Revolving Line, any Euro-Rate Option or Base Rate Option.
Internal Revenue Code shall mean the Internal Revenue Code of 1986, as the
same may be amended or supplemented from time to time, and any successor statute
of similar import, and the rules and regulations thereunder, as from time to
time in effect.
Labor Contracts shall mean all employment agreements, employment contracts,
collective bargaining agreements and other agreements among any Borrower or
Subsidiary of a Borrower and its employees.
Law shall mean any law (including common law), constitution, statute,
treaty, regulation, rule, ordinance, opinion, release, ruling, order,
injunction, writ, decree or award of any Official Body.
Lien shall mean any mortgage, deed of trust, pledge, lien, security
interest, charge or other encumbrance or security arrangement of any nature
whatsoever, whether voluntarily or involuntarily given, including any
conditional sale or title retention arrangement, and any assignment, deposit
arrangement or lease intended as, or having the effect of, security and any
filed financing statement or other notice of any of the foregoing (whether or
not a lien or other encumbrance is created or exists at the time of the filing).
Loan Documents shall mean this Agreement, the Notes, the Inter-Creditor
Agreement and any other instruments, certificates or documents delivered or
contemplated to be delivered hereunder or thereunder or in connection herewith
or therewith, as the same may be supplemented or amended from time to time in
accordance herewith or therewith, and Loan Document shall mean any of the Loan
Documents.
Material Adverse Change shall mean any set of circumstances or events which
(a) has or could reasonably be expected to have any material adverse effect
whatsoever upon the validity or enforceability of this Agreement or any other
Loan Document, (b) is or could reasonably be
7
<PAGE>
expected to be material and adverse to the business, properties, assets,
financial condition, results of operations or prospects of the Borrower taken as
a whole, (c) impairs materially or could reasonably be expected to impair
materially the ability of the Borrower taken as a whole to duly and punctually
pay or perform its Indebtedness, or (d) impairs materially or could reasonably
be expected to impair materially the ability of the Bank, to the extent
permitted, to enforce its legal remedies pursuant to this Agreement or any other
Loan Document.
Month, with respect to an Interest Period under the Euro-Rate Option or the
Offered Rate Option, shall mean the interval between the days in consecutive
calendar months numerically corresponding to the first day of such Interest
Period. If any Euro-Rate Interest Period or Offered Rate Interest Period begins
on a day of a calendar month for which there is no numerically corresponding day
in the month in which such Interest Period is to end, the final month of such
Interest Period shall be deemed to end on the last Business Day of such final
month.
Multiemployer Plan shall mean any employee benefit plan which is a
"multiemployer plan" within the meaning of Section 4001(a)(3) of ERISA and to
which the Borrower or any member of the ERISA Group is then making or accruing
an obligation to make contributions or, within the preceding five Plan years,
has made or had an obligation to make such contributions.
Multiple Employer Plan shall mean a Plan which has two or more contributing
sponsors (including the Borrower or any member of the ERISA Group) at least two
of whom are not under common control, as such a plan is described in Sections
4063 and 4064 of ERISA.
Notes shall mean the Revolving Line Note and the Reducing Revolving Line
Note.
Obligation shall mean any obligation or liability of the Borrower to the
Bank, howsoever created, arising or evidenced, whether direct or indirect,
absolute or contingent, now or hereafter existing, or due or to become due,
under or in connection with this Agreement, the Notes, or any other Loan
Document.
Offered Rate shall mean the rate of interest offered by Bank for a stated
Offered Rate Interest Period in its sole discretion in connection with a
Borrowing Tranche.
Offered Rate Option shall mean the option of Borrower to have interest
accrue on a Borrowing Tranche under the Revolving Line at an Offered Rate
pursuant to Section 4.1.1 (iii) hereof.
Official Body shall mean any national, federal, state, local or other
government or political subdivision or any agency, authority, bureau, central
bank, commission, department or instrumentality of either, or any court,
tribunal, grand jury or arbitrator, in each case whether foreign or domestic.
PBGC shall mean the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA or any successor.
8
<PAGE>
Permitted Investments shall mean:
(i) direct obligations of the United States of America or any agency or
instrumentality thereof or obligations backed by the full faith and credit of
the United States of America maturing in twelve (12) months or less from the
date of acquisition;
(ii) commercial paper maturing in 180 days or less rated not lower than A-1
by Standard & Poor's or P-1 by Moody's Investor Service on the date of
acquisition; and
(iii) demand deposits, time deposits or certificates of deposit maturing
within one year in commercial Bank whose obligations are rated A-l, A or the
equivalent or better by Standard & Poor's on the date of acquisition.
Permitted Liens shall mean:
(i) Liens for taxes, assessments, or similar charges, incurred in the
ordinary course of business and which are not yet due and payable;
(ii) Pledges or deposits made in the ordinary course of business to secure
payment of workmen's compensation, or to participate in any fund in connection
with workmen's compensation, unemployment insurance, old-age pensions or other
social security programs;
(iii) Liens of mechanics, materialmen, warehousemen, carriers, or other
like Liens, securing obligations incurred in the ordinary course of business
that are not yet due and payable and Liens of landlords securing obligations to
pay lease payments that are not yet due and payable or in default;
(iv) Good-faith pledges or deposits made in the ordinary course of business
to secure performance of bids, tenders, contracts (other than for the repayment
of borrowed money) or leases, not in excess of the aggregate amount due
thereunder, or to secure statutory obligations, or surety, appeal, indemnity,
performance or other similar bonds required in the ordinary course of business;
(v) Encumbrances consisting of zoning restrictions, easements or other
restrictions on the use of real property, none of which materially impairs the
use of such property or the value thereof, and none of which is violated in any
material respect by existing or proposed structures or land use;
(vi) Liens, security interests and mortgages in favor of the Bank for the
benefit of the Bank;
(vii) Liens on property leased by the Borrower under capital and operating
leases permitted in Section 8.2.1 (iii) securing obligations of Borrower to the
lessor under such leases;
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(viii) Any Lien existing on the date of this Agreement and described on
Schedule 1.1(P), provided that the principal amount secured thereby is not
hereafter increased, and no additional assets become subject to such Lien;
(ix) Purchase Money Security Interests permitted under Section 8.2.1 (iii)
hereof; and
(x) The following, (A) if the validity or amount thereof is being contested
in good faith by appropriate and lawful proceedings diligently conducted so long
as levy and execution thereon have been stayed and continue to be stayed or (B)
if a final judgment is entered and such judgment is discharged within thirty
(30) days of entry, and they do not, in the aggregate materially impair the
ability of any Borrower to perform its Obligations hereunder or under the other
Loan Documents:
(1) Claims or Liens for taxes, assessments or charges due and payable
and subject to interest or penalty, provided that Borrower maintains such
reserves or other appropriate provisions as shall be required by GAAP and pays
all such taxes, assessments or charges forthwith upon the commencement of
proceedings to foreclose any such Lien;
(2) Claims, Liens or encumbrances upon, and defects of title to, real or
personal property, including any attachment of personal or real property or
other legal process prior to adjudication of a dispute on the merits; or
(3) Claims or Liens of mechanics, materialmen, warehousemen, carriers,
or other statutory nonconsensual Liens.
(4) Liens resulting from final judgments or orders described in Section
9.1.6.
Person shall mean any individual, corporation, partnership, limited
liability company, association, joint-stock company, trust, unincorporated
organization, joint venture, government or political subdivision or agency
thereof, or any other entity;
Plan shall mean at any time an employee pension benefit plan (including a
Multiple Employer Plan, but not a Multiemployer Plan) which is covered by Title
IV of ERISA or is subject to the minimum funding standards under Section 412 of
the Internal Revenue Code and either (i) is maintained by any member of the
ERISA Group for employees of any member of the ERISA Group or (ii) has at any
time within the preceding five years been maintained by any entity which was at
such time a member of the ERISA Group for employees of any entity which was at
such time a member of the ERISA Group.
Potential Default shall mean any event or condition which with notice,
passage of time or a determination by the Bank, or any combination of the
foregoing, would constitute an Event of Default.
Principal Office shall mean the main banking office of the Bank in
Pittsburgh, Pennsylvania.
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Prohibited Transaction shall mean any prohibited transaction as defined in
Section 4975 of the Internal Revenue Code or Section 406 of ERISA for which
neither an individual nor a class exemption has been issued by the United States
Department of Labor.
Property shall mean all real property, both owned and leased, of the
Borrower or it Subsidiaries.
Purchase Money Security Interest shall mean Liens upon tangible personal
property securing loans to any Borrower or Subsidiary of a Borrower or deferred
payments by such Borrower or Subsidiary for the purchase of such tangible
personal property.
Regulated Substances shall mean any substance, including any solid, liquid,
semisolid, gaseous, thermal, thoriated or radioactive material, refuse, garbage,
wastes, chemicals, petroleum products, by-products, coproducts, impurities,
dust, scrap, heavy metals, defined as a "hazardous substance," "pollutant,"
"pollution," "contaminant," "hazardous or toxic substance," "extremely hazardous
substance," "toxic chemical," "toxic waste," "hazardous waste," "industrial
waste," "residual waste," "solid waste," "municipal waste," "mixed waste,"
"infectious waste," "chemotherapeutic waste," "medical waste," or "regulated
substance" or any related materials, substances or wastes as now or hereafter
defined pursuant to any Environmental Laws, ordinances, rules, regulations or
other directives of any Official Body, the generation, manufacture, extraction,
processing, distribution, treatment, storage, disposal, transport, recycling,
reclamation, use, reuse, spilling, leaking, dumping, injection, pumping,
leaching, emptying, discharge, escape, release or other management or
mismanagement of which is regulated by the Environmental Laws.
Regulation U shall mean Regulation U.T.G or X as promulgated by the Board
of Governors of the Federal Reserve System, as amended from time to time.
Reportable Event shall mean a reportable event described in Section 4043 of
ERISA and regulations thereunder with respect to a Plan or Multiemployer Plan.
Revolving Line Expiration Date shall mean November 30, 1998, unless
extended by Bank in accordance with the provisions of Section 2.6 hereof.
Reducing Revolving Line Expiration Date shall mean November 30, 2002.
Reducing Revolving Line Note shall mean that Line of Credit Note of
Borrower to Bank in the stated principal amount of the Reducing Revolving Line
in substantially the form attached hereto as Exhibit A, together with all
amendments, extensions, renewals, replacements, refinancings or refundings
thereof in whole or in part.
Revolving Line Note shall mean that Line of Credit Note of Borrower to Bank
in the stated principal amount of the Revolving Line in substantially the form
attached hereto as
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Exhibit B, together with all amendments, extensions, renewals, replacements,
refinancings or refundings thereof in whole or in part.
Section 20 Subsidiary shall mean the Subsidiary of the bank holding company
controlling Bank, which Subsidiary has been granted authority by the Federal
Reserve Board to underwrite and deal in certain Ineligible Securities.
Subsidiary of any Person at any time shall mean (i) any corporation or
trust of which 50% or more (by number of shares or number of votes) of the
outstanding capital stock or shares of beneficial interest normally entitled to
vote for the election of one or more directors or trustees (regardless of any
contingency which does or may suspend or dilute the voting rights) is at such
time owned directly or indirectly by such Person or one or more of such Person's
Subsidiaries, (ii) any partnership of which such Person is a general partner or
of which 50% or more of the partnership interests is at the time directly or
indirectly owned by such Person or one or more of such Person's Subsidiaries,
(iii) any limited liability company of which such Person is a member or of which
50% or more of the limited liability company interests is at the time directly
or indirectly owned by such Person or one or more of such Person's Subsidiaries
or (iv) any corporation, trust, partnership, limited liability company or other
entity which is controlled or capable of being controlled by such Person or one
or more of such Person's Subsidiaries.
1.2 Construction.
Unless the context of this Agreement otherwise clearly requires, the
following rules of construction shall apply to this Agreement and each of the
other Loan Documents:
1.2.1 Number; Inclusion.
References to the plural include the singular, the plural, the part and
the whole; "or" has the inclusive meaning represented by the phrase
"and/or," and "including" has the meaning represented by the phrase "including
without limitation";
1.2.2 Determination.
References to "determination" of or by the Bank shall be deemed to
include good-faith estimates by the Bank (in the case of quantitative
determinations) and good faith beliefs by the Bank (in the case of qualitative
determinations) and such determination shall be conclusive absent manifest
error;
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1.2.3 Bank's Discretion and Consent.
Whenever the Bank is granted the right herein to act in its sole
discretion or to grant or withhold consent such right shall be exercised in good
faith;
1.2.4 Documents Taken as a Whole.
The words "hereof," "herein," "hereunder," "hereto" and similar terms in
this Agreement or any other Loan Document refer to this Agreement or such other
Loan Document as a whole and not to any particular provision of this Agreement
or such other Loan Document;
1.2.5 Headings.
The section and other headings contained in this Agreement or such other
Loan Document and the Table of Contents (if any), preceding this Agreement or
such other Loan Document are for reference purposes only and shall not control
or affect the construction of this Agreement or such other Loan Document or the
interpretation thereof in any respect;
1.2.6 Implied References to this Agreement.
Article, section, subsection, clause, schedule and exhibit references
are to this Agreement or other Loan Document, as the case may be, unless
otherwise specified;
1.2.7 Persons.
Reference to any Person includes such Person's successors and assigns
but, if applicable, only if such successors and assigns are permitted by this
Agreement or such other Loan Document, as the case may be, and reference to a
Person in a particular capacity excludes such Person in any other capacity;
1.2.8 Modifications to Documents.
Reference to any agreement (including this Agreement and any other Loan
Document together with the schedules and exhibits hereto or thereto), document
or instrument means such agreement, document or instrument as amended, modified,
replaced, substituted for, superseded or restated;
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1.2.9 From, To and Through.
Relative to the determination of any period of time, "from" means "from
and including," "to" means "to but excluding," and "through" means "through and
including"; and
1.2.10 Shall; Will.
References to "shall" and "will" are intended to have the same meaning.
1.3 Accounting Principles.
Except as otherwise provided in this Agreement, all computations and
determinations as to accounting or financial matters and all financial
statements to be delivered pursuant to this Agreement shall be made and prepared
in accordance with GAAP (including principles of consolidation where
appropriate), and all accounting or financial terms shall have the meanings
ascribed to such terms by GAAP; provided, however, that all accounting terms
used in Section 8.2 (and all defined terms used in the definition of any
accounting term used in Section 8.2) shall have the meaning given to such terms
(and defined terms) under GAAP as in effect on the date hereof applied on a
basis consistent with those used in preparing the Annual Statements referred to
in Section 6.1.9 (i). In the event of any change after the date hereof in GAAP,
and if such change would result in the inability to determine compliance with
the financial covenants set forth in Section 8.2 based upon the Borrower's
regularly prepared financial statements by reason of the preceding sentence,
then the parties hereto agree to endeavor, in good faith, to agree upon an
amendment to this Agreement that would adjust such financial covenants in a
manner that would not affect the substance thereof, but would allow compliance
therewith to be determined in accordance with the Borrower's financial
statements at that time.
2. REVOLVING CREDIT LINE
2.1 Revolving Credit Commitment.
2.1.1 Advances.
Subject to the terms and conditions hereof and relying upon the
representations and warranties herein set forth, the Bank agrees to make
advances under the Revolving Credit Line (collectively, the "Revolving Line
Advances" and individually, each a "Revolving Line Advance") to the Borrower at
any time or from time to time on or after the date hereof to the Revolving Line
Expiration Date, provided that after giving effect to any such Loan the
aggregate amount of outstanding Revolving Line Advances from such Bank shall not
exceed $6,000,000
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(the "Revolving Line Limit"). Within such limits of time and amount and subject
to the other provisions of this Agreement, the Borrower may borrow, repay and
reborrow pursuant to this Section 2.1.
The Bank shall have no obligation to make Revolving Line Advances
hereunder on or after the Revolving Line Expiration Date. Further,
notwithstanding anything herein to the contrary, in no event may any Revolving
Line Advance be made that would cause such advance, together with all other then
outstanding Borrowing Tranches under the Loans (including all Interest Rate
Options) to exceed five (5) in number (the "Borrowing Tranche Limit").
2.2 Commitment Fees.
There shall be no commitment fee associated with the Revolving Line.
2.3 Revolving Credit Line Requests.
2.3.1 Advance Requests.
Except as otherwise provided herein, the Borrower may from time to time
prior to the Revolving Line Expiration Date request the Bank to make Revolving
Line Advances, or renew or convert the Interest Rate Option applicable to
existing Revolving Line Borrowing Tranches pursuant to Section 4.2, by
delivering to the Bank, not later than 10:00 a.m., State College, Pennsylvania
time, (i) three ( 3) Business Days prior to (A) the proposed Borrowing Date with
respect to the making of Revolving Line Advances to which the Euro-Rate Option
applies or (B) the end of the current Interest Period in the case of the
conversion to or the renewal of the Euro-Rate Option for any Borrowing Tranches,
(ii) on the same or one (1) Business Day prior to either the proposed Borrowing
Date with respect to the making of a Revolving Line Advance to which the Base
Rate Option applies or the last day of the preceding Interest Period with
respect to the conversion to the Base Rate Option for any Borrowing Tranche, or
(iii) three (3) (1) Business Days prior to (A) the proposed Borrowing Date with
respect to the making of Revolving Line Advances for which Borrower seeks the
Offered Rate Option or (B) the end of the current Interest Period in the case of
conversion to or the renewal of the Offered Rate Option for any Borrowing
Tranches, of a duly completed request therefor substantially in the form of
Exhibit C or a request by telephone immediately confirmed in writing by letter,
facsimile or telex in such for (each, a "Loan Request"), it being understood
that the Bank may rely on the authority of any individual making such a
telephonic request without the necessity of receipt of such written
confirmation. Each Loan Request shall be irrevocable and shall specify (i) the
proposed Borrowing Date; (ii) the aggregate amount of the proposed Revolving
Line Advance comprising each Borrowing Tranche; (iii) whether the EuroRate
Option or Base Rate Option shall apply to the proposed Revolving Line Advance
comprising the applicable Borrowing Tranche, or whether Borrower is requesting a
rate quote from Bank with respect to an Offered
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Rate Option; and (iv) in the case of a Borrowing Tranche to which the Euro-Rate
Option or the Offered Rate Option applies, an appropriate Interest Period for
the Revolving Line Advance comprising such Borrowing Tranche.
2.4 Making Revolving Line Advances.
2.4.1 Making Advances.
2.4.1.1 Offered Rate Option Advances.
The Bank shall, promptly after receipt by it of a Loan Request pursuant
to Section 2.3.1 wherein an Offered Rate Option is requested, provide a rate
quote to the Borrower for the requested Interest Rate Period, which may be for
overnight, thirty (30), sixty (60) or ninety (90) day periods (the "Permitted
Offered Rate Interest Periods"). The Borrower shall, upon receipt of the rate
quote from the Bank, notify Bank not less than one Business Day prior to the
proposed Borrowing Date of its acceptance or non-acceptance of the offered rate.
In the event the Borrower does not accept the quoted rate, Borrower shall
indicate an alternative selection from another available Interest Rate Option,
failing which the applicable Revolving Rate Advance shall accrue interest under
the Base Rate Option.
Provided a timely Loan Request is received and all conditions precedent
to the making of advance hereunder are satisfied, the Bank shall, subject to the
Borrowing Tranche Limit, fund such Revolving Line Advances to the Borrower in
U.S. Dollars and immediately available funds at the Principal Office prior to
3:00 p.m., State College, Pennsylvania time, on the applicable Borrowing Date.
2.4.1.2 Other Advances.
Provided a timely Loan Request is received and all conditions precedent
to the making of advance hereunder are satisfied, the Bank shall, subject to the
Borrowing Tranche Limit, fund Revolving Line Advances for which the Euro-Rate
Option (for Permitted Euro-Rate Interest Periods, hereinafter defined) or the
Base Rate Option has been selected to the Borrower in U. S. Dollars and
immediately available funds at the Principal Office prior to 3:00 p m, State
College time, on the applicable Borrowing Date; provided, however, it is
understood that no more than four (4) Revolving Line Advances under the
Euro-Rate Option may be outstanding at any one time.
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2.5 Revolving Line Note.
The Obligation of the Borrower to repay the aggregate unpaid principal
amount of the Revolving Line Advances made to it by Bank, together with interest
thereon, shall be evidenced by the Revolving Line Note dated the Closing Date
payable to the order of such Bank in a face amount equal to the Revolving Line
Limit.
2.6 Extension by Bank of the Revolving Line Expiration Date.
2.6.1 Requests; Approval by Bank.
Upon or promptly after delivery by the Borrower of the annual financial
statements to be provided under Section 8.3.2 for the fiscal year ending
September 30, 1998 or any subsequent fiscal year, the Borrower may request a
one-year extension of the Revolving Line Expiration Date by written notice to
the Bank, and the Bank agrees to respond to the Borrower's request for an
extension by the later of sixty (60) days following receipt of the request or of
such year; provided, however, that the failure of Bank to respond within such
time period shall not in any manner constitute an agreement by Bank to extend
the Revolving Line Expiration Date. If the Bank elects to extend, the Revolving
Line Expiration Date shall be extended for a period of one year.
2.7 Use of Proceeds.
The Revolving Line shall be used exclusively for Borrower's working
capital and general corporate financing needs.
3. REDUCING REVOLVING LINE
3.1 Reducing Revolving Credit Commitment.
3.1.1 Advances
Subject to the terms and conditions hereof and relying upon the
representations and warranties herein set forth, the Bank agrees to make
advances under the Reducing Revolving Credit Line (collectively, the "Reducing
Revolving Line Advances" and individually, each a "Reducing Revolving Line
Advance") to the Borrower at any time or from time to time on or after the date
hereof to the Reducing Revolving Line Expiration Date, provided that after
giving
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effect to any such Reducing Revolving Line Advance the aggregate amount of
outstanding Revolving Line Advances from such Bank shall not exceed the
following schedule (as applicable, the "Reducing Revolving Line Limit"):
From the date hereof through
and including 10/31/99: $10,000,000
From 11/1/99 through and
including 10/31/00: 8,500,000
From 11/1/00 through and
including 10/31/01: 7,000,000
From 11/1/01 through and
including the Reducing Revolving
Line Expiration Date: 5,500,000
Within such limits of time and amount and subject to the other
provisions of this Agreement, the Borrower may borrow, repay and reborrow
pursuant to this Section 3.1.
The Bank shall have no obligation to make Reducing Revolving Line
Advances hereunder on or after the Reducing Revolving Line Expiration Date.
Further, notwithstanding anything herein to the contrary, in no event may any
Reducing Revolving Line Advance be made that would cause such advance, together
with all other then outstanding Borrowing Tranches under the Loans (including
all Interest Rate Options) to exceed the Borrowing Tranche Limit.
3.2 Commitment Fees.
Accruing from the date hereof until the Reducing Revolving Line
Expiration Date, the Borrower agrees to pay to the Bank a nonrefundable annual
commitment fee (the "Commitment Fee") equal to the Applicable Reducing Revolving
Commitment Fee Rate on the average daily difference during the immediately
preceding fiscal quarter between the amount of (i) the applicable Reducing
Revolving Line Limit and (ii) the outstanding principal amount of all Reducing
Revolving Line Advances. All Commitment Fees shall be payable quarterly in
arrears within ten (10) days of the end of each fiscal quarter of Borrower,
after the date hereof and on the Reducing Revolving Line Expiration Date or upon
acceleration of the Notes.
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3.3 Reducing Revolving Credit Line Requests.
3.3.1 Advance Requests.
Except as otherwise provided herein, the Borrower may from time to time
prior to the Reducing Revolving Line Expiration Date request the Bank to make
Reducing Revolving Line Advances, or renew or convert the Interest Rate Option
applicable to existing Reducing Revolving Line Borrowing Tranches pursuant to
Section 4.2, by delivering to the Bank, not later than 10:00 a.m., State
College, Pennsylvania time, (i) three (3) Business Days prior to (A) the
proposed Borrowing Date with respect to the making of Reducing Revolving Line
Advances to which the Euro-Rate Option applies or(B) the end of the current
Interest Period in the case of the conversion to or the renewal of the Euro-Rate
Option for any Borrowing Tranches or (ii) on the same or one (1) Business Day
prior to either the proposed Borrowing Date with respect to the mating of a
Reducing Revolving Line Advance to which the Base Rate Option applies or the
last day of the preceding Interest Period with respect to the conversion to the
Base Rate Option for any Borrowing Tranche, of a duly completed request therefor
substantially in the form of Exhibit D or a request by telephone immediately
confirmed in writing by letter, facsimile or telex in such form (each, a
"Reducing Line Loan Request"), it being understood that the Bank may rely on the
authority of any individual making such a telephonic request without the
necessity of receipt of such written confirmation. Each Reducing Line Loan
Request shall be irrevocable and shall specify (i) the proposed Borrowing Date;
(ii) the aggregate amount of the proposed Reducing Revolving Line Advance
comprising each Borrowing Tranche; (iii) whether the EuroRate Option or Base
Rate Option shall apply to the proposed Revolving Line Advance comprising the
applicable Borrowing Tranche; and (iv) in the case of a Borrowing Tranche to
which the EuroRate Option applies, an appropriate Interest Period for the
Reducing Revolving Line Advance comprising such Borrowing Tranche.
3.4 Making Reducing Revolving Line Advances.
3.4.1 Making Advances.
Provided a timely Reducing Line Loan Request is received and all
conditions precedent to the making of advance hereunder are satisfied, the Bank
shall, subject to the Borrowing Tranche Limit, fund such Reducing Revolving
Advances Loans to the Borrower in U.S. Dollars and immediately available funds
at the Principal Office prior to 2:00 p m., State College time, on the
applicable Borrowing Date; provided, however, it is understood that no more than
four (4) Reducing Revolving Line Advances under the Euro-Rate Option may be
outstanding at any one time.
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3.5 Reducing Revolving Line Note.
The Obligation of the Borrower to repay the aggregate unpaid principal
amount of the Reducing Revolving Line Advances made to it by Bank, together with
interest thereon, shall be evidenced by the Reducing Revolving Line Note dated
the Closing Date payable to the order of such Bank in a face amount equal to the
Reducing Revolving Line Limit on the date of this Agreement.
3.6 Use of Proceeds.
The Reducing Revolving Line shall be used exclusively for Borrower's
general corporate purposes, including planned capital projects, capital
expenditures and acquisitions.
4. INTEREST RATES
4.1 Interest Rate Options.
The Borrower shall pay interest in respect of the outstanding unpaid
principal amount of the Loans as selected by it from the Base Rate Option or
Euro-Rate Option, or, in the case of the Revolving Line, the Offered Rate
Option, set forth below applicable to the Loans, it being understood that,
subject to the provisions of this Agreement, the Borrower may select different
Interest Rate Options and different Interest Periods to apply simultaneously to
the Loans comprising different Borrowing Tranches and may convert to or renew
one or more applicable Interest Rate Options with respect to all or any portion
of the Loans comprising any Borrowing Tranche. If at any time the designated
rate applicable to any Borrowing Tranche made by Bank exceeds the Bank's highest
lawful rate, the rate of interest on such Borrowing Tranche shall be limited to
such Bank's highest lawful rate.
4.1.1 Revolving Line Interest Rate Options.
The Borrower shall have the right to select from the following Interest
Rate Options applicable to the Revolving Line:
(i) Base Rate Option:
A fluctuating rate per annum (computed on the basis of a year of 365
or 366 days, as the case may be, and actual days elapsed) equal to the
Base Rate plus the Applicable Margin set forth on the pricing grid attached
hereto as Schedule 1.1(A), such interest rate to
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change automatically from time to time effective as of the effective date of
each change in the Base Rate;
(ii) Euro-Rate Option:
A rate per annum (computed on the basis of a year of 360 days and
actual days elapsed) equal to the Euro-Rate plus the Applicable Margin
set forth on the pricing grid attached hereto as Schedule l.l(A); or
(iii) Offered Rate Option:
A rate per annum for a Permitted Offered Rate Interest Period as may
be quoted and offered to Borrower by Bank from time to time at the Bank's sole
discretion and determination.
4.1.2 Reducing Revolving Line Interest Rate Options.
The Borrower shall have the right to select from the following Interest
Rate Options applicable to the Reducing Revolving Line:
(i) Base Rate Option:
A fluctuating rate per annum (computed on the basis of a year of 365
or 366 days, as the case may be, and actual days elapsed) equal to the Base Rate
plus the Applicable Margin set forth on the pricing grid attached hereto as
Schedule 1.1(A), such interest rate to change automatically from time to time
effective as of the effective date of each change in the Base Rate; or
(ii) Euro-Rate Option:
A rate per annum (computed on the basis of a year of 360 days and
actual days elapsed) equal to the Euro-Rate plus the Applicable Margin
set forth on the pricing grid attached hereto as Schedule 1.1(A).
4.1.3 Rate Quotations.
The Borrower may call the Bank on or before the date on which a Loan
Request or Reducing Line Loan Request is to be delivered to receive an
indication of the rates then in effect, but it is acknowledged that such
projection shall not be binding on the Bank nor affect the rate of interest
which thereafter is actually in effect when the election is made.
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4.1.4 Additional Interest.
Any additional interest or Commitment Fee due from the Borrower shall be
paid to the Bank on the next date on which an interest or fee payment is due;
provided, however, that if there are no Loans outstanding or if the Loans are
due and payable, such additional interest or Commitment Fee shall be paid
promptly after receipt of written request for payment from the Bank.
4.1.5 Refund.
Any interest or Commitment Fee refund due to the Borrower shall be
credited against payments otherwise due from the Borrower on the next interest
or fee payment due date or, if the Loans have been repaid, the Bank shall pay
the Borrower such interest or Commitment Fee refund promptly after its
recalculation.
4.2 Interest Periods.
At any time when the Borrower shall select, convert to or renew a
Euro-Rate Option or shall elect to accept an interest rate quoted by Bank under
the Offered Rate Option (in the case of the Revolving Line), the Borrower shall
notify the Bank thereof three (3) Business Days prior to the effective date of
such Interest Rate Option by delivering a Loan Request or Reducing Line Loan
Request, as applicable. The notice shall specify an interest period (the
"Interest Period") during which such Interest Rate Option shall apply, such
Interest Period to be (i) overnight, or one, two or three Months if Borrower
selects the Offered Rate Option (with respect to Revolving Line Advances) and
(ii) one, two, three or six Months (the "Permitted Euro-Rate Interest Periods")
if Borrower selects the Euro-Rate Option. Notwithstanding the preceding
sentence, the following provisions shall apply to any selection of, renewal of,
or conversion to a Euro-Rate Option or an Offered Rate Option.
4.2.1 Ending Date and Business Day.
Any Interest Period which would otherwise end on a date which is not a
Business Day shall be extended to the next succeeding Business Day unless such
Business Day falls in the next calendar month, in which case such Interest
Period shall end on the next preceding Business Day;
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4.2.2 Amount of Borrowing Tranche.
Each Borrowing Tranche under the Euro-Rate Option shall be in integral
multiples of $100,000 and not less than $500,000; each Borrowing Tranche under
the Offered Rate Option shall be in integral multiples of $100,000 and not less
than $2,500,000.
4.2.3 Termination Before Expiration Date.
The Borrower shall not select, convert to or renew an Interest Period
for any portion of the Loans that would end after the Revolving Line Expiration
Date or the Reducing Revolving Line Expiration Date, as the case may be; and
4.2.4 Renewals.
In the case of the renewal of a Euro-Rate Option or Offered Rate Option
at the end of an Interest Period, the first day of the new Interest Period shall
be the last day of the preceding Interest Period, without duplication in payment
of interest for such day.
4.3 Interest After Default.
To the extent permitted by Law, upon the occurrence of an Event of
Default and until such time such Event of Default shall have been cured or
waived:
4.3.1 Interest Rate.
The rate of interest applicable to all outstanding amounts under all
Borrowing Tranches, as well as all other Obligations, shall automatically
increase to and accrue at interest at a rate per annum equal to the sum of the
rate of interest applicable under the Base Rate Option plus an additional 2% per
annum until all Obligations are paid in full.
4.3.2 Acknowledgment.
The Borrower acknowledges that the increase in rates referred to in this
Section 4.3 reflects, among other things, the fact that such outstanding
Borrowing Tranches or other amounts have become a substantially greater risk
given their default status and that the Bank is entitled to additional
compensation for such risk; and all such interest shall be payable by Borrower
upon demand by Bank.
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4.4 Euro-Rate Unascertainable: Illegality: Increased Costs: Deposits Not
Available.
4.4.1 Unascertainable.
If on any date on which a Euro-Rate would otherwise be determined the
Bank shall have determined that:
(i) adequate and reasonable means do not exist for ascertaining such
Euro-Rate, or
(ii) a contingency has occurred which materially and adversely affects
the London interbank eurodollar market relating to the Euro-Rate, the Bank shall
have the rights specified in Section 4.4.3.
4.4.2 Illegality: Increased Costs: Deposits Not Available.
If at any time the Bank shall have determined that:
(i) the making, maintenance or funding of any Borrowing Tranche to
which a Euro-Rate Option applies has been made impracticable or unlawful
by compliance by such Bank in good faith with any Law or any interpretation or
application thereof by any Official Body or with any request or directive of any
such Official Body (whether or not having the force of Law), or
(ii) such Euro-Rate Option will not adequately and fairly reflect the
cost to such Bank of the establishment or maintenance of any such Borrowing
Tranche, or
(iii) after making all reasonable efforts, deposits of the relevant
amount in Dollars for the relevant Interest Period for a Borrowing Tranche to
which a Euro-Rate Option applies are not available to the Bank with respect to
such Borrowing Tranche in the London interbank market,
then the Bank shall have the rights specified in Section 4.4 3.
4.4.3 Bank's and Bank's Rights.
In the case of any event specified in Section 4.4.1 or Section 4.4.2
above, the Bank shall promptly so notify the Borrower thereof. Upon such date as
shall be specified in such notice (which shall not be earlier than the date such
notice is given), the obligation of the Bank to
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allow the Borrower to select, convert to or renew a Euro-Rate Option shall be
suspended until the Bank shall have later notified the Borrower of the Bank's
determination that the circumstances giving rise to such previous determination
no longer exist. If at any time the Bank makes a determination under Section
4.4.1 and the Borrower has previously notified the Bank of its selection of,
conversion to or renewal of a Euro-Rate Option and such Interest Rate Option has
not yet gone into effect, such notification shall be deemed to provide for
selection of, conversion to or renewal of the Base Rate Option otherwise
available with respect to such Borrowing Tranches. If the Bank notifies the
Borrower of a determination under Section 4.4.2, the Borrower shall, subject to
the Borrower's indemnification Obligations under Section 5.4.2, as to any
Borrowing Tranche to which a Euro-Rate Option applies, on the date specified in
such notice either convert such Borrowing Tranche to the Base Rate Option
otherwise available with respect to such Borrowing Tranche or prepay such Loan
in accordance with Section 5.3. Absent due notice from the Borrower of
conversion or prepayment, such Borrowing Tranche shall automatically be
converted to the Base Rate Option otherwise available with respect to such Loan
upon such specified date.
4.5 Selection of Interest Rate Options.
If the Borrower fails to select a new Interest Period to apply to any
Borrowing Tranche of Loans under the Offered Rate Option or the Euro-Rate Option
at the expiration of an existing Interest Period applicable to such Borrowing
Tranche in accordance with the provisions of Section 4.2, the Borrower shall be
deemed to have converted such Borrowing Tranche to the Base Rate Option
commencing upon the last day of the existing Interest Period.
5. PAYMENTS
5.1 Payments.
All payments and prepayments to be made in respect of principal, interest,
Commitment Fees, Facility Fees, or other fees or amounts due from the
Borrower hereunder shall be payable prior to 11:00 a.m., State College,
Pennsylvania time, on the date when due without presentment, demand, protest or
notice of any kind, all of which are hereby expressly waived by the Borrower,
and without set-off, counterclaim or other deduction of any nature, and an
action therefor shall immediately accrue. Such payments shall be made to the
Bank at the Principal Office in U. S. Dollars and in immediately available
funds. The Bank's statement of account, ledger or other relevant record shall,
in the absence of manifest error, be conclusive as the statement of the amount
of principal of and interest on the Loans and other amounts owing under this
Agreement and shall be deemed an "account stated."
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5.2 Interest Payment Dates: Maturity of Principal.
5.2.1 Interest.
Interest on Borrowing Tranches to which the Base Rate Option applies
shall be due and payable in arrears on the first Business Day of each January,
April, July and October (each such date a "Quarterly Interest Payment Date")
after the date hereof and on the Revolving Line Expiration Date or Reducing
Revolving Line Expiration Date, as the case may be, or upon acceleration of the
Notes. Interest on Borrowing Tranches to which the Euro-Rate Option or the
Offered Rate Option applies shall be due and payable on the earlier of (i) the
end of the applicable Interest Period or (ii) each Quarterly Interest Payment
Date occurring prior to the end of such Interest Period.
5.2.2 Principal Maturity.
Unless sooner prepaid in accordance with the terms hereof, or sooner
accelerated by Bank by virtue of an Event of Default hereunder, all principal
amounts outstanding under the Revolving Line shall be paid in full on the
Revolving Line Expiration Date and all principal amounts outstanding under the
Reducing Revolving Line shall be paid in full on the Reducing Resolving Line
Expiration Date.
5.3 Voluntary Prepayments.
5.3.1 Right to Prepay.
The Borrower shall have the right at its option from time to time to
prepay the Loans in whole or part without premium or penalty (except as provided
in Section 5.4):
(i) at any time with respect to any Borrowing Tranche to which the
Base Rate Option applies,
(ii) on the last day of the applicable Interest Period with respect
to Borrowing Tranches to which a Euro-Rate Option or an Offered Rate Option
applies,
(iii) on the date specified in a notice by Bank pursuant to Section
4.4 with respect to any Borrowing Tranche to which a Euro-Rate Option applies.
Whenever the Borrower desires to prepay any part of the Loans, it shall
provide a prepayment notice to the Bank by 1:00 p.m. at least one (1) Business
Day prior to the date of prepayment of Loans, setting forth the following
information:
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(x) the date, which shall be a Business Day, on which the proposed
prepayment is to be made;
(y) a statement indicating the application of the prepayment between the
Revolving Line and the Reducing Revolving Line; and
(z) the total principal amount of such prepayment, which shall not be
less than $100,000, in case of prepayment on the Revolving Line, and $500,000 in
case of prepayment on the Reducing Revolving Line.
All prepayment notices shall be irrevocable. The principal amount of the
Loans for which a prepayment notice is given, together with interest on such
principal amount except with respect to Borrowing Tranches to which the Base
Rate Option applies, shall be due and payable on the date specified in such
prepayment notice as the date on which the proposed prepayment is to be made.
Except as provided in Section 4.4.3, if the Borrower prepays a Loan but fails to
specify the applicable Borrowing Tranche which the Borrower is prepaying, the
prepayment shall be applied (i) first to the Revolving Line and then to the
Reducing Revolving Line; and (ii) after giving effect to the allocations in
clause (i) above and in the preceding sentence, first to Borrowing Tranches to
which the Base Rate Option applies, then to Borrowing Tranches to which the
Offered Rate Option applies and next to Borrowing Tranches to which Euro-Rate
Option applies. Any prepayment hereunder shall be subject to the Borrower's
Obligation to indemnify the Bank under Section 5.4.2.
5.3.2 Change of Lending Office.
Bank agrees that upon the occurrence of any event giving rise to
increased costs or other special payments under Section 4.4.2 or 5.4.1 with
respect to Bank, it will if requested by the Borrower, use reasonable efforts
(subject to overall policy considerations of such Bank) to designate another
lending office for any Borrowing Tranches affected by such event, provided that
such designation is made on such terms that Bank and its lending office suffer
no economic, legal or regulatory disadvantage, with the object of avoiding the
consequence of the event giving rise to the operation of such Section. Nothing
is this Section 5.3.2 shall affect or postpone any of the Obligations of the
Borrower or any other Borrower or the rights of the Bank provided in this
Agreement.
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5.4 Additional Compensation in Certain Circumstances.
5.4.1 Increased Costs or Reduced Return Resulting from Taxes, Reserves,
Capital Adequacy Requirements, Expenses. Etc.
If any Law, guideline or interpretation or any change in any Law,
guideline or interpretation or application thereof by any Official Body charged
with the interpretation or administration thereof or compliance with any request
or directive (whether or not having the force of Law) of any central bank or
other Official Body:
(i) subjects Bank to any tax, levy, impost, duty, deduction, charge
or withholding (each, a "Tax") or changes the basis of taxation with respect to
this Agreement, the Notes, the Loans or payments by the Borrower of principal,
interest, Commitment Fees, or other amounts due from the Borrower hereunder or
under the Notes (except for taxes on the overall net income of Bank),
(ii) imposes, modifies or deems applicable any reserve, special
deposit or similar requirement against credits or commitments to extend
credit extended by, or assets (funded or contingent) of, deposits with or for
the account of, or other acquisitions of funds by, Bank, or
(iii) imposes, modifies or deems applicable any capital adequacy or
similar requirement (A) against assets (funded or contingent) of, or commitments
to extend credit extended by, the Bank, or (B) otherwise applicable to the
obligations of the Bank under this Agreement,
and the result of any of the foregoing is to increase the cost to,
reduce the income receivable by, or impose any expense (including loss of
margin) upon the Bank with respect to this Agreement, the Notes or the making,
maintenance or funding of any part of the Loans (or, in the case of any capital
adequacy or similar requirement, to have the effect of reducing the rate of
return on the Bank's capital, taking into consideration the Bank's customary
policies with respect to capital adequacy) by an amount which the Bank in its
sole discretion deems to be material, the Bank shall from time to time notify
the Borrower of the amount determined in good faith (using any averaging and
attribution methods employed in good faith) by the Bank to be necessary to
compensate the Bank for such increase in cost, reduction of income, additional
expense or reduced rate of return. Such notice shall set forth in reasonable
detail the basis for such determination. Such amount shall be due and payable by
the Borrower to the Bank ten (10) Business Days after such notice is given.
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5.4.2 Indemnity.
In addition to the compensation required by Section 5.4.1, the Borrower
shall indemnify the Bank against all liabilities, losses or expenses (including
loss of margin, any loss or expense incurred in liquidating or employing
deposits from third parties and any loss or expense incurred in connection with
funds acquired by the Bank to fund or maintain Borrowing Tranches subject to a
Euro-Rate Option or an Offered Rate Option) which such Bank sustains or incurs
as a consequence of any
(i) payment, prepayment, conversion or renewal of any Borrowing
Tranche to which a Euro-Rate Option or an Offered Rate Option applies on
a day other than the last day of the corresponding Interest Period (whether or
not such payment or prepayment is mandatory, voluntary or automatic and whether
or not such payment or prepayment is then due),
(ii) attempt by the Borrower to revoke (expressly, by later
inconsistent notices or otherwise) in whole or part any Loan Requests
under Section 2.3 or Section 4.2 or, Revolving Line Loan Requests under Section
3.3 or Section 4.2 or notice relating to prepayments under Section 5.3, or
(iii) default by the Borrower in the performance or observance of any
covenant or condition contained in this Agreement or any other Loan Document,
including any failure of the Borrower to pay when due (by acceleration or
otherwise) any principal, interest, Commitment Fee or any other amount due
hereunder.
If the Bank sustains or incurs any such loss or expense, it shall from
time to time notify the Borrower of the amount determined in good faith by the
Bank (which determination may include such assumptions, allocations of costs and
expenses and averaging or attribution methods as such Bank shall deem
reasonable) to be necessary to indemnify the Bank for such loss or expense. Such
notice shall set forth in reasonable detail the basis for such determination.
Such amount shall be due and payable by the Borrower to the Bank ten (10)
Business Days after such notice is given.
5.4.3 Stamp Taxes.
In addition, Borrower agrees to pay any present or future stamp or
documentary taxes or any other excise or property taxes, charges, or similar
levies which arise from any payment made hereunder or from the execution,
delivery, or registration of, or otherwise with respect to, this Agreement or
any Note (hereinafter referred to as "Other Taxes").
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5.4.4 Indemnification for Taxes Paid by a Bank.
Borrower shall indemnify the Bank for the full amount of Taxes or Other
Taxes (including, without limitation, any Taxes or Other Taxes imposed by any
jurisdiction on amounts payable under this Section 5.4.4) paid by the Bank and
any liability (including penalties, interest, and expenses) arising therefrom or
with respect thereto, whether or not such Taxes or Other Taxes were correctly or
legally asserted. This indemnification shall be made within 30 days from the
date Bank makes written demand therefor.
5.4.5 Survival.
Without prejudice to the survival of any other agreement of Borrower
hereunder, the agreements and obligations of Borrower contained in Sections
5.4.1 through 5.4.4 shall survive the payment in full of principal and interest
hereunder and under any instrument delivered hereunder
6. REPRESENTATIONS AND WARRANTIES
6.1 Representations and Warranties.
The Borrower, in order to induce the Bank to extend the Loans to the
Borrower hereunder, represents and warrants to the Bank as follows:
6.1.1 Organization and Qualification.
Borrower and each Subsidiary of Borrower is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization. Borrower and each Subsidiary of Borrower has the
lawful power to own or lease its properties and to engage in the business it
presently conducts or proposes to conduct. Borrower and each Subsidiary of
Borrower is duly licensed or qualified and in good standing in each jurisdiction
where the property owned or leased by it or the nature of the business
transacted by it or both makes such licensing or qualification necessary.
6.1.2 Capitalization and Ownership.
The authorized capital stock of the Borrower consists of 100,000,000
shares of Common Stock, no par value, of which 7,672,118 shares are issued and
outstanding, and 2,000,000 shares of Preferred Stock,one dollar ($1.00) par
value, of which 1,702,500 shares (the
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issued and outstanding Common shares and issued and outstanding Preferred
shares, collectively, referred to herein as the "Shares") are issued and
outstanding Persons or entities owning 5% or more of the Borrower's outstanding
Shares are listed on Schedule 6.1.2. All of the Shares have been validly issued
and are fully paid and nonassessable. There are no options, warrants or other
rights outstanding to purchase any such shares except as indicated on Schedule
6.1.2.
6.1.3 Subsidiaries.
Schedule 6.1.3 states the name of each of the Borrower's Subsidiaries,
its jurisdiction of incorporation, its authorized capital stock, the issued and
outstanding shares (referred to herein as the "Subsidiary Shares") and the
owners thereof if it is a corporation, its outstanding partnership interests
(the "Partnership Interests") if it is a partnership and its outstanding limited
liability company interests, interests assigned to managers thereof and the
voting rights associated therewith (the "LLC Interests") if it is a limited
liability company. The Borrower and each Subsidiary of the Borrower has good and
marketable title to all of the Subsidiary Shares, Partnership Interests and LLC
Interests it purports to own, free and clear in each case of any Lien. All
Subsidiary Shares, Partnership Interests and LLC Interests have been validly
issued, and all Subsidiary Shares are fully paid and nonassessable. All capital
contributions and other consideration required to be made or paid in connection
with the issuance of the Partnership Interests and LLC Interests have been made
or paid, as the case may be. There are no options, warrants or other rights
outstanding to purchase any such Subsidiary Shares, Partnership Interests or LLC
Interests except as indicated on Schedule 6.1.3.
6.1.4 Power and Authority.
Borrower has full power to enter into, execute, deliver and carry out
this Agreement and the other Loan Documents to which it is a party, to incur the
Indebtedness contemplated by the Loan Documents and to perform its Obligations
under the Loan Documents to which it is a party, and all such actions have been
duly authorized by all necessary proceedings on its part.
6.1.5 Validity and Binding Effect.
This Agreement has been duly and validly executed and delivered by the
Borrower, and each other Loan Document which Borrower is required to execute and
deliver on or after the date hereof will have been duly executed and delivered
by Borrower on the required date of delivery of such Loan Document. This
Agreement and each other Loan Document constitutes, or will constitute, legal,
valid and binding obligations of the Borrower to which is or will be a party
thereto on and after its date of delivery thereof, enforceable against such
Borrower in accordance with its terms, except to the extent that enforceability
of any of such Loan Document may be limited by bankruptcy, insolvency,
reorganization, moratorium or other
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similar laws affecting the enforceability of creditors' rights generally or
limiting the right of specific performance.
6.1.6 No Conflict.
Neither the execution and delivery of this Agreement or the other Loan
Documents by Borrower nor the consummation of the transactions herein or therein
contemplated or compliance with the terms and provisions hereof or thereof by
any of them will conflict with, constitute a default under or result in any
breach of (i) the teens and conditions of the certificate of incorporation,
bylaws, certificate of limited partnership, partnership agreement, certificate
of formation, limited liability company agreement or other organizational
documents of Borrower or (ii) any Law or any material agreement or instrument or
order, writ, judgment, injunction or decree to which Borrower or any of its
Subsidiaries is a party or by which it or any of its Subsidiaries is bound or to
which it is subject, or result in the creation or enforcement of any Lien,
charge or encumbrance whatsoever upon any property (now or hereafter acquired)
of Borrower or any of its Subsidiaries (other than Liens granted under the Loan
Documents).
6.1.7 Litigation.
There are no actions, suits, proceedings or investigations pending or,
to the knowledge of Borrower, threatened against Borrower or any Subsidiary of
Borrower at law or equity before any Official Body which individually or in the
aggregate may result in any Material Adverse Change. None of the Borrower or any
Subsidiaries of Borrower is in violation of any order, writ, injunction or any
decree of any Official Body which may result in any Material Adverse Change.
6.1.8 Title to Properties.
Borrower and each Subsidiary of Borrower has good and marketable title
to or valid leasehold interest in all properties, assets and other rights which
it purports to own or lease or which are reflected as owned or leased on its
books and records,free and clear of all Liens and encumbrances except Permitted
Liens, and subject to the terms and conditions of the applicable leases. All
leases of property are in full force and effect without the necessity for any
consent which has not previously been obtained upon consummation of the
transactions contemplated hereby.
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6.1.9 Financial Statements.
(i) Historical Statements.
The Borrower has delivered to the Bank copies of its audited
consolidated year-end financial statements for and as of the end of the five
fiscal years ended September 30, 1992, 1993, 1994, 1995 and 1996 (the "Annual
Statements"). In addition, the Borrower has delivered to the Bank copies of its
unaudited consolidated interim financial statements for the fiscal year to date
and as of the end of the fiscal quarter ended December 31, 1996, (the "Interim
Statements") (the Annual and Interim Statements being collectively referred to
as the "Historical Statements"). The Historical Statements were compiled from
the books and records maintained by the Borrower's management, are correct and
complete and fairly represent the consolidated financial condition of the
Borrower and its Subsidiaries as of their dates and the results of operations
for the fiscal periods then ended and have been prepared in accordance with GAAP
consistently applied, subject (in the case of the Interim Statements) to normal
year-end audit adjustments.
(ii) Accuracy of Financial Statements.
Neither the Borrower nor any Subsidiary of the Borrower has any
liabilities, contingent or otherwise, or forward or long-term commitments that
are not disclosed in the Historical Statements or in the notes thereto, and
except as disclosed therein there are no unrealized or anticipated losses from
any commitments of the Borrower or any Subsidiary of the Borrower which may
cause a Material Adverse Change. Since September 30, 1996, no Material Adverse
Change has occurred.
6.1.10 Use of Proceeds; Margin Stock: Section 20 Subsidiaries.
6.1.10.1 General.
The Borrower intends to use the proceeds of the Loans in accordance
with Sections 2.7 and 3.6 and 8.1.10.
6.1.10.2 Margin Stock.
None of the Borrower or any Subsidiaries of the Borrower engages or
intends to engage principally, or as one of its important activities, in the
business of extending credit for the purpose, immediately, incidentally or
ultimately, of purchasing or carrying margin stock (within the meaning of
Regulation U). No part of the proceeds of any Loan has been or will be used,
immediately, incidentally or ultimately, to purchase or carry any margin stock
or to extend credit to others for the purpose of purchasing or carrying any
margin stock or to refund Indebtedness originally incurred for such purpose, or
for any purpose which entails a violation of
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or which is inconsistent with the provisions of the regulations of the Board of
Governors of the Federal Reserve System. Neither the Borrower nor any Subsidiary
of any Borrower holds or intends to hold margin stock in such amounts that more
than 25% of the reasonable value of the assets of any Borrower or Subsidiary of
any Borrower are or will be represented by margin stock.
6.1.10.3 Section 20 Subsidiaries.
The Borrower does not intend to use and shall not use any portion of
the proceeds of the Loans, directly or indirectly (i) knowingly to
purchase any Ineligible Securities from a Section 20 Subsidiary during any
period in which such Section 20 Subsidiary makes a market in such Ineligible
Securities, (ii) knowingly to purchase during the underwriting or placement
period Ineligible Securities being underwritten or privately placed by a Section
20 Subsidiary, or (iii) to make payments of principal or interest on Ineligible
Securities underwritten or privately placed by as Section 20 Subsidiary and
issued by or for the benefit of Borrower or any Subsidiary of Borrower.
6.1.11 Full Disclosure.
Neither this Agreement nor any other Loan Document, nor any certificate,
statement, agreement or other documents furnished to the Bank in connection
herewith or therewith, contains any untrue statement of a material fact or omits
to state a material fact necessary in order to make the statements contained
herein and therein, in light of the circumstances under which they were made,
not misleading. There is no fact known to Borrower which materially adversely
affects the business, property, assets, financial condition, results of
operations or prospects of Borrower or Subsidiary of Borrower which has not been
set forth in this Agreement or in the certificates, statements, agreements or
other documents furnished in writing to the Bank prior to or at the date hereof
in connection with the transactions contemplated hereby.
6.1.12 Taxes.
All federal, state, local and other tax returns required to have been
filed with respect to Borrower and each Subsidiary of Borrower have been filed,
and payment or adequate provision has been made for the payment of all taxes,
fees, assessments and other governmental charges which have or may become due
pursuant to said returns or to assessments received, except to the extent that
such taxes, fees, assessments and other charges are being contested in good
faith by appropriate proceedings diligently conducted and for which such
reserves or other appropriate provisions, if any, as shall be required by GAAP
shall have been made. There are no agreements or waivers extending the statutory
period of limitations applicable to any federal income tax return of Borrower or
Subsidiary of Borrower for any period.
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6.1.13 Consents and Approvals.
No consent, approval, exemption, order or authorization-of, or a
registration or filing with, any Official Body or any other Person is required
by any Law or any agreement in connection with the execution, delivery and
carrying out of this Agreement and the other Loan Documents by any Borrower,
except as listed on Schedule 6.1.13, all of which shall have been obtained or
made on or prior to the Closing Date except as otherwise indicated on Schedule
6.1.13.
6.1.14 No Event of Default: Compliance with Instruments.
No event has occurred and is continuing and no condition exists or will
exist after giving effect to the borrowings or other extensions of credit to be
made on the Closing Date under or pursuant to the Loan Documents which
constitutes an Event of Default or Potential Default. None of the Borrower or
any Subsidiaries of the Borrower is in violation of (i) any term of its
certificate of incorporation, bylaws, certificate of limited partnership,
partnership agreement, certificate of formation, limited liability company
agreement or other organizational documents or (ii) any material agreement or
instrument to which it is a party or by which it or any of its properties may be
subject or bound where such violation would constitute a Material Adverse
Change.
6.1.15 Patents Trademarks, Copyrights. Licenses Etc.
Borrower and each Subsidiary of Borrower owns or possesses all the
material patents, trademarks, service marks, trade names, copyrights, licenses,
registrations, franchises, permits and rights necessary to own and operate its
properties and to carry on its business as presently conducted and planned to be
conducted by Borrower or its Subsidiary, without known possible, alleged or
actual conflict with the rights of others.
6.1.16 Insurance.
Schedule 6.1.16 lists all insurance policies and other bonds to which
the Borrower or Subsidiary of the Borrower is a party, all of which are valid
and in full force and effect. No notice has been given or claim made and no
grounds exist to cancel or avoid any of such policies or bonds or to reduce the
coverage provided thereby. Such policies and bonds provide adequate coverage
from reputable and financially sound insurers in amounts sufficient to insure
the assets and risks of Borrower and each Subsidiary of Borrower in accordance
with prudent business practice in the industry of the Borrower and its
Subsidiaries.
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6.1.17 Compliance with Laws.
The Borrower and its Subsidiaries are in compliance in all material
respects with all applicable Laws (other than Environmental Laws which are
specifically addressed in Section 6.1.22) in all jurisdictions in which the
Borrower or any Subsidiary of Borrower is presently or will be doing business
except where the failure to do so would not constitute a Material Adverse
Change.
6.1.18 Material Contracts; Burdensome Restrictions.
All material contracts relating to the business operations of Borrower
and each Subsidiary of Borrower, including all employee benefit plans and Labor
Contracts, are valid, binding and enforceable upon Borrower or its Subsidiary
and each of the other parties thereto in accordance with their respective terms,
and there is no default thereunder, to the Borrower's knowledge, with respect to
parties other than such Borrower or its Subsidiary. None of the Borrower or its
Subsidiaries is bound by any contractual obligation, or subject to any
restriction in any organization document, or any requirement of Law which could
result in a Material Adverse Change.
6.1.19 Investment Companies, Regulated Entities.
None of the Borrower or any of its Subsidiaries is an "investment
company" registered or required to be registered under the Investment Company
Act of 1940 or under the "control" of an "investment company" as such terms are
defined in the Investment Company Act of l 940 and shall not become such an
"investment company" or under such "control." None of the Borrower or any of its
Subsidiaries is subject to any other Federal or state statute or regulation
limiting its ability to incur Indebtedness for borrowed money.
6.1.20 Plans and Benefit Arrangements.
(i) The Borrower and each other member of the ERISA Group are in
compliance in all material respects with any applicable provisions of ERISA with
respect to all Benefit Arrangements, Plans and Multiemployer Plans. There has
been no Prohibited Transaction with respect to any Benefit Arrangement or any
Plan or, to the best knowledge of the Borrower, with respect to any
Multiemployer Plan or Multiple Employer Plan, which could result in any material
liability of the Borrower or any other member of the ERISA Group. The Borrower
and all other members of the ERISA Group have made when due any and all payments
required to be made under any agreement relating to a Multiemployer Plan or a
Multiple Employer Plan or any Law pertaining thereto. With respect to each Plan
and Multiemployer Plan, the Borrower and each other member of the ERISA Group
(i) have fulfilled in all material respects their obligations under the minimum
funding standards of ERISA, (ii) have not incurred
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any liability to the PBGC, and (iii) have not had asserted against them any
penalty for failure to fulfill the minimum funding requirements of ERISA. All
Plans, Benefit Arrangements and Multiemployer Plans have been administered in
accordance with their terms and applicable Law
(ii) To the best of the Borrower's knowledge, each Multiemployer Plan
and Multiple Employer Plan is able to pay benefits thereunder when due.
(iii) Neither the Borrower nor any other member of the ERISA Group
has instituted or intends to institute proceedings to terminate any Plan.
(iv) No event requiring notice to the PBGC under Section 302(f)(4)(A)
of ERISA has occurred or is reasonably expected to occur with respect to any
Plan, and no amendment with respect to which security is required under Section
307 of ERISA has been made or is reasonably expected to be made to any Plan.
(v) The aggregate actuarial present value of all benefit liabilities
(whether or not vested) under each Plan, determined on a plan termination basis,
as disclosed in, and as of the date of, the most recent actuarial report for
such Plan, does not exceed the aggregate fair market value of the assets of such
Plan.
(vi) Neither the Borrower nor any other member of the ERISA Group has
incurred or reasonably expects to incur any material withdrawal liability under
ERISA to any Multiemployer Plan or Multiple Employer Plan. Neither the Borrower
nor any other member of the ERISA Group has been notified by any Multiemployer
Plan or Multiple Employer Plan that such Multiemployer Plan or Multiple Employer
Plan has been terminated within the meaning of Title IV of ERISA and, to the
best knowledge of the Borrower, no Multiemployer Plan or Multiple Employer Plan
is reasonably expected to be reorganized or terminated, within the meaning of
Title IV of ERISA.
6.1.21 Employment Matters.
Borrower and each of its Subsidiaries is in compliance with the Labor
Contracts and all applicable federal, state and local labor and employment Laws
including those related to equal employment opportunity and affirmative action,
labor relations, minimum wage, overtime, child labor, medical insurance
continuation, worker adjustment and relocation notices, immigration controls and
worker and unemployment compensation, where the failure to comply would
constitute a Material Adverse Change. There are no outstanding grievances,
arbitration awards or appeals therefrom arising out of the Labor Contracts or
current or threatened strikes, picketing, handbilling or other work stoppages or
slowdowns at facilities of Borrower or any of Subsidiaries which in any case
would constitute a Material Adverse Change. The Borrower has delivered to the
Bank true and correct copies of each of the Labor Contracts.
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6.1.22 Environmental Matters.
None of the Borrower or any of its Subsidiaries has received any
Environmental Complaint from any Official Body or private Person alleging that
Borrower or any Subsidiary or any prior or subsequent owner of any of the
Property is a potentially responsible party under the Comprehensive
Environmental Response, Cleanup and Liability Act, 42 U.S.C. ss. 9601, et seq.
and Borrower has no reason to believe that such an Environmental Complaint might
be received. There are no pending or, to any Borrower's knowledge, threatened
Environmental Complaints relating to Borrower or Subsidiary of Borrower or, to
Borrower's knowledge, any prior or subsequent owner of any of the Property
pertaining to, or arising out of, any Environmental Conditions.
(i) There are no circumstances at, on or under any of the Property
that constitute a breach of or non-compliance with any of the Environmental
Laws, and there are no past or present Environmental Conditions at, on
or under any of the Property or, to any Borrower's knowledge, at, on or under
adjacent property, that prevent compliance with the Environmental Laws at any of
the Property.
(ii) Neither any of the Property nor any structures, improvements,
equipment, fixtures, activities or facilities thereon or thereunder contain or
use Regulated Substances except in compliance with Environmental Laws. There are
no processes, facilities, operations, equipment or other activities at, on or
under any of the Property, or, to any Borrower's knowledge, at, on or under
adjacent property, that currently result in the release or threatened release of
Regulated Substances onto any of the Property, except to the extent that such
releases or threatened releases are not a breach of or otherwise not a violation
of the Environmental laws.
(iii) There are no aboveground storage tanks, underground storage
tanks or underground piping associated with such tanks, used for the
management of Regulated Substances at, on or under any of the Property that (a)
do not have, to the extent required by Environmental Laws, a full operational
secondary containment system in place, and (b) are not otherwise in compliance
with all Environmental Laws. There are no abandoned underground storage tanks or
underground piping associated with such tanks, previously used for the
management of Regulated Substances at, on or under any of the Property that have
not either been closed in place in accordance with Environmental Laws or removed
in compliance with all applicable Environmental Laws and no contamination
associated with the use of such tanks exists on any of the Property that is not
in compliance with Environmental Laws.
(iv) Borrower and each Subsidiary of Borrower has all material
permits, licenses, authorizations, plans and approvals necessary under
the Environmental Laws for the conduct of the business of such Borrower or
Subsidiary as presently conducted. Borrower and each Subsidiary of Borrower has
submitted all material notices, reports and other filings required by the
Environmental Laws to be submitted to an Official Body which pertain to past and
current operations on any of the Property.
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(v) All past and present on-site generation, storage, processing,
treatment, recycling, reclamation, disposal or other use or management of
Regulated Substances at, on, or under any of the Property and all off-site
transportation, storage, processing, treatment, recycling, reclamation, disposal
or other use or management of Regulated Substances have been done in accordance
with the Environmental Laws.
6.1.23 Senior Debt Status.
The Obligations of Borrower under this Agreement, the Notes and each of
the other Loan Documents to which it is a party do rank and will rank at least
pari passau in priority of payment with all other Indebtedness of Borrower
except Indebtedness of such Borrower to the extent secured by Permitted Liens.
There is no Lien upon or with respect to any of the properties or income of any
Borrower or Subsidiary of any Borrower which secures indebtedness or other
obligations of any Person except for Permitted Liens.
6.2 Continuation of Representations.
The Borrower makes the representations and warranties in this Article 6
on the date hereof and on the Closing Date and each date thereafter on which a
Borrowing Tranche is made under the Loans as provided in and subject to Sections
7.1 and 7.2.
6.3 Updates to Schedules.
Should any of the information or disclosures provided on any of the
Schedules attached hereto become outdated or incorrect in any material respect,
the Borrower shall promptly provide the Bar in writing with such revisions or
updates to such Schedule as may be necessary or appropriate to update or correct
same; provided, however, that no Schedule shall be deemed to have been amended,
modified or superseded by any such correction or update, nor shall any breach of
warranty or representation resulting from the inaccuracy or incompleteness of
any such Schedule be deemed to have been cured thereby, unless and until the
Bank, in its sole and absolute discretion, shall have accepted in writing such
revisions or updates to such Schedule.
7. CONDITIONS OF LENDING
The obligation of Bank to make advances under the Loans hereunder is
subject to the performance by Borrower of its Obligations to be performed
hereunder at or prior to the making of any such advances and to the satisfaction
of the following further conditions:
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7.1 First Advances Under Loans.
On the Closing Date:
7.1.1 Officer's Certificate.
The representations and warranties of the Borrower contained in Article
6 and in each of the other Loan Documents shall be true and accurate on and as
of the Closing Date with the same effect as though such representations and
warranties had been made on and as of such date (except representations and
warranties which relate solely to an earlier date or time, which representations
and warranties shall be true and correct on and as of the specific dates or
times referred to therein), and Borrower shall have performed and complied with
all covenants and conditions hereof and thereof; no Event of Default or
Potential Default shall have occurred and be continuing or shall exist; and
there shall be delivered to the Bank for the benefit of Bank a certificate of
the Borrower, dated the Closing Date and signed by the Chief Executive Officer,
President or Chief Financial Officer of the Borrower to such effect.
7.1.2 Secretary's Certificate.
There shall be delivered to the Bank for the benefit of Bank a
certificate dated the Closing Date and signed by the Secretary or an Assistant
Secretary of the Borrower, certifying as appropriate as to:
(i) all action taken by Borrower in connection with this Agreement
and the other Loan Documents;
(ii) the names of the officer or officers authorized to sign this
Agreement and the other Loan Documents and the true signatures of such officer
or officers and specifying the Authorized Officers permitted to act on behalf of
Borrower for purposes of this Agreement and the true signatures of such
officers, on which the Bank may conclusively rely; and
(iii) copies of its organizational documents, including its
certificate of incorporation, bylaws, certificate of limited partnership,
partnership agreement, certificate of formation, and limited liability
company agreement as in effect on the Closing Date certified by the appropriate
state official where such documents are filed in a state office together with
certificates from the appropriate state officials as to the continued existence
and good standing of Borrower in each state where organized or qualified to do
business and a bring-down certificate by facsimile dated the Closing Date.
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7.1.3 Inter-Creditor Agreement; Other Financing Documents.
There shall be executed and delivered to the Bank an Inter-Creditor
Agreement with Mid-State Bank and Trust Company containing such terms,
conditions, agreements and provisions, and in form and substance, acceptable to
the Bank in its sole discretion. There shall also be delivered to the Bank fully
executed originals of the Notes and all other documents, instruments and
agreements required or contemplated hereunder, all in form and substance
acceptable to the Bank in its sole discretion.
7.1.4 Opinion of Counsel.
There shall be delivered to the Bank for the benefit of the Bank a
written opinion of McQuaide, Blasko, Schwartz, Fleming & Faulkner, Inc. counsel
for the Borrower (who may rely on the opinions of such other counsel as may be
acceptable to the Bank), dated the Closing Date and in form and substance
satisfactory to the Bank and its counsel as to such other matters incident to
the transactions contemplated herein as the Bank may reasonably request.
7.1.5 Legal Details.
All legal details and proceedings in connection with the transactions
contemplated by this Agreement and the other Loan Documents shall be in form and
substance satisfactory to the Bank and counsel for the Bank, and the Bank shall
have received all such other counterpart originals or certified or other copies
of such documents and proceedings in connection with such transactions, in form
and substance satisfactory to the Bank and said counsel, as the Bank or said
counsel may reasonably request.
7.1.6 Payment of Fees.
The Borrower shall have paid or caused to be paid to the Bank, to the
extent not previously paid, all commitment and other fees accrued through the
Closing Date and all costs and expenses of Bank, including, without limitation,
legal fees, incurred by Bank in connection with negotiation documentation.
review or enforcement of the Loans.
7.1.7 Other Loan Documentation Review.
All existing agreements, instruments and other documentation evidencing,
securing or relating in any way to Indebtedness of the Borrower to any Person
other than the Bank shall be in form and substance acceptable to the Bank and
its counsel.
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7.1.8 Material Consents.
All material consents required to effectuate the transactions
contemplated hereby shall have been obtained.
7.1.9 Officer's Certificate Regarding MACs.
Since September 30, 1996, no Material Adverse Change shall have
occurred; prior to the Closing Date, there shall have been no material change in
the management of Borrower or Subsidiary or other Subsidiary of Borrower; and
there shall have been delivered to the Bank a certificate dated the Closing Date
and signed by the Chief Executive Officer, President or Chief Financial Officer
of the Borrower to each such effect.
7.1.10 No Violation of Laws.
The making of the Loans and the making of advances thereunder shall not
contravene any Law applicable to Borrower or the Bank.
7.1.11 No Actions or Proceedings.
No action, proceeding, investigation, regulation or legislation shall
have been instituted, threatened or proposed before any court, governmental
agency or legislative body to enjoin, restrain or prohibit, or to obtain damages
in respect of, this Agreement, the other Loan Documents or the consummation of
the transactions contemplated hereby or thereby or which, in the Bank's sole
discretion, would make it inadvisable to consummate the transactions
contemplated by this Agreement or any of the other Loan Documents.
7.1.12 Insurance Policies: Certificates of Insurance; Endorsements.
The Borrower shall have delivered evidence acceptable to the Bank that
adequate insurance in compliance with Section 8.1.3 is in full force and effect
and that all premiums then due thereon have been paid, together with a certified
copy of Borrower's casualty insurance policy or policies evidencing coverage
satisfactory to the Bank, with additional insured, mortgagee and lender loss
payable special endorsements attached thereto in form and substance satisfactory
to the Bank and its counsel naming the Bank as additional insured, mortgagee and
lender loss payee.
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7.2 Each Additional Advance.
At the time of making any advances under the Loans other than advances
made on the Closing Date and after giving effect to the proposed extensions of
credit; the representations and warranties of the Borrower contained in Article
6 and in the other Loan Documents shall be true on and as of the date of such
additional advance with the same effect as though such representations and
warranties had been made on and as of such date (except representations and
warranties which expressly relate solely to an earlier date or time, which
representations and warranties shall be true and correct on and as of the
specific dates or times referred to therein) and the Borrower shall have
performed and complied with all covenants and conditions hereof; no Event of
Default or Potential Default shall have occurred and be continuing or shall
exist; the making of the requested advances shall not contravene any Law
applicable to Borrower or Subsidiary of Borrower or the Bank; and the Borrower
shall have delivered to the Bank a duly executed and completed Loan Request or
Reducing Revolving Line Loan Request as the case may be.
8. COVENANTS
8.1 Affirmative Covenants.
The Borrower covenants and agrees that until payment in full of the
Loans and satisfaction of all of the Borrower's other Obligations under the Loan
Documents, the Borrower shall comply at all times with the following affirmative
covenants:
8.1.1 Preservation of Existence. Etc.
Borrower shall, and shall cause each of its Subsidiaries to, maintain
its legal existence as a corporation, limited partnership or limited liability
company and its license or qualification and good standing in each jurisdiction
in which its ownership or lease of property or the nature of its business makes
such license or qualification necessary, except as otherwise expressly permitted
in Section 8.2.6.
8.1.2 Payment of Liabilities Including Taxes Etc.
Borrower shall, and shall cause each of its Subsidiaries to, duly pay
and discharge all liabilities to which it is subject or which are asserted
against it, promptly as and when the same shall become due and payable,
including all taxes, assessments and governmental charges upon it or any of its
properties, assets, income or profits, prior to the date on which penalties
attach thereto, except to the extent that such liabilities, including taxes,
assessments or charges,
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are being contested in good faith and by appropriate and lawful proceedings
diligently conducted and for which such reserve or other appropriate provisions,
if any, as shall be required by GAAP shall have been made, but only to the
extent that failure to discharge any such liabilities would not result in any
additional liability which would adversely affect to a material extent the
financial condition of Borrower or Subsidiary of Borrower, provided that the
Borrower and its Subsidiaries will pay all such liabilities forthwith upon the
commencement of proceedings to foreclose any Lien which may have attached as
security therefor.
8.1.3 Maintenance of Insurance.
Borrower shall, and shall cause each of its Subsidiaries to, insure its
properties and assets against loss or damage by fire and such other insurable
hazards as such assets are commonly insured (including fire, extended coverage,
property damage, workers' compensation, public liability and business
interruption insurance) and against other risks (including errors and omissions)
in such amounts as similar properties and assets are insured by prudent
companies in similar circumstances carrying on similar businesses, and with
reputable and financially sound insurers, including self-insurance to the extent
customary, all as reasonably determined by the Bank. At the request of the Bank,
the Borrower shall deliver to the Bank (x) on the Closing Date and annually
thereafter an original certificate of insurance signed by the Borrower's
independent insurance broker describing and certifying as to the existence of
the insurance required to be maintained by this Agreement and the other Loan
Documents, together with a copy of the endorsement described in the next
sentence attached to such certificate and (y) from time to time a summary
schedule indicating all insurance then in force with respect to Borrower. Such
policies of insurance shall contain special endorsements, in form and substance
acceptable to the Bank, which shall specify the Bank as an additional insured,
and, in the event the Bank acquires collateral security rights in any of
Borrower's Property, mortgagee and lender loss payee as its interests may
appear.
8.1.4 Maintenance of Properties and Leases.
Borrower shall, and shall cause each of its Subsidiaries to, maintain in
good repair, working order and condition (ordinary wear and tear excepted) in
accordance with the general practice of other businesses of similar character
and size, all of those properties useful or necessary to its business, and from
time to time, Borrower will make or cause to be made all appropriate repairs,
renewals or replacements thereof.
8.1.5 Maintenance of Patents, Trademarks Etc.
Borrower shall, and shall cause each of its Subsidiaries to, maintain in
full force and effect all patents, trademarks, service marks, trade names,
copyrights, licenses, franchises,
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permits and other authorizations necessary for the ownership and operation of
its properties and business if the failure so to maintain the same would
constitute a Material Adverse Change.
8.1.6 Visitation Rights.
Borrower shall, and shall cause each of its Subsidiaries to, permit any
of the officers or authorized employees or representatives of the Bank to visit
and inspect any of its properties and to audit and examine and make excerpts
from its books and records and discuss its business affairs, finances and
accounts with its officers, all in such detail and at such times and as often as
the Bank may reasonably request, provided that Bank shall provide the Borrower
with reasonable notice prior to any visit or inspection.
8.1.7 Keeping of Records and Books of Account.
The Borrower shall, and shall cause each Subsidiary of the Borrower to,
maintain and keep proper books of record and account which enable the Borrower
and its Subsidiaries to issue financial statements in accordance with GAAP and
as otherwise required by applicable Laws of any Official Body having
jurisdiction over the Borrower or any Subsidiary of the Borrower, and in which
full, true and correct entries shall be made in all material respects of all its
dealings and business and financial affairs.
8.1.8 Plans and Benefit Arrangements.
The Borrower shall, and shall cause each other member of the ERISA Group
to, comply with ERISA, the Internal Revenue Code and other applicable Laws
applicable to Plans and Benefit Arrangements except where such failure, alone or
in conjunction with any other failure, would not result in a Material Adverse
Change. Without limiting the generality of the foregoing, the Borrower shall
cause all of its Plans and all Plans maintained by any member of the ERISA Group
to be funded in accordance with the minimum funding requirements of ERISA and
shall make, and cause each member of the ERISA Group to make, in a timely
manner, all contributions due to Plans, Benefit Arrangements and Multiemployer
Plans.
8.1.9 Compliance with Laws.
The Borrower shall, and shall cause each of its Subsidiaries to, comply
with all applicable Laws, including all Environmental Laws, in all respects,
provided that it shall not be deemed to be a violation of this Section 8.1.9 if
any failure to comply with any Law would not result in fines, penalties,
remediation costs, other similar liabilities or injunctive relief which in the
aggregate would constitute a Material Adverse Change.
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8.1.10 Use of Proceeds.
The Borrower will use the proceeds of the Loans only for the purposes
identified in Section 2.7 and Section 3.6 hereof.
8.1.11 Operating Accounts.
The Borrower will maintain checking and depository operating accounts
with the Bank.
8.2 Negative Covenants.
The Borrower covenants and agrees that until payment in full of the
Loans, including interest thereon, and satisfaction of all of the Borrower's
other Obligations hereunder, the Borrower shall comply with the following
negative covenants:
8.2.1 Indebtedness.
Borrower shall not, and shall not permit any of its Subsidiaries to, at
any time create, incur, assume or suffer to exist any Indebtedness, except:
(i) Indebtedness under the Loan Documents;
(ii) Existing Indebtedness in favor of each Person who has executed
the Inter-Creditor Agreement as set forth on Schedule 8.2.1 (including any
extensions or renewals thereof), provided there is no increase in the amount
thereof or other significant change in the terms therefor specified on Schedule
8.2.1;
(iii) Indebtedness secured by Purchase Money Security Interests and
Indebtedness arising out of operating or capital leases not exceeding $1,000,000
in the aggregate:
(iv) Indebtedness to any Subsidiary of the Borrower which has not
guaranteed or otherwise become a co-obligor of the Indebtedness of Borrower
under the Loans, in form and substance acceptable to the Bank, in an amount not
to exceed $1,000,000 in the aggregate; and
(v) Other unsecured Indebtedness to any Person in an amount not to
exceed $2,000,000 in the aggregate.
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8.2.2 Liens.
Borrower shall not, and shall not permit any of its Subsidiaries to, at
any time create, incur, assume or suffer to exist any Lien on any of its
property or assets, tangible or intangible, now owned or hereafter acquired, or
agree or become liable to do so, except Permitted Liens.
8.2.3 Guaranties.
Borrower shall not, and shall not permit any of its Subsidiaries to, at
any time, directly or indirectly, become or be liable in respect of any
Guaranty, or assume, guarantee, become surety for, endorse or otherwise agree,
become or remain directly or contingently liable upon or with respect to any
obligation or liability of any other Person, except for Indebtedness of the
Borrower with respect to its Subsidiaries permitted under Section 8.2.1
hereunder.
8.2.4 Loans and Investments.
The Borrower shall not, and shall not permit any of its Subsidiaries to,
at any time make or suffer to remain outstanding any loan or advance to, or
purchase, acquire or own (other than in connection with Permitted Acquisitions,
as defined in Section 8.2.6) any stock, bonds, notes or securities of, or any
partnership interest (whether general or limited) or limited liability company
interest in, or any other investment or interest in, or make any capital
contribution to, any other Person, or agree, become or remain liable to do any
of the foregoing, except:
(i) trade credit extended on usual and customary terms in the
ordinary course of business;
(ii) advances to employees to meet expenses incurred by such
employees in the ordinary course of business;
(iii) Permitted Investments;
(iv) loans to Subsidiaries which have guaranteed or otherwise become
a co-obligor of the Indebtedness of Borrower under the Loans, in form and
substance acceptable to the Bank.
8.2.5 Dividends and Related Distributions.
The Borrower shall not, and shall not permit any of its Subsidiaries to,
make or pay, or agree to become or remain liable to make or pay, any dividend or
other distribution of any nature (whether in cash, property, securities or
otherwise) on account of or in respect of its shares of capital stock,
partnership interests or limited liability company interests on account of
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the purchase, redemption, retirement or acquisition of its shares of capital
stock (or warrants, options or rights therefor), partnership interests or
limited liability company interests.
8.2.6 Liquidations, Mergers, Consolidations, Acquisitions.
The Borrower shall not, and shall not permit any of its Subsidiaries to,
dissolve, liquidate or wind-up its affairs, or become a party to any merger or
consolidation, or acquire by purchase, lease or otherwise all or substantially
all of the assets or capital stock of any other Person, provided that
(1) The Borrower may acquire, whether by purchase or by merger, (A) all
of the ownership interests of another Person or (B) substantially all of assets
of another Person or of a business or division of another Person (each a
"Permitted Acquisition"), provided that each of the following requirements is
met:
(i) if the Borrower acquiring the ownership interests in such Person,
such Person shall, if required by Bank, join this Agreement as a Guarantor or
execute such guaranty agreements as the Bank may require on or before the date
of such Permitted Acquisition;
(ii) the board of directors or other equivalent governing body of
such Person shall have approved such Permitted Acquisition and, if the
Borrower shall use any portion of the Loans to fund such Permitted Acquisition,
the Borrower also shall have delivered to the Bank written evidence of the
approval of the board of directors (or equivalent body) of such Person for such
Permitted Acquisition;
(iii) the business acquired, or the business conducted by the Person
whose ownership interests are being acquired, as applicable, shall be
substantially the same as one or more line or lines of business conducted by the
Borrower and shall comply with Section 8.2.10;
(iv) no Potential Default or Event of Default shall exist immediately
prior to and after giving effect to such Permitted Acquisition;
(v) the Borrower shall demonstrate that it shall be in compliance
with the covenants contained in Sections 8.2.15, 8.2.16 and 8.2.17 after
giving effect to such Permitted Acquisition (including in such computation
Indebtedness or other liabilities assumed or incurred in connection with such
Permitted Acquisition but excluding income earned or expenses incurred by the
Person, business or assets to be acquired prior to the date of such Permitted
Acquisition) by delivering at least five (5) Business Days prior to such
Permitted Acquisition a certificate in the form and substance acceptable to the
Bank evidencing such compliance;
(vi) the Consideration paid by the Borrower for all Permitted
Acquisitions made between the Closing Date and the date of such Permitted
Acquisition shall not exceed the
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lesser of one-half of the Borrower's Consolidated Tangible Net Worth
(measured at the time of each Permitted Acquisition) or $15,000,000; and
(vii) the Borrower shall deliver to the Bank at least five (5)
Business Days before such Permitted Acquisition copies of any agreements
entered into or proposed to be entered into by such Borrower in connection with
such Permitted Acquisition and shall deliver to the Bank such other information
about such Person or its assets as the Bank may reasonably require.
8.2.7 Dispositions of Assets or Subsidiaries.
The Borrower shall not, and shall not permit any of its Subsidiaries to,
sell, convey, assign, lease, abandon or otherwise transfer or dispose of,
voluntarily or involuntarily, any of its properties or assets, tangible or
intangible (including sale, assignment, discount or other disposition of
accounts, contract rights, chattel paper, equipment or general intangibles with
or without recourse or of capital stock, shares of beneficial interest,
partnership interests or limited liability company interests of a Subsidiary of
Borrower), except:
(i) transactions involving the sale of inventory in the ordinary
course of business;
(ii) any sale, transfer or lease of assets in the ordinary course of
business which are no longer necessary or required in the conduct of Borrower's
or such Subsidiary's business,
(iii) any sale, transfer or lease of assets by any wholly owned
Subsidiary of Borrower to any such wholly-owned subsidiary;
(iv) any sale, transfer or lease of assets in the ordinary course of
business which are replaced by substitute assets acquired or leased within the
parameters of Section 8.2.1; and
(v) any sale, transfer or lease of assets, other than those
specifically excepted pursuant to clauses (i) through (v) above,
provided that (i) at the time of any disposition, no Event of Default shall
exist or shall result from such disposition, and (ii) the aggregate value of all
assets so sold by the Borrower and their Subsidiaries shall not exceed in any
fiscal Year $5,000,000.
8.2.8 Affiliate Transactions.
The Borrower shall not, and shall not permit any of its Subsidiaries to,
enter into or carry out any transaction (including purchasing property or
services from or selling property
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or services to any Affiliate of any Borrower or other Person) unless such
transaction is not otherwise prohibited by this Agreement, is entered into in
the ordinary course of business upon fair and reasonable arm's length terms and
conditions which are fully disclosed to the Bank and is in accordance with all
applicable Law.
8.2.9 Subsidiaries, Partnerships and Joint Ventures.
The Borrower shall not, and shall not permit any of its Subsidiaries to,
own or create directly or indirectly any Subsidiaries after the date of this
Agreement other than those created pursuant to a Permitted Acquisition. The
Borrower shall not become or agree to (1) become a general or limited partner in
any general or limited partnership, (2) become a member or manager of, or hold a
limited liability company interest in, a limited liability company, or (3)
become a joint venture or hold a joint venture interest in any joint venture.
8.2.10 Continuation of or Change in Business.
The Borrower shall not, and shall not permit any of its Subsidiaries to,
engage in any business other than the spring water and beverage production,
manufacturing and distribution business, substantially as conducted and operated
by the Borrower or Subsidiary during the present fiscal year, or any other
business venture that is reasonably related thereto, and the Borrower or
Subsidiaries shall not permit any material change in such business.
8.2.11 Plans and Benefit Arrangements.
The Borrower shall not, and shall not permit any of its Subsidiaries to
engage in a Prohibited Transaction with any Plan, Benefit Arrangement or
Multiemployer Plan which, alone or in conjunction with any other circumstances
or set of circumstances resulting in liability under ERISA or otherwise violate
ERISA.
8.2.12 Fiscal Year.
The Borrower shall not, and shall not permit any Subsidiary of the
Borrower to, change its fiscal year from the twelve-month period beginning
October 1 and ending September 30.
8.2.13 Changes in Organizational Documents.
The Borrower shall not, and shall not permit any of its Subsidiaries to,
amend in any respect its certificate of incorporation (including any provisions
or resolutions relating to
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capital stock), by-laws, certificate of limited partnership, partnership
agreement, certificate of formation, limited liability company agreement or
other organizational documents without providing at least sixty (60) calendar
days' prior written notice to the Bank, and, in the event such change would be
adverse to the Bank as determined by the Bank in its sole discretion, obtaining
the prior written consent of the Bank.
8.2.14 Negative Covenants Prohibition.
The Borrower shall not, and shall not permit any of its Subsidiaries to,
make any negative covenant in favor of any Person not a party to the
Inter-Creditor Agreement with respect to incurring Indebtedness (whether secured
or unsecured), pledging assets or otherwise granting any liens on, or security
interests in, any Property or other assets of the Borrower or any of its
Subsidiaries.
8.2.15 Minimum EBITDA to Fixed Charge Ratio.
The Borrower shall not at any time permit the ratio of Borrower's
consolidated EBITDA to Fixed Charges, calculated as of the end of each fiscal
year of Borrower, to be less than 1.4 to 1.0.
8.2.16 Maximum Leverage Ratio.
The Borrower shall not at any time permit the ratio of consolidated
total liabilities of the Borrower and its Subsidiaries to Consolidated Tangible
Net Worth, calculated as of the end of each quarter of each fiscal year of the
Borrower, to exceed 2.0 to 1.0
8.2.17 Minimum EBITDA Ratio.
The Borrower shall not permit the Borrower's consolidated EBITDA Ratio,
determined at the end of each quarter of each fiscal year of the Borrower, to
exceed (i) 4.0 to 1.0 for fiscal quarters ending September 30, 1997, December
31, 1997 and March 31, 1998 and (ii) 3.5 to 1.0 for each fiscal quarter ending
thereafter.
8.2.18 No Change in Control.
The Borrower shall not, nor permit any of its Subsidiaries to, suffer,
cause or permit a change in any controlling stock or other equity ownership
interest (which, for purposes of this Agreement shall mean an interest
comprising (i) 10% or more of the voting capital stock or other equity interests
in Borrower, excluding sales, but not acquisitions, of voting capital stock or
other equity interests by existing shareholders of Borrower as of the date
hereof in
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connection with an initial public offering of such class of stock or other
equity interests by Borrower or (ii) 20% or more of the voting capital stock or
other equity interests in Borrower in connection with or following sale of a
class of voting securities comprising a majority of the voting rights in
Borrower through an initial public offering, or a change in senior management
from that existing as of the date of this Agreement.
8.3 Reporting Requirements.
The Borrower covenants and agrees that until payment in full of the
Loans, including interest thereon, and satisfaction of all of the Borrower'
other Obligations hereunder and under the other Loan Documents, the Borrower
will furnish or cause to be furnished to the Bank:
8.3.1 Quarterly Financial Statements.
As soon as available and in any event within forty-five (45) calendar
days after the end of each of the first three fiscal quarters in each fiscal
year, financial statements of the Borrower, consisting of a consolidated and
consolidating balance sheet as of the end of such fiscal quarter and related
consolidated and consolidating statements of income, retained earnings,
stockholders' equity and cash flows for the fiscal quarter then ended and the
fiscal year through that date, all in reasonable detail and certified (subject
to normal year-end audit adjustments) by the Chief Executive Officer, President
or Chief Financial Officer of the Borrower as having been prepared in accordance
with GAAP, consistently applied, and setting forth in comparative form the
respective financial statements for the corresponding date and period in the
previous fiscal year.
8.3.2 Annual Financial Statements.
As soon as available and in any event within ninety (90) days after the
end of each fiscal year of the Borrower, financial statements of the Borrower
consisting of a consolidated and consolidating balance sheet as of the end of
such fiscal year, and related consolidated and consolidating statements of
income, retained earnings, stockholders' equity and cash flows for the fiscal
year then ended, all in reasonable detail and setting forth in comparative form
the financial statements as of the end of and for the preceding fiscal year, and
certified by independent certified public accountants of nationally recognized
standing satisfactory to the Bank. The certificate or report of accountants
shall be free of qualifications (other than any consistency qualification that
may result from a change in the method used to prepare the financial statements
as to which such accountants concur or any qualification that the Bank may, its
sole discretion, waive as not being material to the financial condition,
management or accounting capabilities or business operations of the Borrower)
and shall not indicate the occurrence or existence of any event, condition or
contingency which would materially impair the prospect of payment or performance
of any covenant, agreement or duty of any Borrower
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under any of the Loan Documents. The Borrower shall deliver with such financial
statements and certification by its accountants a letter of such accountants to
the Bank substantially (i) to the effect that, based upon their ordinary and
customary examination of the affairs of the Borrower, performed in connection
with the preparation of such consolidated financial statements, and in
accordance with generally accepted auditing standards, they are not aware of the
existence of any condition or event which constitutes an Event of Default or
Potential Default or, if they are aware of such condition or event, stating the
nature thereof and confirming the Borrower's calculations with respect to the
certificate to be delivered pursuant to Section 8.3.3 with respect to such
financial statements and (ii) to the effect that the Bank is intended to rely
upon such accountant's certification of the annual financial statements and that
such accountants authorize the Borrower to deliver such reports and certificate
to the Bank on such accountant's behalf.
8.3.3 Certificate of the Borrower.
Concurrently with the financial statements of the Borrower furnished to
the Bank pursuant to Sections 8.3.1 and 8.3.2, a certificate of the Borrower
signed by the Chief Executive Officer, President or Chief Financial Officer of
the Borrower, in form acceptable to the Bank, to the effect that, except as
described pursuant to Section 8.3.4, (i) the representations and warranties of
the Borrower contained in Article 6 and in the other Loan Documents are true on
and as of the date of such certificate with the same effect as though such
representations and warranties had been made on and as of such date (except
representations and warranties which expressly relate solely to an earlier date
or time) and the Borrower has performed and complied with all covenants and
conditions hereof, (ii) no Event of Default or Potential Default exists and is
continuing on the date of such certificate and (iii) containing calculations in
sufficient detail to demonstrate compliance as of the date of such financial
statements with all financial covenants contained in Section 8.2.
8.3.4 Notice of Default.
Promptly after any officer of any Borrower has learned of the occurrence
of an Event of Default or Potential Default, a certificate signed by the Chief
Executive Officer, President or Chief Financial Officer of such Borrower setting
forth the details of such Event of Default or Potential Default and the action
which the such Borrower proposes to take with respect thereto.
8.3.5 Notice of Litigation.
Promptly after the commencement thereof, notice of all actions, suits,
proceedings or investigations before or by any Official Body or any other Person
against any Borrower or Subsidiary of any Borrower, involve a claim or series of
claims in excess of $500,000 or, which if adversely determined, would constitute
a Material Adverse Change.
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8.3.6 Budgets, Forecasts, Other Reports and Information.
Promptly upon their becoming available to the Borrower:
(i) the annual budget and any forecasts or projections of the
Borrower, to be supplied not later than thirty (30) days prior to commencement
of the fiscal year to which any of the foregoing may be applicable,
(ii) any reports including management letters submitted to the
Borrower by independent accountants in connection with any annual,
interim or special audit,
(iii) any reports, notices or proxy statements generally distributed
by the Borrower to its stockholders on a date no later than the date
supplied to such stockholders,
(iv) regular or periodic reports, including Forms 10-K, 10-Q and 8-K,
registration statements and prospectuses, filed by the Borrower with the
Securities and Exchange Commission,
(v) a copy of any order in any proceeding to which the Borrower or
any of its Subsidiaries is a party issued by any Official Body, and
(vi) such other reports and information as any of the Bank may from
time to time reasonably request. The Borrower shall also notify the Bank
promptly of the enactment or adoption of any Law which may result in a Material
Adverse Change.
8.3.7 Notices Regarding Plans and Benefit Arrangements.
8.3.7.1 Certain Events.
Promptly upon becoming aware of the occurrence thereof, notice
(including the nature of the event and, when known, any action taken or
threatened by the Internal Revenue Service or the PBGC with respect thereto) of:
(i) any Reportable Event with respect to the Borrower or any other
member of the ERISA Group (regardless of whether the obligation to report said
Reportable Event to the PBGC has been waived),
(ii) any Prohibited Transaction which could subject the Borrower or
any other member of the ERISA Group to a civil penalty assessed pursuant
to Section 502(i) of ERISA or a tax imposed by Section 4975 of the Internal
Revenue Code in connection with any Plan, any Benefit Arrangement or any trust
created thereunder,
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(iii) any assertion of material withdrawal liability with respect to
any Multiemployer Plan,
(iv) any partial or complete withdrawal from a Multiemployer Plan by
the Borrower or any other member of the ERISA Group under Title IV of ERISA (or
assertion thereof), where such withdrawal is likely to result in material
withdrawal liability,
(v) any cessation of operations (by the Borrower or any other member
of the ERISA Group) at a facility in the circumstances described in Section
4062(e) of ERISA,
(vi) withdrawal by the Borrower or any other member of the ERISA
Group from a Multiple Employer Plan,
(vii) a failure by the Borrower or any other member of the ERISA
Group to make a payment to a Plan required to avoid imposition of a Lien under
Section 302(f) of ERISA,
(viii) the adoption of an amendment to a Plan requiring the provision
of security to such Plan pursuant to Section 307 of ERISA, or
(ix) any change in the actuarial assumptions or funding methods used
for any Plan, where the effect of such change is to materially increase or
materially reduce the unfunded benefit liability or obligation to make periodic
contributions.
8.3.7.2. Notices of Involuntary Termination and Annual Reports.
Promptly a receipt thereof, copies of (a) all notices received by the
Borrower or any other member of the ERISA Group of the PBGC's intent to
terminate any Plan administered or maintained by the Borrower or any member of
the ERISA Group, or to have a trustee appointed to administer any such Plan; and
(b) at the request of the Bank each annual report (IRS Form 5500 series) and all
accompanying schedules, the most recent actuarial reports, the most recent
financial information concerning the financial status of each Plan administered
or maintained by the Borrower or any other member of the ERISA Group, and
schedules showing the amounts contributed to each such Plan by or on behalf of
the Borrower or any other member of the ERISA Group in which any of their
personnel participate or from which such personnel may derive a benefit, and
each Schedule B (Actuarial Information) to the annual report filed by the
Borrower or any other member of the ERISA Group with the Internal Revenue
Service with respect to each such Plan.
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8.3.7.3 Notice of Voluntary Termination.
Promptly upon the filing thereof, copies of any Form 5310, or any
successor or equivalent form to Form 5310, filed with the PBGC in connection
with the termination of any Plan.
8.3.7.4 Applicable Margin Certificate
For purposes of calculation of the Applicable Margin for the Euro-
Rate Option pursuant to Sections 4.1.1 and 4. 1.2, Borrower shall provide
to Bank a certificate, in form and content acceptable to the Bank, within thirty
(30) days from the end of each fiscal quarter of Borrower (the "Applicable
Margin Certificate") showing Borrower's calculation of the EBITDA Ratio as of
the end of such fiscal quarter. Such calculation shall be subject to
verification by Bank, and Bank's verifying calculation of the EBITDA Ratio shall
be final and conclusive.
9. DEFAULT
9.1 Events of Default.
An Event of Default shall mean the occurrence or existence of any one or
more of the following events or conditions (whatever the reason therefor and
whether voluntary, involuntary or effected by operation of Law):
9.1.1 Payments Under Loan Documents.
The Borrower shall fail to pay (i) any principal of any Loan (including
scheduled installments, mandatory prepayments or the payment due at maturity),
when such principal is due hereunder or (ii) any interest on any Loan, Borrowing
Tranche or any other amount owing hereunder or under the other Loan Documents
after such interest or other amount becomes due in accordance with the terms
hereof or thereof;
9.1.2 Breach of Warranty.
Any representation or warranty made at any time by the Borrower herein
or by the Borrower in any other Loan Document, or in any certificate, other
instrument or statement furnished pursuant to the provisions hereof or thereof,
shall prove to have been false or misleading in any material respect as of the
time it was made or furnished;
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9.1.3 Breach of Negative Covenants or Visitation Rights.
The Borrower shall default in the observance or performance of any
covenant contained in Section 8.1.6 or Section 8.2;
9.1.4 Breach of Other Covenants.
The Borrower shall default in the observance or performance of any other
covenant, condition or provision hereof or of any other Loan Document and such
default shall continue unremedied for a period of ten (10) Business Days after
any officer of Borrower becomes aware of the occurrence thereof (such grace
period to be applicable only in the event such default can be remedied by
corrective action of the Borrower as determined by the Bank in its sole
discretion);
9.1.5 Defaults in Other Agreements or Indebtedness.
A default or event of default shall occur at any time under the terms of
any other agreement involving borrowed money or the extension of credit or any
other Indebtedness under which any Borrower or Subsidiary of any Borrower may be
obligated as a borrower or guarantor in excess of $500,000 in the aggregate, and
such breach, default or event of default consists of the failure to pay (beyond
any period of grace permitted with respect thereto, whether waived or not) any
indebtedness when due (whether at stated maturity, by acceleration or otherwise)
or if such breach or default permits or causes the acceleration of any
indebtedness (whether or not such right shall have been waived) or the
termination of any commitment to lend;
9.1.6 Final Judgments or Orders.
Any final judgments or orders for the payment of money in excess of
$500,000 in the aggregate shall be entered against any Borrower by a court
having jurisdiction in the premises, which judgment is not discharged, vacated,
bonded or stayed pending appeal within a period of thirty (30) days from the
date of entry;
9.1.7 Loan Document Unenforceable.
Any of the Loan Documents shall cease to be legal, valid and binding
agreements enforceable against the party executing the same or such party's
successors and assigns (as permitted under the Loan Documents) in accordance
with the respective terms thereof or shall in any way be terminated (except in
accordance with its terms) or become or be declared ineffective or inoperative
or shall in any way be challenged or contested or cease to give or provide the
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respective Liens, security interests, rights, titles, interests,
remedies, powers or privileges intended to be created thereby;
9.1.8 Uninsured Losses: Proceedings Against Assets.
There shall occur any material uninsured damage to or loss, theft or
destruction of any of the Borrower's or any Subsidiary's Property in excess of
$500,000 or any of the Borrower's or any of its Subsidiaries assets are
attached, seized, levied upon or subjected to a writ or distress warrant; or
such come within the possession of any receiver, trustee, custodian or assignee
for the benefit of creditors and the same is not cured within thirty (30) days
thereafter;
9.1.9 Notice of Lien or Assessment.
A notice of Lien or assessment which is not a Permitted Lien is filed of
record with respect to all or any part of any of the Borrower's or any of its
Subsidiaries' assets by the United States, or any department, agency or
instrumentality thereof, or by any state, county, municipal or other
governmental agency, including the PBGC, or any taxes or debts owing at any time
or times hereafter to any one of these becomes payable and the same is not paid
within thirty (30) days after the same becomes payable;
9.1.10 Insolvency.
The Borrower or any Subsidiary of the Borrower ceases to be solvent or
admits in writing its inability to pay its debts as they mature;
9.1.11 Events Relating to Plans and Benefit Arrangements.
Any of the following occurs: (i) any Reportable Event, which the Bank
determines in good faith constitutes grounds for the termination of any Plan by
the PBGC or the appointment of a trustee to administer or liquidate any Plan,
shall have occurred and be continuing; (ii) proceedings shall have been
instituted or other action taken to terminate any Plan, or a termination notice
shall have been fled with respect to any Plan; (iii) a trustee shall be
appointed to administer or liquidate any Plan; (iv) the PBGC shall give notice
of its intent to institute proceedings to terminate any Plan or Plans or to
appoint a trustee to administer or liquidate any Plan; and, in the case of the
occurrence of (i), (ii), (iii) or (iv) above, the Bank determines in good faith
that the amount of the Borrower's liability is likely to exceed 10% of its
Consolidated Tangible Net Worth; (v) the Borrower or any member of the ERISA
Group shall fail to make any contributions when due to a Plan or a Multiemployer
Plan; (vi) the Borrower or any other member of the ERISA Group shall make any
amendment to a Plan with respect to which security is required under Section 307
of ERISA; (vii) the Borrower or any other member
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of the ERISA Group shall withdraw completely or partially from a Multiemployer
Plan, (viii) the Borrower or any other member of the ERISA Group shall withdraw
(or shall be deemed under Section 4062(e) of ERISA to withdraw) from a Multiple
Employer Plan; or (ix) any applicable Law is adopted, changed or interpreted by
any Official Body with respect to or otherwise affecting one or more Plans,
Multiemployer Plans or Benefit Arrangements and, with respect to any of the
events specified in (v), (vi), (vii), (viii) or (ix), the Bank determines in
good faith that any such occurrence would be reasonably likely to materially and
adversely affect the total enterprise represented by the Borrower and the other
members of the ERISA Group;
9.1.12 Cessation of Business.
The Borrower or any Subsidiary of the Borrower ceases to conduct its
business as contemplated, except as expressly permitted under Section 8.2.6 or
8.2.7 or the Borrower or Subsidiary of the Borrower is enjoined, restrained or
in any way prevented by court order from conducting all or any material part of
its business and such injunction, restraint or other preventive order is not
dismissed within thirty (30) days after the entry thereof;
9.1.13 Change of Control.
(i) Any person or group of persons (within the meaning of Sections 13(d)
or 14(a) of the Securities Exchange Act of 1934, as amended) shall have acquired
beneficial ownership of (within the meaning of Rule 13d-3 promulgated by the
Securities and Exchange Commission under said Act) (A) 10% or more of the voting
capital stock or other equity interests in the Borrower, excluding, however,
such beneficial ownership, if any, by existing shareholders of Borrower as of
the date hereof or (B) 20% or more of the voting capital stock or other equity
interests in Borrower in connection with or following sale of a class of voting
securities comprising a majority of the voting rights in Borrower through an
initial public offering, or (ii) within a period of twelve (12) consecutive
calendar months, individuals comprising 25% or more of the Board of Directors of
the Borrower on the first day of such period shall cease to be directors of the
Borrower;
9.1.14 Involuntary Proceedings.
A proceeding shall have been instituted in a court having jurisdiction
in the premises seeking a decree or order for relief in respect of the Borrower
or Subsidiary of the Borrower in an involuntary case under any applicable
bankruptcy, insolvency, reorganization or other similar law now or hereafter in
effect, or for the appointment of a receiver, liquidator, assignee, custodian,
trustee, sequestrator, conservator (or similar official) of the Borrower or
Subsidiary of the Borrower for any substantial part of its property, or for the
winding-up or liquidation of its affairs, and such proceeding shall remain
undismissed or unstayed and in effect for a period of thirty (30) consecutive
days or such court shall enter a decree or order granting any of the relief
sought in such proceeding; or
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9.1.15 Voluntary Proceedings.
The Borrower or Subsidiary of the Borrower shall commence a voluntary
case under any applicable bankruptcy, insolvency, reorganization or other
similar law now or hereafter in effect, shall consent to the entry of an order
for relief in an involuntary case under any such law, or shall consent to the
appointment or taking possession by a receiver, liquidator, assignee, custodian,
trustee, sequestrator, conservator (or other similar official) of itself or for
any substantial part of its property or shall make a general assignment for the
benefit of creditors, or shall fail generally to pay its debts as they become
due, or shall take any action in furtherance of any of the foregoing.
9.2 Consequences of Event of Default.
9.2.1 Events of Default Other Than Bankruptcy, Insolvency or
Reorganization Proceedings.
If an Event of Default specified under Sections 9.1.1 through 9.1.13
shall occur and be continuing, the Bank shall be under no further obligation to
make Revolving Line Advances or Reducing Revolving Line Advances, as the case
may be, and the Bank may, in addition to all other rights and remedies available
to Bank under the other Loan Documents or at law or in equity, by written notice
to the Borrower, declare the unpaid principal amount of the Notes then
outstanding and all interest accrued thereon, any unpaid fees and all other
Indebtedness of the Borrower to the Bank hereunder and thereunder to be
forthwith due and payable, and the same shall thereupon become and be
immediately due and payable to the Bank without presentment, demand, protest or
any other notice of any kind, all of which are hereby expressly waived; and
9.2.2 Bankruptcy, Insolvency or Reorganization Proceedings.
If an Event of Default specified under Section 9.1.14 or 9.1.15 shall
occur, the Bank shall be under no further obligations to make Revolving Line
Advances or Reducing Revolving Line Advances under the Loans hereunder and the
unpaid principal amount of the Loans then outstanding and all interest accrued
thereon, any unpaid fees and all other Indebtedness of the Borrower to the Bank
hereunder and thereunder shall be immediately due and payable, without
presentment, demand, protest or notice of any kind, all of which are hereby
expressly waived; and
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9.2.3 Set-off.
If an Event of Default shall occur and be continuing, the Bank shall
have the right, in addition to all other rights and remedies available to it,
without notice to such Borrower, to set-off against and apply to the then unpaid
balance of all the Loans and all other Obligations of the Borrower hereunder or
under any other Loan Document any debt owing to, and any other funds held in any
manner for the account of, the Borrower including all funds in all deposit
accounts (whether time or demand, general or special, provisionally credited or
finally credited, or otherwise) now or hereafter maintained by the Borrower for
its own account (but not including funds held in custodian or trust accounts)
with the Bank. Such right shall exist whether or not the Bank shall have made
any demand under this Agreement or any other Loan Document, whether or not such
debt owing to or funds held for the account of the Borrower is or are matured or
unmatured and regardless of the existence or adequacy of any Guaranty or any
other security, right or remedy available to the Bank; and
9.2.4 Suits, Actions, Proceedings.
If an Event of Default shall occur and be continuing, and whether or not
the Bank shall have accelerated the maturity of the Loans pursuant to any of the
foregoing provisions of this Section 9.2, the Bank may proceed to protect and
enforce its rights by suit in equity, action at law and/or other appropriate
proceeding, whether for the specific performance of any covenant or agreement
contained in this Agreement or the other Loan Documents, including as permitted
by applicable Law the obtaining of the exparte appointment of a receiver, and,
if such amount shall have become due, by declaration or otherwise, proceed to
enforce the payment thereof or any other legal or equitable right of the Bank;
and
9.2.5 Application of Proceeds.
From and after the date on which the Bank has taken any action pursuant
to this Section 9.2 and until all Obligations of the Borrower have been paid in
full, any and all proceeds received by the Bank from the exercise of any remedy
by the Bank, shall be applied as follows:
(i) first, to reimburse the Bank for out-of-pocket costs, expenses
and disbursements, including reasonable attorneys' and paralegals' fees
and legal expenses, incurred by the Bank in connection with collection of any
Obligations of the Borrower under any of the Loan Documents, including advances
made by the Bank for the reasonable maintenance, preservation, protection or
enforcement of, or realization upon, any Property of the Borrower seized by the
Bank in execution or given as collateral, including advances for taxes,
insurance, repairs and the like and reasonable expenses incurred to sell or
otherwise realize on, or prepare for sale or other realization on, any Property;
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(ii) second, to the repayment of all Indebtedness then due and unpaid
of the Borrower to the Bank incurred under this Agreement or any of the
other Loan Documents, whether of principal, interest, fees, expenses or
otherwise, in such manner as the Bank may determine in its discretion; and
(iii) the balance, if any, as required by Law.
9.2.6 Other Rights and Remedies.
In addition to all of the rights and remedies contained in this
Agreement or in any of the other Loan Documents, the Bank shall have all of the
rights and remedies under applicable Law, all of which rights and remedies shall
be cumulative and nonexclusive, to the extent permitted by Law. The Bank may
exercise all post-default rights granted to the Bank under the Loan Documents or
applicable Law.
10. THE BANK
10.1 Reimbursement and Indemnification of Bank by the Borrower.
The Borrower unconditionally agrees to pay or reimburse the Bank and hold
the Bank harmless against (a) liability for the payment of all reasonable
out-of-pocket costs, expenses and disbursements, including fees and expenses of
counsel (including the allocated costs of staff counsel), appraisers and
environmental consultants, incurred by the Bank (i) in connection with the
development, negotiation, preparation, printing, execution, administration,
interpretation and performance of this Agreement and the other Loan Documents,
(ii) relating to any requested amendments, waivers or consents pursuant to the
provisions hereof, (iii) in connection with the enforcement of this Agreement or
any other Loan Document or collection of amounts due hereunder or thereunder or
the proof and allowability of any claim arising under this Agreement or any
other Loan Document, whether in bankruptcy or receivership proceedings or
otherwise, and (iv) in any workout or restructuring or in connection with the
protection, preservation, exercise or enforcement of any of the terms hereof or
of any rights hereunder or under any other Loan Document or in connection with
any foreclosure, collection or bankruptcy proceedings, and (b) all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever which may be imposed
on, incurred by or asserted against the Bank, in its capacity as such, in any
way relating to or arising out of this Agreement or any other Loan Documents or
any action taken or omitted by the Bank hereunder or thereunder, provided that
the Borrower shall not be liable for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements if the same results from the Bank's gross negligence
or willful misconduct, or if the Borrower was not given notice of the subject
claim and the opportunity to participate in the
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defense thereof, at its expense (except that the Borrower shall remain liable to
the extent such failure to give notice does not result in a loss to the
Borrower), or if the same results from a compromise or settlement agreement
entered into without the consent of the Borrower, which shall not be
unreasonably withheld. In addition, the Borrower agrees to reimburse and pay all
reasonable out-of-pocket expenses of the Bank's regular employees and outside
accountants of Bank engaged following an Event of Default to perform audits of
the Borrower's books, records and business properties.
10.2 Exculpatory Provisions: Limitation of Liability.
Neither the Bank nor any of its directors, officers, employees, agents,
attorneys or Subsidiaries shall (a) be liable to Borrower for any action taken
or omitted to be taken by it or them hereunder, or in connection herewith
including pursuant to any Loan Document, unless caused by its or their own gross
negligence or willful misconduct, or (b) be responsible in any manner to any of
the Borrower for the effectiveness, enforceability, genuineness, validity or the
due execution of this Agreement or any other Loan Documents or for any recital,
representation, warranty, document, certificate, report or statement herein or
made or furnished under or in connection with this Agreement or any other Loan
Documents. No claim may be made by any of the Borrower, or any Subsidiary
against the Bank, or any of their respective directors, officers, employees,
agents, attorneys or Subsidiaries, or any of them, for any special, indirect or
consequential damages or, to the fullest extent permitted by Law, for any
punitive damages in respect of any claim or cause of action (whether based on
contract, tort, statutory liability, or any other ground) based on, arising out
of or related to any Loan Document or the transactions contemplated hereby or
any act, omission or event occurring in connection therewith, including the
negotiation, documentation, administration or collection of the Loans, and the
Borrower, (for itself and on behalf of each of its Subsidiaries) hereby waives,
releases and agrees never to sue upon any claim for any such damages, whether
such claim now exists or hereafter arises and whether or not it is now known or
suspected to exist in its favor.
10.3 Reliance by Bank.
The Bank shall be entitled to rely upon any writing, telegram, telex or
teletype message, resolution, notice, consent, certificate, letter, cablegram,
statement, order or other document or conversation by telephone or otherwise
believed by it to be genuine and correct and to have been signed, sent or made
by the proper Person or Persons, and upon the advice and opinions of counsel and
other professional advisers selected by the Bank. The Bank shall be fully
justified in failing or refusing to take any action hereunder unless it shall
first be indemnified to its satisfaction by the Bank against any and all
liability and expense which may be incurred by it by reason of taking or
continuing to take any such action.
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10.4 Notice of Default.
The Bank shall not be deemed to have knowledge or notice of the
occurrence of any Potential Default or Event of Default unless the Bank has
received written notice from the Borrower referring to this Agreement,
describing such Potential Default or Event of Default and stating that such
notice is a "notice of default."
11. MISCELLANEOUS
11.1 Modifications. Amendments or Waivers.
The Bank and the Borrower may from time to time enter into written
agreements amending or changing any provision of this Agreement or any other
Loan Document or the rights of the Bank or the Borrower hereunder or thereunder,
or may grant written waivers or consents to a departure from the due performance
of the Obligations of the Borrower hereunder or thereunder. Any such agreement,
waiver or consent made with such written consent shall be effective to bind all
the Bank and the Borrower.
11.2 No Implied Waivers; Cumulative Remedies; Writing Required.
No course of dealing and no delay or failure of the Bank in exercising
any right, power, remedy or privilege under this Agreement or any other Loan
Document shall affect any other or future exercise thereof or operate as a
waiver thereof, nor shall any single or partial exercise thereof or any
abandonment or discontinuance of steps to enforce such a right, power, remedy or
privilege preclude any further exercise thereof or of any other right, power,
remedy or privilege. The rights and remedies of the Bank under this Agreement
and any other Loan Documents are cumulative and not exclusive of any rights or
remedies which they would otherwise have. Any waiver, permit, consent or
approval of any kind or character on the part of the Bank of any breach or
default under this Agreement or any such waiver of any provision or condition of
this Agreement must be in writing and shall be effective only to the extent
specifically set forth in such writing.
11.3 Holidays.
Whenever payment of a Loan to be made or taken hereunder shall be due on
a day which is not a Business Day such payment shall be due on the next Business
Day and such extension of time shall be included in computing interest and fees,
except that the Loans shall be due on the Business Day preceding the Expiration
Date if the Expiration Date is not a Business Day. Whenever any payment or
action to be made or taken hereunder (other than payment of the
64
<PAGE>
Loans) shall be stated to be due on a day which is not a Business Day, such
payment or action shall be made or taken on the next following Business Day
(except as provided in Section 4.2 with respect to Interest Periods under the
Euro-Rate Option), and such extension of time shall not be included in computing
interest or fees, if any, in connection with such payment or action.
11.4 Funding by Branch Subsidiary or Affiliate.
11.4.1 Notional Funding.
Bank shall have the right from time to time, without notice to the
Borrower, to deem any branch, Subsidiary or Affiliate (which for the purposes of
this Section 11.4 shall mean any corporation or association which is directly or
indirectly controlled by or is under direct or indirect common control with any
corporation or association which directly or indirectly controls such Bank) of
such Bank to have made, maintained or funded any Loan to which the Euro-Rate
Option applies at any time, provided that immediately following (on the
assumption that a payment were then due from the Borrower to such other office),
and as a result of such change, the Borrower would not be under any greater
financial obligation pursuant to Section 5.4 than it would have been in the
absence of such change. Notional funding offices may be selected by each Bank
without regard to such Bank's actual methods of making, maintaining or funding
the Loans or any sources of funding actually used by or available to such Bank.
11.4.2 Actual Funding.
Bank shall have the right from time to time to make or maintain any Loan
by arranging for a branch, Subsidiary or Affiliate of Bank to make or maintain
such Loan subject to the last sentence of this Section 11.4.2. If Bank causes a
branch, Subsidiary or Affiliate to make or maintain any part of the Loans
hereunder, all terms and conditions of this Agreement shall, except where the
context clearly requires otherwise, be applicable to such part of the Loans to
the same extent as if such Loans were made or maintained by Bank, but in no
event shall Bank's use of such a branch, Subsidiary or Affiliate to make or
maintain any part of the Loans hereunder cause Bank or such branch, Subsidiary
or Affiliate to incur any cost or expenses payable by the Borrower hereunder or
require the Borrower to pay any other compensation to Bank (including any
expenses incurred or payable pursuant to Section 5.4) which would otherwise not
be incurred.
65
<PAGE>
11.5 Notices: Lending Offices.
All notices, requests, demands, directions and other communications (as
used in this Section 11.5, collectively referred to as "notices") given to or
made upon any party hereto under the provisions of this Agreement shall be by
telephone or in writing (including telex or facsimile communication) unless
otherwise expressly permitted hereunder and shall be delivered or sent by telex
or facsimile to the respective parties at the addresses and numbers set forth
under their respective names on Schedule 1.1(B) hereof or in accordance with
any subsequent unrevoked written direction from any party to the others. All
notices shall, except as otherwise expressly herein provided, be effective (a)
in the case of telex or facsimile, when received, (b) in the case of
hand-delivered notice, when hand-delivered, (c) in the case of telephone, when
telephoned, provided, however, that in order to be effective, telephonic notices
must be confirmed in writing no later than the next day by letter, facsimile or
telex, (d) if given by mail, four (4) days after such communication is deposited
in the mail with first-class postage prepaid, return receipt requested, and (e)
if given by any other means (including by air courier), when delivered;
provided, that notices to the Bank shall not be effective until received.
11.6 Severability.
The provisions of this Agreement are intended to be severable. If any
provision of this Agreement shall be held invalid or unenforceable in whole or
in part in any jurisdiction, such provision shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without in any
manner affecting the validity or enforceability thereof in any other
jurisdiction or the remaining provisions hereof in any jurisdiction.
11.7 Governing Law.
This Agreement shall be deemed to be a contract under the Laws of the
Commonwealth of Pennsylvania and for all purposes shall be governed by and
construed and enforced in accordance with the internal laws of the Commonwealth
of Pennsylvania without regard to its conflict of laws principles.
11.8 Prior Understandings.
This Agreement and the other Loan Documents supersede all prior
understandings and agreements, whether written or oral, between the parties
hereto and thereto relating to the transactions provided for herein and therein.
66
<PAGE>
11.9 Duration: Survival.
All representations and warranties of the Borrower contained herein or
made in connection herewith shall survive the making of Loans and shall not be
waived by the execution and delivery of this Agreement, any investigation by the
Bank or the Bank, the making of Loans, or payment in full of the Loans. All
covenants and agreements of the Borrower contained in Sections 8.1 [Affirmative
Covenants], 8.2 [Negative Covenants] and 8.3 [Reporting Requirements] herein
shall continue in full force and effect from and after the date hereof so long
as the Borrower may borrow hereunder and payment in full of the Loans. All
covenants and agreements of the Borrower contained herein relating to the
payment of principal, interest, premiums, additional compensation or expenses
and indemnification, including those set forth in the Notes, Section 5
[Payments] and Sections 10.1 [Reimbursement of Bank by Borrower, Etc.], shall
survive payment in full of the Loans.
11.10 Successors and Assigns.
(i) This Agreement shall be binding upon and shall inure to the benefit
of the Bank, the Borrower and their respective successors and assigns, except
that the Borrower may not assign or transfer any of its rights and Obligations
hereunder or any interest herein. Bank may, at its own cost, make assignments of
or sell participations in all or any part of the Loans or Borrowing Tranches
made by it to one or more banks or other entities. In the case of a
participation, the participant shall only have the rights specified in Section
9.2.3 (the participant's rights against Bank in respect of such participation to
be those set forth in the agreement executed by such Bank in favor of the
participant relating thereto), all of Bank's obligations under this Agreement or
any other Loan Document shall remain unchanged, and all amounts payable by
Borrower hereunder or thereunder shall be determined as if Bank had not sold
such participation.
(ii) Notwithstanding any other provision in this Agreement, the Bank may
at any time pledge or grant a security interest in all or any portion of its
rights under this Agreement, the Notes and the other Loan Documents to any
Federal Reserve Bank in accordance with Regulation A of the FRB or U.S. Treasury
Regulation 31 CFR Section 203.14 without notice to or consent of the Borrower.
No such pledge or grant of a security interest shall release the transferor Bank
of its obligations hereunder or under any other Loan Document.
11.11 Counterparts.
This Agreement may be executed by different parties hereto on any number
of separate counterparts, each of which, when so executed and delivered, shall
be an original, and all such counterparts shall together constitute one and the
same instrument.
67
<PAGE>
11.12 Bank's or Bank's Consent.
Whenever the Bank's consent is required to be obtained under this
Agreement or any of the other Loan Documents as a condition to any action,
inaction, condition or event, the Bank shall be authorized to give or withhold
such consent in its sole and absolute discretion and to condition its consent
upon the giving of additional collateral, the payment of money or any other
matter.
11.13 Exceptions.
The representations, warranties and covenants contained herein shall be
independent of each other, and no exception to any representation, warranty or
covenant shall be deemed to be an exception to any other representation,
warranty or covenant contained herein unless expressly provided, nor shall any
such exceptions be deemed to permit any action or omission that would be in
contravention of applicable Law.
11.14 CONSENT TO FORUM.
BORROWER HEREBY IRREVOCABLY CONSENTS TO THE NONEXCLUSIVE JURISDICTION OF THE
COURT OF COMMON PLEAS OF CENTRE COUNTY, PENNSYLVANIA AND THE UNITED STATES
DISTRICT COURT FOR THE MIDDLE DISTRICT OF PENNSYLVANIA, AND WAIVES PERSONAL
SERVICE OF ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF
PROCESS BE MADE BY CERTIFIED OR REGISTERED MAIL DIRECTED TO SUCH BORROWER AT
THE ADDRESSES PROVIDED FOR IN SECTION 11.5 AND SERVICE SO MADE SHALL BE DEEMED
TO BE COMPLETED UPON ACTUAL RECEIPT THEREOF. BORROWER WAIVES ANY OBJECTION TO
JURISDICTION AND VENUE OF ANY ACTION INSTITUTED AGAINST IT AS PROVIDED HEREIN
AND AGREES NOT TO ASSERT ANY DEFENSE BASED ON LACK OF JURISDICTION OR VENUE.
68
<PAGE>
IN WITNESS WHEREOF the parties hereto, by their officers thereunto duly
authorized, have executed this Agreement as of the day and year first above
written.
ATTEST: AQUAPENN SPRING WATER
COMPANY, INC.
/s/ Dennis B. Nisewonger By: /s/ Geoffrey F. Feidelberg
- ------------------------------ --------------------------------
Title: Chief Operating Officer
[Seal]
PNC BANK, NATIONAL ASSOCIATION
By: (Signature illegible)
--------------------------------
Title: Senior Vice President
69
<PAGE>
SCHEDULE 1.1(A)
PRICING GRID
<PAGE>
SCHEDULE l.l(A)
EXHIBIT I
December 22, 1997
PNC Bank, N.A.
Pricing Grid
AquaPenn Spring Water Company, Inc.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
LEVEL I LEVEL II LEVEL III LEVEL IV
- -----------------------------------------------------------------------------------------------
Basis for Total Indebtedness/ Total Indebtedness/ Total Indebtedness/ Total Indebtedness/
Pricing EBITDA ratio is EBITDA ratio is EBITDA ratio is EBITDA ratio is
less than or equal less than or equal less than or equal less than or equal
to 1.00 to 1.00. to 1.50 to 1.00. to 2.00 to 1.00. to 2.50 to 1.00.
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commitment 20 25 30 35
Fee (bps)
- -----------------------------------------------------------------------------------------------
LIBOR plus 75 95 115 135
(bps)
- -----------------------------------------------------------------------------------------------
Base Rate plus 0 0 0 0
(bps)
- -----------------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------
LEVEL V LEVEL VI
- ----------------------------------------
Total Indebtedness/ Total Indebtedness/
EBITDA ratio is EBITDA ratio is
less than or equal less than or equal
to 3.00 to 1.00. to 4.00 to 1.00.
- ----------------------------------------
<C> <C>
40 45
- ----------------------------------------
150 165
- ----------------------------------------
0 15
- ----------------------------------------
</TABLE>
If the ratio of Total Liabilities to Tangible New Worth is 1.0 to 1.0 or
less, the applicable rate at Levels IV, V, and VI will be reduced by 10 basis
points.
Total Indebtedness = Company's consolidated long and short term indebtedness for
borrowed money including subordinated indebtedness in which cash interest in
contractually payable, capital leases, guarantees, and letters of credit issued.
EBITDA=net income (before extraordinary items) plus income tax expense, interest
expense, depreciation and amortization expense.
Base Rate=PNC prime rate or fed funds plus 1/2 %.
<PAGE>
SCHEDULE 1.1(B)
NOTICES
<PAGE>
SCHEDULE 1.1(B)
NOTICES
Bank: PNC Bank, National Association
Central PA Market
1631 South Atherton Street
State College, PA 16804-0179
Attention: Andra Cochran
Phone: 814-231-3353
Fax: 814-231-1721
with a copy to: Daniel J. Malpezzi, Esquire
Buchanan Ingersoll
30 North Third Street, 8th Floor
Harrisburg, PA 17101
Phone: 717-237-4800
Fax: 717-233-0852
Borrower: AquaPenn Spring Water Company, Inc.
P.O. Box 938
One AquaPenn Drive
Milesburg, PA 16853
Attention: Geoffrey F. Feidelberg
Phone: 814-355-5556
Fax: 814-353-9108
with a copy to: Daniel E. Bright, Esquire
McQuaide, Blasko, Schwartz, Fleming & Faulkner, Inc.
811 University Drive
State College, PA 16801-6699
Phone: 814-238-4926
Fax: 814-234-5620
<PAGE>
SCHEDULE 1.1(P)
PERMITTED LIENS
<PAGE>
SCHEDULE 1.1(P)
PERMITTED LIENS
Number 92-812 Filed 7/2/92
Secured Party: E.N. Dunlap, Inc.
Debtor: AquaPenn Spring Water Company, Inc.
Covers: Copier, cabinet, etc.
Number 92-968 Filed 8/11/92
Secured Party: Clark Credit Corp.
Debtor AquaPenn Spring Water Company, Inc.
Covers: Clark model TM 25, etc.
Number 93-519 Filed 8/3/93
Secured Party: Siemens Credit Corp.
Debtor AquaPenn Spring Water Company, Inc.
Covers: Equipment, etc.
Number 94-803 Filed 9/10/96
Secured Party: Farmers National
Debtor AquaPenn Spring Water Company, Inc.
Covers: Powerworker, etc.
Number 94-977 Filed 11/7/94
Secured Party: Forklifts, Inc.
Debtor AquaPenn Spring Water Company, Inc.
Covers: Equipment, etc.
<PAGE>
SCHEDULE 6.1.2
ISSUED AND OUTSTANDING STOCK
AquaPenn Spring Water Company, Inc.
COMMON SHAREHOLDERS
- --------------------------------------------------------------------------------
Shareholder Name/Address No. of Shares
- --------------------------------------------------------------------------------
Adicus, L.P. 15,000
c/o Richard F. & JoAnne DeFluri
PERSONAL AND CONFIDENTIAL
270 Walker Drive
State College, PA 16801
Rick Alexander 1,770(pledged)
301 Beaver Road
Julian, PA 16844
L. C. Anderson & Sons, Inc. 36,000
Post Office Box 576
Huntingdon, PA 16652
Patrick U. Arbor 36,000
180 East Pearson
Chicago, IL 60611
ASW Investors 190,600
c/o Edward J. Lauth, III
Post Office Box 938
Milesburg, PA 16853
Aqua Works, Inc. 2,870,000
1000 S. Second Street
Sunbury, PA 17801-0471
Milton J. Bergstein 2,400
1216 Williams Street
State College, PA 16801
Ronald J. Berman 36,000
c/o B E G Enterprises
33493 14 Mile Road
Suite 100
Farmington Hills, MI 48331
<PAGE>
Jeffrey A. Berney 4,500
11815 Garrison Forest Road
Owings Mills, MD 21117
Michael Scott Blechman Family Trust 36,000
295 Shadowood Lane
Northfield, IL 60093
Howard A. Blum 26,000
629 Fullerton Parkway
Chicago, IL 60614
Shirley Bonsell 4,291(pledged)
Post Office Box 564
Port Matilda, PA 16870
Paula Boone 9,397(pledged)
102 Knob Road
Howard, PA 16841
Booth & Co. (John Musso) 36,000
TI #36-6033750
c/o The Northern Trust Company
P.O. Box 92303
Chicago, IL 60675
C. Owen Borger 3,164
Post Office Box 69
Moshannon, PA 16859
Joanne L. Brayton 5,000
1526 Powers Run Road
Pittsburgh, PA 15238
Roy Bresler and Ida Bresler, husband and wife 3,000
HC-01 Box 16
Pennsylvania Furnace, PA 16865
Walter Bruce 3,000
c/o Weis Markets
Post Office Box 471
Sunbury, PA 17801-0471
Charles Byers 8,280(pledged)
189 Spring Street
State College, PA 16801
John R. Cappelletti 6,000
23791 Brant Lane
Laguna Niguel, CA 92677
<PAGE>
CDW Co. Partnership 36,000
c/o Charles Dann, Partner
1369 Waters Edge
Northbrook, IL 60062
Centre Lime & Stone 18,000
Post Office Box 5130
Pleasant Gap, PA 16823
Frederick Chapman 300
898 Schencks Grove Road
Howard, PA 16841
Cook Family Fund 36,000
180 Four Falls Corporate Center
Suite 311
W. Conshohocken, PA 19428
Nancy Jean Davis, Trustee of the Nancy Jean Davis
Trust U/A dtd 6/13/96 65,470
McArthur Management Company
80 Southwest Eighth Street
Suite 2110
Miami, FL 33130-3047
Dean Witter Reynolds
C/E Charles Wasserman 18,000
650 Dundee Road
Suite 450
Northbrook, IL 60062
George A. Downsbrough 18,000
425 Windmere Drive
State College, PA 16801
Dave Dreibelbis 1,802 (pledged)
549 Kristina Circle
State College, PA 16803
Eugene Eichenlaub 2,356(pledged)
624 Bellefonte Avenue #2
Lock Haven, PA 17745
Geoffrey F. Feidelberg 15,700
1115 Woodbury Circle
State College, PA 16801
AquaPenn Spring Water Company, Inc. Rabbi Trust
FBO Geoffrey F. Feidelberg 18,000
Post Office Box 938
One AquaPenn Drive
Milesburg, PA 16853
<PAGE>
Geoffrey F. Feidelberg, Custodian for 200
J. Alexander Feidelberg under the Uniform
Transfers to Minors Act
1115 Woodberry Circle
State College, PA 16803
Geoffrey F. Feidelberg, Custodian for 50
Jessica Friedman under the Uniform
Transfers to Minors Act
410 Castle Drive
Cherry Hill, NJ 08003
Geoffrey F. Feidelberg, Custodian for 50
Elena Friedman under the Uniform
Transfers to Minors Act
410 Castle Drive
Cherry Hill, NJ 08003
Michael Ferrara 4,916(pledged)
174 South Jones Street
Lock Haven, PA 17745
Lowell S. Fixler 54,000
1081 Sheridan Road
Highland Park, IL 60035
DP Flynn Trust, Dennis P. Flynn, Trustee 14,000
401 South LaSalle Street
Suite 302
Chicago; IL 60605
Richard J. Flynn 8,000
401 South LaSalle Street
Suite 302
Chicago, IL 60605
Dennis P. Flynn 20,000
401 South LaSalle Street
Suite 302
Chicago, IL 60605
Michael Fogle 7,500
2065 Biltmore Point
Longwood, FL 32779
Scott J. Freebairn and Debra A. Freebairn 36,000
1399 Linden
Deerfield, IL 60015
Michael Friedlen 36,000
1287 Sherwood Road
Highland Park, IL 60035
<PAGE>
Robert and Mary Furlong 3,000
547 Woodhaven Trail
Yellow Springs, OH 45389
Karen Garis 827
Post Office Box 302
Spring Mills, PA 16875
Lynn O. Ghaner 5,553(pledged)
Post Office Box 63
Milesburg, PA 16853
Kirk H. Gibson 36,000
40 Sunningdale
Grosse Pointe Shores, MI 48236
Barry S. Golden 18,000
1200 Cedarcrest Lane
Bannockburn, IL 60015
John H. Gutfreund 39,000
712 Fifth Avenue
38th Floor
New York, NY 10019
Donald W. Hamer 36,000
1982 Buffalo Run Road
Bellefonte, PA 16823-8500
James D. & Marian I. Hammond 7,875
1009 Greenbriar Drive
State College, PA 16801
James D. Hammond 6,000
1009 Greenbriar Drive
State College, PA 16801
Rich Hershberger 5,443(pledged)
155 Sunset Avenue
Pleasant Gap, PA 16823
David M. Honigman 24,000
6132 Pickwood
West Bloomfield, MI 48322
Kay Honigman-Singer 24,000
767 Harmon
Birmingham, MI 48009
Charles L. Hook, Jr. 1,317
459 Blanchard Street
Bellefonte, PA 16823
<PAGE>
David Hutchison 4,629(pledged)
R.D. #1, Box 938
Petersburg, PA 16669
Frank Iacobucci 10,000
2 EF Raymond Drive
Havertown, PA 19083
Robert D. Jaffee and Phyllis A. Jaffee 18,000
l Colton Lane
Winnetka, IL 60093
Mitchell A. Johnson 36,000
2764 Unicorn Lane
Washington, DC 20015
Nancy M. Jones 5,000
314 Yorktown Drive
Mars, PA 16046
Martin L. Karlov 10,000
2354 Tennyson Lane
Highland Park, IL 60035
Paul A. Kassis 105,000
4142 Boston Avenue
Redding, CA 96001
Raymond Charles Kassis and Sharon Kathleen Kassis, 29,929
as Trustees of The Ray and Sharon Kassis Family Trust
dated July 15, 1993
840 Gold Street
Redding, CA 96001
Norine H. Kielson Trust
Kay Singer TTEE David Honigman
TTEE U/A DTD 9/13/85 24,000
c/o Kay Honigman Singer
767 Harmon
Birmingham, MI 48009-1329
Richard P. Kiphart 32,400
608 Elm Street
Winnetka, IL 60093
Manfred Kroger 9,000
104 Borland Lab
University Park, PA 16802
Ronald L. Kushner and Caryl B. Kushner 36,000
542 Waters Edge Court
Northbrook, IL 60062
<PAGE>
L.B. Water Partnership 36,000
231 Trailwood Lane
Northbrook, IL 60062
Steven R. Lake 18,000
161 North Clark Street
Chicago, IL 60601
Edward J. Lauth, III 1,541,510
1346 Sandpiper Drive
State College, PA 16801
AquaPenn Spring Water Company, Inc. Rabbi Trust
FBO Edward J. Lauth, III 21,750
Post Office Box 938
One AquaPenn Drive
State College, PA 16853
Lauth Family Limited Partnership 51,020
c/o Robert N. Levy, CPA
1423 North Atherton Street
State College, PA 16803
David C. Lee 7,609(pledged)
R.D. #3, Box 273
Curwensville, PA 16833
R. Lawrence Leigh 18,000
1884 Breton Road, S.E.
Suite 355
Grand Rapids, M1 49506
Joanne L. Lichtenstein 8,000
228 North Deere Park
Highland Park, IL 60035
Scott E. Lidster 105,000
3420 Scenic Drive
Redding, CA 96001
Donald K. Lidster and Gemith L.M. Lidster, Trustees 29,929
of The Lidster Trust dated July 1, 1983 and Amended
June 25, 1987
47-109 El Menara Circle
Palm Desert, CA 92260-5811
Barry J. Lind Revocable Trust UAD 12/19/89 72,000
1030 West Van Buren
Chicago, IL 60607
Ted Loose 1,641(pledged)
309 Shippen Street
Tyrone, PA 16686
<PAGE>
Donald Lord and Myrna Lord 36,000
161 Chicago Ave. East
Chicago, IL 60611
Tony Lord 18,000
c/o Tri-Star Pictures
Lean Building #329
10202 West Washington Boulevard
Culver City, CA 90232
Robert C. Luckman Revocable Trust 18,000
1210 North Avenue
Highland Park, IL 60035
Edward V. Lundy 2,145(pledged)
318 Bottorf Drive
State College, PA 16801
MAC Water Co. Partnership 36,000
Charles Dann, Co-Partner
1369 Waters Edge
Northbrook, IL 60062
Judd D. Malkin 36,000
900 N. Michigan Avenue #2010
Chicago, IL 60611
Jeffrey M. Marconi 4,211(pledged)
233 Peach Street
Lock Haven, PA 17745
McQuaide, Blasko, Schwartz, Fleming & Faulkner, Inc.
Profit-Sharing Plan UAD 12/1/83 FBO Wendell V. Courtney 5,000
811 University Drive
State College, PA 16801-6699
Nathan L. Metz 6,406(pledged)
135 Lucy Furnace Road
Mount Union, PA 17066
Charles C. Miller 100
R.R. 1, Box 135
Howard, PA 16841
Randall C. Miller 36,000
Box 138 BC
Spring Mills, PA 16875
William Moir 3,000
6324 New Haven Court
Frederick, MD 21701
<PAGE>
Gerald W. Moore, Esquire 5,000
3012 Flamingo Drive
Miami Beach, FL 33140
James W. Moore 2,500
5905 North Bay Road
Miami Beach, FL 33140
David Morrissey 10,000(pledged)
R.D. #4, Box 308H
Tyrone, PA 16686
Paula Morrissey 2,829(pledged)
R.D. #4, Box 308H
Tyrone, PA 16686
CEDE & CO. FBO 36,000
Richard A. Mortell
One East Schiller
Chicago, IL 60610
M-S Capital Fund 18,000
c/o Marlene Shatkin
1418 Lake Shore Drive
Chicago, Illinois 60610
Dennis Nisewonger 8,758(pledged)
2119 North Oak Lane
State College, PA 16803
N.S. Associates 54,000
311 S. Wacker, Suite 4990
Chicago, IL 60606
Michael D. Okun 10,500
1130 Lake Cook Road
Buffalo Grove, IL 60089
Ellen T. O'Neil 2,625
290 Bal Bay Drive
Bal Harbour, FL 33154
Michael O. O'Neil, Jr. and Kathleen L. O'Neil, 15,000
Joint Tenants With Right of Survivorship
6421 North Bay Road
Miami Beach, FL 33141
Fred W. Oswalt, III 100
1044 West Water Street
Bellefonte, PA 16823
William J. Parrillo 36,000
40 Baybrook Drive
Oak Brook, IL 60521
<PAGE>
Joseph V. Paterno 170,000
830 North McKee Street
State College, PA 16801
Mark Patterson 150
R.D. #1, Box 520 2,145(pledged)
Morrisdale, PA 16858
Charles C. Pearson, Jr. 18,000
310 Carogin Drive
State College, PA 16803
Scottie Pippen, as Trustee of the
Scottie Pippen Revocable Trust UIAID 5/5/94 72,000
6075 Poplar, Suite 920
Memphis, TN 38119
Robert E. & Sandra L. Poole 18,000
720 North Nixon Road
State College, PA 16803
Robert E. Poole 6,000
720 North Nixon Road
State College, PA 16803
John L. and Anna F. Radzieta, 2,000
Joint Tenants With Right of Survivorship
9 Hand Avenue, P.O. Box 37
Cape May Courthouse, NJ 08210
Philip W. Reitz 3,600
222 West Adams Street, Suite 3300
Chicago, IL 60606
Norman S. Rich 13,500
c/o Weis Markets, Inc.
P.O. Box 471
Sunbury, PA 17801-0471
Kevin Richards 25
624 Bellefonte Avenue #2 3,138(pledged)
Lock Haven, PA 17745
William E. Rodrigues 1,943
2313 Edgemere Lake Circle
Marietta, GA 30062
Pamela Barton Sage 36,000
1418 Lake Shore Drive
14th Floor
Chicago, IL 60610
<PAGE>
George K. Schenck 18,000
1670 Princeton Drive
State College, PA 16803-3257
K. R. Schleiden and Joan E. Schleiden 36,000
Post Office Box 360
Bellefonte, PA 16823
Mildred Schlossberg 36,000
2580 Lincoln RFD
Long Grove, IL 60047
Michael Schmoke 10,000(pledged)
189 Lee Drive
Tyrone, PA 16686
William A. Schreyer 36,000
117 Mercer Street
Princeton, NJ 08540
Robert D. Schriver 36,000
256 Woodstock Avenue
Kenilworth, IL 60043
Thomas E. Schwartz 5,000
1720 Woodledge Circle
State College, PA 16803
Susan Seidler 10,000(pledged)
1115 Woodberry Circle
State College, PA 16803
Brian J. Serafini 716
216 - 9th Street
Renovo, PA 17764
SF Partners I, L.P. 18,000
311 South Wacker Drive
Suite 4990
Chicago, IL 60606
William Sharpe 5,000
P.O. Box 222-A, R.D. #2
Spring Mills, PA 16875
Henry S. Shatkin 98,500
1418 Lake Shore Drive
Chicago, IL 60610
SHER Partnership 20,500
(c/o Herbert Cook)
100 Four Falls Corporate Center
Suite 311
W. Conshohocken, PA 19428
<PAGE>
Thomas Corey Simonson 18,000
500 West Jackson
Glencoe, IL 60022
Phillip B. Sky and Rosalind Sky 27,000
R.D. #2, Box 816
Altoona, PA 16601
Denis C. Smith 36,000
192 Spyglass Court
Jupiter, FL 33477
Roy Smith 10,000(pledged)
2057 Lincoln Avenue
Tyrone, PA 16686
Shawn Snyder 5,370(pledged)
418 23rd Street
Tyrone, PA 16686
Robert A. Sprotte Money Purchase Pension Plan 18,000
1395 Winterwood NE
Grand Rapids, MI 49546-1002
Matthew J. Suhey 15,000
550 Carriage Way
Deerfield, IL 60015-4535
Richard P. Supina 9,000
415 Brandywine Drive
State College, PA 16801
Scott M. Swank 72,000
240 Shadowood Ln.
Northfield, IL 60093
Martha B. Thomas 32,000
1085 Haymaker Road
State College, PA 16801
Chad R. and Casey L. Trithart 300
Joint Tenants With Right of Survivorship
876 South Eagle Valley Road
Bellefonte, PA 16823
Valassis Enterprises, L.P. 36,000
1400 N. Woodward, Suite 270
Bloomfield Hills, MI 48304-2856
Mark S. Wagner and Frances Ann Wagner 36,000
2340 Oak River Court
Troy, MI 48098
<PAGE>
Donna Walker 1,672(pledged)
8 Gardner Road
Tyrone, PA 16686
Traci Watson 5,430(pledged)
128 South Penn Street
Bellefonte, PA 16823
Kevin Weaver 2,677(pledged)
RD. #1, Box 477
Centre Hall, PA 16828
Mike White 144
l55 Sunset Avenue 3,920(pledged)
Pleasant Gap, PA 16823
Bruce H. Williams 36,000
4900 Southshore Drive
New Port Richey, FL 34652
Lance Wolform 2,691(pledged)
505 East Park Street
Lock Haven PA 17745
Clark J. Wright 40,000
9434 Crocker Road
Granite Bay, CA 95746
Gerald Zedek 4,697(pledged)
503 A West Drive
Boalsburg, PA 16827
Brian Zook 2,475(pledged)
Post Office Box 372
Centre Hall, PA 16828
--------------
Total Common Issued 12/10/97 7,672,945
] (included pledged shares)
<PAGE>
SCHEDULE 6.1.2
ISSUED AND OUTSTANDING STOCK
(Continued)
AquaPenn Spring Water Company, Inc.
PREFERRED SHAREHOLDERS
- --------------------------------------------------------------------------------
Shareholder Name/Address No. of Shares
- --------------------------------------------------------------------------------
Adicus, L.P. 45,000
c/o Richard F. & JoAnne DeFluri
PERSONAL AND CONFIDENTIAL
270 Walker Drive
State College, PA 16801
Carol L. Barash 45,000
322 Hartford Road
South Orange, NJ 07079
Hon. Wayne A. Bromfield 6,750
P.O. Box 415
New Berlin, PA 17855
John E. Carder, D.D.S. Profit-Sharing Plan 11,250
403 East Beaver Avenue
State College, PA 16801
Stanley Cassel 45,000
707 Upper Stump Road
Chalfont, PA 18914
Nancy Jean Davis, Trustee of the Nancy Jean
Davis Trust U/A dtd 6/13/96 315,000
McArthur Management Company
80 Southwest Eighth Street
Suite 2110
Miami, FL 33130-3047
Linda Davis Laskin, Trustee of the Linda
Davis Laskin Trust U/A dtd 7/18/95 45,000
McArthur Management Company
80 Southwest Eighth Street
Suite 2110
Miami, FL 33130-3047
<PAGE>
John Rhodes Davis, Trustee of the John
Rhodes Davis Trust U/A dtd 6/21/96 45,000
McArthur Management Company
80 Southwest Eighth Street
Suite 2110
Miami, FL 33130-3047
George A. Downsbrough 15,000
425 Windmere Drive
State College, PA 16801
Bruce M. Eckert, Esquire 6,750
PERSONAL AND CONFIDENTIAL
Lewis, Eckert & Robb
One Plymouth Meeting
Plymouth Meeting, PA 19462
Charles P. Fasano, D.O. IRA Rollover Account 28,417
321 East Chestnut Street
Mifflinburg, PA 17844
Robert E. Fleck Money Purchase Pension Plan 22,500
1007 Greenbriar Drive
State College, PA 16801
Rodney L. and Casey Fletcher 17,000
145 Laurel Meadow Lane
Centre Hall, PA 16828
CEDE & CO. FBO
Daniel M. Friday, M.D., P.C. Profit-Sharing Plan 22,500
Daniel M. Friday, M.D., P.C.
P.O. Box D, Clay Avenue Extension
Tyrone, PA 16686-1810
Robert B. Galt 9,000
530 Miller Road
Coral Gales, FL 33146
Howard Gregg 45,000
127 West Outer Drive
State College, PA 16801
Andrew W. Gurrnan, M.D. 45,000
515 Twenty-Sixth Street
Altoona, PA 16602
James D. & Marian I. Hammond 11,250
1009 Greenbriar Drive
State College, PA 16801
Frederick J. Kissinger 11,250
Post Office Box 4000
State College, PA 16804
<PAGE>
Richard G. Kissinger 11,250
1301 Benner Pike
State College, PA 16801
Manfred Kroger 11,250
104 Borland Lab
University Park, PA 16802
David B. Lee 45,000
1165 Outer Drive
State College, PA 16801
Janet B. Mathias 10,500
4535 Pineridge Circle
Dunwoody, GA 30338
James P. Mathias 10,500
PERSONAL AND CONFIDENTIAL
c/o The JPM Company
Route 15
Lewisburg, PA 17837
John H. Mathias 10,500
PERSONAL AND CONFIDENTIAL
c/o The JPM Company
Route 15
Lewisburg, PA 17837
McQuaide, Blasko, Schwartz, Fleming & Faulkner, Inc.
Salary Reduction Plan UAD 12/1/83 FBO Patricia L. Roenigk 2,500
202 East Willowood Court
Port Matilda, PA 16870
Barbara R. McQuaide IRRA FBO Barbara R. McQuaide 2,500
811 University Drive
State College, PA 16801-6699
McQuaide, Blasko, Schwartz, Fleming & Faulkner, Inc.
Profit-Sharing Plan UAD 12/1/83 FBO David M. Weixel 2,500
811 University Drive
State College, PA 16801-6699
McQuaide, Blasko, Schwartz, Fleming & Faulkner, Inc.
Profit-Sharing Plan UAD 12/1/83 FBO John W. Blasko 2,500
811 University Drive
State College, PA 16801-6699
McQuaide, Blasko, Schwartz, Fleming & Faulkner, Inc.
Salary Reduction Plan UAD 12/1/83 FBO Thomas E. Schwartz 2,500
811 University Drive
State College, PA 16801-6699
McQuaide, Blasko, Schwartz, Fleming & Faulkner, Inc.
Profit-Sharing Plan UAD 12/1/83 FBO Grant H. Fleming 6,500
811 University Drive
State College, PA 16801-6699
Gerald Willis Moore 9,000
<PAGE>
6350 Pine Tree Drive
Miami, FL 33141-4528
Thomas M. Nardozzo, D.M.D. 45,000
211 West Beaver Avenue
State College, PA 16801
Fred Nicholas 45,000
P.O. Box 20
State College, PA 16804
Michael D. Okun 11,250
Contemporary Marketing, Inc.
1130 Lake Cook Road
Suite 208
Buffalo Grove, IL 60089
Michael O., Jr. and Kathleen L. O'Neil 25,000
Joint Tenants With Right of Survivorship
6421 North Bay Road
Miami Beach, FL 33141
Joseph V. Paterno 45,000
830 North McKee Street
State College, PA 16801
CEDE & CO. FBO
John H. Persing, M.D., Inc. Defined Benefit Plan 45,000
John H. Persing, M.D., Inc.
3 Hospital Drive
Lewisburg, PA 17837
Lester H. Petnick 45,000
451 Homan Avenue
State College, PA 16801
Robert E. & Sandra L. Poole 40,000
720 North Nixon Road
State College, PA 16803
Douglas S. Pysher 8,000
2370 Lorain Road
San Marino, CA 91108
Joseph R. Reppert 45,000
CEO of SMS
3160 Airway Avenue
Costa Mesa, CA 92626
Domenick N. Ronco, D.O. Rollover Account 16,583
321 East Chestnut Street
Mifflinburg, PA 17844
<PAGE>
Whitney A. Sanders, II 25,000
1100 Reading Boulevard
Wyomissing, PA 19610
Sandy & Rockoff Urological Assoc. 0% MPPP 45,000
UA 07/01/97 Ranganthan Soundararajan &
Sarayu Soundararajan, Trustees
245 Grampian Boulevard
Williamsport, PA 17701-1813
Jane M. Schenck 17,000
1670 Princeton Drive
State College, PA 16803-3257
Thomas E. Schwartz 22,500
1720 Woodledge Circle
State College, PA 16803
William J. Schwartz, Jr. 27,500
3682 Hidden Ridge Road
Jamul, CA 92035
Beatrice E. Shaffer 45,000
331 East Chestnut Street
Mifflinburg, PA 17844
Philip H. Sieg 45,000
1522 Woodledge Circle
State College, PA 16803
Matthew J. Suhey 11,250
550 Carriage Way
Deerfield, IL 60015-4535
Richard P. Martha W. Supina 11,250
415 Brandywine Drive
State College, PA 16801
Martha B. Thomas 10,000
1085 Haymaker Road
State College, PA 16801
Calvin J. Wagner, Jr. 21,000
1423 North Atherton Street
State College, PA 16803
H. Richard Ward, M.D.
H. Richard Ward, M.D., P.C. Profit-Sharing Plan 42,500
R.D. #1, Box 507
Mifflinburg, PA 17844
Robert B. & Penny West 45,000
104 Sunset Road
Lewistown, PA 17044
<PAGE>
James A. & Debra Yates 45,000
2()5 Grandview Avenue
Camp Hill, PA 17011
-----------
Total Preferred Issued 12/10/97 1,702,500
<PAGE>
SCHEDULE 6.1.3
SUBSIDIARIES AND AFFILIATES
<PAGE>
SCHEDULE 6.1.3
SUBSIDIARIES AND AFFILIATES
AquaPenn Spring Water Company South, Inc. (Pennsylvania Corporation)
(Formerly known as Great American Spring Water Ice Company, Inc.)
Authorized Capital Stock: 5,000 Common Shares
Issued and Outstanding Shares: 100 Shares issued to AquaPenn Spring Water
Company, Inc.
Pure American, Inc. (Pennsylvania Corporation)
(Formerly known as S C Acquisition Company, Inc.)
Authorized Capital Stock: 5,000 Common Shares
Issued and Outstanding Shares: 100 Shares issued to AquaPenn Spring Water
Company, Inc.
AquaPenn Spring Water Industries, Inc. (Pennsylvania Corporation)
Authorized Capital Stock: 5,000 Common Shares
Issued and Outstanding Shares: 100 Shares issued to AquaPenn Spring Water
Company, Inc.
The Eight (8) Ounce Company, Inc. (Pennsylvania Corporation)
Authorized Capital Stock: 10,000 Common Shares
Issued and Outstanding Shares: 1 Share issued to AquaPenn Spring Water
Company, Inc.
IAPSW, Inc. (Delaware Corporation)
Authorized Capital Stock: 10 Common Shares
Issued and Outstanding Shares: 1 Share issued to AquaPenn Spring Water
Company, Inc.
RAPSW, Inc. (Delaware Corporation)
Authorized Capital Stock: 10 Common Shares
Issued and Outstanding Shares: 1 Share issued to IAPSW, Inc.
Castle Rock Spring Water Company, Inc. (California Corporation)
Authorized Capital Stock: 100 Common Shares
Issued and Outstanding Shares: 100 Shares issued to AquaPenn Spring Water
Company, Inc.
AquaPenn Spring Water Company West. Inc. (California Corporation)
Authorized Capital Stock: 100 Common Shares
Issued and Outstanding Shares: 100 Shares issued to AquaPenn Spring Water
Company, Inc.
<PAGE>
SCHEDULE 6.1.13
CONSENTS AND APPROVALS
<PAGE>
SCHEDULE 6.1.13
CONSENTS AND APPROVALS
NONE
<PAGE>
SCHEDULE 6.1.16
INSURANCE
<PAGE>
SCHEDULE 8.2.1
PERMITTED INDEBTEDNESS
<PAGE>
SCHEDULE 8.2.1
PERMITTED INDEBTEDNESS
CoreStates Bank, N.A. $6,000,000 Line of Credit
Mid-State Bank and Trust Company $6,000,000 Line of Credit
Note
$10,000,000 Revolving Credit
Note
<PAGE>
REDUCING REVOLVING LINE
OF CREDIT NOTE
$10,000,000 December 22, 1997
FOR VALUE RECEIVED, AQUAPENN SPRING WATER COMPANY, INC. (the "Borrower"),
with an address at One AquaPenn Drive, Milesburg, Pennsylvania 16853, promises
to pay to the order of PNC BANK, (the "Bank"), in lawful money of the United
States of America in immediately available funds at its offices located at 4242
Carlisle Pike, Camp Hill, PA 1701l, or at such other location as the Bank may
designate from time to time, the principal sum of TEN MILLION DOLLARS
($10,000,000) (the "Reducing Revolving Line") or such lesser amount as may be
advanced to or for the benefit of the Borrower hereunder, together with interest
accruing on the outstanding principal balance from the date hereof, all as
provided below:
1. Advances. The Borrower may request advances, repay and request
additional advances hereunder, subject to the terms and conditions of this Note
and the Loan Documents (as defined in the Credit Agreement). The Borrower may
request advances hereunder upon delivering to the Bank by 10:00 a.m. State
College, Pennsylvania time, (i) three (3) business days prior to (A) the
proposed Borrowing Date with respect to the making of Reducing Revolving Line
Advances to which the Euro-Rate Option applies, or (B) the end of the current
Interest Period in the case of the conversion to or the renewal of the Euro-Rate
Option; or (ii) on the same or one (l) Business Day prior to either the proposed
Borrowing Date with respect to the making of a Reducing Revolving Line Advance
to which the Base Rate Option applies or the last day of the preceding Interest
Period with respect to the conversion to the Base Rate Option. a duly completed
Loan Request as more fully set forth in the Credit Agreement. In no event shall
the aggregate unpaid principal amount of advances under this Note exceed the
face amount of this Note or the Reducing Revolving Line Limit under Section
3.1.1 of the Credit Agreement.
2. Rate of Interest. Each advance outstanding under this Note will bear
interest at a rate or rates per annum as may be selected by the Borrower from
the interest rate options set forth below (the "Interest Rate Options"):
(i) Base Rate Option. A fluctuating rate per annum (computed on the
basis of a year of 365 or 366 days, as the case may be, and actual days
elapsed) equal to the Base Rate plus the Applicable Margin set forth on the
pricing grid attached hereto as Exhibit l, such interest rate to change
automatically from time to time effective as of the effective date of each
change in the Base Rate. If and when the Base Rate changes, the rate of interest
with respect to any advances to which the Base Rate Option applies will change
automatically without notice to the Borrower.
<PAGE>
(ii) Euro-Rate Option. A rate per annum (computed on the basis of a year
of 360 days and actual days elapsed) equal to the Euro-Rate plus the
Applicable Margin set forth on the pricing grid attached hereto as Exhibit 1,
subject to Section 4.4 of the Credit Agreement.
The foregoing notwithstanding, it is understood that no more than four (4)
borrowings under the Euro-Rate Option may be outstanding at any one time.
Interest will be calculated on the basis of a year of 360 days for the actual
number of days in each interest period. In no event will the rate of interest
hereunder exceed the maximum rate allowed by law.
3. Definitions. For the purpose hereof, the following terms shall have the
following meanings:
"Base Rate" shall mean the greater of (i) the interest rate per annum
announced from time to time by the Bank at its Principal Office as its then
prime rate, which rate may not be the lowest rate then being charged commercial
borrowers by the Bank, or (ii) the Federal Funds Effective Rate plus .5% per
annum.
"Business Day" shall mean any day other than a Saturday or Sunday or a
legal holiday on which commercial banks are authorized or required to be closed
for business in Pittsburgh, Pennsylvania; and if the applicable Business Day
relates to any Loan to which the Euro-Rate Option applies, such day must also be
a day on which dealings are carried on in the London interbank market.
"Credit Agreement" shall mean that certain Credit Agreement between the
Bank and Borrower dated as of December 22, 1997.
"Euro-Rate" shall mean, with respect to any advance to which the Euro-Rate
Option applies for the applicable Permitted Euro-Rate Interest Period, the
interest rate per annum determined by the Bank by dividing (the resulting
quotient rounded upwards, if necessary, to the nearest 1/l00th of 1% per annum)
(i) the rate of interest determined by the Bank in accordance with its usual
procedures (which determination shall be conclusive absent manifest error) to be
the average of the London interbank offered rates of interest per annum for U.S.
Dollars set forth on Telerate display page 3750 or such other display page on
the Telerate System as may replace such page to evidence the average of rates
quoted by banks designated by the British Bankers' Association (or appropriate
successor or, if the British Bankers' Association or its successor ceases to
provide such quotes, a comparable replacement determined by the Bank) two (2)
Business Days prior to the first day of such Interest Period for an amount
comparable to such Borrowing Tranche and having a borrowing date and maturity
comparable to such Interest Period by (ii) a number equal to 1.00 minus the
Euro-Rate Reserve Percentage. The Euro-Rate shall be adjusted with respect to
any Euro-Rate Option outstanding on the effective date of any change in the
Euro-Rate Reserve Percentage as of such effective date. The Bank shall give
prompt notice to the Borrower of the Euro-Rate as determined or adjusted in
accordance herewith, which determination shall be conclusive absent manifest
error.
2
<PAGE>
"Euro-Rate Reserve Percentage" shall mean the maximum percentage (expressed
as a decimal rounded upward to the nearest 1/100 of 1%) as determined by the
Bank which is in effect on such day as prescribed by the Board of Governors of
the Federal Reserve System (or any successor) for determining the reserve
requirements (including, without limitation, supplemental, marginal and
emergency reserve requirements) with respect to eurocurrency funding (currently
referred to as "Eurocurrency Liabilities") of a member bank in such System.
"Federal Funds Effective Rate" for any day shall mean the rate per annum
(based on a year of 360 days and actual days elapsed and rounded upward to the
nearest 1/100 of 1%) announced by the Federal Reserve Bank of New York (or any
successor) on such day as being the weighted average of the rates on overnight
federal funds transactions arranged by federal funds brokers on the previous
trading day, as computed and announced by such Federal Reserve Bank (or any
successor) in substantially the same manner as such Federal Reserve Bank
computes and announces the weighted average it refers to as the "Federal Funds
Effective Rate" as of the date of this Agreement; provided, if such Federal
Reserve Bank (or its successor) does not announce such rate on any day, the
"Federal Funds Effective Rate" for such day shall be the Federal Funds Effective
Rate for the last day on which such rate was announced.
"Interest Rate Option" shall mean any Euro-Rate Option or Base Rate Option.
"Permitted Euro-Rate Interest Period" shall mean a period of one (1), two,
(2), three (3) or six (6) months selected by the Borrower commencing on the date
of disbursement of an advance and each successive period selected by the
Borrower thereafter; provided, that if a Permitted Euro-Rate Interest Period
would end on a day which is not a Business Day, it shall end on the next
succeeding Business Day, unless such day falls in the succeeding calendar month
in which Case the Permitted Euro-Rate Interest Period shall end on the next
preceding Business Day. In no event shall any Euro-Rate Interest Period end on a
day after the Revolving Line Expiration Date (as such term is defined in the
Loan Documents).
Other capitalized terms used herein and not otherwise defined shall have
the meanings as set forth in the Credit Agreement.
4. Interest Rate Election. Subject to the terms and conditions of this Note
and the Credit Agreement, at the end of each Interest Period applicable to any
advance, the Borrower may renew the Interest Rate Option applicable to such
advance or convert such advance to a different Interest Rate Option by
delivering a Loan Request to the Bank at the times, and in the manner, set forth
herein and in the Credit Agreement. Within the time period prescribed in the
Credit Agreement prior to the end of each Permitted Euro-Rate Interest Period in
the case of a renewal of such Permitted Euro-Rate Interest Period or prior to
the proposed beginning of a new Permitted Euro-Rate Interest Period in the case
of a conversion from the Base Rate Option to the Euro-Rate Option, the Borrower
shall notify (via the Loan Request as defined in Credit Agreement) the Bank of
each election of an Interest Rate Option, each conversion from one Interest Rate
Option to another, the amount of the advances then outstanding to be allocated
to
3
<PAGE>
each Interest Rate Option and, where relevant, the Interest Period during which
such Interest Rate Option shall apply. If no notice of conversion or renewal is
received by the Bank, the Borrower shall be deemed to have converted such
advance to the Base Rate Option.
5. Payment Terms. The Borrower shall pay accrued interest on, and principal
of, this Note as follows:
(a) Interest Payments. Interest on the principal balance hereof
comprising Borrowing Tranches to which the Base Rate Option applies shall
be due and payable in arrears on the first Business Day of each January, April,
July and October (each such date a "Quarterly Interest Payment Date") after the
date hereof and on November 30, 2002 (the "Reducing Revolving Line Expiration
Date") or upon acceleration of this Note. Interest on the principal balance
hereof comprising Borrowing Tranches to which the Euro-Rate Option applies shall
be due and payable on the earlier of (i) the end of the applicable Interest
Period or (ii) each Quarterly Interest Payment Date occurring prior to the end
of such Interest Period.
(b) Principal Payments. Unless sooner prepaid in accordance with the
terms hereof, or sooner accelerated by Bank by virtue of an Event of
Default hereunder, all principal amounts outstanding hereunder shall be paid in
full on the Reducing Revolving Line Expiration Date. The Borrower shall also
make such principal payments from time to time as may be necessary to maintain
the outstanding principal balance hereof at or below the Reducing Revolving Line
Limit under Section 3.1.1 of the Credit Agreement.
If any payment under this Note shall become due on a Saturday, Sunday or public
holiday under the laws of the State where the Bank's office indicated above is
located, such payment shall be made on the next succeeding business day and such
extension of time shall be included in computing interest in connection with
such payment. The Borrower hereby authorizes the Bank to charge the Borrower's
deposit account at the Bank for any payment when due hereunder. Payments
received will be applied to charges, fees and expenses (including attorneys'
fees), accrued interest and principal in any order the Bank may choose, in its
sole discretion.
6. Late Payments: Default Rate. If the Borrower fails to make any payment
of principal, interest or other amount coming due pursuant to the provisions of
this Note within fifteen (15) calendar days of the date due and payable, the
Borrower also shall pay to the Bank a late charge equal to the lesser of five
percent (5%) of the amount of such payment or $100.00. Such 15 day period shall
not be construed in any way to extend the due date of any such payment. The late
charge is imposed for the purpose of defraying the Bank's expenses incident to
the handling of delinquent payments and is in addition to, and not in lieu of,
the exercise by the Bank of any rights and remedies hereunder, under the other
Loan Documents or under applicable laws, and any fees and expenses of any agents
or attorneys which the Bank may employ.
Upon the occurrence of an Event of Default hereunder, the rate of interest
applicable to all of the outstanding principal balance hereunder shall
automatically increase to and accrue at an interest rate per anum equal to the
sum of the variable rate of interest applicable under the Base Rate Option plus
an additional 2% per annum (the "Default Rate") until all amounts due
4
<PAGE>
hereunder and under the Loan Documents have been paid in full. The Borrower
acknowledges that the Default Rate reflects, among other things, the fact that
such outstanding Borrowing Tranches or other amounts have become a substantially
greater risk given their default status and that the Bank is entitled to
additional compensation for such risk; and all such interest shall be payable by
Borrower upon demand by Bank. The Default Rate shall continue to apply whether
or not judgment shall be entered on this Note.
7. Prepayment. The Borrower shall have the right at its option from time to
time to prepay the principal balance outstanding hereunder in whole or part
without premium or penalty (except as provided in Section 5.4 of the Credit
Agreement), as follows:
(i) at any time with respect to any Borrowing Tranche to which the Base
Rate Option applies,
(ii) on the last day of the applicable Interest Period with respect to
Borrowing Tranches to which a Euro-Rate Option applies,
(iii) on the date specified in a notice by any Bank pursuant to Section
4.4 of the Credit Agreement with respect to any advance under the Revolving
Line to which a Euro-Rate Option applies.
Whenever the Borrower desires to prepay any part of the outstanding
principal hereunder, it shall provide a prepayment notice to the Bank by 1:00
p.m. at least one (1) Business Day prior to the date of prepayment, setting
forth the following information:
(x) the date, which shall be a Business Day, on which the proposed
prepayment is to be made;
(y) a statement indicating the application of the prepayment to the
Reducing Revolving Line; and
(z) the total principal amount of such prepayment, which shall not be less
than $500,000.
All prepayment notices shall be irrevocable. The principal amount of the
principal balance for which a prepayment notice is given, together with interest
on such principal amount except with respect to Borrowing Tranches to which the
Base Rate Option applies, shall be due and payable on the date specified in such
prepayment notice as the date on which the proposed prepayment is to be made.
Except as provided in Section 4.4.3 of the Credit Agreement, if the Borrower
makes a prepayment of principal but fails to specify the applicable Borrowing
Tranche which the Borrower is prepaying, the prepayment shall be applied first
to Loans to which the Base Rate Option applies, then to Loans to which the
Euro-Rate Option applies. Any prepayment hereunder shall be subject to the
Borrower's obligation to indemnify the Bank under Section 5.4.2 of the Credit
Agreement.
5
<PAGE>
8. Yield Protection. The Borrower shall pay to the Bank, on written demand
therefor, together with the written evidence of the justification therefor, all
direct costs incurred, losses suffered or payments made by Bank by reason of any
change in law or regulation or its interpretation imposing any reserve, deposit,
allocation of capital, or similar requirement (including without limitation,
Regulation D of the Board of Governors of the Federal Reserve System) on the
Bank, its holding company or any of their respective assets. In addition, the
Borrower agrees to indemnify the Bank against any liabilities, losses or
expenses (including loss of margin, any loss or expense sustained or incurred in
liquidating or employing deposits from third parties acquired to effect, fund or
maintain any Loan bearing interest under the Euro-Rate Option or any part
thereof) which the Bank sustains or incurs as a consequence of either (i) the
Borrower's failure to make a payment on the due date thereof or (ii) the
Borrower's payment, prepayment or conversion of any Loan bearing interest under
the Euro-Rate Option on a day other than the last day of the applicable
Euro-Rate Interest Period including but not limited to the Cost of Prepayment.
"Cost of Prepayment" means an amount equal to the present value, if positive, of
the product of (a) the difference between (i) the yield, on the beginning date
of the applicable interest period, of a U.S. Treasury obligation with a maturity
similar to the applicable interest period minus (ii) the yield, on the
prepayment date, of a U.S. Treasury obligation with a maturity similar to the
remaining maturity of the applicable interest period, and (b) the principal
amount to be prepaid, and (c) the number of years, including fractional years
from the prepayment date to the end of the applicable interest period. The yield
on any U.S. Treasury obligation shall be determined by reference to Federal
Reserve Statistical Release H.15(519) "Selected Interest Rates". For purposes of
making present value calculations, the yield to maturity of a similar maturity
U.S. Treasury obligation on the prepayment date shall be deemed the discount
rate. The Cost of Prepayment shall also apply to any payments made after
acceleration of the maturity of this Note. The Bank's determination of an amount
payable under this paragraph shall, in the absence of manifest error, be
conclusive and shall be payable on demand.
9. Other Loan Documents. This Note is issued pursuant to the Credit
Agreement and the other documents referred to therein, the terms of which are
incorporated herein by reference (collectively, the "Loan Documents").
10. Events of Default. The occurrence of any of the following events will
be deemed to be an "Event of Default" under this Note: (i) the nonpayment of any
principal, interest or other indebtedness under this Note when due; (ii) the
occurrence of any event of default or default and the lapse of any notice or
cure period under any Loan Document or any other debt, liability or obligation
to the Bank of any Obligor; (iii) the filing by or against the Borrower of any
proceeding in bankruptcy, receivership, insolvency, reorganization, liquidation,
conservatorship or similar proceeding (and, in the case of any such proceeding
instituted against the Borrower, such proceeding is not dismissed or stayed
within thirty (30) days of the commencement thereof); (iv) any assignment by the
Borrower for the benefit of creditors, or any levy, garnishment, attachment or
similar proceeding is instituted against any property of the Borrower held by or
deposited with the Bank; (v) a default with respect to any other indebtedness of
any Obligor for borrowed money, if the effect of such default is to cause or
permit the acceleration of such debt; (vi) the commencement of any foreclosure
or forfeiture proceeding, execution or
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<PAGE>
attachment against any collateral securing the obligations of any Obligor to the
Bank; (vii) the entry of a final judgment against any Obligor and the failure of
such Obligor to discharge the judgment within ten days of the entry thereof;
(viii) in the event that this Note or any guarantee executed by any Guarantor is
secured, the failure of any Obligor to provide the Bank with additional
collateral if in the opinion of the Bank at any time or times, the market value
of any of the collateral securing this Note or any guarantee has depreciated;
(ix) any material adverse change in the business, assets, operations, financial
condition or results of operations of any Obligor; (x) the revocation or
attempted revocation, in whole or in part, of any guarantee by any Guarantor;
(xi) any representation or warranty made by any Obligor to the Bank in any Loan
Document, or any other documents now or in the future securing the obligations
of any Obligor to the Bank, is false, erroneous or misleading in any material
respect; or (xii) the failure of any Obligor to observe or perform any covenant
or other agreement with the Bank contained in any Loan Document or any other
documents now or in the future securing the obligations of any Obligor to the
Bank.
As used herein, the term "Obligor" means any Borrower and any Guarantor, and the
term "Guarantor" means any guarantor of the obligations of the Borrower to the
Bank existing on the date of this Note or arising in the future.
Upon the occurrence of an Event of Default: (a) the Bank shall continue to have
no obligation to make advances hereunder; (b) if an Event of Default specified
in clause (iii) or (iv) above shall occur, the outstanding principal balance and
accrued interest hereunder together with any additional amounts payable
hereunder shall be immediately due and payable without demand or notice of any
kind; (c) if any other Event of Default shall occur the outstanding principal
balance and accrued interest hereunder together with any additional amounts
payable hereunder, at the option of the Bank and without demand or notice of any
kind, may be accelerated and become immediately due and payable; (d) at the
option of the Bank, this Note will bear interest at the Default Rate from the
date of the occurrence of the Event of Default; and (e) the Bank may exercise
from time to time any of the rights and remedies available to the Bank under the
Loan Documents or under applicable law.
11. Right of Setoff. In addition to all liens upon and rights of setoff
against the money, securities or other property of the Borrower given to the
Bank by law, the Bank shall have, with respect to the Borrower's Obligations to
the Bank under this Note and to the extent permitted by law, a contractual
possessory security interest in and a contractual right of setoff against, and
the Borrower hereby assigns, conveys, delivers, pledges and transfers to the
Bank all of the Borrower's right, title and interest in and to, all deposits,
moneys, securities and other property of the Borrower now or hereafter in the
possession of or on deposit with, or in transit to, the Bank whether held in a
general or special account or deposit, whether held jointly with someone else,
or whether held for safekeeping or otherwise, excluding, however, all IRA,
Keogh, and trust accounts. Every such security interest and right of setoff may
be exercised without demand upon or notice to the Borrower. Every such right of
setoff shall be deemed to have been exercised immediately upon the occurrence of
an Event of Default hereunder without any action of the Bank, although the Bank
may enter such setoff on its books and records at a later time.
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<PAGE>
12. Miscellaneous. No delay or omission of the Bank to exercise any right
or power arising hereunder shall impair any such right or power or be considered
to be a waiver of any such right or power nor shall the Bank's action or
inaction impair any such right or power. The Borrower agrees to pay on demand,
to the extent permitted by law, all costs and expenses incurred by the Bank in
the enforcement of its rights in this Note and in any security therefor,
including without limitation reasonable fees and expenses of the Bank's counsel.
If any provision of this Note is found to be invalid by a court, all the other
provisions of this Note will remain in full force and effect.
The Borrower and all other makers and endorsers of this Note hereby forever
waive presentment, protest, notice of dishonor and notice of non-payment. The
Borrower also waives all defenses based on suretyship or impairment of
collateral.
This Note shall bind the Borrower and its heirs, executors, administrators,
successors and assigns, and the benefits hereof shall inure to the benefit of
Bank and its successors and assigns.
This Note has been delivered to and accepted by the Bank and will be deemed
to be made in the State where the Bank's office indicated above is located. THIS
NOTE WILL BE INTERPRETED AND THE RIGHTS AND LIABILITIES OF THE BANK AND THE
BORROWER DETERMINED IN ACCORDANCE WITH THE LAWS OF THE STATE WHERE THE BANK'S
OFFICE INDICATED ABOVE IS LOCATED, EXCLUDING ITS CONFLICT OF LAWS RULES. The
Borrower hereby irrevocably consents to the exclusive jurisdiction of any state
or federal court located for the county or judicial district where the Bank's
office indicated above is located, and consents that all service of process be
sent by nationally recognized overnight courier service directed to the Borrower
at the Borrower's address set forth herein and service so made will be deemed to
be completed on the business day after deposit with such courier; provided that
nothing contained in this Note will prevent the Bank from bringing any action,
enforcing any award or judgment or exercising any rights against the Borrower
individually, against any security or against any property of the Borrower
within any other county, state or other foreign or domestic jurisdiction. The
Borrower acknowledges and agrees that the venue provided above is the most
convenient forum for both the Bank and the Borrower. The Borrower waives any
objection to venue and any objection based on a more convenient forum in any
action instituted under this Note.
The Borrower acknowledges that it has read and understood all the provisions of
this Note, and has been advised by counsel as necessary or appropriate.
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<PAGE>
WITNESS the due execution hereof as a document under seal, as of the date
first written above, with the intent to be legally bound hereby.
WITNESS/ATTEST: AQUAPENN SPRING WATER
COMPANY, INC.
_____________________ By:_________________________
Name:
Title:
[Seal]
9
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EXHIBIT 1
PRICING GRID
------------
<PAGE>
REVOLVING LINE OF CREDIT NOTE
$6,000,000 December 22, 1997
FOR VALUE RECEIVED, AQUAPENN SPRING WATER COMPANY, INC. (the
"Borrower"), with an address at One AquaPenn Drive, Milesburg, Pennsylvania
16853, promises to pay to the order of PNC BANK, (the "Bank"), in lawful money
of the United States of America in immediately available funds at its offices
located at 4242 Carlisle Pike, Camp Hill, PA 17011, or at such other location as
the Bank may designate from time to time, the principal sum of SIX MILLION
DOLLARS ($6,000,000) (the "Revolving Line") or such lesser amount as may be
advanced to or for the benefit of the Borrower hereunder, together with interest
accruing on the outstanding principal balance from the date hereof, all as
provided below:
1. Advances. The Borrower may request advances, repay and request
additional advances hereunder, subject to the terms and conditions of this Note
and the Loan Documents (as defined in the Credit Agreement). The Borrower may
request advances hereunder upon delivering to the Bank by 10:00 a.m. State
College, Pennsylvania time, (i) three (3) business days prior to (A) the
proposed Borrowing Date with respect to the making of Revolving Line Advances to
which the Euro-Rate Option applies, or (B) the end of the current Interest
Period in the case of the conversion to or the renewal of the Euro-Rate Option;
(ii) on the same or one (1) Business Day prior to either the proposed Borrowing
Date with respect to the making of a Revolving Line Advance to which the Base
Rate Option applies or the last day of the preceding Interest Period with
respect to the conversion to the Base Rate Option; or (iii) three (3) Business
Day prior to (A) the proposed Borrowing Date with respect to the making of
revolving Line Advances for which the Borrower seeks the Offered Rate Option or
(B) the end of the current Interest Period in the case of conversion to or the
renewal of the Offered Rate Option of a duly completed request as more fully set
forth in the Credit Agreement. In no event shall the aggregate unpaid principal
amount of advances under this Note exceed the face amount of this Note.
2. Rate of Interest. Each advance outstanding under this Note will
bear interest at a rate or rates per annum as may be selected by the Borrower
from the interest rate options set forth below (the "Interest Rate Options"):
(i) Base Rate Option. A fluctuating rate per annum (computed on the
basis of a year of 365 or 366 days, as the case may be, and actual days elapsed)
equal to the Base Rate plus the Applicable Margin set forth on the pricing grid
attached hereto as Exhibit l, such interest rate to change automatically from
time to time effective as of the effective date of each change in the Base Rate.
If and when the Base Rate changes, the rate of interest with respect to any
advances to which the Base Rate Option applies will change automatically without
notice to the Borrower.
<PAGE>
(ii) Euro-Rate Option. A rate per annum (computed on the basis of a
year of 360 days and actual days elapsed) equal to the Euro-Rate plus the
Applicable Margin set forth on the pricing grid attached hereto as Exhibit 1,
subject to Section 4.4 of the Credit Agreement.
(iii) Offered Rate Option. A rate per annum for a Permitted Offered
Rate Interest Period as may be quoted and offered to Borrower by Bank from time
to time at the Bank's sole discretion and determination.
The foregoing notwithstanding, it is understood that no more than four (4)
borrowings under the Euro-Rate Option may be outstanding at any one time.
Interest will be calculated on the basis of a year of 360 days for the actual
number of days in each interest period. In no event will the rate of interest
hereunder exceed the maximum rate allowed by law.
3. Definitions. For the purpose hereof, the following terms shall have
the following meanings:
"Base Rate" shall mean the greater of (i) the interest rate per annum
announced from time to time by the Bank at its Principal Office as its then
prime rate, which rate may not be the lowest rate then being charged commercial
borrowers by the Bank, or (ii) the Federal Funds Effective Rate plus .5% per
annum.
"Business Day" shall mean any day other than a Saturday or Sunday or a
legal holiday on which commercial banks are authorized or required to be closed
for business in Pittsburgh, Pennsylvania; and if the applicable Business Day
relates to any Loan to which the Euro-Rate Option applies, such day must also be
a day on which dealings are carried on in the London interbank market.
"Credit Agreement" shall mean that certain Credit Agreement between the
Bank and Borrower dated as of December 22, 1997.
"Euro-Rate" shall mean, with respect to any advance to which the
Euro-Rate Option applies for the applicable Permitted Euro-Rate Interest Period,
the interest rate per annum determined by the Bank by dividing (the resulting
quotient rounded upwards, if necessary, to the nearest l/l00th of 1% per annum)
(i) the rate of interest determined by the Bank in accordance with its usual
procedures (which determination shall be conclusive absent manifest error) to be
the average of the London interbank offered rates of interest per annum for U.S.
Dollars set forth on Telerate display page 3750 or such other display page on
the Telerate System as may replace such page to evidence the average of rates
quoted by banks designated by the British Bankers' Association (or appropriate
successor or, if the British Bankers' Association or its successor ceases to
provide such quotes, a comparable replacement determined by the Bank) two (2)
Business Days prior to the first day of such Interest Period for an amount
comparable to such Borrowing Tranche and having a borrowing date and maturity
comparable to such Interest Period by (ii) a number equal to 1.00 minus the
Euro-Rate Reserve Percentage. The Euro-Rate shall be
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<PAGE>
the Euro-Rate Reserve Percentage as of such effective date. The Bank shall give
prompt notice to the Borrower of the Euro-Rate as determined or adjusted in
accordance herewith, which determination shall be conclusive absent manifest
error.
"Euro-Rate Reserve Percentage" shall mean the maximum percentage
(expressed as a decimal rounded upward to the nearest 1/100 of 1%) as determined
by the Bank which is in effect on such day as prescribed by the Board of
Governors of the Federal Reserve System (or any successor) for determining the
reserve requirements (including, without limitation, supplemental, marginal and
emergency reserve requirements) with respect to eurocurrency funding (currently
referred to as "Eurocurrency Liabilities") of a member bank in such System.
"Federal Funds Effective Rate" for any day shall mean the rate per
annum (based on a year of 360 days and actual days elapsed and rounded upward to
the nearest 1/100 of 1%) announced by the Federal Reserve Bank of New York (or
any successor) on such day as being the weighted average of the rates on
overnight federal funds transactions arranged by federal funds brokers on the
previous trading day, as computed and announced by such Federal Reserve Bank (or
any successor) in substantially the same manner as such Federal Reserve Bank
computes and announces the weighted average it refers to as the "Federal Funds
Effective Rate" as of the date of this Agreement; provided, if such Federal
Reserve Bank (or its successor) does not announce such rate on any day, the
"Federal Funds Effective Rate" for such day shall be the Federal Funds Effective
Rate for the last day on which such rate was announced.
"Interest Rate Option" shall mean any Euro-Rate Option, Offered Rate
Option or Base Rate Option.
"Permitted Euro-Rate Interest Period" shall mean a period of one (1),
two, (2), three (3) or six (6) months selected by the Borrower commencing on the
date of disbursement of an advance and each successive period selected by the
Borrower thereafter; provided, that if a Permitted Euro-Rate Interest Period
would end on a day which is not a Business Day, it shall end on the next
succeeding Business Day, unless such day falls in the succeeding calendar month
in which Case the Permitted Euro-Rate Interest Period shall end on the next
preceding Business Day. In no event shall any Euro-Rate Interest Period end on a
day after the Revolving Line Expiration Date (as such term is defined in the
Loan Documents).
"Permitted Offered Rate Interest Period" shall mean any of the
following periods: overnight, thirty (30) days, sixty (60) days or ninety (90)
days.
Other capitalized terms used herein and not otherwise deemed shall have
the meanings as set forth in the Credit Agreement.
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<PAGE>
4. Interest Rate Election. Subject to the terms and conditions of this
Note and the Credit Agreement, at the end of each Interest Period applicable to
any advance, the Borrower may renew the Interest Rate Option applicable to such
advance or convert such advance to a different Interest Rate Option by
delivering a Loan Request to the Bank at the times, and in the manner, set forth
herein and in the Credit Agreement. Within the time period prescribed in the
Credit Agreement prior to the end of each Permitted Euro-Rate Interest Period in
the case of a renewal of such Permitted Euro-Rate Interest Period or prior to
the proposed beginning of a new Permitted Euro-Rate Interest Period in the case
of a conversion from the Base Rate Option or the Offered Rate Option to the
Euro-Rate Option, the Borrower shall notify (via the Loan Request as defined in
Credit Agreement) the Bank of each election of an Interest Rate Option, each
conversion from one Interest Rate Option to another, the amount of the advances
then outstanding to be allocated to each Interest Rate Option and, where
relevant, the Interest Period during which such Interest Rate Option shall
apply. If no notice of conversion or renewal is received by the Bank, the
Borrower shall be deemed to have converted such advance to the Base Rate Option.
5. Payment Terms. The Borrower shall pay accrued interest on, and
principal of, this Note as follows:
(a) Interest Payments. Interest on the principal balance hereof
comprising Borrowing Tranches to which the Base Rate Option applies shall be due
and payable in arrears on the first Business Day of each January, April, July
and October (each such date a "Quarterly Interest Payment Date") after the date
hereof and on November 30, 1998 (the "Revolving Line Expiration Date") or upon
acceleration of this Note. Interest on the principal balance hereof comprising
Borrowing Tranches to which the Euro-Rate Option or the Offered Rate Option
applies shall be due and payable on the earlier of (i) the end of the applicable
Interest Period or (ii) each Quarterly Interest Payment Date occurring prior to
the end of such Interest Period.
(b) Principal Payments. Unless sooner prepaid in accordance with
the terms hereof, or sooner accelerated by Bank by virtue of an Event of Default
hereunder, all principal amounts outstanding hereunder shall be paid in full on
the Revolving Line Expiration Date.
If any payment under this Note shall become due on a Saturday, Sunday or public
holiday under the laws of the State where the Bank's office indicated above is
located, such payment shall be made on the next succeeding business day and such
extension of time shall be included in computing interest in connection with
such payment. The Borrower hereby authorizes the Bank to charge the Borrower's
deposit account at the Bank for any payment when due hereunder. Payments
received will be applied to charges, fees and expenses (including attorneys'
fees), accrued interest and principal in any order the Bank may choose, in its
sole discretion.
6. Late Payments: Default Rate. If the Borrower fails to make any
payment of principal, interest or other amount coming due pursuant to the
provisions of this Note within fifteen (15) calendar days of the date due and
payable, the Borrower also shall pay to the Bank a late charge equal to the
lesser of five percent (5%) of the amount of such payment or $100.00. Such 15
day period shall not be construed in any way to extend the due date of any such
4
<PAGE>
payment. The late charge is imposed for the purpose of defraying the Bank's
expenses incident to the handling of delinquent payments and is in addition to,
and not in lieu of, the exercise by the Bank of any rights and remedies
hereunder, under the other Loan Documents or under applicable laws, and any fees
and expenses of any agents or attorneys which the Bank may employ.
Upon the occurrence of an Event of Default hereunder, the rate of
interest applicable to all of the outstanding principal balance hereunder shall
automatically increase to and accrue at an interest rate per anum equal to the
sum of the variable rate of interest applicable under the Base Rate Option plus
an additional 2% per annum (the "Default Rate") until all amounts due hereunder
and under the Loan Documents have been paid in full. The Borrower acknowledges
that the Default Rate reflects, among other things, the fact that such
outstanding Borrowing Tranches or other amounts have become a substantially
greater risk given their default status and that the Bank is entitled to
additional compensation for such risk; and all such interest shall be payable by
Borrower upon demand by Bank. The Default Rate shall continue to apply whether
or not judgment shall be entered on this Note.
7. Prepayment. The Borrower shall have the right at its option from
time to time to prepay the principal balance outstanding hereunder in whole or
part without premium or penalty (except as provided in Section 5.4 of the Credit
Agreement), as follows:
(i) at any time with respect to any Borrowing Tranche to which the
Base Rate Option applies,
(ii) on the last day of the applicable Interest Period with respect
to Borrowing Tranches to which a Euro-Rate Option or an Offered Rate Option
applies,
(iii) on the date specified in a notice by any Bank pursuant to
Section 4.4 of the Credit Agreement with respect to any advance under the
Revolving Line to which a Euro-Rate Option applies.
Whenever the Borrower desires to prepay any part of the outstanding
principal hereunder, it shall provide a prepayment notice to the Bank by 1:00
p.m. at least one (1) Business Day prior to the date of prepayment, setting
forth the following information:
(x) the date, which shall be a Business Day, on which the proposed
prepayment is to be made;
(y) a statement indicating the application of the prepayment to the
Revolving Line; and
(z) the total principal amount of such prepayment, which shall not be
less than $100,000.
All prepayment notices shall be irrevocable. The principal amount of
the principal balance for which a prepayment notice is given, together with
interest on such principal amount
5
<PAGE>
except with respect to Borrowing Tranches to which the Base Rate Option applies,
shall be due and payable on the date specified in such prepayment notice as the
date on which the proposed prepayment is to be made. Except as provided in
Section 4.4.3 of the Credit Agreement, if the Borrower makes a prepayment of
principal but fails to specify the applicable Borrowing Tranche which the
Borrower is prepaying, the prepayment shall be applied first to Loans to which
the Base Rate Option applies, then to Loans to which the Offered Rate Option
applies and next to Loans to which Euro-Rate Option applies. Any prepayment
hereunder shall be subject to the Borrower's obligation to indemnify the Bank
under Section 5.4.2 of the Credit Agreement.
8. Yield Protection. The Borrower shall pay to the Bank, on written
demand therefor, together with the written evidence of the justification
therefor, all direct costs incurred, losses suffered or payments made by Bank by
reason of any change in law or regulation or its interpretation imposing any
reserve, deposit, allocation of capital, or similar requirement (including
without limitation, Regulation D of the Board of Governors of the Federal
Reserve System) on the Bank, its holding company or any of their respective
assets. In addition, the Borrower agrees to indemnify the Bank against any
liabilities, losses or expenses (including loss of margin, any loss or expense
sustained or incurred in liquidating or employing deposits from third parties
acquired to effect, fund or maintain any Loan bearing interest under the
Euro-Rate Option or any part thereof) which the Bank sustains or incurs as a
consequence of either (i) the Borrower's failure to make a payment on the due
date thereof or (ii) the Borrower's payment, prepayment or conversion of any
Loan bearing interest under the Euro-Rate Option on a day other than the last
day of the applicable Euro-Rate Interest Period including but not limited to the
Cost of Prepayment. "Cost of Prepayment" means an amount equal to the present
value, if positive, of the product of (a) the difference between (i) the yield,
on the beginning date of the applicable interest period, of a U.S. Treasury
obligation with a maturity similar to the applicable interest period minus (ii)
the yield, on the prepayment date, of a U.S. Treasury obligation with a maturity
similar to the remaining maturity of the applicable interest period, and (b) the
principal amount to be prepaid, and (c) the number of years, including
fractional years from the prepayment date to the end of the applicable interest
period. The yield on any U.S. Treasury obligation shall be determined by
reference to Federal Reserve Statistical Release H. 15(519) "Selected Interest
Rates". For purposes of making present value calculations, the yield to maturity
of a similar maturity U.S. Treasury obligation on the prepayment date shall be
deemed the discount rate. The Cost of Prepayment shall also apply to any
payments made after acceleration of the maturity of this Note. The Bank's
determination of an amount payable under this paragraph shall, in the absence of
manifest error, be conclusive and shall be payable on demand.
9. Other Loan Documents. This Note is issued pursuant to the Credit
Agreement and the other documents referred to therein, the terms of which are
incorporated herein by reference (collectively, the "Loan Documents").
10. Events of Default. The occurrence of any of the following events
will be deemed to be an "Event of Default" under this Note: (i) the nonpayment
of any principal, interest or other indebtedness under this Note when due; (ii)
the occurrence of any event of default or default and the lapse of any notice or
cure period under any Loan Document or any other debt liability or
6
<PAGE>
obligation to the Bank of any Obligor; (iii) the filing by or against the
Borrower of any proceeding in bankruptcy, receivership, insolvency,
reorganization, liquidation, conservatorship or similar proceeding (and, in the
case of any such proceeding instituted against the Borrower, such proceeding is
not dismissed or stayed within thirty (30) days of the commencement thereof);
(iv) any assignment by the Borrower for the benefit of creditors, or any levy,
garnishment, attachment or similar proceeding is instituted against any property
of the Borrower held by or deposited with the Bank; (v) a default with respect
to any other indebtedness of any Obligor for borrowed money, if the effect of
such default is to cause or permit the acceleration of such debt; (vi) the
commencement of any foreclosure or forfeiture proceeding, execution or
attachment against any collateral securing the obligations of any Obligor to the
Bank; (vii) the entry of a final judgment against any Obligor and the failure of
such Obligor to discharge the judgment within ten days of the entry thereof;
(viii) in the event that this Note or any guarantee executed by any Guarantor is
secured, the failure of any Obligor to provide the Bank with additional
collateral if in the opinion of the Bank at any time or times, the market value
of any of the collateral securing this Note or any guarantee has depreciated;
(ix) any material adverse change in the business, assets, operations, financial
condition or results of operations of any Obligor; (x) the revocation or
attempted revocation, in whole or in part, of any guarantee by any Guarantor;
(xi) any representation or warranty made by any Obligor to the Bank in any Loan
Document, or any other documents now or in the future securing the obligations
of any Obligor to the Bank, is false, erroneous or misleading in any material
respect; or (xii) the failure of any Obligor to observe or perform any covenant
or other agreement with the Bank contained in any Loan Document or any other
documents now or in the future securing the obligations of any Obligor to the
Bank.
As used herein, the term "Obligor" means any Borrower and any Guarantor, and the
term "Guarantor" means any guarantor of the obligations of the Borrower to the
Bank existing on the date of this Note or arising in the future.
Upon the occurrence of an Event of Default: (a) the Bank shall continue to have
no obligation to make advances hereunder; (b) if an Event of Default specified
in clause (iii) or (iv) above shall occur, the outstanding principal balance and
accrued interest hereunder together with any additional amounts payable
hereunder shall be immediately due and payable without demand or notice of any
kind; (c) if any other Event of Default shall occur the outstanding principal
balance and accrued interest hereunder together with any additional amounts
payable hereunder, at the option of the Bank and without demand or notice of any
kind, may be accelerated and become immediately due and payable; (d) at the
option of the Bank, this Note will bear interest at the Default Rate from the
date of the occurrence of the Event of Default; and (e) the Bank may exercise
from time to time any of the rights and remedies available to the Bank under the
Loan Documents or under applicable law.
11. Right of Setoff. In addition to all liens upon and rights of setoff
against the money, securities or other property of the Borrower given to the
Bank by law, the Bank shall have, with respect to the Borrower's Obligations to
the Bank under this Note and to the extent permitted by law, a contractual
possessory security interest in and a contractual right of setoff against, and
the Borrower hereby assigns, conveys, delivers, pledges and transfers to the
Bank all of the
7
<PAGE>
Borrower's right, title and interest in and to, all deposits, moneys, securities
and other property of the Borrower now or hereafter in the possession of or on
deposit with, or in transit to, the Bank whether held in a general or special
account or deposit, whether held jointly with someone else, or whether held for
safekeeping or otherwise, excluding, however, all IRA, Keogh, and trust
accounts. Every such security interest and right of setoff may be exercised
without demand upon or notice to the Borrower. Every such right of setoff shall
be deemed to have been exercised immediately upon the occurrence of an Event of
Default hereunder without any action of the Bank, although the Bank may enter
such setoff on its books and records at a later time.
12. Miscellaneous. No delay or omission of the Bank to exercise any
right or power arising hereunder shall impair any such right or power or be
considered to be a waiver of any such right or power nor shall the Bank's action
or inaction impair any such right or power. The Borrower agrees to pay on
demand, to the extent permitted by law, all costs and expenses incurred by the
Bank in the enforcement of its rights in this Note and in any security therefor,
including without limitation reasonable fees and expenses of the Bank's counsel.
If any provision of this Note is found to be invalid by a court, all the other
provisions of this Note will remain in full force and effect.
The Borrower and all other makers and endorsers of this Note hereby forever
waive presentment, protest, notice of dishonor and notice of non-payment. The
Borrower also waives all defenses based on suretyship or impairment of
collateral.
This Note shall bind the Borrower and its heirs, executors, administrators,
successors and assigns, and the benefits hereof shall inure to the benefit of
Bank and its successors and assigns.
This Note has been delivered to and accepted by the Bank and will be deemed to
be made in the State where the Bank's office indicated above is located. THIS
NOTE WILL BE INTERPRETED AND THE RIGHTS AND LIABILITIES OF THE BANK AND THE
BORROWER DETERMINED IN ACCORDANCE WITH THE LAWS OF THE STATE WHERE T HE BANK'S
OFFICE INDICATED ABOVE IS LOCATED, EXCLUDING ITS CONFLICT OF LAWS RULES. The
Borrower hereby irrevocably consents to the exclusive jurisdiction of any state
or federal court located for the county or judicial district where the Bank's
office indicated above is located, and consents that all service of process be
sent by nationally recognized overnight courier service directed to the Borrower
at the Borrower's address set forth herein and service so made will be deemed to
be completed on the business day after deposit with such courier; provided that
nothing contained in this Note will prevent the Bank from bringing any action,
enforcing any award or judgment or exercising any rights against the Borrower
individually, against any security or against any property of the Borrower
within any other county, state or other foreign or domestic jurisdiction. The
Borrower acknowledges and agrees that the venue provided above is the most
convenient forum for both the Bank and the Borrower. The Borrower waives any
objection to venue and any objection based on a more convenient forum in any
action instituted under this Note.
The Borrower acknowledges that it has read and understood all the provisions of
this Note, and has been advised by counsel as necessary or appropriate.
8
<PAGE>
WITNESS the due execution hereof as a document under seal, as of the
date first written above, with the intent to be legally bound hereby.
WITNESS/ATTEST: AQUAPENN SPRING WATER
- --------------- COMPANY, INC.
By:
- ------------------------ -------------------------
Name:
Title:
[Seal]
9
<PAGE>
EXHIBIT 1
PRICING GRID
------------
<PAGE>
EXHIBIT C
FORM OF REVOLVING CREDIT LINE REQUEST
TO: PNC BANK, NATIONAL ASSOCIATION
Telephone No.: (814) 231-3353
Telecopier No.: (814) 231-1721
Attention: Andra Cochran
FROM: AquaPenn Spring Water Company, Inc.
RE: Credit Agreement (the "Agreement") dated as of December
22, 1997 by and between AquaPenn Spring Water (the
"Borrower") and PNC Bank, National Association (the
"Bank")
A. Pursuant to Section 2.3 of the Agreement, the undersigned
hereby makes the following Loan Request for a Revolving Line
Advance:
1. Principal Amount of Advance U.S. $ __________
2. Proposed Borrowing Date: _________________
3. Requested Interest Rate:
(i) Base Rate Option _____
(ii) EuroRate Option _____
(iii) Offered Rate Option _____
4. Requested Term (EuroRate and Offered Rate Options only):
(i) EuroRate:
_____ One Month
_____ Two Months
_____ Three Months
_____ Six Months
<PAGE>
(ii) Offered Rate:
_____ Overnight
_____ One Month
_____ Two Months
_____ Three Months
B. As of the date hereof and the date of making of the Revolving Line
Advance: the representations and warranties contained in Article VI of the
Agreement are and will be true (except representations and warranties that
expressly relate solely to an earlier date or time, which representations and
warranties were true on and as of the specific date referred to therein); the
Borrower has performed and complied with all covenants and conditions of the
Agreement; no Event of Default or Potential Default has occurred and is
continuing or shall exist; and the making of the Revolving Line Advance shall
not contravene any Law applicable to the Borrower.
Capitalized terms used but not defined herein shall have the meanings
given to them in the Agreement.
The undersigned certifies to the accuracy of the foregoing.
AQUAPENN SPRING WATER
COMPANY, INC.
Date: By:
----------------- -------------------------
Name:
Title:
<PAGE>
EXHIBIT D
FORM OF REDUCING
REVOLVING LINE LOAN REQUEST
TO: PNC BANK, NATIONAL ASSOCIATION
Telephone No.: (814) 231-3353
Telecopier No.: (814) 231-1721
Attention: Andra Cochran
FROM: AquaPenn Spring Water Company, Inc.
RE: Credit Agreement (the"Agreement") dated as of December
22, 1997 by and between AquaPenn Spring Water (the
"Borrower") and PNC Bank National Association (the
"Bank")
A. Pursuant to Section 3.3 of the Agreement, the undersigned
hereby makes the following Reducing Line Loan Request for a
Reducing Revolving Line Advance:
1. Principal Amount of Advance U.S. $ _________
2. Proposed Borrowing Date: ________________
3. Requested Interest Rate:
(i) Base Rate Option _____
(ii) EuroRate Option _____
4. Requested Term (EuroRate Option only):
(i) EuroRate:
_____ One Month
_____ Two Months
_____ Three Months
_____ Six Months
<PAGE>
B. As of the date hereof and the date of making of the Reducing
Revolving Line Advance: the representations and warranties contained in Article
VI of the Agreement are and will be true (except representations and warranties
that expressly relate solely to an earlier date or time, which representations
and warranties were true on and as of the specific date referred to therein);
the Borrower has performed and complied with all covenants and conditions of the
Agreement; no Event of Default or Potential Default has occurred and is
continuing or shall exist; and the making of the Reducing Revolving Line Advance
shall not contravene any Law applicable to the Borrower.
Capitalized terms used but not defined herein shall have the meanings
given to them in the Agreement.
The undersigned certifies to the accuracy of the foregoing.
AQUAPENN SPRING WATER
COMPANY, INC.
Date: By:
----------------- -------------------------
Name:
Title:
<PAGE>
REDUCING REVOLVING LINE
OF CREDIT NOTE
$10,000,000 December 22, 1997
FOR VALUE RECEIVED, AQUAPENN SPRING WATER COMPANY, INC. (the
"Borrower"), with an address at One AquaPenn Drive, Milesburg, Pennsylvania
16853, promises to pay to the order of PNC BANK, (the "Bank"), in lawful money
of the United States of America in immediately available funds at its offices
located at 4242 Carlisle Pike, Camp Hill, PA 1701l, or at such other location as
the Bank may designate from time to time, the principal sum of TEN MILLION
DOLLARS ($10,000,000) (the "Reducing Revolving Line") or such lesser amount as
may be advanced to or for the benefit of the Borrower hereunder, together with
interest accruing on the outstanding principal balance from the date hereof, all
as provided below:
1. Advances. The Borrower may request advances, repay and request
additional advances hereunder, subject to the terms and conditions of this Note
and the Loan Documents (as defined in the Credit Agreement). The Borrower may
request advances hereunder upon delivering to the Bank by 10:00 a.m. State
College, Pennsylvania time, (i) three (3) business days prior to (A) the
proposed Borrowing Date with respect to the making of Reducing Revolving Line
Advances to which the Euro-Rate Option applies, or (B) the end of the current
Interest Period in the case of the conversion to or the renewal of the Euro-Rate
Option; or (ii) on the same or one (l) Business Day prior to either the proposed
Borrowing Date with respect to the making of a Reducing Revolving Line Advance
to which the Base Rate Option applies or the last day of the preceding Interest
Period with respect to the conversion to the Base Rate Option. a duly completed
Loan Request as more fully set forth in the Credit Agreement. In no event shall
the aggregate unpaid principal amount of advances under this Note exceed the
face amount of this Note or the Reducing Revolving Line Limit under Section
3.1.1 of the Credit Agreement.
2. Rate of Interest. Each advance outstanding under this Note will bear
interest at a rate or rates per annum as may be selected by the Borrower from
the interest rate options set forth below (the "Interest Rate Options"):
(i) Base Rate Option. A fluctuating rate per annum (computed on the
basis of a year of 365 or 366 days, as the case may be, and actual days elapsed)
equal to the Base Rate plus the Applicable Margin set forth on the pricing grid
attached hereto as Exhibit l, such interest rate to change automatically from
time to time effective as of the effective date of each change in the Base Rate.
If and when the Base Rate changes, the rate of interest with respect to any
advances to which the Base Rate Option applies will change automatically without
notice to the Borrower.
<PAGE>
(ii) Euro-Rate Option. A rate per annum (computed on the basis of a
year of 360 days and actual days elapsed) equal to the Euro-Rate plus the
Applicable Margin set forth on the pricing grid attached hereto as Exhibit 1,
subject to Section 4.4 of the Credit Agreement.
The foregoing notwithstanding, it is understood that no more than four (4)
borrowings under the Euro-Rate Option may be outstanding at any one time.
Interest will be calculated on the basis of a year of 360 days for the actual
number of days in each interest period. In no event will the rate of interest
hereunder exceed the maximum rate allowed by law.
3. Definitions. For the purpose hereof, the following terms shall have
the following meanings:
"Base Rate" shall mean the greater of (i) the interest rate per annum
announced from time to time by the Bank at its Principal Office as its then
prime rate, which rate may not be the lowest rate then being charged commercial
borrowers by the Bank, or (ii) the Federal Funds Effective Rate plus .5% per
annum.
"Business Day" shall mean any day other than a Saturday or Sunday or a
legal holiday on which commercial banks are authorized or required to be closed
for business in Pittsburgh, Pennsylvania; and if the applicable Business Day
relates to any Loan to which the Euro-Rate Option applies, such day must also be
a day on which dealings are carried on in the London interbank market.
"Credit Agreement" shall mean that certain Credit Agreement between the
Bank and Borrower dated as of December 22, 1997.
"Euro-Rate" shall mean, with respect to any advance to which the
Euro-Rate Option applies for the applicable Permitted Euro-Rate Interest Period,
the interest rate per annum determined by the Bank by dividing (the resulting
quotient rounded upwards, if necessary, to the nearest 1/l00th of 1% per annum)
(i) the rate of interest determined by the Bank in accordance with its usual
procedures (which determination shall be conclusive absent manifest error) to be
the average of the London interbank offered rates of interest per annum for U.S.
Dollars set forth on Telerate display page 3750 or such other display page on
the Telerate System as may replace such page to evidence the average of rates
quoted by banks designated by the British Bankers' Association (or appropriate
successor or, if the British Bankers' Association or its successor ceases to
provide such quotes, a comparable replacement determined by the Bank) two (2)
Business Days prior to the first day of such Interest Period for an amount
comparable to such Borrowing Tranche and having a borrowing date and maturity
comparable to such Interest Period by (ii) a number equal to 1.00 minus the
Euro-Rate Reserve Percentage. The Euro-Rate shall be adjusted with respect to
any Euro-Rate Option outstanding on the effective date of any change in the
Euro-Rate Reserve Percentage as of such effective date. The Bank shall give
prompt notice to the Borrower of the Euro-Rate as determined or adjusted in
accordance herewith, which determination shall be conclusive absent manifest
error.
2
<PAGE>
"Euro-Rate Reserve Percentage" shall mean the maximum percentage
(expressed as a decimal rounded upward to the nearest 1/100 of 1%) as determined
by the Bank which is in effect on such day as prescribed by the Board of
Governors of the Federal Reserve System (or any successor) for determining the
reserve requirements (including, without limitation, supplemental, marginal and
emergency reserve requirements) with respect to eurocurrency funding (currently
referred to as "Eurocurrency Liabilities") of a member bank in such System.
"Federal Funds Effective Rate" for any day shall mean the rate per
annum (based on a year of 360 days and actual days elapsed and rounded upward to
the nearest 1/100 of 1%) announced by the Federal Reserve Bank of New York (or
any successor) on such day as being the weighted average of the rates on
overnight federal funds transactions arranged by federal funds brokers on the
previous trading day, as computed and announced by such Federal Reserve Bank (or
any successor) in substantially the same manner as such Federal Reserve Bank
computes and announces the weighted average it refers to as the "Federal Funds
Effective Rate" as of the date of this Agreement; provided, if such Federal
Reserve Bank (or its successor) does not announce such rate on any day, the
"Federal Funds Effective Rate" for such day shall be the Federal Funds Effective
Rate for the last day on which such rate was announced.
"Interest Rate Option" shall mean any Euro-Rate Option or Base Rate
Option.
"Permitted Euro-Rate Interest Period" shall mean a period of one (1),
two, (2), three (3) or six (6) months selected by the Borrower commencing on the
date of disbursement of an advance and each successive period selected by the
Borrower thereafter; provided, that if a Permitted Euro-Rate Interest Period
would end on a day which is not a Business Day, it shall end on the next
succeeding Business Day, unless such day falls in the succeeding calendar month
in which Case the Permitted Euro-Rate Interest Period shall end on the next
preceding Business Day. In no event shall any Euro-Rate Interest Period end on a
day after the Revolving Line Expiration Date (as such term is defined in the
Loan Documents).
Other capitalized terms used herein and not otherwise defined shall
have the meanings as set forth in the Credit Agreement.
4. Interest Rate Election. Subject to the terms and conditions of this
Note and the Credit Agreement, at the end of each Interest Period applicable to
any advance, the Borrower may renew the Interest Rate Option applicable to such
advance or convert such advance to a different Interest Rate Option by
delivering a Loan Request to the Bank at the times, and in the manner, set forth
herein and in the Credit Agreement. Within the time period prescribed in the
Credit Agreement prior to the end of each Permitted Euro-Rate Interest Period in
the case of a renewal of such Permitted Euro-Rate Interest Period or prior to
the proposed beginning of a new Permitted Euro-Rate Interest Period in the case
of a conversion from the Base Rate Option to the Euro-Rate Option, the Borrower
shall notify (via the Loan Request as defined in Credit Agreement) the Bank of
each election of an Interest Rate Option, each conversion from one Interest Rate
Option to another, the amount of the advances then outstanding to be allocated
to
3
<PAGE>
each Interest Rate Option and, where relevant, the Interest Period during which
such Interest Rate Option shall apply. If no notice of conversion or renewal is
received by the Bank, the Borrower shall be deemed to have converted such
advance to the Base Rate Option.
5. Payment Terms. The Borrower shall pay accrued interest on, and
principal of, this Note as follows:
(a) Interest Payments. Interest on the principal balance hereof
comprising Borrowing Tranches to which the Base Rate Option applies shall be due
and payable in arrears on the first Business Day of each January, April, July
and October (each such date a "Quarterly Interest Payment Date") after the date
hereof and on November 30, 2002 (the "Reducing Revolving Line Expiration Date")
or upon acceleration of this Note. Interest on the principal balance hereof
comprising Borrowing Tranches to which the Euro-Rate Option applies shall be due
and payable on the earlier of (i) the end of the applicable Interest Period or
(ii) each Quarterly Interest Payment Date occurring prior to the end of such
Interest Period.
(b) Principal Payments. Unless sooner prepaid in accordance with
the terms hereof, or sooner accelerated by Bank by virtue of an Event of Default
hereunder, all principal amounts outstanding hereunder shall be paid in full on
the Reducing Revolving Line Expiration Date. The Borrower shall also make such
principal payments from time to time as may be necessary to maintain the
outstanding principal balance hereof at or below the Reducing Revolving Line
Limit under Section 3.1.1 of the Credit Agreement.
If any payment under this Note shall become due on a Saturday, Sunday or public
holiday under the laws of the State where the Bank's office indicated above is
located, such payment shall be made on the next succeeding business day and such
extension of time shall be included in computing interest in connection with
such payment. The Borrower hereby authorizes the Bank to charge the Borrower's
deposit account at the Bank for any payment when due hereunder. Payments
received will be applied to charges, fees and expenses (including attorneys'
fees), accrued interest and principal in any order the Bank may choose, in its
sole discretion.
6. Late Payments: Default Rate. If the Borrower fails to make any
payment of principal, interest or other amount coming due pursuant to the
provisions of this Note within fifteen (15) calendar days of the date due and
payable, the Borrower also shall pay to the Bank a late charge equal to the
lesser of five percent (5%) of the amount of such payment or $100.00. Such 15
day period shall not be construed in any way to extend the due date of any such
payment. The late charge is imposed for the purpose of defraying the Bank's
expenses incident to the handling of delinquent payments and is in addition to,
and not in lieu of, the exercise by the Bank of any rights and remedies
hereunder, under the other Loan Documents or under applicable laws, and any fees
and expenses of any agents or attorneys which the Bank may employ.
Upon the occurrence of an Event of Default hereunder, the rate of
interest applicable to all of the outstanding principal balance hereunder shall
automatically increase to and accrue at an interest rate per anum equal to the
sum of the variable rate of interest applicable under the Base Rate Option plus
an additional 2% per annum (the "Default Rate") until all amounts due
4
<PAGE>
hereunder and under the Loan Documents have been paid in full. The Borrower
acknowledges that the Default Rate reflects, among other things, the fact that
such outstanding Borrowing Tranches or other amounts have become a substantially
greater risk given their default status and that the Bank is entitled to
additional compensation for such risk; and all such interest shall be payable by
Borrower upon demand by Bank. The Default Rate shall continue to apply whether
or not judgment shall be entered on this Note.
7. Prepayment. The Borrower shall have the right at its option from
time to time to prepay the principal balance outstanding hereunder in whole or
part without premium or penalty (except as provided in Section 5.4 of the Credit
Agreement), as follows:
(i) at any time with respect to any Borrowing Tranche to which the
Base Rate Option applies,
(ii) on the last day of the applicable Interest Period with respect
to Borrowing Tranches to which a Euro-Rate Option applies,
(iii) on the date specified in a notice by any Bank pursuant to
Section 4.4 of the Credit Agreement with respect to any advance under the
Revolving Line to which a Euro-Rate Option applies.
Whenever the Borrower desires to prepay any part of the outstanding
principal hereunder, it shall provide a prepayment notice to the Bank by 1:00
p.m. at least one (1) Business Day prior to the date of prepayment, setting
forth the following information:
(x) the date, which shall be a Business Day, on which the proposed
prepayment is to be made;
(y) a statement indicating the application of the prepayment to the
Reducing Revolving Line; and
(z) the total principal amount of such prepayment, which shall not be
less than $500,000.
All prepayment notices shall be irrevocable. The principal amount of
the principal balance for which a prepayment notice is given, together with
interest on such principal amount except with respect to Borrowing Tranches to
which the Base Rate Option applies, shall be due and payable on the date
specified in such prepayment notice as the date on which the proposed prepayment
is to be made. Except as provided in Section 4.4.3 of the Credit Agreement, if
the Borrower makes a prepayment of principal but fails to specify the applicable
Borrowing Tranche which the Borrower is prepaying, the prepayment shall be
applied first to Loans to which the Base Rate Option applies, then to Loans to
which the Euro-Rate Option applies. Any prepayment hereunder shall be subject to
the Borrower's obligation to indemnify the Bank under Section 5.4.2 of the
Credit Agreement.
5
<PAGE>
8. Yield Protection. The Borrower shall pay to the Bank, on written
demand therefor, together with the written evidence of the justification
therefor, all direct costs incurred, losses suffered or payments made by Bank by
reason of any change in law or regulation or its interpretation imposing any
reserve, deposit, allocation of capital, or similar requirement (including
without limitation, Regulation D of the Board of Governors of the Federal
Reserve System) on the Bank, its holding company or any of their respective
assets. In addition, the Borrower agrees to indemnify the Bank against any
liabilities, losses or expenses (including loss of margin, any loss or expense
sustained or incurred in liquidating or employing deposits from third parties
acquired to effect, fund or maintain any Loan bearing interest under the
Euro-Rate Option or any part thereof) which the Bank sustains or incurs as a
consequence of either (i) the Borrower's failure to make a payment on the due
date thereof or (ii) the Borrower's payment, prepayment or conversion of any
Loan bearing interest under the Euro-Rate Option on a day other than the last
day of the applicable Euro-Rate Interest Period including but not limited to the
Cost of Prepayment. "Cost of Prepayment" means an amount equal to the present
value, if positive, of the product of (a) the difference between (i) the yield,
on the beginning date of the applicable interest period, of a U.S. Treasury
obligation with a maturity similar to the applicable interest period minus (ii)
the yield, on the prepayment date, of a U.S. Treasury obligation with a maturity
similar to the remaining maturity of the applicable interest period, and (b) the
principal amount to be prepaid, and (c) the number of years, including
fractional years from the prepayment date to the end of the applicable interest
period. The yield on any U.S. Treasury obligation shall be determined by
reference to Federal Reserve Statistical Release H.15(519) "Selected Interest
Rates". For purposes of making present value calculations, the yield to maturity
of a similar maturity U.S. Treasury obligation on the prepayment date shall be
deemed the discount rate. The Cost of Prepayment shall also apply to any
payments made after acceleration of the maturity of this Note. The Bank's
determination of an amount payable under this paragraph shall, in the absence of
manifest error, be conclusive and shall be payable on demand.
9. Other Loan Documents. This Note is issued pursuant to the Credit
Agreement and the other documents referred to therein, the terms of which are
incorporated herein by reference (collectively, the "Loan Documents").
10. Events of Default. The occurrence of any of the following events
will be deemed to be an "Event of Default" under this Note: (i) the nonpayment
of any principal, interest or other indebtedness under this Note when due; (ii)
the occurrence of any event of default or default and the lapse of any notice or
cure period under any Loan Document or any other debt, liability or obligation
to the Bank of any Obligor; (iii) the filing by or against the Borrower of any
proceeding in bankruptcy, receivership, insolvency, reorganization, liquidation,
conservatorship or similar proceeding (and, in the case of any such proceeding
instituted against the Borrower, such proceeding is not dismissed or stayed
within thirty (30) days of the commencement thereof); (iv) any assignment by the
Borrower for the benefit of creditors, or any levy, garnishment, attachment or
similar proceeding is instituted against any property of the Borrower held by or
deposited with the Bank; (v) a default with respect to any other indebtedness of
any Obligor for borrowed money, if the effect of such default is to cause or
permit the acceleration of such debt; (vi) the commencement of any foreclosure
or forfeiture proceeding, execution or
6
<PAGE>
attachment against any collateral securing the obligations of any Obligor to the
Bank; (vii) the entry of a final judgment against any Obligor and the failure of
such Obligor to discharge the judgment within ten days of the entry thereof;
(viii) in the event that this Note or any guarantee executed by any Guarantor is
secured, the failure of any Obligor to provide the Bank with additional
collateral if in the opinion of the Bank at any time or times, the market value
of any of the collateral securing this Note or any guarantee has depreciated;
(ix) any material adverse change in the business, assets, operations, financial
condition or results of operations of any Obligor; (x) the revocation or
attempted revocation, in whole or in part, of any guarantee by any Guarantor;
(xi) any representation or warranty made by any Obligor to the Bank in any Loan
Document, or any other documents now or in the future securing the obligations
of any Obligor to the Bank, is false, erroneous or misleading in any material
respect; or (xii) the failure of any Obligor to observe or perform any covenant
or other agreement with the Bank contained in any Loan Document or any other
documents now or in the future securing the obligations of any Obligor to the
Bank.
As used herein, the term "Obligor" means any Borrower and any Guarantor, and the
term "Guarantor" means any guarantor of the obligations of the Borrower to the
Bank existing on the date of this Note or arising in the future.
Upon the occurrence of an Event of Default: (a) the Bank shall continue to have
no obligation to make advances hereunder; (b) if an Event of Default specified
in clause (iii) or (iv) above shall occur, the outstanding principal balance and
accrued interest hereunder together with any additional amounts payable
hereunder shall be immediately due and payable without demand or notice of any
kind; (c) if any other Event of Default shall occur the outstanding principal
balance and accrued interest hereunder together with any additional amounts
payable hereunder, at the option of the Bank and without demand or notice of any
kind, may be accelerated and become immediately due and payable; (d) at the
option of the Bank, this Note will bear interest at the Default Rate from the
date of the occurrence of the Event of Default; and (e) the Bank may exercise
from time to time any of the rights and remedies available to the Bank under the
Loan Documents or under applicable law.
11. Right of Setoff. In addition to all liens upon and rights of setoff
against the money, securities or other property of the Borrower given to the
Bank by law, the Bank shall have, with respect to the Borrower's Obligations to
the Bank under this Note and to the extent permitted by law, a contractual
possessory security interest in and a contractual right of setoff against, and
the Borrower hereby assigns, conveys, delivers, pledges and transfers to the
Bank all of the Borrower's right, title and interest in and to, all deposits,
moneys, securities and other property of the Borrower now or hereafter in the
possession of or on deposit with, or in transit to, the Bank whether held in a
general or special account or deposit, whether held jointly with someone else,
or whether held for safekeeping or otherwise, excluding, however, all IRA,
Keogh, and trust accounts. Every such security interest and right of setoff may
be exercised without demand upon or notice to the Borrower. Every such right of
setoff shall be deemed to have been exercised immediately upon the occurrence of
an Event of Default hereunder without any action of the Bank, although the Bank
may enter such setoff on its books and records at a later time.
7
<PAGE>
12. Miscellaneous. No delay or omission of the Bank to exercise any
right or power arising hereunder shall impair any such right or power or be
considered to be a waiver of any such right or power nor shall the Bank's action
or inaction impair any such right or power. The Borrower agrees to pay on
demand, to the extent permitted by law, all costs and expenses incurred by the
Bank in the enforcement of its rights in this Note and in any security therefor,
including without limitation reasonable fees and expenses of the Bank's counsel.
If any provision of this Note is found to be invalid by a court, all the other
provisions of this Note will remain in full force and effect.
The Borrower and all other makers and endorsers of this Note hereby forever
waive presentment, protest, notice of dishonor and notice of non-payment. The
Borrower also waives all defenses based on suretyship or impairment of
collateral.
This Note shall bind the Borrower and its heirs, executors, administrators,
successors and assigns, and the benefits hereof shall inure to the benefit of
Bank and its successors and assigns.
This Note has been delivered to and accepted by the Bank and will be deemed to
be made in the State where the Bank's office indicated above is located. THIS
NOTE WILL BE INTERPRETED AND THE RIGHTS AND LIABILITIES OF THE BANK AND THE
BORROWER DETERMINED IN ACCORDANCE WITH THE LAWS OF THE STATE WHERE THE BANK'S
OFFICE INDICATED ABOVE IS LOCATED, EXCLUDING ITS CONFLICT OF LAWS RULES. The
Borrower hereby irrevocably consents to the exclusive jurisdiction of any state
or federal court located for the county or judicial district where the Bank's
office indicated above is located, and consents that all service of process be
sent by nationally recognized overnight courier service directed to the Borrower
at the Borrower's address set forth herein and service so made will be deemed to
be completed on the business day after deposit with such courier; provided that
nothing contained in this Note will prevent the Bank from bringing any action,
enforcing any award or judgment or exercising any rights against the Borrower
individually, against any security or against any property of the Borrower
within any other county, state or other foreign or domestic jurisdiction. The
Borrower acknowledges and agrees that the venue provided above is the most
convenient forum for both the Bank and the Borrower. The Borrower waives any
objection to venue and any objection based on a more convenient forum in any
action instituted under this Note.
The Borrower acknowledges that it has read and understood all the provisions of
this Note, and has been advised by counsel as necessary or appropriate.
8
<PAGE>
WITNESS the due execution hereof as a document under seal, as of the
date first written above, with the intent to be legally bound hereby.
WITNESS/ATTEST: AQUAPENN SPRING WATER
- --------------- COMPANY, INC.
Lori W. Murawski By: /s/ Geoffrey F. Feidelberg
- ------------------- ---------------------------------
Name: Geoffrey F. Feidelberg
Title: Chief Operating Officer
[Seal]
9
<PAGE>
EXHIBIT 1
PRICING GRID
------------
SCHEDULE 1.1(A)
EXHIBIT I
December 22, 1997
PNC Bank, N.A.
Pricing Grid
AquaPenn Spring Water Company, Inc.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
LEVEL I LEVEL II LEVEL III LEVEL IV LEVEL V LEVEL VI
- ------------------------------------------------------------------------------------------------------------------------------------
Total Total Total Total Total Total
Indebtedness/ Indebtedness/ Indebtedness/ Indebtedness/ Indebtedness/ Indebtedness/
EBITDA ratio EBITDA ratio EBITDA ratio EBITDA ratio EBITDA ratio EBITDA ratio
is less is less is less is less is less is less
Basis for than or equal than or equal than or equal than or equal than or equal than or equal
Pricing to 1.00 to 1.00. to 1.50 to 1.00. to 2.00 to 1.00. to 2.50 to 1.00. to 3.00 to 1.00. to 4.00 to 1.00.
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commitment Fee (bps) 20 25 30 35 40 45
- ------------------------------------------------------------------------------------------------------------------------------------
LIBOR plus (bps) 75 95 115 135 150 165
- ------------------------------------------------------------------------------------------------------------------------------------
Base Rate plus (bps) 0 0 0 0 0 15
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
If the ratio of Total Liabilities to Tangible New Worth is 1.0 to 1.0 or less,
the applicable rate at Levels IV, V, and VI will be reduced by 10 basis points.
Total Indebtedness = Company's consolidated long and short term indebtedness
for borrowed money including subordinated indebtedness in which cash interest
in contractually payable, capital leases, guarantees, and letters of credit
issued.
EBITDA = Net income (before extraordinary items) plus income tax expense,
interest expense, depreciation and amortization expense.
Base Rate = PNC prime rate or fed funds plus 1/2%
10
<PAGE>
REVOLVING LINE OF CREDIT NOTE
$6,000,000 December 22, 1997
FOR VALUE RECEIVED, AQUAPENN SPRING WATER COMPANY, INC. (the
"Borrower"), with an address at One AquaPenn Drive, Milesburg, Pennsylvania
16853, promises to pay to the order of PNC BANK, (the "Bank"), in lawful money
of the United States of America in immediately available funds at its offices
located at 4242 Carlisle Pike, Camp Hill, PA 17011, or at such other location as
the Bank may designate from time to time, the principal sum of SIX MILLION
DOLLARS ($6,000,000) (the "Revolving Line") or such lesser amount as may be
advanced to or for the benefit of the Borrower hereunder, together with interest
accruing on the outstanding principal balance from the date hereof, all as
provided below:
1. Advances. The Borrower may request advances, repay and request
additional advances hereunder, subject to the terms and conditions of this Note
and the Loan Documents (as defined in the Credit Agreement). The Borrower may
request advances hereunder upon delivering to the Bank by 10:00 a.m. State
College, Pennsylvania time, (i) three (3) business days prior to (A) the
proposed Borrowing Date with respect to the making of Revolving Line Advances to
which the Euro-Rate Option applies, or (B) the end of the current Interest
Period in the case of the conversion to or the renewal of the Euro-Rate Option;
(ii) on the same or one (1) Business Day prior to either the proposed Borrowing
Date with respect to the making of a Revolving Line Advance to which the Base
Rate Option applies or the last day of the preceding Interest Period with
respect to the conversion to the Base Rate Option; or (iii) three (3) Business
Day prior to (A) the proposed Borrowing Date with respect to the making of
revolving Line Advances for which the Borrower seeks the Offered Rate Option or
(B) the end of the current Interest Period in the case of conversion to or the
renewal of the Offered Rate Option of a duly completed request as more fully set
forth in the Credit Agreement. In no event shall the aggregate unpaid principal
amount of advances under this Note exceed the face amount of this Note.
2. Rate of Interest. Each advance outstanding under this Note will bear
interest at a rate or rates per annum as may be selected by the Borrower from
the interest rate options set forth below (the "Interest Rate Options"):
(i) Base Rate Option. A fluctuating rate per annum (computed on the
basis of a year of 365 or 366 days, as the case may be, and actual days elapsed)
equal to the Base Rate plus the Applicable Margin set forth on the pricing grid
attached hereto as Exhibit l, such interest rate to change automatically from
time to time effective as of the effective date of each change in the Base Rate.
If and when the Base Rate changes, the rate of interest with respect to any
advances to which the Base Rate Option applies will change automatically without
notice to the Borrower.
<PAGE>
(ii) Euro-Rate Option. A rate per annum (computed on the basis of a
year of 360 days and actual days elapsed) equal to the Euro-Rate plus the
Applicable Margin set forth on the pricing grid attached hereto as Exhibit 1,
subject to Section 4.4 of the Credit Agreement.
(iii) Offered Rate Option. A rate per annum for a Permitted Offered
Rate Interest Period as may be quoted and offered to Borrower by Bank from time
to time at the Bank's sole discretion and determination.
The foregoing notwithstanding, it is understood that no more than four (4)
borrowings under the Euro-Rate Option may be outstanding at any one time.
Interest will be calculated on the basis of a year of 360 days for the actual
number of days in each interest period. In no event will the rate of interest
hereunder exceed the maximum rate allowed by law.
3. Definitions. For the purpose hereof, the following terms shall have
the following meanings:
"Base Rate" shall mean the greater of (i) the interest rate per annum
announced from time to time by the Bank at its Principal Office as its then
prime rate, which rate may not be the lowest rate then being charged commercial
borrowers by the Bank, or (ii) the Federal Funds Effective Rate plus .5% per
annum.
"Business Day" shall mean any day other than a Saturday or Sunday or a
legal holiday on which commercial banks are authorized or required to be closed
for business in Pittsburgh, Pennsylvania; and if the applicable Business Day
relates to any Loan to which the Euro-Rate Option applies, such day must also be
a day on which dealings are carried on in the London interbank market.
"Credit Agreement" shall mean that certain Credit Agreement between the
Bank and Borrower dated as of December 22, 1997.
"Euro-Rate" shall mean, with respect to any advance to which the
Euro-Rate Option applies for the applicable Permitted Euro-Rate Interest Period,
the interest rate per annum determined by the Bank by dividing (the resulting
quotient rounded upwards, if necessary, to the nearest l/l00th of 1% per annum)
(i) the rate of interest determined by the Bank in accordance with its usual
procedures (which determination shall be conclusive absent manifest error) to be
the average of the London interbank offered rates of interest per annum for U.S.
Dollars set forth on Telerate display page 3750 or such other display page on
the Telerate System as may replace such page to evidence the average of rates
quoted by banks designated by the British Bankers' Association (or appropriate
successor or, if the British Bankers' Association or its successor ceases to
provide such quotes, a comparable replacement determined by the Bank) two (2)
Business Days prior to the first day of such Interest Period for an amount
comparable to such Borrowing Tranche and having a borrowing date and maturity
comparable to such Interest Period by (ii) a number equal to 1.00 minus the
Euro-Rate Reserve Percentage. The Euro-Rate shall be adjusted with respect to
any Euro-Rate Option outstanding on the effective date of any change in
2
<PAGE>
the Euro-Rate Reserve Percentage as of such effective date. The Bank shall give
prompt notice to the Borrower of the Euro-Rate as determined or adjusted in
accordance herewith, which determination shall be conclusive absent manifest
error.
"Euro-Rate Reserve Percentage" shall mean the maximum percentage
(expressed as a decimal rounded upward to the nearest 1/100 of 1%) as determined
by the Bank which is in effect on such day as prescribed by the Board of
Governors of the Federal Reserve System (or any successor) for determining the
reserve requirements (including, without limitation, supplemental, marginal and
emergency reserve requirements) with respect to eurocurrency funding (currently
referred to as "Eurocurrency Liabilities") of a member bank in such System.
"Federal Funds Effective Rate" for any day shall mean the rate per
annum (based on a year of 360 days and actual days elapsed and rounded upward to
the nearest 1/100 of 1%) announced by the Federal Reserve Bank of New York (or
any successor) on such day as being the weighted average of the rates on
overnight federal funds transactions arranged by federal funds brokers on the
previous trading day, as computed and announced by such Federal Reserve Bank (or
any successor) in substantially the same manner as such Federal Reserve Bank
computes and announces the weighted average it refers to as the "Federal Funds
Effective Rate" as of the date of this Agreement; provided, if such Federal
Reserve Bank (or its successor) does not announce such rate on any day, the
"Federal Funds Effective Rate" for such day shall be the Federal Funds Effective
Rate for the last day on which such rate was announced.
"Interest Rate Option" shall mean any Euro-Rate Option, Offered Rate
Option or Base Rate Option.
"Permitted Euro-Rate Interest Period" shall mean a period of one (1),
two, (2), three (3) or six (6) months selected by the Borrower commencing on the
date of disbursement of an advance and each successive period selected by the
Borrower thereafter; provided, that if a Permitted Euro-Rate Interest Period
would end on a day which is not a Business Day, it shall end on the next
succeeding Business Day, unless such day falls in the succeeding calendar month
in which Case the Permitted Euro-Rate Interest Period shall end on the next
preceding Business Day. In no event shall any Euro-Rate Interest Period end on a
day after the Revolving Line Expiration Date (as such term is defined in the
Loan Documents).
"Permitted Offered Rate Interest Period" shall mean any of the
following periods: overnight, thirty (30) days, sixty (60) days or ninety (90)
days.
Other capitalized terms used herein and not otherwise deemed shall have
the meanings as set forth in the Credit Agreement.
3
<PAGE>
4. Interest Rate Election. Subject to the terms and conditions of this
Note and the Credit Agreement, at the end of each Interest Period applicable to
any advance, the Borrower may renew the Interest Rate Option applicable to such
advance or convert such advance to a different Interest Rate Option by
delivering a Loan Request to the Bank at the times, and in the manner, set forth
herein and in the Credit Agreement. Within the time period prescribed in the
Credit Agreement prior to the end of each Permitted Euro-Rate Interest Period in
the case of a renewal of such Permitted Euro-Rate Interest Period or prior to
the proposed beginning of a new Permitted Euro-Rate Interest Period in the case
of a conversion from the Base Rate Option or the Offered Rate Option to the
Euro-Rate Option, the Borrower shall notify (via the Loan Request as defined in
Credit Agreement) the Bank of each election of an Interest Rate Option, each
conversion from one Interest Rate Option to another, the amount of the advances
then outstanding to be allocated to each Interest Rate Option and, where
relevant, the Interest Period during which such Interest Rate Option shall
apply. If no notice of conversion or renewal is received by the Bank, the
Borrower shall be deemed to have converted such advance to the Base Rate Option.
5. Payment Terms. The Borrower shall pay accrued interest on, and
principal of, this Note as follows:
(a) Interest Payments. Interest on the principal balance hereof
comprising Borrowing Tranches to which the Base Rate Option applies shall be due
and payable in arrears on the first Business Day of each January, April, July
and October (each such date a "Quarterly Interest Payment Date") after the date
hereof and on November 30, 1998 (the "Revolving Line Expiration Date") or upon
acceleration of this Note. Interest on the principal balance hereof comprising
Borrowing Tranches to which the Euro-Rate Option or the Offered Rate Option
applies shall be due and payable on the earlier of (i) the end of the applicable
Interest Period or (ii) each Quarterly Interest Payment Date occurring prior to
the end of such Interest Period.
(b) Principal Payments. Unless sooner prepaid in accordance with the
terms hereof, or sooner accelerated by Bank by virtue of an Event of Default
hereunder, all principal amounts outstanding hereunder shall be paid in full on
the Revolving Line Expiration Date.
If any payment under this Note shall become due on a Saturday, Sunday or public
holiday under the laws of the State where the Bank's office indicated above is
located, such payment shall be made on the next succeeding business day and such
extension of time shall be included in computing interest in connection with
such payment. The Borrower hereby authorizes the Bank to charge the Borrower's
deposit account at the Bank for any payment when due hereunder. Payments
received will be applied to charges, fees and expenses (including attorneys'
fees), accrued interest and principal in any order the Bank may choose, in its
sole discretion.
6. Late Payments: Default Rate. If the Borrower fails to make any
payment of principal, interest or other amount coming due pursuant to the
provisions of this Note within fifteen ( 15) calendar days of the date due and
payable, the Borrower also shall pay to the Bank a late charge equal to the
lesser of five percent (5%) of the amount of such payment or $100.00. Such 15
day period shall not be construed in any way to extend the due date of any such
4
<PAGE>
payment. The late charge is imposed for the purpose of defraying the Bank's
expenses incident to the handling of delinquent payments and is in addition to,
and not in lieu of, the exercise by the Bank of any rights and remedies
hereunder, under the other Loan Documents or under applicable laws, and any fees
and expenses of any agents or attorneys which the Bank may employ.
Upon the occurrence of an Event of Default hereunder, the rate of
interest applicable to all of the outstanding principal balance hereunder shall
automatically increase to and accrue at an interest rate per anum equal to the
sum of the variable rate of interest applicable under the Base Rate Option plus
an additional 2% per annum (the "Default Rate") until all amounts due hereunder
and under the Loan Documents have been paid in full. The Borrower acknowledges
that the Default Rate reflects, among other things, the fact that such
outstanding Borrowing Tranches or other amounts have become a substantially
greater risk given their default status and that the Bank is entitled to
additional compensation for such risk; and all such interest shall be payable by
Borrower upon demand by Bank. The Default Rate shall continue to apply whether
or not judgment shall be entered on this Note.
7. Prepayment. The Borrower shall have the right at its option from
time to time to prepay the principal balance outstanding hereunder in whole or
part without premium or penalty (except as provided in Section 5.4 of the Credit
Agreement), as follows:
(i) at any time with respect to any Borrowing Tranche to which the
Base Rate Option applies,
(ii) on the last day of the applicable Interest Period with respect
to Borrowing Tranches to which a Euro-Rate Option or an Offered Rate Option
applies,
(iii) on the date specified in a notice by any Bank pursuant to
Section 4.4 of the Credit Agreement with respect to any advance under the
Revolving Line to which a Euro-Rate Option applies.
Whenever the Borrower desires to prepay any part of the outstanding
principal hereunder, it shall provide a prepayment notice to the Bank by 1:00
p.m. at least one (1) Business Day prior to the date of prepayment, setting
forth the following information:
(x) the date, which shall be a Business Day, on which the proposed
prepayment is to be made;
(y) a statement indicating the application of the prepayment to the
Revolving Line; and
(z) the total principal amount of such prepayment, which shall not be
less than $100,000.
All prepayment notices shall be irrevocable. The principal amount of
the principal balance for which a prepayment notice is given, together with
interest on such principal amount
5
<PAGE>
except with respect to Borrowing Tranches to which the Base Rate Option applies,
shall be due and payable on the date specified in such prepayment notice as the
date on which the proposed prepayment is to be made. Except as provided in
Section 4.4.3 of the Credit Agreement, if the Borrower makes a prepayment of
principal but fails to specify the applicable Borrowing Tranche which the
Borrower is prepaying, the prepayment shall be applied first to Loans to which
the Base Rate Option applies, then to Loans to which the Offered Rate Option
applies and next to Loans to which Euro-Rate Option applies. Any prepayment
hereunder shall be subject to the Borrower's obligation to indemnify the Bank
under Section 5.4.2 of the Credit Agreement.
8. Yield Protection. The Borrower shall pay to the Bank, on written
demand therefor, together with the written evidence of the justification
therefor, all direct costs incurred, losses suffered or payments made by Bank by
reason of any change in law or regulation or its interpretation imposing any
reserve, deposit, allocation of capital, or similar requirement (including
without limitation, Regulation D of the Board of Governors of the Federal
Reserve System) on the Bank, its holding company or any of their respective
assets. In addition, the Borrower agrees to indemnify the Bank against any
liabilities, losses or expenses (including loss of margin, any loss or expense
sustained or incurred in liquidating or employing deposits from third parties
acquired to effect, fund or maintain any Loan bearing interest under the
Euro-Rate Option or any part thereof) which the Bank sustains or incurs as a
consequence of either (i) the Borrower's failure to make a payment on the due
date thereof or (ii) the Borrower's payment, prepayment or conversion of any
Loan bearing interest under the Euro-Rate Option on a day other than the last
day of the applicable Euro-Rate Interest Period including but not limited to the
Cost of Prepayment. "Cost of Prepayment" means an amount equal to the present
value, if positive, of the product of (a) the difference between (i) the yield,
on the beginning date of the applicable interest period, of a U.S. Treasury
obligation with a maturity similar to the applicable interest period minus (ii)
the yield, on the prepayment date, of a U.S. Treasury obligation with a maturity
similar to the remaining maturity of the applicable interest period, and (b) the
principal amount to be prepaid, and (c) the number of years, including
fractional years from the prepayment date to the end of the applicable interest
period. The yield on any U.S. Treasury obligation shall be determined by
reference to Federal Reserve Statistical Release H. 15(519) "Selected Interest
Rates". For purposes of making present value calculations, the yield to maturity
of a similar maturity U.S. Treasury obligation on the prepayment date shall be
deemed the discount rate. The Cost of Prepayment shall also apply to any
payments made after acceleration of the maturity of this Note. The Bank's
determination of an amount payable under this paragraph shall, in the absence of
manifest error, be conclusive and shall be payable on demand.
9. Other Loan Documents. This Note is issued pursuant to the Credit
Agreement and the other documents referred to therein, the terms of which are
incorporated herein by reference (collectively, the "Loan Documents").
10. Events of Default. The occurrence of any of the following events
will be deemed to be an "Event of Default" under this Note: (i) the nonpayment
of any principal, interest or other indebtedness under this Note when due; (ii)
the occurrence of any event of default or default and the lapse of any notice or
cure period under any Loan Document or any other debt liability or
6
<PAGE>
obligation to the Bank of any Obligor; (iii) the filing by or against the
Borrower of any proceeding in bankruptcy, receivership, insolvency,
reorganization, liquidation, conservatorship or similar proceeding (and, in the
case of any such proceeding instituted against the Borrower, such proceeding is
not dismissed or stayed within thirty (30) days of the commencement thereof);
(iv) any assignment by the Borrower for the benefit of creditors, or any levy,
garnishment, attachment or similar proceeding is instituted against any property
of the Borrower held by or deposited with the Bank; (v) a default with respect
to any other indebtedness of any Obligor for borrowed money, if the effect of
such default is to cause or permit the acceleration of such debt; (vi) the
commencement of any foreclosure or forfeiture proceeding, execution or
attachment against any collateral securing the obligations of any Obligor to the
Bank; (vii) the entry of a final judgment against any Obligor and the failure of
such Obligor to discharge the judgment within ten days of the entry thereof;
(viii) in the event that this Note or any guarantee executed by any Guarantor is
secured, the failure of any Obligor to provide the Bank with additional
collateral if in the opinion of the Bank at any time or times, the market value
of any of the collateral securing this Note or any guarantee has depreciated;
(ix) any material adverse change in the business, assets, operations, financial
condition or results of operations of any Obligor; (x) the revocation or
attempted revocation, in whole or in part, of any guarantee by any Guarantor;
(xi) any representation or warranty made by any Obligor to the Bank in any Loan
Document, or any other documents now or in the future securing the obligations
of any Obligor to the Bank, is false, erroneous or misleading in any material
respect; or (xii) the failure of any Obligor to observe or perform any covenant
or other agreement with the Bank contained in any Loan Document or any other
documents now or in the future securing the obligations of any Obligor to the
Bank.
As used herein, the term "Obligor" means any Borrower and any Guarantor, and the
term "Guarantor" means any guarantor of the obligations of the Borrower to the
Bank existing on the date of this Note or arising in the future.
Upon the occurrence of an Event of Default: (a) the Bank shall continue to have
no obligation to make advances hereunder; (b) if an Event of Default specified
in clause (iii) or (iv) above shall occur, the outstanding principal balance and
accrued interest hereunder together with any additional amounts payable
hereunder shall be immediately due and payable without demand or notice of any
kind; (c) if any other Event of Default shall occur the outstanding principal
balance and accrued interest hereunder together with any additional amounts
payable hereunder, at the option of the Bank and without demand or notice of any
kind, may be accelerated and become immediately due and payable; (d) at the
option of the Bank, this Note will bear interest at the Default Rate from the
date of the occurrence of the Event of Default; and (e) the Bank may exercise
from time to time any of the rights and remedies available to the Bank under the
Loan Documents or under applicable law.
11. Right of Setoff. In addition to all liens upon and rights of setoff
against the money, securities or other property of the Borrower given to the
Bank by law, the Bank shall have, with respect to the Borrower's Obligations to
the Bank under this Note and to the extent permitted by law, a contractual
possessory security interest in and a contractual right of setoff against, and
the Borrower hereby assigns, conveys, delivers, pledges and transfers to the
Bank all of the
7
<PAGE>
Borrower's right, title and interest in and to, all deposits, moneys, securities
and other property of the Borrower now or hereafter in the possession of or on
deposit with, or in transit to, the Bank whether held in a general or special
account or deposit, whether held jointly with someone else, or whether held for
safekeeping or otherwise, excluding, however, all IRA, Keogh, and trust
accounts. Every such security interest and right of setoff may be exercised
without demand upon or notice to the Borrower. Every such right of setoff shall
be deemed to have been exercised immediately upon the occurrence of an Event of
Default hereunder without any action of the Bank, although the Bank may enter
such setoff on its books and records at a later time.
12. Miscellaneous. No delay or omission of the Bank to exercise any
right or power arising hereunder shall impair any such right or power or be
considered to be a waiver of any such right or power nor shall the Bank's action
or inaction impair any such right or power. The Borrower agrees to pay on
demand, to the extent permitted by law, all costs and expenses incurred by the
Bank in the enforcement of its rights in this Note and in any security therefor,
including without limitation reasonable fees and expenses of the Bank's counsel.
If any provision of this Note is found to be invalid by a court, all the other
provisions of this Note will remain in full force and effect.
The Borrower and all other makers and endorsers of this Note hereby forever
waive presentment, protest, notice of dishonor and notice of non-payment. The
Borrower also waives all defenses based on suretyship or impairment of
collateral.
This Note shall bind the Borrower and its heirs, executors, administrators,
successors and assigns, and the benefits hereof shall inure to the benefit of
Bank and its successors and assigns.
This Note has been delivered to and accepted by the Bank and will be deemed to
be made in the State where the Bank's office indicated above is located. THIS
NOTE WILL BE INTERPRETED AND THE RIGHTS AND LIABILITIES OF THE BANK AND THE
BORROWER DETERMINED IN ACCORDANCE WITH THE LAWS OF THE STATE WHERE T HE BANK'S
OFFICE INDICATED ABOVE IS LOCATED, EXCLUDING ITS CONFLICT OF LAWS RULES. The
Borrower hereby irrevocably consents to the exclusive jurisdiction of any state
or federal court located for the county or judicial district where the Bank's
office indicated above is located, and consents that all service of process be
sent by nationally recognized overnight courier service directed to the Borrower
at the Borrower's address set forth herein and service so made will be deemed to
be completed on the business day after deposit with such courier; provided that
nothing contained in this Note will prevent the Bank from bringing any action,
enforcing any award or judgment or exercising any rights against the Borrower
individually, against any security or against any property of the Borrower
within any other county, state or other foreign or domestic jurisdiction. The
Borrower acknowledges and agrees that the venue provided above is the most
convenient forum for both the Bank and the Borrower. The Borrower waives any
objection to venue and any objection based on a more convenient forum in any
action instituted under this Note.
The Borrower acknowledges that it has read and understood all the provisions of
this Note, and has been advised by counsel as necessary or appropriate.
8
<PAGE>
WITNESS the due execution hereof as a document under seal, as of the
date first written above, with the intent to be legally bound hereby.
WITNESS/ATTEST: AQUAPENN SPRING WATER
- --------------- COMPANY, INC.
Lori W. Murawski By: /s/ Geoffrey F. Feidelberg
- ------------------ ----------------------------------
Name: Geoffrey F. Feidelberg
Title: Chief Operating Officer
[Seal]
<PAGE>
EXHIBIT 1
PRICING GRID
------------
SCHEDULE 1.1(A)
EXHIBIT I
December 22, 1997
PNC Bank, N.A.
Pricing Grid
AquaPenn Spring Water Company, Inc.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
LEVEL I LEVEL II LEVEL III LEVEL IV LEVEL V LEVEL VI
- ------------------------------------------------------------------------------------------------------------------------------------
Total Total Total Total Total Total
Indebtedness/ Indebtedness/ Indebtedness/ Indebtedness/ Indebtedness/ Indebtedness/
EBITDA ratio EBITDA ratio EBITDA ratio EBITDA ratio EBITDA ratio EBITDA ratio
is less is less is less is less is less is less
Basis for than or equal than or equal than or equal than or equal than or equal than or equal
Pricing to 1.00 to 1.00. to 1.50 to 1.00. to 2.00 to 1.00. to 2.50 to 1.00. to 3.00 to 1.00. to 4.00 to 1.00.
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commitment Fee (bps) 20 25 30 35 40 45
- ------------------------------------------------------------------------------------------------------------------------------------
LIBOR plus (bps) 75 95 115 135 150 165
- ------------------------------------------------------------------------------------------------------------------------------------
Base Rate plus (bps) 0 0 0 0 0 15
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
If the ratio of Total Liabilities to Tangible New Worth is 1.0 to 1.0 or less,
the applicable rate at Levels IV, V, and VI will be reduced by 10 basis points.
Total Indebtedness = Company's consolidated long and short term indebtedness
for borrowed money including subordinated indebtedness in which cash interest
in contractually payable, capital leases, guarantees, and letters of credit
issued.
EBITDA = Net income (before extraordinary items) plus income tax expense,
interest expense, depreciation and amortization expense.
Base Rate = PNC prime rate or fed funds plus 1/2%
10
EXHIBIT 10.25
ADDENDUM TO LEASE AGREEMENT
THIS ADDENDUM TO LEASE AGREEMENT made this 1st day of December, 1997,
by and between AQUAPENN SPRING WATER COMPANY, a Pennsylvania corporation, with
an address of P.O. Box 938, Milesburg, Pennsylvania (hereinafter referred to as
"Lessor"),
-AND-
SCHMALBACH-LUBECA PLASTIC CONTAINERS USA, INC., a Delaware corporation
with an address of 912 City Road, Manchester, Michigan (hereinafter referred to
as "Lessee" or "Tenant").
RECITALS
A. By Agreement of Lease made and to be effective as of the nineteen (19th)
day of June, 1996 (the "Lease Agreement"), Lessor leased to Johnson Controls,
Inc. 30,000 square feet of floor space located at Lessor's Milesburg plant under
the terms and conditions more fully set forth therein for a term through March
31, 2001, together with certain options to renew or extend the lease term.
B. As of January 31, 1997, Johnson Controls, Inc. assigned all its right,
title and interest in and to the Lease and the Leased Premises to Lessee.
C. Lessee desires to lease from Lessor 52,000 square feet of additional
space which Lessor desires to lease to Lessee.
<PAGE>
NOW, THEREFORE, in consideration of the above recitals which are deemed
to be a material part of this Agreement, and in further consideration of these
presents, and intending to be legally bound hereby, the parties agree as
follows:
1. Additional Leased Premises. Commencing December 15, 1997, Lessor
does hereby demise, lease and let unto the Lessee and Lessee leases from Lessor
52,000 square feet of additional floor space located in the Lessor's Milesburg
plant as more fully shown on the plan attached hereto marked Exhibit "A", which
is hereinafter referred to as the "Additional Demised Premises."
2. Rent. The rent for the Additional Demised Premises shall be $4.50
per square foot on an annual basis equaling a minimum annual amount of
$234,000.00 payable in equal installments of $19,500.00 per month commencing on
December 15, 1997. At that date, the aggregate monthly rent installments for the
Leased Premises and Additional Leased Premises shall be $30,750.00.
3. Term. The term of this Lease for the Additional Leased Premises
shall commence on December 15, 1997 and shall run concurrently with the lease
term for the Leased Premises, that is until March 31, 2001. The option to extend
the Lease as contained in Paragraph 25 of the Lease Agreement shall also apply
to the Additional Leased Premises.
2
<PAGE>
4. Agreement Remains Unchanged. In all other respects, the Lease Agreement
and the Assignment thereof shall remain in full force and effect except as
modified by this Addendum.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day
and year above written.
WITNESS: AQUAPENN SPRING WATER COMPANY
(Signature illegible) By: /s/ Geoffrey F. Feidelberg (SEAL)
- ------------------------- --------------------------------
SCHMALBACH-LUBECA PLASTIC
CONTAINERS USA, INC.
/s/ William J. O'Connell By: (Signature illegible) (SEAL)
- ------------------------- ---------------------------------
4
<PAGE>
Exhibit "A"
(Exhibit A is a diagram setting forth
the additional floor space to be occupied by the Lessee.)
<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. 3 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
KPMG Peat Marwick LLP
State College, Pennsylvania
January 2, 1998
<PAGE>
Exhibit 23.2
Accountants' Consent
To the Board of Directors
AquaPenn Spring Water Company, Inc.:
We consent to the use of our report dated October 31, 1997, included in this
Amendment Number 3 to Registration Statement of Form S-1 of AquaPenn Spring
Water Company, Inc., and to the reference to our firm under the heading
"Experts".
/s/ Matson and Isom
Accountancy Corporation
Redding, California
December 29, 1997
