<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 21, 1998
REGISTRATION NO. 333-38771
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
AMENDMENT NO. 4
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:
BRIAN D. DOERNER, ESQ. GREGORY M. SHAW, ESQ.
BALLARD SPAHR ANDREWS & INGERSOLL CRAVATH, SWAINE & MOORE
1735 MARKET STREET, 51ST FLOOR WORLDWIDE PLAZA
PHILADELPHIA, PA 19103-7599 825 EIGHTH AVENUE
(215) 665-8500 NEW YORK, NY 10019-7475
(212) 474-1000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / / _______________
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / _______________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / _______________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / / _______________
---------------------------
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 21, 1998
4,071,117 SHARES
[AquaPenn LOGO]
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 has been approved
for listing of the Common Stock on the New York Stock Exchange ("NYSE") under
the symbol "APN" subject to notice of issuance.
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>
============================================================================================
<S> <C> <C> <C> <C>
| | Underwriting | | Proceeds to
| Price to | Discounts and | Proceeds to | Selling
| Public | Commissions(1)| Company(2) | Shareholder(2)
- --------------------------------------------------------------------------------------------
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>
In the printed version of the document there are 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 assumes (a)
that the 0.6008-for-1 reverse stock split (the "Reverse Stock Split") of each
outstanding share of Common Stock of the Company 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 issuance of the 75,001
shares of Common Stock subscribed for under the Company's 1996 Employee Stock
Purchase Plan (the "Stock Purchase Plan") of which 74,298 shares were purchased
in January 1998. 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 PET 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 (27.5% 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 2,966,970 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 January 19, 1998 the Company had approximately $15.2 million
of such borrowings outstanding, $6.0 million of which is due in November 2002,
$3.0 million of which begins to amortize in February 1999, $6.0 million of which
is due in February 1998 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 $6.2 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 $4.1 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 $2.1 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:
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
======
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) 76,289 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;
1,713,750 shares issued pro forma; no
shares issued, pro forma 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 76,289 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.
YEARS ENDED SEPTEMBER 30,
---------------------------
1995 1996 1997
----- ----- -----
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%
===== ===== =====
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.
PRO FORMA
YEAR ENDED
SEPTEMBER 30, 1997
------------------
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%
=====
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.
28
<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 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
Spring of 1998. The Company also leases approximately 11,000 square feet of
warehouse space located in Boggs Township, Pennsylvania pursuant to a lease
expiring on February 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 trademark protection 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
32
<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 regarding the distinctiveness of the
bottle shape and label design and the functionality of the bottle shape. In
connection with such information, the PTO requested a revised drawing and
description of the bottle shape and label design which the Company provided. The
Company has been notified by the PTO that on January 20, 1998, the trademark
will be published for opposition in the PTO's Official Gazette. Any party who
believes it may be damaged by registration of the trademark has thirty days from
the date of publication to file an opposition to registration. 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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<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The officers and directors of the Company, together with their ages and
business backgrounds, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH COMPANY
---- --- ---------------------
<S> <C> <C>
Edward J. Lauth, III...................... 43 Chairman, President, Chief Executive Officer
and Director
Geoffrey F. Feidelberg.................... 42 Executive Vice President, Chief Operating
Officer and Chief Financial Officer and
Director
Dennis B. Nisewonger...................... 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)........................ 60 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 which, as of September 30, 1997, totaled $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 February 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 May 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 76,289 shares were subscribed for by
eligible employees under the Stock Purchase Plan. The period during which
employees must pay for the subscribed shares terminated on January 5, 1998 and
75,586 of the subscribed shares were purchased by that date.
38
<PAGE>
CERTAIN TRANSACTIONS
In February 1992, the Company and Matthew J. Suhey, a director of the
Company, entered into a Sales Representative Agreement whereby Mr. Suhey agreed
to act as an independent food broker for the Company with an exclusive sales
territory. In October 1994, Mr. Suhey received options to purchase 270,360
shares at $1.90 per share of the Company's Common Stock in consideration for the
termination of the Sales Representative Agreement. Mr. Suhey and the Company
entered into a food broker agreement in December 1995 pursuant to which Mr.
Suhey receives annual compensation of $250,000 per year. Mr. Suhey received
compensation of $208,305, $214,981 and $250,000 in fiscal years 1995, 1996 and
1997, respectively, for his services as an independent food broker to 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.
In December 1994, the Company granted options to purchase 30,040 shares at
$1.66 per share of the Company's Common Stock to Edward J. Lauth, III,
President, Chief Executive Officer and Chairman of the Board of the Company, to
replace shares previously transferred by Mr. Lauth to an individual for services
rendered to the Company.
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.
In April 1995, the Company borrowed $8,000,000 from Aqua Works, Inc. The
loan was repaid in September 1995 out of the proceeds of a private placement of
Common Stock by the Company. In addition, interest expense of $292,000 was
incurred and paid by the Company on this loan. In connection with this
borrowing, warrants for 135,180 shares of the Company's Common Stock at an
exercise price of $4.99 were issued to Aqua Works, Inc. These warrants can be
exercised in part or in whole at any time. None of these warrants were exercised
in fiscal 1997. As consideration for Mr. Lauth's personal guarantee given on a
portion of the $8,000,000 borrowing, the Company issued warrants for 105,140
shares of the Company's Common Stock at an exercise price of $4.99 per share to
Mr. Lauth. These warrants can be exercised in part or in whole at any time. In
November 1995, Mr. Lauth assigned warrants for 21,028 shares of Common Stock to
Calvin J. Wagner, Jr. and warrants for 9,012 shares of Common Stock to James D.
Hammond, both directors of the Company. None of the warrants held by Messrs.
Lauth, Wagner and Hammond were exercised in 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 31, 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...................... 361,270(6) 6.1 -- 361,270 4.5
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).............................. 4,287,788 65.0% -- 2,358,788 27.5%
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 IRA....................... 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 purchase of shares currently subscribed for or 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 and that shares
subscribed for have been purchased. 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,
330,440 shares of Common Stock exercisable pursuant to options and
subscriptions to purchase 4,394 shares of Common Stock pursuant to the
Stock Purchase Plan. 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 68,190 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 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 January 5, 1998, 180,845 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:
NUMBER
UNDERWRITER OF SHARES
----------- ---------
PaineWebber Incorporated...............................
Lazard Freres & Co. LLC................................
Parker/Hunter Incorporated.............................
-------
Total...............................................
=======
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 certain of 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>
AQUAPENN SPRING WATER COMPANY, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
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
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:
YEAR ENDING SEPTEMBER 30, AMOUNT
- ------------------------- ----------
1998............................................ $ 298,966
1999............................................ 237,000
2000............................................ 313,000
2001............................................ 335,000
2002............................................ 358,000
Thereafter...................................... 3,275,501
----------
$4,817,467
==========
(7) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of the following:
SEPTEMBER 30,
---------------------------
1996 1997
---------- ----------
Accounts payable........................... $ 868,436 $1,021,471
Accrued expenses........................... 874,093 860,825
Accrued payroll............................ 96,513 142,224
Income taxes payable....................... 595,319 822,322
Other...................................... 87,309 251,729
---------- ----------
$2,521,670 $3,098,571
========== ==========
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
--------- --------- ----------
<S> <C> <C> <C>
Computed "expected" tax expense...... $ 270,500 $ 866,000 $1,642,000
State income tax, net of federal
benefit............................ 60,000 153,000 227,000
Change in valuation allowance........ (262,500) (27,000) --
Other, net........................... 67,000 (2,000) 35,752
--------- --------- ----------
$ 135,000 $ 990,000 $1,904,752
========= ========= ==========
</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:
SEPTEMBER 30,
-----------------------
1996 1997
-------- --------
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
======== ========
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:
YEAR ENDING SEPTEMBER 30, AMOUNT
- ------------------------- --------
1998.............................................. $110,000
1999.............................................. 63,000
2000.............................................. 41,000
2001.............................................. 15,000
2002.............................................. 16,000
Thereafter........................................ 37,000
--------
$282,000
========
At September 30, 1997, the Company has entered into a commitment to
purchase land and construct a production facility in North Central Florida. The
facility, which is expected to be completed in fiscal 1998, is estimated to cost
approximately $6,588,000.
In addition, the Company has made certain commitments to expand the
Milesburg Facility. These commitments are for buildings, building improvements
and equipment. As of September 30, 1997, the open commitments relating to this
facility are approximately $8,250,000.
(12) 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:
SEPTEMBER 30,
---------------------------
1996 1997
---------- ----------
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
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
SEPTEMBER 30, 1997
------------------
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
==========
The accompanying notes are an integral part of these financial statements.
F-18
<PAGE>
DUNSMUIR BOTTLING COMPANY
STATEMENT OF OPERATIONS AND RETAINED EARNINGS (DEFICIT)
YEAR ENDED
SEPTEMBER 30, 1997
------------------
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)
==========
The accompanying notes are an integral part of these financial statements.
F-19
<PAGE>
DUNSMUIR BOTTLING COMPANY
STATEMENT OF CASH FLOWS
YEAR ENDED
SEPTEMBER 30, 1997
------------------
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
===========
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
SEPTEMBER 30, 1997
------------------
Inventories consist of the following:
Finished goods....................................... $ 95,614
Raw materials........................................ 331,381
----------
$ 426,995
==========
(3) PROPERTY, PLANT, AND EQUIPMENT
SEPTEMBER 30, 1997
------------------
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
==========
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:
SEPTEMBER 30, 1997
------------------
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
----------
F-23
<PAGE>
DUNSMUIR BOTTLING COMPANY
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
(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
----------
F-24
<PAGE>
DUNSMUIR BOTTLING COMPANY
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
(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
==========
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:
LONG-TERM DEBT
--------------
1998........................................... $553,504
1999........................................... $341,920
2000........................................... $338,563
2001........................................... $287,364
2002........................................... $280,420
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:
SEPTEMBER 30, 1997
------------------
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
==========
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:
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
========
Following is a summary of property held under capital leases:
Bottling equipment........................................ $200,183
Accumulated amortization.................................. (30,462)
--------
Net..................................................... $169,721
========
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:
CURRENT EXPENSE
State franchise tax....................................... $ 800
--------
Total income tax provision................................ $ 800
========
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:
1998.............................................. $127,527
1999.............................................. $ 68,665
2000.............................................. $ 33,109
2001.............................................. $ 29,674
2002.............................................. $ 25,800
(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
PAGE
----
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
------------------------
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
[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:
SELLING
COMPANY SHAREHOLDERS
-------- ------------
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
======== ========
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.
In January 1998, the Company issued 74,298 shares of Common Stock at a
price of $5.41 per share to employees purchasing under the 1996 Employee Stock
Purchase Plan.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibit
EXHIBIT
NUMBER
- -------
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**
II-3
<PAGE>
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.**
10.26 Blanket Purchase Commitment dated April 16, 1997 between
Castle Rock Spring Water and Containers Northwest
Corporation
10.27 Non-Qualified Deferred Compensation Agreement dated October 1,
1994 between the Company and Edward J. Lauth, III
10.28 Non-Qualified Deferred Compensation Agreement dated October 1,
1994 between the Company and Geoffrey F. Feidelberg
II-4
<PAGE>
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**
- ------------------
* To be filed by amendment
** Previously filed
+ Previously filed, confidential treatment requested
II-5
<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-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 4 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in Milesburg,
Pennsylvania, on January 21, 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.
* 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 21, 1998
---------------------------------
Geoffrey F. Feidelberg
pursuant to a power of
attorney previously filed
II-7
<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>
EXHIBIT
NUMBER PAGE
- ------- ----
<S> <C> <C>
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.**
10.26 Blanket Purchase Commitment dated April 16, 1997 between
Castle Rock Spring Water and Containers Northwest
Corporation
10.27 Non-Qualified Deferred Compensation Agreement dated October 1,
1994 between the Company and Edward J. Lauth, III
10.28 Non-Qualified Deferred Compensation Agreement dated October 1,
1994 between the Company and Geoffrey F. Feidelberg
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
[4,071,117] Shares
AQUAPENN SPRING WATER COMPANY, INC.
Common Stock
UNDERWRITING AGREEMENT
[ ], 1998
PAINEWEBBER INCORPORATED
LAZARD FRERES & CO. LLC
PARKER/HUNTER INCORPORATED
As Representatives of the
several Underwriters
c/o PaineWebber Incorporated
1285 Avenue of the Americas
New York, New York 10019
Ladies and Gentlemen:
AquaPenn Spring Water Company, Inc., a Pennsylvania corporation (the
"Company"), and the shareholders of the Company named in Schedule I (the
"Selling Shareholders"), severally propose to sell an aggregate of 4,071,117
shares (the "Firm Shares") of the Company's Common Stock, no par value (the
"Common Stock"), of which [2,000,000] shares are to be issued and sold by the
Company and an aggregate of [2,071,117] shares are to be sold by the Selling
Shareholders in the respective amounts set forth opposite their respective names
in Schedule I, in each case to you and to the other underwriters named in
Schedule II (collectively, the "Underwriters"), for whom you are acting as
representatives (the "Representatives"). The Company has also agreed to grant to
you and the other Underwriters an option (the "Option") to purchase up to an
additional 610,668 shares of Common Stock (the "Option Shares") on the terms and
for the purposes set forth in Section 1(b). The Firm Shares and the Option
Shares are hereinafter collectively referred to as the "Shares."
The initial public offering price per share for the Shares and the purchase
price per share for the Shares to be paid by the several Underwriters shall be
agreed upon by the Company, the Selling Shareholders and the Representatives,
acting on behalf of the several Underwriters, and such agreement shall be set
forth in a separate written instrument substantially in the form of Exhibit A
hereto (the "Price Determination Agreement"). The Price Determination Agreement
may take the form of an exchange of any standard form of written
telecommunication among the Company, the Selling Shareholders and the
Representatives and shall specify such applicable information as is indicated in
Exhibit A hereto. The offering of the Shares will be governed by this Agreement,
as supplemented by the Price Determination Agreement. From and after the date of
the execution and delivery of the Price Determination Agreement, this Agreement
<PAGE>
shall be deemed to incorporate, and, unless the context otherwise indicates, all
references contained herein to "this Agreement" and to the phrase "herein" shall
be deemed to include the Price Determination Agreement.
Each Selling Shareholder has executed and delivered a Custody Agreement and
a Power of Attorney in the form attached hereto as Exhibit B (collectively, the
"Agreement and Power of Attorney") pursuant to which each Selling Shareholder
has placed his, her or its Firm Shares in custody and appointed the persons
designated therein as attorneys-in-fact (the "Attorneys-in-Fact") with authority
to execute and deliver this Agreement on behalf of such Selling Shareholder and
to take certain other actions with respect thereto and hereto.
The Company and the Selling Shareholders confirm as follows their
respective agreements with the Representatives and the several other
Underwriters.
1. Agreement to Sell and Purchase. (a) On the basis of the representations,
warranties and agreements of the Company and the Selling Shareholders herein
contained and subject to all the terms and conditions of this Agreement, (i) the
Company agrees to sell 2,000,000 Firm Shares and (ii) the Selling Shareholders
agree, severally and not jointly, to sell the number of Firm Shares set forth
opposite each such Selling Shareholder's name on Schedule I hereto, to each
Underwriter named in Schedule II, and each Underwriter, severally and not
jointly, agrees to purchase from the Company and the Selling Shareholders at the
purchase price per share for the Firm Shares to be agreed upon by the
Representatives, the Company and the Selling Shareholders in accordance with
Section 1(c) or 1(d) hereof and set forth in the Price Determination Agreement,
the number of Firm Shares set forth opposite the name of such Underwriter in
Schedule II, plus such additional number of Firm Shares which such Underwriter
may become obligated to purchase pursuant to Section 8 hereof. Schedule II may
be attached to the Price Determination Agreement.
(b) Subject to all the terms and conditions of this Agreement, the Company
grants the Option to the several Underwriters to purchase, severally and not
jointly, up to 610,668 Option Shares from the Company at the same price per
share as the Underwriters shall pay for the Firm Shares. The Option may be
exercised only to cover over-allotments in the sale of the Firm Shares by the
Underwriters and may be exercised in whole or in part at any time (but not more
than once) on or before the 30th day after the date of this Agreement (or, if
the Company has elected to rely on Rule 430A, on or before the 30th day after
the date of the Price Determination Agreement), upon written or telegraphic
notice (the "Option Shares Notice") by the Representatives to the Company no
later than 12:00 noon, New York City time, at least two and no more than five
business days before the date specified for closing in the Option Shares Notice
(the "Option Closing Date") setting forth the aggregate number of Option Shares
to be purchased and the time and date for such purchase. On the Option Closing
Date, the Company will issue and sell to the Underwriters the number of Option
Shares set forth in the Option Shares Notice, and each Underwriter will purchase
such percentage of the Option Shares as is equal to the percentage of Firm
Shares that such Underwriter is purchasing, as adjusted by the Representatives
in such manner as they deem advisable to avoid fractional shares.
2
<PAGE>
(c) The initial public offering price per share for the Firm Shares and the
purchase price per share for the Firm Shares to be paid by the several
Underwriters shall be agreed upon and set forth in the Price Determination
Agreement, if the Company has elected to rely on Rule 430A. In the event such
price has not been agreed upon and the Price Determination Agreement has not
been executed by the close of business on the fourteenth business day following
the date on which the Registration Statement (as hereinafter defined) becomes
effective, this Agreement shall terminate forthwith, without liability of any
party to any other party except that Section 6 shall remain in effect.
(d) If the Company has elected not to rely on Rule 430A, the initial public
offering price per share for the Firm Shares and the purchase price per share
for the Firm Shares to be paid by the several Underwriters shall be agreed upon
and set forth in the Price Determination Agreement, which shall be dated the
date hereof, and an amendment to the Registration Statement containing such per
share price information shall be filed before the Registration Statement becomes
effective.
2. Delivery and Payment. Delivery of the Firm Shares shall be made to the
Representatives for the accounts of the Underwriters at the office of
PaineWebber Incorporated, 1285 Avenue of the Americas, New York, New York 10019,
against payment of the purchase price by Federal Reserve Funds checks payable in
immediately available funds to the order of the Company and the
Attorneys-in-Fact. Such payment shall be made at 10:00 a.m., New York City time,
on the third business day (or fourth business day, if the Price Determination
Agreement is executed after 4:30 p.m.) after the date on which the first bona
fide offering of the Shares to the public is made by the Underwriters or at such
time on such other date, not later than ten business days after such date, as
may be agreed upon by the Company and the Representatives (such date is
hereinafter referred to as the "Closing Date").
To the extent the Option is exercised, delivery of the Option Shares
against payment by the Underwriters (in the manner specified above) will take
place at the offices specified above for the Closing Date at the time and date
(which may be the Closing Date) specified in the Option Shares Notice.
Certificates evidencing the Shares shall be in definitive form or, with the
consent of the Representatives, in temporary form, and shall be registered in
such names and in such denominations as the Representatives shall request at
least two business days prior to the Closing Date or the Option Closing Date, as
the case may be, by written notice to the Company. For the purpose of expediting
the checking and packaging of certificates for the Shares, the Company agrees to
make such certificates available for inspection at least 24 hours prior to the
Closing Date or the Option Closing Date, as the case may be.
The cost of original issue tax stamps and transfer taxes, if any, in
connection with the issuance and delivery of the Firm Shares and Option Shares
by the Company to the respective Underwriters shall be borne by the Company. The
cost of tax stamps and transfer taxes, if any, in connection with the sale of
the Firm Shares by the Selling Shareholders shall be borne by the Selling
Shareholders. The Company and the Selling Shareholders will pay and save each
Underwriter and any subsequent holder of the Shares harmless from any and all
liabilities with respect to or resulting from any failure or delay in paying
Federal and state stamp and other transfer taxes, if any, which
3
<PAGE>
may be payable or determined to be payable in connection with the original
issuance or sale to such Underwriter of the Firm Shares and Option Shares.
3. Representations and Warranties of the Company. The Company represents,
warrants and covenants to each Underwriter that:
(a) A registration statement (Registration No. 333-38771) on Form S-1
relating to the Shares, including a preliminary prospectus and such
amendments to such registration statement as may have been required to the
date of this Agreement, has been prepared by the Company under the
provisions of the Securities Act of 1933, as amended (the "Act"), and the
rules and regulations (collectively referred to as the "Rules and
Regulations") of the Securities and Exchange Commission (the "Commission")
thereunder, and has been filed with the Commission. The term "preliminary
prospectus" as used herein means a preliminary prospectus as contemplated
by Rule 430 or Rule 430A ("Rule 430A") of the Rules and Regulations
included at any time as part of the registration statement. Copies of such
registration statement and amendments and of each related preliminary
prospectus have been delivered to the Representatives. The term
"Registration Statement" means the registration statement as amended at the
time it becomes or became effective (the "Effective Date"), including
financial statements and all exhibits and any information deemed to be
included by Rule 430A or Rule 434 of the Rules and Regulations. If the
Company files a registration statement to register a portion of the Shares
and relies on Rule 462(b) of the Rules and Regulations for such
registration statement to become effective upon filing with the Commission
(the "Rule 462 Registration Statement"), then any reference to the
"Registration Statement" shall be deemed to include the Rule 462
Registration Statement, as amended from time to time. The term "Prospectus"
means the prospectus as first filed with the Commission pursuant to Rule
424(b) of the Rules and Regulations or, if no such filing is required, the
form of final prospectus included in the Registration Statement at the
Effective Date.
(b) On the Effective Date, the date the Prospectus is first filed with
the Commission pursuant to Rule 424(b) (if required), at all times
subsequent thereto up to and including the Closing Date and, if later,
the Option Closing Date and when any post-effective amendment to the
Registration Statement becomes effective or any amendment or supplement to
the Prospectus is filed with the Commission, the Registration Statement and
the Prospectus (as amended or as supplemented if the Company shall have
filed with the Commission any amendment or supplement thereto), including
the financial statements included in the Prospectus, did or will comply in
all material respects with all applicable provisions of the Act and the
Rules and Regulations and will contain all statements required to be stated
therein in order to comply in all material respects with the Act and the
Rules and Regulations. On the Effective Date and when any post-effective
amendment to the Registration Statement becomes effective, no part of the
Registration Statement or any such amendment did or will contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein not
misleading. At the Effective Date, the date the Prospectus or any amendment
or supplement to the Prospectus is filed with the Commission and at the
Closing Date and, if later, the Option Closing Date, the Prospectus did not
or will not contain any untrue
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statement of a material fact or omit to state a material fact necessary to
make the statements therein, in the light of the circumstances under which
they were made, not misleading. The foregoing representations and
warranties in this Section 3(b) do not apply to any statements or omissions
made in reliance on and in conformity with information relating to any
Underwriter furnished in writing to the Company by the Representatives
specifically for inclusion in the Registration Statement or Prospectus or
any amendment or supplement thereto. For all purposes of this Agreement,
the information set forth under the first, third, seventh (excluding the
first sentence thereof), eighth and ninth paragraphs under the section
"Underwriting" in the Prospectus, were furnished in writing to the Company
by the Representatives specifically for inclusion in the Registration
Statement, the preliminary prospectus or the Prospectus. The Company has
not distributed any offering material in connection with the offering or
sale of the Shares other than the Registration Statement, the preliminary
prospectus, the Prospectus or any other materials, if any, permitted by the
Act.
(c) The only subsidiaries (as defined in the Rules and Regulations) of
the Company are the subsidiaries listed on Exhibit 21 to the Registration
Statement (the "Subsidiaries"). The Company and each of its Subsidiaries
is, and at the Closing Date will be, a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation. The Company and each of its Subsidiaries has, and at the
Closing Date will have, full power and authority to conduct all the
activities conducted by it, to own or lease all the assets owned or leased
by it and to conduct its business as described in the Registration
Statement and the Prospectus. The Company and each of its Subsidiaries is,
and at the Closing Date will be, duly licensed or qualified to do business
and in good standing as a foreign corporation in all jurisdictions in which
the nature of the activities conducted by it or the character of the assets
owned or leased by it makes such licensing or qualification necessary,
except where the failure to be so qualified would not have a material
adverse effect on the Company and its Subsidiaries, taken as a whole. All
of the outstanding shares of capital stock of the Subsidiaries have been
duly authorized and validly issued and are fully paid and nonassessable and
are owned by the Company free and clear of all liens, encumbrances and
claims whatsoever. Except for the stock of the Subsidiaries and as
disclosed in the Registration Statement, the Company does not own, and at
the Closing Date will not own, directly or indirectly, any shares of stock
or any other equity or long-term debt securities of any corporation or have
any equity interest in any firm, partnership, joint venture, association or
other entity. Complete and correct copies of the certificate of
incorporation and of the by-laws of the Company and each of its
Subsidiaries and all amendments thereto have been delivered to the
Representatives.
(d) The outstanding shares of Common Stock have been, and the Shares
to be issued and sold by the Company upon such issuance will be, duly
authorized, validly issued, fully paid and nonassessable and will not be
subject to any preemptive or similar right. The description of the Common
Stock in the Registration Statement and the Prospectus is, and at the
Closing Date will be, complete and accurate in all material respects.
Except as set forth in the Prospectus, the Company does not have
outstanding, and at the Closing Date will not have outstanding, any options
to purchase, or any rights or warrants to
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subscribe for, or any securities or obligations convertible into, or any
contracts or commitments to issue or sell, any shares of Common Stock, any
shares of capital stock of any Subsidiary or any such warrants, convertible
securities or obligations.
(e) The financial statements and schedules included in the
Registration Statement or the Prospectus present fairly the consolidated
financial condition of the Company as of the respective dates thereof and
the consolidated results of operations and cash flows of the Company for
the respective periods covered thereby, all in conformity with generally
accepted accounting principles applied on a consistent basis throughout the
entire period involved, except as otherwise disclosed in the Prospectus.
The pro forma financial statements and other pro forma financial
information included in the Registration Statement or the Prospectus
(i) present fairly in all material respects the information shown therein,
(ii) have been prepared in accordance with the Commission's rules and
guidelines with respect to pro forma financial statements and (iii) have
been properly computed on the bases described therein. The assumptions used
in the preparation of the pro forma financial statements and other pro
forma financial information included in the Registration Statement or the
Prospectus are reasonable and the adjustments used therein are appropriate
to give effect to the transactions or circumstances referred to therein. No
other financial statements or schedules of the Company are required by the
Act or the Rules and Regulations to be included in the Registration
Statement or the Prospectus. KPMG Peat Marwick LLP (the "Accountants"), who
have reported on such financial statements and schedules, are independent
accountants with respect to the Company as required by the Act and the
Rules and Regulations. The statements included in the Registration
Statement with respect to the Accountants pursuant to Item 509 of
Regulation S-K of the Rules and Regulations are true and correct in all
material respects.
(f) The Company maintains a system of internal accountings control
sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management's general or specific authorization;
(ii) transactions are recorded as necessary to permit preparation of
financial statements in conformity with generally accepted accounting
principles and to maintain accountability for assets; and (iii) access to
assets is permitted only in accordance with management's general or
specific authorization.
(g) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus and prior to the
Closing Date, except as set forth in or contemplated by the Registration
Statement and the Prospectus, (i) there has not been and will not have been
any change in the capitalization of the Company, or in the business,
properties, business prospects, condition (financial or otherwise) or
results of operations of the Company and its Subsidiaries, arising for any
reason whatsoever, (ii) neither the Company nor any of its Subsidiaries has
incurred nor will it incur any material liabilities or obligations, direct
or contingent, nor has it entered into nor will it enter into any material
transactions other than pursuant to this Agreement and the transactions
referred to herein and (iii) the Company has not and will not have paid or
declared any dividends or other distributions of any kind on any class
of its capital stock.
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(h) The Company is not an "investment company" or an "affiliated
person" of, or "promoter" or "principal underwriter" for, an "investment
company," within the meaning of the Investment Company Act of 1940, as
amended.
(i) Except as set forth in the Registration Statement and the
Prospectus, there are no legal or governmental actions, suits or
proceedings pending or, to the best of the Company's knowledge, threatened
against the Company or any of its Subsidiaries or any of their respective
officers in their capacity as such, before or by any Federal or state
court, commission, regulatory body, administrative agency or other
governmental body, domestic or foreign, wherein an unfavorable ruling,
decision or finding might materially and adversely affect the Company or
any of its Subsidiaries or its business, properties, business prospects,
condition (financial or otherwise) or results of operations.
(j) Each of the Company and its Subsidiaries has, and at the Closing
Date will have, (i) all material governmental licenses, permits, consents,
orders, approvals and other authorizations necessary to carry on its
business as contemplated in the Prospectus, (ii) complied in all material
respects with all laws, regulations and orders applicable to it or its
business and (iii) performed in all material respects the obligations
required to be performed by it, and is not, and at the Closing Date will
not be, in default, under any indenture, mortgage, deed of trust, voting
trust agreement, loan agreement, bond, debenture, note agreement, lease,
contract or other agreement or instrument (collectively, a "contract or
other agreement") to which it is a party or by which its property is bound
or affected. To the best knowledge of the Company and each of its
Subsidiaries, no other party under any contract or other agreement to which
it is a party is in default in any material respect thereunder. Neither the
Company nor any of its Subsidiaries is, nor at the Closing Date will any of
them be, in violation of any provision of its certificate of incorporation
or by-laws.
(k) No consent, approval, authorization or order of, or any filing or
declaration with, any court or governmental agency or body is required in
connection with the authorization, issuance, transfer, sale or delivery of
the Shares by the Company, in connection with the execution, delivery and
performance of this Agreement by the Company or in connection with the
taking by the Company of any action contemplated hereby, except such as
have been obtained under the Act or the Rules and Regulations and such as
may be required (i) under state securities or Blue Sky laws or the by-laws
and rules of the National Association of Securities Dealers, Inc. (the
"NASD") in connection with the purchase and distribution by the
Underwriters of the Shares and (ii) in connection with the purchase and
distribution of Shares outside of the United States.
(l) The Company has full corporate power and authority to enter into
this Agreement. This Agreement has been duly authorized, executed and
delivered by the Company and constitutes a valid and binding agreement of
the Company and is enforceable against the Company in accordance with the
terms hereof. The performance of this Agreement and the consummation of the
transactions contemplated hereby and the application of the net proceeds
from the offering and sale of the Shares in the manner set forth in the
Prospectus under "Use of
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<PAGE>
Proceeds" will not result in the creation or imposition of any lien, charge
or encumbrance upon any of the assets of the Company or any of its
Subsidiaries pursuant to the terms or provisions of, or result in a breach
or violation of any of the terms or provisions of, or constitute a default
under, or give any other party a right to terminate any of its obligations
under, or result in the acceleration of any obligation under, the
certificate of incorporation or by-laws of the Company or any of its
Subsidiaries, any contract or other agreement to which the Company or any
of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries or any of its properties is bound, or violate or conflict with
any judgment, ruling, decree, order, statute, rule or regulation of any
court or other governmental agency or body applicable to the business or
properties of the Company or any of its Subsidiaries.
(m) Each of the Company and its Subsidiaries has good and marketable
title to all properties and assets described in the Prospectus as owned by
it, free and clear of all liens, charges, encumbrances or restrictions,
except such as are described in the Prospectus or are not material to the
business of the Company or its Subsidiaries. Each of the Company and its
Subsidiaries has valid, subsisting and enforceable leases for the
properties described in the Prospectus as leased by it, with such
exceptions as are not material and do not materially interfere with the use
made and proposed to be made of such properties by the Company and such
Subsidiaries.
(n) There is no document or contract of a character required to be
described in the Registration Statement or the Prospectus or to be filed as
an exhibit to the Registration Statement which is not described or filed as
required. All such contracts to which the Company or any Subsidiary is a
party have been duly authorized, executed and delivered by the Company or
such Subsidiary, constitute valid and binding agreements of the Company or
such Subsidiary and are enforceable against the Company or such Subsidiary
in accordance with the terms thereof.
(o) No statement, representation, warranty or covenant made by the
Company in this Agreement or made by the Company in any certificate or
document required by this Agreement to be delivered to the Representatives
was or will be, when made, inaccurate, untrue or incorrect.
(p) Neither the Company nor any of its directors, officers or
controlling persons has taken, directly or indirectly, any action intended,
or which might reasonably be expected, to cause or result, under the Act or
otherwise, in, or which has constituted, stabilization or manipulation of
the price of any security of the Company to facilitate the sale or resale
of the Shares.
(q) No holder of securities of the Company has rights to the
registration of any securities of the Company because of the filing of the
Registration Statement.
(r) The Company and its Subsidiaries are in material compliance with
all federal, state and local employment and labor laws, including, but not
limited to, laws relating to non-discrimination in hiring, promotion and
pay of employees; no labor dispute with the employees of the Company or any
Subsidiary exists or, to
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the knowledge of the Company, is imminent or threatened; and to the best
knowledge of the Company there is no existing, imminent or threatened labor
disturbance by the employees of any of its principal suppliers,
manufacturers or contractors that could result in a material adverse effect
on the condition (financial or otherwise) or on the earnings, business,
properties, business prospects or operations of the Company and its
Subsidiaries, taken as a whole.
(s) The Company and its Subsidiaries own, or are licensed or otherwise
have the full exclusive right to use, the material patents, patent rights,
licenses, inventions, copyrights, know-how (including trade secrets and
other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures), trademarks, service marks and trade
names (collectively, "patent and proprietary rights") presently employed by
them or which are necessary in connection with the conduct of the business
now operated by them, and neither the Company nor any of its Subsidiaries
has received any written notice or otherwise has actual knowledge of any
infringement of or conflict with asserted rights of others or any other
claims with respect to any patent or proprietary rights which could have a
material adverse effect on the condition (financial or otherwise) or on the
earnings, business, properties, business prospects or operations of the
Company and its Subsidiaries, taken as whole or of any basis for rendering
any patent and proprietary rights invalid or inadequate to protect the
interest of the Company or any of its Subsidiaries.
(t) The Company has complied, and until the completion of the
distribution of the Shares will comply, with all of the provisions of
(including, without limitation, filing all forms required by) Section
517.075 of the Florida Securities and Investor Protection Act and
Regulation 3E-900.001 issued thereunder with respect to the offering and
sale of the Shares.
(u) The Company and its Subsidiaries (i) are in compliance with all
applicable federal, state and local laws and regulations relating to the
protection of human health and safety, the environment or imposing
liability or standards of conduct concerning any Hazardous Material (as
hereinafter defined) ("Environmental Laws"), (ii) have received all
permits, licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses and (iii)are in
compliance with all terms and conditions of any such permit, license or
approval, except where such noncompliance with Environmental Laws, failure
to receive required permits, licenses or other approvals or failure to
comply with the terms and conditions of such permits, licenses or approvals
would not, individually or in the aggregate result in a material adverse
effect on the condition (financial or otherwise) or on the earnings,
business, properties, business prospects or operations of the Company and
its Subsidiaries, taken as a whole. The term "Hazardous Material" means
(A)any "hazardous substance" as defined by the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, (B)any
"hazardous waste" as defined by the Resource Conservation and Recovery Act,
as amended, (C) any petroleum or petroleum product, (D any polychlorinated
biphenyl and (E) any pollutant or contaminant or hazardous, dangerous, or
toxic chemical, material, waste or substance regulated under or within the
meaning of any other Environmental Law.
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(v) [In the ordinary course of its business, the Company conducts a
periodic review of the effect of Environmental Laws on the business,
operations and properties of the Company and its Subsidiaries, in the
course of which it identifies and evaluates associated costs and
liabilities (including, without limitation, any capital or operating
expenditures required for clean-up, closure of properties or compliance
with Environmental Laws or any permit, license or approval, any related
constraints on operating activities and any potential liabilities to third
parties).] Except as set forth in the Registration Statement and the
Prospectus, there are no costs and liabilities associated with or arising
in connection with Environmental Laws as currently in effect (including,
without limitation, costs of compliance therewith) which would, singly or
in the aggregate, have a material adverse effect on the condition
(financial or otherwise) or on the earnings, business, properties, business
prospects or operations of the Company and its Subsidiaries, taken as a
whole.
(w) The Company maintains insurance with respect to its properties and
business of the types and in amounts generally deemed adequate for its
business and consistent with insurance coverage maintained by similar
companies and businesses, all of which insurance is in full force and
effect.
(x) The Company has filed all material federal, state and foreign
income and franchise tax returns and has paid all taxes shown as due
thereon, other than taxes which are being contested in good faith and for
which adequate reserves have been established in accordance with generally
accepted accounting principles ("GAAP"); and the Company has no knowledge
of any tax deficiency which has been or might be asserted or threatened
against the Company. There are no tax returns of the Company or any of its
Subsidiaries that are currently being audited by state, local or federal
taxing authorities or agencies (and with respect to which the Company or
any Subsidiary has received notice), where the findings of such audit, if
adversely determined, would result in a material adverse effect on the
condition (financial or otherwise) or on the earnings, business,
properties, business prospects or operations of the Company and its
Subsidiaries, taken as a whole.
(y) With respect to each employee benefit plan, program and
arrangement (including, without limitation, any "employee benefit plan" as
defined in Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA")) maintained or contributed to by the Company, or
with respect to which the Company could incur any liability under ERISA
(collectively, the "Benefit Plans"), no event has occurred and, to the best
knowledge of the Company, there exists no condition or set of
circumstances, in connection with which the Company could be subject to any
liability under the terms of such Benefit Plan, applicable law (including,
without limitation, ERISA and the Internal Revenue Code of 1986, as
amended) or any applicable agreement that could materially adversely affect
the business, properties, business prospects,
10
<PAGE>
condition (financial or otherwise) or results of operations of the Company
and its Subsidiaries, taken as a whole.
(z) Each of the Company and its Subsidiaries has obtained and will
maintain in force through the Closing Date any and all applicable federal,
state or local permits, licenses, approvals, leases and permissions, and
has filed all applications, certifications, forms and other documents,
necessary for its bottling operations, its use of spring water from each of
the sources described in the Registration Statement and Prospectus as being
currently in use or, to the extent applicable based on the developmental
stage of such source, under development for future use and its packaging
and labeling of its bottled water products. Neither the company nor any of
its Subsidiaries knows or has reason to believe that it will be unable to
obtain the applicable federal, state or local permits, licenses, approvals,
leases or permissions described above with respect to spring water sources
currently under development once bottling operations, the use of spring
water, and the packaging and labeling of bottled water products commences
at such source.
(aa) The water processed in the bottling operations of the Company or
any of its Subsidiaries derived from each source of spring water disclosed
in the Registration Statement and the Prospectus as being currently in use
or under development for future use, to the extent applicable, as of the
date hereof and as of the Closing Date, meets all applicable quality and
safety laws, standards and regulations promulgated by all federal, state
and local regulatory bodies and by the International Bottled Water
Association, to the extent required by such laws, standards and
regulations, and has been tested by certified microbiological laboratories,
including performance of certified bacteriological analyses.
4. Representations and Warranties of the Selling Shareholders. Each Selling
Shareholder, severally and not jointly, represents, warrants and covenants to
each Underwriter that:
(a) Such Selling Shareholder has full power and authority to enter
into this Agreement and the Agreement and Power of Attorney. All
authorizations and consents necessary for the execution and delivery by
such Selling Shareholder of the Agreement and Power of Attorney, and for
the execution of this Agreement on behalf of such Selling Shareholder, have
been given. Each of the Agreement and Power of Attorney and this Agreement
has been duly authorized, executed and delivered by or on behalf of such
Selling Shareholder and constitutes a valid and binding agreement of such
Selling Shareholder and is enforceable against such Selling Shareholders in
accordance with the terms thereof and hereof.
(b) Such Selling Shareholder now has, and at the time of delivery
thereof hereunder will have, (i) good and marketable title to the Shares to
be sold by such Selling Shareholder hereunder, free and clear of all liens,
encumbrances and claims whatsoever (other than pursuant to the Agreement
and Power of Attorney), and (ii) full legal right and power, and all
authorizations and approvals required by law, to sell, transfer and deliver
such Shares to the Underwriters hereunder and to make the representations,
warranties and agreements made by such Selling
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Shareholder herein. Upon the delivery of and payment for such Shares
hereunder, such Selling Shareholder will deliver good and marketable title
thereto, free and clear of all liens, encumbrances and claims whatsoever.
(c) On the Closing Date all stock transfer and other taxes (other than
income taxes) which are required to be paid in connection with the sale and
transfer of the Shares to be sold by such Selling Shareholder to the
several Underwriters hereunder will have been fully paid or provided for by
such Selling Shareholder and all laws imposing such taxes will have been
fully complied with.
(d) The performance of this Agreement and the consummation of the
transactions contemplated hereby will not result in the creation or
imposition of any lien, charge or encumbrance upon any of the assets of
such Selling Shareholder pursuant to the terms or provisions of, or result
in a breach or violation of any of the terms or provisions of, or
constitute a default under, or result in the acceleration of any obligation
under, if such Selling Shareholder is a corporation or partnership, the
organizational documents of such Selling Shareholder, or, as to all such
Selling Shareholders, any contract or other agreement to which such Selling
Shareholder is a party or by which such Selling Shareholder or any of its
property is bound, or under any ruling, decree, judgment, order, statute,
rule or regulation of any court or other governmental agency or body having
jurisdiction over such Selling Shareholder or the property of such Selling
Shareholder.
(e) No consent, approval, authorization or order of, or any filing or
declaration with, any court or governmental agency or body is required for
the consummation by such Selling Shareholder of the transactions on its
part contemplated herein and in the Agreement and Power of Attorney, except
such as have been obtained under the Act or the Rules and Regulations and
such as may be required (i) under state securities or Blue Sky laws or the
by-laws and rules of the NASD in connection with the purchase and
distribution by the Underwriters of the Shares to be sold by such Selling
Shareholder and (ii) in connection with the purchase and distribution of
Shares outside of the United States.
(f) Neither Weis Markets nor Lauth (as such terms are defined in
Section 7 below) have knowledge of any material fact or condition not set
forth in the Registration Statement or the Prospectus which has adversely
affected, or may adversely affect, the business, properties, business
prospects, condition (financial or otherwise) or results of operations of
the Company, and the sale of the Shares proposed to be sold by such Selling
Shareholder is not prompted by any such knowledge.
(g) All information with respect to such Selling Shareholder contained
in the Registration Statement and the Prospectus (as amended or
supplemented, if the Company shall have filed with the Commission any
amendment or supplement thereto) does not and will not contain an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein not
misleading.
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(h) Other than as permitted by the Act and the Rules and Regulations,
such Selling Shareholder has not distributed and will not distribute any
preliminary prospectus, the Prospectus or any other offering material in
connection with the offering and sale of the Shares. Such Selling
Shareholder has not taken, directly or indirectly, any action intended, or
which might reasonably be expected, to cause or result in, under the Act or
otherwise, or which has caused or resulted in, stabilization or
manipulation of the price of any security of the Company to facilitate the
sale or resale of the Shares.
(i) Certificates in negotiable form for the Firm Shares to be sold
hereunder by such Selling Shareholder have been placed in custody, for the
purpose of making delivery of such Firm Shares under this Agreement, under
the Agreement and Power of Attorney which appoints the Company as custodian
(the "Custodian") for each Selling Shareholder. Such Selling Shareholder
agrees that the Shares represented by the certificates held in custody for
him or it under the Agreement and Power of Attorney are for the benefit of
and coupled with and subject to the interest hereunder of the Custodian,
the Attorneys-in-Fact, the Underwriters, each other Selling Shareholder and
the Company, that the arrangements made by such Selling Shareholder for
such custody and the appointment of the Custodian and the Attorneys-in-Fact
by such Selling Shareholder are irrevocable, and that the obligations of
such Selling Shareholder hereunder shall not be terminated by operation of
law, whether by the death, disability, incapacity or liquidation of any
Selling Shareholder or the occurrence of any other event. If any Selling
Shareholder should die, become disabled or incapacitated or be liquidated
or if any other such event should occur before the delivery of the Shares
hereunder, certificates for the Shares shall be delivered by the Custodian
in accordance with the terms and conditions of this Agreement and actions
taken by the Attorneys-in-Fact and the Custodian pursuant to the Agreement
and Power of Attorney shall be as valid as if such death, liquidation,
incapacity or other event had not occurred, regardless of whether or not
the Custodian or the Attorneys-in-Fact, or any of them, shall have received
notice thereof.
5. Agreements of the Company and the Selling Shareholders. The Company and
the Selling Shareholders (as to Sections (j), (o), (p), (q) and (r) only) agree,
severally and not jointly, with the several Underwriters as follows:
(a) The Company will not, either prior to the Effective Date or
thereafter during such period as the Prospectus is required by law to be
delivered in connection with sales of the Shares by an Underwriter or
dealer, file any amendment or supplement to the Registration Statement or
the Prospectus, unless a copy thereof shall first have been submitted to
the Representatives within a reasonable period of time prior to the filing
thereof and the Representatives shall not have objected thereto in good
faith.
(b) The Company will use its best efforts to cause the Registration
Statement to become effective, and will notify the Representatives
promptly, and will confirm such advice in writing, (1) when the
Registration Statement has become effective and when any post-effective
amendment thereto becomes effective, (2) of any request by the Commission
for amendments or supplements
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to the Registration Statement or the Prospectus or for additional
information, (3) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose or the threat thereof, (4)
of the happening of any event during the period mentioned in the second
sentence of Section 5(e) that makes any statement of a material fact made
in the Registration Statement or the Prospectus untrue or that requires the
making of any changes in the Registration Statement or the Prospectus in
order to make the statements therein, in light of the circumstances in
which they are made, not misleading and (5) of receipt by the Company or
any representative or attorney of the Company of any other communication
from the Commission relating to the Company, the Registration Statement,
any preliminary prospectus or the Prospectus. If at any time the Commission
shall issue any order suspending the effectiveness of the Registration
Statement, the Company will make every reasonable effort to obtain the
withdrawal of such order at the earliest possible moment. The Company will
use its best efforts to comply with the provisions of and make all
requisite filings with the Commission pursuant to Rule 430A and to notify
the Representatives promptly of all such filings.
(c) The Company will furnish to the Representatives, without charge,
two signed copies of the Registration Statement and of any post-effective
amendment thereto and will furnish to the Representatives, without charge,
for transmittal to each of the other Underwriters, a copy of the
Registration Statement and any post-effective amendment thereto, including
financial statements and schedules but without exhibits.
(d) The Company will comply with all the provisions of any
undertakings contained in the Registration Statement.
(e) On the Effective Date, and thereafter from time to time, the
Company will deliver to each of the Underwriters, without charge, as many
copies of the Prospectus or any amendment or supplement thereto as the
Representatives may reasonably request. The Company consents to the use of
the Prospectus or any amendment or supplement thereto by the several
Underwriters and by all dealers to whom the Shares may be sold, both in
connection with the offering or sale of the Shares and for any period of
time thereafter during which the Prospectus is required by law to be
delivered in connection therewith. If during such period of time any event
shall occur which in the judgment of the Company or counsel to the
Underwriters should be set forth in the Prospectus in order to make any
statement of a material fact therein, in the light of the circumstances
under which it was made, not misleading, or if it is necessary to
supplement or amend the Prospectus to comply with law, the Company will
forthwith prepare and duly file with the Commission an appropriate
supplement or amendment thereto, and will deliver to each of the
Underwriters, without charge, such number of copies thereof as the
Representatives may reasonably request.
(f) Prior to any public offering of the Shares by the Underwriters,
the Company will cooperate with the Representatives and counsel to the
Underwriters in connection with the registration or qualification of the
Shares for offer and sale under the securities or Blue Sky laws of such
jurisdictions as the Representatives may request; provided, that in no
event shall the Company be obligated to qualify
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to do business in any jurisdiction where it is not now so qualified or to
take any action which would subject it to general service of process in any
jurisdiction where it is not now so subject.
(g) During the period of five years commencing on the Effective Date,
the Company will furnish to the Representatives and each other Underwriter
who may so request copies of such financial statements and other periodic
and special reports as the Company may from time to time distribute
generally to the holders of any class of its capital stock, and will
furnish to the Representatives and each other Underwriter who may so
request a copy of each annual or other report it shall be required to file
with the Commission.
(h) The Company will make generally available to holders of its
securities as soon as may be practicable but in no event later than the
last day of the fifteenth full calendar month following the calendar
quarter in which the Effective Date falls, an earnings statement (which
need not be audited but shall be in reasonable detail) for a period of 12
months ended commencing after the Effective Date, and satisfying the
provisions of Section 11(a)of the Act (including Rule 158 of the Rules and
Regulations).
(i) Whether or not the transactions contemplated by this Agreement are
consummated or this Agreement is terminated, the Company will pay, or
reimburse if paid by the Representatives, all costs and expenses incident
to the performance of the obligations of the Company and the Selling
Shareholders under this Agreement and in connection with the transactions
contemplated hereby, including but not limited to costs and expenses of or
relating to (1) the preparation, printing and filing of the Registration
Statement and exhibits to it, each preliminary prospectus, the Prospectus
and any amendment or supplement to the Registration Statement or the
Prospectus, (2) the preparation and delivery of certificates representing
the Shares, (3) the word processing, printing and reproduction of this
Agreement, the Agreement Among Underwriters, any Dealer Agreements and any
Underwriters' Questionnaire, (4) furnishing (including costs of shipping,
mailing and courier) such copies of the Registration Statement, the
Prospectus and any preliminary prospectus, and all amendments and
supplements thereto, as may be requested for use in connection with the
offering and sale of the Shares by the Underwriters or by dealers to whom
Shares may be sold, (5) the listing of the Shares on the New York Stock
Exchange, (6) any filings required to be made by the Underwriters with the
NASD, and the fees, disbursements and other charges of counsel for the
Underwriters in connection therewith, (7) the registration or qualification
of the Shares for offer and sale under the securities or Blue Sky laws of
such jurisdictions designated pursuant to Section 5(f), including the fees,
disbursements and other charges of counsel to the Underwriters in
connection therewith, and the preparation and printing of preliminary,
supplemental and final Blue Sky memoranda, (8) counsel to the Company and
counsel to the Selling Shareholders, (9) the transfer agent for the Shares
and (10) the Accountants. The Underwriters will endeavor promptly to
forward notice to the Company of all costs and expenses to be paid or
reimbursed by the Company as described above. Except as provided in this
Section 5(i) and the following Section 5(j), the Underwriters shall pay all
their own expenses, including the fees and disbursements of counsel.
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<PAGE>
(j) If this Agreement shall be terminated by the Company or the
Selling Shareholders pursuant to any of the provisions hereof (otherwise
than pursuant to Section 9) or if for any reason the Company or any Selling
Shareholder shall be unable to perform its obligations hereunder, the
Company will reimburse the several Underwriters for all out-of-pocket
expenses (including the fees, disbursements and other charges of counsel to
the Underwriters) reasonably incurred by them in connection herewith.
(k) The Company will not at any time, directly or indirectly, take any
action intended, or which might reasonably be expected, to cause or result
in, or which will constitute, stabilization of the price of the shares of
Common Stock to facilitate the sale or resale of any of the Shares.
(l) The Company will apply the net proceeds from the offering and sale
of the Shares to be sold by the Company in the manner set forth in the
Prospectus under "Use of Proceeds" and shall file such reports with the
Commission with respect to the sale of the Shares and the application of
the proceeds therefrom as may be required in accordance with Rule 463 under
the Act.
(m) During the period of 180 days commencing at the Closing Date, the
Company will not, without the prior written consent of PaineWebber
Incorporated, directly or indirectly, sell, offer to sell, grant any option
for the sale of, or otherwise dispose of, any Common Stock or securities
convertible into Common Stock, other than to the Underwriters pursuant to
this Agreement and other than pursuant to employee benefit plans, provided,
that the Company will not grant options to purchase shares of Common Stock
pursuant to such employee benefit plans at a price less than the initial
public offering price.
(n) The Company will not, and will cause each of its executive
officers, directors and each beneficial owner of more than 5% of the
outstanding shares of Common Stock to enter into agreements with the
Representatives in the form set forth in Exhibit B to the effect that they
will not, for a period of 180 days after the commencement of the public
offering of the Shares, without the prior written consent of PaineWebber
Incorporated, sell, contract to sell or otherwise dispose of any shares of
Common Stock or rights to acquire such shares (other than pursuant to
employee stock option plans, employee stock purchase plans or in connection
with other employee incentive compensation arrangements), except to the
extent that any beneficial owner of more than 5% of the outstanding shares
of Common Stock is a Selling Shareholder under this Agreement.
(o) The Selling Shareholders will not, for a period of 180 days after
the effective date of the Registration Statement, without the prior written
consent of PaineWebber Incorporated, sell, contract to sell or otherwise
dispose of any shares of Common Stock, other than pursuant to bona fide
gifts or by operation of law to persons who agree in writing with the
Representatives to be bound by the provisions of this Section 5(n).
(p) No Selling Shareholder has taken, directly or indirectly, any
action intended, or which might reasonably be expected, to cause or result,
under the Act or otherwise, in, or which has constituted, stabilization or
manipulation of the
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<PAGE>
price of any security of the Company to facilitate the sale or resale of
the Shares. The Selling Shareholders will not, without the prior written
consent of the Representatives, make any bid for or purchase any shares of
Common Stock during the 180-day period following the date hereof.
(q) As soon as any Selling Shareholder is advised thereof, such
Selling Shareholder will advise the Representatives and confirm such advice
in writing, (1) of receipt by such Selling Shareholder, or by any
representative of such Selling Shareholder, of any communication from the
Commission relating to the Registration Statement, the Prospectus or any
preliminary prospectus, or any notice or order of the Commission relating
to the Company or any of the Selling Shareholders in connection with the
transactions contemplated by this Agreement and (2) of the happening of any
event during the period from and after the Effective Date that in the
judgment of such Selling Shareholders makes any statement of material fact
with respect to such Selling Shareholder made in the Registration Statement
or the Prospectus untrue or that requires the making of any changes in the
Registration Statement or the Prospectus in order to make such statements
therein, in light of the circumstances in which they were made, not
misleading.
(r) The Selling Shareholders will deliver to the Representatives prior
to or on the Effective Date a properly completed and executed United States
Treasury Department Form W-9 (or other applicable form or statement
specified by the Treasury Department regulations in lieu thereof).
6. Conditions of the Obligations of the Underwriters. In addition to the
execution and delivery of the Price Determination Agreement, the obligations of
each Underwriter hereunder are subject to the following conditions:
(a) Notification that the Registration Statement has become effective
shall be received by the Representatives not later than 5:00 p.m., New York
City time, on the date of this Agreement or at such later date and time as
shall be consented to in writing by the Representatives and all filings
required by Rule 424 of the Rules and Regulations and Rule 430A shall have
been made.
(b) (i) No stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for that purpose shall
be pending or threatened by the Commission, (ii) no order suspending the
effectiveness of the Registration Statement or the qualification or
registration of the Shares under the securities or Blue Sky laws of any
jurisdiction shall be in effect and no proceeding for such purpose shall be
pending before or threatened by the Commission or the authorities of any
such jurisdiction, (iii) any request for additional information on the part
of the staff of the Commission or any such authorities shall have been
complied with to the satisfaction of the staff of the Commission or such
authorities and (iv) after the date hereof no amendment or supplement to
the Registration Statement or the Prospectus shall have been filed unless a
copy thereof was first submitted to the Representatives and the
Representatives did not object thereto in good faith, and the
Representatives shall have received certificates, dated the Closing Date
and the Option Closing Date
17
<PAGE>
and signed by the Chief Executive Officer or the Chairman of the Board of
Directors of the Company and the Chief Financial Officer of the Company
(who may, as to proceedings threatened, rely upon the best of their
information and belief), to the effect of clauses (i), (ii) and (iii).
(c) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, (i) there shall not have been,
and no development shall have occurred which could reasonably be expected
to result in, a material adverse change in the general affairs, business,
business prospects, properties, management, condition (financial or
otherwise) or results of operations of the Company and its Subsidiaries,
taken as a whole, whether or not arising from transactions in the ordinary
course of business, in each case other than as set forth in or contemplated
by the Registration Statement and the Prospectus and (ii) neither the
Company nor any of its Subsidiaries shall have sustained any material loss
or interference with its business or properties from fire, explosion, flood
or other casualty, whether or not covered by insurance, or from any labor
dispute or any court or legislative or other governmental action, order or
decree, which is not set forth in the Registration Statement and the
Prospectus, if in the judgment of the Representatives any such development
makes it impracticable or inadvisable to consummate the sale and delivery
of the Shares by the Underwriters at the initial public offering price.
(d) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, there shall have been no
litigation or other legal or governmental proceeding instituted against the
Company or any of its Subsidiaries or any of their respective officers or
directors in their capacities as such, before or by any Federal, state or
local court, commission, regulatory body, administrative agency or other
governmental body, domestic or foreign, in which litigation or legal or
governmental proceeding an unfavorable ruling, decision or finding would
materially and adversely affect the business, properties, business
prospects, condition (financial or otherwise) or results of operations of
the Company and its Subsidiaries taken as a whole.
(e) Each of the representations and warranties of the Company and the
Selling Shareholders contained herein shall be true and correct in all
material respects at the Closing Date and, with respect to the Option
Shares, at the Option Closing Date, as if made at the Closing Date and,
with respect to the Option Shares, at the Option Closing Date, and all
covenants and agreements herein contained to be performed on the part of
the Company and the Selling Shareholders and all conditions herein
contained to be fulfilled or complied with by the Company and the Selling
Shareholders at or prior to the Closing Date and, with respect to the
Option Shares, at or prior to the Option Closing Date, shall have been duly
performed, fulfilled or complied with.
(f) The Representatives shall have received opinions, dated the
Closing Date and, with respect to the Option Shares, the Option Closing
Date, and satisfactory in form and substance to counsel for the
Underwriters, from Ballard Spahr Andrews & Ingersoll and McQuaide, Blasko,
Schwartz, Fleming & Faulkner, Inc. counsel to the Company, to the effect
set forth in Exhibit C, from John P. Fernsler, Esq., general counsel of
Weis Markets, Inc., to the effect set
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<PAGE>
forth in Exhibit D and from [ ], counsel to Edward J. Lauth, III, to the
effect set forth in Exhibit E. The Representatives shall have received
certificates dated the Closing Date, and satisfactory in form and substance
to counsel for the Underwriters, from each Selling Shareholder (other than
Edward J. Lauth, III) to the effect set forth in Exhibit F.
(g) The Representatives shall have received an opinion, dated the
Closing Date and the Option Closing Date, from Cravath, Swaine & Moore,
counsel to the Underwriters, with respect to the Registration Statement,
the Prospectus and this Agreement, which opinion shall be satisfactory in
all respects to the Representatives.
(h) On the date of the Prospectus, the Accountants shall have
furnished to the Representatives a letter, dated the date of its delivery,
addressed to the Representatives and in form and substance satisfactory to
the Representatives, confirming that they are independent accountants with
respect to the Company as required by the Act and the Rules and Regulations
and with respect to the financial and other statistical and numerical
information contained in the Registration Statement. At the Closing Date
and, as to the Option Shares, the Option Closing Date, the Accountants
shall have furnished to the Representatives a letter, dated the date of its
delivery, which shall confirm, on the basis of a review in accordance with
the procedures set forth in the letter from the Accountants, that nothing
has come to their attention during the period from the date of the letter
referred to in the prior sentence to a date (specified in the letter) not
more than five days prior to the Closing Date and the Option Closing Date
which would require any change in their letter dated the date of the
Prospectus, if it were required to be dated and delivered at the Closing
Date and the Option Closing Date.
(i) At the Closing Date and, as to the Option Shares, the Option
Closing Date, there shall be furnished to the Representatives an accurate
certificate, dated the date of its delivery, signed by each of the Chief
Executive Officer and the Chief Financial Officer of the Company, in form
and substance satisfactory to the Representatives, to the effect that:
(i) each signer of such certificate has carefully examined the
Registration Statement and the Prospectus and (A) as of the date of
such certificate, such documents are true and correct in all material
respects and do not omit to state a material fact required to be
stated therein or necessary in order to make the statements therein
not untrue or misleading and (B) since the Effective Date, no event
has occurred as a result of which it is necessary to amend or
supplement the Prospectus in order to make the statements therein, in
light of the circumstances under which they were made, not misleading
in any material respect;
(ii) each of the representations and warranties of the Company
contained in this Agreement were, when originally made, and are, at
the time such certificate is delivered, true and correct in all
material respects;
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<PAGE>
(iii) each of the covenants required herein to be performed by
the Company on or prior to the delivery of such certificate has been
duly, timely and fully performed and each condition herein required to
be complied with by the Company on or prior to the date of such
certificate has been duly, timely and fully complied with; and
(iv) since the respective dates as of which information is given
in the Registration Statement and the Prospectus, (A) there has not
been, and no development has occurred which could reasonably be
expected to result in, a material adverse change in the general
affairs, business, business prospects, properties, management,
condition (financial or otherwise) or results of operations of the
Company and its Subsidiaries, taken as a whole, whether or not arising
from transactions in the ordinary course of business, in each case
other than as set forth in or contemplated by the Registration
Statement and the Prospectus and (B) neither the Company nor any of
its Subsidiaries has sustained any material loss or interference with
its business or properties from fire, explosion, flood or other
casualty, whether or not covered by insurance, or from any labor
dispute or any court or legislative or other governmental action,
order or decree, which is not set forth in the Registration Statement
and the Prospectus,
and such other matters as the Representatives may reasonably request.
(j) At the Closing Date there shall have been furnished to the
Representatives a certificate, dated the date of its delivery, signed by
the Attorneys-in-Fact on behalf of each of the Selling Shareholders, in
form and substance satisfactory to the Representatives, to the effect that
the representations and warranties of each of the Selling Shareholders
contained herein are true and correct in all material respects on and as of
the date of such certificate as if made on and as of the date of such
certificate, and each of the covenants and conditions required herein to be
performed or complied with by the Selling Shareholders on or prior to the
date of such certificate has been duly, timely and fully performed or
complied with.
(k) On or prior to the Closing Date, the Representatives shall have
received the executed agreements referred to in Section 5(i).
(l) The Shares shall be qualified for sale in such states as the
Representatives may reasonably request, each such qualification shall be in
effect and not subject to any stop order or other proceeding on the Closing
Date and the Option Closing Date.
(m) Prior to the Closing Date, the Shares shall have been duly
authorized for listing by the New York Stock Exchange upon official notice
of issuance.
(n) The National Association of Securities Dealers, Inc. shall have
approved the underwriting terms and arrangements and such approval shall
not have been withdrawn or limited.
20
<PAGE>
(o) The Company and the Selling Shareholders shall have furnished to
the Representatives such certificates, in addition to those specifically
mentioned herein, as the Representatives may have reasonably requested as
to the accuracy and completeness at the Closing Date, with respect to the
Company and the Selling Shareholders, and the Option Closing Date, with
respect to the Company, of statements in the Registration Statement or the
Prospectus, only with respect to the Company by the Company and with
respect to the Selling Shareholders by such Selling Shareholders, as to the
accuracy at the Closing Date and the Option Closing Date of the
representations and warranties of the Company and the Selling Shareholders
herein only with respect to the Company by the Company and with respect to
the Selling Shareholders by such Selling Shareholders, as to the
performance by the Company and the Selling Shareholders of its and their
respective obligations hereunder, or as to the fulfillment of the
conditions concurrent and precedent to the obligations hereunder of the
Representatives only with respect to the Company by the Company and with
respect to the Selling Shareholders by such Selling Shareholders.
(p) No changes shall have been made to the certificate of
incorporation and by-laws of the Company and each of its Subsidiaries
subsequent to the date hereof and prior to the Closing Date, or, if later,
the Option Closing Date.
7. Indemnification. (a) Each of the Company, Weis Markets, Inc. ("Weis
Markets") and Edward J. Lauth, III ("Lauth"), jointly and severally, will
indemnify and hold harmless each Underwriter, the directors, officers, employees
and agents of each Underwriter and each person, if any, who controls each
Underwriter within the meaning of Section 15 of the Act or Section 20 of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), from and
against any and all losses, claims, liabilities, expenses and damages
(including, but not limited to, any and all investigative, legal and other
expenses reasonably incurred in connection with, and any and all amounts paid in
settlement of, any action, suit or proceeding between any of the indemnified
parties and any indemnifying parties or between any indemnified party and any
third party, or otherwise, or any claim asserted), as and when incurred, to
which any Underwriter, or any such person, may become subject under the Act, the
Exchange Act or other Federal or state statutory law or regulation, at common
law or otherwise, insofar as such losses, claims, liabilities, expenses or
damages arise out of or are based on (i) any untrue statement or alleged
untrue statement of a material fact contained in any preliminary prospectus, the
Registration Statement or the Prospectus or any amendment or supplement to the
Registration Statement or the Prospectus, or in any application or other
document executed by or on behalf of the Company or based on written information
furnished by or on behalf of the Company filed in any jurisdiction in order to
qualify the Shares under the Securities Laws thereof or filed with the
Commission, (ii) the omission or alleged omission to state in such document a
material fact required to be stated in it or necessary to make the statements in
it not misleading or (iii) any act or failure to act or any alleged act or
failure to act by any Underwriter in connection with, or relating in any manner
to, the Shares or the offering contemplated hereby, and which is included as
part of or referred to in any loss, claim, liability, expense or damage arising
out of or based upon matters covered by clause (i) or (ii) above (provided that
the Company shall not be liable under this clause (iii) to the extent it is
finally judicially determined by a court of competent jurisdiction that such
loss, claim, liability, expense or damage resulted directly
21
<PAGE>
from any such acts or failures to act undertaken or omitted to be taken by such
underwriter through its gross negligence or willful misconduct); (2) provided
that the Company, Weis Markets and Lauth will not be liable to the extent that
such loss, claim, liability, expense or damage (A) arises from the sale of the
Shares in the public offering to any person by an Underwriter and is based on an
untrue statement or omission or alleged untrue statement or omission made in
reliance on and in conformity with information relating to any Underwriter
furnished in writing to the Company by the Representatives on behalf of any
Underwriter expressly for inclusion in the Registration Statement, any
preliminary prospectus or the Prospectus or (B) results solely from an untrue
statement of a material fact contained in, or the omission of a material fact
from, such preliminary prospectus, which untrue statement or omission was
completely corrected in the Prospectus (as then amended or supplemented) if the
Company, Weis Markets or Lauth, as the case may be, shall sustain the burden of
proving that the Underwriters sold Shares to the person alleging such loss,
claim, liability, expense or damage without sending or giving, at or prior to
the written confirmation of such sale, a copy of the Prospectus (as then amended
or supplemented) if the Company had previously furnished copies thereof to the
Underwriters within a reasonable amount of time prior to such sale or such
confirmation, and the Underwriters failed to deliver the corrected Prospectus,
if required by the Act or by other law to have so delivered it and if delivered
would have been a complete defense against the person asserting such loss,
claim, liability, expense or damage. This indemnity agreement will be in
addition to any liability that the Company, Weis Markets or Lauth might
otherwise have. Notwithstanding the foregoing, the aggregate liability on Lauth
pursuant to the provisions of this paragraph shall be limited to an amount equal
to the aggregate purchase price received by Lauth from the sale of Lauth's Firm
Shares hereunder.
(b) Each Underwriter will indemnify and hold harmless the Company, Weis
Markets, Lauth and each person, if any, who controls the Company, Weis Market or
Lauth within the meaning of Section 15 of the Act or Section 20 of the Exchange
Act, each director of the Company and Weis Markets and each officer of the
Company who signs the Registration Statement to the same extent as the foregoing
indemnity from the Company, Weis Markets and Lauth to each Underwriter, but only
insofar as losses, claims, liabilities, expenses or damages arise out of or are
based on any untrue statement or omission or alleged untrue statement or
omission made in reliance on and in conformity with information relating to any
Underwriter furnished in writing to the Company by the Representatives on behalf
of such Underwriter expressly for use in the Registration Statement, the
Preliminary Prospectus or the Prospectus (as amended or supplemented). This
indemnity will be in addition to any liability that each Underwriter might
otherwise have; provided, however, that in no case shall any Underwriter be
liable or responsible for any amount in excess of the underwriting discounts and
commissions received by such Underwriter.
(c) Any party that proposes to assert the right to be indemnified under
this Section 7 will, promptly after receipt of notice of commencement of any
action against such party in respect of which a claim is to be made against an
indemnifying party or parties under this Section 7, notify each such
indemnifying party of the commencement of such action, enclosing a copy of all
papers served, but the omission so to notify such
- -------------
(2) Precise wording of this clause (iii) to be discussed.
22
<PAGE>
indemnifying party will not relieve it from any liability that it may have to
any indemnified party under the foregoing provisions of this Section 7 unless,
and only to the extent that, such omission results in the indemnifying party
being materially prejudiced. If any such action is brought against any
indemnified party and it notifies the indemnifying party of its commencement,
the indemnifying party will be entitled to participate in and, to the extent
that it elects by delivering written notice to the indemnified party promptly
after receiving notice of the commencement of the action from the indemnified
party, jointly with any other indemnifying party similarly notified, to assume
the defense of the action, with counsel satisfactory to the indemnified party,
and after notice from the indemnifying party to the indemnified party of its
election to assume the defense, the indemnifying party will not be liable to the
indemnified party for any legal or other expenses except as provided below and
except for the reasonable costs of investigation subsequently incurred by the
indemnified party in connection with the defense. The indemnified party will
have the right to employ its own counsel in any such action, but the fees,
expenses and other charges of such counsel will be at the expense of such
indemnified party unless (1) the employment of counsel by the indemnified party
has been authorized in writing by the indemnifying party, (2) the indemnified
party has reasonably concluded (based on advice of counsel) that there may be
legal defenses available to it or other indemnified parties that are different
from or in addition to those available to the indemnifying party, (3) a conflict
or potential conflict exists (based on advice of counsel to the indemnified
party) between the indemnified party and the indemnifying party (in which case
the indemnifying party will not have the right to direct the defense of such
action on behalf of the indemnified party) or (4) the indemnifying party has not
in fact employed counsel to assume the defense of such action within a
reasonable time after receiving notice of the commencement of the action, in
each of which cases the reasonable fees, disbursements and other charges of
counsel will be at the expense of the indemnifying party or parties. It is
understood that the indemnifying party or parties shall not, in connection with
any proceeding or related proceedings in the same jurisdiction, be liable for
the reasonable fees, disbursements and other charges of more than one separate
firm admitted to practice in such jurisdiction at any one time for all such
indemnified party or parties. All such fees, disbursements and other charges
will be reimbursed by the indemnifying party promptly as they are incurred. An
indemnifying party will not be liable for any settlement of any action or claim
effected without its written consent (which consent will not be unreasonably
withheld). No indemnifying party shall, without the prior written consent of
each indemnified party, settle or compromise or consent to the entry of any
judgment in any pending or threatened claim, action or proceeding relating to
the matters contemplated by this Section 7 (whether or not any indemnified party
is a party thereto), unless such settlement, compromise or consent includes an
unconditional release of each indemnified party from all liability arising or
that may arise out of such claim, action or proceeding. Notwithstanding any
other provision of this Section 7(c), if at any time an indemnified party shall
have requested an indemnifying party to reimburse the indemnified party for fees
and expenses of counsel, such indemnifying party agrees that it shall be liable
for any settlement effected without its written consent if (i) such settlement
is entered into more than 45 days after receipt by such indemnifying party of
the aforesaid request, (ii) such indemnifying party shall have received notice
of the terms of such settlement at least 30 days prior to such settlement being
entered into and (iii) such indemnifying party shall not have reimbursed such
indemnified party in accordance with such request prior to the date of such
settlement.
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<PAGE>
(d) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in the foregoing
paragraphs of this Section 7 is applicable in accordance with its terms but for
any reason is held to be unavailable from the Company, Weis Markets, Lauth or
the Underwriters, the Company, Weis Markets, Lauth and the Underwriters will
contribute to the total losses, claims, liabilities, expenses and damages
(including any investigative, legal and other expenses reasonably incurred in
connection with, and any amount paid in settlement of, any action, suit or
proceeding or any claim asserted, but after deducting any contribution received
by the Company, Weis Markets or Lauth from persons other than the Underwriters,
such as persons who control the Company, Weis Markets or Lauth within the
meaning of the Act, officers of the Company who signed the Registration
Statement and directors of the Company, who also may be liable for contribution)
to which the Company, Weis Markets or Lauth and any one or more of the
Underwriters may be subject in such proportion as shall be appropriate to
reflect the relative benefits received by the Company, Weis Markets and Lauth on
the one hand and the Underwriters on the other. The relative benefits received
by the Company, Weis Markets and Lauth on the one hand and the Underwriters on
the other shall be deemed to be in the same proportion as the total net proceeds
from the offering (before deducting expenses) received by the Company, Weis
Markets and Lauth bear to the total underwriting discounts and commissions
received by the Underwriters, in each case as set forth in the table on the
cover page of the Prospectus. If, but only if, the allocation provided by the
foregoing sentence is not permitted by applicable law, the allocation of
contribution shall be made in such proportion as is appropriate to reflect not
only the relative benefits referred to in the foregoing sentence but also the
relative fault of the Company, Weis Markets and Lauth, on the one hand, and the
Underwriters, on the other, with respect to the statements or omissions which
resulted in such loss, claim, liability, expense or damage, or action in respect
thereof, as well as any other relevant equitable considerations with respect to
such offering. Such relative fault shall be determined by reference to whether
the untrue or alleged untrue statement of a material fact or omission or alleged
omission to state a material fact relates to information supplied by the
Company, Weis Markets or Lauth, on the one hand, or the Representatives on
behalf of the Underwriters on the other, the intent of the parties and their
relative knowledge, access to information and opportunity to correct or prevent
such statement or omission. The Company, Weis Markets, Lauth and the
Underwriters agree that it would not be just and equitable if contributions
pursuant to this Section 7(d) were to be determined by pro rata allocation (even
if the Underwriters were treated as one entity for such purpose) or by any other
method of allocation which does not take into account the equitable
considerations referred to herein. The amount paid or payable by an indemnified
party as a result of the loss, claim, liability, expense or damage, or action in
respect thereof, referred to above in this Section 7(d) shall be deemed to
include, for purpose of this Section 7(d), any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
Section 7(d), no Underwriter shall be required to contribute any amount in
excess of the underwriting discounts and commissions received by it and no
person found guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) will be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation. The Underwriters'
obligations to contribute as provided in this Section 7(d) are several in
proportion to their respective underwriting obligations and not joint. For
purposes of this Section 7(d), any person who controls a party to this Agreement
within the meaning of the Act will have the same rights to contribution as that
party, and each officer of the Company who signed the Registration
24
<PAGE>
Statement will have the same rights to contribution as the Company, subject in
each case to the provisions hereof. Any party entitled to contribution, promptly
after receipt of notice of commencement of any action against such party in
respect of which a claim for contribution may be made under this Section 7(d),
will notify any such party or parties from whom contribution may be sought, but
the omission so to notify will not relieve the party or parties from whom
contribution may be sought from any other obligation it or they may have under
this Section 7(d). Except for a settlement entered into pursuant to the last
sentence of Section 7(c) hereof, no party will be liable for contribution with
respect to any action or claim settled without its written consent (which
consent will not be unreasonably withheld).
(e) The indemnity and contribution agreements contained in this Section 7
and the representations and warranties of the Company and the Selling
Shareholders contained in this Agreement shall remain operative and in full
force and effect regardless of (i) any investigation made by or on behalf of the
Underwriters, (ii) acceptance of the Shares and payment therefore or (iii) any
termination of this Agreement.
8. Termination. The obligations of the several Underwriters under this
Agreement may be terminated at any time on or prior to the Closing Date (or,
with respect to the Option Shares, on or prior to the Option Closing Date), by
notice to the Company from the Representatives, without liability on the part of
any Underwriter to the Company or any Selling Shareholder, if, prior to delivery
and payment for the Shares (or the Option Shares, as the case may be), in the
sole judgment of the Representatives, (i) there has been, since the respective
dates as of which information is given in the Registration Statement, any
material adverse change in the Company's business, properties, business
prospects, condition (financial or otherwise) or results of operations, (ii)
trading in any of the equity securities of the Company shall have been suspended
by the Commission, the NASD, by an exchange that lists the Shares or by the
Nasdaq Stock Market, (iii) trading in securities generally on the New York Stock
Exchange or the Nasdaq Stock Market shall have been suspended or limited or
minimum or maximum prices shall have been generally established on such exchange
or over the counter market, or additional material governmental restrictions,
not in force on the date of this Agreement, shall have been imposed upon trading
in securities generally by such exchange or by order of the Commission or the
NASD or any court or other governmental authority, (iv) a general banking
moratorium shall have been declared by either Federal or New York State
authorities or (v) any material adverse change in the financial or securities
markets in the United States or in political, financial or economic conditions
in the United States or any outbreak or material escalation of hostilities or
declaration by the United States of a national emergency or war or other
calamity or crisis shall have occurred the effect of any of which is such as to
make it, in the sole judgment of the Representatives, impracticable or
inadvisable to market the Shares on the terms and in the manner contemplated by
the Prospectus.
9. Substitution of Underwriters. If any one or more of the Underwriters
shall fail or refuse to purchase any of the Firm Shares which it or they have
agreed to purchase hereunder, and the aggregate number of Firm Shares which such
defaulting Underwriter or Underwriters agreed but failed or refused to purchase
is not more than one-tenth of the aggregate number of Firm Shares, the other
Underwriters shall be obligated, severally, to purchase the Firm Shares which
such defaulting Underwriter or Underwriters agreed but failed or refused to
purchase, in the proportions which the
25
<PAGE>
number of Firm Shares which they have respectively agreed to purchase pursuant
to Section 1 bears to the aggregate number of Firm Shares which all such
non-defaulting Underwriters have so agreed to purchase, or in such other
proportions as the Representatives may specify; provided that in no event shall
the maximum number of Firm Shares which any Underwriter has become obligated to
purchase pursuant to Section 1 be increased pursuant to this Section 9 by more
than one-ninth of the number of Firm Shares agreed to be purchased by such
Underwriter without the prior written consent of such Underwriter. If any
Underwriter or Underwriters shall fail or refuse to purchase any Firm Shares and
the aggregate number of Firm Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase exceeds one-tenth of the
aggregate number of the Firm Shares and arrangements satisfactory to the
Representatives and the Company for the purchase of such Firm Shares are not
made within 48 hours after such default, this Agreement will terminate without
liability on the part of any non-defaulting Underwriter or the Company or any
Selling Shareholder for the purchase or sale of any Shares under this Agreement.
In any such case either the Representatives or the Company shall have the right
to postpone the Closing Date, but in no event for longer than seven days, in
order that the required changes, if any, in the Registration Statement and in
the Prospectus or in any other documents or arrangements may be effected. Any
action taken pursuant to this Section 9 shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
10. Miscellaneous. Notice given pursuant to any of the provisions of this
Agreement shall be in writing and, unless otherwise specified, shall be mailed
or delivered (a) if to the Company, at the office of the Company, 1 AquaPenn
Drive, Milesburg, Pennsylvania 16853 (facsimile: 814-355-7810), Attention: Chief
Financial Officer, (b) if to any Selling Shareholder, _________________________,
or (c) if to the Underwriters, to the Representatives at the offices of
PaineWebber Incorporated, 1285 Avenue of the Americas, New York, New York 10019,
Attention: Corporate Finance Department (facsimile: 212-713-1053). Any such
notice shall be effective only upon receipt. Any notice under Section 8 or 9 may
be made by telex or telephone, but if so made shall be subsequently confirmed in
writing.
This Agreement has been and is made solely for the benefit of the several
Underwriters, the Company and the Selling Shareholders and of the controlling
persons, directors and officers referred to in Section 7, and their respective
successors and assigns, and no other person shall acquire or have any right
under or by virtue of this Agreement. The term "successors and assigns" as used
in this Agreement shall not include a purchaser, as such purchaser, of Shares
from any of the several Underwriters.
With respect to any obligation joint and several of the Company and the
Selling Shareholders hereunder to make any payment, to indemnify for any
liability or to reimburse for any expense, notwithstanding the fact that such
obligation is a joint and several obligation of the Company and the Selling
Shareholders, the Underwriters (or any other person to whom such payment,
indemnification or reimbursement is owed) may pursue the Company with respect
thereto prior to pursuing any Selling Shareholder.
All representations, warranties and agreements of the Company and the
Selling Shareholders contained herein or in certificates or other instruments
delivered pursuant hereto shall remain operative and in full force and effect
regardless of any
26
<PAGE>
investigation made by or on behalf of any Underwriter or any of its controlling
persons and shall survive delivery of and payment for the Shares hereunder.
Any action required or permitted to be taken by the Representatives under
this Agreement may be taken by them jointly or by PaineWebber Incorporated.
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE CONFLICT OF LAWS PRINCIPLES
OF SUCH STATE.
This Agreement may be signed in two or more counterparts with the same
effect as if the signatures thereto and hereto were upon the same instrument.
In case any provision in this Agreement shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
The Company, the Selling Shareholders and the Underwriters each hereby
irrevocably waive any right they may have to a trial by jury in respect of any
claim based upon or arising out of this Agreement or the transactions
contemplated hereby.
This Agreement may not be amended or otherwise modified or any provision
hereof waived except by an instrument in writing signed by the Representatives
and the Company.
27
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement among
the Company, the Selling Shareholders and the several Underwriters.
Very truly yours,
AQUAPENN SPRING WATER COMPANY, INC.
By:
-------------------------------------
Name:
Title:
THE SELLING SHAREHOLDERS
NAMED IN SCHEDULE I
ATTACHED HERETO
By:
------------------------------------
Attorney-in-Fact
Confirmed as of the date
first above mentioned:
PAINEWEBBER INCORPORATED
LAZARD FRERES & CO. LLC
PARKER/HUNTER INCORPORATED
Acting on behalf of
themselves and as the
Representatives of the
other several Underwriters
named in Schedule II hereof.
By: PAINEWEBBER INCORPORATED
By:
---------------------------------
Name:
Title:
By: LAZARD FRERES & CO. LLC
By:
---------------------------------
Name:
Title:
28
<PAGE>
By: PARKER/HUNTER INCORPORATED
By:
--------------------------------
Name:
Title:
29
<PAGE>
SCHEDULE I
SELLING SHAREHOLDERS
Total
Name of Number of
Selling Firm Shares
Shareholder to be Sold
----------- ------------
Edward J. Lauth, III 70,000
Aqua Works, Inc. 1,859,000
Lowell S. Fixler 32,444
Sandy & Rockoff Urological Assoc. 27,036
Lester H. Petnick 14,420
Valassis Enterprises, L.P. 12,016
Mark S. and Frances Ann Wagner 9,613
Carol L. Barash 9,012
Scottie Pippen 8,111
John H. Persing, M.D., Inc. 7,811
Ronald G. Berman 6,609
Kirk H. Gibson 6,008
Donal Lord and Myrna Lord 5,408
K.R. Schleiden and Joan E. Schleiden 3,629
<PAGE>
SCHEDULE II
UNDERWRITERS
Number of
Name of Firm Shares
Underwriters to be Purchased
------------ ---------------
PaineWebber Incorporated
Lazard Freres & Co. LLC
Parker/Hunter Incorporated
<PAGE>
EXHIBIT A
AQUAPENN SPRING WATER COMPANY, INC.
-----------
PRICE DETERMINATION AGREEMENT
[Date]
PAINEWEBBER INCORPORATED
LAZARD FRERES & CO. LLC
PARKER/HUNTER INCORPORATED
As Representatives of the
several Underwriters
c/o PaineWebber Incorporated
1285 Avenue of the Americas
New York, New York 10019
Dear Sirs:
Reference is made to the Underwriting Agreement, dated [ ], 1997 (the
"Underwriting Agreement"), among AquaPenn Spring Water Company, Inc., a
Pennsylvania corporation (the "Company"), the Selling Shareholders named in
Schedule I thereto or hereto (the "Selling Shareholders") and the several
Underwriters named in Schedule II thereto or hereto (the "Underwriters"), for
whom PaineWebber Incorporated, Lazard Freres & Co. LLC and Parker/Hunter
Incorporated are acting as Representatives (the "U.S. Representatives"). The
Underwriting Agreement provides for the purchase by the Underwriters from the
Company and the Selling Shareholders, subject to the terms and conditions set
forth therein, of an aggregate of [ ] shares (the "Firm Shares") of the
Company's common stock, no par value. This Agreement is the Price Determination
Agreement referred to in the Underwriting Agreement.
Pursuant to Section 1 of the Underwriting Agreement, the undersigned agree
with the Representatives as follows:
The initial public offering price per share for the Firm Shares shall be
$[ ].
The purchase price per share for the Firm Shares to be paid by the several
Underwriters shall be $[ ] representing an amount equal to the initial public
offering price set forth above, less $[ ] per share.
The Company represents and warrants to each of the Underwriters that the
representations and warranties of the Company set forth in Section 3 of the
Underwriting Agreement are accurate as though expressly made at and as of the
date hereof.
The Selling Shareholders represent and warrant to each of the Underwriters
that the representations and warranties of the Selling Shareholders set forth in
Section 4 of the Underwriting Agreement are accurate as though expressly made at
and as of the date hereof.
<PAGE>
As contemplated by the Underwriting Agreement, attached as Schedule II is a
completed list of the several Underwriters, which shall be a part of this
Agreement and the Underwriting Agreement.
This Agreement shall be governed by the law of the State of New York
without regard to the conflict of laws principles of such State.
If the foregoing is in accordance with your understanding of the agreement
among the Underwriters, the Company and the Selling Shareholders, please sign
and return to the Company a counterpart hereof, whereupon this instrument along
with all counterparts and together with the Underwriting Agreement shall be a
binding agreement among the Underwriters, the Company and the Selling
Shareholders in accordance with its terms and the terms of the Underwriting
Agreement.
Very truly yours,
AQUAPENN SPRING WATER COMPANY, INC.
By:
------------------------------------
Name:
Title:
THE SELLING SHAREHOLDERS
NAMED IN SCHEDULE I TO THE
UNDERWRITING AGREEMENT
By:
-------------------------------------
Attorney-in-Fact
Confirmed as of the date
first above mentioned:
PAINEWEBBER INCORPORATED
LAZARD FRERES & CO. LLC
PARKER/HUNTER INCORPORATED
Acting on behalf of
themselves and as the
Representatives of the
other several Underwriters
named in Schedule II hereof.
By: PAINEWEBBER INCORPORATED
By:
-------------------------------
Name:
Title:
2
<PAGE>
By: LAZARD FRERES & CO. LLC
By:
--------------------------------
Name:
Title:
By: PARKER/HUNTER INCORPORATED
By:
--------------------------------
Name:
Title:
3
<PAGE>
EXHIBIT B
November ___, 1997
PaineWebber Incorporated
Lazard Freres & Co. LLC
Parker/Hunter Incorporated
As Representatives of the
several Underwriters
c/o PaineWebber Incorporated
1285 Avenue of the Americas
New York, New York 10019
Ladies and Gentlemen:
AquaPenn Spring Water Company, Inc. (the "Company") proposes to sell shares
(the "Shares") of the Company's common stock, no par value (the "Common Stock")
in a public offering (the "Offering") for which PaineWebber Incorporated, Lazard
Freres & Co. LLC and Parker/Hunter Incorporated intend to act as representatives
(the "Representatives") of the underwriting group (the "Underwriters"). The
undersigned is an owner of record or beneficially of shares of Common Stock of
the Company and/or of preferred stock, $1.00 par value (the "Preferred Stock"),
convertible into Common Stock of the Company.
The Underwriters have indicated that the prospect of other sales of Common
Stock for a period of months after the commencement of the Offering could be
detrimental to their underwriting effort. The Underwriters have requested that
the undersigned agree not to sell any shares of Common Stock, except in the
Offering, or of Preferred Stock for a period of 180 days (the "Lock-up Period")
after the effective date of the Registration Statement on Form S-1 (the
"Registration Statement") to be filed by the Company with the Securities and
Exchange Commission relating to the Shares.
AquaPenn and the Underwriters have requested that holders of Preferred
Stock exercise such holders' rights to convert Preferred Stock into Common
Stock, and the undersigned has indicated on the attached page the number of
shares of Preferred Stock which the undersigned is converting.
AquaPenn and the Underwriters have also agreed that the undersigned may
sell all or part of the undersigned's shares of Common Stock, including shares
received upon conversion of the Preferred Stock, as part of the Offering, and
the undersigned has indicated on the lines below if the undersigned wishes to
sell such Common Stock. The undersigned acknowledges that, if the undersigned
chooses to sell shares of Common Stock in the Offering, the undersigned must
enter into additional agreements with the Underwriters and the Company as may be
required by the Underwriters to carry out such sale, and that the undersigned
will be obligated to pay for a portion of the fees and expenses of the Offering
pro rata based on the total number of Shares offered and the
<PAGE>
PaineWebber Incorporated
Lazard Freres & Co. LLC
Parker/Hunter Incorporated
Page 2
number of shares of Common Stock offered by the undersigned. Any shares not
offered for sale by the undersigned will be subject to the Lock-up Period
described above.
The undersigned recognizes that it is in the best interests of the Company
and the undersigned, as holder of Preferred Stock, Common Stock and/or options
or warrants of the Company, that the Offering be completed. To facilitate the
Offering and in consideration of the Underwriters' agreeing to purchase and
publicly offer the Shares, the undersigned hereby agrees that the undersigned
will not during the Lock-up Period, without prior written consent of PaineWebber
Incorporated, which consent may be withheld at the sole discretion of
PaineWebber Incorporated, offer to sell, sell, contract to sell, pledge, grant
any option to sell, or otherwise dispose of, any shares of Preferred Stock,
Common Stock or options or warrants to acquire shares of Common Stock (the
"Lock-Up Shares") of which the undersigned is now, or may in the future become,
the beneficial owner (within the meaning of Rule 13d-3 under the Securities
Exchange of 1934), or publicly announce the undersigned's intention to do any of
the foregoing.
Notwithstanding the foregoing, the undersigned may transfer any or all of
the Lock-Up Shares (i) as a bona fide gift or gifts, (ii) by operation of law,
(iii) in the Offering as a selling stockholder if, and to the extent, permitted
by PaineWebber Incorporated; provided that in the case of clauses (i) and
(ii) above, it shall be a condition to the transfer that the transferee execute
an agreement stating that the transferee is receiving and holding the Lock-up
Shares subject to, and agrees to be bound by, the provisions of this letter
agreement.
It is understood that, if an underwriting agreement between the
Representatives and the Company (the "Underwriting Agreement") does not become
effective by March 31, 1998, or if the Underwriting Agreement shall terminate or
be terminated prior to the payment for and delivery of the Shares, you will
release the undersigned from all obligations under this letter agreement.
The undersigned also agrees and consents to the entry of stop transfer
instructions with the Company's transfer agent against the transfer of any
Lock-Up Shares.
The undersigned understands that the Company and the Underwriters will
proceed with the Offering in reliance on this letter agreement.
<PAGE>
PaineWebber Incorporated
Lazard Freres & Co. LLC
Parker/Hunter Incorporated
Page3
The undersigned hereby represents and warrants that the undersigned has
full power and authority into this letter agreement. This agreement is
irrevocable, all authority herein conferred or agreed to be conferred shall
survive the death or incapacity of the undersigned and all obligations of the
undersigned shall be binding upon the heirs, personal representatives,
successors and assignees of the undersigned.
Very truly yours,
By:
---------------------------------------
Name:
-------------------------------------
Co-owner:
---------------------------------
Name:
------------------------------------
[Please indicate capacity of person signing
if signing as a custodian or trustee or on
behalf of an entity]
[SEE ATTACHED PAGE]
<PAGE>
[SHAREHOLDER: PLEASE READ AND COMPLETE THE FOLLOWING]
FOR ALL PREFERRED SHAREHOLDERS
1. If you are converting Preferred Stock, indicate the number of shares of
AquaPenn Preferred Stock beneficially owned by you which you are converting to
shares of AquaPenn Common Stock:__________ shares of Preferred Stock
2. If you are converting Preferred Stock:
a. Endorse your Preferred Stock certificate(s) on the back. Enclose your
Preferred Stock certificate(s) in the enclosed envelope.
b. You will receive back from AquaPenn a certificate evidencing the shares
of Common Stock that you will own upon conversion of your Preferred Stock. This
certificate will be issued to the same name as is on the certificate for
Preferred Stock which you are enclosing.
FOR ALL SHAREHOLDERS
1. If you would like to sell shares of Common Stock beneficially owned by
you in the initial public offering, please indicate the number of shares you
would like to sell (include any shares which you may receive upon conversion of
Preferred Stock and wish to sell): _________ shares of Common Stock.
2. If you are selling Common Stock:
a. AquaPenn will forward to you additional agreements to be signed in order
to participate as a selling shareholder, and at that time you will send in your
certificate(s) for AquaPenn Common Stock.
b. You must agree to the lock-up of your remaining shares of Preferred
Stock and Common Stock (which are not being sold in the initial public
offering).
PLEASE SIGN THE LETTER AGREEMENT WHERE INDICATED ON THE
PREVIOUS PAGE. MAKE A COPY AND RETURN THE ORIGINAL LETTER
AGREEMENT IN THE ENCLOSED FEDEX ENVELOPE. ALSO INCLUDE
YOUR CERTIFICATES FOR PREFERRED STOCK IF YOU ARE
CONVERTING YOUR PREFERRED STOCK
<PAGE>
EXHIBIT C
Form of Opinion of
Counsel to the Company
The Company and each of its Subsidiaries is a corporation duly organized
and validly and presently subsisting under the laws of the jurisdiction of its
incorporation and has full corporate power and authority to conduct all the
activities conducted by it, to own or lease all the assets owned or leased by it
and to conduct its business as described in the Registration Statement and the
Prospectus. The Company is the sole record owner and, to our knowledge, the sole
beneficial owner of all of the capital stock of each of its Subsidiaries.
All of the outstanding shares of Common Stock have been, and the Shares,
when paid for by the Underwriters in accordance with the terms of the Agreement,
will be, duly authorized, validly issued, fully paid and nonassessable and will
not be subject to any preemptive or similar right under (i) the statutes,
judicial and administrative decisions, and the rules and regulations of the
governmental agencies of the Commonwealth of Pennsylvania (ii) the Company's
articles of incorporation or by-laws or (iii) any instrument, document, contract
or other agreement referred to in the Registration Statement or any instrument,
document, contract or agreement filed as an exhibit to the Registration
Statement. Except as described in the Registration Statement or the Prospectus,
to our knowledge, the Company is not a party to any commitment or arrangement to
issue, and there are no outstanding options, warrants or other rights calling
for the issuance of, any share of capital stock of the Company or any Subsidiary
to any person or any security or other instrument that by its terms is
convertible into, exercisable for or exchangeable for capital stock of the
Company.
No consent, approval, authorization or order of, or any filing or
declaration with, any court or governmental agency or body is required in
connection with the authorization, issuance, transfer, sale or delivery of the
Shares in the United States by the Company, in connection with the execution,
delivery and performance of the Agreement(3) by the Company or in connection
with the taking by the Company of any action contemplated thereby or, if so
required, all such consents, approvals, authorizations and orders, specifying
the same have been obtained and are in full force and effect, except such as
have been obtained under the Act and the Rules and Regulations and such as may
be required under state securities or "Blue Sky" laws or by the by-laws and
rules of the NASD in connection with the purchase and distribution by the
Underwriters of the Shares to be sold by the Company and the Selling
Shareholders.
The authorized, issued and outstanding capital stock of the Company is as
set forth in the Registration Statement and the Prospectus under the caption
"Capitalization." The description of the Common Stock contained in the
Prospectus is complete and
- ----------------
(3) All references in this opinion to the Agreement shall include the Price
Determination Agreement.
<PAGE>
accurate in all material respects. The form of certificate used to evidence the
Common Stock is in due and proper form and complies with all applicable
statutory requirements.
The Registration Statement and the Prospectus comply in all material
respects as to form with the requirements of the Act and the Rules and
Regulations (except that we express no opinion as to financial statements,
schedules and other financial and statistical data contained in the Registration
Statement or the Prospectus).
To our knowledge, any instrument, document, lease, license, contract or
other agreement (collectively, "Documents") required to be described or referred
to in the Registration Statement or the Prospectus has been properly described
or referred to therein and any Document required to be filed as an exhibit to
the Registration Statement has been filed as an exhibit thereto or has been
incorporated as an exhibit by reference in the Registration Statement; and no
default exists in the due performance or observance of any material obligation,
agreement, covenant or condition contained in any Document filed or required to
be filed as an exhibit to the Registration Statement.
To our knowledge, except as disclosed in the Registration Statement or the
Prospectus, the Company is not a party to any agreement that gives a person or
entity the right to require the registration under the Act of shares of Common
Stock or other securities of the Company by reason of the filing or
effectiveness of the Registration Statement.
To our knowledge, the Company is not in violation of, or in default with
respect to, any law, rule, regulation, order, judgment or decree, except as may
be described in the Prospectus or such as in the aggregate do not now have and
will not in the future have a material adverse effect upon the operations,
business or assets of the Company and the Subsidiaries, taken as a whole.
To our knowledge, each of the Company and its Subsidiaries has obtained any
and all applicable federal, state or local permits, licenses, approvals, leases
and permissions and has filed all applications, certifications, forms and other
documents necessary or appropriate for its bottling operations, its use of
spring water from each of the sources described in the Registration Statement
and Prospectus as being currently in use or, to the extent applicable based on
the developmental stage of such source, under development for future use and its
packaging and labeling of its bottled water products. As of the date hereof and
as of the Closing Date, all such permits, licenses, approvals, leases,
permissions, applications, certifications, forms and other documents are in
force.
To our knowledge, the water processed in the bottling operations of the
Company or any of its Subsidiaries derived from each source of spring water
disclosed in the Registration Statement and the Prospectus as being currently in
use or under development for future use, to the extent applicable, as of the
date hereof and as of the Closing Date, meets all applicable quality and safety
laws, standards and regulations promulgated by all federal, state and local
regulatory bodies and by the International Bottled Water Association, to the
extent required by such laws, standards and regulations, and has been tested by
certified microbiological laboratories, including performance of certified
bacteriological analyses.
All descriptions in the Prospectus of statutes, regulations or legal or
governmental proceedings are accurate and fairly present the information
required to be shown.
<PAGE>
The Company has full corporate power and authority to enter into the
Agreement, and the Agreement has been duly authorized, executed and delivered by
the Company, is a valid and binding agreement of the Company and, except for the
indemnification and contribution provisions thereof, as to which we express no
opinion, is enforceable against the Company in accordance with the terms
thereof.
The execution and delivery by the Company of, and the performance by the
Company of the Agreement do not and will not (i) violate the articles of
incorporation or by-laws of the Company, (ii) breach or result in a default
under, cause the time for performance of any obligation to be accelerated under,
or result in the creation or imposition of any lien, charge or encumbrance upon
any of the assets of the Company or any of its Subsidiaries pursuant to the
terms of, (x) any indenture, mortgage, deed of trust, loan agreement, bond,
debenture, note agreement, capital lease or other evidence of indebtedness of
which we have knowledge, (y) any voting trust arrangement or any contract or
other agreement to which the Company is a party that restricts the ability of
the Company to issue securities and of which we have knowledge or (z) any
Document filed as an exhibit to the Registration Statement, (iii) breach or
otherwise violate any existing obligation of the Company under any court or
administrative order, judgment or decree of which we have knowledge or (iv)
violate applicable provisions of any statute or regulation in the Commonwealth
of Pennsylvania, [the States of Florida or California] or of the United
States.
Delivery of certificates for the Shares sold by the Company will transfer
valid and marketable title thereto to each Underwriter that has purchased such
Shares in good faith and without notice of any adverse claim with respect
thereto.
The Company is not an "investment company" or an "affiliated person" of, or
"promoter" or "principal underwriter" for, an "investment company," within the
meaning of the Investment Company Act of 1940, as amended.
The Shares have been duly authorized for listing by the New York Stock
Exchange upon official notice of issuance.
We hereby confirm to you that we have been advised by the Commission that
the Registration Statement has become effective under the Act and that no order
suspending the effectiveness of the Registration Statement has been issued and
no proceeding for that purpose has been instituted or is pending, or to our
knowledge threatened or contemplated.
We hereby further confirm to you that there are no legal or governmental
actions, suits, proceedings or investigations pending or, to our knowledge,
overtly threatened in writing against the Company or any of its Subsidiaries, or
any of their respective officers or directors in their capacities as such,
before or by any court, governmental agency or arbitrator which (i) seek to
challenge the legality or enforceability of the Agreement, (ii) seek to
challenge the legality or enforceability of any of the Documents filed, or
required to be filed, as exhibits to the Registration Statement, (iii) seek
damages or other remedies with respect to any of the Documents filed, or
required to be filed, as exhibits to the Registration Statement, (iv) except as
set forth in or contemplated by the Registration Statement and the Prospectus,
seek money damages in excess of $[ ] or seek to impose criminal penalties upon
the Company, any of its Subsidiaries or any of their respective officers or
directors in their capacities as such and of which we have knowledge or
<PAGE>
(v) seek to enjoin any of the business activities of the Company or any of its
Subsidiaries or the transactions described in the Prospectus and of which we
have knowledge.
We have participated in the preparation of the Registration Statement and
the Prospectus and, without assuming any responsibility for the accuracy,
completeness or fairness of the statements contained in the Registration
Statement or the Prospectus or in any amendment or supplement thereto, nothing
has come to our attention that causes us to believe that, on the Effective Date
and as of the Closing Date and the Option Closing Date, the Registration
Statement or any amendment thereto contained or contains any untrue statement of
a material fact or omitted or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading or
that any Prospectus or any amendment or supplement thereto, on the date such
Prospectus was issued, at the time any such amended or supplemented Prospectus
was issued, at the Closing Date and the Option Closing Date, contained or
contains any untrue statement of a material fact or omitted or omits to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances in which they were made, not misleading (except that we
express no opinion as to financial statements, schedules and other financial and
statistical data contained in the Registration Statement or the Prospectus.
The foregoing opinion is subject to the qualification that the
enforceability of the Agreement may be: (i) subject to bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights
generally; and (ii) subject to general principles of equity (regardless of
whether such enforceability is considered in a proceeding at law or in equity)
including, without limitation, principles of commercial reasonableness or
conscionability and an implied covenant of good faith and fair dealing.
This letter is furnished by us solely for your benefit in connection with
the transactions referred to in the Agreement and may not be circulated to, or
relied upon by, any other person, except that this letter may be relied upon by
your counsel in connection with the opinion letter to be delivered to you
pursuant to Section 5(g)of the Agreement.
<PAGE>
EXHIBIT D
Form of Opinion
of Counsel to
Weis Markets, Inc.
Weis Markets, Inc. ("Weis") has full power and authority to enter into the
Agreement and the Agreement and Power of Attorney and to sell, transfer and
deliver its Shares pursuant to the Agreement and the Agreement and Power of
Attorney. All authorizations and consents necessary for the execution and
delivery of the Agreement and the Agreement and Power of Attorney on behalf of
Weis have been given. The delivery of the Shares on behalf of Weis pursuant to
the terms of the Agreement and payment therefor by the Underwriters will
transfer good and marketable title to such Shares to the several Underwriters
purchasing such Shares, free and clear of all liens, encumbrance and claims
whatsoever.
Each of the Agreement and the Agreement and Power of Attorney has been duly
authorized, executed and delivered by or on behalf of Weis, is a valid and
binding agreement of Weis and, except for the indemnification and contribution
provisions of the Agreement, the Agreement and the Agreement and Power of
Attorney are enforceable against Weis in accordance with the terms thereof.
No consent, approval, authorization or order of, or any filing or
declaration with, any court or governmental agency or body is required in
connection with the authorization, issuance, transfer, sale or delivery of the
Shares by or on behalf of Weis, in connection with the execution, delivery and
performance of the Agreement(1) and the Agreement and Power of Attorney by or
on behalf of Weis or in connection with the taking by or on behalf of Weis of
any action contemplated thereby or, if so required, all such consents,
approvals, authorizations and orders specifying the same have been obtained and
are in full force and effect, except such as have been obtained under the Act or
the Rules and Regulations and such as may be required under state securities or
"Blue Sky" laws or by the by-laws and rules of the NASD in connection with the
purchase and distribution by the Underwriters of the Shares to be sold by Weis.
The execution and delivery by Weis of, and the performance by Weis of the
Agreement and the Agreement and Power of Attorney, do not and will not (i)
violate the certificate of incorporation or by-laws of Weis, (ii) breach or
result in a default under, cause the time for performance of any obligation to
be accelerated under, or result in the creation or imposition of any lien,
charge or encumbrance upon any of the assets of Weis pursuant to the terms of,
(x) any indenture, mortgage, deed of trust, loan agreement, bond, debenture,
note agreement capital lease or other evidence of indebtedness of which we have
knowledge, (y) any voting trust arrangement or any contract or other agreement
to which Weis is a party that restricts the ability of Weis to issue securities
and of which we have knowledge or any other contact or other agreement of which
we have knowledge, (iii) breach or otherwise violate, any existing obligation of
Weis under any court or administrative order, judgment, or decree of which we
have knowledge or (iv) violate
- -------------------
(1) All references in this opinion to the Agreement shall include the Price
Determination Agreement.
<PAGE>
applicable provisions of any statute, or regulation in the Commonwealth of
Pennsylvania, the States of Florida or California or of the United States.
There are no transfer or similar taxes payable in connection with the sale
and delivery of the Shares by Weis to the several Underwriters, except as
specified herein.
The foregoing opinion is subject to the qualification that the
enforceability of the Agreement and the Agreement and Power of Attorney may be:
(i) subject to bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting creditors' rights generally; and (ii) subject to general
principles of equity (regardless of whether such enforceability is considered in
a proceeding at law or in equity), including principles of commercial
reasonableness or conscionability and an implied covenant of good faith and fair
dealing.
This letter is furnished by us solely for your benefit in connection with
the transactions referred to in the Agreement and may not be circulated to, or
relied upon by, any other person.
<PAGE>
EXHIBIT E
Form of Opinion
of Counsel(1) to
Edward J. Lauth, III
Edward J. Lauth, III ("Lauth") has full power and authority to enter into
the Agreement and the Agreement and Power of Attorney and to sell, transfer and
deliver such Shares pursuant to the Agreement and the Agreement and Power of
Attorney. All authorizations and consents necessary for the execution and
delivery of the Agreement and the Agreement and Power of Attorney on behalf of
Lauth have been given. The delivery of the Shares on behalf of Lauth pursuant to
the terms of the Agreement and payment therefore by the Underwriters will
transfer good and marketable title to such Shares to the several Underwriters
purchasing such Shares, free and clear of all liens, encumbrance and claims
whatsoever.
Each of the Agreement and the Agreement and Power of Attorney has been duly
authorized, executed and delivered by or on behalf of Lauth, is a valid and
binding agreement of Lauth and, except for the indemnification and contribution
provisions of the Agreement, the Agreement and the Agreement and Power of
Attorney are enforceable against Lauth in accordance with the terms thereof.
No consent, approval, authorization or order of, or any filing or
declaration with, any court or governmental agency or body is required in
connection with the authorization, issuance, transfer, sale or delivery of the
Shares by or on behalf of Lauth, in connection with the execution, delivery and
performance of the Agreement(2) and the Agreement and Power of Attorney by or
on behalf of Lauth or in connection with the taking by or on behalf of Lauth of
any action contemplated thereby or, if so required, all such consents,
approvals, authorizations and orders specifying the same have been obtained and
are in full force and effect, except such as have been obtained under the Act or
the Rules and Regulations and such as may be required under state securities or
"Blue Sky" laws or by the by-laws and rules of the NASD in connection with the
purchase and distribution by the Underwriters of the Shares to be sold by Lauth.
The execution and delivery by Lauth of, and the performance by Lauth of his
agreements in, the Agreement and the Agreement and Power of Attorney, do not and
will not (i) breach or result in a default under, cause the time for performance
of any obligation to be accelerated under, or result in the creation or
imposition of any lien, charge or encumbrance upon any of the assets of Lauth
pursuant to the terms of, (x) any indenture, mortgage, deed of trust, loan
agreement, bond, debenture, note agreement capital lease or other evidence of
indebtedness of which we have knowledge, (y) any voting trust arrangement or any
contract or other agreement to which Lauth is a party that restricts the ability
of Lauth to issue securities and of which we have knowledge or
- ---------------
(1) This opinion may be provided by counsel to the Company on behalf of
Mr.Lauth. Every other selling shareholder must provide a certificate in
the form of Exhibit F in lieu of an opinion of counsel.
(2) All references in this opinion to the Agreement shall include the Price
Determination Agreement.
<PAGE>
(z) any other contact or other agreement of which we have knowledge,
(ii) breach or otherwise violate, any existing obligation of Lauth under any
court or administrative order, judgment, or decree of which we have knowledge or
(iii) violate applicable provisions of any statute, or regulation in the
State[s] of ________________ or of the United States.
There are no transfer or similar taxes payable in connection with the sale
and delivery of the Shares by Lauth to the several Underwriters, except as
specified in such opinion.
The foregoing opinion is subject to the qualification that the
enforceability of the Agreement and the Agreement and Power of Attorney may be:
(i) subject to bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting creditors' rights generally; and (ii) subject to general
principles of equity (regardless of whether such enforceability is considered in
a proceeding at law or in equity), including principles of commercial
reasonableness or conscionability and an implied covenant of good faith and fair
dealing.
This letter is furnished by us solely for your benefit in connection with
the transactions referred to in the Agreement and may not be circulated to, or
relied upon by, any other person.
<PAGE>
EXHIBIT F
Form of
Certificate of the Selling Shareholders
I am the duly authorized Attorney-in-Fact of each of the Selling
Shareholders (the "Selling Shareholders") named in Schedule I to the
Underwriting Agreement (the "Underwriting Agreement"), dated [ ], 1998,
among AquaPenn Spring Water Company, Inc., each of the Selling Shareholders, and
PaineWebber Incorporated, Lazard Freres & Co. LLC and Parker/Hunter
Incorporated, as representatives of the Underwriters named in Schedule II of the
Underwriting Agreement, and I do hereby certify on behalf of each of the Selling
Shareholders (other than Edward J. Lauth, III) as follows:
1. The representations and warranties of each of the Selling Shareholders
contained in the Underwriting Agreement and the Agreement and Power of Attorney
are true and correct in all material respects on the date hereof with the same
force and effect as if made on and as of the date hereof.
2. Each of the Selling Shareholders has complied with all of the agreements
and satisfied all of the conditions on the part of each of the Selling
Shareholders to be performed or satisfied, pursuant to the Underwriting
Agreement and the Agreement and Power of Attorney executed by the undersigned,
on or before the date hereof.
Capitalized terms used herein and not otherwise defined herein have their
respective meanings set forth in the Underwriting Agreement and the Agreement
and Power of Attorney.
IN WITNESS WHEREOF, I have signed this certificate on behalf of each of the
Selling Shareholders named in Schedule I to the Underwriting Agreement as of the
date below.
Dated: [ ], 1998
By:
-----------------------------------
Name:
Title: As Attorney-in-Fact
for each of the Selling
Shareholders named in
Schedule I to the
Underwriting Agreement.
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 03838X 10 9
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 CORPORATION WILL FURNISH TO ANY SHAREHOLDER UPON REQUEST AND
WITHOUT CHARGE A FULL OR SUMMARY STATEMENT OF THE DESIGNATIONS, VOTING RIGHTS,
PREFERENCES, LIMITATIONS AND SPECIAL RIGHTS OF THE SHARES OF EACH CLASS OR
SERIES AUTHORIZED TO BE ISSUED SO FAR AS THEY HAVE BEEN FIXED AND DETERMINED
AND THE AUTHORITY OF THE BOARD OF DIRECTORS TO FIX AND DETERMINE THE
DESIGNATIONS, VOTING RIGHTS, PREFERENCES, LIMITATIONS AND SPECIAL RIGHTS OF THE
CLASSES AND SERIES OF SHARES OF THE CORPORATION.
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 21, 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 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>
Containers Northwest Corporation
BLANKET PURCHASE COMMITMENT
Agreement
Castle Rock Spring Water (Buyer) and Containers Northwest Corporation (Seller)
mutually agree as follows:
Effective on the date the first order is placed after agreement is executed
until January 1, 2000, Buyer will purchase 100% of its PET containers or minimum
requirements at the designated location included in Schedule A from Seller.
Seller shall provide all containers requirements of the Buyer in accord with all
information contained in this agreement.
Pricing Policy
The prices for items purchased under this agreement are as set forth on Schedule
B and are based on a minimum volume commitment from Buyer as set forth in the
schedule. Prices are firm for one year from acceptance of this agreement by
Buyer and Seller, except that changes in the basic resin and corrugated prices
paid by Containers Northwest Corporation (CNC) will be passed on to the Buyer at
cost as an increase or decrease in Buyer's container price. Any adjustment in
Buyer's price based on cost increase will be effective upon thirty (30) days
written notice by Seller.
Notwithstanding, prices are subject to increase at each 12 month anniversary
date, but not to exceed 1% of the then current selling price and only to the
extent necessary to cover other production cost increases plus normal
contribution.
All bottles are shipped F.O.B. Lathrop, CA when plant is fully operational.
Seller to equalize freight difference to Buyer if bottles are shipped form other
Seller points of manufacture. All prices are exclusive of any applicable
federal, state and local taxes and California recycling fees.
Prices do not include the cost of dunnage; full credit will be given when
dunnage is returned to Containers Northwest.
Competitive Pricing
CNC agrees that it will be competitive in pricing for the same type of
Container, given same terms and conditions, provided that a competitive written
proposal is presented to CNC within sixty (60) days of the receipt of the
written proposal, and reflects that the competitor is capable of supplying at
least 50% of the volume under this Agreement on an annualized basis stated
herein. Such competitive price quotes cannot be presented to CNC more than once
annually.
1
<PAGE>
Blanket Purchase Commitment
Cont.
Product Revisions
If during the term of this agreement, Buyer requests changes in specifications
of the container supplied by Seller that result in an increase or decrease in
cost to Seller; such price changes are to be passed on to the Buyer by Seller
for the balance of the contract through a revision of the price specified
herein. Also, any requested changes in the PET resin used or PET resin
manufacturer must first be qualified and approved by Seller.
New Business
Any new PET packages which may be developed for any of the markets served under
the terms and conditions of this supply agreement will be provided by Seller
upon mutual agreement.
Terms
Payment terms are net 30 days. Purchase orders will be provided to CNC by each
ship-to location. Each shipment will be separate and distinct; but if Buyer
shall fail to pay within forty-five days, the Seller may, without prejudice to
any other remedy, defer further shipments until payments are made, or cancel
this agreement.
Warranties
Seller warrants that the containers will conform to the description and
specifications contained in the attached schedule. The sole remedy of the Buyer
with respect to any container that is not in conformity with such description
shall be the replacement thereof except Seller shall be liable for any damage
caused to Buyer's bottling equipment due to a defective bottle supplied by
Seller. Any claim for replacement of defective materials shall be presented by
Buyer within thirty (30) days of receipt of products.
There are no representations, warranties or guarantees of any nature, verbal or
written, of either Buyer or Seller except as contained herein. All other
warranties are expressly disclaimed. Buyer shall hold Seller harmless against
any claims made by persons other than itself growing out of the use of the
containers purchased hereunder.
Contingencies
Fires, strikes, accidents to machinery, failure of supply sources or any other
contingencies beyond the reasonable control of the parties shall be sufficient
excuse for any delay in shipment or consumption of the goods covered by this
agreement. Accordingly, such interruptions will relieve the party form
performance during the delay or interference.
Assignment
This agreement shall not be assigned without the prior written consent of the
other party and shall be binding upon and inure to the benefit of the parties
hereto and their respective successors.
2
<PAGE>
Blanket Purchase Commitment
Cont.
Nonwaiver
The failure of either Buyer or Seller to enforce at any time or for any period
of time any of its rights in this agreement shall not be construed as a waiver
of such rights. In the event that either party resorts to litigation for the
enforcement of its rights under this agreement, reasonable attorney fees and
court costs of the prevailing party incurred in any and all proceedings shall be
paid by the other party.
Execution
This agreement when signed by Buyer and Seller shall be executed. This agreement
shall be governed by the laws of the State of Washington.
Product Description
See Schedule C for the complete listing of bottle specifications for those
bottles to be supplied by CNC Containers Corporation at the outset of the
agreement. Drawings of all bottles are attached except 1.0L and 1.5L label panel
bottles to be included upon final revisions and acceptance.
Length of Agreement
The length of this agreement shall commence on execution and shall continue in
force until January 1, 2000. The agreement shall continue for an additional year
unless either party gives written notice of intent to renew for a longer period
or not to renew.
Buyer reserves the right to self-manufacture bottles at any time with 120 days
notice to Seller releasing Buyer from this agreement. Buyer will then be
obligated to pay for any unamortized custom tooling or expenses which Seller has
made on behalf of Buyer and Buyer has previously agreed to pay.
Additions
Agreed to the date below written:
Containers Northwest Corporation Castle Rock Spring Water
By: /s/ signature illegible By: /s/ Paul A. Kassis
------------------------------ -------------------------------
Title: President & C.E.O. Title: President
--------------------------- ----------------------------
Date: April 16, 1997 Date: April 15, 1997
--------------------------- ----------------------------
3
<PAGE>
Schedule A
Geographic Location
Projected Annual Quantity
- -------------------------------------------------------------------------------
Geographic Location:
4121 Dunsmuir Avenue
Dunsmuir, CA 96025
Minimum Projected Requirements
Size Quantity
- ---- --------
12oz 500,000 - 1,500,000
500ml 4,000,000 - 7,000,000
20oz 3,000,000 - 5,000,000
1 liter 4,000,000 - 7,000,000
1.5 liter 2,000,000 - 3,500,000
2.0 liter 250,000 - 1,000,000
4
<PAGE>
Schedule B
Containers Northwest Corporation
PRICE QUOTATION
for Castle Rock Spring Water
Effective April 1, 1997
- -------------------------------------------------------------------------------
All products are made of .80 IV and bottles are delivered bulk unlabelled.
Bottles Price/1000 Pieces
- ------- -----------------
12 ounce, 16 gram, 28 mm PCO $59.40
500 ml, 18 gram, 28 mm PCO $64.65
500 ml, 20.6 gram, 28mm PCO $68.03
20 ounce, 20.6 gram, 28 mm PCO (stubby) $68.03
20 ounce, 24.5 gram, 28 mm PCO (tall) $71.25
1 liter, 28.5 gram, 28 mm 1716/PCO $105.39
1.5 liter, 39 gram, 28 mm PCO $116.83
2 liter, 57 gram, 38 mm 1690 $146.02
- -------------------------------------------------------------------------------
The above prices are based on the following:
* Terms are net thirty day
* Freight is F.O.B. point of manufacture
* Resin and freight prices are as of April 1,1997; any increase or
decreases in such costs will be passed on to the customer at cost.
* Price does not include dunnage; customer will receive full credit for
dunnage when it is returned to C.N.C.
5
<PAGE>
Schedule C
Bottle Specifications
[Schedule C contains several diagrams setting forth the bottle specifications.]
6
<PAGE>
Exhibit 10.27
AQUAPENN SPRING WATER COMPANY
NON-QUALIFIED DEFERRED COMPENSATION AGREEMENT
THIS AGREEMENT made this 1st day of October, 1994 by and between
AquaPenn Spring Water Company, a Pennsylvania Business Corporation with its
principal office in State College, Pennsylvania ("Corporation")
AND
EDWARD J. LAUTH, III, an individual of State College, Pennsylvania
("Employee").
BACKGROUND
A. Corporation employs Employee, and Employee serves Corporation in
such capacity as Corporation may designate from time to time.
B. Employee currently devotes all of his time, attention, skill and
efforts to the performance of duties on behalf of Corporation.
C. Pursuant to the terms of an Employment Agreement entered into on
even date herewith, Corporation has agreed to provide a non-qualified deferred
compensation benefit to Employee.
NOW THEREFORE, in consideration of the foregoing, and intending to be
legally bound, the parties agree as follows:
1. Definitions. Certain terms shall be defined in this Agreement as
follows:
a. "Agreement" means this Non-qualified Deferred Compensation
Agreement.
b. "Beneficiary" means the person, persons, estate or trust
which Employee shall designate from time to time to receive either: (i) the
pre-retirement death benefit payable hereunder in the event of Employee's death
prior to retirement; or (ii) the balance of the retirement benefit payable
hereunder in the event of Employee's death following his retirement from
Corporation.
<PAGE>
d. "Board" means the Board of Directors of Corporation.
e. "Compensation" means the salary, received by Employee from
Corporation, as to which Corporation is required to withhold federal income
taxes, under applicable federal income tax laws.
f. "Deferred Compensation Account" means the separate book
reserve maintained by Corporation for amounts that are credited to Employee
hereunder.
g. "Effective Date" means December 15, 1994.
h. "Plan Year" means the twelve (12) month period used by
Corporation from time to time for tax reporting purposes.
2. Deferred Compensation Account. Corporation shall credit to the
Deferred Compensation Account established for Employee an amount equal to
fifteen (15%) percent of Employee's Compensation for each Plan Year. In
addition, Corporation shall credit the Deferred Compensation Account with an
amount each Plan Year representing earnings on amounts previously credited to
the Deferred Compensation Account ("Earnings"). Earnings credited to the
Deferred Compensation Account shall be based on the actual investment experience
of Corporation on funds it may hold for investment for the purpose of meeting
its obligations hereunder. Provided, however, that if the Corporation invests in
life insurance contracts as a means of meeting its obligations hereunder, the
Deferred Compensation Account for Employee shall not be adjusted for any
surrender or liquidation charges on such life insurance contracts.
3. Vesting. Employee shall vest in the benefit payable under Paragraph
4 of this Agreement in accordance with the following table:
Date of Termination Vested Portion of Deferred
of Employment Compensation Account
Before 12/31/94 40 %
1/1/95 to 12/31/95 50 %
1/1/96 to 12/31/96 60 %
1/1/97 to 12/31/97 70 %
1/1/98 to 12/31/98 80 %
1/1/99 to 12/31/99 90 %
1/1/2000 and following 100 %
2
<PAGE>
4. Termination of Employment of Employee. In the event of Employee's
termination of employment, Corporation shall distribute to Employee, on the
first day of the next succeeding five (5) Plan Years following Employee's
termination of employment an amount equal to the applicable percentage of the
vested portion of Employee's Deferred Compensation Account determined by
reference to the following table:
Plan Year Following Termination Applicable Percentage
of Employment
First 20 %
Second 25 %
Third 33 %
Fourth 50 %
Fifth 100 %
5. Disability of Employee. In the event Employee's employment by
Corporation is terminated due to disability, the vesting schedule set forth in
Paragraph 3 hereof shall not apply and Employee shall be 100% vested in the
Deferred Compensation Account. For purposes of this agreement, disability shall
mean Employee's inability to discharge substantially all his duties of
employment because of illness or incapacity as determined by a physician
mutually agreeable to Employee and Corporation.
6. Death Benefits.
a. Pre-Retirement. In the event Employee's employment by
Corporation is terminated due to Employee's death, Employee's Beneficiary shall
be entitled to receive a death benefit equal to the value of Employee's Deferred
Compensation Account. Such death benefit shall be paid in a lump sum to
Employee's beneficiary within one hundred twenty (120) days of Employee's death.
b. Post-Retirement. In the event Employee dies after benefits
have commenced to be paid under Paragraph 4 hereof, the remainder of such
payments shall be paid to Employee's Beneficiary at the same time as such
payments would have been paid to Employee had he survived.
7. No Assignment. Neither Employee nor Employee's Beneficiary or
personal representative shall have any right to commute, sell, assign, transfer,
encumber or otherwise dispose of the right to receive payments hereunder, which
payments and the right thereto are expressly declared to be nonassignable and
nontransferable. Any attempted assignment or transfer by Employee or Employee's
Beneficiary or personal representative shall be of no effect. Corporation shall
have the right to assign this Agreement and to transfer its obligations
hereunder.
3
<PAGE>
8. No Employment Guarantee. Nothing contained in this Agreement shall
be construed as conferring upon Employee the right to continue in the employment
of Corporation.
9. Authority of Board. The Board shall have the full power and
authority to interpret, construe and administer this Agreement. The Board's
interpretations and construction hereof and actions hereunder, including any
valuation of a Deferred Compensation Account, or the amount(s) to be paid
therefrom, shall be binding and conclusive on all persons for all purposes. No
member of the Board shall be liable to any person for any action taken or
omitted in connection with the interpretation or administration of this
Agreement unless attributable to his/her own willful misconduct or lack of good
faith.
10. Liability of the Corporation. Nothing contained in this Agreement
shall constitute the creation of a trust or other fiduciary relationship between
Corporation and Employee or between Corporation and the Beneficiary or any other
person. Corporation shall not be considered a trustee by reason of the existence
of this Agreement.
11. Funding; Assets. Corporation reserves the absolute right in its
sole and exclusive discretion either to fund the obligations of Corporation
undertaken by this Agreement or to refrain from funding the same, and to
determine the extent, nature and method of such funding. Should Corporation
elect to fund this Agreement, in whole or in part, through life insurance or
annuity contracts, or both, Corporation shall be the owner and beneficiary of
each such policy. Corporation reserves the absolute right, in its sole
discretion, to terminate any such contract, as well as any other funding
program, at any time, either in whole or in part. Title to, and beneficial
ownership of, any assets which Corporation may earmark to pay the benefits
hereunder shall at all times remain in Corporation. Employee and Employee's
Beneficiary or personal representative shall not have any property interest
whatsoever in any specific assets of Corporation. Nothing set forth in this
Agreement shall cause such assets to be treated as anything but the general
assets of Corporation.
12. Insurance Policies. Employee understands that Corporation may make
application to purchase a life insurance policy or policies on his life, which
will be owned by Corporation and under which it will be the sole beneficiary.
Employee agrees to provide Company with such information as it may require in
order to make such application and to cooperate fully with Corporation in
respect of such application, including the taking of a physical examination if
requested to do so. In the event the insurance company to which application is
made declines to issue the policy at standard premium rates, this Agreement will
be void unless Corporation decides otherwise. Similarly, if Employee should die
4
<PAGE>
while employed and the proceeds of the policy on Employee's life are not paid to
Corporation because the information Employee has furnished in connection with
the application is materially false or Employee's death was caused by suicide
within two (2) years of the date on any policy on Employee's life is issued,
Corporation will be under no obligation to pay the benefits herein provided.
13. Claims Procedure. In the event that benefits under this Agreement
are not paid to Employee, and Employee feels entitled to receive them, a claim
shall be made in writing to the administrator within sixty (60) days from the
date payments are not made. Such claim shall be reviewed by the administrator.
If the claim is denied, in full or in part, the administrator shall provide a
written notice within ninety (90) days setting forth the specific reasons for
denial, specific reference to the provisions of this Agreement upon which the
denial is based, and any additional material or information necessary to perfect
the claim, if any. Also, such written notice shall indicate the steps to be
taken if a review of the denial is desired.
If a claim is denied and a review is desired, Employee shall notify the
administrator in writing within sixty (60) days (and a claim shall be deemed
denied if the Administrator does not take any action within the aforesaid ninety
(90) day period). In requesting review, Employee may review this Plan or any
documents relating to it and submit any written issues and comments Employee may
feel appropriate. In its sole discretion, the Administrator shall then review
the claim and provide a written decision within sixty (60) days. This decision
likewise shall state the specific reasons for the decision and shall include
specific reference to specific provisions of this Plan on which the decision is
based.
14. Plan Administrator. For purposes of implementing the claims
procedure contained in Paragraph 13 (but not for any other purpose), the Board
is hereby designated as the Named Fiduciary and Administrator of this Agreement.
15. Governing Law. This Agreement shall be governed by the laws of the
Commonwealth of Pennsylvania.
5
<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Agreement on the day
and year first above written.
ATTEST: AQUAPENN SPRING WATER COMPANY
/s/signature illegible By: /s/ Edward J. Lauth, III
- ----------------------------- -------------------------------
, Secretary Edward J. Lauth, III, President
WITNESS: EMPLOYEE:
/s/Geoffrey F. Feidelberg /s/ Edward J. Lauth, III
- ----------------------------- -------------------------------
EDWARD J. LAUTH, III
6
<PAGE>
AQUAPENN SPRING WATER COMPANY
Beneficiary Designation
BENEFICIARY DESIGNATION/CHANGE. I, the undersigned,
hereby designate Susan Natalie Lauth
----------------------------
---------------------------------------------
---------------------------------------------
as beneficiary of any benefits payable under the Non-Qualified
Deferred Compensation Agreement between me and AquaPenn Spring
Water Company (the "Agreement") following my death.
The terms of this form are under and subject to all of the provisions
of the Agreement. I acknowledge having received and read a copy of the
Agreement.
WITNESS: EMPLOYEE:
/s/Geoffrey F. Feidelberg /s/ Edward J. Lauth
- ----------------------------- -------------------------------
EDWARD J. LAUTH, III
Date: 12/7/94
7
<PAGE>
Exhibit 10.28
AQUAPENN SPRING WATER COMPANY
NON-QUALIFIED DEFERRED COMPENSATION AGREEMENT
THIS AGREEMENT made this 1st day of October, 1994 by and between
AquaPenn Spring Water Company, a Pennsylvania Business Corporation with its
principal office in State College, Pennsylvania ("Corporation")
AND
GEOFFREY F. FEIDELBERG, an individual of State College, Pennsylvania
("Employee").
BACKGROUND
A. Corporation employs Employee, and Employee serves Corporation in
such capacity as Corporation may designate from time to time.
B. Employee currently devotes all of his time, attention, skill and
efforts to the performance of duties on behalf of Corporation.
C. Pursuant to the terms of an Employment Agreement entered into on
even date herewith, Corporation has agreed to provide a non-qualified deferred
compensation benefit to Employee.
NOW THEREFORE, in consideration of the foregoing, and intending to be
legally bound, the parties agree as follows:
1. Definitions. Certain terms shall be defined in this Agreement as
follows:
a. "Agreement" means this Non-qualified Deferred Compensation
Agreement.
b. "Beneficiary" means the person, persons, estate or trust
which Employee shall designate from time to time to receive either: (i) the
pre-retirement death benefit payable hereunder in the event of Employee's death
prior to retirement; or (ii) the balance of the retirement benefit payable
hereunder in the event of Employee's death following his retirement from
Corporation.
<PAGE>
d. "Board" means the Board of Directors of Corporation.
e. "Compensation" means the salary, received by Employee from
Corporation, as to which Corporation is required to withhold federal income
taxes, under applicable federal income tax laws.
f. "Deferred Compensation Account" means the separate book
reserve maintained by Corporation for amounts that are credited to Employee
hereunder.
g. "Effective Date" means December 15, 1994.
h. "Plan Year" means the twelve (12) month period used by
Corporation from time to time for tax reporting purposes.
2. Deferred Compensation Account. Corporation shall credit to the
Deferred Compensation Account established for Employee an amount equal to
fifteen (15%) percent of Employee's Compensation for each Plan Year. In
addition, Corporation shall credit the Deferred Compensation Account with an
amount each Plan Year representing earnings on amounts previously credited to
the Deferred Compensation Account ("Earnings"). Earnings credited to the
Deferred Compensation Account shall be based on the actual investment experience
of Corporation on funds it may hold for investment for the purpose of meeting
its obligations hereunder. Provided, however, that if the Corporation invests in
life insurance contracts as a means of meeting its obligations hereunder, the
Deferred Compensation Account for Employee shall not be adjusted for any
surrender or liquidation charges on such life insurance contracts.
3. Vesting. Employee shall vest in the benefit payable under Paragraph
4 of this Agreement in accordance with the following table:
Date of Termination Vested Portion of Deferred
of Employment Compensation Account
Before 12/31/94 40 %
1/1/95 to 12/31/95 50 %
1/1/96 to 12/31/96 60 %
1/1/97 to 12/31/97 70 %
1/1/98 to 12/31/98 80 %
1/1/99 to 12/31/99 90 %
1/1/2000 and following 100 %
2
<PAGE>
4. Termination of Employment of Employee. In the event of Employee's
termination of employment, Corporation shall distribute to Employee, on the
first day of the next succeeding five (5) Plan Years following Employee's
termination of employment an amount equal to the applicable percentage of the
vested portion of Employee's Deferred Compensation Account determined by
reference to the following table:
Plan Year Following Termination Applicable Percentage
of Employment
First 20 %
Second 25 %
Third 33 %
Fourth 50 %
Fifth 100 %
5. Disability of Employee. In the event Employee's employment by
Corporation is terminated due to disability, the vesting schedule set forth in
Paragraph 3 hereof shall not apply and Employee shall be 100% vested in the
Deferred Compensation Account. For purposes of this agreement, disability shall
mean Employee's inability to discharge substantially all his duties of
employment because of illness or incapacity as determined by a physician
mutually agreeable to Employee and Corporation.
6. Death Benefits.
a. Pre-Retirement. In the event Employee's employment by
Corporation is terminated due to Employee's death, Employee's Beneficiary shall
be entitled to receive a death benefit equal to the value of Employee's Deferred
Compensation Account. Such death benefit shall be paid in a lump sum to
Employee's beneficiary within one hundred twenty (120) days of Employee's death.
b. Post-Retirement. In the event Employee dies after benefits
have commenced to be paid under Paragraph 4 hereof, the remainder of such
payments shall be paid to Employee's Beneficiary at the same time as such
payments would have been paid to Employee had he survived.
7. No Assignment. Neither Employee nor Employee's Beneficiary or
personal representative shall have any right to commute, sell, assign, transfer,
encumber or otherwise dispose of the right to receive payments hereunder, which
payments and the right thereto are expressly declared to be nonassignable and
nontransferable. Any attempted assignment or transfer by Employee or Employee's
Beneficiary or personal representative shall be of no effect. Corporation shall
have the right to assign this Agreement and to transfer its obligations
hereunder.
3
<PAGE>
8. No Employment Guarantee. Nothing contained in this Agreement shall
be construed as conferring upon Employee the right to continue in the employment
of Corporation.
9. Authority of Board. The Board shall have the full power and
authority to interpret, construe and administer this Agreement. The Board's
interpretations and construction hereof and actions hereunder, including any
valuation of a Deferred Compensation Account, or the amount(s) to be paid
therefrom, shall be binding and conclusive on all persons for all purposes. No
member of the Board shall be liable to any person for any action taken or
omitted in connection with the interpretation or administration of this
Agreement unless attributable to his/her own willful misconduct or lack of good
faith.
10. Liability of the Corporation. Nothing contained in this Agreement
shall constitute the creation of a trust or other fiduciary relationship between
Corporation and Employee or between Corporation and the Beneficiary or any other
person. Corporation shall not be considered a trustee by reason of the existence
of this Agreement.
11. Funding; Assets. Corporation reserves the absolute right in its
sole and exclusive discretion either to fund the obligations of Corporation
undertaken by this Agreement or to refrain from funding the same, and to
determine the extent, nature and method of such funding. Should Corporation
elect to fund this Agreement, in whole or in part, through life insurance or
annuity contracts, or both, Corporation shall be the owner and beneficiary of
each such policy. Corporation reserves the absolute right, in its sole
discretion, to terminate any such contract, as well as any other funding
program, at any time, either in whole or in part. Title to, and beneficial
ownership of, any assets which Corporation may earmark to pay the benefits
hereunder shall at all times remain in Corporation. Employee and Employee's
Beneficiary or personal representative shall not have any property interest
whatsoever in any specific assets of Corporation. Nothing set forth in this
Agreement shall cause such assets to be treated as anything but the general
assets of Corporation.
12. Insurance Policies. Employee understands that Corporation may make
application to purchase a life insurance policy or policies on his life, which
will be owned by Corporation and under which it will be the sole beneficiary.
Employee agrees to provide Company with such information as it may require in
order to make such application and to cooperate fully with Corporation in
respect of such application, including the taking of a physical examination if
requested to do so. In the event the insurance company to which application is
made declines to issue the policy
4
<PAGE>
at standard premium rates, this Agreement will be void unless Corporation
decides otherwise. Similarly, if Employee should die while employed and the
proceeds of the policy on Employee's life are not paid to Corporation because
the information Employee has furnished in connection with the application is
materially false or Employee's death was caused by suicide within two (2) years
of the date on any policy on Employee's life is issued, Corporation will be
under no obligation to pay the benefits herein provided.
13. Claims Procedure. In the event that benefits under this Agreement
are not paid to Employee, and Employee feels entitled to receive them, a claim
shall be made in writing to the administrator within sixty (60) days from the
date payments are not made. Such claim shall be reviewed by the administrator.
If the claim is denied, in full or in part, the administrator shall provide a
written notice within ninety (90) days setting forth the specific reasons for
denial, specific reference to the provisions of this Agreement upon which the
denial is based, and any additional material or information necessary to perfect
the claim, if any. Also, such written notice shall indicate the steps to be
taken if a review of the denial is desired.
If a claim is denied and a review is desired, Employee shall notify the
administrator in writing within sixty (60) days (and a claim shall be deemed
denied if the Administrator does not take any action within the aforesaid ninety
(90) day period). In requesting review, Employee may review this Plan or any
documents relating to it and submit any written issues and comments Employee may
feel appropriate. In its sole discretion, the Administrator shall then review
the claim and provide a written decision within sixty (60) days. This decision
likewise shall state the specific reasons for the decision and shall include
specific reference to specific provisions of this Plan on which the decision is
based.
14. Plan Administrator. For purposes of implementing the claims
procedure contained in Paragraph 13 (but not for any other purpose), the Board
is hereby designated as the Named Fiduciary and Administrator of this Agreement.
15. Governing Law. This Agreement shall be governed by the laws of the
Commonwealth of Pennsylvania.
5
<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Agreement on the day
and year first above written.
ATTEST: AQUAPENN SPRING WATER COMPANY
/s/signature illegible By: /s/ Edward J. Lauth, III
- ----------------------------- -------------------------------
, Secretary Edward J. Lauth, III, President
WITNESS: EMPLOYEE:
/s/Michael L. Schnoke /s/ Geoffrey F. Feidelberg
- ----------------------------- -------------------------------
GEOFFREY F. FEIDELBERG
6
<PAGE>
AQUAPENN SPRING WATER COMPANY
Beneficiary Designation
BENEFICIARY DESIGNATION/CHANGE. I, the undersigned,
hereby designate Susan M. Seidler
----------------------------
---------------------------------------------
---------------------------------------------
as beneficiary of any benefits payable under the Non-Qualified
Deferred Compensation Agreement between me and AquaPenn Spring
Water Company (the "Agreement") following my death.
The terms of this form are under and subject to all of the
provisions of the Agreement. I acknowledge having received and read a copy of
the Agreement.
WITNESS: EMPLOYEE:
/s/ Michael L. Schnoke /s/ Geoffrey F. Feidelberg
- ----------------------------- -------------------------------
Geoffrey F. Feidelberg
Date: 12/7/94
7
<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. 4 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 21, 1998
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 4 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
January 20, 1998
