SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to
Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Sec.240.14a-11(c) or Sec.240.14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
DR PEPPER/SEVEN-UP COMPANIES, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER AND PERSON FILING PROXY
STATEMENT)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party of the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[x] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies: Common
Stock, par value $.01 per share
2) Aggregate number of securities to which transaction applies: 795,526
(outstanding shares of Common Stock on March 17, 1995 not owned by
Cadbury Schweppes plc or its subsidiaries)
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11: $33 per unit
4) Proposed maximum aggregate value of transaction: $26,252,358
5) Total fee paid: Fee of $5,330.67 paid by wire transfer on March 16,
1995 to the designated lockbox depositary maintained by the Commission
at Mellon Bank.
[x] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
DR PEPPER/SEVEN-UP COMPANIES, INC.
April 28, 1995
Dear Dr Pepper/Seven-Up Companies, Inc. Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of Dr
Pepper/Seven-Up Companies, Inc. (the "Company") to be held on June 5, 1995, at
2:00 p.m., local time, at the Company's offices at 8144 Walnut Hill Lane,
Dallas, Texas. At the Annual Meeting, you will be asked to consider and vote
upon a proposal to approve and adopt the Agreement and Plan of Merger, dated as
of January 25, 1995 (the "Merger Agreement"), among Cadbury Schweppes plc
("Parent"), DP/SU Acquisition Inc., an indirect wholly owned subsidiary of
Parent ("Purchaser"), and the Company. If the Merger Agreement is not approved
and adopted by the requisite affirmative votes described below, you will also be
asked to vote upon the election of a Class III Director of the Company.
Upon the terms and subject to the conditions of the Merger Agreement, a
wholly owned subsidiary of Purchaser will be merged with and into the Company
(the "Merger"), and each share of the Common Stock ("Common Stock") of the
Company (other than shares held (i) in the treasury of the Company or owned by
Parent, Purchaser or any other direct or indirect subsidiary of Parent or the
Company or (ii) by holders who have effectively exercised their appraisal rights
with respect to such shares in accordance with Section 262 of the Delaware
General Corporation Law (the "DGCL")) will be converted into the right to
receive $33 per share in cash, without interest.
The Merger is the second and final step in the acquisition of the Company
pursuant to the Merger Agreement. The first step was a tender offer (the
"Offer") by Purchaser pursuant to which Purchaser acquired 45,387,180 shares of
Common Stock and the associated preferred stock purchase rights (such rights,
together with the Common Stock, the "Shares") for $33 per share in cash. As a
result of the completion of the Offer and the purchase of Shares pursuant
thereto and prior purchases of Shares, Purchaser and other subsidiaries of
Parent own 61,007,926 Shares (representing approximately 98.7% of the issued and
outstanding Shares).
Under Section 251 of the DGCL ("Section 251"), the affirmative vote of the
holders of a majority of the outstanding Shares is required to approve and adopt
the Merger Agreement. In addition, because Parent and Purchaser are considered
to be "interested stockholders" of the Company for purposes of Section 203 of
the DGCL ("Section 203"), the Merger Agreement must also be approved and adopted
by the affirmative vote of the holders of at least two-thirds of the outstanding
Shares that are not owned by Parent or Purchaser or any of their affiliates or
associates.
Purchaser and other subsidiaries of Parent own sufficient Shares to assure
that the affirmative vote required under Section 251 is obtained. Parent and
Purchaser have agreed in the Merger Agreement to vote all Shares beneficially
owned by them in favor of the Merger Agreement. However, under Section 203, the
Merger Agreement will NOT be approved and adopted unless the holders of at least
two-thirds of the outstanding Shares that are not owned by Parent or Purchaser
or any of their affiliates or associates vote FOR approval and adoption of the
Merger Agreement.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE MERGER, AND DETERMINED THAT
EACH OF THE OFFER AND THE MERGER IS FAIR TO, AND IN THE BEST INTERESTS OF, THE
HOLDERS OF COMMON STOCK OF THE COMPANY (OTHER THAN PARENT AND ITS SUBSIDIARIES),
AND RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT.
In arriving at its decision, the Board of Directors gave careful
consideration to a number of factors described in the accompanying Proxy
Statement, including the opinions of BT Securities Corporation and Donaldson
Lufkin & Jenrette Securities Corporation, the financial advisors to the Company,
that the consideration to be received by holders of shares of Common Stock
(other than Parent and its
<PAGE>
subsidiaries) pursuant to the Merger Agreement is fair from a financial point of
view to such holders. Please read the enclosed material carefully.
YOUR VOTE IS IMPORTANT. A FAILURE TO SIGN AND RETURN YOUR PROXY IS THE
EQUIVALENT OF A VOTE AGAINST THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
IF THE MERGER IS NOT APPROVED AND ADOPTED AT THE ANNUAL MEETING BY THE VOTE OF
AT LEAST TWO-THIRDS OF THE OUTSTANDING SHARES THAT ARE NOT OWNED BY PARENT OR
PURCHASER OR ANY OF THEIR AFFILIATES OR ASSOCIATES, THERE CAN BE NO ASSURANCE
THAT THE MERGER WILL OCCUR BEFORE AUGUST 20, 1996, THE DATE ON WHICH PARENT AND
PURCHASER WILL NO LONGER BE CONSIDERED "INTERESTED STOCKHOLDERS" OF THE COMPANY
FOR PURPOSES OF SECTION 203. From August 20, 1996, Parent and Purchaser will
have sufficient voting power to cause the approval and adoption of the Merger
Agreement without the affirmative vote of any other stockholder.
Whether or not you are able to attend the Annual Meeting, please complete,
sign and return the enclosed proxy card as soon as possible. A postage-paid
envelope is enclosed for your convenience. If you attend the Annual Meeting, you
may revoke your proxy and, if you wish, vote your Shares in person.
PLEASE DO NOT SEND US YOUR STOCK CERTIFICATES AT THIS TIME. If the Merger
becomes effective, you will be advised of the procedure for surrendering your
certificates in exchange for the $33 per share of Common Stock cash
consideration.
If the Merger Agreement is not approved and adopted by the requisite
affirmative votes under Sections 251 and 203, you will also be asked to vote
upon the election of a Class III Director.
Sincerely,
/s/ Nelson A. Bangs
Nelson A. Bangs
Secretary
2
<PAGE>
DR PEPPER/SEVEN-UP COMPANIES, INC.
8144 WALNUT HILL LANE
DALLAS, TEXAS 75231-4372
Notice of Annual Meeting of Stockholders to be held June 5, 1995
To the Holders of Common Stock of
Dr Pepper/Seven-Up Companies, Inc.:
The Annual Meeting of Stockholders of Dr Pepper/Seven-Up Companies, Inc.
(the "Company") will be held on June 5, 1995, at 2:00 p.m., local time, at the
Company's offices at 8144 Walnut Hill Lane, Dallas, Texas, for the following
purposes:
(i) To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger, dated as of January 25, 1995 (the "Merger
Agreement"), among Cadbury Schweppes plc ("Parent"), DP/SU Acquisition Inc.,
an indirect wholly owned subsidiary of Parent ("Purchaser"), and the
Company, pursuant to which:
(a) a wholly owned subsidiary of Purchaser will be merged with and
into the Company (the "Merger"), with the Company to continue as the
surviving corporation, all of the common stock of which is to be owned
directly or indirectly by Parent; and
(b) each share of the Common Stock, $.01 par value per share ("Common
Stock"), of the Company (other than shares held (i) in the treasury of
the Company or owned by Parent, Purchaser or any other direct or indirect
subsidiary of Parent or the Company or (ii) by holders who have
effectively exercised their appraisal rights with respect to such shares
in accordance with Section 262 of the Delaware General Corporation Law
(the "DGCL")) will be cancelled, extinguished and converted into the
right to receive $33 per share in cash, without interest;
(ii) If the Merger Agreement is not approved and adopted, to elect one
Class III director to a term expiring in 1998; and
(iii) To transact such other business as may properly come before the
Annual Meeting, including any and all adjournments and postponements
thereof.
A conformed copy of the Merger Agreement appears as Annex A to, and is
described in, the accompanying Proxy Statement.
Stockholders who do not wish to accept the $33 per share cash payment in the
Merger and who comply with the requirements of Section 262 of the DGCL ("Section
262") have the right to seek an appraisal by the Delaware Court of Chancery of
the fair value of their shares. For a description of the rights of stockholders
pursuant to such Section 262 and a description of the procedures to be followed
in order to obtain such an appraisal, see "Appraisal Rights of Dissenting
Stockholders", in the accompanying Proxy Statement. A copy of the text of
Section 262 appears as Annex B thereto.
As a result of the completion of a tender offer and the purchase of shares
of Common Stock pursuant thereto and the prior purchases of shares of Common
Stock, Purchaser and other subsidiaries of Parent own 61,007,926 shares of
Common Stock (constituting approximately 98.7% of the outstanding shares of
Common Stock). As required by the Merger Agreement, Parent and Purchaser will
cause all shares of Common Stock beneficially owned by them to be voted in favor
of the approval and adoption of the Merger Agreement.
Under Section 251 of the DGCL ("Section 251"), the affirmative vote of the
holders of a majority of the outstanding shares of Common Stock is required to
approve and adopt the Merger Agreement. In addition, because Parent and
Purchaser are considered to be "interested stockholders" of the Company for
purposes of Section 203 of the DGCL ("Section 203"), the Merger Agreement must
be approved and adopted by the affirmative vote of the holders of at least
two-thirds of the outstanding shares of
<PAGE>
Common Stock that are not owned by Parent or Purchaser or any of their
affiliates or associates. Purchaser and other subsidiaries of Parent own
sufficient shares of COMMON STOCK TO ASSURE THAT THE AFFIRMATIVE VOTE REQUIRED
UNDER SECTION 251 IS OBTAINED. HOWEVER, UNDER SECTION 203, THE MERGER AGREEMENT
WILL NOT BE APPROVED AND ADOPTED UNLESS THE HOLDERS OF AT LEAST TWO-THIRDS OF
THE OUTSTANDING SHARES OF COMMON STOCK THAT ARE NOT OWNED BY PARENT OR PURCHASER
OR ANY OF THEIR AFFILIATES OR ASSOCIATES VOTE FOR APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT.
A list of the stockholders of record entitled to vote at the Annual Meeting
will be available for inspection by any stockholder of the Company for a period
of ten days prior to the date of the Annual Meeting at the Company's offices at
8144 Walnut Hill Lane, Dallas, Texas.
Only holders of Common Stock of record at the close of business on May 3,
1995 are entitled to notice of and to vote at the Annual Meeting or any
adjournment thereof.
By Order of the Board of Directors,
/s/ Nelson A. Bangs
Nelson A. Bangs
Secretary
April 28, 1995
2
<PAGE>
YOUR ATTENTION IS DIRECTED TO THE ACCOMPANYING PROXY STATEMENT
----------------------
YOUR VOTE IS IMPORTANT
----------------------
THE MERGER AGREEMENT MUST BE APPROVED AND
ADOPTED BY THE AFFIRMATIVE VOTE OF THE HOLDERS OF
AT LEAST TWO-THIRDS OF THE OUTSTANDING SHARES OF COMMON
STOCK THAT ARE NOT OWNED BY PARENT OR PURCHASER OR
ANY OF THEIR AFFILIATES OR ASSOCIATES. FAILURE TO SIGN
AND RETURN YOUR PROXY IS THE EQUIVALENT OF A VOTE
AGAINST APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT WHICH HAS BEEN RECOMMENDED
BY THE BOARD OF DIRECTORS OF THE COMPANY.
To ensure that your interest will be represented at the Annual Meeting,
whether or not you plan to attend the Annual Meeting, please complete, date,
sign, and mail your proxy promptly in the enclosed postage-paid envelope.
Stockholders who attend the Annual Meeting in person may revoke their proxies
and vote in person if they desire.
3
<PAGE>
DR PEPPER/SEVEN-UP COMPANIES, INC.
8144 WALNUT HILL LANE
DALLAS, TEXAS 75231-4372
----------------------
PROXY STATEMENT
----------------------
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 5, 1995
----------------------
This Proxy Statement (the "Proxy Statement") is being furnished to
stockholders of Dr Pepper/Seven-Up Companies, Inc., a Delaware corporation (the
"Company"), in connection with the solicitation of proxies by the Board of
Directors of the Company from holders of the outstanding shares of the Common
Stock, $.01 par value per share ("Common Stock"), of the Company for use at the
Annual Meeting of Stockholders to be held on June 5, 1995, at 2:00 p.m., local
time, at the Company's offices at 8144 Walnut Hill Lane, Dallas, Texas, and at
any adjournments or postponements thereof (the "Annual Meeting").
At the Annual Meeting, stockholders will be asked to approve and adopt the
following: (i) the Agreement and Plan of Merger, dated as of January 25, 1995
(the "Merger Agreement"), among Cadbury Schweppes plc, a company organized under
the laws of England ("Parent"), DP/SU Acquisition Inc., a Delaware corporation
and an indirect wholly owned subsidiary of Parent ("Purchaser"), and the Company
and (ii) if the Merger Agreement is not approved and adopted, the election of
one Class III Director to a term expiring in 1998. The Merger Agreement provides
for the merger (the "Merger") of a wholly owned subsidiary of Purchaser with and
into the Company, with the Company to be the surviving corporation (the
"Surviving Corporation") in the Merger. As a result of the Merger, the Company
will become a wholly owned indirect subsidiary of Parent.
This Proxy Statement, the enclosed Notice of Annual Meeting and the enclosed
form of proxy are first being sent or given to stockholders of the Company on or
about May 3, 1995.
-------------------
The date of this Proxy Statement is April 28, 1995.
<PAGE>
No person is authorized to give any information or to make any
representation not contained in this Proxy Statement or in the documents
incorporated herein by reference in connection with the solicitation made hereby
and, if given or made, such information or representations should not be relied
upon as having been authorized by the Company. The delivery of this Proxy
Statement shall not, under any circumstances, create any implication that the
information contained herein or in any document incorporated herein by
reference, is correct as of any time subsequent to the date hereof or the date
of such document, as the case may be, or that there has been no change in the
affairs of the Company since the date hereof or the date of such document, as
the case may be. This Proxy Statement does not constitute the solicitation of a
proxy from any person in any jurisdiction in which it is unlawful to make such
proxy solicitation.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and in accordance therewith, files reports,
proxy statements and other information with the Securities and Exchange
Commission (the "Commission").
The reports, proxy statements and other information filed by the Company
with the Commission can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and also should be available for inspection at the
Commission's regional offices located at 7 World Trade Center, 13th Floor, New
York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60611. Copies of such materials may also be obtained by mail,
upon payment of the Commission's customary fees, by writing to its principal
office at 450 Fifth Street, N.W., Washington, D.C. 20549. The Common Stock is
quoted on the New York Stock Exchange (the "NYSE"), and certain of the Company's
reports and other information may be available for inspection at the offices of
the NYSE at 20 Broad Street, New York, New York 10005.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY OF PROXY STATEMENT............................................................ i
The Annual Meeting; Time, Date and Place.......................................... i
Parties to the Merger Agreement................................................... i
The Merger........................................................................ i
Vote Required; Record Date........................................................ ii
Recommendation of the Board of Directors.......................................... ii
Opinions of Financial Advisors.................................................... iii
Effective Time of the Merger; Payment for Shares of Common Stock.................. iii
Conditions to Consummation of the Merger, Termination; Expenses................... iii
Financing of the Merger........................................................... iv
Certain Tax Consequences of the Merger............................................ iv
Rights of Dissenting Stockholders................................................. iv
Market Prices and Dividends....................................................... v
Selected Summary Financial Information Concerning the Company..................... v
INTRODUCTION.......................................................................... 1
General........................................................................... 1
Voting at the Annual Meeting...................................................... 2
THE MERGER............................................................................ 3
Background of the Merger.......................................................... 3
Recommendations of the Board of Directors......................................... 7
Opinions of Financial Advisors.................................................... 8
Interests of Certain Persons in the Merger........................................ 11
Payment for Shares of Common Stock................................................ 13
Management of the Company's Business After the Merger;
Certain Effects of the Merger................................................... 13
Accounting Treatment of the Transaction........................................... 14
Regulatory Approvals.............................................................. 14
Certain Stockholder Litigation.................................................... 14
The Merger Agreement.............................................................. 17
The Stockholders Agreement........................................................ 23
The Rights Agreement.............................................................. 24
Certain Tax Consequences of the Merger............................................ 24
Rights of Dissenting Stockholders................................................. 25
FINANCING OF THE MERGER............................................................... 27
BUSINESS OF THE COMPANY............................................................... 29
SELECTED FINANCIAL INFORMATION OF THE COMPANY......................................... 30
PRINCIPAL STOCKHOLDERS AND SHARE OWNERSHIP OF MANAGEMENT.............................. 32
ELECTION OF DIRECTOR.................................................................. 33
COMPENSATION COMMITTEE REPORT......................................................... 36
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION........................... 46
SECTION 16(a) REPORTING............................................................... 46
REVOCATION OF PROXIES................................................................. 46
INDEPENDENT PUBLIC ACCOUNTANTS........................................................ 47
PROXY SOLICITATION.................................................................... 47
STOCKHOLDER PROPOSALS................................................................. 47
INCORPORATION BY REFERENCE............................................................ 48
OTHER MATTERS......................................................................... 49
ANNEX A--Agreement and Plan of Merger
ANNEX B--Section 262 of the Delaware General Corporation Law
ANNEX C--Opinion of BT Securities Corporation
ANNEX D--Opinion of Donaldson, Lufkin & Jenrette Securities Corporation
ANNEX E--Annual Report on Form 10-K for the Year Ended December 31, 1994 of the
Company
</TABLE>
<PAGE>
CERTAIN ASPECTS OF THE MERGER AND THE MERGER AGREEMENT ARE SUMMARIZED IN
THIS PROXY STATEMENT. THIS SUMMARY DOES NOT PURPORT TO BE COMPLETE AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE ANNEXES ATTACHED TO THIS PROXY
STATEMENT, EACH OF WHICH IS INCORPORATED HEREIN BY REFERENCE. STOCKHOLDERS ARE
URGED TO READ THIS PROXY STATEMENT AND THE ANNEXES HERETO IN THEIR ENTIRETY.
<PAGE>
SUMMARY OF PROXY STATEMENT
The following is a brief summary of certain information contained elsewhere
in this Proxy Statement. Reference is made to, and this Summary is qualified in
its entirety by, the more detailed information contained elsewhere in this Proxy
Statement and the Annexes hereto. Cross-references in this Summary are to
captions in this Proxy Statement. Stockholders are urged to read this Proxy
Statement in its entirety.
THE ANNUAL MEETING; TIME, DATE AND PLACE
The Annual Meeting of Stockholders (the "Annual Meeting") of Dr
Pepper/Seven-Up Companies, Inc., a Delaware corporation (the "Company"), will be
held on June 5, 1995, at 2:00 p.m., local time, at the Company's offices at 8144
Walnut Hill Lane, Dallas, Texas. The purpose of the Annual Meeting is to
consider and vote upon the following matters: (i) the approval and adoption of
the Agreement and Plan of Merger, dated as of January 25, 1995 (the "Merger
Agreement"), among Cadbury Schweppes plc ("Parent"), DP/SU Acquisition Inc., an
indirect wholly owned subsidiary of Parent ("Purchaser"), and the Company, which
provides for the merger (the "Merger") of a wholly owned subsidiary of Purchaser
with and into the Company and (ii) if the Merger Agreement is not approved and
adopted, the election of one Class III Director to a term expiring in 1998. The
Merger is the second and final step in the acquisition of the entire equity
interest in the Company by Parent.
PARTIES TO THE MERGER AGREEMENT
Parent. Parent, together with its subsidiaries, comprises an international
group of companies principally engaged in the manufacturing, marketing and
distribution of internationally branded beverage and confectionery products sold
through wholesale and retail outlets of the confectionery, licensed, catering
and grocery trades. Parent is a holding company of the group, with direct and
indirect share and loan interests in subsidiaries and associated companies.
Parent's principal executive offices are located at 25 Berkeley Square, London
W1X 6HT, England; telephone 011-44-171-409-1313.
Purchaser. Purchaser is a newly incorporated Delaware corporation organized
in connection with the Offer (as defined below) and the Merger and has not
carried on any activities other than in connection with the Offer and the
Merger. Purchaser is an indirect wholly owned subsidiary of Parent. Purchaser's
principal executive offices are located at c/o Cadbury Beverages Inc., 6 High
Ridge Park, Stamford, Connecticut 06905-0800; telephone (203) 329-0911.
The Company. The Company, a holding company, manufactures, markets, sells
and distributes soft drink concentrates, extracts (the basic flavoring
ingredients for soft drinks) and fountain syrups (concentrates or extracts with
sweeteners and water added) to licensed bottlers primarily in the United States.
The Company's principal products are two well known soft drink brands, "Dr
Pepper" and "7UP". The Company is the third largest soft drink concentrate
manufacturer in the United States. The Company's principal executive offices are
located at 8144 Walnut Hill Lane, Dallas, Texas 75231-4372; telephone (214)
360-7000.
THE MERGER
Pursuant to the terms and subject to the conditions of the Merger Agreement,
a wholly owned subsidiary of Purchaser will be merged with and into the Company,
and each outstanding share of Common Stock, $.01 par value per share (the
"Common Stock"), of the Company (other than shares held (i) in the treasury of
the Company or owned by Parent, Purchaser or any other direct or indirect
subsidiary of Parent or the Company (which will be cancelled and retired without
any conversion thereof and without any payment with respect thereto) or (ii) by
holders who shall have effectively exercised their appraisal rights with respect
to such shares in accordance with Section 262 of the
i
<PAGE>
Delaware General Corporation Law (the "DGCL")) will be cancelled and converted
into the right to receive $33 per Share in cash, without interest thereon. A
conformed copy of the Merger Agreement is included with this Proxy Statement as
Annex A. See "THE MERGER--The Merger Agreement".
On February 1, 1995, Parent and Purchaser commenced a cash tender offer (the
"Offer") for all outstanding shares of Common Stock and the associated preferred
stock purchase rights (such rights, together with the Common Stock, the
"Shares") at a purchase price of $33 per Share. Pursuant to the Offer, which
expired, as scheduled, at midnight on March 1, 1995, Purchaser acquired
45,387,180 Shares. As a result of such purchase and the prior acquisition of
Shares, Purchaser and other subsidiaries of Parent own 61,007,926 Shares
constituting approximately 98.7% of the issued and outstanding Shares as of the
close of business on April 27, 1995.
VOTE REQUIRED; RECORD DATE
A majority of the outstanding Shares of Common Stock entitled to vote,
represented in person or by proxy, is required for a quorum at the Annual
Meeting. Under Section 251 of the DGCL ("Section 251"), the affirmative vote of
the holders of a majority of the outstanding Shares is required to approve and
adopt the Merger Agreement. In addition, because Parent and Purchaser are
considered to be "interested stockholders" of the Company for purposes of
Section 203 of the DGCL ("Section 203"), the Merger must also be approved and
adopted by the affirmative vote of the holders of at least two-thirds of the
outstanding Shares that are not owned by Parent or Purchaser or any of their
affiliates or associates. Parent and Purchaser have agreed in the Merger
Agreement to vote all Shares beneficially owned by them in favor of the Merger
Agreement.
IF THE MERGER AGREEMENT IS NOT APPROVED AND ADOPTED AT THE ANNUAL MEETING,
THERE CAN BE NO ASSURANCE THAT THE MERGER WILL OCCUR PRIOR TO AUGUST 20, 1996,
THE DATE ON WHICH PARENT AND PURCHASER WILL NO LONGER BE CONSIDERED "INTERESTED
STOCKHOLDERS" FOR PURPOSES OF SECTION 203. FROM SUCH DATE, PARENT AND ITS
SUBSIDIARIES WILL HAVE SUFFICIENT VOTING POWER TO CAUSE THE APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT WITHOUT THE AFFIRMATIVE VOTE OF ANY OF THE
OTHER STOCKHOLDERS. AS A CONSEQUENCE, THERE CAN BE NO ASSURANCE THAT, IF THE
MERGER AGREEMENT IS NOT APPROVED AND ADOPTED AT THE ANNUAL MEETING, STOCKHOLDERS
WILL RECEIVE THE $33 PER SHARE IN CASH (WITHOUT INTEREST) BEFORE AUGUST 20,
1996.
The affirmative vote of a plurality of the outstanding Shares of Common
Stock, represented in person or by Proxy and entitled to vote at the Annual
Meeting, will be required to elect the Class III director if the Merger
Agreement is not approved and adopted.
Only stockholders of record on May 3, 1995 (the "Record Date") are entitled
to vote at the Annual Meeting or any adjournments or postponements thereof. At
the close of business on April 27, 1995, there were 61,803,452 Shares of Common
Stock issued and outstanding, each of which is entitled to one vote at the
Annual Meeting, held by approximately 611 holders of record.
RECOMMENDATION OF THE BOARD OF DIRECTORS
On January 25, 1995, the Board of Directors of the Company (the "Board of
Directors") unanimously approved the Merger Agreement, the Offer and the Merger
and determined that each of the Offer and the Merger is fair to, and in the best
interests of, the stockholders of the Company (other than Parent and its
subsidiaries) and recommended that stockholders of the Company accept the Offer,
tender their Shares to Purchaser and approve the Merger Agreement and the
transactions contemplated thereby. ACCORDINGLY, THE BOARD OF DIRECTORS
RECOMMENDS THAT THE STOCKHOLDERS OF THE COMPANY VOTE FOR APPROVAL OF THE MERGER
AGREEMENT. Certain members of the Board of Directors had and have certain
interests which may present them with a potential conflict of interest in
connection with the Merger. See "THE MERGER--Interests of Certain Persons in the
Merger".
ii
<PAGE>
OPINIONS OF FINANCIAL ADVISORS
BT Securities Corporation ("BT") and Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJ"; and, together with BT, the "Financial Advisors"), which
acted as financial advisors to the Company in connection with the acquisition
proposal, have delivered their opinions, dated January 25, 1995, that, as of the
date of such opinions, the consideration to be received by the Company's
stockholders pursuant to the Merger Agreement is fair, from a financial point of
view, to such holders (other than Parent and its subsidiaries). See Annex C and
Annex D for the full text of such opinions. For a description of such opinions,
including the procedures followed, the matters considered and the assumptions
made by the Financial Advisors in arriving at their respective opinions, see
"THE MERGER--Background of the Merger" and "THE MERGER--Opinions of Financial
Advisors".
EFFECTIVE TIME OF THE MERGER; PAYMENT FOR SHARES OF COMMON STOCK
The Merger will become effective at such time (the "Effective Time") as a
copy of the Merger Agreement or a Certificate of Merger has been filed with the
Secretary of State of the State of Delaware in accordance with the laws of the
State of Delaware. The required filing is expected to be made as soon as
practicable after the approval of the Merger Agreement by the Company's
stockholders at the Annual Meeting and the satisfaction or waiver of the other
conditions to consummation of the Merger. See "THE MERGER--The Merger
Agreement". Detailed instructions with regard to the surrender of certificates,
together with a letter of transmittal, will be forwarded to former holders of
shares of Common Stock by First Chicago Trust Company of New York (the "Paying
Agent") promptly following the Effective Time. Holders of shares of Common Stock
should not submit their certificates to the Paying Agent until they have
received such materials. Payment for shares of Common Stock will be made to
former holders of shares as promptly as practicable following receipt by the
Paying Agent of their certificates and other required documents. No interest
will be paid or accrued on the cash payable upon the surrender of certificates.
See "THE MERGER--Payment for Shares of Common Stock". STOCKHOLDERS SHOULD NOT
SEND ANY SHARE CERTIFICATES AT THIS TIME.
CONDITIONS TO CONSUMMATION OF THE MERGER, TERMINATION; EXPENSES
The respective obligations of Parent, Purchaser and the Company to effect
the Merger are subject to the satisfaction, at or prior to the Effective Time,
of certain conditions, including approval of the Company's stockholders. See
"THE MERGER--The Merger Agreement".
The Merger Agreement may be terminated and the Merger contemplated thereby
may be abandoned at any time prior to the Effective Time, notwithstanding
approval thereof by the stockholders of the Company: (i) by mutual written
consent duly authorized by the Board of Directors of Parent, Purchaser and the
Company; (ii) by Parent, Purchaser or the Company if the Effective Time shall
not have occurred on or before the later of (x) September 30, 1996 and (y) 90
days following the date on which Parent or any of its subsidiaries or affiliates
is no longer subject to the restrictions set forth in Section 203 of the DGCL;
or (iii) if any court of competent jurisdiction in the United States or other
governmental authority shall have issued an order, decree or ruling or taken any
other final action restraining, enjoining or otherwise prohibiting the Merger
and such order, decree, ruling or other action is or shall have become final and
nonappealable. The Merger Agreement also includes certain other termination
rights of Parent and the Company which, as a result of the purchase of shares of
Common Stock pursuant to the Offer, are no longer applicable. See "THE
MERGER--The Merger Agreement--Termination; Fees and Expenses".
In the event of the termination of the Merger Agreement, the Merger
Agreement will become void and there will be no liability on the part of any
party thereto except as described under "THE MERGER--The Merger
Agreement--Termination; Fees and Expenses" or as otherwise expressly
iii
<PAGE>
provided for in the Merger Agreement, provided, however, that nothing in the
Merger Agreement will relieve any party from liability for any breach thereof.
FINANCING OF THE MERGER
Approximately $1,498 million was required to pay for the 45,387,180 Shares
purchased by Purchaser pursuant to the Offer. In addition, approximately $26.3
million will be required to purchase the remaining Shares pursuant to the Merger
and approximately $44.2 million will be required to pay related fees and
expenses incurred by Parent and Purchaser in connection with the Offer and
expected to be incurred by Parent and Purchaser in connection with the Merger
(including financing-related costs). The foregoing does not include an
additional $188 million paid by the Company in connection with the cancellation
of employee stock options of the Company or approximately $10.2 million in fees
or expenses paid or to be paid by the Company in connection with the Offer and
Merger. Purchaser received the necessary funds to purchase the Shares from
Parent and its affiliates. Parent and its affiliates obtained the $1,498 million
required to pay for the Shares purchased pursuant to the Offer from the net
proceeds of a rights offering, from existing resources and from funds available
pursuant to existing committed credit facilities provided under a Facilities
Agreement, dated January 26, 1995 (the "Facilities Agreement"), by and among
Parent, Cadbury Schweppes Finance Limited, Midland Bank plc and The
Toronto-Dominion Bank and Samuel Montagu & Co. Limited, as agent, as amended on
March 8, 1995 to provide for other banks to become additional lenders thereunder
(such banks, together with Midland Bank plc and The Toronto-Dominion Bank, the
"Banks"). In addition, Parent provided an underwritten enhanced scrip dividend
alternative, which effectively increased the cash resources available to Parent.
Funds required to purchase the remaining Shares pursuant to the Merger and to
pay associated fees and expenses will be obtained from funds available under the
Facilities Agreement. See "THE FINANCING OF THE MERGER".
CERTAIN TAX CONSEQUENCES OF THE MERGER
The receipt of cash for shares of Common Stock in the Merger or pursuant to
the exercise of dissenters' appraisal rights will be a taxable transaction for
federal income tax purposes and may also be a taxable transaction under
applicable state, local, foreign or other tax laws. STOCKHOLDERS ARE URGED TO
CONSULT THEIR OWN TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES OF THE
MERGER, INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL, FOREIGN AND
OTHER TAXES. See "THE MERGER--Certain Tax Consequences of the Merger".
RIGHTS OF DISSENTING STOCKHOLDERS
STOCKHOLDERS ARE ENTITLED TO APPRAISAL RIGHTS IN CONNECTION WITH THE MERGER
UNDER SECTION 262 OF THE DGCL ("SECTION 262"). IN ORDER TO EXERCISE DISSENTERS'
RIGHTS PURSUANT TO SECTION 262, STOCKHOLDERS MUST COMPLY WITH ALL THE PROCEDURAL
REQUIREMENTS OF SUCH SECTION. A DESCRIPTION OF SECTION 262 IS PROVIDED IN "THE
MERGER--RIGHTS OF DISSENTING STOCKHOLDERS" AND THE FULL TEXT OF SUCH SECTION IS
INCLUDED WITH THIS PROXY STATEMENT AS ANNEX B.
Under Section 262, absent an agreement between the Company and the
stockholders as to "fair value", such "fair value" will be determined in
judicial proceedings, the result of which cannot be predicted.
FAILURE TO TAKE ANY OF THE STEPS REQUIRED UNDER SECTION 262 MAY RESULT IN
TERMINATION OR WAIVER OF SUCH RIGHTS. STOCKHOLDERS INTENDING TO EXERCISE SECTION
262 RIGHTS ARE ADVISED TO ACT IMMEDIATELY.
iv
<PAGE>
MARKET PRICES AND DIVIDENDS
The Shares are listed and principally traded on the New York Stock Exchange
(the "NYSE"). The following table sets forth, for the quarters indicated, the
high and low sales prices per Share on the NYSE as reported by the Dow Jones
News Service.
<TABLE>
<CAPTION>
HIGH LOW
-------------- --------------
<S> <C> <C>
1993:
First Quarter.......................................... $ 17 5/8 $ 14 3/4
Second Quarter......................................... 18 1/4 14 1/4
Third Quarter.......................................... 21 3/8 16 3/4
Fourth Quarter......................................... 25 20
1994:
First Quarter.......................................... $ 28 5/8 $ 21 1/4
Second Quarter......................................... 26 1/2 20 1/2
Third Quarter.......................................... 24 3/4 21
Fourth Quarter......................................... 27 1/4 22
1995:
First Quarter.......................................... $ 33 1/8 $ 24 3/4
Second Quarter through April 27........................ 32 1/2 32
</TABLE>
On January 20, 1995, the last full trading day prior to the issuance of a
press release by Parent which indicated that Parent and the Company were engaged
in detailed discussions regarding a possible business combination of Parent and
the Company, the closing price per Share as reported on the NYSE was $29.75. On
January 25, 1995, the last full trading day prior to the announcement of the
execution of the Merger Agreement and of Purchaser's intention to commence the
Offer, the closing price per Share as reported on the NYSE was $30.50. On
January 31, 1995, the last full trading day prior to the commencement of the
Offer, the closing price per Share as reported on the NYSE was $32 5/8. On March
1, 1995, the last full trading day prior to the acceptance of Shares by
Purchaser under the Offer, the closing price per Share as reported on the NYSE
was 32 7/8. On April 27, 1995, the last full trading day prior to the filing of
this Proxy Statement, the closing price per Share as reported on the NYSE was
$32 1/4. The Company historically has not declared dividends.
SELECTED SUMMARY FINANCIAL INFORMATION CONCERNING THE COMPANY
The following table presents certain summary selected consolidated financial
data of the Company as of and for the years ended December 31, 1994, 1993, 1992,
1991 and 1990. This financial data was derived from the audited historical
consolidated financial statements of the Company. The financial data set forth
below should be read in conjunction with the financial statements of the Company
and "Management's Discussion and Analysis of Results of Operations and Financial
Condition" incorporated by reference in this Proxy Statement from the Company's
Annual Report on Form 10-K for the year ended December 31, 1994. Such Form 10-K
is attached to this Proxy Statement as Annex E. See "SELECTED FINANCIAL
INFORMATION OF THE COMPANY".
v
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------
1994 1993 1992 1991 1990
-------- -------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Operating Data:
Net sales.......................... $769,015 707,378 658,718 600,941 540,368
Gross profit....................... 641,365 591,397 532,716 482,184 430,511
Net income (loss).................. 66,519 77,925 (140,148) (37,505) (32,535)
Income (loss) before extraordinary
items and cumulative effect of
accounting change per share.......... 1.13 1.46 (.60) (.90) (1.19)
Balance Sheet Data (at end of
period):
Total assets....................... $608,718 680,023 668,096 780,843 677,953
Long-term debt, less current
portion.............................. 693,718 790,540 1,091,956 1,081,622 1,031,989
Redeemable preferred stock......... -- -- 96,792 83,851 71,969
Stockholders' deficit.............. (344,110) (420,104) (807,413) (657,090) (607,350)
Working capital deficit............ (57,453) (67,166) (102,223) (18,320) (18,891)
</TABLE>
vi
<PAGE>
INTRODUCTION
GENERAL
This Proxy Statement is being furnished to stockholders of Dr
Pepper/Seven-Up Companies, Inc., a Delaware corporation (the "Company"), in
connection with the solicitation of proxies by the Board of Directors (the
"Board of Directors" or the "Board") of the Company from holders of the
outstanding shares of the Common Stock, $.01 par value per share (the "Common
Stock"), of the Company for use at the Annual Meeting of Stockholders to be held
on June 5, 1995, at 2:00 p.m., local time, at the Company's offices at 8144
Walnut Hill Lane, Dallas, Texas, and at any adjournments or postponements
thereof (the "Annual Meeting").
At the Annual Meeting, stockholders will be asked to approve and adopt the
following: (i) the Agreement and Plan of Merger, dated as of January 25, 1995
(the "Merger Agreement"), among Cadbury Schweppes plc, a company organized under
the laws of England ("Parent"), DP/SU Acquisition Inc., a Delaware corporation
and an indirect wholly owned subsidiary of Parent ("Purchaser"), and the Company
and (ii) if the Merger Agreement is not approved and adopted, the election of
one Class III Director to a term expiring in 1998. A conformed copy of the
Merger Agreement is included with this Proxy Statement as Annex A. The Merger
Agreement provides for the merger (the "Merger") of a wholly owned subsidiary of
Purchaser with and into the Company, with the Company to be the surviving
corporation (the "Surviving Corporation") in the Merger. As a result of the
Merger, the Company will become a wholly owned indirect subsidiary of Parent.
On January 25, 1995, the Company entered into the Merger Agreement with
Parent and Purchaser, and pursuant thereto, on February 1, 1995, Purchaser
commenced a cash tender offer for all outstanding shares of Common Stock and the
associated preferred stock purchase rights (such rights, together with the
Common Stock, the "Shares") pursuant to an Offer to Purchase (which, together
with the related letters of transmittal, constituted the "Offer"), at a price
per Share of $33. On March 2, 1995, in accordance with the terms of the Merger
Agreement, Purchaser accepted for payment pursuant to the Offer 45,387,180
Shares, consisting of all Shares tendered as of such date, at $33 per Share. The
Merger follows the purchase of Shares pursuant to the Offer as the second and
final step in the acquisition of the Company under the Merger Agreement.
As a result of the purchase of Shares pursuant to the Offer and the prior
acquisition of 15,620,746 shares of Common Stock, Purchaser and other
subsidiaries of Parent own 61,007,926 shares of the Common Stock, constituting
approximately 98.7% of the issued and outstanding shares of the Common Stock as
of the close of business on April 27, 1995. As required by the Merger Agreement,
Parent and Purchaser will cause all of such shares of Common Stock beneficially
owned by them to be voted in favor of the approval and adoption of the Merger
Agreement. Under Section 251 of the Delaware General Corporation Law (the
"DGCL") the affirmative vote of the holders of a majority of the outstanding
Shares is required to approve and adopt the Merger Agreement. In addition,
because Parent and Purchaser are considered to be "interested stockholders" of
the Company for purposes of Section 203 of the DGCL ("Section 203"), the Merger
must also be approved and adopted by the affirmative vote of the holders of at
least two-thirds of the outstanding Shares that are not owned by Parent or
Purchaser or any of their affiliates or associates. Purchaser and other
subsidiaries of Parent own sufficient Shares to assure that the requisite
affirmative vote required under Section 251 of the DGCL ("Section 251") is
obtained.
Pursuant to the terms of the Merger Agreement, after the approval and
adoption of the Merger Agreement by the stockholders of the Company, the
satisfaction or waiver of the other conditions to the Merger and the filing of a
copy of the Merger Agreement or a Certificate of Merger with the Secretary of
State of the State of Delaware (the date and time of such filing is hereinafter
referred to as the "Effective Time"), each share of the Common Stock issued and
outstanding immediately prior to the Effective Time (other than shares held (i)
in the treasury of the Company or
1
<PAGE>
owned by Parent, Purchaser or any other direct or indirect subsidiary of Parent
or the Company (which will be cancelled and retired without any conversion
thereof and without any payment with respect thereto) or (ii) by holders
("Section 262 Holders") who have effectively exercised their appraisal rights
with respect to such shares in accordance with Section 262 of the DGCL) will be
cancelled, extinguished and converted into the right to receive $33 per Share in
cash, without interest thereon. See "THE MERGER--Rights of Dissenting
Stockholders".
VOTING AT THE ANNUAL MEETING
The Board of Directors has fixed the close of business on May 3, 1995 as the
record date (the "Record Date") for the determination of stockholders entitled
to notice of and to vote at the Annual Meeting. At the close of business on
April 27, 1995, there were 61,803,452 shares of Common Stock issued and
outstanding, each of which is entitled to one vote at the Annual Meeting, held
by approximately 611 holders of record.
Shares of Common Stock represented by a properly signed, dated and returned
proxy will be treated as present at the meeting for purposes of determining a
quorum, without regard to whether the proxy is marked as casting a vote or
abstaining. Proxies relating to "street name" shares that are voted by brokers
will be counted as shares present for purposes of determining the presence of a
quorum, but will not be treated as shares having voted at the Annual Meeting as
to the Merger proposal if authority to vote is withheld by the broker. As
indicated above, under the DGCL, the affirmative vote of at least a two-thirds
majority of the outstanding shares of Common Stock not "owned" for purposes of
Section 203 by Purchaser or Parent is required to approve the Merger Agreement.
ACCORDINGLY, ABSTENTIONS AND BROKER NON-VOTES WILL HAVE THE SAME EFFECT AS VOTES
AGAINST THE APPROVAL OF THE MERGER AGREEMENT.
Purchaser and other subsidiaries of Parent own approximately 98.7% of the
issued and outstanding shares of the Common Stock as of the close of business on
April 27, 1995, and all of such shares owned by Purchaser and other subsidiaries
of Parent will be voted in favor of the approval of the Merger Agreement and the
transactions contemplated thereby. Purchaser and other subsidiaries of Parent
own sufficient Shares to assure that the affirmative vote required under Section
251 is obtained. However, such Shares beneficially owned by Purchaser and other
subsidiaries of Parent will not be counted for purposes of satisfying the voting
requirements of Section 203.
IF THE MERGER AGREEMENT IS NOT APPROVED AND ADOPTED AT THE ANNUAL MEETING,
THERE CAN BE NO ASSURANCE THAT THE MERGER WILL OCCUR PRIOR TO AUGUST 20, 1996,
THE DATE ON WHICH PARENT AND PURCHASER WILL NO LONGER BE CONSIDERED "INTERESTED
STOCKHOLDERS" FOR PURPOSES OF SECTION 203. FROM SUCH DATE, PARENT AND ITS
SUBSIDIARIES WILL HAVE SUFFICIENT VOTING POWER TO CAUSE THE APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT WITHOUT THE AFFIRMATIVE VOTE OF ANY OF THE
OTHER STOCKHOLDERS. AS A CONSEQUENCE, THERE CAN BE NO ASSURANCE THAT, IF THE
MERGER AGREEMENT IS NOT APPROVED AND ADOPTED AT THE ANNUAL MEETING, STOCKHOLDERS
WILL RECEIVE THE $33 PER SHARE IN CASH (WITHOUT INTEREST) BEFORE AUGUST 20,
1996.
In order to vote in favor or against the approval of the Merger Agreement
and, if necessary, for the election of a Class III Director at the Annual
Meeting, stockholders may attend the Annual Meeting or deliver executed proxies
to the Secretary of the Company at 8144 Walnut Hill Lane, Dallas, Texas
75231-4372.
Stockholders have the right to dissent from the Merger and to be paid the
"fair value" of their shares of Common Stock by following the procedures
prescribed in Section 262 of the DGCL. See Annex B and "THE MERGER--Rights of
Dissenting Stockholders". INSTRUCTIONS WITH REGARD TO THE SURRENDER OF SHARE
CERTIFICATES TO THE PAYING AGENT, TOGETHER WITH A LETTER OF TRANSMITTAL TO BE
USED FOR THIS PURPOSE, WILL BE FORWARDED TO THE COMPANY'S STOCKHOLDERS AS
PROMPTLY AS PRACTICABLE FOLLOWING THE EFFECTIVE TIME. STOCKHOLDERS SHOULD
SURRENDER
2
<PAGE>
SHARE CERTIFICATES ONLY AFTER RECEIVING A LETTER OF TRANSMITTAL. STOCKHOLDERS
SHOULD NOT SEND ANY STOCK CERTIFICATES AT THIS TIME.
THE MERGER
BACKGROUND OF THE MERGER
On January 26, 1993, the Company completed its initial public offering of
Common Stock (the "IPO"). Immediately prior to the IPO, Parent, through its
wholly owned subsidiary Cadbury Beverages Inc. ("Cadbury Inc.") owned 8.9% of
the outstanding Common Stock. As a result of the IPO, Parent's ownership
interest in the Company was reduced to 5.7%.
Prior to the IPO, Parent was also a party to a stockholders agreement with
the then other principal stockholders of the Company, under which Parent had the
right to designate one representative to the Board of Directors. However, Parent
did not exercise this right after early 1989.
During the spring of 1993, representatives of Parent and the Company held
intermittent exploratory discussions concerning a potential business combination
of the Company and the North American carbonated beverage business of Parent. On
May 11, 1993, David Jinks, Finance Director of Parent, Frank Swan, Managing
Director-Beverages Stream of Parent, and Michael Clark, Group Secretary and
Chief Legal Officer of Parent, met in Dallas, Texas with Ira Rosenstein,
Executive Vice President and Chief Financial Officer of the Company, Michael
Buiter, Vice President--Finance of the Company, and Nelson Bangs, Vice President
and General Counsel of the Company. During these discussions, Parent advised the
Company of its interest in acquiring between 50% and 60% of the Company's
outstanding equity pursuant to (i) the sale or contribution of Cadbury Inc.'s
North American carbonated beverages business to the Company in exchange for
newly issued shares of Common Stock and (ii) the acquisition of additional
shares of Common Stock either in open market or privately negotiated
transactions. In early June 1993, the Board of Directors determined it would not
be in the best interests of the stockholders to pursue such a transaction with
Parent and such discussions ceased.
In mid-July 1993, The Prudential Insurance Company of America ("Prudential")
informed the Company of its intent to exercise its registration rights and to
sell all of the shares of Non-Voting Common Stock of the Company that it owned
in an underwritten public offering.
At about this time, Parent indicated its interest in acquiring, with the
Company's approval, all of the shares being sold by Prudential. Parent also
indicated it would be willing to enter into a three-year standstill agreement
with the Company in connection with its acquisition of Prudential's stock in
exchange for, among other things, the right to designate two members of the
Board of Directors. In response, the Company indicated a willingness to consider
approving Parent's acquisition of Prudential's stock if Parent would enter into
(i) a five-year standstill agreement and (ii) master license agreements
regarding Parent's distribution of the Company's products internationally and
the Company's distribution of Parent's products in North America. Parent
responded that it was not interested in such business arrangements. On August
15, 1993, Parent proposed a form of five-year standstill agreement to the
Company without the business arrangements suggested by the Company. This
proposal was not accepted by the Company.
On August 19, 1993, as a result of a privately negotiated transaction,
Cadbury Inc. entered into a Stock Purchase Agreement with Prudential pursuant to
which it purchased the 12,175,861 shares of Non-Voting Common Stock of the
Company (representing approximately 20.2% of the Company's then outstanding
common stock) owned by Prudential. Following the expiration of the applicable
waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended (the "HSR Act"), on October 4, 1993 Cadbury Inc. exercised its right
to convert these shares of Nonvoting Common Stock into an equal number of shares
of Common Stock, and as a result, owned an aggregate of 25.9% of the then
outstanding Common Stock.
3
<PAGE>
Parent's acquisition of Prudential's Shares, which was effected without
Board of Directors approval, resulted in Parent becoming an "interested
stockholder" under Section 203 of the DGCL.
On September 1, 1993, the Company adopted the Rights Agreement. The Rights
Agreement provided all stockholders (other than any person acquiring Shares as
described below) the right to purchase additional Shares at a substantial
discount to the existing market price in the event that (i) any person (other
than Parent and its subsidiaries) became the beneficial owner of more than 10%
of the outstanding Shares or (ii) Parent and its subsidiaries increased their
beneficial ownership of outstanding Shares above 26%, in each case without the
prior approval of the Board of Directors.
On January 3, 1994, Dominic Cadbury, Executive Chairman of Parent, called
John Albers, Chairman and Chief Executive Officer of the Company, to further
discuss possible Board of Directors representation. On February 9, 1994, Mr.
Cadbury and David Wellings, Executive Director and Group Chief Executive of
Parent, met with Messrs. Albers, Rosenstein and Buiter to discuss the issue
again, at which time Mr. Albers agreed to submit Parent's proposal for Board of
Directors representation to the Board of Directors. At a regular meeting of the
Board of Directors on February 24, 1994, the Board of Directors determined that
it was not advisable to provide Parent with Board of Directors representation.
This decision was communicated that day through telephone conversations and
confirmed in an exchange of correspondence on March 3 and March 7.
In May 1994, Messrs. Wellings, Clark and Gordon Waddell, a Director of
Parent, visited Dallas in connection with Parent's business unrelated to the
Company. During the course of that visit they had dinner with members of the
Company's senior management on May 3. At that dinner Parent again raised the
issue of representation on the Board of Directors and the Company indicated it
saw no reason for the Board of Directors to change its position on the issue.
In late July 1994, Mr. Rosenstein telephoned Mr. Wellings to suggest a
meeting among Mr. Albers, Mr. Cadbury and themselves. As a result, Messrs.
Albers, Rosenstein, Cadbury and Wellings met in New York City on August 9, 1994.
At this meeting, Messrs. Albers and Rosenstein described generally potential
plans of the Company regarding international expansion, activities in China and
other strategic objectives. They also sought to determine Parent's long-term
interests with respect to the Company and its shareholding, including whether
Parent had an interest in exploring a business combination or similar
transaction with the Company or whether Parent would be interested in the
Company's assistance to effect an orderly sale of Parent's Shares. Messrs.
Cadbury and Wellings undertook to consider these issues.
At the request of Parent, on September 13, 1994, Messrs. Cadbury and
Wellings met with Messrs. Albers and Rosenstein in New York City to review
Parent's long-term interests regarding the Company. At such meeting, Messrs.
Cadbury and Wellings indicated that Parent was not then interested in selling
its Shares but was willing to consider on an exploratory basis a business
combination. Messrs. Cadbury and Wellings indicated that they would be willing
to recommend to Parent's Board of Directors that it consider framing a proposal
at a price level of $29 per Share in cash for all the outstanding Shares of the
Company, if they received an indication that a proposal at that level would
receive serious consideration. Messrs. Albers and Rosenstein replied that a
proposal, if made at that level, would not be of interest to the Board of
Directors and declined, upon request, to provide a price at which the Board of
Directors would consider a sale, stating that the Company was not for sale.
Messrs. Albers and Rosenstein did, however, indicate that if an actual offer
were received they would submit it to the Board of Directors for consideration.
They also said that they would report this discussion to the Board of Directors.
Pursuant to a telephone call between Mr. Jinks and Mr. Rosenstein after the
September 13 meeting, Mr. Rosenstein agreed to provide Parent with certain
publicly available information regarding outstanding stock options, employment
and severance agreements, the Company's second quarter 1994
4
<PAGE>
financial statements, then pending litigation and the Company's net operating
loss carryforwards. The information was delivered under cover of a letter dated
September 19, 1994.
On September 23, 1994, Mr. Rosenstein and Mr. Jinks spoke by telephone to
discuss the possibility of a further meeting in London, which Mr. Rosenstein
indicated could not occur prior to a scheduled Board of Directors meeting on
October 4.
On October 5, 1994, Messrs. Albers and Rosenstein telephoned Messrs.
Cadbury, Jinks and Clark to suggest a meeting, which was arranged for October 11
in London. On October 7, 1994, Messrs. Jinks and Rosenstein spoke by telephone
to discuss logistical arrangements for the scheduled meeting.
On October 11, 1994, Mr. Rosenstein, Kent Sweezey, a Managing Director of
DLJ, financial advisor to the Company, and Douglas Brent, a Managing Director of
BT, also a financial advisor to the Company, met in London with Messrs. Jinks
and Clark, Arthur Reimers, a Partner at Goldman Sachs International, financial
advisor to Parent, and Henry Somerset, Director, Kleinwort Benson Limited, also
a financial advisor to Parent. At this meeting, Parent sought to solicit from
the Company a price at which the Board of Directors would consider a sale of the
Company. Mr. Rosenstein declined, replying that the Company was not for sale.
Nevertheless, he agreed to take the request under consideration. The operations
of the Company were also discussed generally at this meeting.
On October 13, 1994, Messrs. Albers and Rosenstein called Mr. Wellings and
indicated that they did not see at that time a basis for proceeding with
discussions, that the Company was not for sale and that, therefore, it would be
inappropriate to suggest a price.
On November 9, 1994, the Company filed with the SEC its Quarterly Report on
Form 10-Q for the quarter ended September 30, 1994 (the "Third Quarter 10-Q").
Representatives of the Company and Parent agreed to meet to review the Third
Quarter 10-Q, and on November 22, 1994, Messrs. Bangs, Buiter, Sweezey and Brent
met in Dallas with David Kappler, then Finance Director--designate (presently
Finance Director) of Parent, and Mr. Reimers to discuss the operational results
reflected in the Third Quarter 10-Q.
On January 3, 1995, Mr. Wellings called Mr. Albers to suggest a meeting,
which they then arranged for January 17 in Dallas. On January 4, 1995 Mr. Albers
called Mr. Wellings to discuss the agenda and potential participants at the
meeting, and to invite Messrs. Cadbury and Wellings to dinner on January 16.
Messrs. Albers, Rosenstein, Thomas O. Hicks, an independent director of the
Company, and Richard G. Merrill, also an independent director of the Company,
each of whom was a member of a Special Committee designated by the Board of
Directors and chaired by Mr. Hicks to consider any proposals the Company might
receive with respect to a business combination transaction, met Messrs. Cadbury
and Wellings for dinner on January 16, 1995, and they met again on the morning
of January 17, 1995. At that time, they reviewed in a general manner the
preliminary results of the Company for the fourth quarter of 1994, its prospects
and other matters affecting the business. The parties also further explored a
possible basis for a business combination. Messrs. Cadbury and Wellings said
that they did not have authorization from Parent's Board of Directors to make a
proposal regarding a business combination and that board action would be
necessary to authorize such a proposal. Before making any recommendation to
Parent's Board of Directors regarding such a proposal, however, Messrs. Cadbury
and Wellings inquired what the opinion of management of the Company would be if
a proposal were made at a level of $31 per Share. The Special Committee
responded that while it did not have authority to agree to any proposals, it
believed that the Board of Directors would consider a transaction involving a
valuation at the $36 per Share level. Given the failure to make progress in
these discussions, the parties then discussed again the possibility of Parent's
representation on the Board of Directors. The Special Committee indicated that
the Company would again deny such request if made.
5
<PAGE>
After the January 17 meeting and in the following days, the financial
advisors of Parent and the Company had several informal discussions to determine
if there was a basis on which they could recommend to their respective clients
that discussions should be resumed. The financial advisors suggested to their
respective clients that if they were willing to discuss a price in the $32 to
$35 per Share range, with each party understanding that both parties would need
to show price movement, a basis might exist for further discussions between
Parent and the Company.
On this basis, on January 19, 1995, Messrs. Albers and Rosenstein called Mr.
Wellings to discuss possible ways in which further discussions regarding a
business combination could proceed. On January 20, Messrs. Cadbury and Wellings
telephoned Mr. Rosenstein to indicate that the Board of Directors of Parent was
willing to enter into detailed discussions with the Company regarding a possible
business combination and to make a proposal at $33 per Share. Later that day,
Mr. Albers called Mr. Cadbury to tell him that the Company was also prepared at
that point to enter into detailed discussions with Parent and that Parent's
proposal provided the basis for discussing all terms and conditions necessary in
order to conclude a transaction.
The Special Committee met on January 20, 1995, and the Board of Directors
met on January 21, 1995, to review the discussions between Parent and the
Company.
On January 21, 1995, counsel to Parent delivered to representatives of the
Company preliminary drafts of the Merger Agreement and Stockholders Agreement.
On January 22, 1995 representatives of management of Parent and the Company, and
their respective legal and financial advisors, met in New York to begin
discussions regarding various issues involved in the proposed transaction.
The Company and Parent entered into a confidentiality agreement, dated as of
January 22, 1995, that required Parent to keep confidential certain limited
non-public information disclosed by the Company to Parent and its
representatives.
Early in the morning (New York City time) on January 23, 1995, Parent issued
a press release stating that representatives of Parent and the Company were
involved in detailed discussions about a proposed business combination under
which the stockholders of the Company would receive a cash consideration. On
January 23, after a meeting of the Special Committee, Mr. Hicks telephoned Mr.
Cadbury to discuss outstanding issues, including price, relating to the proposed
transaction. Discussions continued among the representatives of the Company and
Parent, including their respective legal and financial advisors, throughout
January 23, 24, and 25.
On January 25, 1995, the Board of Directors of Parent met in London to
review the terms and conditions of the proposed transaction as well as related
matters and subsequently approved the execution and delivery of the Merger
Agreement and Stockholders Agreement.
Also on January 25, 1995, the Board of Directors met to consider the
proposed transaction. At that meeting BT and DLJ delivered their opinions
addressed to the Board of Directors and the Special Committee to the effect that
the consideration to be received by the holders of Shares in the Offer and the
Merger is fair, from a financial point of view, to such holders (other than
Parent and its subsidiaries). The Special Committee thereupon determined by
unanimous vote that the Offer and the Merger are fair to and in the best
interests of the stockholders of the Company (other than Parent and its
subsidiaries) and recommended that the full Board of Directors approve the Offer
and the Merger. After receiving the recommendation of the Special Committee, the
Board of Directors, among other things, (i) determined by unanimous vote that
the Offer and the Merger are fair to and in the best interests of the
stockholders of the Company (other than Parent and its subsidiaries), (ii)
authorized and approved the Merger Agreement and (iii) recommended by unanimous
vote that the stockholders of the Company accept the Offer and tender their
shares pursuant to the Offer.
Following such meetings, on January 25, 1995, Parent, Purchaser and the
Company entered into the Merger Agreement, and Purchaser and John R. Albers, Ira
M. Rosenstein, Thomas O. Hicks
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(collectively, the "Stockholders") entered into the Stockholders Agreement (the
"Stockholders Agreement").
On February 1, 1995, Parent and Purchaser commenced the Offer.
On February 16, 1995, the waiting period under the HSR Act expired regarding
the acquisition of the Company by Purchaser and Parent. See "THE
MERGER--Regulatory Approvals".
On March 2, 1995, Purchaser accepted for payment a total of 45,387,180
Shares pursuant to the Offer. Such Shares constitute, together with 15,620,746
Shares previously purchased by other subsidiaries of Parent, approximately 98.7%
of the outstanding shares of Common Stock.
On March 2, 1995, in accordance with the terms of the Merger Agreement, all
of the then directors of the Company resigned and three of the resulting
vacancies were filled with designees of Purchaser. Designees of Purchaser
elected to the Board of Directors were John F. Brock, Henry A. Udow and David A.
Gerics. Such designees constitute the entire Board as of the date of this Proxy
Statement.
RECOMMENDATIONS OF THE BOARD OF DIRECTORS
On January 25, 1995, the Board of Directors unanimously approved the Merger
Agreement, the Offer and the Merger and determined that each of the Offer and
the Merger is fair to, and in the best interests of, the stockholders of the
Company (other than Parent and its subsidiaries) and recommended that all
stockholders of the Company accept the Offer, tender all their Shares to
Purchaser and approve the Merger Agreement and the transactions contemplated
thereby. ACCORDINGLY, THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS OF
THE COMPANY VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT. Certain
members of the Board of Directors had certain interests which may present them
with a potential conflict of interest in connection with the Merger. See "THE
MERGER--Interests of Certain Persons in the Merger".
The Board of Directors considered a number of factors, including, without
limitation, the following: (i) the opinion of BT that as of the date of its
opinion the $33 per Share in cash to be received by the holders of the Shares
pursuant to the Offer and the Merger is fair to such holders (other than Parent
and its subsidiaries) from a financial point of view; (ii) the opinion of DLJ
that as of the date of its opinion the $33 per Share in cash to be received by
the holders of the Shares pursuant to the Offer and the Merger is fair to such
holders (other than Parent and its subsidiaries) from a financial point of view;
(iii) the unanimous determination of a special committee of the Board of
Directors (the "Special Committee") (which Special Committee was formed in
October 1994 to consider any proposals the Company might receive with respect to
a business combination transaction) that the Offer and the Merger are fair to
and in the best interests of the stockholders of the Company (other than Parent
and its subsidiaries) and the recommendation of the Special Committee that the
Board of Directors approve the Offer and the Merger; (iv) information with
respect to the financial condition, results of operations and business of the
Company, on both a historical and a prospective basis, and current industry,
economic and market conditions; (v) the historical market prices and recent
trading patterns of the Shares and the market prices and financial data relating
to other companies engaged in the soft drink industry; (vi) the prices paid in
other recent acquisition transactions, including acquisitions in the industry in
which the Company does business; (vii) alternatives to the Merger and the Offer
that might be available to the Company and its stockholders; (viii) the
potential impact that the Merger will have on the Company's employees, bottlers
and customers; and (ix) the terms and conditions of the Offer and the Merger,
including, without limitation, the fact that, to the extent required by the
fiduciary obligations of the Board of Directors to the stockholders under the
DGCL the Company was permitted to terminate the Merger Agreement in order to
approve a tender offer or exchange offer for the Shares by a third party on
terms more favorable to the Company's stockholders than the Offer and the Merger
taken together upon the payment of a $35 million termination fee and up to $20
million of Parent's expenses associated with the Offer and the Merger.
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OPINIONS OF FINANCIAL ADVISORS
Each of BT and DLJ (together, the "Financial Advisors") was retained to
render financial advisory services to the Company with respect to the proposals
made by Parent and such other matters as may be agreed upon by the Company and
such financial advisor. BT and DLJ worked together in preparing the financial
analysis described below and made a joint presentation to the Board. BT and DLJ
have delivered their opinions that, as of the date of such opinions, the
consideration to be received by the holders of the Shares of the Company in the
Offer and the Merger is fair to such holders (other than Parent and its
subsidiaries), from a financial point of view. The amount of such consideration
was determined in negotiations between Parent and the Company.
The full text of BT's and DLJ's written opinions, dated January 25, 1995,
are attached hereto as Annex C and Annex D, respectively, to this Proxy
Statement. STOCKHOLDERS ARE URGED TO READ THE OPINIONS IN THEIR ENTIRETY FOR THE
ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS OF THE REVIEW UNDERTAKEN BY BT
AND DLJ. The opinions of BT and DLJ are directed only to the fairness from a
financial point of view of the consideration to be received by the holders of
the Shares of the Company (other than Parent and its subsidiaries) and do not
constitute a recommendation to any stockholder of the Company as to how such
stockholder should vote on the Merger. The summary of the opinions of BT and DLJ
set forth in this Proxy Statement is qualified in its entirety by reference to
the full text of such opinions.
In arriving at their opinions, BT and DLJ reviewed the Merger Agreement and
the related agreements. BT and DLJ also reviewed financial and other information
that was publicly available or furnished to BT and DLJ by the Company, including
information provided during discussions with the Company's management. Included
in the information provided during discussions with management were certain
financial projections for the Company for the period beginning January 1, 1995
and ending December 31, 1999 prepared by the management of the Company. In
addition, BT and DLJ compared certain financial and securities data of the
Company with various other companies whose securities are traded in public
markets, reviewed the historical stock prices and trading volumes of the Shares,
reviewed prices and premiums paid in other business combinations and conducted
such other financial studies, analyses and investigations as BT and DLJ deemed
appropriate for purposes of their opinions. BT and DLJ did not make an
independent evaluation or appraisal of the assets or liabilities (contingent or
otherwise) of the Company, nor were BT and DLJ furnished with any such
appraisals.
In rendering their opinions, BT and DLJ relied upon and assumed the
accuracy, completeness and reasonableness of all of the financial and other
information that was available from public sources, that was provided to BT and
DLJ by the Company or its representatives, or that was otherwise reviewed by BT
and DLJ. With respect to the financial projections supplied to BT and DLJ, BT
and DLJ have assumed that they have been reasonably prepared on bases reflecting
the best currently available estimates and judgments of the management of the
Company as to the future operating and financial performance of the Company. BT
and DLJ have not assumed any responsibility for making an independent evaluation
of the Company's assets or liabilities or for making any independent
verification of any of the information reviewed by BT and DLJ.
In arriving at their opinions and making their presentation to the Board of
Directors, BT and DLJ performed a variety of financial analyses, including those
summarized below. The summary set forth below includes certain of the financial
analyses discussed by BT and DLJ with the Board of Directors, but does not
purport to be a complete description of the analyses performed by BT and DLJ in
arriving at their opinions. Arriving at an opinion as to fairness from a
financial point of view is a complex process that involves various
determinations as to the most appropriate and relevant methods of financial
analysis and the application of those methods to the particular circumstances
and, therefore, such an opinion is not necessarily susceptible to partial
analysis or summary description. BT and DLJ believe that their analyses must be
considered as a whole and that selecting portions of their analyses or portions
of the factors considered by them, without considering all analyses and factors,
could create an
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incomplete view of the evaluation process underlying their opinions. In
performing their analyses, BT and DLJ made numerous assumptions with respect to
industry performance, general business, economic, market and financial
conditions and other matters (including the continuation of current and
historical trends in these areas), many of which are beyond the control of the
Company. Any estimates incorporated in the analyses performed by BT and DLJ are
not necessarily indicative of actual values or future results, which may be
significantly more or less favorable than suggested by such analyses.
Additionally, estimates of the value of businesses and securities neither
purport to be appraisals nor necessarily reflect the prices at which businesses
or securities may actually be sold. Accordingly, such analyses and estimates are
inherently subject to substantial uncertainty. No public company utilized as a
comparison is identical to the Company, and none of the similar transactions
utilized as a comparison is identical to the Offer and the Merger. Accordingly,
an analysis of publicly traded comparable companies and comparable acquisition
transactions is not mathematical; rather it involves complex considerations and
judgments concerning differences in financial and operating characteristics of
the comparable companies or the companies involved in comparable acquisition
transactions and other factors that could affect the public trading value of the
comparable companies or company or transaction to which they are being compared.
The following is a summary of the analyses performed by BT and DLJ in
connection with delivering their fairness opinions:
Comparable Companies Analysis. BT and DLJ reviewed certain publicly
available historical financial information for certain beverage companies
considered by BT and DLJ to be reasonably comparable to the Company, including
The Coca-Cola Company, PepsiCo, Inc. and Parent. Although such companies were
comparable to the Company based on certain characteristics of their businesses,
none of these companies possessed characteristics identical to those of the
Company. The publicly available historical information reviewed for The
Coca-Cola Company and PepsiCo, Inc. related to the period from 1991 to September
30, 1994. The information reviewed for Parent related to the period 1991 to June
30, 1994. The projected earnings per share for 1994 and 1995 for each company
reflected a composite of research analysts' estimates. BT and DLJ also reviewed
the current market capitalization and enterprise value (the value of the common
stock plus the outstanding debt of the Company less available cash on the
balance sheet less option proceeds) of the Company as a multiple of various
measures of the Company's preliminary unaudited financial results for the period
ended December 31, 1994 and projected 1995 financial performance (including
sales, earnings before interest and tax ("EBIT"), earnings before interest, tax,
depreciation and amortization ("EBITDA"), net income and earnings per share) and
compared such multiples with the corresponding multiples implied by the Offer as
well as the corresponding multiples of the comparable companies. The EBITDA
multiples of the enterprise value of The Coca-Cola Company, Pepsico, Inc. and
Parent were 17.6x, 7.6x and 6.7x, respectively. BT and DLJ then applied the
comparable companies' multiples, plus a control premium, to the Company's
projected results for 1995 to determine a hypothetical range of per Share values
for the Company.
Comparable Acquisitions Multiples Analysis. BT and DLJ reviewed the
acquisition multiples for companies considered by BT and DLJ to be reasonably
comparable to the Company in certain recent transactions involving partial or
complete acquisitions. The comparable transactions included certain transactions
announced between January 1, 1992 and January 20, 1995 for target companies in
the beverage and consumer products industries. BT and DLJ calculated certain
multiples (including sales, EBIT, EBITDA, net income and book value) of the
prices paid in such transactions and applied such multiples to the Company's
preliminary unaudited financial results for the period ended December 31, 1994
to determine a hypothetical range of per Share values for the Company.
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Discounted Cash Flow Analysis. BT and DLJ calculated the estimated
unleveraged after-tax free cash flows that the Company could be expected to
generate over the five-year period ending December 31, 1999, using management's
projections of the Company's future financial performance. Using these
projections, BT and DLJ then calculated the estimated terminal values for the
Company at the end of the five-year period by applying a range of terminal
multiples of 10x to 12x (which BT and DLJ believed to be appropriate for the
Company's business based on their respective experience and judgment) to the
projected 1999 EBITDA included in management's projections. The unleveraged
after-tax free cash flows for the projected five-year period and the range of
terminal values were then discounted to January 1, 1995 using a range of annual
discount rates (chosen to reflect the weighted average cost of capital of the
Company and different assumptions regarding the required rates of returns of
holders or prospective purchasers of Shares) of 9% to 11% to imply a
hypothetical range of enterprise values and per Share values for the Company.
Acquisitions Premiums Analysis. BT and DLJ reviewed the purchase premiums on
certain recent merger and acquisition transactions. BT and DLJ calculated
premiums paid to the public stock price one month, one week and one day prior to
the announcement of such transactions. A normalized range of premiums was then
applied to the Company's closing stock price on (i) August 19, 1993 (the day
prior to Parent's announcement that it had acquired 12.2 million Shares from
Prudential, or approximately 20% of the then outstanding Shares, in a privately
negotiated transaction), (ii) October 24, 1994 (the day prior to the filing by
Parent of an amendment to its Schedule 13D reflecting that Parent had in the
past, and might thereafter have, discussions with the Company regarding a
possible business combination transaction), and (iii) January 3, 1995 (the first
trading day in 1995) to determine a hypothetical range of per Share values for
the Company. The date that BT and DLJ believed to be most relevant in
determining the amount of the premium paid in the Offer and the proposed Merger
was October 24, 1994.
The Comparable Companies Analysis indicated a hypothetical range of per
Share values for the Company of between $28.51 and $35.64. The Comparable
Acquisitions Multiple Analysis indicated a hypothetical range of per Share
values for the Company of between $26.02 and $35.60. The Discounted Cash Flow
Analysis indicated a hypothetical range of per Share values for the Company of
between $26.88 and $36.19. The Acquisition Premiums Analysis indicated a
hypothetical range of per Share values for the Company of $29.00 and $35.00.
Taken together, the Comparable Companies Analysis, Comparable Acquisitions
Multiples Analysis, Discounted Cash Flow Analysis and Acquisitions Premiums
Analysis indicated a hypothetical range of per Share values for the Company of
between $26.02 and $36.19.
The $33.00 price per Share being offered by Purchaser in the Tender Offer
and Merger indicates a valuation at 13.7 times the Company's 1994 earnings
before interest, tax, depreciation and amortization ("EBITDA"). In their
presentation to the Board of Directors at the January 25 Board Meeting, BT and
DLJ advised the Board that in selected beverage company precedent transactions
indicated values ranged from 11.0 times EBITDA to 17.2 times EBITDA, with an
average (excluding the high and low multiples) of 11.9 times EBITDA. BT and DLJ
also advised the Board that in selected consumer products precedent transactions
indicated values ranged from 11.2 times EBITDA to 19.9 times EBITDA, with an
average (excluding the high and low multiples) of 14.7 times EBITDA.
At the instruction of the senior management of the Company, BT and DLJ have
also, from time to time since early 1994, had conversations with possible
strategic acquirers with respect to their level of interest in a business
combination transaction with the Company.
At the January 25, 1995 meeting of the Board, BT and DLJ also indicated that
the per Share consideration to be paid in the Offer and the Merger were greater
than amounts that could reasonably be expected to be obtained by stockholders
upon liquidation of the Company after an orderly disposition
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of the Company's businesses, based, in part, on the magnitude of the tax
liability that would result from a sale of the Company's businesses.
In connection with BT's and DLJ's engagement, the Company entered into an
engagement letter dated September 20, 1994, pursuant to which the Company has
agreed to pay an aggregate of $9,000,000 to BT and DLJ in connection with the
Offer and the Merger and has agreed to indemnify BT and DLJ and certain related
parties against certain liabilities.
In the ordinary course of business, BT, DLJ and their respective affiliates
may trade the debt and equity securities of the Company for their own account
and for the accounts of customers and, accordingly, may at any time hold a long
or short position in such securities. BT and DLJ have in the past provided
financial advisory and investment banking services to the Company for which
services they have received customary fees. An affiliate of BT, Bankers Trust
Company ("BTCO"), is currently the administrative agent under a credit agreement
dated October 20, 1992 between the Company, BTCO, NationsBank of North Carolina,
N.A. and the Chase Manhattan Bank, N.A.
Both BT and DLJ are internationally recognized investment banking firms
engaged in the evaluation of businesses and their securities in connection with
mergers and acquisitions, negotiated primary and secondary underwritings,
private placements and valuations for corporate and other purposes. The Company
selected BT and DLJ as its financial advisors based upon each firm's familiarity
with the Company and the industry in which the Company operates and their
experience, ability and reputation with respect to mergers and acquisitions.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Board of Directors with respect to
the Merger, stockholders should be aware that certain members of Management and
the Board of Directors at the time of approval of the Merger Agreement had
certain interests which may present them with potential conflicts of interest in
connection with the Merger, as summarized below.
Stock Options. The Merger Agreement provides that, immediately after the
date on which Purchaser accepted for payment all Shares validly tendered and not
withdrawn prior to the expiration date of the Offer, each outstanding option to
purchase Shares (in each case, an "Option") granted under the Company's 1988
Stock Option Plan, as amended, 1988 Non-Qualified Plan, as amended, 1993 Stock
Ownership Plan, as amended, and Non-Qualified Stock Option Plan for Non-Employee
Directors (collectively, the "Stock Option Plans"), whether or not then
exercisable, was cancelled by the Company, and each holder of a cancelled Option
became entitled to receive from Purchaser, at the same time as payment for
Shares was made by Purchaser in connection with the Offer, in consideration for
the cancellation of such Option an amount in cash equal to the product of (i)
the number of Shares previously subject to such Option and (ii) the excess, if
any, of $33 over the exercise price per Share previously subject to such Option.
The payments with respect to the cancellation of the options represent in some
cases an acceleration of the options, which acceleration the holders of options
would not have received absent the Merger Agreement. As of March 2, 1995,
options to purchase 7,068,713 shares of Common Stock were outstanding at
exercise prices ranging between $.05 and $23.125 per share. The Merger Agreement
prohibits the Company from granting any additional options for shares of Common
Stock. The following amounts have been paid to Management upon cancellation of
the Employee Options: Mr. Albers, Chairman and Chief Executive Officer and
Member of the Board--$44,241,37, Mr. Rosenstein, Executive Vice President and
Member of the Board--$29,421,150, Mr. Knowles, Executive Vice President and
Member of the Board--$13,149,371, Mr. Mullin, Executive Vice
President--$16,215,850, Mr. Grier, Senior Vice President--$5,064,750.
Indemnification and Insurance. Pursuant to the Merger Agreement, Parent has
agreed that the Certificate of Incorporation and the By-laws of the Surviving
Corporation and each of its subsidiaries (the "Subsidiaries") shall contain
provisions no less favorable with respect to indemnification and
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advancement of expenses than were set forth in Article VI of the Certificate of
Incorporation of the Company as of the date of the Merger Agreement, which
provisions shall not be amended, repealed or otherwise modified for a period of
six years from the Effective Time in any manner that would adversely affect the
rights thereunder of individuals who from and after the date of the Merger
Agreement and to and including the Effective Time were directors, officers,
employees, fiduciaries or agents of the Company or any of its Subsidiaries in
respect of actions or omissions occurring at or prior to the Effective Time
(including, without limitation, the matters contemplated by the Merger
Agreement), unless such modification is required by law. The Company has agreed
that from and after the date on which Purchaser's designees are appointed to the
Board of Directors pursuant to the Merger Agreement, the Company shall not
amend, repeal or otherwise modify the indemnification and advancement of
expenses provisions of Article VI of the Certificate of Incorporation of the
Company or the indemnification or advancement of expenses provisions in the
Certificate of Incorporation of any of the Company's Subsidiaries in any manner
that would adversely affect the rights thereunder of individuals who at any time
from and after the date of the Merger Agreement and to and including the
Effective Time were directors, officers, employees, fiduciaries or agents of the
Company or any of its Subsidiaries in respect of actions or omissions occurring
at or prior to the Effective Time (including, without limitation, the matters
contemplated by the Merger Agreement), unless such modification is required by
law. Parent has also agreed, pursuant to the Merger Agreement, that the Company
shall, from and after the date of the Merger Agreement and to and including the
Effective Time, and the Surviving Corporation shall, for six years from the
Effective Time, maintain in effect the current directors' and officers'
liability insurance policies maintained by the Company (provided that the
Surviving Corporation may substitute therefor policies of at least the same
coverage and amounts containing terms and conditions which are no less
advantageous to such officers and directors so long as substitution does not
result in gaps or lapses in coverage) with respect to matters occurring prior to
the Effective Time; provided, however, that in no event shall the Surviving
Corporation be required to expend more than an amount per year equal to 200
percent of the current annual premiums paid by the Company for such insurance
(which premiums the Company has represented to Parent and Purchaser to be
approximately $700,000 in the aggregate) and, in the event the cost of such
coverage shall exceed that amount, the Surviving Corporation will purchase as
much coverage as possible for that amount. See "THE MERGER--The Merger
Agreement--Indemnification and Insurance".
Indemnification Agreements. The Company entered into indemnification
agreements with each person who as of January 25, 1995 was a director or
executive officer of the Company. See "ELECTION OF DIRECTOR" for a summary of
such indemnification agreements.
Employee Severance Plan. On February 24, 1994, the Company adopted the
Special Plan and Severance Benefits Program for Employees of Dr Pepper/Seven-Up
Corporation covering full-time active employees of the Company who continue in
the employ of the Company (or successor entity) after a "Change of Control". See
"ELECTION OF DIRECTOR" for a summary of such plan.
Executive Severance Agreements and Change in Control Arrangements. In 1989,
1991 and 1992, the Company entered into executive severance agreements with five
executive officers of the Company. See "ELECTION OF DIRECTOR" for a summary of
such agreements and arrangements.
Employment Agreements. Effective as of January 1, 1993, the Company entered
into employment agreements with two executive officers of the Company. See
"ELECTION OF DIRECTOR" for a summary of such agreements.
Employee Benefits. Pursuant to the Merger Agreement, Parent has agreed to
maintain each of the Company's existing employee benefit plans as that term is
defined in Section 3(3) of the Employee Retirement Income Security Act
(excluding any equity or incentive compensation plans or the severance plans
referred to below) until at least December 31, 1995. Parent has further agreed
that for 1996, Parent will provide the Company's employees with plans or
programs providing benefits which in
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the aggregate are not less favorable to such employees than the benefits
provided to them under existing employee benefit plans of the Company. For a
description of further arrangements between the Company and Parent with respect
to employee matters, see "THE MERGER--The Merger Agreement--Employee Benefits".
Each of the indemnification, insurance, employment and severance agreements
described above grants rights to the relevant directors and officers with
respect to the Company that are in addition to the rights such directors and
officers enjoy solely in their capacity as stockholders. Therefore, such
officers and directors have interests in these arrangements that potentially
conflict with those of the Company and its other stockholders.
In addition to the foregoing matters, stockholders should be aware that,
since March 2, 1995, pursuant to the Merger Agreement, the Board of Directors
has consisted and currently consists of three Board members, each of whom was
designated by Purchaser and is affiliated with Parent.
The Company has two agreements in effect with certain subsidiaries of
Parent, an Extract Production Agreement and a Post-Mix Concentrate/Syrup Royalty
Agreement ("Post-Mix Agreement"). Pursuant to the Extract Production Agreement,
a subsidiary of the Company manufactures for Cadbury Inc. on a fee basis certain
soft drink concentrates. Cadbury Inc. paid tolling fees to the Company under the
Extract Production Agreement of $1,724,000, $2,025,000 and $2,104,000 in 1992,
1993 and 1994 respectively. Under the Post-Mix Agreement the Food Service
Division of the Company acts as sales agent in the United States for marketing
post-mix fountain concentrates to certain types of customers under trademarks
owned or licensed by Cadbury Inc. The Company paid royalties to Cadbury Inc.
under the Post-Mix Agreement of $369,000, $378,000 and $402,000 in 1992, 1993
and 1994 respectively.
PAYMENT FOR SHARES OF COMMON STOCK
As a result of the Merger, holders of certificates formerly representing
shares of Common Stock will cease to have any equity interest in the Company.
After consummation of the Merger, all certificates formerly evidencing shares of
Common Stock (other than shares held (i) in the treasury of the Company or owned
by Parent, Purchaser or any other direct or indirect subsidiary of Parent or the
Company (which will be cancelled and retired without any conversion thereof and
without any payment with respect thereto) or (ii) by Section 262 Holders) will
be required to be surrendered to First Chicago Trust Company of New York (the
"Paying Agent") in order to receive the cash price of $33 per share of Common
Stock to which the holders thereof will be entitled as a result of the Merger.
No interest will be paid or accrued on the cash payable upon the surrender of
such certificates.
DETAILED INSTRUCTIONS WITH REGARD TO THE SURRENDER OF CERTIFICATES, TOGETHER
WITH A LETTER OF TRANSMITTAL, WILL BE FORWARDED TO FORMER HOLDERS OF SHARES OF
COMMON STOCK BY THE PAYING AGENT PROMPTLY FOLLOWING THE EFFECTIVE TIME. HOLDERS
OF SHARES OF COMMON STOCK SHOULD NOT SUBMIT THEIR CERTIFICATES TO THE PAYING
AGENT UNTIL THEY HAVE RECEIVED SUCH MATERIALS. PAYMENT FOR SHARES OF COMMON
STOCK WILL BE MADE TO FORMER HOLDERS OF SHARES AS PROMPTLY AS PRACTICABLE
FOLLOWING RECEIPT BY THE PAYING AGENT OF THEIR CERTIFICATES AND OTHER REQUIRED
DOCUMENTS.
MANAGEMENT OF THE COMPANY'S BUSINESS AFTER THE MERGER; CERTAIN EFFECTS OF THE
MERGER
Parent is continuing to conduct a detailed review of the Company and its
assets, businesses, labor practices, operations, properties, corporate
structure, capitalization, management and personnel and is considering and
discussing with the Company what changes will be desirable.
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Except as set forth above and as otherwise described in this Proxy
Statement, Parent, Purchaser and the Company do not have any present plans or
proposals that would relate to or result in an extraordinary corporate
transaction such as a merger, reorganization or liquidation involving the
Company or any of its subsidiaries or a sale or other transfer of a material
amount of assets of the Company or any other material change in the Company's
corporate structure or business or the composition of its Board of Directors or
management.
If the Merger is consummated, the Common Stock will cease to be listed on
the NYSE, public trading of the Common Stock will cease and the registration of
the Common Stock under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), will be terminated.
ACCOUNTING TREATMENT OF THE TRANSACTION
The Merger will be accounted for under the "purchase" method of accounting.
Accordingly, a determination of the fair value of the Company's assets and
liabilities will be made in order to allocate the purchase price to the assets
acquired and the liabilities assumed.
REGULATORY APPROVALS
On February 16, 1995, the waiting period under the HSR Act applicable to the
Offer and the Merger expired.
Parent, Purchaser and the Company know of no remaining federal or state
regulatory requirements that must be complied with or approvals that must be
obtained in order to consummate the Merger, other than the filing of the
Certificate of Merger or the Merger Agreement with the Secretary of State of the
State of Delaware.
CERTAIN STOCKHOLDER LITIGATION
On September 3, 1993, Adele Brem, a purported holder of shares of Common
Stock of the Company, filed a lawsuit styled Adele Brem v. Dr Pepper/Seven-Up
Companies, et al. relating to the adoption by the Company of the Rights
Agreement, dated as of September 1, 1993 between the Company and Bank One,
Texas, N.A., as Rights Agent (as amended, the "Rights Agreement") in Delaware
Chancery Court. The complaint is filed individually on behalf of the plaintiff
and purportedly on behalf of all holders of Common Stock (other than the
individual defendants), and names the Company and each person that was then a
member of its Board of Directors as defendants. In the complaint, the plaintiff
alleges, among other things, that in implementing the Rights Agreement, the
individual defendants have wrongfully misled the shareholders and the investing
community regarding the purpose and effect of the Rights Agreement, have
violated their fiduciary duties owed to the plaintiffs and the class, have not
and are not exercising proper and independent business judgment, have acted and
are acting to the detriment of the Company and its public shareholders for their
own personal benefit and have pursued a course of conduct designed to entrench
themselves in their positions of control within the Company. The plaintiff seeks
a judgment ordering, among other things, that defendants rescind the adoption of
the Rights Agreement, as well as unspecified damages, attorney's fees and other
relief.
On September 10, 1993, Terrence Pearman, a purported holder of shares of
Common Stock of the Company, filed a second lawsuit styled Terrence Pearman v.
Dr Pepper/Seven-Up Companies, et al. relating to the adoption by the Company of
the Rights Agreement in Delaware Chancery Court against the Company and each
person that was then a member of its Board of Directors. The complaint is filed
individually on behalf of the plaintiff and purportedly on behalf of all holders
of Common Stock, and makes substantially the same allegations and seeks
substantially the same relief as made and sought in the lawsuit described above
brought by Adele Brem.
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The Company has informed Parent and Purchaser that it believes that the two
foregoing lawsuits are without merit and that, among other things, the
individual defendants have not breached any fiduciary duties in adopting the
Rights Agreement and that the Rights Agreement was fair and in the best
interests of the Company and its shareholders.
The complaint in King v. Dr Pepper/Seven-Up Companies, et al., filed on
October 26, 1994 in the U.S. District Court for the Northern District of Texas,
Dallas Division (the "King Court"), alleges, among other things, that the
defendants knowingly or recklessly engaged in a plan to depress the market price
of the Company's securities by misstating and concealing material information
concerning the true status of merger discussions between Parent and the Company,
thereby violating Section 10(b) and Rule 10b-5 under the Exchange Act. In
addition, the complaint alleges that John R. Albers violated Section 20(a) of
the Exchange Act by failing to disseminate truthful information with respect to
the Company's business. Relief requested includes unspecified damages and
expenses (including attorneys' fees). As a result of defendants' motion to
dismiss based on the plaintiff's failure to plead fraud with specificity and
failure to state a claim for securities fraud, on January 24, 1995, the King
Court issued an Order to File Amended Complaint (the "Order"). Under the Order,
the plaintiff has 20 days in which to re-file her complaint. Pursuant to the
Order, the plaintiff filed an amended complaint on February 15, 1995. On
February 21, 1995, the defendants filed a supplement to their motion to dismiss
the action. The King Court entered an order denying the defendants' motion to
dismiss on February 28, 1995. The parties to this action currently are
negotiating discovery schedules, with discovery expected to commence in the next
few weeks. The defendants believe that the allegations of the amended complaint
are without merit and intend to defend the case vigorously.
Another purported class action suit, styled Sarnoff v. Dr Pepper/Seven-Up
Companies et al., was filed on October 28, 1994 in the District court for the
44th Judicial District of Texas in Dallas County, Texas wherein the plaintiff
alleges, among other things, that the defendants breached their fiduciary duties
to the Company's stockholders (i) in order to entrench themselves in office by
maintaining the Rights Agreement, which chilled the marketplace so that they
could negotiate only with Parent in order to receive generous severance packages
and (ii) by reason of their refusal to negotiate with other potential acquirors
on the same playing field as they created for Parent. The defendants believe
that the complaint is without merit and intend to defend the case vigorously.
On January 23, 1995, three stockholders of the Company each filed purported
class action lawsuits, Tuchman v. Albers, Civ. Action No. 13997, Balan v. Dr
Pepper/Seven-Up Companies, Inc., Civ. Action No. 13995, and Shaev v. Dr
Pepper/Seven-Up Companies, Inc., Civ. Action No. 13996, in the Court of Chancery
of the State of Delaware against the Company and certain of its directors in
connection with the then proposed Merger Agreement and the transactions
contemplated thereby. The lawsuits allege, inter alia, that the consideration to
be paid is inadequate and that the defendants, by failing sufficiently to
explore third-party interest in the Company, have breached their fiduciary duty
to maximize stockholder value. The lawsuits seek, among other things, an
injunction requiring the Company to explore third-party alternatives to the
Offer, a declaration of the invalidity either of the Rights Plan or of any
action taken by the Company to prevent the terms thereof from applying to the
Merger Agreement and the transactions contemplated thereby, and unspecified
damages and attorneys' fees. The Company has advised Parent and Purchaser that
it believes that the purported class action lawsuits are without merit and that
it intends to defend against the lawsuits vigorously.
Three additional purported class action lawsuits were filed by stockholders
in the Court of Chancery of the State of Delaware on January 25, 1995: Rosenberg
v. Dr Pepper/Seven-Up Companies, Inc., et al., Civ. Action No. 13999, Burt v. Dr
Pepper/Seven-Up Companies, Inc., et al., Civ. Action No. 14001, and Manson v. Dr
Pepper/Seven-Up Companies, Inc., et al., Civ. Action No. 14002. These lawsuits,
like the stockholder lawsuits filed on January 23, 1995 described above, allege
that the defendants have breached their fiduciary duty to maximize stockholder
value by failing to explore third-party interest in the Company. The complaints
ask for injunctive relief (in the form of prohibiting
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any actions by the defendants which might diminish shareholder value),
compensatory damages, and attorneys' and experts' fees. The complaint in
Rosenberg v. Dr Pepper/Seven-Up Companies, Inc., et al., asks for further
injunctive relief, in the form of an order requiring the defendants to appoint a
disinterested committee to ensure that all conflicts of interest would be
resolved in the best interests of the Company's public stockholders. The Company
has advised Parent and Purchaser that it believes that these purported class
action lawsuits are without merit and that it intends to defend against the
lawsuits vigorously.
On February 2, 1995, Vice Chancellor William B. Chandler of the Delaware
Court of Chancery signed an Order to consolidate the eight shareholder suits
filed in Delaware against the Company. The caption of the consolidated action
reads: In Re Dr Pepper/Seven-Up Companies, Inc. Shareholders Litigation, Civ.
Action No. 13109 (the "Consolidated Action"). Counsel for the defendants did not
object to entry of the proposed Order.
On February 7, 1995, Vice Chancellor Chandler signed an Order granting
Plaintiffs' request for expedited discovery in the Consolidated Action, and
scheduled Plaintiffs' application for a preliminary injunction to be heard on
February 27, 1995 at 10:00 a.m. Additionally, the parties to the Consolidated
Action signed a stipulation for the production and exchange of confidential
information, which was signed "So Ordered" by Vice Chancellor Chandler on
February 7, 1995.
On February 10, 1995, plaintiffs filed a consolidated and amended complaint
in In Re Dr Pepper/Seven-Up Companies, Inc. Shareholders Litigation, Civ. Action
No. 13109, Delaware Court of Chancery. The amended complaint essentially
reasserts the claims previously made in the separate shareholder actions
previously filed in Delaware. The claims against the Board include breach of
fiduciary duty and conflict of interest, improper employment of anti-takeover
devices and failure to provide full disclosure in connection with the proposed
transaction with Parent. The sole claim against Parent alleges that Parent is
liable as an aider and abettor of the breaches of fiduciary duty alleged against
the Board. The consolidated and amended complaint asks for relief similar to
that which was requested in the separate actions. In addition to class
certification, plaintiffs seek an injunction prohibiting the transaction with
Parent and creating an open bidding process for the acquisition of the Company,
as well as compensatory damages, costs and disbursements (including attorneys'
and experts' fees), and a declaration that Parent is not entitled to any rights
under the Merger Agreement and Stockholders Agreement.
The plaintiffs in In Re Dr Pepper/Seven-Up Companies, Inc. Shareholders
Litigation, as represented by plaintiffs' counsel, entered into a Memorandum of
Understanding, dated February 21, 1995 (the "Memorandum of Understanding"), with
the defendants (through their counsel) pursuant to which the Consolidated Action
will be settled. The settlement contemplated by the Memorandum of Understanding
will not be effective unless, among other things, the plaintiffs in Sarnoff v.
Dr Pepper/Seven-Up Companies, Inc., et al., Civ. Action No. 94-11313-B (the
"Sarnoff Action"), a purported class action lawsuit filed in the District Court
for the 44th Judicial District of Texas in Dallas County, Texas (the "Texas
Court"), execute the appropriate documentation necessary to have the action
pending before the Texas Court non-suited and refiled with the Delaware Court at
which time the refiled Sarnoff Action will be consolidated with and become part
of the Consolidated Action. The proposed settlement is subject to, among other
things, approval of the Delaware Court.
The Memorandum of Understanding provides for a settlement of the
Consolidated Action (which will include the refiled Sarnoff Action) on the
following general terms: (i) the certification of the Consolidated Action, as
class actions under the rules of the Delaware Court, which class would consist
of all holders of common stock of the Company (other than the defendants) on and
between September 1, 1993 and the effective date of the Merger; (ii) the
complete discharge, settlement and release of, and an injunction barring, all
claims, rights, causes of action, suits, matters and issues, whether known or
unknown, that have been, could have been, or in the future might be asserted in
the Consolidated
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Action or in any court or proceeding (including, but not limited to, any claims
arising under federal or state law relating to alleged fraud, breach of any
duty, negligence or otherwise) by or on behalf of plaintiffs or any member of
the class, whether individual, class derivative, representative, legal,
equitable or any other type or in any other capacity against the defendants or
any of their associates, affiliates, subsidiaries, present or former officers,
directors, employees, attorneys, accountants, financial advisors or other
advisors or agents, heirs, executors, personal representatives, estates,
administrators, and successors and assigns (in each case, in each and every
capacity) (the "Defendants"), which have arisen, arise now or hereafter rise out
of or relate in any way to the Offer, the Merger, the Merger Agreement, the
Rights Agreement, the Stockholders Agreement or any of the transactions or
events described in the complaints in the Consolidated Action or any disclosures
related thereto (collectively, the "Settled Claims") (subject to certain limited
exceptions); (iii) the Defendants in each such action have denied, and continue
to deny, that any of them have committed or have threatened to commit any
violations of law or breaches of duty to the plaintiffs or any members of the
class; (iv) the Defendants in the actions are entering into the Memorandum of
Understanding, and will be entering into proposed settlement documentation,
solely because the proposed settlement would eliminate the burden and expense of
further litigation and would facilitate the consummation of the Offer and the
Merger, which they believe to be in the best interests of the Company and all of
its stockholders; and (v) subject to the order of the Delaware Court, pending
final determination of whether the settlement provided for by the Memorandum of
Understanding should be approved, the plaintiffs and all members of the class,
or any of them, are barred and enjoined from commencing or prosecuting any
action asserting any Settled Claims, either directly, representatively,
derivatively or in any other capacity against any of the Defendants. An
amendment to the Solicitation/Recommendation Statement on Schedule 14D-9 was
filed with the Securities and Exchange Commission (the "Commission") and mailed
by the Company to stockholders of the Company pursuant to the terms of the
settlement provided for in the Memorandum of Understanding. In addition, the
parties have agreed in the Memorandum of Understanding that plaintiffs' counsel
in the Consolidated Action will apply to the Delaware Court for an aggregate
award of attorneys' fees and expenses in an amount not to exceed $690,000, which
Defendants have agreed not to oppose.
Plaintiffs and the Defendants intend to submit the proposed Settlement to
the Chancery Court for its approval, upon a hearing to be held after notice to
the members of the plaintiff class. This hearing has not yet been held and the
approval of the court has not yet been obtained.
In accordance with the settlement contemplated in the Memorandum of
Understanding, the plaintiffs in the Sarnoff Action refiled their complaint in
the Delaware Chancery Court on February 24, 1995. Thereafter, the plaintiffs
filed a motion to non-suit the Sarnoff Action in Texas on February 27, 1995, and
the motion was granted by the Texas Court on February 28, 1995. The refiled
Sarnoff Action has not yet been consolidated by the Delaware Chancery Court into
the Consolidated Action.
THE MERGER AGREEMENT
The following is a summary of the material provisions of the Merger
Agreement, a conformed copy of which is included with this Proxy Statement as
Annex A. Such summary is qualified in its entirety by reference to the Merger
Agreement.
The Merger. The Merger Agreement provides that, upon the terms and subject
to the conditions thereof, and in accordance with the DGCL, at the Effective
Time, Purchaser shall be merged with and into the Company. As a result of the
Merger, the separate corporate existence of Purchaser will cease and the Company
will continue as the Surviving Corporation and will become an indirect, wholly
owned subsidiary of Parent. Upon consummation of the Merger, each issued and
then outstanding Share (other than any Shares held in the treasury of the
Company, or owned by Purchaser, Parent or any direct or indirect wholly owned
subsidiary of Parent or of the Company and any Shares that are held by
stockholders who have not voted in favor of the Merger or consented thereto in
writing and who shall
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have demanded properly in writing appraisal for such Shares in accordance with
Section 262) shall be cancelled and converted automatically into the right to
receive the Merger Consideration.
Pursuant to the Merger Agreement, each share of common stock, par value $.01
per share, of Purchaser issued and outstanding immediately prior to the
Effective Time shall be converted into and exchanged for one share of common
stock, par value $.01 per share, of the Surviving Corporation.
The Merger Agreement provides that the directors of Purchaser immediately
prior to the Effective Time will be the initial directors of the Surviving
Corporation and that the officers of the Company immediately prior to the
Effective Time will be the initial officers of the Surviving Corporation. The
Merger Agreement provides that, at the Effective Time, unless otherwise
determined by Parent prior to the Effective Time, and subject to the
requirements of sections of the Merger Agreement that provide for
indemnification of directors and officers (as described herein), the Certificate
of Incorporation of the Company, as in effect immediately prior to the Effective
Time, shall be the Certificate of Incorporation of the Surviving Corporation,
and shall be amended and restated to conform to the Certificate of Incorporation
of Purchaser as in effect immediately prior to the Effective Time; provided,
however, that, at the Effective Time, Article I of the Certificate of
Incorporation of the Surviving Corporation shall be amended to read as follows:
"The name of the corporation is Dr Pepper/Seven-Up Companies, Inc." The Merger
Agreement also provides that the By-laws of Purchaser, as in effect immediately
prior to the Effective Time, and subject to the requirements of sections of the
Merger Agreement that provide for indemnification of directors and officers,
will be the By-laws of the Surviving Corporation.
Agreements of Parent, Purchaser and the Company. Pursuant to the Merger
Agreement, the Company, acting through the Board, shall, subject to its
fiduciary duties under applicable law as advised in writing by independent
counsel, in order to consummate the Merger, duly call, give notice of, convene
and hold an annual or special meeting of its stockholders as soon as practicable
following consummation of the Offer for the purpose of considering and taking
action on the Merger Agreement and the transactions contemplated thereby (the
"Stockholders' Meeting").
Proxy Statement. The Merger Agreement provides that the Company shall, as
soon as practicable following consummation of the Offer, file with the
Commission under the Exchange Act, and use its reasonable best efforts to have
cleared by the Commission, a proxy statement and related proxy materials (the
"Proxy Statement") with respect to the Stockholders' Meeting and shall cause the
Proxy Statement to be mailed to stockholders of the Company at the earliest
practicable time. The Company has also agreed, subject to its fiduciary duties
under applicable law as advised in writing by counsel, to include in the Proxy
Statement the unanimous recommendation of the Board that the stockholders of the
Company approve and adopt the Merger Agreement and the transactions contemplated
thereby and to use its reasonable best efforts to obtain such approval and
adoption. To the extent permitted by law, Parent and Purchaser have each agreed
to vote all shares beneficially owned by them in favor of the Merger.
Designation of Directors. The Merger Agreement provides that, promptly upon
the purchase by Purchaser of Shares pursuant to the Offer, and from time to time
thereafter, Purchaser shall be entitled to designate up to such number of
directors, rounded up to the next whole number, on the Board, and each committee
thereof, as shall give Purchaser representation on the Board, and each committee
thereof, equal to the product of the total number of directors on the Board
(giving effect to the directors elected pursuant to this sentence), multiplied
by the percentage that the aggregate number of Shares beneficially owned by
Purchaser or any affiliate of Purchaser at such time bears to the total number
of Shares then outstanding, and the Company shall, at such time, promptly take
all actions necessary to cause Purchaser's designees to be elected as directors
of the Company, including increasing the size of the Board or securing the
resignations of incumbent directors, or both. Pursuant to these provisions of
the Merger Agreement, on March 2, 1995, Purchaser designated three directors to
the Board and all other directors resigned from the Board.
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Amendments. The Merger Agreement provides that following the election or
appointment of Purchaser's designees in accordance with the immediately
preceding paragraph and prior to the Effective Time, any amendment of the Merger
Agreement or the Certificate of Incorporation or By-laws of the Company, any
termination of the Merger Agreement by the Company, any extension by the Company
of the time for the performance of any of the obligations or other acts of
Parent or Purchaser or waiver of any of the Company's rights thereunder, will
require the concurrence of a majority of those directors of the Company then in
office who were neither designated by Purchaser nor are employees of the Company
or if no such directors are then in office, no such amendment, termination,
extension or waiver shall be effected which is materially adverse to the holders
of Shares (other than Parent and its subsidiaries).
Treatment of Stock Options. Immediately after the date on which the
Purchaser accepted for payment all Shares validly tendered and not withdrawn
prior to the expiration date of the Offer, each outstanding option to purchase
Shares (in each case, an "Option") granted under the Company's 1988 Stock Option
Plan, as amended, 1988 Non-Qualified Plan, as amended, 1993 Stock Ownership
Plan, as amended, and Non-Qualified Stock Option Plan for Non-Employee Directors
(collectively, the "Stock Option Plans"), whether or not then exercisable, was
cancelled by the Company, and each holder of a cancelled Option became entitled
to receive from Purchaser, at the same time as payment for Shares was made by
Purchaser in connection with the Offer, in consideration for the cancellation of
such Option an amount in cash equal to the product of (i) the number of Shares
previously subject to such Option and (ii) the excess, if any, of the Merger
Consideration over the exercise price per Share previously subject to such
Option.
Indemnification and Insurance. The Merger Agreement further provides that
the Certificate of Incorporation and the By-laws of the Surviving Corporation
and each of its Subsidiaries shall contain provisions no less favorable with
respect to indemnification and advancement of expenses that then are set forth
in Article VI of the Certificate of Incorporation of the Company as of the date
of the Merger Agreement, which provisions shall not be amended, repealed or
otherwise modified for a period of six years from the Effective Time in any
manner that would adversely affect the rights thereunder of individuals who from
and after the date of the Merger Agreement and to and including the Effective
Time were directors, officers, employees, fiduciaries or agents of the Company
or any of its Subsidiaries in respect of actions or omissions occurring at or
prior to the Effective Time (including, without limitation, the matters
contemplated by the Merger Agreement), unless such modification is required by
law. The Company has agreed that from and after the date of the Merger Agreement
and the election or appointment of Purchaser's designees to the Board pursuant
to the Merger Agreement (the "Purchaser's Election Date"), the Company shall not
amend, repeal or otherwise modify the indemnification and advancement of
expenses provisions of Article VI of the Certificate of Incorporation of the
Company or the indemnification or advancement of expenses provisions in the
Certificate of Incorporation of any of the Company's Subsidiaries in any manner
that would adversely affect the rights thereunder of individuals who at any time
from and after the date of the Merger Agreement and to and including the
Effective Time were directors, officers, employees, fiduciaries or agents of the
Company or any of its Subsidiaries in respect of actions or omissions occurring
at or prior to the Effective Time (including, without limitation, the matters
contemplated by the Merger Agreement), unless such modification is required by
law.
The Merger Agreement also provides that the Company shall, to the fullest
extent permitted under applicable law and regardless of whether the Merger
becomes effective, indemnify and hold harmless, and after the Effective Time,
the Surviving Corporation shall, to the fullest extent permitted under
applicable law, indemnify and hold harmless, each present and former director,
officer, employee, fiduciary and agent of the Company and each Subsidiary
(collectively, the "Indemnified Parties") against all costs and expenses
(including attorneys' fees), judgments, fines, losses, claims, damages,
liabilities and amounts paid in settlement in connection with any threatened or
actual claim, action,
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suit, proceeding or investigation (whether arising before or after the Effective
Time) (a "Claim"), whether civil, criminal, administrative or investigative,
arising out of or pertaining to any action or omission in their capacity as an
officer, director, employee, fiduciary or agent (including, without limitation,
any Claim arising out of the Merger Agreement or any of the transactions
contemplated thereby), whether occurring before or after the Effective Time,
whether asserted prior to or at or after the Effective Time, for a period of six
years after the later of the date of the Merger Agreement and the Effective
Time, in each case to the fullest extent permitted under the DGCL (and will pay
any expenses in advance of the final disposition of any such action or
proceeding to each Indemnified Party to the fullest extent permitted under the
DGCL, upon receipt from the Indemnified Party to whom expenses are advanced of
an undertaking to repay such advances required under the DGCL). In the event of
any such claim, action, suit, proceeding or investigation, the Merger Agreement
provides that (i) the Indemnified Parties may retain counsel, including local
counsel, satisfactory to them and the Company or the Surviving Corporation, as
the case may be, shall pay the reasonable fees and expenses of such counsel
promptly after statements therefor are received and (ii) the Company and the
Surviving Corporation shall use all reasonable efforts in the vigorous defense
of any such matter; provided, however, that neither the Company nor the
Surviving Corporation shall be liable for any settlement effected without its
written consent (which consent may not be unreasonably withheld); and provided
further that neither the Company nor the Surviving Corporation shall be
obligated to pay the fees and expenses of more than one counsel (plus
appropriate local counsel) for all Indemnified Parties in any single action
unless there is, as determined by counsel to the Indemnified Parties, under
applicable standards of professional conduct, a conflict or a reasonable
likelihood of a conflict on any significant issue between the positions of any
two or more Indemnified Parties, in which case such additional counsel
(including local counsel) as may be required to avoid any such conflict or
likely conflict may be retained by the Indemnified Parties at the expense of the
Company or the Surviving Corporation; and provided further that, in the event
that any claim for indemnification is asserted or made within such six-year
period, all rights to indemnification in respect of such claim shall continue
until the disposition of such claim.
The Merger Agreement provides that the Company shall, from and after the
date of the Merger Agreement and to and including the Effective Time, and the
Surviving Corporation shall, for six years from the Effective Time, maintain in
effect the current directors' and officers' liability insurance policies
maintained by the Company (provided that the Surviving Corporation may
substitute therefor policies of at least the same coverage and amounts
containing terms and conditions which are no less advantageous to such officers
and directors so long as substitution does not result in gaps or lapses in
coverage) with respect to matters occurring prior to the Effective Time;
provided, however, that in no event shall the Surviving Corporation be required
to expend more than an amount per year equal to 200 percent of the current
annual premiums paid by the Company for such insurance (which premiums the
Company has represented to Parent and Purchaser to be approximately $700,000 in
the aggregate) and, in the event the cost of such coverage shall exceed that
amount, the Surviving Corporation will purchase as much coverage as possible for
that amount.
Parent, Purchaser and the Company have also agreed that in the event the
Company or the Surviving Corporation or any of their respective successors or
assigns (i) consolidates with or merges into any other person and shall not be
the continuing or surviving corporation or entity of such consolidation or
merger or (ii) transfers all or substantially all of its properties and assets
to any person, then and in each such case, proper provision shall be made so
that the successors and assigns of the Company or the Surviving Corporation, as
the case may be, or at Parent's option, Parent, shall assume the foregoing
indemnity obligations. The Merger Agreement provides that the By-laws of the
Surviving Corporation and each of its Subsidiaries shall contain the provisions
with respect to indemnification and advancement of expenses set forth in the
By-laws of the Company on the date of the Merger Agreement, and that such
provisions shall not be amended, repealed or otherwise modified for a period of
six years after the Effective Time in any manner that would affect adversely the
rights thereunder of
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individuals who at any time from and after the date of the Merger Agreement and
to and including the Effective Time were directors, officers, employees,
fiduciaries or agents of the Company or any of its Subsidiaries in respect of
actions or omissions occurring at or prior to the Effective Time (including,
without limitation, the transactions contemplated by the Merger Agreement),
unless such modification is required by law. The Merger Agreement provides that,
from and after the Purchaser's Election Date, the Company shall not amend,
repeal or otherwise modify the indemnification and advancement of expenses
provisions of the By-laws of the Company or the indemnification and advancement
of expenses provisions of the By-laws of any of the Company's Subsidiaries in
any manner that would adversely affect the rights thereunder of individuals who
at any time from and after the date of the Merger Agreement and to and including
the Effective Time were directors, officers, employees, fiduciaries or agents of
the Company or any of its Subsidiaries in respect of actions or omissions
occurring at or prior to the Effective Time (including, without limitation, the
matters contemplated by the Merger Agreement), unless such modification is
required by law.
The Merger Agreement provides that the obligations of the Company or the
Surviving Corporation with respect to the above described agreements regarding
indemnification and insurance shall not be terminated or modified in such a
manner as to adversely affect any director, officer, employee, fiduciary and
agent to whom the indemnification and insurance provisions therein apply without
the consent of each affected director, officer, employee, fiduciary and agent.
The Merger Agreement provides that in the event that the Company or the
Surviving Corporation should fail, at any time from and after the Purchaser's
Election Date, to comply with any of the foregoing indemnification and insurance
obligations for any reason, Parent shall be responsible therefor. Parent agreed
to perform such obligations unconditionally without regard to any defense or
other basis for nonperformance which the Company or the Surviving Corporation
may have or claim (except as would otherwise be prohibited by applicable
provisions of the DGCL). Parent, Purchaser, and the Company intend that the
officers, directors, employees, fiduciaries and agents of the Company and its
Subsidiaries shall be fully indemnified and that the foregoing indemnification
provisions shall be a primary obligation of Parent and not merely a guarantee by
Parent of the obligations of the Company or Purchaser. Parent and Purchaser
understand that the Company has entered into contractual indemnification
arrangements with each of its current directors and officers.
Employee Benefits. Pursuant to the Merger Agreement, Parent has agreed to
maintain each of the Company's existing employee benefit plans as that term is
defined in Section 3(3) of the Employee Retirement Income Security Act
(excluding any equity or incentive compensation plans or the severance plans
referred to below), until at least December 31, 1995. Parent has further agreed
that for 1996, Parent will provide the Company's employees with plans or
programs providing benefits which in the aggregate are not less favorable to
such employees than the benefits provided to them under existing employee
benefit plans of the Company.
Parent has also agreed that the Company's employees will continue to
participate in the Company's existing incentive compensation plans until
December 31, 1995 on the same basis as they are now participating. The Merger
Agreement further provides that for 1996 the employees will participate in any
incentive plan of Parent or any of its subsidiaries in effect as of the date of
the Merger Agreement or created thereafter, on substantially the same terms and
subject to substantially the same conditions and criteria as similarly situated
U.S. employees of Parent or any of its subsidiaries. In addition, the Company's
employees will also participate in 1995 and 1996 in any employee stock option
plan of Parent or any of its subsidiaries in effect as of the date of the Merger
Agreement or created thereafter, also on such substantially similar terms,
conditions and criteria.
Pursuant to the Merger Agreement, Parent has agreed that, until two years
after the date upon which the Purchaser shall have purchased the Shares pursuant
to the Offer, the Surviving Corporation will provide (i) severance payments
consistent with the existing Company Severance Benefits Program
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for Employees to all officers (except the Chairman of the Board) and employees,
and (ii) reasonable outplacement services for all officers of the Company and
its subsidiaries and any divisional managers employed by the Company or its
subsidiaries at the date upon which the Purchaser shall have purchased the
Shares pursuant to the Offer, in each case, who are terminated without cause (as
that term is defined in the Company's Severance Benefit Program for Employees),
prior to such date. Parent has further agreed that the severance agreements
between the Company and each of Messrs. Albers and Rosenstein shall be amended
to provide that amounts payable thereunder upon termination after a Change of
Control (as defined thereunder) will be payable upon termination by the Company
(or the Surviving Corporation) without cause (as defined thereunder) or by the
employee for any reason. Finally, Parent has committed that all Pension and
Profit Sharing Plans of the Company shall be amended to provide that all
participants therein as of the date upon which the Purchaser shall have
purchased the Shares pursuant to the Offer shall be fully vested in their
benefits thereunder as of such date.
Further Action. The Merger Agreement provides that, subject to its terms and
conditions, each of the parties thereto shall (i) make promptly its respective
filings, and thereafter make any other required submissions, under the HSR Act
with respect to the Offer and the Merger, (ii) use its reasonable best efforts
to take, or cause to be taken, all appropriate action, and to do or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
the Merger Agreement, including, without limitation, using its reasonable best
efforts to obtain all licenses, permits (including, without limitation,
environmental permits), consents, approvals, authorizations, qualifications and
orders of governmental authorities and parties to contracts with the Company and
the Subsidiaries as are necessary for the consummation of the transactions
contemplated by the Merger Agreement and to fulfill the conditions to the Offer
and the Merger, and (iii) except as contemplated by the Merger Agreement, use
its reasonable best efforts not to take any action, or enter into any
transaction, which would cause any of its representations or warranties
contained in the Merger Agreement to be untrue or result in a breach of any
covenant made by it in the Merger Agreement.
Under the Merger Agreement, Parent has agreed to take all action necessary
to cause Purchaser to perform all of Purchaser's, and the Surviving Corporation
to perform all of the Surviving Corporation's, agreements, covenants and
obligations under the Merger Agreement and to consummate the Offer and the
Merger on the terms and conditions set forth in the Merger Agreement. The Merger
Agreement provides that Parent shall be liable for any breach of any
representation, warranty, covenant or agreement of Purchaser and for any breach
of the foregoing covenant.
Section 203 of the DGCL. The Merger Agreement provides that (i) no
representation and warranty made by the Company shall be deemed to be untrue nor
shall the Company be deemed to be in breach of any such representation or
warranty and (ii) the Company shall not be deemed in breach of any covenant or
agreement contained herein, in each case to the extent that any such breach or
failure results directly or indirectly from the application to the transactions
contemplated by the Merger Agreement of Section 203 of the DGCL. The Merger
Agreement provides that neither Parent nor Purchaser shall be entitled to assert
the failure of any condition to the consummation of the Offer or the Merger,
where the failure to satisfy such conditions results directly or indirectly from
the application to the transactions contemplated by the Merger Agreement of
Section 203 of the DGCL.
In case at any time after the Effective Time any further action is necessary
or desirable to carry out the purposes of the Merger Agreement, the proper
officers and directors of each party to the Merger Agreement then in office are
required to use their reasonable best efforts to take all such action.
Conditions to the Merger. Under the Merger Agreement, the respective
obligations of each party to effect the Merger are subject to the satisfaction
at or prior to the Effective Time of the following conditions and only the
following conditions: (a) the Merger Agreement and the Merger shall have been
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approved and adopted by the affirmative vote of the stockholders of the Company
to the extent required by the DGCL (including Section 203 thereof) and the
Company's Certificate of Incorporation; (b) any waiting period (and any
extension thereof) applicable to the consummation of the Merger under the HSR
Act shall have expired or been terminated; (c) no foreign, United States or
state governmental authority or other agency or commission or foreign, United
States or state court of competent jurisdiction shall have enacted, issued,
promulgated, enforced or entered any law, rule, regulation, executive order,
decree, injunction or other order (whether temporary, preliminary or permanent)
which is then in effect and has the effect of making the acquisition of Shares
by Parent or Purchaser or any affiliate of either of them illegal or otherwise
preventing or prohibiting consummation of the transactions contemplated by the
Merger Agreement (other than Section 203 of the DGCL); and (d) Purchaser or its
permitted assignee shall have purchased all Shares validly tendered and not
withdrawn pursuant to the Offer; provided, however, neither Parent nor Purchaser
shall be entitled to assert the failure of this condition if, in breach of the
Merger Agreement or the terms of the Offer, Purchaser fails to purchase any
Shares validly tendered and not withdrawn pursuant to the Offer.
Termination; Fees and Expenses. The Merger Agreement provides that it may be
terminated and the Merger and the other transactions contemplated by the Merger
Agreement may be abandoned at any time prior to the Effective Time,
notwithstanding any requisite approval and adoption of the Merger Agreement and
the transactions contemplated by the Merger Agreement by the stockholders of the
Company: (a) by mutual written consent duly authorized by the Boards of
Directors of Parent, Purchaser and the Company prior to Purchaser's Election
Date; (b) by Parent, Purchaser or the Company if (i) the Effective Time shall
not have occurred on or before the later of (x) September 30, 1996 and (y) 90
days following the date on which Parent or any of its subsidiaries or affiliates
is no longer subject to the restrictions set forth in Section 203 of the DGCL;
provided, however, that the right to terminate the Merger Agreement under this
clause (b) shall not be available to any party whose failure to fulfill any
obligation under the Merger Agreement has been the cause of, or resulted in, the
failure of the Effective Time to occur on or before such date or (ii) any court
of competent jurisdiction in the United States or other governmental authority
shall have issued an order, decree or ruling or taken any other action
restraining, enjoining or otherwise prohibiting the Merger and such order,
decree, ruling or other action shall have become final and nonappealable.
In the event of the termination of the Merger Agreement, the Merger
Agreement provides that it shall forthwith become void and there shall be no
liability thereunder on the part of any party thereto except under the
provisions of the Merger Agreement related to fees and expenses described below
and under certain other provisions of the Merger Agreement which survive
termination.
THE STOCKHOLDERS AGREEMENT
Simultaneously with the execution of the Merger Agreement, the Stockholders
entered into the Stockholders Agreement, pursuant to which, upon the terms set
forth therein, each Stockholder agreed to tender and sell, in accordance with
the terms of the Offer, all Shares owned by such Stockholder. Further, each
Stockholder agreed not to withdraw his Shares unless (i) taking into account the
Shares tendered by the Stockholders, the Minimum Condition (as defined in the
Merger Agreement) shall not have been satisfied in the Offer, or (ii) the Board
or any committee thereof shall have withdrawn or modified in any manner adverse
to Purchaser or Parent its approval or recommendation of the Offer, the Merger,
or the Merger Agreement. As of January 25, 1995, the Stockholders owned (either
beneficially or of record, excluding certain Shares held in certain trusts and
Shares issuable upon the exercise of stock options currently outstanding) Shares
constituting approximately 4.4 percent of the outstanding Shares on a fully
diluted basis. Each of the Stockholders tendered his Shares in accordance with
the terms of the Stockholders Agreement.
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THE RIGHTS AGREEMENT
On September 1, 1993 the Company issued a dividend of one right to purchase
preferred stock (a "Right") for each then outstanding share of the Company's
Voting Common Stock ("Common Stock") and Non-Voting Common Stock, par value $.01
per share, pursuant to the Rights Agreement dated as of September 1, 1993, as
amended as of January 25, 1995 (the "Rights Agreement") between the Company and
Bank One, Texas N.A., as Rights Agent. On October 4, 1993 all the outstanding
shares of Non-Voting Common Stock were converted by Cadbury Inc., the holder
thereof, into shares of Common Stock. Each Right, if and when exercisable,
entitled the registered holder (other than an Acquiring Person (as defined in
the Rights Agreement)), at the then current exercise price of the Right, to
purchase in certain circumstances a number of shares of Common Stock having a
market value of two times the exercise price of the Right and in certain
circumstances a number of shares of common stock of the Acquiring Person having
a market value of two times the exercise price of the Right. Pursuant to the
Merger Agreement, the Company has amended the Rights Agreement to provide that
(i) neither Parent nor its affiliates would be deemed to be the beneficial owner
of nor to beneficially own any Common Stock beneficially owned by Messrs.
Albers, Rosenstein and Hicks, as a result of the Stockholders Agreement, until
such Common Stock was accepted for purchase pursuant to the Offer; (ii) the
Expiration Date (as defined in the Rights Agreement) will be deemed to have
occured immediately prior to the purchase of Common Stock pursuant to the Offer;
(iii) the designation by the Board of any Offer as a "Permitted Offer" may be
rescinded at any time prior to the acceptance of Common Stock pursuant to the
Offer; and (iv) none of the execution or delivery of the Merger Agreement or the
Stockholders Agreement, or the acceptance for payment or payment for shares of
Common Stock by Purchaser pursuant to the Offer, or consummation of the Merger
shall cause: (A) Parent or Purchaser or any of their affiliates to be an
Acquiring Person; (B) a Stock Acquisition Date (as defined in the Rights
Agreement) to occur; or (C) a Distribution Date (as defined in the Rights
Agreement) to occur in accordance with the terms of the Rights Agreement, which
Distribution Date, if any, shall instead be indefinitely deferred until such
time as the Board of Directors may otherwise determine. On March 2, 1995,
Purchaser accepted the Shares for payment pursuant to the Offer, and immediately
prior to such acceptance, the Rights expired.
The foregoing description of the Rights is qualified in its entirety by
reference to the text of the Rights Agreement and the other documents included
in the Company's Report on Form 8-K dated September 1, 1993 and the amendment
thereto included as Exhibit 2 to the Company's Form 8-A/A dated February 1,
1995, as filed with the Securities and Exchange Commission, copies of which may
be obtained in the manner set forth under the heading "AVAILABLE INFORMATION".
CERTAIN TAX CONSEQUENCES OF THE MERGER
The receipt of cash for shares of Common Stock in the Merger or pursuant to
the exercise of dissenters' appraisal rights will be a taxable transaction for
federal income tax purposes and may also be a taxable transaction under
applicable state, local, foreign or other tax laws. Generally, a stockholder
will recognize gain or loss for such purposes equal to the difference between
the cash received and such stockholder's tax basis for the shares of Common
Stock such stockholder sells in the Merger. For federal income tax purposes,
such gain or loss will be a capital gain or loss if the shares of Common Stock
are a capital asset in the hands of the stockholder, and a long-term capital
gain or loss if the stockholder's holding period is more than one year as of the
Effective Time. There are limitations on the deductibility of capital losses.
The summary of tax consequences set forth above is for general information
only. The tax treatment of each stockholder will depend in part upon his
particular situation. Actual tax consequences not described herein may be
applicable to particular classes of taxpayers, such as financial institutions,
broker-dealers, persons who are not citizens or residents of the United States,
stockholders who acquired the shares of Common Stock through the exercise of an
employee stock option or otherwise as compensation, and persons who received
payments in respect of options to acquire shares of Common
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Stock. ALL STOCKHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE
PARTICULAR TAX CONSEQUENCES OF THE MERGER TO THEM, INCLUDING THE APPLICABILITY
AND EFFECT OF ANY STATE, LOCAL AND FOREIGN LAWS.
RIGHTS OF DISSENTING STOCKHOLDERS
If the Merger is consummated, holders of shares of Common Stock are entitled
to appraisal rights under Section 262, provided that they comply with the
conditions established by Section 262.
SECTION 262 IS REPRINTED IN ITS ENTIRETY AS ANNEX B TO THIS PROXY STATEMENT.
THE FOLLOWING DISCUSSION IS NOT A COMPLETE STATEMENT OF THE LAW RELATING TO
APPRAISAL RIGHTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO ANNEX B. THIS
DISCUSSION AND ANNEX B SHOULD BE REVIEWED CAREFULLY BY ANY HOLDER WHO WISHES TO
EXERCISE STATUTORY APPRAISAL RIGHTS OR WHO WISHES TO PRESERVE THE RIGHT TO DO
SO, AS FAILURE TO COMPLY WITH THE PROCEDURES SET FORTH HEREIN OR THEREIN WILL
RESULT IN THE LOSS OF APPRAISAL RIGHTS.
A record holder of shares of Common Stock who makes the demand described
below with respect to such shares, who continuously is the record holder of such
shares through the Effective Time, who otherwise complies with the statutory
requirements of Section 262 and who neither votes in favor of the Merger
Agreement nor consents thereto in writing will be entitled to an appraisal by
the Delaware Court of Chancery (the "Delaware Court") of the fair value of his
or her shares of Common Stock. Except as set forth herein, stockholders of the
Company will not be entitled to appraisal rights in connection with the Merger.
Stockholders of Parent will have no appraisal rights in connection with the
Merger.
Under Section 262, where a merger is to be submitted for approval at a
meeting of stockholders, as in the Annual Meeting, not less than 20 days prior
to the meeting, a constituent corporation must notify each of the holders of its
stock for which appraisal rights are available that such appraisal rights are
available and include in each such notice a copy of Section 262. This Proxy
Statement shall constitute such notice to the record holders of Common Stock.
Holders of shares of Common Stock who desire to exercise their appraisal
rights must not vote in favor of the Merger Agreement and must deliver a
separate written demand for appraisal to the Company prior to the vote by the
stockholders of the Company on the Merger Agreement. A stockholder who signs and
returns a proxy without expressly directing by checking the applicable boxes on
the reverse side of the proxy card enclosed herewith that his or her shares of
Common Stock be voted against the proposal or that an abstention be registered
with respect to his or her shares of Common Stock in connection with the
proposal will effectively have thereby waived his or her appraisal rights as to
those shares of Common Stock because, in the absence of express contrary
instructions, such shares of Common Stock will be voted in favor of the
proposal. Accordingly, a stockholder who desires to perfect appraisal rights
with respect to any of his or her shares of Common Stock must, as one of the
procedural steps involved in such perfection, either (i) refrain from executing
and returning the enclosed proxy card and from voting in person in favor of the
proposal to approve the Merger Agreement or (ii) check either the "Against" or
the "Abstain" box next to the proposal on such card or affirmatively vote in
person against the proposal or register in person an abstention with respect
thereto. A demand for appraisal must be executed by or on behalf of the
stockholder of record and must reasonably inform the Company of the identity of
the stockholder of record and that such record stockholder intends thereby to
demand appraisal of the Common Stock. A person having a beneficial interest in
shares of Common Stock that are held of record in the name of another person,
such as a broker, fiduciary or other nominee, must act promptly to cause the
record holder to follow the steps summarized herein properly and in a timely
manner to perfect whatever appraisal rights are available. If the shares of
Common Stock are owned of record by a person other than the beneficial owner,
including a broker, fiduciary (such as a trustee, guardian or custodian) or
other nominee, such demand must be executed by or for the record owner. If the
shares of Common Stock are owned of record by more than one person, as in a
joint tenancy or tenancy in common, such demand must be executed by or for all
joint owners. An authorized agent, including an agent for two or more joint
owners, may execute the demand for
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appraisal for a stockholder of record; however, the agent must identify the
record owner and expressly disclose the fact that, in exercising the demand,
such person is acting as agent for the record owner.
A record owner, such as a broker, fiduciary or other nominee, who holds
shares of Common Stock as a nominee for others, may exercise appraisal rights
with respect to the shares held for all or less than all beneficial owners of
shares as to which such person is the record owner. In such case, the written
demand must set forth the number of shares covered by such demand. Where the
number of shares is not expressly stated, the demand will be presumed to cover
all shares of Common Stock outstanding in the name of such record owner.
A stockholder who elects to exercise appraisal rights should mail or deliver
his or her written demand to: Dr Pepper/Seven-Up Companies, Inc., 8144 Walnut
Hill Lane, Dallas, Texas 75231-4372, Attention: Nelson A. Bangs, Secretary.
The written demand for appraisal should specify the stockholder's name and
mailing address, the number of shares of Common Stock owned, and that the
stockholder is thereby demanding appraisal of his or her shares. A proxy or vote
against the Merger Agreement will not by itself constitute such a demand. Within
ten days after the Effective Time, the Surviving Corporation must provide notice
of the Effective Time to all stockholders who have complied with Section 262.
Within 120 days after the Effective Time, either the Surviving Corporation
or any stockholder who has complied with the required conditions of Section 262
may file a petition in the Delaware Court, with a copy served on the Surviving
Corporation in the case of a petition filed by a stockholder, demanding a
determination of the fair value of the shares of all dissenting stockholders.
There is no present intent on the part of Parent or Purchaser to file an
appraisal petition and stockholders seeking to exercise appraisal rights should
not assume that the Surviving Corporation will file such a petition or that the
Surviving Corporation will initiate any negotiations with respect to the fair
value of such shares. Accordingly, stockholders who desire to have their shares
appraised should initiate any petitions necessary for the perfection of their
appraisal rights within the time periods and in the manner prescribed in Section
262. Within 120 days after the Effective Time, any stockholder who has
theretofore complied with the applicable provisions of Section 262 will be
entitled, upon written request, to receive from the Surviving Corporation a
statement setting forth the aggregate number of shares of Common Stock not
voting in favor of the Merger Agreement and with respect to which demands for
appraisal were received by the Company and the number of holders of such shares.
Such statement must be mailed within 10 days after the written request therefor
has been received by the Surviving Corporation.
If a petition for an appraisal is timely filed, at the hearing on such
petition, the Delaware Court will determine which stockholders are entitled to
appraisal rights. The Delaware Court may require the stockholders who have
demanded an appraisal for their shares and who hold stock represented by
certificates to submit their certificates of stock to the Register in Chancery
for notation thereon of the pendency of the appraisal proceedings; and if any
stockholder fails to comply with such direction, the Delaware Court may dismiss
the proceedings as to such stockholder. Where proceedings are not dismissed, the
Delaware Court will appraise the shares of Common Stock owned by such
stockholders, determining the fair value of such shares exclusive of any element
of value arising from the accomplishment or expectation of the Merger, together
with a fair rate of interest, if any, to be paid upon the amount determined to
be the fair value. In determining fair value, the Delaware Court is to take into
account all relevant factors. In Weinberger v. UOP Inc., the Delaware Supreme
Court discussed the factors that could be considered in determining fair value
in an appraisal proceeding, stating that "proof of value by any techniques or
methods which are generally considered acceptable in the financial community and
otherwise admissible in court" should be considered, and that "fair price
obviously requires consideration of all relevant factors involving the value of
a company." The Delaware Supreme Court stated that in making this determination
of fair value the court must consider market value, asset value, dividends,
earnings prospects, the nature of the enterprise and any other facts which could
be
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ascertained as of the date of the merger which throw light on future prospects
of the merged corporation. In Weinberger, the Delaware Supreme Court stated that
"elements of future value, including the nature of the enterprise, which are
known or susceptible of proof as of the date of the merger and not the product
of speculation, may be considered." Section 262, however, provides that fair
value is to be "exclusive of any element of value arising from the
accomplishment or expectation of the merger."
Holders of shares of Common Stock considering seeking appraisal should
recognize that the fair value of their shares determined under Section 262 could
be more than, the same as or less than the consideration they are entitled to
receive pursuant to the Merger Agreement if they do not seek appraisal of their
shares. The cost of the appraisal proceeding may be determined by the Delaware
Court and taxed against the parties as the Delaware Court deems equitable in the
circumstances. Upon application of a dissenting stockholder of the Company, the
Delaware Court may order that all or a portion of the expenses incurred by any
dissenting stockholder in connection with the appraisal proceeding, including
without limitation, reasonable attorney's fees and the fees and expenses of
experts, be charged pro rata against the value of all shares of stock entitled
to appraisal.
Any holder of shares of Common Stock who has duly demanded appraisal in
compliance with Section 262 will not, after the Effective Time, be entitled to
vote for any purpose any shares subject to such demand or to receive payment of
dividends or other distributions on such shares, except for dividends or
distributions payable to stockholders of record at a date prior to the Effective
Time.
At any time within 60 days after the Effective Time, any stockholder will
have the right to withdraw such demand for appraisal and to accept the terms
offered in the Merger; after this period, the stockholder may withdraw such
demand for appraisal only with the consent of the Surviving Corporation. If no
petition for appraisal is filed with the Delaware Court within 120 days after
the Effective Time, stockholders' rights to appraisal shall cease, and all
holders of shares of Common Stock will be entitled to receive the consideration
offered pursuant to the Merger Agreement. Inasmuch as the Surviving Corporation
has no obligation to file such a petition, and Parent and Purchaser have no
present intention to do so, any holder of shares of Common Stock who desires
such a petition to be filed is advised to file it on a timely basis. Any
stockholder may withdraw such stockholder's demand for appraisal by delivering
to the Surviving Corporation a written withdrawal of his or her demand for
appraisal and acceptance of the Merger, except (i) that any such attempt to
withdraw made more than 60 days after the Effective Time will require written
approval of the Surviving Corporation and (ii) that no appraisal proceeding in
the Court of Chancery shall be dismissed as to any stockholder without the
approval of the Court, and such approval may be conditioned upon such terms as
the Court deems just.
FINANCING OF THE MERGER
Approximately $1,498 million was required to pay for the 45,387,180 Shares
purchased by Purchaser pursuant to the Offer. In addition, approximately $26.3
million will be required to purchase the remaining Shares pursuant to the
Merger, and approximately $44.2 million will be required to pay related fees and
expenses incurred by Parent and Purchaser in connection with the Offer and
expected to be incurred by Parent and Purchaser in connection with the Merger
(including financing-related costs). The foregoing does not include an
additional $188 million paid by the Company in connection with the cancellation
of employee stock options or approximately $10.2 million in fees or expenses
paid or to be paid by the Company in connection with the Offer and the Merger.
Purchaser received the necessary funds to purchase the Shares pursuant to the
Offer from Parent and its affiliates. Parent and its affiliates obtained such
funds from the net proceeds of the rights offering described below (the "Rights
Offering"), from existing resources and from funds available pursuant to certain
existing committed credit facilities (the "Credit Facilities") provided under a
Facilities Agreement, dated January 26, 1995, by and among Parent, Cadbury
Schweppes Finance Limited, Midland Bank plc and The Toronto-Dominion Bank and
Samuel Montagu & Co. Limited, as agent, as amended on March 8,
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1995 to provide for other banks to become additional lenders thereunder (such
banks, together with Midland Bank plc and The Toronto-Dominion Bank, the
"Banks") (as so amended, the "Facilities Agreement"). In addition, Parent
provided an underwritten enhanced scrip dividend alternative (the "UESDA"),
which effectively increased the cash resources available to Parent despite the
declaration of a dividend on its issued share capital. (Pounds Sterling amounts
in this description have been translated into U.S. dollars at the Noon Buying
Rate for Pounds Sterling of B.P.1.00 = $1.58 on January 31, 1995).
The Rights Offering. Under the Rights Offering, Parent offered holders of
its Ordinary Shares the right to subscribe for one unit (a "Stock Unit") of
non-interest-bearing convertible unsecured loan stock for every seven Ordinary
Shares held of record on January 30, 1995. The purchase price of each Stock Unit
was B.P.3.40 ($5.37) (the "Rights Price"), payable in two installments. Each
fully paid Stock Unit is convertible into one Ordinary Share of Parent
(collectively, the "New Ordinary Shares").
The first installment of the Rights Price was B.P.1.02 ($1.61), payable on
acceptance of the rights, and raised approximately B.P.115 million ($181.7
million), net of commissions. The second installment of the Rights Price is
B.P.2.38 ($3.76), to raise approximately B.P.280 million ($442.4 million), net
of commissions was payable by April 5, 1995. The second installment became
payable upon the satisfaction of the conditions to the Offer.
An aggregate amount of 119,136,851 Stock Units were issued under the Rights
Offering, and were converted, upon payment of the second installment, into
119,136,851 New Ordinary Shares. The net proceeds of the Rights Offering were
approximately B.P.395 million ($624.1 million).
Kleinwort Benson Limited ("Kleinwort U.K."), the indirect parent of KBNA,
underwrote the Rights Offering. Pursuant to its agreement to underwrite the
Stock Units, Kleinwort U.K. earned commissions of an amount equal to 2.3875
percent of the maximum aggregate subscription price for the total amount of the
Stock Units to be issued pursuant to the Rights Offering at the Rights Price
(out of which Kleinwort U.K. paid commissions of an amount equal to 1.6375
percent of such maximum aggregate subscription price to the sub-underwriters and
a fee of 0.25 percent of such maximum aggregate subscription price to the
brokers to the Rights Offering). Parent agreed to pay the expenses of the issue
of the Stock Units and to indemnify Kleinwort U.K. against liabilities arising
as a result of its services in connection therewith.
The provisional allotment letters sent to shareholders of Parent evidencing
the right to subscribe for the Stock Units and the New Ordinary Shares were not
registered under the Securities Act of 1933, and they may not, as part of their
distribution, be offered, sold, taken up, renounced or delivered, directly or
indirectly, in the United States, except pursuant to an exemption from, or in a
transaction not subject to, the registration requirements of the Securities Act.
Except in certain limited circumstances, provisional allotment letters may not
be sent to persons with registered addresses in the United States.
The Credit Facilities. The Credit Facilities are comprised of two separate
committed unsecured revolving credit facilities which Parent established with
the Banks as lenders. The commitments under the Credit Facilities are for a $1.0
billion facility ("Facility A") available to be used for general corporate
purposes (including financing of acquisitions) of Parent and its subsidiaries
(the "Group"), and a $1.4 billion facility ("Facility B") available to be used
as short-term bridging finance, pending the availability of long-term financing.
Facility B is to operate as a revolving credit facility until January 25, 1996,
and thereafter (to the extent that any advance or advances are outstanding on
that date) as a term loan. The final repayment date for both facilities is
January 26, 1998. The rate of interest applicable to advances made under the
Credit Facilities is a rate equal to the London Interbank Offered Rate for the
relevant interest period plus a margin of 0.225 percent per annum.
Commitment fees are payable on the undrawn and uncancelled portions of each
facility. Parent is entitled to nominate additional or substitute borrowers
under the Facilities Agreement and has unconditionally guaranteed the
obligations of any borrower thereunder.
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On January 31, 1995, Parent paid the first installment of the arrangement
and underwriting fee under the two Credit Facilities. Parent paid a second
installment of the arrangement and underwriting fee within three business days
after the conditions to the Offer had been satisfied.
The Banks have agreed that, until April 1, 1995, drawings may be made under
the Facilities Agreement on an unconditional basis and that the maturity of
existing advances will not be accelerated by virtue of any event of default or
otherwise.
Of the $2.4 billion initially available to Parent pursuant to the Credit
Facilities, approximately $1.33 billion of the amount available was drawn down
on March 6, 1995, leaving $1.07 billion of it available.
Parent anticipates that indebtedness incurred through borrowings under the
Credit Facilities will be repaid from a variety of sources, which may include,
but may not be limited to, funds generated internally by Parent and its
affiliates (including, following the Merger, funds generated by the Surviving
Corporation), bank financing, and the public or private sale of debt,
preference, or equity securities. No decision has been made concerning the
method Parent will employ to repay such indebtedness. Such decision will be made
based on Parent's review from time to time of the advisability of particular
actions, as well as on prevailing interest rates and financial and other
economic conditions and such other factors as Parent may deem appropriate.
Parent intends to refinance approximately B.P.253 million ($400 million) of the
Credit Facilities through the sale of U.S. dollar fixed rate cumulative
guaranteed preference securities ("Preferred Securities") issued by a limited
partnership, of which Parent is the general partner, and guaranteed by Parent.
The Underwritten Enhanced Scrip Dividend Alternative. Parent also issued
approximately 31.8 million new Ordinary Shares of Parent pursuant to the UESDA
(the "UESDA Shares"), which effectively increased the cash resources available
to the Group by approximately B.P.98.2 million ($158.0 million (including
consequential savings of U.K. advance corporation tax and net of commissions).
The impact of undertaking the UESDA and the Rights Offering, rather than
undertaking a larger rights offering and paying a final cash dividend in the
typical manner, thereby raising the same net amount, is to permit Parent to
avoid the applicability of U.K. advance corporation tax ("ACT") payments on
future Parent dividends totalling approximately B.P.20 million ($31.6 million).
Pursuant to its agreement to procure purchasers for the UESDA Shares,
Kleinwort U.K. earned commissions equal to 2.3875 percent of an amount equal to
the aggregate value at the Rights Price of the maximum number of UESDA Shares
(36,063,046) (out of which Kleinwort U.K. paid commissions equal to 1.6375
percent of such amount to the sub-underwriters and a fee equal to 0.25 percent
of such amount to the brokers to the Rights Offering). Parent has agreed to pay
the expenses of the issue of the UESDA Shares and to indemnify Kleinwort U.K.
against liabilities arising as a result of their services in connection
therewith.
Funds required to purchase the remaining Shares pursuant to the Merger and
to pay associated fees and expenses will be obtained from funds available under
the Facilities Agreement or other resources available to Parent.
BUSINESS OF THE COMPANY
The Company, a holding company, manufactures, markets, sells and distributes
soft drink concentrates, extracts (the basic flavoring ingredients for soft
drinks) and fountain syrups (concentrates or extracts with sweeteners and water
added) to licensed bottlers primarily in the United States. The Company's
principal products are two well known soft drink brands, "Dr Pepper" and "7UP".
The Company is the third largest soft drink concentrate manufacturer in the
United States. Further information regarding the Company is set forth in the
Company's Annual Report on Form 10-K for the year ended December 31, 1994, which
is incorporated herein by reference. Such Form 10-K is attached to this Proxy
Statement as Annex E. The Company's principal executive offices are located at
8144 Walnut Hill Lane, Dallas, Texas 75231-4372; telephone (214) 360-7000.
29
<PAGE>
SELECTED FINANCIAL INFORMATION
OF THE COMPANY
The following table presents selected consolidated financial data of the
Company as of and for the years ended December 31, 1994, 1993, 1992, 1991 and
1990. This financial data was derived from the audited historical consolidated
financial statements of the Company. The financial data set forth below should
be read in conjunction with the financial statements of the Company and
"Management's Discussion and Analysis of Results of Operations and Financial
Conditions" incorporated herein by reference from the Company's Annual Report on
Form 10-K for the year ended December 31, 1994. Such Form 10-K is attached to
this Proxy Statement as Annex E.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------
1994 1993 1992 1991 1990
-------- -------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Operating Data:
Net sales............................... $769,015 707,378 658,718 600,941 540,368
Cost of sales........................... 127,650 115,981 126,002 118,757 109,857
Gross profit.......................... 641,365 591,397 532,716 482,184 430,511
Marketing expense....................... 391,806 362,484 329,706 302,192 264,147
General and administrative expense,
including amortization of intangible
assets.................................... 45,993 45,893 42,424 41,776 43,111
Operating profit...................... 203,566 183,020 160,586 138,216 123,253
Interest expense:
Cash interest expense................. 42,378 43,833 77,921 73,527 81,382
Non-cash interest expense............. 38,074 41,727 72,324 74,430 65,099
Other expense........................... 824 1,249 18,937 9,120 8,744
Income (loss) before income taxes,
extraordinary items and cumulative
effect of accounting change............... 122,290 96,211 (8,596) (18,861) (31,972)
Income taxes (benefit).................. 44,591 2,087 (182) 1,100 563
Extraordinary items:
Benefit from utilization of net
operating loss carryforward......... -- -- -- (1,822) --
Extinguishments of debt............... 11,180 16,199 56,934 18,566 --
Cumulative effect of accounting
change.................................... -- -- 74,800 -- --
Net income (loss)..................... 66,519 77,925 (140,148) (37,505) (32,535)
Preferred stock dividend requirements... -- -- 12,941 11,882 9,744
Net income (loss) attributable to
outstanding common stock.................. 66,519 77,925 (153,089) (49,387) (42,279)
Income (loss) before extraordinary items
and share cumulative effect of
accounting change per common.......... 1.13 1.46 (.60) (.90) (1.19)
Other Data:
Depreciation.......................... $ 2,925 2,969 2,950 3,693 4,112
Amortization of intangible assets..... 13,103 15,077 15,112 15,155 15,142
Balance Sheet Data (at end of period):
Total assets.......................... $608,718 680,023 668,096 780,843 677,953
Long-term debt, less current
portion................................... 693,159 790,540 1,091,956 1,081,622 1,031,989
Redeemable preferred stock............ -- -- 96,792 83,851 71,969
Stockholders' deficit................. (344,110) (420,104) (807,413) (657,090) (607,350)
Working capital deficit............... (57,453) (67,166) (102,223) (18,320) (18,891)
</TABLE>
(Footnotes on following page)
30
<PAGE>
(Footnotes for preceding page)
- ------------
(a) Other expense for the year ended December 31, 1992 includes $6,026 of costs
associated with the Company's withdrawal in July 1992 of its planned initial
public offering and related recapitalization transactions.
(b) In connection with the refinancing that occurred in 1991, an $18,566
extraordinary item-debt restructuring charge was recorded in the year ended
December 31, 1991, consisting of consent payments to holders of the 13 3/4%
Senior Subordinated Debentures due November 30, 2001 of Dr Pepper (the "Dr
Pepper Subordinated Debentures") ($8,175), the charge relating to the
interest rate increase on such debt ($5,360), and the write-off of the
unamortized balance of deferred debt issuance costs related to the credit
agreement of Dr Pepper ($5,031).
(c) In connection with the 1992 Recapitalization, a $56,934 extraordinary
item-debt restructuring charge was recorded in the year ended December 31,
1992, consisting of premiums and fees in respect of the debt retirements
($32,270) and write-off of the unamortized balance of deferred debt issuance
costs related to the credit agreement of Seven-Up, the term loans of Dr
Pepper, the 11 1/2% Guaranteed Senior Secured Notes due 1996 of Dr Pepper,
the Dr Pepper Subordinated Debentures, the 12 5/8% Senior Subordinated Notes
due May 15, 1999 of Seven-Up and the 15 1/2% Senior Subordinated Discount
Notes due 1998 of the Holding Company ($24,664 in the aggregate).
(d) In connection with the Offering, a $14.9 million extraordinary charge was
recorded in 1993 which included (i) a write-off of a portion of the
unamortized balance of deferred debt issuance costs related to the Credit
Agreement borrowings and the Discount Notes ($6.8 million) and (ii) the
premium related to the redemption of a portion of the Discount Notes ($8.1
million). In addition, a $2.0 million extraordinary charge was recorded in
1993 reflecting a write-off of a portion of the unamortized balance of
deferred debt issuance costs related to the Credit Agreement borrowings. The
write-off was the result of repayments of the Term Loan Facility in advance
of scheduled requirements. These extraordinary items were recorded net of
applicable taxes.
(e) In connection with the retirement of a portion of the Discount Notes, an
extraordinary charge of $11.2 million was recorded in 1994, net of a $6.0
million tax effect. The extraordinary charge reflects a write-off of a
portion of the unamortized balance of deferred debt issuance costs as well
as the premium paid in excess of the accreted value.
(f) The Company adopted in the fourth quarter of 1992 Financial Accounting
Standards Board Statement 109 relating to accounting for income taxes and
applied the provisions thereof retroactively effective January 1, 1992.
(g) Income (loss) before extraordinary items per common share for each of the
years ended December 31, 1990, 1991,1992, 1993 and 1994 is based on the
weighted average number of common shares outstanding after giving
retroactive effect to the 1 for 5 reverse stock split effected on June 25,
1992. Except for the years ended December 31, 1994 and 1993, shares issuable
upon exercise of stock options and deliverable upon the exercise of
outstanding warrants were antidilutive and were excluded from the
calculation.
The Company does not, as a matter of course, make public forecasts as to
future financial results. However, the Company, in connection with the Offer,
orally provided to Parent and Purchaser preliminary projections for 1995. The
Company has projected that in 1995 (i) net sales will increase by 7%; (ii) gross
profit margin will be maintained at 83.5%; (iii) marketing and selling expenses
as a percentage of net sales will be consistent with historical levels; (iv)
general and administrative costs will increase by 5%; and (v) operating profit
will increase by 8%. The projections were not prepared with a view to public
disclosure and are included in this Proxy Statement only because such
information was provided to Parent and Purchaser.
PROJECTIONS OF THE FUTURE REVENUES, GROSS PROFIT MARGINS, EXPENSES AND
OPERATING PROFITS OF THE COMPANY AND ITS BUSINESS ARE BASED ON ESTIMATES AND
ASSUMPTIONS REGARDING THE GROWTH OF THE SOFT DRINK MARKET, THE GENERAL CONDITION
OF THE UNITED STATES ECONOMY AND THE STATUS OF LABOR AND FINANCIAL MARKETS
AFFECTING THE SOFT DRINK INDUSTRY THAT ARE INHERENTLY SUBJECT TO SIGNIFICANT
UNCERTAINTIES AND CONTINGENCIES, ALL OF WHICH ARE DIFFICULT TO PREDICT AND MANY
OF WHICH ARE BEYOND THE
31
<PAGE>
COMPANY'S CONTROL. ACCORDINGLY, THERE CAN BE NO ASSURANCE THAT THE PROJECTED
FUTURE REVENUE, GROSS PROFIT MARGINS, EXPENSES AND OPERATING PROFITS OF THE
COMPANY WILL BE REALIZED OR THAT ACTUAL RESULTS WILL NOT BE SIGNIFICANTLY HIGHER
OR LOWER THAN THOSE SET FORTH ABOVE. IN ADDITION, THESE PROJECTIONS WERE NOT
PREPARED WITH A VIEW TO PUBLIC DISCLOSURE OR COMPLIANCE WITH THE GUIDELINES
ESTABLISHED BY THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS REGARDING
PROJECTIONS AND FORECASTS AND ARE INCLUDED IN THIS PROXY STATEMENT ONLY BECAUSE
SUCH INFORMATION WAS MADE AVAILABLE TO PARENT AND PURCHASER BY THE COMPANY.
PRINCIPAL STOCKHOLDERS AND SHARE OWNERSHIP OF MANAGEMENT
Parent is the beneficial owner of 61,007,926 Shares, or approximately 98.7%
of the Shares outstanding as of the close of business on April 27, 1995. Other
than Parent and Purchaser, and their respective directors and officers who may
be deemed to own beneficially the Shares beneficially owned by Parent and
Purchaser, no stockholder is the beneficial owner of more than 5% of the
outstanding Shares. Except as described herein, to the knowledge of Parent and
Purchaser, none of the directors or executive officers of Parent or Purchaser or
any of their respective associates are the beneficial or record owner of any
securities of the Company, or any parent or subsidiary of the Company.
The Common Stock is the only class of securities of the Company presently
entitled to vote at the Annual Meeting. The following table sets forth, as of
the close of business on April 27, 1995, the Shares of the Company held
beneficially, directly or indirectly, by each director, each named executive
officer included in the Summary Compensation Table set forth below, and all
directors and executive officers as a group:
<TABLE>
<CAPTION>
AMOUNT AND PERCENT OF
NATURE OF BENEFICIAL COMMON STOCK
NAME OF BENEFICIAL OWNER OWNERSHIP OUTSTANDING
- ------------------------------------------------------------- -------------------- ------------
<S> <C> <C>
Named Executive Officers and Directors
John F. Brock (1), (2)....................................... 0 0
David A. Gerics (1), (2)..................................... 0 0
Charles P. Grier............................................. 0 0
Francis I. Mullin, III....................................... 0 0
Henry A. Udow (1), (2)....................................... 0 0
All Executive Officers and Directors as a group (6
persons)..................................................... 0 0
</TABLE>
- ------------
(1) Became a director of the Company on March 2, 1995.
(2) Messrs. Brock and Udow own no ordinary shares of Parent. Mr. Gerics owns 200
American Depositary Receipts of Parent.
ELECTION OF DIRECTOR
INFORMATION CONCERNING DIRECTOR NOMINEE
All directors currently serving on the Board of Directors are designees of
Purchaser. W.W. Clements and Pedro Jose Greer, Jr. resigned from the Board of
Directors effective March 1, 1995. John R. Albers, Malcolm Candlish, Thomas O.
Hicks, Richard G. Merrill, Ira M. Rosenstein, and William E. Winter resigned
from the Board of Directors effective March 2, 1995.
32
<PAGE>
In the event the Merger Agreement is not approved and adopted, one Class III
director will be elected at the Annual Meeting to serve for a three-year term
expiring at the 1998 Annual Meeting of Stockholders. Pursuant to the Company's
By-laws, in case of a vacancy on the Board of Directors, a majority of the
remaining directors are empowered to elect a successor, and the person so
elected will hold office for the remainder of the term of the director whose
death, retirement resignation, disqualification or removal created the vacancy,
and thereafter until the election of a successor director. The nominee director
is presently a director of the Company and has agreed to continue to serve if
elected.
The following table sets forth for the nominee for election as a Class III
director his name, all positions with the Company or any of its predecessors or
affiliates held by him, his principal occupation, his age and the year in which
he first became a director of the Company.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION,
BUSINESS EXPERIENCE
DIRECTOR NOMINEE AGE AND OTHER DIRECTORSHIPS DIRECTOR SINCE CLASS
- ------------------------ --- -------------------------------------- -------------- -----
<S> <C> <C> <C> <C>
Henry A. Udow........... 37 Vice President, General Counsel and March 2, 1995 III
Secretary and Director of Purchaser;
Legal Director of Beverages Stream
of Parent, 25 Berkeley Square,
London W1X 6HT, England, February
1994 to present; Vice President,
General Counsel and Secretary of
Cadbury Beverages Inc., September
1991 to January 1994; Vice
President, Division Counsel and
Assistant Secretary, September 1990
to September 1991; Division Counsel,
September 1987 to September 1990.
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE ABOVE NAMED
NOMINEE AS A CLASS III DIRECTOR.
33
<PAGE>
Current Directors
The following table sets forth certain information with respect to Class I
and Class II directors whose terms expire at the 1996 and 1997 Annual Meetings,
respectively.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION,
BUSINESS EXPERIENCE
DIRECTOR NOMINEE AGE AND OTHER DIRECTORSHIPS DIRECTOR SINCE CLASS
- ------------------------ --- -------------------------------------- -------------- -----
<S> <C> <C> <C> <C>
John F. Brock.......... 46 President and Director of Purchaser; March 2, 1995 I
President, Cadbury Beverages North
America, 6 High Ridge Park,
Stamford, Connecticut 06905;
President, Cadbury Beverages Europe,
28 Clarendon Road, Watford, England,
June 1992 to July 1993; President,
Cadbury Beverages International,
High Ridge Park, Stamford, CT 06905,
September 1990 to June 1992;
Executive Vice President, September
1987 to September 1990.
David A. Gerics......... 36 Vice President, Finance and Director March 2, 1995 II
of Purchaser; Vice President, Finance,
Cadbury Beverages North America, 6
High Ridge Park, Stamford,
Connecticut 06905; Vice President,
Controller, October 1991 to May
1993; Controller, October 1989 to
October 1991; Director, Planning and
Control, October 1988 to October
1989.
</TABLE>
Meetings and Committees of the Board of Directors
During the fiscal year ended December 31, 1994, the Board of Directors held
5 meetings. Each director attended at least 75% of the aggregate of the total
number of meetings of the Board of Directors and the total number of meetings of
all committees of the Board on which he served. During the fiscal year ended
December 31, 1994, the Board of Directors had an Executive Committee, an Audit
Committee, a Compensation Committee and a Special Committee.
The Executive Committee, comprised of Messrs. Albers, Hicks and Rosenstein,
exercised, during the intervals between meetings of the Board of Directors, all
powers of the Board of Directors except to the extent limited by law. During
fiscal 1994, the Executive Committee did not hold any meetings.
The Audit Committee recommends to the Board of Directors the selection of
independent accountants and reviews the activities and reports of the
independent accountants as well as the internal accounting controls of the
Company. The Audit Committee was comprised of Messrs. Clements, Greer, Merrill
and Winter. During fiscal 1994, the Audit Committee held 2 meetings.
The Compensation Committee determines the compensation for executive
officers of the Company and establishes the Company's compensation policies and
practices. The Compensation Committee was comprised of Messrs. Candlish, Hicks
and Merrill. During fiscal 1994, the Compensation Committee held 3 meetings, and
acted once by written consent.
The Special Committee was established by resolution of the Board of
Directors in October 1994 to consider any proposals the Company might receive
with respect to a business combination transaction. The Special Committee was
comprised of Messrs. Albers, Hicks, Merrill and Rosenstein. During fiscal 1994,
the Special Committee did not hold any meetings.
34
<PAGE>
As of March 2, 1995, no directors serve as members of any of these
committees. The Board of Directors does not have a standing nominating committee
and did not have such a committee during fiscal 1994. The Board designates
nominees for election as directors and will consider suggestions by stockholders
for names of possible future nominees if delivered in writing to the Secretary
of the Company on a timely basis.
Director Compensation
All the Directors of the Company are employees of Parent or subsidiaries of
Parent and receive no additional compensation in connection with providing
services as Directors of the Company.
William E. Winter, in addition to his duties as a former member of the Board
of Directors of the Company, is a consultant to Dr Pepper/Seven-Up Corporation,
a wholly-owned subsidiary of the Company ("DP/SU"), pursuant to a Consulting
Agreement dated as of January 25, 1988. The terms of the Consulting Agreement
provide that Mr. Winter will advise DP/7UP with respect to marketing and soft
drink franchising plans and strategies and other assigned projects relating to
the long-term growth of DP/7UP. In consideration of his services, DP/7UP pays
Mr. Winter a retainer of $300.00 per day and has agreed to use Mr. Winter's
services for a minimum of seven days per month. Consulting fees paid to Mr.
Winter in 1994 totalled $25,200.00 The term of the Consulting Agreement renews
every month and is terminated by either party upon not less than 10 days'
advance notice. Mr. Winter resigned from the Board of Directors on March 2,
1995.
Executive Officers
The following table sets forth the names, ages and business experience, for
the last five fiscal years, of the executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE BUSINESS EXPERIENCE
- ------------------------ --- ------------------------------------------------------------
<S> <C> <C>
Charles P. Grier(1)...... 64 Senior Vice President of the Company since 1988; Senior Vice
President of DP/7UP since October 1992; Senior Vice
President--Operations of Dr Pepper and Seven-Up from 1986
to October 1992.
John M. Kilduff......... 48 Vice President of the Company since 1988; Vice President of
DP/7UP and Senior Vice President of Dr Pepper USA since
October 1992; Senior Vice President--Sales of Dr Pepper
from 1988 to October 1992.
Francis I. Mullin, III(1) 51 Executive Vice President of the Company since 1991; Director
and Executive Vice President of DP/7UP since October 1992;
President of Seven-Up USA, a division of DP/7UP ("Seven-Up
USA") since October 1992; Director, President and Chief
Operating Officer of Seven-Up from 1991 to October 1992;
operated CSM & Associates, a sales and marketing
consulting business, from 1989 to 1991; President and
Chief Operating Officer of Tofutti Brands, Inc. from 1986
to 1989.
Robert E. Quirk......... 44 Vice President of the Company since 1988; Vice President of
DP/7UP and Senior Vice President of Seven-Up USA since
October 1992; Senior Vice President--Sales of Seven-Up
from 1988 to October 1992.
William A. Tolany....... 48 Vice President of the Company since 1985; Vice President of
DP/7UP and Senior Vice President of Seven-Up USA since
January 1995; Vice President of Marketing Services of Dr
Pepper USA since October 1992; Vice President of Marketing
Services of Dr Pepper from 1986 to October 1992.
</TABLE>
(1) Messrs. Grier and Mullin have indicated to the Company that they intend to
resign their positions as officers of the Company effective May 7,1995
and April 28, 1995, respectively.
35
<PAGE>
COMPENSATION COMMITTEE REPORT
To Our Stockholders:
As has been described above, none of the Committees of the Board of
Directors (including the Compensation Committee) have had any members since
March 2, 1995. The Compensation Committee during fiscal 1994 was comprised of
Messrs. Candlish, Hicks and Merrill. In connection with the Offer, each of these
Directors resigned as of March 2, 1995. See further the caption "Information
Concerning Director Nominees" above. Therefore, the Board, in the absence of any
current compensation committee, has produced this report based on the executive
compensation policies which it understands were operated by, and with reference
to, the Compensation Committee in existence in fiscal 1994 (as described above).
The Board is currently reviewing all executive compensation policies.
To preserve objectivity in the achievement of its goals, the Compensation
Committee was comprised of three independent, non-employee directors who have no
"interlocking" relationships as defined by the proxy rules promulgated by the
Securities and Exchange Commission (the "SEC"). It was the Compensation
Committee's overall goal to develop executive compensation policies that were
consistent with, and linked to, strategic business objectives and Company
values. The Compensation Committee approved the design of, assessed the
effectiveness of, and administered executive compensation programs in support of
Company compensation policies. The Compensation Committee also reviewed and
approved all salary arrangements and other remuneration for executive officers,
evaluated executive performance and considered related matters.
Compensation Philosophy
During fiscal 1994, the Company's primary business objective was to maximize
stockholder value over the long term. To accomplish this objective, the Company
developed a comprehensive business strategy that emphasized maximizing earnings
and stock price, continuing its leadership in those markets in which the Company
participates, and providing products and services of the highest value.
The following compensation policies were intended to facilitate the
achievement of the Company's business strategies:
. Provide a significant portion of senior executive compensation in the form
of long-term, at-risk compensation to focus management on the long-term
interests of stockholders and balance short-term and long-term business
and financial strategic goals.
. Provide opportunities for a personal equity interest in the Company in
order to align senior executives' interest with those of stockholders.
. Enhance the Company's ability to attract, retain, and encourage the
development of executives with exceptional knowledge and experience
through compensation opportunities.
. Target compensation levels at rates that are reflective of current market
practices to maintain a stable, successful management team.
Competitive market data was provided by an independent compensation
consultant. The data provided compared the Company's compensation practices to a
group of similarly situated companies. The group of companies to which the
Company compared its compensation practices was comprised of companies that have
national and international business operations and similar sales volume, market
capitalizations, employment levels and lines of business as the Company. The
Compensation Committee reviewed and approved the selection of companies used for
compensation comparison purposes.
The companies chosen for the comparison group were not necessarily the same
companies that comprise the S&P Beverage Index in the Comparative Stock
Performance Graph included in this Proxy Statement. The Compensation Committee
believed that the Company's most direct competitors for
36
<PAGE>
executive talent were not necessarily all of the companies that would be
included in a published industry index established for comparing shareholder
returns.
The key elements of the Company's executive compensation were base salary,
annual incentives, long-term compensation and benefits. These key elements are
addressed separately below. In determining compensation, the Compensation
Committee considered all elements of an executive's total compensation package,
including severance plans, insurance and other benefits.
Base Salaries
The Compensation Committee regularly reviewed each executive's base salary.
Base salaries were targeted at median levels for public companies of comparable
size. Base salaries for executives were initially determined by evaluating the
executive's level of responsibility, prior experience and breadth of knowledge,
internal equity issues and external pay practices.
Increases to base salaries were driven primarily by individual performance.
Individual performance was evaluated based on business unit performance goals of
the Company. When evaluating individual performance, the Compensation Committee
also considered the executive's efforts in promoting Company values, continuing
educational and management training, improving product quality, developing
relationships with customers, suppliers, and employees, demonstrating leadership
abilities among coworkers and other goals.
The base salaries of John R. Albers (Chairman of the Board, Chief Executive
Officer and President of the Company) and other executives of the Company were
reviewed at the October 1994 meeting of the Compensation Committee. At that
meeting, the Compensation Committee approved a merit increase in Mr. Albers'
salary of $19,973 or 3% of his prior base salary, effective November 1, 1994.
His annual base salary at the end of fiscal year 1994 was $688,293. The
Compensation Committee believed Mr. Albers managed the Company extremely well in
the challenging business climate in which it competes, and achieved
above-average results with respect to corporate and business unit sales volume
and operating profits, in comparison to the Company's competitors and comparable
companies outside the food and beverage industry.
Annual Incentives
The Incentive Compensation Plan promotes the Company's pay-for-performance
philosophy by providing executives with direct financial incentives in the form
of annual cash bonuses to achieve business unit and Company-wide performance
goals. Annual bonus opportunities allow the Company to communicate specific
goals that are of primary importance during the coming year and motivate
executives to achieve these goals.
Each year, the Compensation Committee established specific goals relating to
each executive's bonus opportunity. Eligible executives were assigned threshold,
target, and maximum bonus levels based on a percentage of base salary. The
percentages were established based on bonus practices and opportunities within
companies comparable in size to the Company and/or in the Company's industry.
Percentages were targeted at median levels for such companies. Executives earned
bonuses to the extent that pre-established goals were achieved.
Corporate goals were approved each year by the Compensation Committee and
were based upon financial objectives of the Company deemed appropriate by the
Compensation Committee. Where executives had strategic business unit ("SBU")
responsibilities, a portion of the goal was based on financial performance
measures that support SBU performance. This portion varied with the position of
each individual; however, no bonus was paid unless predetermined threshold
performance levels were reached.
37
<PAGE>
Target bonus awards were set at a market level, as discussed above. Targets
were considered by the Compensation Committee to be achievable, but required
above-average performance from each of the executives.
The Compensation Committee believed that this annual incentive plan
accomplished the Company's pay-for-performance objectives. The Incentive
Compensation Plan of the Company for 1994, pursuant to which Mr. Albers was paid
the bonus indicated in the Summary Compensation Table, was identical, in all
material respects, to the Incentive Compensation Plan described above. Mr.
Albers' bonus was based upon the attainment of predetermined thresholds relating
to the Company's case sales volume and operating profit.
Long-Term Incentives
Long-term incentives were provided in the form of stock options and
restricted stock grants pursuant to the Company's 1993 Stock Ownership Plan.
In keeping with the Company's commitment to provide a total compensation
package which favors at-risk components of pay, long-term incentives comprised a
substantial portion of an executive's total compensation package. The
Compensation Committee's objective was to provide executives with long-term
incentive award opportunities that were consistent with grants made within the
Company's industry and were reflective of prior performance.
Long-term incentive award guidelines were developed based on the same
methodology used in establishing bonus award guidelines. Practices of comparable
companies were adapted for use by the Company. Awards were targeted at median
levels for such companies. The amount of option or restricted stock grants
varied by position within the Company.
Stock Options and Restricted Stock
Stock options were granted at an option price not less than the fair market
value of the Common Stock on the date of grant. Accordingly, stock options have
value only if the stock price appreciated from the date the options were
granted. These grants focused executives on the creation of stockholder value
over the long term and encouraged equity ownership in the Company.
In 1994, Mr. Albers was granted options to purchase 40,000 shares with an
exercise price of $23.125 per share. As of December 31, 1994, Mr. Albers owned
2,249,967 shares of the Company's Common Stock, and with the grant in 1994, held
options to purchase an additional 1,519,180 shares. No restricted stock grants
were awarded to Mr. Albers in 1994.
Each year, the Compensation Committee determined the total amount of options
and restricted stock that would be made available to the Company's executives.
These amounts varied annually based upon what the Compensation Committee
believed was appropriate, taking into account the executive's total compensation
package and the desire of the Compensation Committee to create stockholder
value, to encourage equity ownership by the Company's executives, to provide an
appropriate link to the interests of the stockholders, and to provide long-term
incentive award opportunities on a par with practices within the Company's
industry.
The Company does not presently have a policy that requires or encourages the
Compensation Committee to qualify stock options or restricted stock awards to
executive officers for deductibility under Section 162(m) of the Internal
Revenue Code of 1986, as amended. However, the Compensation Committee considered
the cost to the Company of such option or restricted stock grants in making all
compensation decisions. (As a result of the consummation of the Offer, all stock
options were cancelled on March 2, 1995.)
38
<PAGE>
Summary
The Board believes that the compensation program for the executives of the
Company, which it understands was operated by the Compensation Committee during
fiscal 1994, is comparable with the compensation programs provided by similarly
situated companies and serves the best interests of the shareholders of the
Company. The Board also believes that annual performance pay, as determined by
the Compensation Committee, was appropriately linked to individual performance,
the annual financial performance of the Company and shareholder value.
Henry A. Udow
John F. Brock
David A. Gerics
The Board of Directors
Compensation of Executive Officers
The following table sets forth certain information concerning the
compensation earned by, awarded to or paid to the Company's Chief Executive
Officer and each of the other four most highly compensated executive officers of
the Company for services rendered to the Company during the years 1992 through
1994.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------- -----------------------
SECURITIES RESTRICTED
OTHER UNDERLYING STOCK ALL OTHER
SALARY BONUS ANNUAL OPTIONS AWARD(S) COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($)(1) COMPENSATION(2) (#) ($)(3) ($)(2)
- ----------------------------------- ---- ------- ------- --------------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
John R. Albers (4),................ 1994 688,293 582,256 -- 40,000 -- --
President and Chief Executive 1993 668,320 424,829 -- 100,000 191,904 --
Officer 1992 622,942 607,041 -- 15,580 -- --
Ira M. Rosenstein (4),............. 1994 391,756 251,063 -- 30,000 -- --
Executive Vice President and Chief 1993 377,816 185,250 -- 75,000 127,936 --
Financial Officer 1992 354,446 258,225 -- 12,000 -- --
True H. Knowles (4),............... 1994 302,250 196,875 -- 30,000 -- --
Executive Vice President 1993 288,077 150,000 -- 85,000 127,936 --
1992 263,077 192,500 -- 12,000 -- --
Frances I. Mullin, III (4),........ 1994 302,250 175,219 -- 30,000 -- --
Executive Vice President 1993 288,077 136,875 -- 75,000 127,936 --
1992 262,923 192,500 -- 12,000 -- --
Charles P. Grier (4),.............. 1994 211,503 92,225 -- 10,000 -- --
Senior Vice President 1993 202,149 70,568 -- 25,000 63,968 --
1992 189,520 92,789 -- 6,000 -- --
</TABLE>
- ------------
(1) Includes bonuses earned in 1992, 1993 and 1994 under the Incentive
Compensation Plan of the Company that were paid in 1993, 1994 and 1995.
(2) Amounts under Other Annual Compensation do not include the value of
perquisites and other personal benefits because the aggregate amount of such
compensation, if any, did not exceed the lesser of $50,000 or 10% of the
total amount of annual salary and bonus for each named individual. No
compensation was paid to any of the above-mentioned executive officers in
1992, 1993 and 1994 that constituted All Other Compensation.
(3) The amount reported in the table represents that market value of restricted
stock grants as of the date of grant, which was October 27, 1993, less the
purchase price of $.01 per share and without giving effect to the diminution
in value attributable to the restrictions on such stock. As of December 31,
1994, the aggregate number of shares of restricted stock issued under the
1993 Stock Ownership Plan was 89,000, which had an aggregate market value of
$2,280,625, based upon a closing price per share of the Company's Common
Stock on said date of $25,625. Grants of restricted stock under the 1993
Stock Ownership Plan are subject to forfeiture upon (a) the termination of
the employment of the participating employee for reasons other than death,
disability, retirement, or a Change of Control (as defined), or (b) the
failure by the Company and/or the participating employee, as the case may
be, to meet specific performance goals set forth in the performance stock
award agreement issued to the participating employee, which sets forth the
terms and conditions relating to the grant of the restricted stock. In the
event that the employment of a participating employee is terminated by
reason of death, disability, retirement or a Change of Control (as defined),
the participating employee may be entitled to receive all or a portion of
such restricted stock depending upon the timing of the termination. During
the period the restrictions remain in effect, the participating employee may
not sell or otherwise transfer, pledge as security or otherwise encumber the
restricted stock, although the participating employee does have all other
rights of a stockholder of the Company, including the right to vote
(Footnotes continued on following page)
39
<PAGE>
(Footnotes continued from preceding page)
such shares and receive dividends and other distributions paid or made in
respect of such restricted stock. As of December 31, 1994, Messrs. Albers,
Rosenstein, Knowles, Mullin and Grier held 9,600, 6,400, 6,400, 7,400 and
3,200 shares of restricted stock of the Company, respectively, which,
subject to termination of employment due to death, disability, retirement or
Change of Control will not vest, if at all, until the first quarter of 1996.
(In connection with the Offer, all shares of restricted stock were purchased
by Purchaser on March 2, 1995.)
(4) Messrs. Albers and Rosenstein resigned as executive officers of the Company
effective April 13, 1995. Messrs. Grier and Mullin have indicated to the
Company that they intend to resign their positions as executive officers
of the Company effective May 7, 1995, and April 28, 1995, respectively.
Shortly after March 2, 1995, Mr. Knowles ceased serving as an
executive officer of the Company.
Stock Options
The following table shows all individual grants of stock options to the
Company's Chief Executive Officer and the other four most highly compensated
executive officers of the Company in 1994. Effective March 2, 1995, each
outstanding stock option was cancelled by the Company and each holder thereof
received an amount in cash equal to the product of (i) the number of Shares
previously subject to such Option and (ii) the excess, if any, of $33 over the
exercise price per Share previously subject to such stock option.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS FOR 10 YEAR OPTION TERM(2)
----------------------------------------------------------- ---------------------------------------
5% 10%
------------------ ------------------
% OF
NUMBER OF TOTAL
SECURITIES OPTIONS EXERCISE GAIN ON GAIN ON
UNDERLYING GRANTED TO OR BASE BASE PRICE BASE PRICE
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION TO $37.67 PER TO $59.98 PER
NAME GRANTED (#) FISCAL YEAR SHARE ($) (1) DATE SHARE ($)(1)(2)(3) SHARE ($)(1)(2)(3)
- ----------------------------- ----------- ------------ ------------- -------------- ------------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
John R. Albers............... 40,000 7.9% 23.125 July 28, 2004 581,800 1,474,200
Ira M. Rosenstein............ 30,000 5.9% 23.125 July 28. 2004 436,350 1,105,650
True H. Knowles.............. 30,000 5.9% 23.125 July 28, 2004 436,350 1,105,650
Francis I. Mullin, III....... 30,000 5.9% 23.125 July 28, 2004 436,350 1,105,650
Charles P. Grier............. 10,000 2.0% 23.125 July 28, 2004 145,450 368,550
All stockholders (3)......... 1,001,349,303 2,537,279,379
</TABLE>
- ------------
(1) Based on the fair market value of the Company's Common Stock as of July 28,
1994 reflected by the closing sales price of the Company's Common Stock on
the New York Stock Exchange on such date.
(2) The 5% and 10% rates of appreciation are set by the Commission and are not
intended to forecast future appreciation, if any, of the Company's Common
Stock.
(3) Total potential realizable value in excess of the $23.125 per share price of
the Common Stock on July 28, 1994, based upon the assumed annual rates of
appreciation shown and calculated using 68,844,916 shares of Common Stock
(on a fully diluted basis) as of December 31, 1994. The potential gain
related to these options granted to all of the named executive officers
represents less than .20% of the total potential stockholder gain.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The following table sets forth certain information regarding options
exercised during 1994 by persons named in the Summary Compensation Table and
options held by such persons at December 31, 1994. The values of unexercised
in-the-money stock options at December 31, 1994 shown below are presented
pursuant to Commission rules. Effective March 2, 1995, each outstanding stock
option was cancelled by the Company and each holder thereof received an amount
in cash equal to the product of (i) the number of Shares previously subject to
such stock option and (ii) the excess, if any, of $33 over the exercise price
per Share previously subject to such stock option.
40
<PAGE>
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FY-END (#)(1) AT FY-END (#) (2)
ACQUIRED VALUE ------------------------- -------------------------
NAME ON EXERCISE(#) REALIZED ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ----------------------- -------------- ------------ ------------------------- -------------------------
<S> <C> <C> <C> <C>
John R. Albers......... -0- -0- 1,412,513/106,667 36,195,646/2,733,342
Ira M. Rosenstein...... -0- -0- 937,000/80,000 24,010,625/2,050,000
True H. Knowles........ 134,900 $ 2,779,854 405,433/86,667 10,389,221/2,220,841
Francis I. Mullin,
III.................... 100,000 $ 2,308,500 507,000/80,000 12,991,875/2,050,000
Charles P. Grier....... 6,000 $ 106,200 158,333/26,667 4,057,283/683,342
</TABLE>
- ------------
(1) Pursuant to the provisions of the 1988 Stock Option Plan, upon the
consummation of the Company's initial public offering of its Common Stock,
which occurred on February 2, 1993, the vesting of all options granted under
such plan was accelerated. As a result, all options granted under the 1988
Stock Option Plan, including those granted to the executive officers named
above, vested (and thus became exercisable) one year after the effective
date of the Company's initial public offering of its Common Stock.
(2) Based on the closing price per share of the Company's Common Stock on the
New York Stock Exchange on December 30, 1994 (the last trading day in 1994),
which was $25.625.
Comparative Stock Performance
The graph below compares the cumulative total shareholder return on the
Common Stock of the Company with the cumulative total return on the S&P 500
Index and the S&P Beverage Index over the period commencing January 27, 1993,
the date the Company consummated its intital public offering, through March 31,
1994 (assuming the investment of $100 in the Company's Common Stock, the S&P 500
Index and the S&P Beverage Index on January 27, 1993, and reinvestment of all
dividends).
<TABLE>
<CAPTION>
COMPARISON OF CUMULATIVE TOTAL RETURN OF COMPANY,
S&P BEVERAGE INDEX AND S&P 500 INDEX
QUARTER 27-JAN 93 MAR 93 JUN 93 SEP 93 DEC 93 MAR 94 JUN 94 SEP 94 DEC 94 MAR 95
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dr. Pepper $100.00 $111.67 $121.68 $134.17 $160.01 $160.85 $150.35 $155.01 $170.85 $216.68
- ---------------------------------------------------------------------------------------------------------------------------------
S&P 500 Index $100.00 $100.78 $104.29 $105.98 $109.46 $105.31 $105.75 $130.92 $110.91 $121.71
- ---------------------------------------------------------------------------------------------------------------------------------
Beverages
(Soft Drinks) $100.00 $102.61 $ 98.12 $ 99.46 $105.05 $ 95.54 $ 90.42 $105.38 $111.18 $123.95
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Pension and Supplemental Pension Plan
Employees of Dr Pepper/Seven-Up Corporation, a wholly owned subsidiary of
the Company ("DP/7UP"), and its subsidiaries are covered by a tax-qualified,
funded pension plan (the "Pension Plan"), which provides for defined benefits
upon retirement. Contributions to the Pension Plan for employees and benefits
derived by the participants are calculated on an actuarial basis. In no event
may
41
<PAGE>
a participant's benefit exceed the lesser of $120,000 per year (as reduced for
the ten-year certain form of payment provided under the plan) or 100% of a
participant's average compensation for the three consecutive years in the last
ten in which such participant's compensation was highest. Additional limits
apply if participants are also covered under a defined contribution plan, such
as the Profit Sharing Plan. The Pension Plan may be terminated at any time and
any excess assets, after all benefits and administrative expenses have been
paid, will revert to the Company. Participant's rights to benefits vest after
five years of service.
DP/7UP also provides, on a joint basis, a supplemental pension plan (the
"Supplemental Pension Plan") for executive officers and certain senior officers,
generally at the level of vice president or senior vice president and above,
which provides benefits in excess of those payable under the Pension Plan. The
Supplemental Pension Plan is unfunded and payable solely out of the general
assets of DP/7UP. Benefits are payable monthly to the participant or his
beneficiary for ten years after retirement or until the participant's death, if
later, and vary in the amount with the length of service. Special provisions in
the Supplemental Pension Plan relate to early retirement, retirement after
disability, death after retirement and surviving spouses' benefits.
Participant's rights to benefits vest after ten years of service.
The following tables set forth the annual retirement benefits payable under
the Pension Plan and the Supplemental Pension Plan upon normal retirement after
December 31, 1994 for the specified remuneration classifications and years of
service. The amounts reflected for the Supplemental Pension Plan aggregate
benefits from both Plans; however, amounts actually payable under the
Supplemental Pension Plan are reduced dollar for dollar by amounts paid pursuant
to the Pension Plan.
Pension Plan Table
<TABLE>
<CAPTION>
YEARS OF SERVICE(2)
PENSION PLAN ----------------------------------------------------
COMPENSATION(1) 15 20 25 30 35
- ------------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$1,000,000 (and above)......... $120,000 $120,000 $120,000 $120,000 $120,000
800,000...................... 120,000 120,000 120,000 120,000 120,000
600,000...................... 120,000 120,000 120,000 120,000 120,000
400,000...................... 120,000 120,000 120,000 120,000 120,000
200,000...................... 78,750 103,750 108,750 113,750 118,750
100,000...................... 40,000 52,500 55,000 57,500 60,000
</TABLE>
Supplemental Pension Plan Table
<TABLE>
<CAPTION>
YEARS OF SERVICE(2)
SUPPLEMENTAL PENSION ----------------------------------------------------
PLAN COMPENSATION(1) 15 20 25 30 35
- ------------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$1,000,000..................... $500,000 $550,000 $600,000 $600,000 $600,000
800,000...................... 400,000 440,000 480,000 480,000 480,000
600,000...................... 300,000 330,000 360,000 360,000 360,000
400,000...................... 200,000 220,000 240,000 240,000 240,000
200,000...................... 100,000 110,000 120,000 120,000 120,000
100,000...................... 50,000 55,000 60,000 60,000 60,000
</TABLE>
- ------------
(1) An employee's compensation for determination of pension benefits under the
Pension Plan and the Supplemental Pension Plan is calculated on the same
basis as "Salary" and "Bonus" as set forth in the Summary Compensation
Table, excluding taxable compensation that is not for personal services.
Benefits are determined on a ten-year certain and life basis. This chart
takes into account the decreases in future Pension Plan benefit accruals
that occurred beginning in 1994, when an Internal Revenue Service Rule
became effective that no more than the first $150,000 in compensation can be
considered under the Pension Plan. Since 1989, benefits under the Pension
Plan have been calculated such that the monthly benefit is not reduced by a
percentage of the employee's primary social security benefit at the date of
his termination of employment.
(2) The following executive officers are credited with the following years of
benefit service under the Pension Plan: Mr. Albers--23 years; Mr.
Rosenstein--14 years; Mr. Knowles--12 years; Mr. Mullin--3 years; and Mr.
Grier--34 years. Mr. Albers' employment agreement with the Company provides
that he is currently credited with 30 years of service under the
Supplemental Pension Plan and that he will be entitled to a Normal Pension,
as defined under such plan regardless of the date of his termination of
employment. Mr. Rosenstein's employment agreement with the Company provides
that he is currently credited with 19 years of service under the
Supplemental Pension Plan. See the section entitled "Employment Agreements"
for a discussion of the terms of employment agreements for Messrs. Albers
and Rosenstein.
42
<PAGE>
Disability and Death Benefit Plans
The Company provides a supplemental disability plan and a supplemental death
benefit plan for executive officers and senior executives generally at the level
of vice president or senior vice president and above. The supplemental
disability plan is unfunded and payable solely out of the general assets of
DP/7UP. The Company may provide for these benefits, however, by purchasing
insurance on the participants involved, under which the Company is the owner and
beneficiary of the policies. The supplemental disability plan provides benefits
in excess of those under the Company's regular disability program. Benefits are
payable to participants who become totally and permanently disabled prior to age
65. Benefits equal to 60% of monthly compensation less the sum of benefits under
the Company's regular disability program, social security and worker's
compensation, are payable monthly until the earliest of the participant's death,
recovery or commencement of benefits under the Pension Plan. The supplemental
disability plan also provides, in the event of death or disability of a
participant, educational assistance benefits to the participant's children for
their actual costs of college (not in excess of $6,000 per year) for a period of
up to four years.
The supplemental death benefit plan provides that, if a participant dies
before retirement, his designated beneficiary will receive monthly benefits for
a period of 10 or 15 years, depending upon the position held by the participant,
which, when added to any death benefits under the Pension Plan, will equal 50%
of his monthly compensation. If a participant dies after retirement, his
designated beneficiary is entitled to a lump sum payment equal to twice his
annual compensation (based on his monthly salary as of his retirement date), but
not to exceed $500,000. Although the supplemental death benefit plan is
technically unfunded, payments thereunder are provided for through life
insurance policies under which the Company is the owner and beneficiary and the
employee is the insured.
The following table shows the annual benefits payable in specific
remuneration classifications for the supplemental disability plan and the
supplemental death benefit plan as in effect on December 31, 1994.
Supplemental Disability Plan
<TABLE>
<CAPTION>
SUPPLEMENTAL PRE-RETIREMENT
COMPENSATION(A) DISABILITY PAYMENTS(B) SURVIVOR BENEFITS(C)
- ---------------------------------------- ---------------------- --------------------
<S> <C> <C>
$1,000,000.............................. $600,000 $500,000
800,000............................... 480,000 400,000
600,000............................... 360,000 300,000
400,000............................... 240,000 200,000
200,000............................... 120,000 100,000
100,000............................... 60,000 50,000
</TABLE>
- ------------
(a) An executive officer's compensation for determination benefits under the
supplemental disability plan is calculated on the same basis as his salary
and bonus compensation, excluding taxable compensation that is not for
personal services. The payments under the supplemental death benefit plan
are calculated on the basis of salary, excluding bonuses, incentive
compensation, commissions and other similar payments.
(b) The amounts shown have not been reduced by any amounts which may be payable
under the Company's regular disability program, social security or worker's
compensation.
(c) The amounts shown represent annual amounts payable over 10 to 15 years based
on position held and have not been reduced by death benefits under the
Pension Plan. The Pension Plan would generally pay a pre-retirement death
benefit for the life of the surviving spouse equal to 50% of the benefit the
participant would have received if he had retired immediately before his
death.
43
<PAGE>
Employee Severance Plan
On February 24, 1994, the Company adopted the Special Plan and Severance
Benefits Program for Employees of Dr Pepper/Seven-Up Corporation (the "Severance
Plan") covering full time active employees of the Company who continue in the
employ of the Company (or successor entity) after a "Change of Control" (as
defined below). Severance benefits under the Severance Plan apply only to the
first Change of Control of the Company that occurs after the adoption of the
Severance Plan. The consummation of the Offer by Purchaser on March 2, 1995
resulted in a Change of Control under the Severance Plan. Under the Severance
Plan, severance benefits are payable only in the event a covered employee is
terminated without "Cause" or resigns with "Good Reason" within 24 months of the
date of consummation of a Change of Control. Termination for "Cause" means a
termination due to dishonesty, the commission of fraud or criminal acts by the
employee or demonstratively willful repeated violations of the employee's
obligations to the Company as an employee which are intended to result in, or do
result in, material injury to the Company. "Good Reason" includes a reduction in
position, authority, duties or responsibilities or compensation of the employee,
any failure by the Company to comply with the provisions of any employment
agreement between the Company and the employee, or a transfer of the employee's
job to a location more than 35 miles from his or her current worksite. Severance
benefits under the Severance Plan are generally equal to (i) one to eighteen
months' base salary of the employee, based on the tenure and grade level of the
employee, (ii) accrued vacation pay, (iii) cash payments for any unvested stock
options granted under the 1993 Stock Ownership Plan, and (iv) the automatic
lapsing of any restrictions on shares of restricted stock held by the employee
at the time of termination of his or her employment. In the event that an
eligible employee is entitled to benefits under the Severance Plan and also the
same benefit in connection with, upon or following a Change of Control of the
Company under another program, practice or arrangement of the Company, then such
employee shall receive the greater of the two benefits and shall be entitled to
any other benefits that may be provided under such other program, practice or
arrangement that are not related to a Change of Control. The Severance Plan
expires on February 29, 2004.
Executive Severance Agreements and Change in Control Arrangements
On August 27, 1991, the Company entered into executive severance agreements
with John R. Albers, Ira M. Rosenstein and True H. Knowles, and on April 8, 1992
with Francis I. Mullin, III (the "Severance Agreements"). The Severance
Agreements provide certain benefits to such officers upon the occurrence of a
Change in Control. The consummation of the Offer by Purchaser on March 2, 1995
resulted in a Change of Control under the Severance Agreements. In general, the
Severance Agreements for Messrs. Albers and Rosenstein provide that upon a
Change in Control, if within three years of such Change of Control the
employment of the covered officer is terminated either by the Company without
Cause (as defined) or by such officer for any reason, such officer will receive
a lump sum payment equal to three times the most recent annual salary and bonus
paid to such officer prior to the Change in Control. The Severance Agreements
for Messrs. Knowles and Mullin provide that upon a Change in Control, if within
three years of such Change in Control the employment of the covered officer is
terminated either by the Company without Cause (as defined) or by such officer
for Good Reason (as defined), such officer will receive a lump sum payment equal
to three times the most recent annual salary and bonus paid to such officer
prior to the Change in Control. Each covered officer also will be entitled to
have any stock options he then holds repurchased by the Company for cash in an
amount determined in accordance with the Severance Agreements. Each covered
officer also will be paid by the Company an amount sufficient to reimburse such
officer for the full amount of any excise taxes imposed as a result of the
payment of any portion of the severance benefits payable under the Severance
Agreements. Pursuant to the Severance Agreements, the executives will also be
entitled to reimbursement by the Company for all costs and expenses incurred by
them in defending or enforcing the Severance Agreement. Each Severance Agreement
had an initial term until December 31, 1993 (except for the Severance Agreement
with Francis I. Mullin, III, the initial term of which continued until August
31, 1994), was automatically renewed for the one-year period beginning January
1, 1994
44
<PAGE>
and is subject to automatic renewals for successive one-year periods unless the
Company elects to terminate such Severance Agreement, in which case such
Severance Agreement shall terminate two years from the expiration of the then
current term.
Pursuant to a letter agreement dated November 8, 1989 (the "1989 Severance
Agreement"), the Company agreed to provide Charles P. Grier with certain
benefits if, within one year of a "change of control," his employment is
terminated by the Company without Cause (as defined), or a Constructive
Termination (as defined) of his employment occurs. A "change in control" for
purposes of the 1989 Severance Agreement occurred on March 2, 1995 when
Purchaser consummated the Offer. Mr. Grier will be entitled to receive a
severance payment equal to his compensation for the six months prior to his
termination, reduced by any amount that the IRS determines is not deductible
pursuant to the provisions of the Internal Revenue Code. Mr. Grier will also be
entitled to reimbursement by the Company for all costs and expenses incurred by
him in defending or enforcing the 1989 Severance Agreement. By its terms, the
1989 Severance Agreement could have expired on December 31, 1994, but was
automatically renewed for a one-year period beginning January 1, 1995 and is
subject to automatic renewals for successive one-year periods unless the Company
elects to terminate the agreement.
Employment Agreements
DP/7UP entered into new four-year employment agreements with Messrs. Albers
and Rosenstein, effective as of January 1, 1993. These employment agreements
(the "Agreements") provide that the Company will pay Messrs. Albers and
Rosenstein salaries of not less than $659,250 and $375,600, respectively, during
the terms of the Agreements. The amount of Messrs. Albers' and Rosenstein's
annual salaries will be reviewed by the Company's Compensation Committee at the
meeting of the Board of Directors held in October of each year. Mr. Albers'
employment agreement with the Company also provides that he is currently
credited with 30 years of service under the Supplemental Pension Plan, and that
he will be entitled to a Normal Pension, as defined under such plan, regardless
of the date of his termination of employment. Mr. Rosenstein's employment
agreement with the Company provides that he is currently credited with 19 years
of service under the Supplemental Pension Plan. Effective April 13, 1995,
Messrs. Albers and Rosenstein resigned from their respective positions as Chief
Executive Officer and Chief Financial Officer of the Company.
Indemnification Agreements
On January 25, 1995, the Company entered into indemnification agreements
with each person who as of such date was a director or executive officer of the
Company, which includes Messrs. Grier and Mullin. The indemnification agreements
generally provide (i) for the prompt indemnification to the fullest extent
permitted by law against (a) any and all expenses (including attorneys' fees)
and all other costs paid or incurred in connection with investigating, preparing
to defend, defending or otherwise participating in any threatened, pending or
completed action, suit or proceeding related to the fact that such indemnitee is
or was a director, officer, employee, agent or fiduciary of the Company or is or
was serving at the Company's request as a director, officer, employee, agent or
fiduciary of the Company or is or was serving at the Company's request as a
director, officer, employee, agent or fiduciary of another entity, or by reason
of anything done or not done by such indemnitee in any such capacity and (b) any
and all judgments, fines, penalties and amounts paid in settlement of any claim,
unless the "Reviewing Party" (defined as one or more members of the Board or
appointee(s) of the Board who are not parties to the particular claim, or
independent legal counsel) determines that such indemnification is not permitted
under applicable law and (ii) for the prompt advancement of expenses to an
indemnitee as well as the reimbursement by such indemnitee of such advancement
to the Company if the Reviewing Party determines that the indemnitee is not
entitled to such indemnification under applicable law. In addition, the
indemnification agreements provide (i) a mechanism through which an indemnitee
may seek court relief in the event the Reviewing Party determines that the
indemnitee would not be
45
<PAGE>
permitted to be indemnified under applicable law (and would therefore not be
entitled to indemnification or expense advancement under applicable law (and
would therefore not be entitled to indemnification or expense advancement under
the indemnification agreement) and (ii) indemnification against all expenses
(including attorneys' fees), and the advancement thereof, if requested, incurred
by the indemnitee in any action brought by the indemnitee to enforce an
indemnity claim or to collect an advancement of expenses or to recover under a
directors' and officers' liability insurance policy, regardless of whether such
action is ultimately successful or not. Furthermore, the indemnification
agreements provide that after there has been a "change in control" in the
Company (as defined in the indemnification agreements), other than a change in
control approved by a majority of directors who were directors prior to such
change, then, with respect to all determinations regarding rights to
indemnification and the advancement of expenses, the Company will seek legal
advice as to the right of the indemnitee to indemnification under applicable law
only from independent legal counsel selected by the indemnitee and approved by
the Company.
The indemnification agreements impose upon the Company the burden of proving
that an indemnitee is not entitled to indemnification in any particular case and
negate certain presumptions that may otherwise be drawn against an indemnitee
seeking indemnification in connection with the termination of actions in certain
circumstances. Indemnitees' rights under the indemnification agreements are not
exclusive of any other rights they may have under Delaware law, the Company's
By-laws or otherwise. Although not requiring the maintenance of directors' and
officers' liability insurance, the indemnification agreements require that
indemnitees be provided with the maximum coverage available for any Company
director or officer if there is such a policy.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Hicks, Candlish and Merrill served as members of the Compensation
Committee during 1994. Mr. Hicks and certain of his affiliates hold significant
equity interests in Dr Pepper Bottling Holdings, Inc., which, through its
operating subsidiary, Dr Pepper Bottling Company of Texas, Inc. ("Dr Pepper
Bottling"), engages in the business of bottling DR PEPPER and 7UP brand products
and other soft drink products in the Dallas, Fort Worth, Houston and Waco, Texas
areas. Dr Pepper Bottling purchased approximately $62,183,000 of products from
the Company in 1994. Mr. Hicks serves on the boards of directors of Dr Pepper
Bottling Holdings, Inc. and Dr Pepper Bottling.
SECTION 16(A) REPORTING
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors and executive officers, and
persons who own more than ten percent of the Company's Common Stock, to file
with the SEC initial reports of beneficial ownership and reports of changes in
beneficial ownership of Common Stock and other equity securities of the Company.
Officers, directors and greater than ten-percent stockholders are required by
SEC regulations to furnish the Company with copies of all Section 16(a) reports
they file. To the Company's knowledge, based solely on a review of the copies of
such reports furnished to the Company during the period commencing January 1,
1994 and ending December 31, 1994, its officers, directors and greater than
ten-percent stockholders had complied with all applicable Section 16(a) filing
requirements with the exception that inaccurate initial reports of ownership
were filed on behalf of Richard G. Merrill, Robert E. Quirk, John R. Albers,
Francis I. Mullin, III and Daniel F. O'Neill on February 14, 1994.
REVOCATION OF PROXIES
If the Annual Meeting is adjourned, for whatever reason, the approval of the
Merger Agreement shall be considered and voted upon by stockholders at the
subsequent "adjourned meeting" (as such term is used in Section 222 of the
DGCL), if any.
46
<PAGE>
You may revoke your proxy at any time prior to its exercise by attending the
Annual Meeting and voting in person (although attendance at the Annual Meeting
will not in and of itself constitute revocation of a proxy), by giving notice of
revocation of your proxy at the Annual Meeting, or by delivering a written
notice or revocation or a duly executed proxy relating to the matters to be
considered at the Annual Meeting and bearing a later date to the Secretary of
the Company at 8144 Walnut Hill Lane, Dallas, Texas 75231-4372. Unless revoked
in the manner set forth above, proxies in the form enclosed will be voted at the
Annual Meeting in accordance with your instructions.
INDEPENDENT PUBLIC ACCOUNTANTS
Upon appointment by the Company's Board of Directors, KPMG Peat Marwick LLP,
independent public accountants, audited and reported on the consolidated
financial statements of the Company and its subsidiaries for its fiscal year
ended December 31, 1994. Such financial statements have been included in this
Proxy Statement in reliance upon such report. The Company's Board of Directors
has designated KPMG Peat Marwick LLP as the Company's auditors for the fiscal
year ending December 31, 1995. A representative of KPMG Peat Marwick LLP is
expected to be present at the Annual Meeting.
PROXY SOLICITATION
The Company will solicit proxies, and the Company's directors, officers and
employees may also solicit proxies by telephone, telegram or personal interview.
These persons will receive no additional compensation for these services. In
addition, the Company has retained Georgeson & Company Inc. to solicit proxies
for a fee of $15,000 plus expenses. The cost of soliciting proxies will be borne
by the Company. Arrangements will be made to furnish copies of proxy materials
to fiduciaries, custodians and brokerage houses for forwarding to beneficial
owners of the Shares. Such persons will be paid reasonable out-of-pocket
expenses.
STOCKHOLDER PROPOSALS
IF THE MERGER IS CONSUMMATED, THE 1996 ANNUAL MEETING OF STOCKHOLDERS WILL
NOT OCCUR. If the Merger is not consummated, proposals of stockholders intended
to be presented at the 1996 Annual Meeting of Stockholders must be received by
the Company on or before April 6, 1996 in order to be eligible for inclusion in
the Company's Proxy Statement and form of Proxy. Generally, under the Company's
Bylaws, a stockholder's notice must be delivered to or mailed and received by
the Secretary of the Company at its principal executive offices not less than 60
days or more than 90 days prior to the anniversary date of the previous annual
meeting of stockholders of the Company, in the event the annual meeting has been
set for a date that is within 30 days before or after said anniversary date. In
the case of an annual meeting that has been called for a date that is not within
30 days before or after the anniversary date of the immediately preceding annual
meeting, or in the case of a special meeting of stockholders called for the
purpose of electing directors, the stockholder's notice must be delivered to or
mailed and received by the Secretary of the Company at its principal executive
offices not later than the close of business on the 10th day following the day
on which notice of the date of the meeting was mailed or public disclosure of
the meeting was made, whichever occurs first. As to each person whom a
stockholder proposes to nominate for election or re-election as a director, the
stockholder's notice shall set forth all information relating to such person
that is required to be disclosed in solicitations of proxies for election of
directors, or as otherwise required, in each case pursuant to Regulation 14A
under the Exchange Act, including such person's written consent to being named
in the Proxy Statement as a nominee and to serving as a director if elected. The
stockholder's notice must also set forth (i) the name and address of the
stockholder, as it appears in the Company's books, (ii) the class and number of
shares of the Company that are beneficially owned by such stockholder, (iii) as
to the beneficial owner, if any,
47
<PAGE>
on whose behalf the nomination or proposal is made, the name and address of such
person, and the class and number of shares of the Company that are beneficially
owned by such person, and (iv) with respect to any stockholder proposal, any
material interest of such stockholder or the beneficial owner, if any, on whose
behalf the proposal is made, in such business.
No person nominated by a stockholder shall be eligible to serve as a
director of the Company unless nominated in accordance with the procedures set
forth above. The chairman of the meeting shall, if the facts warrant, determine
and declare to the meeting that a nomination or proposal was not made in
accordance with the procedures prescribed by the Bylaws of the Company and, if
he or she should so determine, the chairman may so declare at the meeting and
the defective nomination or proposal shall be disregarded. Notwithstanding the
foregoing, a stockholder must also comply with all applicable requirements of
the Exchange Act and the rules and regulations thereunder with respect to
nominations of persons for election to the Board of Directors of the Company.
INCORPORATION BY REFERENCE
The following documents filed with the Commission by the Company pursuant to
the Exchange Act are incorporated herein by reference: the Company's Current
Reports on Form 8-K filed with the Commission on February 1, 1995 and March 17,
1995.
All documents filed by the Company with the Commission pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date hereof and
prior to the date of the Annual Meeting are hereby incorporated by reference
into this Proxy Statement and shall be deemed a part hereof from the date of
filing such documents or reports. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Proxy Statement to the extent
that a statement contained herein or in any other subsequently filed document
which also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Proxy Statement.
THIS PROXY STATEMENT INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS (OTHER THAN EXHIBITS TO
SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE)
ARE AVAILABLE, WITHOUT CHARGE, TO ANY PERSON, INCLUDING ANY BENEFICIAL OWNER, TO
WHOM THIS PROXY STATEMENT IS DELIVERED, ON WRITTEN OR ORAL REQUEST TO THE
COMPANY AT 8144 WALNUT HILL LANE, DALLAS, TEXAS 75231-4372 (TELEPHONE NUMBER
(214) 360-7000), ATTENTION: NELSON A. BANGS, SECRETARY. IN ORDER TO ENSURE
DELIVERY OF THE DOCUMENTS PRIOR TO THE ANNUAL MEETING OF STOCKHOLDERS, REQUESTS
SHOULD BE RECEIVED BY MAY 20, 1995.
48
<PAGE>
OTHER MATTERS
The Board of Directors of the Company does not intend to bring any other
matters before the Annual Meeting and does not know of any other matters that
may be brought before the Annual Meeting by others.
By Order of the Board of Directors,
/s/ Nelson A. Bangs
......................................
Nelson A. Bangs
Secretary
April 28, 1995
49
<PAGE>
DR PEPPER/SEVEN-UP COMPANIES, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR ANNUAL MEETING OF STOCKHOLDERS TO
BE HELD JUNE 5, 1995
The undersigned shareholder here appoints Nelson A. Bangs and John F.
Brock, jointly and severally, proxies, with full power of substitution, to
vote, as specified below, all shares of Dr Pepper/Seven-Up Companies, Inc. (the
"Company") which the undersigned is entitled to vote at the Annual Meeting of
Stockholders of the Company to be held at the Company's offices at 8144 Walnut
Hill Lane, Dallas, Texas, at 2:00 p.m. on June 5, 1995, or any adjournment or
postponement thereof (the "Meeting"), and directs said proxies to vote as
instructed on the matters set forth below and otherwise at their discretion.
Receipt of a copy of the Notice of said Meeting and the accompanying Proxy
Statement is hereby acknowledged.
1. Approve and adopt the Merger Agreement as described in the Company's Proxy
Statement. The Board of Directors recommends a vote FOR the Merger Agreement.
/ / FOR / / AGAINST / / ABSTAIN
2. If the Merger Agreement is not approved and adopted, the election of
management's nominee as a Class III member of the Board of Directors. The Board
of Directors recommends a vote FOR the nominee.
/ / FOR the nominee. / / WITHHOLD VOTE for the nominee.
NOMINEE: Henry A. Udow
(To withhold authority for the nominee, strike a line through his name above.)
3. In their discretion with respect to such other matters as may properly
come before the Meeting or any postponement or adjournment thereof.
(Continue and Sign On Other Side)
<PAGE>
(Continued from other side)
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS SPECIFIED HEREIN BY THE
STOCKHOLDER. IF NO SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED FOR THE
PROPOSAL SET FORTH IN ITEM 1 AND FOR THE NOMINEE LISTED IN ITEM 2, AND WITH
REGARD TO OTHER MATTERS THAT MAY COME BEFORE THE MEETING OR ANY POSTPONEMENT OR
ADJOURNMENT THEREOF, IN THE DISCRETION OF THE PROXYHOLDERS AS DESCRIBED IN THE
PROXY STATEMENT.
.............................
Signature
Date..................., 1995
Please sign EXACTLY as name
appears hereon, and in
signing as Attorney,
Administrator, Guardian,
Trustee or Corporate Officer,
please add your title as
such.
<PAGE>
ANNEX A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
AMONG
CADBURY SCHWEPPES PLC,
DP/SU ACQUISITION INC.
AND
DR PEPPER/SEVEN-UP COMPANIES, INC.
DATED AS OF JANUARY 25, 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE I
THE OFFER
PAGE
<S> <C> <C> <C>
SECTION 1.01. The Offer.............................................................. 1
SECTION 1.02. Company Action......................................................... 2
<CAPTION>
ARTICLE II
THE MERGER
<S> <C> <C> <C>
SECTION 2.01 The Merger............................................................. 4
SECTION 2.02 Effective Time; Closing................................................ 4
SECTION 2.03 Effect of the Merger................................................... 4
SECTION 2.04 Certificate of Incorporation; By-laws.................................. 4
SECTION 2.05 Directors and Officers................................................. 5
SECTION 2.06 Conversion of Securities............................................... 5
SECTION 2.07 Employee Stock Options................................................. 5
SECTION 2.08 Dissenting Shares...................................................... 5
SECTION 2.09 Surrender of Shares; Stock Transfer Books.............................. 6
<CAPTION>
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
<S> <C> <C> <C>
SECTION 3.01 Organization and Qualification; Subsidiaries........................... 7
SECTION 3.02 Certificate of Incorporation and By-laws............................... 8
SECTION 3.03 Capitalization......................................................... 8
SECTION 3.04 Authority Relative to this Agreement................................... 8
SECTION 3.05 No Conflict; Required Filings and Consents............................. 8
SECTION 3.06 Compliance............................................................. 9
SECTION 3.07 SEC Filings; Financial Statements...................................... 9
SECTION 3.08 Absence of Certain Changes or Events................................... 10
SECTION 3.09 Absence of Litigation.................................................. 11
SECTION 3.10 Employee Benefit Plans................................................. 11
SECTION 3.11 Labor Matters.......................................................... 13
SECTION 3.12 Offer Documents; Schedule 14D-9........................................ 13
SECTION 3.13 Real Property and Leases............................................... 13
SECTION 3.14 Trademarks, Patents and Copyrights..................................... 13
SECTION 3.15 Taxes.................................................................. 14
SECTION 3.16 Environmental Matters.................................................. 15
SECTION 3.17 Formula Cards.......................................................... 16
SECTION 3.18 Amendment to Rights Agreement.......................................... 16
SECTION 3.19 Brokers................................................................ 16
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER
<S> <C> <C> <C>
SECTION 4.01 Corporate Organization................................................. 17
SECTION 4.02 Authority Relative to this Agreement................................... 17
SECTION 4.03 No Conflict; Required Filings and Consents............................. 17
SECTION 4.04 Offer Documents; Proxy Statement....................................... 18
SECTION 4.05 Brokers................................................................ 18
SECTION 4.06 Financing.............................................................. 18
<CAPTION>
ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER
<S> <C> <C> <C>
SECTION 5.01 Conduct of Business by the Company Pending the Purchaser's Election 18
Date...................................................................
<CAPTION>
ARTICLE VI
ADDITIONAL AGREEMENTS
<S> <C> <C> <C>
SECTION 6.01 Stockholders Meetings.................................................. 20
SECTION 6.02 Proxy Statement........................................................ 20
SECTION 6.03 Company Board Representation; Section 14(f)............................ 21
SECTION 6.04 Access to Information; Confidentiality................................. 21
SECTION 6.05 No Solicitation of Transactions........................................ 22
SECTION 6.06 Employee Stock Options and Other Employee Benefits Matters............. 22
SECTION 6.07 Directors' and Officers' Indemnification and Insurance................. 22
SECTION 6.08 Notification of Certain Matters........................................ 24
SECTION 6.09 Further Action; Reasonable Best Efforts................................ 24
SECTION 6.10 Public Announcements................................................... 25
SECTION 6.11 Parent Guarantee....................................................... 25
SECTION 6.12 Interested Stockholder................................................. 25
<CAPTION>
ARTICLE VII
CONDITIONS TO THE MERGER
<S> <C> <C> <C>
SECTION 7.01 Conditions to the Merger............................................... 25
<CAPTION>
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
<S> <C> <C> <C>
SECTION 8.01 Termination............................................................ 26
SECTION 8.02 Effect of Termination.................................................. 27
SECTION 8.03 Fees and Expenses...................................................... 27
SECTION 8.04 Amendment.............................................................. 28
SECTION 8.05 Waiver................................................................. 28
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
ARTICLE IX
GENERAL PROVISIONS
<S> <C> <C> <C>
SECTION 9.01 Non-Survival of Representations, Warranties and Agreements............. 29
SECTION 9.02 Notices................................................................ 29
SECTION 9.03 Certain Definitions.................................................... 30
SECTION 9.04 Severability........................................................... 30
SECTION 9.05 Entire Agreement; Assignment........................................... 30
SECTION 9.06 Parties in Interest.................................................... 31
SECTION 9.07 Specific Performance................................................... 31
SECTION 9.08 Governing Law.......................................................... 31
SECTION 9.09 Headings............................................................... 31
SECTION 9.10 Counterparts........................................................... 31
ANNEX A Conditions to the Offer
ANNEX B Employee Benefits
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
GLOSSARY OF DEFINED TERMS
LOCATION OF
DEFINED TERM DEFINITION
- --------------------------------------------------------------------- ----------------------
<S> <C>
Acquiring Person..................................................... Sec. 3.18(b)
affiliate............................................................ Sec. 9.03(a)
Agreement............................................................ Preamble
beneficial owner..................................................... Sec. 9.03(b)
Blue Sky Laws........................................................ Sec. 3.05(b)
Board................................................................ Recitals
BT................................................................... Sec. 1.02(a)
business day......................................................... Sec. 9.03(c)
Certificate of Merger................................................ Sec. 2.02
Certificates......................................................... Sec. 2.09(b)
Claim................................................................ Sec. 6.07(b)
Code................................................................. Sec. 3.10(a)
Company.............................................................. Preamble
Company Common Stock................................................. Recitals
Company Preferred Stock.............................................. Sec. 3.03
Confidentiality Agreement............................................ Sec. 6.04(c)
control.............................................................. Sec. 9.03(d)
Delaware Law......................................................... Recitals
Director Stockholders................................................ Recitals
Disclosure Schedule.................................................. Sec. 3.01
Dissenting Shares.................................................... Sec. 2.08(a)
Distribution Date.................................................... Sec. 3.18(b)
DLJ.................................................................. Sec. 1.02(a)
Effective Time....................................................... Sec. 2.02
Environmental Laws................................................... Sec. 3.16(a)
ERISA................................................................ Sec. 3.10(a)
Exchange Act......................................................... Sec. 1.02(b)
Expenses............................................................. Sec. 8.03(b)
Fee.................................................................. Sec. 8.03(a)
Final Expiration Date................................................ Sec. 3.18(a)
GAAP................................................................. Sec. 3.07(b)
Hazardous Substances................................................. Sec. 3.16(a)
HSR Act.............................................................. Sec. 3.05(b)
Indemnified Parties.................................................. Sec. 6.07(b)
IRS.................................................................. Sec. 3.10(a)
January 25 Meeting................................................... Sec. 1.02(a)
Liens................................................................ Sec. 3.14
Loading.............................................................. Sec. 3.08
Material Adverse Effect.............................................. Sec. 3.01
Material Subsidiaries................................................ Sec. 3.01
Merger............................................................... Recitals
Merger Consideration................................................. Sec. 2.06(a)
Minimum Condition.................................................... Sec. 1.01(a)
Multiemployer Plan................................................... Sec. 3.10(b)
Multiple Employer Plan............................................... Sec. 3.10(b)
1993 Balance Sheet................................................... Sec. 3.07(c)
Non-Voting Common.................................................... Sec. 3.03
Offer................................................................ Recitals
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
LOCATION OF
DEFINED TERM DEFINITION
- --------------------------------------------------------------------- ----------------------
<S> <C>
Offer Documents...................................................... Sec. 1.01(b)
Offer to Purchase.................................................... Sec. 1.01(b)
Option............................................................... Sec. 2.07
Parent............................................................... Preamble
Parent Stockholders Meeting.......................................... Sec. 6.01(b)
Paying Agent......................................................... Sec. 2.098(a)
Per Share Amount..................................................... Recitals
Permitted Liens...................................................... Sec. 3.14
Permitted Offer...................................................... Sec. 1.02(b), 3.18(c)
person............................................................... Sec. 9.03(e)
Plans................................................................ Sec. 3.10(a)
Proxy Statement...................................................... Sec. 4.04
Purchaser............................................................ Preamble
Purchaser's Election Date............................................ Sec. 5.01
Rights Agreement..................................................... Recitals
Schedule 14D-1....................................................... Sec. 1.01(b)
Schedule 14D-9....................................................... Sec. 1.02(b)
SEC.................................................................. Sec. 1.01(b)
SEC Reports.......................................................... Sec. 3.07(a)
Securities Act....................................................... Sec. 3.07(a)
Shares............................................................... Recitals
Stock Acquisition Date............................................... Sec. 3.18(a)
Stock Option Plans................................................... Sec. 2.07
Stockholders Agreement............................................... Recitals
Stockholders Meeting................................................. Sec. 6.01(a)
Subsidiary........................................................... Sec. 3.01
subsidiary........................................................... Sec. 9.03(f)
Surviving Corporation................................................ Sec. 2.01
Tax.................................................................. Sec. 3.15(d)
Tender Offer Acceptance Date......................................... Sec. 2.07
Third Party.......................................................... Sec. 8.03(e)
Third Party Acquisition.............................................. Sec. 8.03(e)
Transactions......................................................... Sec. 1.02(a)
</TABLE>
v
<PAGE>
AGREEMENT AND PLAN OF MERGER, dated as of January 25, 1995 (this
"Agreement"), among Cadbury Schweppes plc, a company organized under the laws of
England ("Parent"), DP/SU Acquisition Inc., a Delaware corporation and an
indirect, wholly owned subsidiary of Parent ("Purchaser"), and Dr
Pepper/Seven-Up Companies, Inc., a Delaware corporation (the "Company").
WITNESSETH:
WHEREAS, the Boards of Directors of Parent, Purchaser and the Company have
each determined that it is in the best interests of their respective
stockholders for Parent, through Purchaser, to acquire the Company upon the
terms and subject to the conditions set forth herein; and
WHEREAS, in furtherance of such acquisition, it is proposed that Purchaser
shall make a cash tender offer (the "Offer") to acquire all the issued and
outstanding shares of Common Stock, par value $.01 per share, of the Company
("Company Common Stock"; shares of Company Common Stock being hereinafter
collectively referred to as the "Shares") for $33.00 per Share (such amount, or
any greater amount per Share paid pursuant to the Offer, being hereinafter
referred to as the "Per Share Amount") net to the seller in cash, without
interest thereon, upon the terms and subject to the conditions of this Agreement
and the Offer; and
WHEREAS, the Board of Directors of Parent and Purchaser have unanimously
approved the making of the Offer and the transactions related thereto and the
Board of Directors of Parent has resolved and agreed to recommend approval of
the Offer and the transactions related thereto to its stockholders; and
WHEREAS, the Board of Directors of the Company (the "Board") has unanimously
approved the making of the Offer and resolved and agreed, subject to the terms
and conditions contained herein, to recommend that holders of Shares tender
their Shares pursuant to the Offer; and
WHEREAS, pursuant to and in accordance with the terms of the Rights
Agreement, dated as of September 1, 1993, between the Company and Bank One,
Texas, N.A. (as amended, the "Rights Agreement"), the Board has, subject to the
terms and conditions contained herein, approved the Offer as a "Permitted
Offer"(as such term is defined in the Rights Agreement); and
WHEREAS, also in furtherance of such acquisition, the Boards of Directors of
Parent, Purchaser and the Company have each approved the merger (the "Merger")
of Purchaser with and into the Company in accordance with the General
Corporation Law of the State of Delaware ("Delaware Law") following the
consummation of the Offer and upon the terms and subject to the conditions set
forth herein; and
WHEREAS, Parent and certain directors of the Company (the "Director
Stockholders") have entered into a Stockholders Agreement, dated as of the date
hereof (the "Stockholders Agreement"), providing for the agreement of the
Director Stockholders to tender pursuant to the Offer all Shares owned by such
Director Stockholder subject to the terms and conditions of the Stockholders
Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby,
Parent, Purchaser and the Company hereby agree as follows:
ARTICLE I
THE OFFER
SECTION 1.01. The Offer. (a) Provided that this Agreement shall not have
been terminated in accordance with Section 8.01 and none of the events set forth
in Annex A hereto shall have occurred or
1
<PAGE>
be existing (unless such event shall have been waived by Purchaser), Parent
shall cause Purchaser to commence, and Purchaser shall commence, the Offer at
the Per Share Amount as promptly as reasonably practicable after the date
hereof, but in no event later than five business days after the public
announcement of Purchaser's intention to commence the Offer. The obligation of
Purchaser to accept for payment and pay for Shares tendered pursuant to the
Offer shall be subject only to (i) the condition (the "Minimum Condition") that
at least the number of Shares that, when combined with the Shares already owned
by Parent and its direct or indirect subsidiaries, constitute a majority of the
then outstanding Shares on a fully diluted basis, including, without limitation,
all Shares issuable upon the conversion of any convertible securities or upon
the exercise of any options, warrants or rights (other than the Rights (as
defined in the Rights Agreement)) shall have been validly tendered and not
withdrawn prior to the expiration of the Offer and (ii) the satisfaction or
waiver of the other conditions set forth in Annex A hereto. Purchaser expressly
reserves the right to waive any such condition (other than the Minimum
Condition), to increase the price per Share payable in the Offer, and to make
any other changes in the terms and conditions of the Offer; provided, however,
that (notwithstanding Section 8.04) no change may be made which (A) decreases
the price per Share payable in the Offer, (B) reduces the maximum number of
Shares to be purchased in the Offer, (C) imposes conditions to the Offer in
addition to those set forth in Annex A hereto, (D) amends or changes the terms
and conditions of the Offer in any manner materially adverse to the holders of
Shares (other than Parent and its subsidiaries) or (E) changes or waives the
Minimum Condition. The Per Share Amount shall, subject to applicable withholding
of taxes, be net to the seller in cash, without interest thereon, upon the terms
and subject to the conditions of the Offer. Subject to the terms and conditions
of the Offer (including, without limitation, the Minimum Condition), Purchaser
shall accept for payment and pay, as promptly as practicable after expiration of
the Offer, for all Shares validly tendered and not withdrawn.
(b) As soon as reasonably practicable on the date of commencement of the
Offer, Purchaser shall file with the Securities and Exchange Commission (the
"SEC") and disseminate to holders of Shares to the extent required by law a
Tender Offer Statement on Schedule 14D-1 (together with all amendments and
supplements thereto, the "Schedule 14D-1") with respect to the Offer and the
other Transactions (as hereinafter defined). The Schedule 14D-1 shall contain or
shall incorporate by reference an offer to purchase (the "Offer to Purchase")
and forms of the related letter of transmittal and any related summary
advertisement (the Schedule 14D-1, the Offer to Purchase and such other
documents, together with all supplements and amendments thereto, being referred
to herein collectively as the "Offer Documents"). Parent, Purchaser and the
Company agree to correct promptly any information provided by any of them for
use in the Offer Documents which shall have become false or misleading, and
Parent and Purchaser further agree to take all steps necessary to cause the
Schedule 14D-1 as so corrected to be filed with the SEC and the other Offer
Documents as so corrected to be disseminated to holders of Shares, in each case
as and to the extent required by applicable federal securities laws. The Company
and its counsel shall be given an opportunity to review and comment on the Offer
Documents and any amendments thereto prior to the filing thereof with the SEC.
Parent and Purchaser will provide the Company and its counsel with a copy of any
written comments or telephonic notification of any verbal comments Parent or
Purchaser may receive from the SEC or its staff with respect to the Offer
Documents promptly after the receipt thereof and will provide the Company and
its counsel with a copy of any written responses and telephonic notification of
any verbal response of Parent, Purchaser or their counsel. In the event that the
Offer is terminated or withdrawn by Purchaser, Parent and Purchaser shall cause
all tendered Shares to be returned to the registered holders of the Shares
represented by the certificate or certificates surrendered to the Paying Agent
(as defined herein).
SECTION 1.02. Company Action. (a) The Company hereby approves of and
consents to the Offer and represents that (i) the Board, at a meeting duly
called and held on January 25, 1995 (the "January 25 Meeting"), has unanimously
(A) determined that this Agreement and the transactions contemplated hereby,
including, without limitation, each of the Offer and the Merger (the
"Transactions"), are fair to and in the best interests of the holders of Shares
(other than Parent and its subsidiaries), (B) approved and adopted this
Agreement and the Transactions and (C) resolved to
2
<PAGE>
recommend, subject to the conditions set forth herein, that the stockholders of
the Company accept the Offer and approve and adopt this Agreement and the
Transactions; (ii) each of BT Securities Corporation ("BT") and Donaldson,
Lufkin & Jenrette Securities Corporation ("DLJ") has delivered to the Board a
written opinion that the consideration to be received by the holders of Shares
pursuant to each of the Offer and the Merger is fair to such holders from a
financial point of view; and (iii) the Board, at the January 25 Meeting and with
each director who is an officer or employee of the Company recusing himself,
determined pursuant to and in accordance with the Rights Agreement and upon
receipt of the opinions referred to in clause (ii) of this sentence that the
terms of the Offer (including the Per Share Amount) are fair to, and in the best
interests of, the Company and the holders of Shares (other than Parent and its
subsidiaries) and approved, subject to the terms and conditions contained
herein, the Offer as a "Permitted Offer" (as defined in the Rights Agreement)
subject to Section 3.18 hereof. The Company has been authorized by each of BT
and DLJ, subject to prior review by each such financial advisor, to include such
fairness opinion (or references thereto) in the Offer Documents and in the
Schedule 14D-9 (as defined in paragraph (b) of this Section 1.02) and the Proxy
Statement referred to in Section 3.12. Subject to the fiduciary duties of the
Board under applicable law as advised in writing by independent counsel (which
shall, for all purposes under this Agreement, include the Company's regular
outside counsel), the Company hereby consents to the inclusion in the Offer
Documents of the recommendation of the Board described above. The Company has
been advised by each of its directors that they intend either to tender all
Shares beneficially owned by them to Purchaser pursuant to the Offer or to vote
such Shares in favor of the approval and adoption by the stockholders of the
Company of this Agreement and the Transactions; provided, however, that, except
as contemplated by the Stockholders Agreement, such directors shall have no
obligation under this Agreement to so tender or vote their Shares if this
Agreement is terminated.
(b) As soon as reasonably practicable on the date of commencement of the
Offer, the Company shall file with the SEC a Solicitation/Recommendation
Statement on Schedule 14D-9 (together with all amendments and supplements
thereto, the "Schedule 14D-9") containing, subject only to the fiduciary duties
of the Board under applicable law as advised in writing by independent counsel,
the recommendation of the Board described in Section 1.02(a) and shall
disseminate the Schedule 14D-9 to the extent required by Rule 14d-9 promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
any other applicable federal securities laws. The Company, Parent and Purchaser
agree to correct promptly any information provided by any of them for use in the
Schedule 14D-9 which shall have become false or misleading, and the Company
further agrees to take all steps necessary to cause the Schedule 14D-9 as so
corrected to be filed with the SEC and disseminated to holders of Shares, in
each case as and to the extent required by applicable federal securities laws.
Parent, Purchaser and their counsel shall be given an opportunity to review and
comment on the Schedule 14D-9 and any amendments thereto prior to the filing
thereof with the SEC. The Company will provide Parent and Purchaser and their
counsel with a copy of any written comments or telephonic notification of any
verbal comments the Company may receive from the SEC or its staff with respect
to the Offer Documents promptly after the receipt thereof and will provide
Parent and Purchaser and their counsel with a copy of any written responses and
telephonic notification of any verbal response of the Company or its counsel.
(c) The Company shall promptly furnish Purchaser with mailing labels
containing the names and addresses of all record holders of Shares and with
security position listings of Shares held in stock depositories, each as of the
most recent date reasonably practicable, together with all other available
listings and computer files containing names, addresses and security position
listings of record holders and non-objecting beneficial owners of Shares as of
the most recent date reasonably practicable. The Company shall furnish Purchaser
with such additional information, including, without limitation, updated
listings and computer files of stockholders, mailing labels and security
position listings, and such other assistance as Parent, Purchaser or their
agents may reasonably request. Subject to the requirements of applicable law,
and except for such steps as are necessary to disseminate the Offer Documents
and any other documents necessary to consummate the Offer or the Merger, Parent
and
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Purchaser shall hold in confidence the information contained in such labels,
listings and files, shall use such information only in connection with the Offer
and the Merger, and, if this Agreement shall be terminated in accordance with
Section 8.01, shall deliver promptly to the Company all copies of such
information then in their possession and shall certify in writing to the Company
its compliance with this Section 1.02(c).
ARTICLE II
THE MERGER
SECTION 2.01. The Merger. Upon the terms and subject to the conditions set
forth in Article VII, and in accordance with Delaware Law, at the Effective Time
(as hereinafter defined), Purchaser shall be merged with and into the Company.
As a result of the Merger, the separate corporate existence of Purchaser shall
cease and the Company shall continue as the surviving corporation of the Merger
(the "Surviving Corporation"). Notwithstanding anything to the contrary
contained in this Section 2.01, Parent may elect instead, at any time prior to
the fifth business day immediately preceding the date on which the Proxy
Statement (as defined in Section 4.04) is mailed initially to the Company's
stockholders, to merge the Company into Purchaser or another direct or indirect
wholly owned subsidiary of Parent. In such event, the parties agree to execute
an appropriate amendment to this Agreement in order to reflect the foregoing and
to provide, as the case may be, that Purchaser or such other wholly owned
subsidiary of Parent shall be the Surviving Corporation.
SECTION 2.02. Effective Time; Closing. As promptly as practicable after the
satisfaction or, if permissible, waiver of the conditions set forth in Article
VII, the parties hereto shall cause the Merger to be consummated by filing this
Agreement or a certificate of merger (in either case, the "Certificate of
Merger") with the Secretary of State of the State of Delaware, in such form as
is required by, and executed in accordance with the relevant provisions of,
Delaware Law (the date and time of such filing being the "Effective Time").
Prior to such filing, a closing shall be held at the offices of Shearman &
Sterling, 599 Lexington Avenue, New York, New York 10022, or such other place as
the parties shall agree, for the purpose of confirming the satisfaction or
waiver, as the case may be, of the conditions set forth in Article VII.
SECTION 2.03. Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in the applicable provisions of Delaware Law.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time, all the property, rights, privileges, powers and franchises of
the Company and Purchaser shall vest in the Surviving Corporation, and all
debts, liabilities, obligations, restrictions, disabilities and duties of the
Company and Purchaser shall become the debts, liabilities, obligations,
restrictions, disabilities and duties of the Surviving Corporation.
SECTION 2.04. Certificate of Incorporation; By-laws. (a) Unless otherwise
determined by Parent prior to the Effective Time, and subject to the
requirements of Section 6.07, at the Effective Time, the Certificate of
Incorporation of the Company, as in effect immediately prior to the Effective
Time, shall be the Certificate of Incorporation of the Surviving Corporation and
shall be amended and restated to conform to the Certificate of Incorporation of
Purchaser as in effect immediately prior to the Effective Time; provided,
however, that, at the Effective Time, Article I of the Certificate of
Incorporation of the Surviving Corporation shall be amended to read as follows:
"The name of the corporation is Dr Pepper/Seven-Up Companies, Inc." and the
Certificate of Incorporation of the Surviving Corporation shall be amended if
required to comply with Section 6.07.
(b) Unless otherwise determined by Parent prior to the Effective Time, and
subject to the requirements of Section 6.07, the By-laws of Purchaser, as in
effect immediately prior to the Effective Time, shall be the By-laws of the
Surviving Corporation until thereafter amended as provided by law, the
Certificate of Incorporation of the Surviving Corporation and such By-laws.
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SECTION 2.05. Directors and Officers. The directors of Purchaser immediately
prior to the Effective Time shall be the initial directors of the Surviving
Corporation, each to hold office in accordance with the Certificate of
Incorporation and By-laws of the Surviving Corporation, and the officers of the
Company immediately prior to the Effective Time shall be the initial officers of
the Surviving Corporation, in each case until their respective successors are
duly elected or appointed and qualified.
SECTION 2.06. Conversion of Securities. At the Effective Time, by virtue of
the Merger and without any action on the part of Purchaser, the Company or the
holders of any of the Shares:
(a) Each Share issued and outstanding immediately prior to the Effective
Time (other than any Shares to be cancelled pursuant to Section 2.06(b) and
any Dissenting Shares (as hereinafter defined)) shall be cancelled and shall
be converted automatically into the right to receive an amount equal to the
Per Share Amount in cash (the "Merger Consideration") payable, without
interest, to the holder of such Share, upon surrender, in the manner
provided in Section 2.09, of the certificate that formerly evidenced such
Share;
(b) Each Share held in the treasury of the Company and each Share owned
by Purchaser, Parent or any direct or indirect wholly owned subsidiary of
Parent or of the Company immediately prior to the Effective Time shall be
cancelled without any conversion thereof and no payment or distribution
shall be made with respect thereto; and
(c) Each share of Common Stock, par value $.01 per share, of Purchaser
issued and outstanding immediately prior to the Effective Time shall be
converted into and exchanged for one validly issued, fully paid and
nonassessable share of Common Stock, par value $.01 per share, of the
Surviving Corporation.
SECTION 2.07. Employee Stock Options. Immediately after the Tender Offer
Acceptance Date, each outstanding option to purchase Shares (in each case, an
"Option") granted under (i) the Company's 1988 Stock Option Plan, as amended,
(ii) the Company's 1988 Non-Qualified Plan, as amended, (iii) the Company's 1993
Stock Ownership Plan, as amended, and (iv) the Company's Non-Qualified Stock
Option Plan for Non-Employee Directors (collectively, the "Stock Option Plans"),
whether or not then exercisable, shall be cancelled by the Company, and each
holder of a cancelled Option shall be entitled to receive from Purchaser at the
same time as payment for Shares is made by Purchaser in connection with the
Offer, in consideration for the cancellation of such Option, an amount in cash
equal to the product of (i) the number of Shares previously subject to such
Option and (ii) the excess, if any, of the Per Share Amount over the exercise
price per Share previously subject to such Option. The term "Tender Offer
Acceptance Date" means the date on which the Purchaser shall have accepted for
payment all Shares validly tendered and not withdrawn pursuant to the expiration
date with respect to the offer. Parent and Purchaser understand that all shares
of restricted stock granted under the 1993 Stock Ownership Plan have vested
pursuant to the terms of such plan and related agreements or pursuant to the
lapsing of restrictions on such shares effected by action of the Board or the
Compensation Committee of the Board.
SECTION 2.08. Dissenting Shares. (a) Notwithstanding any provision of this
Agreement to the contrary, Shares that are outstanding immediately prior to the
Effective Time and which are held by stockholders who shall have not voted in
favor of the Merger or consented thereto in writing and who shall have demanded
properly in writing appraisal for such Shares in accordance with Section 262 of
Delaware Law (collectively, the "Dissenting Shares") shall not be converted into
or represent the right to receive the Merger Consideration. Such stockholders
shall be entitled to receive payment of the appraised value of such Shares held
by them in accordance with the provisions of such Section 262, except that all
Dissenting Shares held by stockholders who shall have failed to perfect or who
effectively shall have withdrawn or lost their rights to appraisal of such
Shares under such Section 262 shall thereupon be deemed to have been converted
into and to have become exchangeable for, as of the Effective Time, the right to
receive the Merger Consideration, without any interest thereon, upon
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surrender, in the manner provided in Section 2.09, of the certificate or
certificates that formerly evidenced such Shares.
(b) The Company shall give Parent (i) prompt notice of any demands for
appraisal received by the Company, withdrawals of such demands, and any other
instruments served pursuant to Delaware Law in respect of Dissenting Shares and
received by the Company and (ii) the opportunity to direct all negotiations and
proceedings with respect to demands for appraisal under Delaware Law. The
Company shall not, except with the prior written consent of Parent, make any
payment with respect to any demands for appraisal or offer to settle or settle
any such demands.
SECTION 2.09. Surrender of Shares; Stock Transfer Books. (a) Prior to the
Effective Time, Purchaser shall designate a bank or trust company reasonably
satisfactory to the Company to act as agent (the "Paying Agent") for the holders
of Shares in connection with the Merger to receive the funds to which holders of
Shares shall become entitled pursuant to Section 2.06(a). Immediately prior to
the Effective Time, Parent shall cause Surviving Corporation to have sufficient
funds to deposit, and shall cause Surviving Corporation to deposit in trust with
the Paying Agent, cash in the aggregate amount equal to the product of (i) the
number of shares outstanding immediately prior to the Effective Time (other than
Shares owned by Parent or Purchaser and Shares as to which dissenters' rights
have been exercised as of the Effective Time) and (ii) the Per Share Amount.
Such funds shall be invested by the Paying Agent as directed by the Surviving
Corporation, provided that such investments shall be in obligations of or
guaranteed by the United States of America or of any agency thereof and backed
by the full faith and credit of the United States of America, in commercial
paper obligations rated A-1 or P-1 or better by Moody's Investors Services, Inc.
or Standard & Poor's Corporation, respectively, or in deposit accounts,
certificates of deposit or banker's acceptances of, repurchase or reverse
repurchase agreements with, or Eurodollar time deposits purchased from,
commercial banks with capital, surplus and undivided profits aggregating in
excess of $100 million (based on the most recent financial statements of such
bank which are then publicly available at the SEC or otherwise); provided,
however, that no loss on any investment made pursuant to this Section 2.09 shall
relieve Parent or the Suriving Corporation of its obligation to pay the Per
Share Amount for each Share outstanding immediately prior to the Effective Time.
(b) Promptly after the Effective Time, Parent shall cause the Surviving
Corporation to mail to each person who was, at the Effective Time, a holder of
record of Shares entitled to receive the Merger Consideration pursuant to
Section 2.06(a) a form of letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the certificates
evidencing such Shares (the "Certificates") shall pass, only upon proper
delivery of the Certificates to the Paying Agent) and instructions for use in
effecting the surrender of the Certificates pursuant to such letter of
transmittal. Upon surrender to the Paying Agent of a Certificate, together with
such letter of transmittal, duly completed and validly executed in accordance
with the instructions thereto, and such other documents as may be required
pursuant to such instructions, the holder of such Certificate shall be entitled
to receive in exchange therefor the Merger Consideration for each Share formerly
evidenced by such Certificate, and such Certificate shall then be cancelled. No
interest shall accrue or be paid on the Merger Consideration payable upon the
surrender of any Certificate for the benefit of the holder of such Certificate.
If payment of the Merger Consideration is to be made to a person other than the
person in whose name the surrendered Certificate is registered on the stock
transfer books of the Company, it shall be a condition of payment that the
Certificate so surrendered shall be endorsed properly or otherwise be in proper
form for transfer and that the person requesting such payment shall have paid
all transfer and other taxes required by reason of the payment of the Merger
Consideration to a person other than the registered holder of the Certificate
surrendered or shall have established to the satisfaction of the Surviving
Corporation that such taxes either have been paid or are not applicable. The
Surviving Corporation shall pay all charges and expenses, including those of the
Paying Agent, in connection with the distribution of the Merger Consideration.
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(c) At any time following the third month after the Effective Time, the
Surviving Corporation shall be entitled to require the Paying Agent to deliver
to it any funds which had been made available to the Paying Agent and not
disbursed to holders of Shares (including, without limitation, all interest and
other income received by the Paying Agent in respect of all funds made available
to it) and, thereafter, such holders shall be entitled to look to the Surviving
Corporation (subject to abandoned property, escheat and other similar laws) only
as general creditors thereof with respect to any Merger Consideration that may
be payable upon due surrender of the Certificates held by them. Notwithstanding
the foregoing, neither the Surviving Corporation nor the Paying Agent shall be
liable to any holder of a Share for any Merger Consideration delivered in
respect of such Share to a public official pursuant to any abandoned property,
escheat or other similar law.
(d) At the close of business on the day of the Effective Time, the stock
transfer books of the Company shall be closed and, thereafter, there shall be no
further registration of transfers of Shares on the records of the Company. From
and after the Effective Time, the holders of Shares outstanding immediately
prior to the Effective Time shall cease to have any rights with respect to such
Shares except as otherwise provided herein or by applicable law.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Purchaser that:
SECTION 3.01. Organization and Qualification; Subsidiaries. Each of the
Company and each subsidiary of the Company (a "Subsidiary") is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has the requisite power and authority and
all necessary governmental approvals to own, lease and operate its properties
and to carry on its business as it is now being conducted, except where the
failure to be so organized, existing or in good standing or to have such power,
authority and governmental approvals would not, individually or in the
aggregate, have a Material Adverse Effect (as defined below). The Company and
each Subsidiary is duly qualified or licensed as a foreign corporation to do
business, and is in good standing, in each jurisdiction where the character of
the properties owned, leased or operated by it or the nature of its business
makes such qualification or licensing necessary, except for such failures to be
so qualified or licensed and in good standing that would not, individually or in
the aggregate, have a Material Adverse Effect. When used in connection with the
Company or any Subsidiary, the term "Material Adverse Effect" means any change
or effect that, when taken together with all other adverse changes and effects,
is or is reasonably likely to be materially adverse to the business, operations,
properties, condition (financial or otherwise), assets or liabilities
(including, without limitation, contingent liabilities) of the Company and the
Subsidiaries taken as a whole. A true and complete list of all the Subsidiaries,
together with the jurisdiction of incorporation of each Subsidiary and the
percentage of the outstanding capital stock of each Subsidiary owned by the
Company and each other Subsidiary, is set forth in Section 3.01 of the
Disclosure Schedule delivered concurrently with the execution and delivery of
this Agreement by the Company to Parent (the "Disclosure Schedule"). Except as
disclosed in such Section 3.01, the Company does not directly or indirectly own
any equity or similar interest in, or any interest convertible into or
exchangeable or exercisable for, any equity or similar interest in, any
corporation, partnership, joint venture or other business association or entity,
other than indirect equity and similar interests held for investment which are
not, in the aggregate, material to the Company. The term "Material Subsidiaries"
means Dr Pepper/Seven-Up Corporation, a Delaware corporation, and Waco
Manufacturing Company, a Delaware corporation. Except for the Material
Subsidiaries, no Subsidiary is material to the business, operations or condition
(financial or otherwise) of the Company or has any material assets or
liabilities.
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SECTION 3.02. Certificate of Incorporation and By-laws. The Company has
heretofore furnished to Parent a complete and correct copy of the Certificate of
Incorporation and the By-laws or equivalent organizational documents, each as
amended to date, of the Company and each Material Subsidiary. Such Certificates
of Incorporation, By-laws and equivalent organizational documents are in full
force and effect. Neither the Company nor any Subsidiary is in violation of any
provision of its Certificate of Incorporation, By-laws or equivalent
organizational documents.
SECTION 3.03. Capitalization. The authorized capital stock of the Company
consists of 125,000,000 Shares and 20,000,000 shares of Non-Voting Common Stock,
par value $.01 per share ("Non-Voting Common") and 2,000,000 shares of Preferred
Stock, par value $.01 per share ("Company Preferred Stock"). As of January 20,
1995, (i) 61,780,548 Shares were issued and outstanding, all of which were
validly issued, fully paid and nonassessable, (ii) 6,451 Shares were held in the
treasury of the Company, (iii) 0 Shares were held by the Subsidiaries, and (iv)
2,630,000 Shares were reserved for future issuance to employees as restricted
stock and pursuant to employee stock options granted pursuant to the Company's
Stock Option Plans or reserved for directors. As of the date hereof, no shares
of Non-Voting Common are issued and outstanding, and no shares of Company
Preferred Stock are issued and outstanding. As of January 20, 1995, Options
covering 7,099,368 Shares were outstanding. Since January 20, 1995 to the date
of this Agreement, the Company has not issued any Shares or granted any Options
covering Shares. Except as set forth in this Section 3.03, or Section 3.03 of
the Disclosure Schedule, or pursuant to the Rights Agreement, there are no
options, warrants or other rights, agreements, arrangements or commitments of
any character obligating the Company or any Subsidiary to issue or sell any
shares of capital stock of, or other equity interests in, the Company or any
Subsidiary. All Shares subject to issuance as aforesaid, upon issuance on the
terms and conditions specified in the instruments pursuant to which they are
issuable, will be duly authorized, validly issued, fully paid and nonassessable.
There are no outstanding contractual obligations of the Company or any
Subsidiary to repurchase, redeem or otherwise acquire any Shares or any capital
stock of any Subsidiary or to provide funds to, or make any investment (in the
form of a loan, capital contribution or otherwise) in, any Subsidiary or any
other person. Each outstanding share of capital stock of each Material
Subsidiary is duly authorized, validly issued, fully paid and nonassessable and,
except as set forth on Section 3.03 of the Disclosure Schedule, each such share
owned by the Company or another Subsidiary is free and clear of all security
interests, liens, claims, pledges, options, rights of first refusal, agreements,
limitations on the Company's or such other Subsidiary's voting rights, charges
and other encumbrances of any nature whatsoever.
SECTION 3.04. Authority Relative to this Agreement. The Company has all
necessary power and authority to execute and deliver this Agreement, to perform
its obligations hereunder and to consummate the Transactions, subject, with
respect to the Merger, to stockholder approval. The execution and delivery of
this Agreement by the Company and the consummation by the Company of the
Transactions have been duly and validly authorized by all necessary corporate
action and no other corporate proceedings on the part of the Company are
necessary to authorize this Agreement or to consummate the Transactions (other
than, with respect to the Merger, the approval and adoption of this Agreement by
the affirmative votes of the stockholders of the Company to the extent required
by Delaware Law (including Section 203 thereof), and the filing and recordation
of appropriate merger documents as required by Delaware Law). This Agreement has
been duly and validly executed and delivered by the Company and, assuming the
due authorization, execution and delivery by Parent and Purchaser, constitutes a
legal, valid and binding obligation of the Company, except to the extent such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting generally the
enforcement of creditors' rights and by the availability of equitable remedies.
SECTION 3.05. No Conflict; Required Filings and Consents. (a) The execution
and delivery of this Agreement by the Company does not, and the performance of
this Agreement by the Company will
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not: (i) conflict with or violate the Certificate of Incorporation or By-laws of
the Company or any Material Subsidiary, (ii) assuming that required filings
under the HSR Act (as hereinafter defined) and Delaware Law are made by the
appropriate parties and the Company, Parent and Purchaser comply with the
provisions of Section 203 of the Delaware Law, conflict with or violate any law,
rule, regulation, order, judgment or decree applicable to the Company or any
Subsidiary or by which any property or asset of the Company or any Subsidiary is
bound or affected; provided, however, that the Company makes no representation
or warranty with respect to any federal, state or foreign laws relating to
antitrust or competition, or (iii) except as set forth in Section 3.05 of the
Disclosure Schedule, result in any breach of or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or give to others any right of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or other encumbrance on any
property or asset of the Company or any Material Subsidiary pursuant to, any
note, bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which the Company or any Material
Subsidiary is a party or by which the Company or any Material Subsidiary or any
property or asset of the Company or any Material Subsidiary is bound or
affected, except, in the cases of (ii) and (iii), for any such conflicts,
violations, breaches, defaults or other occurrences which do not, individually
or in the aggregate, have a Material Adverse Effect.
(b) The execution and delivery of this Agreement by the Company does not,
and the performance of this Agreement by the Company will not, require any
consent, approval, authorization or permit of, or filing with, or notification
to, any governmental or regulatory authority to be obtained or made by the
Company, domestic or foreign, except (i) for applicable requirements, if any, of
the Exchange Act, state securities or "blue sky" laws ("Blue Sky Laws") and
state takeover laws, the pre-merger notification requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules
and regulations thereunder (the "HSR Act"), and filing and recordation of
appropriate merger documents as required by Delaware Law or (ii) where failure
to obtain such consents, approvals, authorizations or permits, or to make such
filings or notifications, would not prevent or delay consummation of the Offer
or the Merger, or otherwise prevent the Company from performing its obligations
under this Agreement, and does not, individually or in the aggregate, have a
Material Adverse Effect.
SECTION 3.06. Compliance. Neither the Company nor any Subsidiary is in
conflict with, or in default or violation of, (i) any law, rule, regulation,
order, judgment or decree applicable to the Company or any Subsidiary or by
which any property or asset of the Company or any Subsidiary is bound or
affected, or (ii) except as set forth in Section 3.06 of the Disclosure
Schedule, any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which the
Company or any Subsidiary is a party or by which the Company or any Subsidiary
or any property or asset of the Company or any Subsidiary is bound or affected,
except for any such conflicts, defaults or violations that do not, individually
or in the aggregate, have a Material Adverse Effect.
SECTION 3.07. SEC Filings; Financial Statements. (a) The Company has filed
all forms, reports and documents required to be filed by it with the SEC since
December 31, 1992 (collectively, the "SEC Reports"). The SEC Reports (i) were
prepared in all material respects in accordance with the requirements of the
Securities Act of 1933, as amended (the "Securities Act"), and the Exchange Act,
as the case may be, and the rules and regulations thereunder and (ii) did not,
at the time they were filed (or at the effective date thereof in the case of
registration statements), 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 made therein, in the light of the circumstances
under which they were made, not misleading. No Subsidiary is currently required
to file any form, report or other document with the SEC under Section 12 of the
Exchange Act.
(b) Each of the consolidated financial statements (including, in each case,
any notes thereto) contained in the SEC Reports was prepared in accordance with
United States generally accepted
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accounting principles applied on a consistent basis ("GAAP") throughout the
periods indicated (except as may be indicated in the notes thereto and except
that financial statements included with quarterly reports on Form 10-Q do not
contain all GAAP notes to such financial statements) and each fairly presented
the consolidated financial position, results of operations and changes in
stockholders' equity and cash flows of the Company and the consolidated
Subsidiaries as at the respective dates thereof and for the respective periods
indicated therein (subject, in the case of unaudited statements, to normal and
recurring year-end adjustments which were not and are not expected, individually
or in the aggregate, to have a Material Adverse Effect).
(c) Except as (i) and to the extent set forth on the consolidated balance
sheet of the Company and the consolidated Subsidiaries as at December 31, 1993,
including the notes thereto (the "1993 Balance Sheet"), (ii) set forth in
Section 3.07(c) of the Disclosure Schedule or (iii) disclosed in any SEC Report
filed by the Company after December 31, 1993, neither the Company nor any
Subsidiary has any liability or obligation of any nature (whether accrued,
absolute, contingent or otherwise) which would be required to be reflected on a
balance sheet, or in the notes thereto, prepared in accordance with GAAP, except
for liabilities and obligations incurred in the ordinary course of business
consistent with past practice since December 31, 1993 which would not,
individually or in the aggregate, be material in amount.
(d) The Company has heretofore furnished to Parent complete and correct
copies of all amendments and modifications (if any) that have not been filed by
the Company with the SEC to all agreements, documents and other instruments that
previously had been filed by the Company with the SEC and are currently in
effect.
SECTION 3.08. Absence of Certain Changes or Events. Since December 31, 1993,
the Company and the Subsidiaries have conducted their businesses only in the
ordinary course and in a manner consistent with past practice and, since
December 31, 1993, except as contemplated by this Agreement or disclosed in any
SEC Report filed since December 31, 1993 and prior to the date of this Agreement
or as set forth in Section 3.08 of the Disclosure Schedule, there has not been
(i) any event having, individually or in the aggregate, a Material Adverse
Effect, (ii) any material change by the Company in its accounting methods,
principles or practices, (iii) any material revaluation by the Company of any
material asset (including, without limitation, any writing down of the value of
inventory or writing off of material notes or material accounts receivable),
(iv) any failure by the Company to revalue materially any material asset in
accordance with GAAP, (v) any declaration, setting aside or payment of any
dividend or distribution in respect of any capital stock of the Company or any
redemption, purchase or other acquisition of any of its securities, (vi) any
material increase in or establishment of any bonus, insurance, severance,
deferred compensation, pension, retirement, profit sharing, stock option
(including, without limitation, the granting of stock options, stock
appreciation rights, performance awards or restricted stock awards), stock
purchase or other employee benefit plan, or any other increase in the
compensation payable or to become payable to any officers or key employees of
the Company or any Subsidiary, except in the ordinary course of business
consistent with past practice, (vii) any Loading (as defined below) other than
in the ordinary course of business consistent with past practice, (viii) any
material change, or announcement of any material change, in the terms,
including, without limitation, price, payment terms or off-invoice allowances
and discounts, of the sale of any product (or component thereof), any change, or
announcement of any change, in the form or manner of distribution of any product
(or component thereof) or any material change, or announcement of any material
change, in the Company's or any Subsidiary's marketing or spending practices or
glass investment policies or commitments, in each such case, other than in the
ordinary course of business consistent with past practice, or (ix) any entering
into with Pepsico Inc. or any affiliates thereof any agreement for the
manufacture, sale or distribution of the Company's products outside of the
United States. "Loading" shall mean selling a product (a) with a payment term
longer than terms customarily offered by a seller for such product, (b) at a
discount from listed price other than pursuant to a promotion which has been
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disclosed to Purchaser prior to the date hereof or, with respect to the period
from the date of this Agreement through the consummation of the Offer, a
promotion for which the prior written consent of Purchaser has been obtained
(unless such promotion is made in the ordinary course of business consistent
with past practice), (c) at a price which does not give effect to any previously
announced general increase in the list price for such product or (d) with
shipment terms other than shipment terms customarily offered by a seller for
such product.
SECTION 3.09. Absence of Litigation. Except as disclosed in the SEC Reports
filed prior to the date of this Agreement or in Section 3.09 of the Disclosure
Schedule, there is no claim, action, proceeding or investigation pending or, to
the best knowledge of the Company, threatened against the Company or any
Subsidiary, or any property or asset of the Company or any Subsidiary, before
any court, arbitrator or administrative, governmental or regulatory authority or
body, domestic or foreign, which (i) individually or in the aggregate, has a
Material Adverse Effect (other than any claim, action, proceeding or
investigation seeking to delay or prevent the consummation of any Transaction)
or (ii) as of the date hereof, seeks to delay or prevent the consummation of any
Transaction. As of the date hereof, neither the Company nor any Subsidiary nor
any property or asset of the Company or any Subsidiary is subject to any order,
writ, judgment, injunction, decree, determination or award having, individually
or in the aggregate, a Material Adverse Effect.
SECTION 3.10. Employee Benefit Plans. (a) Section 3.10 of the Disclosure
Schedule contains a true and complete list of (i) all employee benefit plans
(within the meaning of Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA")) and all bonus, stock option, stock purchase,
restricted stock, incentive, deferred compensation, retiree medical or life
insurance, supplemental retirement, severance or other benefit plans, programs
or arrangements, and all employment, termination, severance or other contracts
or agreements to which the Company or any Subsidiary is a party, with respect to
which the Company or any Subsidiary has any obligation or which are maintained,
contributed to or sponsored by the Company or any Subsidiary for the benefit of
any current or former employee, officer or director of the Company or any
Subsidiary and (ii) each employee benefit plan for which the Company or any
Subsidiary could incur liability not otherwise provided for in the Company's
financial statements contained in the SEC Reports under Section 4069 of ERISA,
in the event such plan were terminated, or under Section 4212(c) of ERISA, or in
respect of which the Company or any Subsidiary remains secondarily liable under
Section 4204 of ERISA (collectively, (i) and (ii) referred to herein as the
"Plans"). Each Plan is in writing and the Company has made available to Parent
true and complete copies of each Plan and true and complete copies of each
material document prepared in connection with each such Plan, including, without
limitation, (i) a copy of each trust or other funding arrangement, (ii) each
summary plan description and summary of material modifications, (iii) the most
recently filed Internal Revenue Service ("IRS") Form 5500, (iv) the most
recently received IRS determination letter for each such Plan, and (v) the most
recently prepared actuarial report and financial statement in connection with
each such Plan. Except as specifically provided by this Agreement, neither the
Company nor any Subsidiary has any express or implied commitment (i) to create,
incur liability with respect to or cause to exist any other employee benefit
plan, program or arrangement, (ii) to enter into any contract or agreement to
provide compensation or benefits to any individual or (iii) to modify, change or
terminate any Plan, other than with respect to a modification, change or
termination required by ERISA or the Internal Revenue Code of 1986, as amended
(the "Code").
(b) None of the Plans is a multiemployer plan, within the meaning of Section
3(37) or 4001(a)(3) of ERISA (a "Multiemployer Plan"), or is a single employer
pension plan, within the meaning of Section 4001(a)(15) of ERISA, for which the
Company or any Subsidiary could incur liability under Section 4063 or 4064 of
ERISA (a "Multiple Employer Plan"). Except to the extent set forth in Plans
listed in Section 3.10 of the Disclosure Schedule, none of the Plans (i)
provides for the payment of separation, severance, termination or similar-type
benefits to any person, (ii) obligates the Company or
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any Subsidiary to pay separation, severance, termination or other benefits as a
result of any Transaction or (iii) obligates the Company or any Subsidiary to
make any payment or provide any benefit that could be subject to a tax under
Section 4999 of the Code. Except as disclosed in Section 3.10 of the Disclosure
Schedule, none of the Plans provides for or promises retiree medical, disability
or life insurance benefits to any current or former employee, officer or
director of the Company or any Subsidiary.
(c) Each Plan which is intended to be qualified under Section 401(a) or
401(k) of the Code has received a favorable determination letter from the IRS
that such Plan is so qualified, and each trust established in connection with
any Plan which is intended to be exempt from federal income taxation under
Section 501(a) of the Code has received a determination letter from the IRS that
such trust is so exempt. Except for matters that may be remedied by the IRS's
Voluntary Compliance Resolution or Closing Agreement Programs without liability
that has a Material Adverse Effect, no fact or event has occurred since the date
of any such determination letter from the IRS that could adversely affect the
qualified status of any such Plan or the exempt status of any such trust. Each
trust maintained or contributed to by the Company or any Subsidiary which is
intended to be qualified as a voluntary employees' beneficiary association
exempt from federal income taxation under Sections 501(a) and 501(c)(9) of the
Code has received a favorable determination letter from the IRS that it is so
qualified and so exempt, and no fact or event has occurred since the date of
such determination by the IRS that could adversely affect such qualified or
exempt status except for those facts and events which do not constitute a
Material Adverse Effect.
(d) Except for those matters that do not constitute a Material Adverse
Effect or are adequately reflected on the Company's financial statements
contained in the SEC Reports, (i) there has been no prohibited transaction
(within the meaning of Section 406 of ERISA or Section 4975 of the Code) with
respect to any Plan, (ii) neither the Company nor any Subsidiary is currently
liable or has previously incurred any liability for any tax or penalty arising
under Section 4971, 4972, 4979, 4980 or 4980B of the Code or Section 502(c) of
ERISA, and no fact or event exists which could give rise to any such liability,
and (iii) neither the Company nor any Subsidiary has incurred any liability
under, arising out of or by operation of Title IV of ERISA (other than liability
for premiums to the Pension Benefit Guaranty Corporation arising in the ordinary
course), including, without limitation, any liability in connection with (i) the
termination or reorganization of any employee pension benefit plan subject to
Title IV of ERISA or (ii) the withdrawal from any Multiemployer Plan or Multiple
Employer Plan, and the Company has no knowledge of any fact or event which could
be the proximate cause for any such liability. No complete or partial
termination has occurred within the five years preceding the date hereof with
respect to any Plan. Except with respect to the transactions specifically
provided by this Agreement, no reportable event (within the meaning of Section
4043 of ERISA other than a report which has been waived) has occurred or is
expected to occur with respect to any Plan subject to Title IV of ERISA. No
asset of the Company or any Subsidiary is the subject of any lien arising under
Section 302(f) of ERISA or Section 412(n) of the Code; neither the Company nor
any Subsidiary has been required to post any security under Section 307 of ERISA
or Section 401(a)(29) of the Code; and no fact or event exists which could give
rise to any such lien or requirement to post any such security.
(e) Except to the extent as does not constitute a Material Adverse Effect,
each Plan is now and has been operated in all respects in accordance with the
requirements of all applicable laws, including, without limitation, ERISA and
the Code, and the Company and each Subsidiary have performed all obligations
required to be performed by them under, are not in any respect in default under
or in violation of, and have no knowledge of any default or violation by any
party to, any Plan. No Plan has incurred an "accumulated funding deficiency"
(within the meaning of Section 302 of ERISA or Section 412 of the Code), whether
or not waived. The Company's financial statements contained in the SEC Reports
reflect an accrual (through September 30, 1994) of all material amounts of
employer contributions and premiums accrued but unpaid with respect to the
Plans. With respect to each Plan subject to Title IV of ERISA, the Company has
no knowledge that, as of the date hereof, the excess of the accumulated benefit
obligations of such Plan over the fair market value of the assets of such Plan
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has increased above such excess determined as of the date of the most recent
actuarial valuation report prepared for such Plan.
(f) The Company and the Subsidiaries have not incurred any liability under,
and have complied in all respects with, the Worker Adjustment Retraining
Notification Act and the regulations promulgated thereunder and do not
reasonably expect to incur any such liability as a result of actions taken or
not taken prior to the consummation of the Offer.
SECTION 3.11. Labor Matters. Except as set forth in Section 3.11 of the
Disclosure Schedule, and with such exceptions as do not have a Material Adverse
Effect, (i) there are no controversies pending or, to the best knowledge of the
Company, threatened between the Company or any Subsidiary and any of their
respective employees; (ii) neither the Company nor any Subsidiary is a party to
any collective bargaining agreement or other labor union contract applicable to
persons employed by the Company or any Subsidiary, nor, to the best knowledge of
the Company, are there any activities or proceedings of any labor union to
organize any such employees; (iii) there are no grievances outstanding against
the Company or any Subsidiary under any such agreement or contract; (iv) there
are no unfair labor practice complaints pending against the Company or any
Subsidiary before the National Labor Relations Board or any current union
representation questions involving employees of the Company or any Subsidiary;
and (v) there is no strike, slowdown, work stoppage or lockout, or, to the best
knowledge of the Company, threat thereof, by or with respect to any employees of
the Company or any Subsidiary.
SECTION 3.12. Offer Documents; Schedule 14D-9. Neither the Schedule 14D-9
nor any information supplied by the Company for inclusion in the Offer Documents
shall, at the respective times the Schedule 14D-9, the Offer Documents, or any
amendments or supplements thereto are filed with the SEC or are first published,
sent or given to stockholders of the Company, as the case may be, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements made therein,
in the light of the circumstances under which they are made, not misleading,
except that no representation or warranty is made by the Company with respect to
information supplied by Purchaser or Parent for inclusion in the Schedule 14D-9.
The Schedule 14D-9 shall comply in all material respects as to form with the
requirements of the Exchange Act and the rules and regulations thereunder.
SECTION 3.13. Real Property and Leases. The Company and the Subsidiaries
have sufficient title or leasehold interests to all their properties and assets
to conduct their respective businesses as currently conducted.
SECTION 3.14. Trademarks, Patents and Copyrights. Except as set forth in
Section 3.14(a) of the Disclosure Schedule, the Company and the Subsidiaries own
free and clear of any liens, pledges or other encumbrances (other than Permitted
Liens (as defined below)) all patents, patent rights, trademarks, trademark
rights, trade names, trade dress, trade name rights, copyrights, service marks,
trade secrets, applications for trademarks and for service marks, which are
material to the business of the Company and the Subsidiaries as currently
conducted, taken as a whole, and the Company is unaware of any material
assertion or claim challenging the validity of any of the foregoing. Section
3.14(b) of the Disclosure Schedule lists each trademark owned by the Company or
any Subsidiary and specifies the registration number and date of registration
for each such trademark. Section 3.14(c) of the Disclosure Schedule lists each
agreement pursuant to which a trademark is licensed to the Company or any
Material Subsidiary as licensee for use in the business of the Company and the
Subsidiaries as currently conducted. The conduct of the business of the Company
and the Subsidiaries as currently conducted does not conflict in any material
manner with any trademark, trademark right, trade name, trade name right, trade
dress, patent right, patent, service mark, or copyright of any third party. To
the best knowledge of the Company, and except as set forth on Section 3.14(d) to
the Disclosure Schedule, there are no infringements or unauthorized uses of any
proprietary rights owned by or licensed by or to
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the Company or any Subsidiary. For purposes of this Section 3.14, "Permitted
Liens" means, collectively, (A) any liens, pledges or other encumbrances
("Liens") for current taxes and assessments not yet past due, (B) any Liens
arising from the Company's bank credit facility existing on the date of this
Agreement, (C) inchoate mechanics' and materialmen's Liens for construction in
progress, (D) workmen's, repairmen's, warehousemen's and carriers' Liens arising
in the ordinary course of business of the Company or the Material Subsidiaries
and (E) all Liens and other imperfections of title and encumbrances which,
individually or in the aggregate, would not have a Material Adverse Effect.
SECTION 3.15. Taxes. (a) Except as disclosed in Section 3.15 of the
Disclosure Schedule, (i) all federal income tax returns and, to the best of the
Company's knowledge, all other returns and reports in respect of Taxes required
to be filed with respect to the Company and each Subsidiary (including all
consolidated federal income tax returns of the Company and any state or other
Tax return that includes the Company or any Subsidiary on a consolidated or
combined basis) have been timely filed; (ii) all Taxes shown on such returns and
reports and, to the best of the Company's knowledge, all other Taxes otherwise
due have been, or prior to the Closing of the Offering will be, timely paid;
(iii) all such returns and reports (insofar as they relate to the activities or
income of the Company or any Subsidiary) are true, correct and complete in all
material respects; (iv) no adjustment relating to such returns has been proposed
formally or, to the best of the Company's knowledge, informally by any Tax
authority (insofar as either relates to the activities or income of the Company
or any Subsidiary or could result in liability of the Company or any Subsidiary
on the basis of joint and/or several liability) and, to the best knowledge of
the Company and the Subsidiaries, no basis exists for any such adjustment; and
(v) all Taxes required to be withheld, collected or deposited by or with respect
to the Company or any Subsidiary have been timely withheld, collected or
deposited, as the case may be, and, to the extent required, have been paid to
the relevant taxing authority.
(b) Except as set forth in Section 3.15 of the Disclosure Schedule, (i)
there are no pending or, to the best knowledge of the Company and the
Subsidiaries, threatened actions or proceedings for the assessment or collection
of Taxes against the Company or any Subsidiary or (insofar as either relates to
the activities or income of the Company or any Subsidiary or could result in
liability of the Company or any Subsidiary on the basis of joint and/or several
liability) any corporation that was included in the filing of a return with the
Company on a consolidated or combined basis; (ii) no consent under Section
341(f) of the Code has been filed with respect to the Company or any Subsidiary;
(iii) there are no material Tax liens on any assets of the Company or any
Subsidiary; (iv) neither the Company nor any Subsidiary has been at any time a
member of any partnership or joint venture or the holder of a beneficial
interest in any trust for any period for which the statute of limitations for
any Tax has not expired; (v) neither the Company nor any Subsidiary has been a
United States real property holding corporation within the meaning of Section
897(c)(2) of the Code during the applicable period specified in Section
897(c)(1)(A)(ii) of the Code; (vi) there are no outstanding waivers or
agreements extending the statute of limitations for any period with respect to
any Tax to which the Company or any Subsidiary may be subject; (vii) neither the
Company nor any Subsidiary (A) has or is projected to have an amount included in
its income for the current taxable year under Section 951 of the Code, (B) has
been a passive foreign investment company within the meaning of Section 1296 of
the Code, (C) to the best of the Company's knowledge has an unrecaptured overall
foreign loss within the meaning of Section 904(f) of the Code or (D) to the best
of the Company's knowledge has participated in or cooperated with an
international boycott within the meaning of Section 999 of the Code; (viii)
neither the Company nor any Subsidiary has any (A) income reportable for a
period ending after the date on which the Offer is consummated but attributable
to a sale or exchange occurring in or a change in accounting method made for a
period ending on or prior to such date, which resulted in a deferred reporting
of income from such transaction or from such change in accounting method (other
than a deferred intercompany transaction), or (B) deferred gain or loss arising
out of any deferred intercompany transaction; (ix) neither the Company nor any
Subsidiary has received any requests for information from any Tax authority,
which are currently outstanding; (x) there are no proposed formal or, to
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the best knowledge of the Company, informal, increases of property, ad valorem
or similar Taxes imposed on the Company or any Subsidiary, or to the best
knowledge of the Company, any proposals to increase the rate of any property Tax
imposed on any property owned by the Company or any Subsidiary; (xi) neither the
Company nor any Subsidiary is obligated under any agreement with respect to
industrial development bonds or similar obligations, with respect to which the
excludibility from gross income of the holder for federal income tax purposes
could be affected by the transaction contemplated hereunder; (xii) neither the
Company nor any Subsidiary is a party to any agreement or arrangement that would
result, separately or in the aggregate, in the payment of any "excess parachute
payments" within the meaning of Section 280G of the Code; (xiii) to the best
knowledge of the Company, the Company and its Subsidiaries do not, either
individually or in the aggregate, have a net unrealized built-in loss within the
meaning of Section 382(h) of the Code and section 1.1502-91(g) of the proposed
Regulations; and (xiv) no power of attorney that is currently in force has been
granted by the Company or any Subsidiary with respect to any matter relating to
Taxes that could affect the Company or any Subsidiary.
(c) Section 3.15(c) of the Disclosure Schedule lists (i) to the best
knowledge of the Company, the amount and expiration dates of any net operating
loss, net capital loss, unused business credit, unused foreign tax credit, or
excess charitable contribution allocable to the Company and each Subsidiary as
of December 31, 1993, (ii) a reasonable estimate of the tax attributes described
in clause (i) that were applied against taxable income for the calendar year
ending December 31, 1994, (iii) a reasonable estimate of any "section 382
limitation" within the meaning of Section 382(b) of the Code, applicable to tax
attributes of the Company or any Subsidiary, and (iv) the amount of any equity
or capital contributions to the Company since January 1, 1992, which
contributions have not otherwise been disclosed in the SEC Reports. To the best
knowledge of the Company, except as referred to in Section 3.15(c) of the
Disclosure Schedule, none of the tax attributes listed in clause (i) has been
challenged.
(d) "Tax" or "Taxes" means any and all taxes, fees, levies, duties, tariffs,
imposts, and other charges of any kind (together with any and all interest,
penalties, additions to tax and additional amounts imposed with respect thereto)
imposed by any government or taxing authority, including, without limitation:
taxes or other charges on or with respect to income, franchises, windfall or
other profits, gross receipts, property, sales, use, capital stock, payroll,
employment, social security, workers' compensation, unemployment compensation,
or net worth; taxes or other charges in the nature of excise, withholding, ad
valorem, stamp, transfer, value added, or gains taxes; license, registration and
documentation fees; and custom duties, tariffs, and similar charges.
SECTION 3.16. Environmental Matters. (a) For purposes of this Agreement, the
following terms shall have the following meanings: (i) "Hazardous Substances"
means (A) those substances defined as hazardous in or regulated as hazardous
under the following federal statutes and their state counterparts, as each may
be amended from time to time, and all regulations thereunder: the Hazardous
Materials Transportation Act, the Resource Conservation and Recovery Act, the
Comprehensive Environmental Response, Compensation, and Liability Act, the Clean
Water Act, the Safe Drinking Water Act, the Atomic Energy Act, the Federal
Insecticide, Fungicide, and Rodenticide Act and the Clean Air Act; (B) petroleum
and petroleum products, including crude oil and any fractions thereof; (C)
natural gas, synthetic gas, and any mixtures thereof; (D) radon; (E) any other
contaminant; and (F) any substance with respect to which a federal, state or
local agency requires environmental investigation, monitoring, reporting or
remediation; and (ii) "Environmental Laws" means any federal, state or local law
relating to (A) releases or threatened releases of Hazardous Substances or
materials containing Hazardous Substances into the environment; (B) the
manufacture, handling, transport, use, treatment, storage or disposal of
Hazardous Substances or materials containing Hazardous Substances; or (C)
otherwise relating to pollution of the environment or the protection of human
health.
(b) Except as described in Section 3.16 of the Disclosure Schedule: (i) the
Company and each Subsidiary is in compliance with all applicable Environmental
Laws, except for noncompliance that
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individually or in the aggregate do not have a Material Adverse Effect; (ii) the
Company and each Subsidiary have obtained all permits, licenses and other
material governmental authorizations required under applicable Environmental
Laws, and are in compliance with the terms and conditions thereof, except for
failures to obtain or noncompliance that individually or in the aggregate do not
have a Material Adverse Effect; (iii) neither the Company nor any of its
Subsidiaries has received written notice of, or, to the best knowledge of the
Company, is the subject of, any action, cause of action, claim, investigation,
demand or notice by any person or entity alleging liability under or
noncompliance with any Environmental Law that individually or in the aggregate
would have a Material Adverse Effect; and (iv) to the best knowledge of the
Company, there is no environmental condition on any of the properties currently
or formerly owned or leased by the Company or any Subsidiary that individually
or in the aggregate has a Material Adverse Effect.
SECTION 3.17. Formula Cards. The Company has taken all commercially
reasonable efforts to protect its principal information, techniques, formulae,
recipes, trade secrets, specific know-how, procedures, processes and related
ancillary and incidental know-how, standards and specifications relating to all
soft drink concentrate, bases or syrups, fountain syrups, beverage bases and
finished soft drinks presently manufactured by the Company or by any other party
manufacturing under license or other authorization from the Company.
SECTION 3.18. Amendment to Rights Agreement. (a) The Board has taken all
necessary action to amend the Rights Agreement (but subject to the Board's right
to further amend the Rights Agreement) so that (A) none of the execution or
delivery of this Agreement or the Stockholders Agreement or the making of the
Offer will cause (i) the Rights to become exercisable under the Rights
Agreement, (ii) Parent or Purchaser or any of their affiliates to be deemed an
"Acquiring Person" (as defined in the Rights Agreement) or (iii) the "Stock
Acquisition Date" (as defined in the Rights Agreement) to occur upon any such
event, (B) none of the acceptance for payment or payment for Shares by Purchaser
pursuant to the Offer or the consummation of the Merger will cause (i) the
Rights to become exercisable under the Rights Agreement or (ii) Parent or
Purchaser or any of their affiliates to be deemed an Acquiring Person or (iii)
the Stock Acquisition Date to occur upon any such event, and (C) the "Expiration
Date" (as defined in the Rights Agreement) shall occur no later than immediately
prior to the purchase of shares pursuant to the Offer; provided, however, that
if this Agreement is terminated in accordance with Section 8.01, the Board may
rescind its approval of the Offer as a Permitted Offer or further amend the
Rights Agreement so that clauses 3.16(a)(B) and (C) will not be the case.
(b) The "Distribution Date" (as defined in the Rights Agreement) has not
occurred.
(c) The Board, pursuant to and in accordance with the Rights Agreement, has
taken all necessary action to approve the Offer as a "Permitted Offer" (as
defined in the Rights Agreement), and all determinations required under the
Rights Agreement to be made by the Board in connection with such approval have
been properly made in accordance with the Rights Agreement; provided, however,
that if this Agreement is terminated pursuant to Section 8.01, the Board may
rescind its approval of the Offer as a Permitted Offer.
SECTION 3.19. Brokers. No broker, finder or investment banker (other than
DLJ and BT) is entitled to any brokerage, finder's or other fee or commission in
connection with the Transactions based upon arrangements made by or on behalf of
the Company. The Company has heretofore furnished to Parent a complete and
correct copy of all agreements between the Company and DLJ and BT pursuant to
which either such firm would be entitled to any payment relating to the
Transactions.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER
Parent and Purchaser hereby, jointly and severally, represent and warrant to
the Company that:
SECTION 4.01. Corporate Organization. Each of Parent and Purchaser is a
corporation duly organized, validly existing and, in the case of Purchaser, in
good standing or, in the case of Parent, not in liquidation or the subject of
any petition or proposed resolution or other proceeding for its liquidation,
under the laws of the jurisdiction of its incorporation and has the requisite
power and authority and all necessary governmental approvals to own, lease and
operate its properties and to carry on its business as it is now being
conducted, except where the failure to have such power, authority and
governmental approvals would not, individually or in the aggregate, have a
material adverse effect on the ability of Parent and Purchaser to perform their
obligations hereunder and to consummate the Transactions.
SECTION 4.02. Authority Relative to this Agreement. Each of Parent and
Purchaser has all necessary corporate power and authority to execute and deliver
this Agreement, to perform its obligations hereunder and to consummate the
Transactions. The execution and delivery of this Agreement by Parent and
Purchaser and the consummation by Parent and Purchaser of the Transactions have
been duly and validly authorized by all necessary corporate action and no other
corporate proceedings on the part of Parent or Purchaser are necessary to
authorize this Agreement or to consummate the Transactions (other than, (i) with
respect to the Transactions, the majority vote by the holders of the ordinary
shares of Parent voting at a General Meeting of Shareholders and (ii) with
respect to the Merger, the filing and recordation of appropriate merger
documents as required by Delaware Law). This Agreement has been duly and validly
executed and delivered by Parent and Purchaser and, assuming the due
authorization, execution and delivery by the Company, constitutes a legal, valid
and binding obligation of each of Parent and Purchaser enforceable against each
of Parent and Purchaser in accordance with its terms.
SECTION 4.03. No Conflict; Required Filings and Consents. (a) The execution
and delivery of this Agreement by Parent and Purchaser do not, and the
performance of this Agreement by Parent and Purchaser will not, (i) conflict
with or violate the Articles of Association, Certificate of Incorporation or
By-laws of either Parent or Purchaser, (ii) conflict with or violate any law,
rule, regulation, order, judgment or decree applicable to Parent or Purchaser or
by which any property or asset of either of them is bound or affected, or (iii)
result in any breach of or constitute a default (or an event which with notice
or lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, or result in
the creation of a lien or other encumbrance on any property or asset of Parent
or Purchaser pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which Parent or Purchaser is a party or by which Parent or Purchaser or any
property or asset of either of them is bound or affected, except for any such
conflicts, violations, breaches, defaults or other occurrences which would not,
individually or in the aggregate, prevent Parent and Purchaser from performing
their respective obligations under this Agreement and consummating the
Transactions.
(b) The execution and delivery of this Agreement by Parent and Purchaser do
not, and the performance of this Agreement by Parent and Purchaser will not,
require any consent, approval, authorization or permit of, or filing with or
notification to, any governmental or regulatory authority, domestic or foreign,
except (i) for applicable requirements, if any, of the Exchange Act, Blue Sky
Laws and state takeover laws, the HSR Act, the Defense Production Act and filing
and recordation of appropriate merger documents as required by Delaware Law and
(ii) where failure to obtain such consents, approvals, authorizations or
permits, or to make such filings or notifications, would not prevent or delay
consummation of the Transactions, or otherwise prevent Parent or Purchaser from
performing their respective obligations under this Agreement.
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SECTION 4.04. Offer Documents; Proxy Statement. The Offer Documents will
not, at the time the Offer Documents are filed with the SEC or are first
published, sent or given to stockholders of the Company, as the case may be,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
made therein, in the light of the circumstances under which they are made, not
misleading. The information supplied by Parent for inclusion in the proxy
statement to be sent to the stockholders of the Company in connection with the
Stockholders Meeting (as hereinafter defined) (such proxy statement, as amended
and supplemented, being referred to herein as the "Proxy Statement") and
Schedule 14D-9 will not, on the date the Proxy Statement or Schedule 14D-9 (or
any amendment or supplement thereto) is first mailed to stockholders of the
Company, at the time of the Stockholders Meeting and at the Effective Time,
contain any statement which, at such time and in light of the circumstances
under which it is made, is false or misleading with respect to any material
fact, or omits to state any material fact required to be stated therein or
necessary in order to make the statements therein not false or misleading or
necessary to correct any statement in any earlier communication with respect to
the solicitation of proxies for the Stockholders Meeting which shall have become
false or misleading; provided, however, that Parent or Purchaser makes no
representation or warranty with respect to information supplied by the Company
for inclusion in the Offer Documents. Notwithstanding the foregoing, Parent and
Purchaser make no representation or warranty with respect to any information
supplied by the Company or any of its representatives which is contained in any
of the foregoing documents or the Offer Documents. The Offer Documents shall
comply in all material respects as to form with the requirements of the Exchange
Act and the rules and regulations thereunder.
SECTION 4.05. Brokers. No broker, finder or investment banker (other than
Kleinwort Benson Ltd., Kleinwort Benson North America, Inc., Hoare Govett Ltd.
and Goldman, Sachs International Ltd.) is entitled to any brokerage, finder's or
other fee or commission in connection with the Transactions based upon
arrangements made by or on behalf of Parent or Purchaser.
SECTION 4.06. Financing. Parent has, or will have available to it at the
time Purchaser is required to pay for Shares under the terms of the Offer, and
will make available to Purchaser, sufficient funds to permit Purchaser to
acquire all the outstanding Shares in the Offer and the Merger. Parent has
obtained commitments for such funds.
ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 5.01. Conduct of Business by the Company Pending the Purchaser's
Election Date. The Company covenants and agrees that, between the date of this
Agreement and the election or appointment of Purchaser's designees to the Board
pursuant to Section 6.03 upon the purchase by Purchaser of any Shares pursuant
to the Offer (the "Purchaser's Election Date"), unless Parent shall otherwise
agree in writing, the businesses of the Company and the Subsidiaries shall be
conducted only in, and the Company and the Subsidiaries shall not take any
action except in, the ordinary course of business and in a manner consistent
with past practice; and the Company shall use its reasonable best efforts to
preserve substantially intact the business organization of the Company and the
Subsidiaries, to keep available the services of the current officers, employees
and consultants of the Company and the Subsidiaries and to preserve the current
relationships of the Company and the Subsidiaries with customers, suppliers and
other persons with which the Company or any Subsidiary has significant business
relations. By way of amplification and not limitation, except as contemplated by
this Agreement, neither the Company nor any Material Subsidiary shall, between
the date of this Agreement and the Purchaser's Election Date, directly or
indirectly do, or propose to do, any of the following without the prior written
consent of Parent:
(a) amend or otherwise change its Certificate of Incorporation or
By-laws or equivalent organizational documents;
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(b) issue, sell, pledge, dispose of, grant, encumber, or authorize the
issuance, sale, pledge, disposition, grant or encumbrance of, (i) any shares
of capital stock of any class of the Company or any Subsidiary, or any
options, warrants, convertible securities or other rights of any kind to
acquire any shares of such capital stock, or any other ownership interest
(including, without limitation, any phantom interest), of the Company or any
Subsidiary (except for the issuance of Shares issuable pursuant to Options
outstanding on the date hereof) or (ii) any assets of the Company or any
Subsidiary, except for sales of products in the ordinary course of business
and in a manner consistent with past practice;
(c) declare, set aside, make or pay any dividend or other distribution,
payable in cash, stock, property or otherwise, with respect to any of its
capital stock (except for such declarations, set asides, dividends and other
distributions made from any Subsidiary to the Company);
(d) reclassify, combine, split, subdivide or redeem, purchase or
otherwise acquire, directly or indirectly, any of its capital stock;
(e) (i) acquire (including, without limitation, by merger,
consolidation, or acquisition of stock or assets) any corporation,
partnership, other business organization or any division thereof or any
material amount of assets other than in the ordinary course of business;
(ii) incur any indebtedness for borrowed money or issue any debt securities
or assume, guarantee or endorse, or otherwise as an accommodation become
responsible for, the obligations of any person, or make any loans or
advances, except in the ordinary course of business and consistent with past
practice; (iii) without the prior written consent of Parent (which shall not
be unreasonably withheld), enter into any (A) bottling license agreements or
(B) supply agreements with a term exceeding one year or terminate, cancel or
request any material change in, or agree to any material change in, any
bottling license agreement or supply agreement; (iv) authorize capital
expenditures which are, in the aggregate, in excess of $2,000,000 through
March 15, 1995 for the Company and the Subsidiaries taken as a whole
(provided, however, that, notwithstanding the foregoing limitation, capital
expenditures in the aggregate for 1995 shall not exceed the aggregate
capital expenditures for 1994 and, provided, further, the Company may enter
into software licenses with SAP with the prior written consent of Parent,
which consent shall not be unreasonably withheld); or (v) enter into or
amend any contract, agreement, commitment or arrangement with respect to any
matter set forth in this Section 5.01(e);
(f) increase the compensation payable or to become payable to its
officers or employees, except for increases in accordance with past
practices in salaries or wages of employees of the Company or any Subsidiary
who are not officers of the Company or any Subsidiary, or grant any
severance or termination pay to, or enter into any employment or severance
agreement with, any director, officer or other employee of the Company or
any Subsidiary, or establish, adopt, enter into or amend any collective
bargaining, bonus, profit sharing, thrift, compensation, stock option,
restricted stock, pension, retirement, deferred compensation, employment,
termination, severance or other plan, agreement, trust, fund, policy or
arrangement for the benefit of any director, officer or employee or
circulate to any employee any details of any such plan proposed to be
adopted;
(g) make any tax election or settle or compromise any material federal,
state, local or foreign income tax liability;
(h) pay, discharge or satisfy any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than the payment, discharge or satisfaction, in the ordinary course of
business and consistent with past practice, of liabilities reflected or
reserved against in the 1993 Balance Sheet or subsequently incurred in the
ordinary course of business and consistent with past practice;
(i) settle or comprise any pending or threatened suit, action or claim
which is material or which relates to any of the Transactions; or
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(j) take or offer or propose to take, or agree to take in writing, or
otherwise, any of the actions described in paragraphs (a) through (i) of
this Section 5.01 or any action which would result in any of the conditions
to the Offer not being satisfied (other than as contemplated by this
Agreement).
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01. Stockholders Meetings. (a) Subject to its fiduciary duties
under applicable law as advised in writing by independent counsel, the Company,
acting through the Board, shall, in accordance with applicable law and the
Company's Certificate of Incorporation and By-laws, (i) duly call, give notice
of, convene and hold an annual or special meeting of its stockholders as soon as
practicable following consummation of the Offer for the purpose of considering
and taking action on this Agreement and the transactions contemplated hereby
(the "Stockholders Meeting") and (ii) include in the Proxy Statement the
unanimous recommendation of the Board that the stockholders of the Company
approve and adopt this Agreement and the Transactions, including, without
limitation, the Merger and use its reasonable best efforts to obtain such
approval and adoption. To the extent permitted by law, Parent and Purchaser each
agree to vote all Shares beneficially owned by them in favor of the Merger.
(b) Subject to its fiduciary duties under applicable law as advised in
writing by independent counsel, Parent, acting through its Board of Directors,
shall, in accordance with applicable law, (i) duly call, give notice of, convene
and hold a special meeting of the holders of Parent's ordinary shares (the
"Parent Stockholders Meeting") as soon as practicable following the date of this
Agreement, but in no event later than March 1, 1995, for the purpose of
considering and authorizing the Transactions and (ii) unanimously recommend that
the holders of ordinary shares of Parent approve and adopt this Agreement and
the Transactions, including, without limitation, the Merger and use its
reasonable best efforts to obtain such approval and adoption.
(c) In the event that (i) Purchaser or its permitted assignee shall have
purchased all Shares validly tendered and not withdrawn pursuant to the Offer
and (ii) the requisite affirmative vote of the stockholders of the Company to
effect the Merger is not obtained at the Stockholders Meeting, the parties
hereto, agree within five business days after Parent or any of its subsidiaries
or affiliates is no longer subject to the restrictions set forth in Section 203
of Delaware Law, to use their reasonable best efforts to take all necessary and
appropriate action to cause the Merger to become effective.
SECTION 6.02. Proxy Statement. As soon as practicable following the purchase
of all Shares validly tendered and not withdrawn pursuant to the Offer, the
Company shall file the Proxy Statement with the SEC under the Exchange Act, and
shall use its reasonable best efforts to have the Proxy Statement cleared by the
SEC. Parent, Purchaser and the Company shall cooperate with each other in the
preparation of the Proxy Statement, and the Company shall notify Parent of the
receipt of any comments of the SEC with respect to the Proxy Statement and of
any requests by the SEC for any amendment or supplement thereto or for
additional information and shall provide to Parent promptly copies of all
correspondence between the Company or any representative of the Company and the
SEC. The Company shall give Parent and its counsel the opportunity to review the
Proxy Statement prior to its being filed with the SEC and shall give Parent and
its counsel the opportunity to review all amendments and supplements to the
Proxy Statement and all responses to requests for additional information and
replies to comments prior to their being filed with, or sent to, the SEC. Each
of the Company, Parent and Purchaser agrees to use its reasonable best efforts,
after consultation with the other parties hereto, to respond promptly to all
such comments of and requests by the SEC and to cause the Proxy Statement and
all required amendments and supplements thereto to be mailed to the holders of
Shares entitled to vote at the Stockholders Meeting at the earliest practicable
time with the intent being to complete the Merger before May 31, 1995.
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SECTION 6.03. Company Board Representation; Section 14(f). (a) Promptly upon
the purchase by Purchaser of Shares pursuant to the Offer, and from time to time
thereafter, Purchaser shall be entitled to designate up to such number of
directors, rounded up to the next whole number, on the Board as shall give
Purchaser representation on the Board equal to the product of the total number
of directors on the Board (giving effect to the directors elected pursuant to
this sentence) multiplied by the percentage that the aggregate number of Shares
beneficially owned by Purchaser or any affiliate of Purchaser at such time bears
to the total number of Shares then outstanding, and the Company shall, at such
time, promptly take all actions necessary to cause Purchaser's designees to be
elected as directors of the Company, including increasing the size of the Board
or securing the resignations of incumbent directors or both. At such times, the
Company shall use its best efforts to cause persons designated by Purchaser to
constitute the same percentage as persons designated by Purchaser shall
constitute of the Board of (i) each committee of the Board (some of whom may be
required to be independent as required by applicable law), (ii) each board of
directors of each domestic Subsidiary and (iii) each committee of each such
board, in each case only to the extent permitted by applicable law.
Notwithstanding the foregoing, until the time Purchaser acquires a majority of
the then outstanding Shares on a fully diluted basis, the Company shall use its
best efforts to ensure that all the members of the Board and each committee of
the Board and such boards and committees of the domestic Subsidiaries as of the
date hereof who are not employees of the Company shall remain members of the
Board and of such boards and committees.
(b) The Company shall promptly take all actions required pursuant to Section
14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder in order to
fulfill its obligations under this Section 6.03 and shall include in the
Schedule 14D-9 such information with respect to the Company and its officers and
directors as is required under Section 14(f) and Rule 14f-1 to fulfill such
obligations. Parent or Purchaser shall supply to the Company and be solely
responsible for any information with respect to either of them and their
nominees, officers, directors and affiliates required by such Section 14(f) and
Rule 14f-1.
(c) Following the election or appointment of designees of Purchaser pursuant
to this Section 6.03, prior to the Effective Time, any amendment of this
Agreement or the Certificate of Incorporation or By-laws of the Company, any
termination of this Agreement by the Company, any extension by the Company of
the time for the performance of any of the obligations or other acts of Parent
or Purchaser or waiver of any of the Company's rights hereunder shall require
the concurrence of a majority of the directors of the Company then in office who
neither were designated by Purchaser nor are employees of the Company or if no
such directors are then in office, no such amendment, termination, extension or
waiver shall be effected which is materially adverse to the holders of Shares
(other than Parent and its subsidiaries).
SECTION 6.04. Access to Information; Confidentiality. (a) From the date
hereof to the consummation of the Offer, the Company shall, and shall cause the
Subsidiaries and the officers, directors, employees, auditors and agents of the
Company and the Subsidiaries to, afford the officers, employees and agents of
Parent and Purchaser and persons providing or committing to provide Parent or
Purchaser with financing for the Transactions complete access at all reasonable
times to the officers, employees, agents, properties, offices, plants and other
facilities, books and records of the Company and each Subsidiary, and shall
furnish Parent and Purchaser and persons providing or committing to provide
Parent or Purchaser with financing for the Transactions with all financial,
operating and other data and information as Parent or Purchaser, through its
officers, employees or agents, may reasonably request.
(b) To the extent permitted by applicable law, in order to facilitate the
continuing operation of the Company by Parent and Purchaser from and after the
completion of the Offer without disruption and to assist in an achievement of an
orderly transition in the ownership and management of the Company, from the date
of this Agreement and until completion of the Offer, the Company, Parent and
Purchaser
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shall cooperate reasonably with each other to effect an orderly transition
including, without limitation, with respect to communications with bottlers and
employees.
(c) All information obtained by Parent or Purchaser pursuant to this Section
6.04 shall be kept confidential in accordance with the confidentiality
agreement, dated January 22, 1995 (the "Confidentiality Agreement"), between
Parent and the Company.
SECTION 6.05. No Solicitation of Transactions. Until this Agreement shall
have been terminated pursuant to Section 8.01, neither the Company nor any
Subsidiary shall, directly or indirectly, through any officer, director, agent
or otherwise, solicit, initiate or encourage the submission of any proposal or
offer from any person relating to any acquisition or purchase of all or (other
than in the ordinary course of business) any substantial portion of the assets
of, or any equity interest in, the Company or any Material Subsidiary or any
business combination with the Company or any Subsidiary or, except to the extent
required by fiduciary obligations under applicable law as advised in writing by
independent counsel, participate in any negotiations regarding, or furnish to
any other person any information with respect to, or otherwise cooperate in any
way with, or assist or participate in, facilitate or encourage, any effort or
attempt by any other person to do or seek any of the foregoing; provided,
however, that nothing contained in this Section 6.05 shall prohibit the Board
from furnishing information to, or entering into discussions or negotiations
with, any person in connection with an unsolicited (from the date of this
Agreement) proposal in writing by such person to acquire the Company pursuant to
a merger, consolidation, share exchange, business combination or other similar
transaction or to acquire all or substantially all of the assets of the Company
or any of its Subsidiaries, if, and only to the extent that, (i) the Board,
after consultation with independent legal counsel (which may include its
regularly engaged independent legal counsel), determines in good faith that such
action is required for the Board to comply with its fiduciary duties to
stockholders imposed by Delaware Law and (ii) prior to furnishing such
information to, or entering into discussions or negotiations with, such person
the Company uses its reasonable best efforts to obtain from such person an
executed confidentiality agreement on terms no less favorable to the Company
than those contained in the Confidentiality Agreement. The Company immediately
shall cease and cause to be terminated all existing discussions or negotiations
with any parties conducted heretofore with respect to any of the foregoing. The
Company shall notify Parent promptly if any such proposal or offer, or any
inquiry or contact with any person with respect thereto, is made. The Company
agrees not to release any third party from, or waive any provision of, any
confidentiality or, subject to the fiduciary duties of the Board, standstill
agreement to which the Company is or may become a party.
SECTION 6.06. Employee Stock Options and Other Employee Benefits
Matters. Annex B hereto sets forth certain agreements among the parties hereto
with respect to the Plans and other employee benefits matters.
SECTION 6.07. Directors' and Officers' Indemnification and
Insurance. (a) The Certificate of Incorporation of the Surviving Corporation and
each of its Subsidiaries shall contain provisions no less favorable with respect
to indemnification and advancement of expenses than are set forth in Article VI
of the Certificate of Incorporation of the Company as of the date of this
Agreement, which provisions shall not be amended, repealed or otherwise modified
for a period of six years from the Effective Time in any manner that would
affect adversely the rights thereunder of individuals who at any time from and
after the date of this Agreement and to and including the Effective Time were
directors, officers, employees, fiduciaries or agents of the Company or any of
its Subsidiaries in respect of actions or omissions occurring at or prior to the
Effective Time (including, without limitation, the matters contemplated by this
Agreement), unless such modification is required by law. From and after the
Purchaser's Election Date, the Company shall not amend, repeal or otherwise
modify the indemnification and advancement of expenses provisions of Article VI
of the Certificate of Incorporation of the Company or the indemnification or
advancement of expenses provisions in the Certificate of Incorporation of any of
the Company's Subsidiaries in any manner that would adversely affect the rights
thereunder of individuals who at any time from and after the date of this
Agreement and to and
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including the Effective Time were directors, officers, employees, fiduciaries or
agents of the Company or any of its Subsidiaries in respect of actions or
omissions occurring at or prior to the Effective Time (including, without
limitation, the matters contemplated by this Agreement), unless such
modification is required by law.
(b) The Company shall, to the fullest extent permitted under applicable law
and regardless of whether the Merger becomes effective, indemnify and hold
harmless, and, after the Effective Time, the Surviving Corporation shall, to the
fullest extent permitted under applicable law, indemnify and hold harmless, each
present and former director, officer, employee, fiduciary and agent of the
Company and each Subsidiary (collectively, the "Indemnified Parties") against
all costs and expenses (including attorneys' fees), judgments, fines, losses,
claims, damages, liabilities and settlement amounts paid in connection with any
threatened or actual claim, action, suit, proceeding or investigation (whether
arising before or after the Effective Time) ("Claim"), whether civil, criminal,
administrative or investigative, arising out of or pertaining to any action or
omission in their capacity as an officer, director, employee, fiduciary or agent
(including, without limitation, any Claim arising out of this Agreement or any
of the transactions contemplated hereby), whether occurring before or after the
Effective Time, whether asserted or claimed prior to, at or after the Effective
Time, for a period of six years after the later of the date of this Agreement
and the Effective Time, in each case to the fullest extent permitted under
Delaware Law (and shall pay any expenses in advance of the final disposition of
any such action or proceeding to each Indemnified Party to the fullest extent
permitted under Delaware Law, upon receipt from the Indemnified Party to whom
expenses are advanced of any undertaking to repay such advances required under
Delaware Law). In the event of any such claim, action, suit, proceeding or
investigation, (i) the Indemnified Parties may retain counsel (including local
counsel) satisfactory to them and the Company or the Surviving Corporation, as
the case may be, shall pay the reasonable fees and expenses of such counsel,
promptly after statements therefor are received and (ii) the Company and the
Surviving Corporation shall use all reasonable efforts in the vigorous defense
of any such matter; provided, however, that neither the Company nor the
Surviving Corporation shall be liable for any settlement effected without its
written consent (which consent shall not be unreasonably withheld); and provided
further that neither the Company nor the Surviving Corporation shall be
obligated pursuant to this Section 6.07(b) to pay the fees and expenses of more
than one counsel (plus appropriate local counsel) for all Indemnified Parties in
any single action unless there is, as determined by counsel to the Indemnified
Parties, under applicable standards of professional conduct, a conflict or a
reasonable likelihood of a conflict on any significant issue between the
positions of any two or more Indemnified Parties, in which case such additional
counsel (including local counsel) as may be required to avoid any such conflict
or likely conflict may be retained by the Indemnified Parties at the expense of
the Company or the Surviving Corporation; and provided further that, in the
event that any claim for indemnification is asserted or made within such
six-year period, all rights to indemnification in respect of such claim shall
continue until the disposition of such claim.
(c) The Company shall, from and after the date of this Agreement and to and
including the Effective Time, and the Surviving Corporation shall, for six years
from the Effective Time, maintain in effect the current directors' and officers'
liability insurance policies maintained by the Company (provided that the
Surviving Corporation may substitute therefor policies of at least the same
coverage and amounts containing terms and conditions which are no less
advantageous to such officers and directors so long as substitution does not
result in gaps or lapses in coverage) with respect to matters occurring prior to
the Effective Time; provided, however, that in no event shall the Surviving
Corporation be required to expend pursuant to this Section 6.07(c) more than an
amount per year equal to 200% of current annual premiums paid by the Company for
such insurance (which premiums the Company represents and warrants to be
approximately $700,000 in the aggregate) and, in the event the cost of such
coverage shall exceed that amount, the Surviving Corporation shall purchase as
much coverage as possible for such amount.
(d) In the event the Company or the Surviving Corporation or any of their
respective successors or assigns (i) consolidates with or merges into any other
person and shall not be the continuing or surviving
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corporation or entity of such consolidation or merger or (ii) transfers all or
substantially all of its properties and assets to any person, then, and in each
such case, proper provision shall be made so that the successors and assigns of
the Company or the Surviving Corporation, as the case may be, or at Parent's
option, Parent, shall assume the obligations set forth in this Section 6.07.
(e) The By-laws of the Surviving Corporation and each of its Subsidiaries
shall contain the provisions with respect to indemnification and advancement of
expenses set forth in the By-laws of the Company on the date of this Agreement,
and such provisions shall not be amended, repealed or otherwise modified for a
period of six years after the Effective Time in any manner that would affect
adversely the rights thereunder of individuals who at any time from and after
the date of this Agreement and to and including the Effective Time were
directors, officers, employees, fiduciaries or agents of the Company or any of
its Subsidiaries in respect of actions or omissions occurring at or prior to the
Effective Time (including, without limitation, the transactions contemplated by
this Agreement), unless such modification is required by law. From and after the
Purchaser's Election Date, the Company shall not amend, repeal or otherwise
modify the indemnification and advancement of expenses provisions of the By-laws
of the Company or the indemnification and advancement of expenses provisions in
the By-laws of any of the Company's Subsidiaries in any manner that would
adversely affect the rights thereunder of individuals who at any time from and
after the date of this Agreement and to and including the Effective Time were
directors, officers, employees, fiduciaries or agents of the Company or any of
its Subsidiaries in respect of actions or omissions occurring at or prior to the
Effective Time (including, without limitation, the matters contemplated by this
Agreement), unless such modification is required by law.
(f) The obligations of the Company or the Surviving Corporation under this
Section 6.07 shall not be terminated or modified in such a manner as to
adversely affect any director, officer, employee, fiduciary and agent to whom
this Section 6.07 applies without the consent of each affected director,
officer, employee, fiduciary and agent (it being expressly agreed that the
directors, officers, employees, fiduciaries and agents to whom this Section 6.07
applies shall be third-party beneficiaries of this Section 6.07).
(g) In the event that the Company or the Surviving Corporation should fail,
at any time from and after the Purchaser's Election Date, to comply with any of
the foregoing obligations set forth in this Section 6.07, for any reason, Parent
shall be responsible therefor and hereby agrees to perform such obligations
unconditionally without regard to any defense or other basis for nonperformance
which the Company or the Surviving Corporation may have or claim (except as
would be prohibited by applicable Delaware Law), it being the intention of this
subsection (g) that the officers, directors, employees, fiduciaries and agents
of the Company and its Subsidiaries shall be fully indemnified and that the
provisions of this subsection (g) be a primary obligation of Parent and not
merely a guarantee by Parent of the obligations of the Company or Purchaser.
(h) Parent and Purchaser understand that the Company has entered into
contractual indemnification arrangements with each of its current directors and
executive officers.
SECTION 6.08. Notification of Certain Matters. The Company shall give prompt
notice to Parent, and Parent shall give prompt notice to the Company, of (i) the
occurrence, or non-occurrence, of any event the occurrence, or non-occurrence,
of which would be likely to cause any representation or warranty contained in
this Agreement to be untrue or inaccurate and (ii) any failure of the Company,
Parent or Purchaser, as the case may be, to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder;
provided, however, that the delivery of any notice pursuant to this Section 6.08
shall not limit or otherwise affect the remedies available hereunder to the
party receiving such notice.
SECTION 6.09. Further Action; Reasonable Best Efforts. Upon the terms and
subject to the conditions hereof, each of the parties hereto shall (i) make
promptly its respective filings, and thereafter make any other required
submissions, under the HSR Act with respect to the Transactions, (ii) use its
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reasonable best efforts to take, or cause to be taken, all appropriate action,
and to do, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
Transactions, including, without limitation, using its reasonable best efforts
to obtain all licenses, permits (including, without limitation, Environmental
Permits), consents, approvals, authorizations, qualifications and orders of
governmental authorities and parties to contracts with the Company and the
Subsidiaries as are necessary for the consummation of the Transactions and to
fulfill the conditions to the Offer and the Merger and (iii) except as
contemplated by this Agreement, use its reasonable best efforts not to take any
action, or enter into any transaction, which would cause any of its
representations or warranties contained in this Agreement to be untrue or result
in a breach of any covenant made by it in this Agreement. Without limiting the
generality of the foregoing, the Company shall promptly provide Parent with all
information Parent may reasonably request in connection with the preparation of
a Shareholders' Circular to be delivered to the shareholders of Parent prior to
the Parent Stockholders meeting. In case at any time after the Effective Time
any further action is necessary or desirable to carry out the purposes of this
Agreement, the proper officers and directors of each party to this Agreement
then in office shall use their reasonable best efforts to take all such action.
SECTION 6.10. Public Announcements. Parent and the Company shall consult
with each other before issuing any press release or otherwise making any public
statements with respect to this Agreement or the Transactions and shall not
issue any such press release or make any such public statement prior to such
consultation, except as may be required by law or any listing agreement with a
national securities exchange to which Parent or the Company is a party.
SECTION 6.11. Parent Guarantee. Parent agrees to take all action necessary
to cause Purchaser to perform all of Purchaser's, and the Surviving Corporation
to perform all of the Surviving Corporation's, agreements, covenants and
obligations under this Agreement and to consummate the Offer and the Merger on
the terms and conditions set forth in this Agreement. Parent shall be liable for
any breach of any representation, warranty, covenant or agreement of Purchaser
and for any breach of this covenant.
SECTION 6.12. Interested Stockholder. The parties agree that (i) no
representation and warranty made by the Company shall be deemed to be untrue nor
shall the Company be deemed to be in breach of any such representation or
warranty and (ii) the Company shall not be deemed in breach of any covenant or
agreement contained herein, in each case to the extent that any such breach or
failure results directly or indirectly, from the application to the Transactions
of Section 203 of Delaware Law. In addition, the parties agree that neither
Parent nor Purchaser shall be entitled to assert the failure of any condition to
the consummation of the Offer or the Merger, where the failure to satisfy such
conditions results, directly or indirectly, from the application to the
Transactions of Section 203 of Delaware Law.
ARTICLE VII
CONDITIONS TO THE MERGER
SECTION 7.01. Conditions to the Merger. The respective obligations of each
party to effect the Merger shall be subject to the satisfaction at or prior to
the Effective Time of the following conditions and only the following
conditions:
(a) Stockholder Approval. This Agreement and the Merger shall have been
approved and adopted by the affirmative vote of the stockholders of the
Company to the extent required by Delaware Law (including Section 203
thereof) and the Certificate of Incorporation of the Company;
(b) HSR Act. Any waiting period (and any extension thereof) applicable
to the consummation of the Merger under the HSR Act shall have expired or
been terminated;
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(c) No Order. No foreign, United States or state governmental authority
or other agency or commission or foreign, United States or state court of
competent jurisdiction shall have enacted, issued, promulgated, enforced or
entered any law, rule, regulation, executive order, decree, injunction or
other order (whether temporary, preliminary or permanent) which is then in
effect and has the effect of making the acquisition of Shares by Parent or
Purchaser or any affiliate of either of them illegal or otherwise preventing
or prohibiting consummation of the Transactions (other than Section 203 of
Delaware Law); and
(d) Offer. Purchaser or its permitted assignee shall have purchased all
Shares validly tendered and not withdrawn pursuant to the Offer; provided,
however, that neither Parent nor Purchaser shall be entitled to assert the
failure of this condition if, in breach of this Agreement or the terms of
the Offer, Purchaser fails to purchase any Shares validly tendered and not
withdrawn pursuant to the Offer.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01. Termination. This Agreement may be terminated and the Merger
and the other Transactions may be abandoned at any time prior to the Effective
Time, notwithstanding any requisite approval and adoption of this Agreement and
the transactions contemplated hereby by the stockholders of the Company:
(a) By mutual written consent duly authorized by the Boards of Directors
of Parent, Purchaser and the Company prior to Purchaser's Election Date; or
(b) By Parent, Purchaser or the Company if (i) the Effective Time shall
not have occurred on or before the later of (x) September 30, 1996 and (y)
90 days following the date on which Parent or any of its subsidiares or
affiliates is no longer subject to the restrictions set forth in Section 203
of Delaware Law; provided, however, that the right to terminate this
Agreement under this Section 8.01(b) shall not be available to any party
whose failure to fulfill any obligation under this Agreement has been the
cause of, or resulted in, the failure of the Effective Time to occur on or
before such date or (ii) any court of competent jurisdiction in the United
States or other governmental authority shall have issued an order, decree,
ruling or taken any other action restraining, enjoining or otherwise
prohibiting the Merger and such order, decree, ruling or other action shall
have become final and nonappealable; or
(c) By Parent if (i) due to an occurrence or circumstance that results
in a failure to satisfy any condition set forth in Annex A hereto, Purchaser
shall have (A) failed to commence the Offer within 10 days following the
date of this Agreement, (B) terminated the Offer without having accepted any
Shares for payment thereunder or (C) failed to pay for Shares pursuant to
the Offer within 90 days following the commencement of the Offer, unless any
such failure listed above shall have been caused by or resulted from the
failure of Parent or Purchaser to perform in any material respect any
material covenant or agreement of either of them contained in this Agreement
or the material breach by Parent or Purchaser of any material representation
or warranty of either of them contained in this Agreement or (ii) prior to
the purchase of Shares pursuant to the Offer, the Board or any committee
thereof shall have withdrawn or modified in a manner adverse to Purchaser or
Parent its approval or recommendation of the Offer, this Agreement, the
Merger or any other Transaction or shall have recommended another merger,
consolidation, business combination with, or acquisition of, the Company or
its assets or another tender offer or exchange offer for Shares, or shall
have resolved to do any of the foregoing or shall have rescinded (or
resolved to
26
<PAGE>
rescind) its determination that the Offer as a "Permitted Offer" (as defined
in the Rights Agreement); or
(d) By the Company, upon approval of the Board, if (i) Purchaser shall
have (A) failed to commence the Offer within 10 days following the date of
this Agreement, (B) terminated the Offer without having accepted any Shares
for payment thereunder or (C) failed to pay for Shares pursuant to the Offer
within 90 days following the commencement of the Offer, unless such failure
to pay for Shares shall have been caused by or resulted from the failure of
the Company to satisfy the conditions set forth in paragraphs (f) or (g) of
Annex A or (ii) prior to the purchase of Shares pursuant to the Offer, the
Board shall have withdrawn or modified in a manner adverse to Purchaser or
Parent its approval or recommendation of the Offer, this Agreement or the
Merger in order to approve the execution by the Company of a definitive
agreement providing for the acquisition of the Company or its assets by
merger or other business combination or in order to approve a tender offer
or exchange offer for Shares by a third party, in either case, as determined
by the Board in the exercise of its good faith judgment and after
consultation with its legal counsel and financial advisors, on terms more
favorable to the Company's stockholders than the Offer and the Merger taken
together; provided, however, that such termination under this clause (ii)
shall not be effective until the Company has made payment to Parent of the
Fee (as hereinafter defined) required to be paid pursuant to Section 8.03(a)
and has deposited with a mutually acceptable escrow agent $20 million for
reimbursement to Parent and Purchaser of Expenses (as hereinafter defined).
SECTION 8.02. Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 8.01, this Agreement shall forthwith become void,
and there shall be no liability on the part of any party hereto, except as set
forth in Sections 8.03 and 9.01, and nothing herein shall relieve any party from
liability for any breach hereof.
SECTION 8.03. Fees and Expenses. (a) In the event that:
(i) any person (including, without limitation, the Company or any
affiliate thereof), other than Parent or any affiliate of Parent, shall have
become the beneficial owner of more than 15% of the then outstanding Shares
and this Agreement shall have been terminated pursuant to Section 8.01 and
within 12 months of such termination a Third Party Acquisition (as defined
hereinafter) shall occur; or
(ii) any person shall have commenced, publicly proposed or communicated
to the Company a proposal that is publicly disclosed for a tender or
exchange offer for more than 50% (or which, assuming the maximum amount of
securities which could be purchased, would result in any person beneficially
owning more than 50%) of the then outstanding Shares or otherwise for the
direct or indirect acquisition of the Company or all or substantially all of
its assets for per Share consideration having a value greater than the Per
Share Amount and (x) the Offer shall have remained open for at least 20
business days, (y) the Minimum Condition shall not have been satisfied and
(z) this Agreement shall have been terminated pursuant to Section 8.01; or
(iii) this Agreement is terminated pursuant to Section 8.01(c)(ii) or
8.01(d)(ii);
then, in any such event, the Company shall pay Parent promptly (but in no event
later than one business day after the first of such events shall have occurred)
a fee of $35 million (the "Fee"), which amount shall be payable in
immediately available funds, plus all Expenses (as hereinafter defined).
(b) "Expenses" means all out-of-pocket expenses and fees up to $20
million in the aggregate (including, without limitation, fees and expenses
payable to all banks, investment banking firms,
27
<PAGE>
other financial institutions and other persons and their respective agents
and counsel for arranging, committing to provide or providing any financing
for the Transactions or structuring the Transactions and all fees of
counsel, accountants, experts and consultants to Parent and Purchaser, and
all printing and advertising expenses) actually incurred or accrued by
either of them or on their behalf in connection with the Transactions,
including, without limitation, the financing thereof, and actually incurred
or accrued by banks, investment banking firms, other financial institutions
and other persons and assumed by Parent and Purchaser in connection with the
negotiation, preparation, execution and performance of this Agreement, the
structuring and financing of the Transactions and any financing commitments
or agreements relating thereto.
(c) Except as set forth in this Section 8.03, all costs and expenses
incurred in connection with this Agreement and the Transactions shall be
paid by the party incurring such expenses, whether or not any Transaction is
consummated.
(d) In the event that the Company shall fail to pay the Fee or any
Expenses when due, the term "Expenses" shall be deemed to include the costs
and expenses actually incurred or accrued by Parent and Purchaser
(including, without limitation, fees and expenses of counsel) in connection
with the collection under and enforcement of this Section 8.03, together
with interest on such unpaid Fee and Expenses, commencing on the date that
the Fee or such Expenses became due, at a rate equal to the rate of interest
publicly announced by Citibank, N.A., from time to time, in the City of New
York, as such bank's Prime Rate plus 1.00%.
(e) "Third Party Acquisition" means the occurrence of any of the
following events: (i) the acquisition of the Company by merger,
consolidation or other business combination transaction by any person other
than Parent, Purchaser or any affiliate thereof (a "Third Party"); (ii) the
acquisition by any Third Party of all or substantially all of the total
assets of the Company and its Subsidiaries, taken as a whole; (iii) the
acquisition by a Third Party of 50% or more of the outstanding Shares
whether by tender offer, exchange offer or otherwise; (iv) the adoption by
the Company of a plan of liquidation or the declaration or payment of an
extraordinary dividend; or (v) the repurchase by the Company or any of its
Subsidiaries of 50% or more of the outstanding Shares.
SECTION 8.04. Amendment. Subject to the limitations set forth in Section
6.03(c), this Agreement may be amended by the parties hereto by action taken by
or on behalf of their respective Boards of Directors at any time prior to the
Effective Time; provided, however, that no amendment may be made which (i)
reduces the amount or changes the type of consideration into which each Share
shall be converted upon consummation of the Merger, (ii) imposes conditions to
the Merger in addition to those set forth in Section 7.01 or (iii) would
otherwise amend or change the terms and conditions of the Merger in any manner
materially adverse to the holders of Shares. This Agreement may not be amended
except by an instrument in writing signed by the parties hereto.
SECTION 8.05. Waiver. Subject to the limitations set forth in Section
6.03(c), at any time prior to the Effective Time, any party hereto may (i)
extend the time for the performance of any obligation or other act of any other
party hereto, (ii) waive any inaccuracy in the representations and warranties
contained herein or in any document delivered pursuant hereto and (iii) waive
compliance with any agreement or condition contained herein. Any such extension
or waiver shall be valid if set forth in an instrument in writing signed by the
party or parties to be bound thereby.
28
<PAGE>
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01. Non-Survival of Representations, Warranties and
Agreements. The representations, warranties and agreements in this Agreement
shall terminate at the Effective Time or upon the termination of this Agreement
pursuant to Section 8.01, as the case may be, except that (i) the
representations and warranties of the Company set forth in Article III shall
terminate on the Purchaser's Election Date, (ii) the agreements set forth in
Articles II and IX and (iii) Sections 6.06 and 6.07 shall survive the Effective
Time indefinitely and those set forth in Sections 6.04(c) and 8.03 and Article
IX shall survive termination indefinitely.
SECTION 9.02. Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by cable,
telecopy, facsimile, telegram or telex or by registered or certified mail
(postage prepaid, return receipt requested) to the respective parties at the
following addresses (or at such other address for a party as shall be specified
in a notice given in accordance with this Section 9.02):
if to Parent or Purchaser:
(i) Cadbury Schweppes plc
25 Berkeley Square
London, England W1X 6HT
Facsimile No.: (011) 71-830-5221
Attention: Company Secretary
(ii) CBI Holdings Inc.
6 High Ridge Park
Stamford, CT 06905
Facsimile No.: (203) 968-7957
Attention: General Counsel
with a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Facsimile No.: (212) 848-7179
Attention: Alfred J. Ross, Jr., Esq.
if to the Company:
Dr Pepper/Seven-Up Companies, Inc.
8144 Walnut Hill Lane
Dallas, Texas 75231-4372
Facsimile No.: (214) 360-7981
Attention: General Counsel
with a copy to:
Baker & Botts, L.L.P.
2001 Ross Avenue
Dallas, Texas 75201-2980
Facsimile No.: (214) 953-6503
Attention: Andrew M. Baker, Esq.
29
<PAGE>
SECTION 9.03. Certain Definitions. For purposes of this Agreement, the term:
(a) "affiliate" of a specified person means a person who directly or
indirectly through one or more intermediaries controls, is controlled by, or
is under common control with, such specified person;
(b) "beneficial owner" with respect to any Shares means a person who
shall be deemed to be the beneficial owner of such Shares (i) which such
person or any of its affiliates or associates (as such term is defined in
Rule 12b-2 promulgated under the Exchange Act) beneficially owns, directly
or indirectly, (ii) which such person or any of its affiliates or associates
has, directly or indirectly, (A) the right to acquire (whether such right is
exercisable immediately or subject only to the passage of time), pursuant to
any agreement, arrangement or understanding or upon the exercise of
consideration rights, exchange rights, warrants or options, or otherwise, or
(B) the right to vote pursuant to any agreement, arrangement or
understanding or (iii) which are beneficially owned, directly or indirectly,
by any other persons with whom such person or any of its affiliates or
associates or person with whom such person or any of its affiliates or
associates has any agreement, arrangement or understanding for the purpose
of acquiring, holding, voting or disposing of any Shares;
(c) "business day" means any day on which the principal offices of the
SEC in Washington, D.C. are open to accept filings, or, in the case of
determining a date when any payment is due, any day on which banks are not
required or authorized to close in the City of New York;
(d) "control" (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly or as trustee or
executor, of the power to direct or cause the direction of the management
and policies of a person, whether through the ownership of voting
securities, as trustee or executor, by contract or credit arrangement or
otherwise;
(e) "person" means an individual, corporation, partnership, limited
partnership, syndicate, person (including, without limitation, a "person" as
defined in Section 13(d)(3) of the Exchange Act), trust, association or
entity or government, political subdivision, agency or instrumentality of a
government; and
(f) "subsidiary" or "subsidiaries" of the Company, the Surviving
Corporation, Parent or any other person means an affiliate controlled by
such person, directly or indirectly, through one or more intermediaries.
SECTION 9.04. Severability. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the Transactions is not affected in any manner materially adverse to any party.
Upon such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in a mutually acceptable manner in order that the
Transactions be consummated as originally contemplated to the fullest extent
possible.
SECTION 9.05. Entire Agreement; Assignment. This Agreement constitutes the
entire agreement among the parties with respect to the subject matter hereof and
supersedes, except as set forth in Section 6.04(c), all prior agreements and
undertakings, both written and oral, among the parties, or any of them, with
respect to the subject matter hereof. This Agreement shall not be assigned by
operation of law or otherwise, except that Parent and Purchaser may assign all
or any of their rights and obligations hereunder to any wholly owned subsidiary
of Parent provided that no such assignment shall relieve the assigning party of
its obligations hereunder if such assignee does not perform such obligations.
30
<PAGE>
SECTION 9.06. Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to or shall confer upon any other person any
right, benefit or remedy of any nature whatsoever under or by reason of this
Agreement, other than Section 6.07 (which is intended to be for the benefit of
the persons covered thereby and may be enforced by such persons).
SECTION 9.07. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or equity.
SECTION 9.08. Governing Law. Except to the extent that Delaware Law applies
to the Transactions, this Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York applicable to contracts
executed in and to be performed in that State. All actions and proceedings
arising out of or relating to this Agreement shall be heard and determined in
any Delaware state or federal court sitting in the City of Wilmington.
SECTION 9.09. Headings. The descriptive headings contained in this Agreement
are included for convenience of reference only and shall not affect in any way
the meaning or interpretation of this Agreement.
SECTION 9.10. Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
IN WITNESS WHEREOF, Parent, Purchaser and the Company have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
<TABLE>
<S> <C>
CADBURY SCHWEPPES PLC
By /s/ HENRY A. UDOW
.............................................
Name: Henry A. Udow
Title: Legal Director
Attest: DP/SU ACQUISITION INC.
/s/ ALFRED J. ROSS, JR. By /s/ JOHN F. BROCK
............................................. .............................................
Name: John F. Brock
Title: President
Attest: DR PEPPER/SEVEN-UP COMPANIES, INC.
/s/ DOUGLAS BRENT By /s/ IRA M. ROSENSTEIN
............................................. .............................................
Name: Ira M. Rosenstein
Title: Executive Vice President
</TABLE>
31
<PAGE>
ANNEX A TO THE
MERGER AGREEMENT
CONDITIONS TO THE OFFER
Notwithstanding any other provision of the Offer, Purchaser shall not be
required to accept for payment or pay for any Shares tendered pursuant to the
Offer, and may terminate or amend the Offer and may postpone the acceptance for
payment of and payment for Shares tendered, if (i) the Minimum Condition shall
not have been satisfied, (ii) any applicable waiting period under the HSR Act
shall not have expired or been terminated prior to the expiration of the Offer
after 30 days from the commencement of the Offer or (iii) at any time on or
after the date of this Agreement, and prior to the acceptance for payment of
Shares, any of the following conditions shall exist:
(a) there shall have been instituted or be pending any action or
proceeding brought by any governmental, administrative or regulatory
authority or agency, domestic or foreign, before any court or governmental,
administrative or regulatory authority or agency, domestic or foreign, (i)
challenging or seeking to make illegal, materially delay or otherwise
directly or indirectly restrain or prohibit or make materially more costly
the making of the Offer, the acceptance for payment of, or payment for, any
Shares by Parent, Purchaser or any other affiliate of Parent pursuant to the
Offer, or the consummation of any other Transaction, or seeking to obtain
material damages in connection with any Transaction; (ii) seeking to
prohibit or limit materially the ownership or operation by the Company,
Parent or any of their subsidiaries of all or any material portion of the
business or assets of the Company, Parent or any of their subsidiaries, or
to compel the Company, Parent or any of their subsidiaries to dispose of or
hold separate all or any material portion of the business or assets of the
Company, Parent or any of their subsidiaries, as a result of the
Transactions; (iii) seeking to impose or confirm limitations on the ability
of Parent, Purchaser or any other affiliate of Parent to exercise
effectively full rights of ownership of any Shares, including, without
limitation, the right to vote any Shares acquired by Purchaser pursuant to
the Offer, or otherwise on all matters properly presented to the Company's
stockholders, including, without limitation, the approval and adoption of
this Agreement and the transactions contemplated hereby; or (iv) seeking to
require divestiture by Parent, Purchaser or any other affiliate of Parent of
any Shares; other than, in each of the foregoing cases under this clause
(a), such actions or proceedings which result, directly or indirectly, from
the application of Section 203 of Delaware Law;
(b) there shall have been issued any injunction, order or decree by any
court or governmental, administrative or regulatory authority or agency,
domestic or foreign, resulting from any action or proceeding brought by any
person other than any governmental, administrative or regulatory authority
or agency, domestic or foreign, which (i) restrains or prohibits the making
of the Offer or the consummation of any other Transaction; (ii) prohibits or
limits ownership or operation by the Company, Parent or Purchaser of all or
any material portion of the business or assets of the Company, taken as a
whole, Parent or any of their subsidiaries, or compels the Company, Parent
or any of their subsidiaries to dispose of or hold separate all or any
material portion of the business or assets of the Company, Parent or any of
their subsidiaries, in each case as a result of the Transactions; (iii)
imposes limitations on the ability of Parent or Purchaser to exercise
effectively full rights of ownership of any Shares, including, without
limitation, the right to vote any Shares acquired by Purchaser pursuant to
the Offer, or otherwise on all matters properly presented to the Company's
stockholders, including, without limitation, the approval and adoption of
this Agreement and the Transactions; (iv) requires divestiture by Parent or
Purchaser of any Shares; other than, in each of the foregoing cases under
this clause (b), such injunctions, orders or decrees which result, directly
or indirectly, from the application of Section 203 of Delaware Law;
A-1
<PAGE>
(c) there shall have been any action taken, or any statute, rule,
regulation, order or injunction enacted, entered, enforced, promulgated,
amended, issued or deemed applicable to (i) Parent, the Company or any
subsidiary or affiliate of Parent or the Company or (ii) any Transaction, by
any legislative body, court, government or governmental, administrative or
regulatory authority or agency, domestic or foreign, in the case of both (i)
and (ii) other than (A) the routine application of the waiting period
provisions of the HSR Act to the Offer, the Stockholders Agreement or the
Merger, and (B) the application of Section 203 of Delaware Law, in each case
which results in any of the consequences referred to in clauses (i) through
(iv) of paragraph (b) above;
(d) there shall have occurred (i) any general suspension of, or
limitation on prices for, trading in securities of (x) the Company on the
New York Stock Exchange or (y) Parent on the London Stock Exchange, (ii) any
decline, measured from the date hereof, in the Standard & Poor's 500 Index
or FTSE 100 Index by an amount in excess of 20%, (iii) a currency moratorium
on the exchange markets in London or New York City, (iv) a declaration of a
banking moratorium or any suspension of payments in respect of banks in the
United States or the United Kingdom, (v) any limitation (whether or not
mandatory) by any government or governmental, administrative or regulatory
authority or agency, domestic or foreign, on the extension of credit by
banks or other lending institutions, (vi) a commencement of a war or armed
hostilities or other national or international calamity directly or
indirectly involving the United States or the United Kingdom or (vii) in the
case of any of the foregoing existing on the date hereof, a material
acceleration or worsening thereof;
(e) (i) it shall have been publicly disclosed or Purchaser shall have
otherwise learned that beneficial ownership (determined for the purposes of
this paragraph as set forth in Rule 13d-3 promulgated under the Exchange
Act) of 15% or more of the then outstanding Shares has been acquired by any
person, other than Parent or any of its affiliates or (ii) (A) the Board
shall have withdrawn or modified in a manner adverse to Parent or Purchaser
the approval or recommendation of the Offer, the Merger or this Agreement or
approved or recommended any takeover proposal or any other acquisition of
Shares other than the Offer and the Merger or (B) the Board shall have
resolved to do any of the foregoing;
(f) any representation and warranty of the Company in this Agreement
shall not be true and correct and the failure to be true and correct has a
Material Adverse Effect; provided, however, in determining whether a
Material Adverse Effect has occurred, any qualification as to materiality
contained in any such representation and warranty shall be deemed not to
apply;
(g) the Company shall have failed to perform in any material respect any
material obligation or to comply in any material respect with any material
agreement or covenant of the Company to be performed or complied with by it
under this Agreement;
(h) Parent shall not have received the requisite affirmative vote of the
holders of ordinary shares of Parent with respect to the approval of the
Transactions at the Parent Stockholders Meeting;
(i) this Agreement shall have been terminated in accordance with its
terms; or
(j) Purchaser and the Company shall have agreed that Purchaser shall
terminate the Offer or postpone the acceptance for payment of or payment for
Shares thereunder;
The foregoing conditions are for the sole benefit of Purchaser and Parent
and may be asserted by Purchaser or Parent regardless of the circumstances
giving rise to any such condition or may be waived by Purchaser or Parent in
whole or in part at any time and from time to time in their sole discretion. The
failure by Parent or Purchaser at any time to exercise any of the foregoing
rights shall not be deemed a waiver of any such right; the waiver of any such
right with respect to particular facts and other circumstances shall not be
deemed a waiver with respect to any other facts and circumstances; and each such
right shall be deemed an ongoing right that may be asserted at any time and from
time to time.
A-2
<PAGE>
ANNEX B TO THE
MERGER AGREEMENT
EMPLOYEE BENEFITS
(a) ERISA PLANS. Parent agrees to maintain each of the Company's existing
employee benefit plans as that term is defined in Section 3(3) of ERISA
(excluding any equity or incentive compensation plans or the severance plans
referred to in (c) below), until at least December 31, 1995. For 1996, Parent
will provide the Company's employees with plans or programs providing benefits
which in the aggregate are not less favorable to such employees than the
benefits provided to them under existing employee benefit plans of the Company.
(b) INCENTIVE PLANS; OPTIONS. Parent agrees that the Company's employees
will continue to participate in the Company's existing incentive compensation
plans until December 31, 1995 on the same basis as they are now participating.
For 1996, the employees will participate in any incentive plan of Parent or any
of its subsidiaries in effect as of the date hereof or created thereafter, on
substantially the same terms and subject to substantially the same conditions
and criteria as similarly situated U.S. employees of Parent or any of its
subsidiaries. In addition, the Company's employees will also participate in 1995
and 1996 in any employee stock option plan of Parent or any of its subsidiaries
in effect as of the date hereof or created thereafter, also on such
substantially similar terms, conditions and criteria.
(c) SEVERANCE; OUTPLACEMENT. Parent agrees that until two years after the
Tender Offer Acceptance Date the Surviving Corporation will provide (i)
severance payments consistent with the existing Company Severance Benefits
Program for Employees to all officers (except the Chairman of the Board) and
employees, and (ii) reasonable outplacement services for all officers of the
Company and its subsidiaries and any divisional managers employed by the Company
or its subsidiaries at the Tender Offer Acceptance Date, in each case, who are
terminated without cause (as that term is defined in the Company's Severance
Benefit Program for Employees), prior to such date.
(d) INDIVIDUAL AGREEMENTS. The Severance Agreements between the Company and
each of Messrs. Albers and Rosenstein shall be amended to provide that amounts
payable thereunder upon termination after a Change of Control (as defined
thereunder) will be payable upon termination by the Company (or the Surviving
Corporation) without cause (as defined thereunder) or by the employee for any
reason.
(e) FULL VESTING. Parent commits that all Pension and Profit Sharing Plans
of the Company shall be amended to provide that all participants therein as of
the Tender Offer Acceptance Date shall be fully vested in their benefits
thereunder as of such date.
<PAGE>
ANNEX B
GENERAL CORPORATION LAW OF THE
STATE OF DELAWARE
SEC.262. APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this section
with respect to such shares, who continuously holds such shares through the
effective date of the merger or consolidation, who has otherwise complied with
subsection (d) of this section and who has neither voted in favor of the merger
or consolidation nor consented thereto in writing pursuant to Sec. 228 of this
title shall be entitled to an appraisal by the Court of Chancery of the fair
value of his shares of stock under the circumstances described in subsections
(b) and (c) of this section. As used in this section, the word "stockholder"
means a holder of record of stock in a stock corporation and also a member of
record of a nonstock corporation; the words "stock" and "share" mean and include
what is ordinarily meant by those words and also membership or membership
interest of a member of a nonstock corporation.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Sec. 251, 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock which, at the
record date fixed to determine the stockholders entitled to receive notice
of and to vote at the meeting of stockholders to act upon the agreement of
merger or consolidation, were either (i) listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or (ii) held of record by more than 2,000 stockholders; and
further provided that no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the merger did
not require for its approval the vote of the stockholders of the surviving
corporation as provided in subsection (f) of Sec. 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required by
the terms of an agreement of merger or consolidation pursuant to Sec.Sec.
251, 252, 254, 257, 258, 263 and 264 of this title to accept for such stock
anything except:
a. Shares of stock of the corporation surviving or resulting from such
merger or consolidation;
b. Shares of stock of any other corporation which at the effective date
of the merger or consolidation will be either listed on a national
securities exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 stockholders;
c. Cash in lieu of fractional shares of the corporations described in
the foregoing subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock and cash in lieu of fractional
shares described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Sec. 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
B-1
<PAGE>
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are available
pursuant to subsections (b) or (c) hereof that appraisal rights are
available for any or all of the shares of the constituent corporations, and
shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of his shares shall deliver to the
corporation, before the taking of the vote on the merger or consolidation, a
written demand for appraisal of his shares. Such demand will be sufficient
if it reasonably informs the corporation of the identity of the stockholder
and that the stockholder intends thereby to demand the appraisal of his
shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must do
so by a separate written demand as herein provided. Within 10 days after the
effective date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent corporation
who has complied with this subsection and has not voted in favor of or
consented to the merger or consolidation of the date that the merger or
consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to Sec. 228 or
253 of this title, the surviving or resulting corporation, either before the
effective date of the merger or consolidation or within 10 days thereafter,
shall notify each of the stockholders entitled to appraisal rights of the
effective date of the merger or consolidation and that appraisal rights are
available for any or all of the shares of the constituent corporation, and
shall include in such notice a copy of this section. The notice shall be
sent by certified or registered mail, return receipt requested, addressed to
the stockholder at his address as it appears on the records of the
corporation. Any stockholder entitled to appraisal rights may, within 20
days after the date of mailing of the notice, demand in writing from the
surviving or resulting corporation the appraisal of his shares. Such demand
will be sufficient if it reasonably informs the corporation of the identity
of the stockholder and that the stockholder intends thereby to demand the
appraisal of his shares.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw his demand for
appraisal and to accept the terms offered upon the merger or consolidation.
Within 120 days after the effective date of the merger or consolidation, any
stockholder who has complied with the requirements of subsections (a) and (d)
hereof, upon written request, shall be entitled to receive from the corporation
surviving the merger or resulting from the consolidation a statement setting
forth the aggregate number of shares not voted in favor of the merger or
consolidation and with respect to which demands for appraisal have been received
and the aggregate number of holders of such shares. Such written statement shall
be mailed to the stockholder within 10 days after his written request for such a
statement is received by the surviving or resulting corporation or within 10
days after expiration of the period for delivery of demands for appraisal under
subsection (d) hereof, whichever is later.
B-2
<PAGE>
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not been reached by
the surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day of
the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The forms
of the notices by mail and by publication shall be approved by the Court, and
the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing of such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon the
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
B-3
<PAGE>
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation. (Last amended by Ch. 61, L.
'93, effective 7-l-93.)
B-4
<PAGE>
ANNEX C
Bankers Trust
Bankers Trust New York Corporation
and its affiliated Companies
BT Securities Corporation
Mailing Address:
Mail Stop 2344
P.O. Box 318, Church Street Station
New York, New York 10008
Address:
One Bankers Trust Plaza
New York, New York 10006
Fax: 212-250-1530
January 25, 1995
Board of Directors
and the Special Committee of the Board
Dr Pepper/Seven-Up Companies, Inc.
8144 Walnut Hill Lane
Dallas, Texas 75231-4372
Dear Sirs:
We understand that Cadbury Schweppes plc (the "Acquiror") and Dr
Pepper/Seven-Up Companies, Inc. (the "Company") propose to enter into an
Agreement and Plan of Merger, dated as of the date hereof (the "Merger
Agreement"), pursuant to which DP/SU Acquisition Inc., a wholly owned subsidiary
of the Acquiror ("Merger Sub"), will make a cash tender offer (the "Offer") to
acquire all of the outstanding shares (the "Shares") of common stock par value
$0.01 per share of the Company for $33.00 per share.
The Merger Agreement provides that, following consummation of the Offer,
Merger Sub will be merged with and into the Company (the "Merger"), and all
remaining Shares, other than any Shares owned by the Company and any Shares
owned by the Acquiror, Merger Sub or any other wholly-owned subsidiary of the
Company or the Acquiror, and other than dissenting Shares, will be converted
into the right to receive $33.00 per share in cash (such amount, whether paid
pursuant to the Offer or the Merger, is referred to herein as the
"Consideration"). The proposed Offer and the Merger collectively are sometimes
referred to herein as the "Transaction."
You have requested our opinion as to the fairness from a financial point of
view to the shareholders of the Company (other than the Acquiror, Merger Sub or
any other wholly-owned subsidiary of the Acquiror) of the Consideration to be
received by such shareholders pursuant to the Merger Agreement.
In arriving at our opinion, we have:
<TABLE>
<S> <C>
(i) reviewed the terms of the proposed Merger Agreement;
(ii) analyzed certain publicly available historical business and financial information
relating to the Company;
(iii) reviewed historical stock prices and trading volumes of the Company's common
stock;
</TABLE>
C-1
<PAGE>
<TABLE>
<S> <C>
(iv) reviewed and discussed with representatives of the senior management of the
Company certain financial forecasts and other business and financial information,
both historical and forecasted, provided to us by the Company;
(v) reviewed public information with respect to certain other public companies in
lines of business we believe to be generally comparable to the business of the
Company;
(vi) reviewed certain publicly available securities research reports regarding the
business and prospects of the Company published by major brokerage firms;
(vii) considered the financial terms, to the extent publicly available, of selected
business combinations which we believe are generally comparable to the
Transaction;
(viii) reviewed prices and premiums paid in other business combinations; and
(ix) conducted such other studies, analyses, and investigations as we have deemed
appropriate.
</TABLE>
In rendering our opinion, we have assumed and relied upon the accuracy,
completeness and reasonableness of all of the financial and other information
that was available to us from public sources, that was provided to us by the
Company or its representatives, or that was otherwise reviewed by us. With
respect to the financial forecasts supplied to us, we have assumed that they
have been reasonably prepared on the basis reflecting the best currently
available estimates and judgements of the management of the Company as to the
future operating and financial performance of the Company. We have not assumed
any responsibility for making an independent evaluation of the Company's assets
or liabilities or for making any independent verification of any of the
information reviewed by us.
In rendering our opinion, we have also assumed that each of the proposed
Offer and Merger will be consummated pursuant to the terms and subject to the
conditions contained in the proposed Merger Agreement. In addition, we have
assumed that obtaining the necessary regulatory and governmental approvals for
the consummation of the proposed Offer and Merger and the waiver, if any, by the
Company of any conditions to consummation of the proposed Offer and Merger will
not have an adverse effect on the Company, or on the financial terms of the
Transaction.
BT Securities Corporation ("BTSC") has acted as financial advisor to the
Company in connection with the Transaction and we will receive fees for such
services, a substantial portion of which are contingent upon consummation of the
Offer. Our firm has in the past provided investment banking and financial
advisory services to the Company and has received customary investment banking
and financial advisory fees for rendering such services. BTSC is a full service
securities firm and as such may from time to time effect lawful transactions,
for its own account or the account of customers, and hold positions in
securities or options on securities or other obligations of the Company, the
Acquiror or affiliated companies. Another BTSC affiliate, Bankers Trust Company
("BTCo"), is on the date of this letter the administrative agent under a Credit
Agreement dated October 20, 1992 between the Company, BTCo, Nationsbank of North
Carolina, N. A. and the Chase Manhattan Bank, N.A.
Our engagement as financial advisor and the opinion expressed herein are
solely for the benefit of the Board of Directors of the Company and the Special
Committee of the Board in its consideration of the Transaction and are not
undertaken or made on behalf of, and are not intended to (and shall not be
deemed to) confer rights or remedies upon, or establish a relationship of
privity or a similar relationship with, the Company, the Acquiror, any
shareholder or other securityholder of the Company or the Acquiror or any other
person or entity. It is understood that this letter may not be disclosed to any
person or otherwise referred to, quoted or summarized, without our prior
consent.
Based upon the foregoing and such other factors as we deem relevant, we are
of the opinion that as of the date hereof, the Consideration to be received by
the shareholders of the Company other than the Acquiror, Merger Sub or any other
wholly-owned subsidiary of the Acquiror pursuant to the Merger Agreement is fair
to the shareholders of the Company from a financial point of view.
Very truly yours,
BT Securities Corporation
By: /s/ Susan Saltzbart Kilsby
C-2
<PAGE>
ANNEX D
Donaldson, Lufkin & Jenrette, Inc.
140 Broadway, New York, NY 10005-1285
(212) 504-3000
January 25, 1995
Board of Directors
and the Special Committee of the Board
Dr Pepper/Seven-Up Companies, Inc.
8144 Walnut Hill Lane
Dallas, Texas 75231
Dear Sirs:
You have requested our opinion as to the fairness from a financial point of
view to the shareholders of Dr Pepper/Seven-Up Companies, Inc. (the "Company")
of the consideration to be received by such shareholders pursuant to the terms
of the proposed Agreement and Plan of Merger to be dated as of January 25, 1995,
to be entered into among Cadbury Schweppes, plc ("Cadbury"), the Company and
DP/SU Acquisition Inc., a wholly owned subsidiary of Cadbury (the "Agreement").
Pursuant to the Agreement, Cadbury will commence a tender offer for any and
all outstanding shares of the Company's common stock at a price of $33.00 per
share. The tender offer is to be followed by a merger in which the shares of all
shareholders who did not tender (other than dissenters, Cadbury, and
subsidiaries) would be converted into the right to receive $33.00 per share in
cash.
In arriving at our opinion, we have reviewed the Agreement. We also have
reviewed financial and other information that was publicly available or
furnished to us by the Company including information provided during discussions
with the Company's management. Included in the information provided during
discussions with the Company's management were certain financial forecasts of
the Company for the period beginning January 1, 1995 and ending December 31,
1999 prepared by the management of the Company. In addition, we have compared
certain financial and securities data of the Company with various other
companies whose securities are traded in public markets, reviewed the historical
stock prices and trading volumes of the common stock of the Company, reviewed
prices and premiums paid in other business combinations and conducted such other
financial studies, analyses and investigations as we deemed appropriate for
purposes of this opinion.
In rendering our opinion, we have relied upon and assumed the accuracy,
completeness and fairness of all of the financial and other information that was
available to us from public sources, that was provided by the Company or its
representatives, or that was otherwise reviewed by us. With respect to the
financial forecasts supplied to us, we have assumed that they have been
reasonably prepared on the basis reflecting the best currently available
estimates and judgements of the management of the Company as to the future
operating and financial performance of the Company. We have not assumed any
responsibility for making an independent evaluation of the Company's assets or
liabilities or for making any independent verification of any of the information
reviewed by us. We have relied as to all legal matters on advice of counsel to
the Company.
Our opinion is necessarily based on economic, market, financial and other
conditions as they exist on, and on the information made available to us as of,
the date of this letter. It should be understood that, although subsequent
developments may affect this opinion, we do not have any obligation to
D-1
<PAGE>
update, revise or reaffirm this opinion. Our opinion does not constitute a
recommendation as to whether any shareholder should tender his shares.
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), as part of its
investment banking services, is regularly engaged in the valuation of businesses
and securities in connection with mergers, acquisitions, underwritings, sales
and distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes. DLJ has performed
investment banking and other services for the Company in the past and has been
compensated for such services.
Based upon the foregoing and such other factors as we deem relevant, we are
of the opinion that the consideration to be received by the shareholders of the
Company (other than Cadbury) pursuant to the Agreement is fair to the
shareholders of the Company from a financial point of view.
Very truly yours,
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ Lawrence N. Lavine
Lawrence N. Lavine
Managing Director
D-2
<PAGE>
ANNEX E
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- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NO. 1-10064
-------------------
DR PEPPER/SEVEN-UP COMPANIES, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 75-2233365
(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
8144 WALNUT HILL LANE, 75231-4372
DALLAS, TEXAS (Zip Code)
(Address of principal executive offices)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (214) 360-7000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- ---------------------------------------------- ----------------------------------------------
<S> <C>
COMMON STOCK, PAR VALUE $.01 PER SHARE NEW YORK STOCK EXCHANGE
11 1/2% SENIOR SUBORDINATED DISCOUNT NOTES DUE AMERICAN STOCK EXCHANGE
2002
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for at least the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K / /.
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of March 15, 1995 was $26.2 million.
The number of shares of each class of common stock of the Registrant
outstanding as of March 15, 1995 was as follows: 801,977 shares of Common Stock
and no shares of Non-Voting Common Stock.
The following documents are incorporated by reference into this report:
Portions of the Company's Proxy Statement for the Annual Meeting of Shareholders
to be held on or about June 1, 1995, are incorporated by reference in Part III.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
FORM 10-K ANNUAL REPORT--1994
DR PEPPER/SEVEN-UP COMPANIES, INC.
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
Part I
Item 1. Business.................................................................
3
Item 2. Properties...............................................................
7
Item 3. Legal Proceedings........................................................
7
Item 4. Submission of Matters to a Vote of Security Holders......................
10
Part II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters................................................................
10
Item 6. Selected Financial Data..................................................
11
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations..................................................
13
Item 8. Financial Statements and Supplementary Data..............................
16
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure...................................................
16
Part III
Item 10. Directors and Executive Officers of the Registrant.......................
17
Item 11. Executive Compensation...................................................
17
Item 12. Security Ownership of Certain Beneficial Owners and Management...........
17
Item 13. Certain Relationships and Related Transactions...........................
17
Part IV
Item 14. Exhibits, Financial Statements, Financial Statement Schedules and
Reports on Form 8-K....................................................
17
</TABLE>
2
<PAGE>
PART I
ITEM 1. BUSINESS
THE COMPANY
Dr Pepper/Seven-Up Companies, Inc., a Delaware corporation, is a holding
company organized in 1988 whose primary asset consists of all the common stock
of Dr Pepper/Seven-Up Corporation, a Delaware corporation ("DP/7UP"). Unless the
context requires otherwise, the "Company" means Dr Pepper/Seven-Up Companies,
Inc., together with its direct and indirect subsidiaries, and the "Holding
Company" means Dr Pepper/Seven-Up Companies, Inc. As used in this document, the
term "DR PEPPER" refers only to the regular DR PEPPER product while the phrases
"DR PEPPER brand" and "DR PEPPER brands" refer to the line of products
consisting of DR PEPPER, Diet DR PEPPER, Caffeine Free DR PEPPER and Caffeine
Free Diet DR PEPPER. As used in this document, the term "7UP" refers only to the
regular 7UP product while the phrases "7UP brand" and "7UP brands" refer to the
line of products consisting of 7UP, Diet 7UP, CHERRY 7UP and Diet CHERRY 7UP.
The Holding Company was formed in 1988 to acquire Dr Pepper Company ("Dr
Pepper") and The Seven-Up Company ("Seven-Up") in a leveraged buyout transaction
sponsored by Prudential-Bache Interfunding, Inc., Prudential-Bache Capital
Partners I, L.P. and management. On October 28, 1992, the Company completed a
recapitalization transaction (the "1992 Recapitalization"). As part of the 1992
Recapitalization, Seven-Up merged with and into Dr Pepper. DP/7UP, the surviving
company, is a direct operating subsidiary of the Holding Company.
TENDER OFFER
On January 25, 1995, the Company, Cadbury Schweppes plc, a company organized
under the laws of England ("Cadbury"), and DP/SU Acquisition Inc., a Delaware
corporation and an indirect wholly owned subsidiary of Cadbury ("Purchaser"),
entered into an Agreement and Plan of Merger (the "Merger Agreement"). Pursuant
to the Merger Agreement, on February 1, 1995, Cadbury commenced a tender offer
(the "Offer") to acquire all issued and outstanding shares of common stock of
the Holding Company ("Common Stock") not already owned by Cadbury at a price of
$33.00 per share. The Offer expired, as scheduled, at midnight (New York City
Time) Wednesday, March 1, 1995. A total of 45,387,980 shares of Common Stock
were purchased by Purchaser pursuant to the Offer. As a result of such purchase
and the prior acquisition of shares of Common Stock, Purchaser and other wholly
owned subsidiaries of Cadbury own approximately 98.7% of the issued and
outstanding shares of Common Stock. Upon the approval and adoption of the Merger
Agreement by the affirmative vote of the stockholders of the Company to the
extent required by the laws of the State of Delaware, a wholly owned subsidiary
of Purchaser will merge (the "Merger") with and into the Company, and each share
of Common Stock (other than shares held in the treasury of the Company, or owned
by Parent or any of its subsidiaries or held by stockholders who have filed with
the Company a written objection to the Merger and have not voted in favor of the
Merger and who have properly demanded in writing and perfected appraisal for
such shares in accordance with the laws of the State of Delaware) shall be
automatically converted into the right to receive $33.00 in cash, without
interest. A meeting of the stockholders of the Company will be held as soon as
practicable for the purpose of obtaining such approval.
The foregoing description of the Merger Agreement is a summary only and is
qualified in its entirety by reference to the form thereof filed as Exhibit 2.1
to this Form 10-K and incorporated herein by reference in its entirety.
3
<PAGE>
SUBORDINATED DEBT RETIREMENT
During 1994, the Company completed open market purchases of a portion of its
11 1/2% Senior Subordinated Discount Notes due 2002 (the "Discount Notes"). The
Company borrowed $94.6 million under its credit agreement (the "Credit
Agreement") to retire $79.4 million accreted value of the Discount Notes. In
connection with these transactions, the Company recorded an extraordinary charge
of $11.2 million. The charge reflected a write-off of a portion of the
unamortized balance of deferred debt issuance costs as well as the premium paid
in excess of accreted value, net of tax.
PREFERRED STOCK REDEMPTION
On July 8, 1994, DP/7UP called for redemption all of its outstanding shares
of the $1.375 Senior Exchangeable Preferred Stock, $.01 par value per share, of
DP/7UP (the "DP/7UP Preferred Stock"). All 1,268,174 outstanding shares were
redeemed on August 31, 1994 at a redemption price of $10.9625 per share. DP/7UP
used $13.9 million of Credit Agreement borrowings to effect the redemption.
1993 PUBLIC OFFERING
In February 1993, the Company completed an initial public offering (the
"Offering") of 23,600,402 shares (including 2,022,089 shares sold by a selling
stockholder and certain selling warrantholders) of its Common Stock resulting in
net proceeds to the Company of approximately $305.9 million. The net proceeds
were used to redeem approximately $115.5 million of the accreted balance of the
Discount Notes, reduce borrowings of approximately $82.5 million under the
Credit Agreement and redeem all of the outstanding exchangeable Senior Preferred
Stock of the Holding Company.
PRINCIPAL PRODUCTS
The Company, through DP/7UP, manufactures, markets, sells and distributes
soft drink concentrates, extracts (the basic flavoring ingredients for soft
drinks) and fountain syrups (concentrates or extracts with sweeteners and water
added) to licensed bottlers primarily in the United States. The principal
products of the Company are DR PEPPER, Diet DR PEPPER, Caffeine Free DR PEPPER,
Caffeine Free Diet DR PEPPER, 7UP, Diet 7UP, CHERRY 7UP, Diet CHERRY 7UP,
WELCH's carbonated soft drinks and I.B.C. soft drinks. The Company is the third
largest soft drink concentrate manufacturer in the United States, with retail
sales of its products estimated to represent approximately 11.6%, or $5.8
billion, of the estimated $50.1 billion 1994 United States retail soft drink
industry.
DP/7UP is divided into five business units: Dr Pepper USA, Seven-Up USA,
Foodservice, Premier Beverages, and International. Each unit has its own selling
and marketing staff fully dedicated to expanding and enhancing its brands.
Soft drinks constitute one of the largest consumer food and beverage
categories in the United States. The industry is considered to be non-cyclical,
as sales volume has grown in each of the past ten years. The Company's business,
like the concentrate and extract segment of the soft drink industry overall, is
characterized by low fixed asset investment, low working capital requirements,
low labor intensity, and high gross margins, all of which enable the Company to
devote significant resources to the marketing support of its brands. A major
competitive advantage in the industry is strong trademark recognition.
Formulated in 1885, DR PEPPER is the oldest nationally distributed soft drink
brand in the United States. 7UP has been a market leader in the lemon-lime
category of the soft drink industry for more than 60 years.
In 1994, DR PEPPER brands accounted for an estimated 7.0% of the total
domestic soft drink market, up from 6.7% in 1993. Since 1986, DR PEPPER has been
the number one selling non-cola and, in 1993, became the fourth largest-selling
soft drink in the United States. The estimated share of the total domestic soft
drink market represented by DR PEPPER increased from 5.6% in 1993 to 5.8% in
1994.
4
<PAGE>
7UP brands represented an estimated 3.9% of the total domestic soft drink
market in 1994 and 1993. 7UP is a leader in the largest non-cola soft drink
flavor category, lemon-lime, which is estimated to have accounted for 12.3% of
the total 1994 domestic soft drink market. 7UP ranked as the eighth largest
selling soft drink brand in 1994. 7UP is the second largest selling sugared
lemon-lime brand and represents 23.7% of sales in the lemon-lime category. Diet
7UP is the number one diet lemon-lime soft drink with a 1994 share of 0.8% of
the total domestic soft drink market and, in 1994, accounted for approximately
6.3% of the lemon-lime category sales volume.
Dr Pepper USA represented 40.5% of the Company's 1994 net sales. Dr Pepper
USA's net sales were up 10.3% in 1994 with unit sales of combined DR PEPPER
brands growing at a significantly greater rate than the total domestic soft
drink industry. This unit sells DR PEPPER brand concentrates to bottlers for
further processing into bottle and can products that are distributed nationwide.
The Company has been able to affiliate its DR PEPPER brands with what management
believes are strong and aggressive bottlers.
Seven-Up USA represented 28.8% of the Company's 1994 net sales. Seven-Up
USA's net sales were up 2.8% in 1994 from 1993. This unit sells 7UP brand
extracts to bottlers for further processing into bottle and can products that
are distributed nationwide.
The Foodservice Division accounted for 19.9% of the Company's 1994 net sales
and was up 11.1% from 1993. This unit's brands, primarily DR PEPPER, have a
significant presence in the fountain/foodservice channel of the soft drink
industry. The Company has been successful at securing foodservice distribution
alongside products of both The Coca-Cola Company ("Coke") and PepsiCo, Inc.
("Pepsi"). Company brands are served in over 120,000, or approximately 16.0%, of
the nation's foodservice outlets. Significant customers of the foodservice unit
include McDonald's, Burger King, Taco Bell, 7-Eleven, Hardee's and Wendy's.
The Company's Premier Beverages unit markets WELCH's carbonated soft drinks
and markets and sells I.B.C. Root Beer and Cream Soda. Together, these brands
represented 9.0% of the Company's 1994 net sales and were up 17.8% from 1993.
These additional products permit the Company to offer a broad line of
high-quality, non-cola options.
The International unit accounted for 0.6% of the Company's net sales for
1994. At the end of 1994, the International unit had licensed bottlers to sell
DR PEPPER brand products in 17 countries. In 1986, Pepsi acquired the rights to
produce and market products under the 7UP trademark outside of the United States
and its territories and possessions. See "Financial Information About Foreign
and Domestic Operations and Export Sales".
SOURCES AND AVAILABILITY OF RAW MATERIALS
Substantially all of the raw materials used by the Company to manufacture
its products are of a generic nature and are available from alternative
suppliers. The Company does not anticipate any significant difficulties in
securing adequate supplies of raw materials at acceptable prices in the future.
TRADEMARKS
The trademarks under which the Company markets its soft drink products are
registered in the U.S. Patent and Trademark Office. Registered trademarks are
protected for 10 years and can be renewed indefinitely. The DR PEPPER trademark
is also registered in 93 countries. Other than its license agreements with
bottlers, the Company has no material existing trademark license agreements
permitting the use of its trademarks in advertising. Strong trademark
recognition is a major competitive advantage in the soft drink industry.
5
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SEASONAL ASPECTS OF THE BUSINESS
The Company's business is seasonal, with the second and third quarters
accounting for the highest sales volume.
PRACTICES RELATING TO WORKING CAPITAL
Until March 6, 1995, the Company had significant amounts of long-term debt
consisting of bank borrowings and subordinated notes. Accordingly, the Company's
financial position was highly leveraged and interest payments were significant.
Effective as of March 6, 1995, the Company's Term Loan Facility and Revolving
Facility (each as hereafter defined) were repaid with cash provided by Cadbury,
and the Credit Agreement was terminated.
DEPENDENCE ON SINGLE OR FEW CUSTOMERS
During 1994, bottling companies owned by Pepsi accounted for 13.8% of the
Company's 1994 net sales. The license agreements with such bottling companies
are substantially similar to the Company's license agreements with its other
bottlers.
BACKLOG OF ORDERS
No material backlog of orders is maintained.
GOVERNMENT REGULATION
The production and marketing of beverages are subject to the rules and
regulations of the United States Food and Drug Administration ("FDA") and other
federal, state and local health agencies. The FDA also regulates the labeling of
containers.
COMPETITION
The soft drink business is highly competitive. The principal methods of
competition in the soft drink industry are advertising campaigns, promotions,
pricing, packaging and new product development. The Company competes not only
with other soft drink companies for consumer acceptance but also for shelf space
in supermarkets and for maximum marketing focus by the Company's licensed
bottlers, all of which also bottle other soft drink brands. The Company's soft
drink products compete generally with all liquid refreshments, with numerous
nationally-known soft drinks such as Coca-Cola and Pepsi-Cola, and with regional
producers and "private label" soft drink suppliers.
SPONSORED RESEARCH AND DEVELOPMENT
Research and development costs were relatively insignificant in years 1992,
1993 and 1994.
COMPLIANCE WITH ENVIRONMENTAL LAWS AND REGULATIONS
Compliance with statutory requirements regarding environmental quality has
not had a material effect on the capital expenditures, earnings and competitive
position of the Company.
EMPLOYEES
As of December 31, 1994, the Company (through DP/7UP) employed 951 persons,
consisting of 341 individuals engaged in sales activities, 181 engaged in
administrative activities, 114 engaged in financial activities, 173 engaged in
production activities and 142 individuals engaged in marketing activities. No
Company employees are represented by a union and the Company considers its
employee relations to be good.
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FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
Dr Pepper's foreign operations generated less than 1% of the Company's net
sales in years 1992, 1993 and 1994. Additionally, the Company does not expect
foreign operations to be significant in the immediate future.
Prior to the acquisition of Seven-Up in 1986, Philip Morris Incorporated
sold the international franchise operations of Seven-Up to Pepsi. Accordingly,
Pepsi holds the right to produce and sell soft drinks under the 7UP and certain
associated trademarks internationally. The terms of this sale prohibit Seven-Up
from distributing any of its soft drink products existing at the time of such
transaction (other than I.B.C. Root Beer), as well as any products developed
thereafter that are marketed under the 7UP trademark, outside of the United
States and its territories and possessions.
ITEM 2. PROPERTIES
The Company owns, through a wholly-owned subsidiary, a state-of-the-art
facility in Overland, Missouri, where it manufactures concentrates, extracts and
fountain syrups. This facility is the largest soft drink concentrate, extract
and syrup plant in the continental United States and produces over 150 different
flavor extracts, including concentrates and syrups related to Cadbury brands.
The Company manufactures all of its concentrates, extracts and fountain syrups
in this facility. The Company does not own or lease any other facilities for the
manufacture of concentrates, extracts or fountain syrups. The Company has
developed a production contingency plan with another concentrate manufacturer to
produce certain of the Company's products in the event that the Overland
facility were rendered inoperative. The Overland facility has substantial
additional capacity available with minimal capital expenditures required.
The Company leases its Dallas headquarters office building, which presently
covers approximately 175,000 square feet of space. Rental payments are currently
$339,000 per month, subject to escalation at stated intervals in the future. The
lease expires in 1998. The Company also leases a warehouse in Dallas covering
approximately 73,000 square feet of space. Rental payments approximate $23,000
per month. The Company believes that its headquarters, warehouse and production
facilities are sufficient to meet its needs.
ITEM 3. LEGAL PROCEEDINGS
CONTINGENCIES
(A) The Coca-Cola Company ("Coke") Litigation
On February 26, 1992, Seven-Up filed a lawsuit in the 116th Judicial Court,
Dallas County, Texas (the "State Court Suit") against Coke alleging, among other
things, tortious interference with Seven-Up's existing contractual relationships
with those licensed bottlers who also bottle products of Coke, and unfair
competition. On July 22, 1992, Seven-Up also filed a lawsuit against Coke in the
United States District Court for the Northern District of Texas (the "Federal
Court Suit") alleging false advertising under Section 43 of the Lanham Act. On
October 3, 1994, trial before a jury commenced in the Federal Court Suit. The
jury found for Seven-Up, awarding it $2.5 million damages. However, the federal
magistrate overturned the jury's verdict, finding that although Coke had engaged
in false advertising, Seven-Up had suffered no damages thereby. Seven-Up has
appealed the magistrate's ruling to the Fifth Circuit Court of Appeals, and Coke
has filed a cross-appeal. These appeals are in a preliminary briefing phase at
this time.
Following the magistrate's rulings in the Federal Court Suit, Coke moved for
summary judgment in the State Court Suit on procedural grounds. The state court
judge granted Coke's motion for summary judgment on Seven-Up's claims. Coke had
also filed counterclaims in the State Court Suit alleging that Seven-Up had
tortiously interfered with Coke's existing contractual relationships with
7
<PAGE>
those licensed bottlers of Coke who are also licensed to bottle Sprite products.
That counterclaim is still pending in the state court. Seven-Up has requested
that the court sever the counterclaim from Seven-Up's claims and abate it in
order to enable Seven-Up to proceed with appeal of the state court's ruling on
Coke's motion for summary judgment.
The Company intends to vigorously pursue its claims on appeal, but is
presently unable to predict the outcome of these lawsuits. The Company does not
expect that the resolution of these matters will have a material adverse effect
on the Company's operating results or financial condition.
(B) Internal Revenue Service Matter
The Internal Revenue Service has completed its examination of Federal income
tax returns of Dr Pepper and Seven-Up for the period ended December 31, 1986,
December 31, 1987 and May 19, 1988, and of the Company for the period ended
December 31, 1988. The Company was notified of proposed IRS adjustments
disallowing certain deductions, including substantially all amortization of
intangible assets related to the 1986 acquisitions of Dr Pepper and Seven-Up.
During the second quarter of 1994, the Company accepted a global tax settlement
from the IRS with respect to certain proposed adjustments relating to the
deductibility of a portion of intangible assets. As a result of the settlement,
the Company reduced its recorded deferred tax liabilities by approximately $65.0
million. The corresponding effect of this adjustment to deferred tax liabilities
was applied as a reduction of intangible assets for financial reporting
purposes. If the remaining proposed IRS adjustments are sustained, in whole or
in part, the Company's net operating loss carryforwards for federal income tax
purposes would be significantly reduced. The Company is vigorously contesting
the remaining proposed adjustments. Management of the Company believes the
ultimate resolution of the remaining proposed adjustments will not have a
material adverse effect on the Company's operating results or financial
condition.
(C) Shareholder Litigation
On October 26, 1994, a complaint styled KING V. DR PEPPER/SEVEN-UP
COMPANIES, ET AL. ("King"), was filed in the U.S. District Court for the
Northern District of Texas, Dallas Division, alleging that the defendants
violated Section 10(b) and Rule 10b-5 under the Exchange Act by failing to
reveal the true status of merger discussions between the Company and Cadbury.
The complaint alleges that the defendants knowingly or recklessly engaged in a
plan to depress the market price of the Company's securities by misstating and
concealing material information concerning the true status of merger discussions
with Cadbury. In addition, the complaint alleges that John Albers, President and
Chief Executive Officer of the Company, violated Section 20(a) of the Exchange
Act by failing to disseminate truthful information with respect to the Company's
business. Relief requested includes unspecified damages and expenses (including
attorneys' fees). As a result of defendants' motion to dismiss based on the
plaintiff's failure to plead fraud with specificity and failure to state a claim
for securities fraud, on January 24, 1995, the judge in the suit issued an Order
to File Amended Complaint to the plaintiff, which gave the plaintiff 20 days in
which to amend her complaint to cure the deficiencies noted in the order.
Subsequently, the plaintiff has amended the complaint to cure the Court's
concerns. The defendants believe the complaint is without merit and intend to
defend the case vigorously.
In connection with the Offer and the Merger, several putative class action
complaints (the "Shareholders Suits") were filed in the Court of Chancery of the
State of Delaware and the state courts of Texas naming the Company and certain
directors as defendants and alleging that the defendants breached their
fiduciary duties to the Company and its stockholders. These suits are described
in item 8 of the Solicitation/Recommendation Statement on schedule 14D-9 filed
by the Company with the Securities and Exchange Commission on February 1, 1995,
as amended (the "14D-9"), which information is incorporated herein by reference.
The portion of the 14D-9 setting forth such information is filed as Exhibit 99
to this Form 10-K.
8
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On February 10, 1995, all of the Shareholder Suits, except for the King
case, were consolidated in IN RE: DR PEPPER/SEVEN-UP COMPANIES, INC.
SHAREHOLDERS LITIGATION, Civil Action No. 13109 (the "Consolidated Action"), in
the Court of Chancery of the State of Delaware (the "Delaware Court"). In the
Consolidated Action, plaintiffs and defendants (through their respective
counsel), have entered into a Memorandum of Understanding, dated February 21,
1995 (the "Memorandum of Understanding"), pursuant to which the Consolidated
Action will be settled. The settlement contemplated by the Memorandum of
Understanding will not be effective unless, among other things, the plaintiffs
in the suit styled SARNOFF V. DR PEPPER/SEVEN-UP COMPANIES ET AL. execute the
appropriate documentation necessary to have the action pending before the Texas
Court non-suited and refiled with the Delaware Court, at which time the refiled
Sarnoff case will be consolidated with and become part of the Consolidated
Action. The proposed settlement is subject to, among other things, approval of
the Delaware Court and is fully described in the 14D-9.
(D) Steiner Litigation
Sidney J. Steiner, the landlord under the Company's former lease covering
its former headquarters facilities at 5523 East Mockingbird Lane, Dallas, Texas,
and Harbord Midtown, a Texas partnership, filed suit against the Company in the
95th Judicial District Court, Dallas County, Texas, on May 25, 1988 in
connection with the Company's move of its corporate headquarters. The landlord
has alleged that the Company breached an oral agreement to lease space in a new
office building the landlord planned to construct on such premises. The landlord
seeks to recover $470,000 in architectural fees and other costs claimed to have
been incurred as a result of such agreement and the landlord claims to have
suffered $24.0 million in other damages as a result of the Company's alleged
breach. Additionally, on October 12, 1989, the landlord amended its complaint in
this cause of action to include allegations that the Company fraudulently
misrepresented the existence of asbestos in the Company's former headquarters
facilities, which were purchased by the landlord and leased back to the Company
in 1985. The landlord claims damages in excess of $4.0 million related to these
new allegations.
The lawsuit was dismissed without prejudice pursuant to an Agreed Order
Granting Joint Motion for Non-Suit on May 18, 1992. Subsequent to filing the
lawsuit, Steiner sold the property and the claim in litigation to a third party,
who in turn later sold the property and the claim to another party, who became a
debtor in a bankruptcy proceeding. The trustee in bankruptcy sold the claim in
the lawsuit to Canco Properties ("Canco"), San Antonio, Texas, who refiled the
lawsuit on January 29, 1993. By letter dated September 21, 1993, Canco claimed
that additional discovery and investigation resulted in an increase in estimated
damages, and now estimates their damages to be over $31.5 million with punitive
damages in excess of $50.0 million in the aggregate. On May 4, 1994, Canco
amended its petition to add claims for negligent misrepresentation and fraud
based upon the Company's alleged failure to disclose the existence of water
leaks in the building at the time the building was sold to Steiner in August
1985. On February 17, 1995, Canco again amended its petition, dismissing its
claims that the Company breached an alleged oral agreement to become a tenant in
a new building to be constructed by Canco, but adding claims that the Company
breached the original 1985 sale agreement by failing to disclose the presence of
asbestos on the property. Canco's amended petition seeks unspecified monetary
damages and rescission of the original transaction. By letter dated March 6,
1995, Canco now claims their monetary damages to be approximately $35.0 million
(excluding interest). The court has taken this case off the trial docket,
pending further consideration of the Company's motion for summary judgment and
in light of recent changes in Texas law. The Company believes that this lawsuit
is without merit and is vigorously contesting the same. The Company further
believes that the resolution of this litigation will not have a material adverse
effect on its operating results or financial condition.
On December 4, 1990, Steiner filed a claim with the American Arbitration
Association seeking compensation for damage allegedly caused by the Company to
its former corporate headquarters building during the Company's occupancy of
such building as tenant under a lease agreement with Steiner. This claim was
subsequently sold in the same manner as described in the immediately
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preceding paragraph with respect to the litigation and is now owned by Canco.
Canco presently seeks damages in connection with this claim in the amount of
approximately $11.5 million as well as an unspecified amount of punitive damages
and attorneys' fees. An arbitration hearing with respect to this claim began on
November 8, 1993 in Dallas, Texas; however, due to the death of the arbitrator,
a new arbitrator was appointed. The parties conducted the arbitration hearing
from June 28 through July 7, 1994. The arbitrator awarded Canco $150,000 for its
claims in the arbitration; however, because the arbitrator determined that the
Company was the prevailing party in the arbitration, the arbitrator awarded the
Company approximately $139,000 in attorneys' fees. Therefore, the net amount
paid to Canco by the Company was approximately $11,000.
Canco has filed suit in the 68th Judicial District Court, Dallas County,
Texas, seeking to vacate the arbitration award on the grounds that the
arbitrator was not impartial. The Company believes that this lawsuit is without
merit and is vigorously contesting the same. The Company further believes that
the resolution of this litigation will not have a material adverse effect on its
operating results or financial condition.
(E) Rights Agreement Amendment
Immediately prior to the execution of the Merger Agreement, the Company
amended the Rights Agreement (the "Amendment"). The Amendment provides that (A)
none of the execution or delivery of the Merger Agreement or the Stockholders
Agreement or the making of the Offer will cause (i) the Rights (as defined under
the Rights Agreement) to become exercisable under the Rights Agreement, (ii)
Cadbury or Purchaser or any of their affiliates to be deemed an Acquiring Person
(as defined in the Rights Agreement) or (iii) the Stock Acquisition Date (as
defined in the Rights Agreement) to occur upon any such event, (B) none of the
acceptance for payment or payment for Shares by Purchaser pursuant to the Offer
or the consummation of the Merger will cause (i) the Rights to become
exercisable under the Rights Agreement or (ii) Cadbury or Purchaser or any of
their affiliates to be deemed an Acquiring Person or (iii) the Stock Acquisition
Date to occur upon any such event, and (C) the Expiration Date (as defined in
the Rights Agreement) shall occur no later than immediately prior to the
purchase of shares pursuant to the Offer. The Expiration Date occurred on March
2, 1995, immediately prior to Purchaser's purchase of shares pursuant to the
Offer. Accordingly, the Rights expired.
The foregoing description of the Amendment is a summary only and is
qualified in its entirety by reference to the form thereof filed as Exhibit 3.4
to this Form 10-K, which is incorporated herein by reference in its entirety.
The Rights Agreement has been filed as Exhibit 3.3 to this Form 10-K.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 1994, there were no matters submitted to a vote
of security holders through the solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information for this item is incorporated herein by reference to the
Company's Proxy Statement to be filed pursuant to Regulation 14A under the
Securities Exchange Act of 1934 in connection with the Holding Company's 1995
Annual Meeting of Shareholders.
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ITEM 6. SELECTED FINANCIAL DATA
The following table presents selected consolidated financial data of the
Company as of and for the years ended December 31, 1994, 1993, 1992, 1991 and
1990. This financial data was derived from the historical consolidated financial
statements of the Company. The financial data reflects the elimination of all
intercompany accounts, transactions and profits among the Holding Company, Dr
Pepper, Seven-Up and DP/7UP. The 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 historical consolidated financial statements
of the Company and the related notes thereto. See "Index to Consolidated
Financial Statements and Schedules".
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------
1994 1993 1992 1991 1990
-------- -------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Operating Data:
Net sales.......................... $769,015 707,378 658,718 600,941 540,368
Cost of sales...................... 127,650 115,981 126,002 118,757 109,857
Gross profit..................... 641,365 591,397 532,716 482,184 430,511
Marketing expense.................. 391,806 362,484 329,706 302,192 264,147
General and administrative expense,
including amortization of
intangible assets................ 45,993 45,893 42,424 41,776 43,111
Operating profit................... 203,566 183,020 160,586 138,216 123,253
Interest expense:
Cash interest expense............ 42,378 43,833 77,921 73,527 81,382
Non-cash interest expense........ 38,074 41,727 72,324 74,430 65,099
Other expense(a)................... 824 1,249 18,937 9,120 8,744
Income (loss) before income taxes,
extraordinary items and
cumulative effect of accounting
change............................... 122,290 96,211 (8,596) (18,861) (31,972)
Income taxes (benefit)............. 44,591 2,087 (182) 1,100 563
Extraordinary items:
Benefit from utilization of net
operating loss carryforward.......... -- -- -- (1,022) --
Extinguishments of
debt(b)(c)(d)(e)..................... 11,180 16,199 56,934 18,566 --
Cumulative effect of accounting
change(f)............................ -- -- 74,800 -- --
Net income (loss).............. 66,519 77,925 (140,148) (37,505) (32,535)
Preferred stock dividend
requirements......................... -- -- 12,941 11,882 9,744
Net income (loss) attributable to
outstanding common stock............. 66,519 77,925 (153,089) (49,387) (42,279)
Income (loss) before extraordinary
items and cumulative effect of
accounting change per common
share(b)(c)(d)(e)(f)(g).............. 1.13 1.46 (.60) (.90) (1.19)
Other Data:
Depreciation....................... $ 2,925 2,969 2,950 3,693 4,112
Amortization of intangible
assets............................... 13,104 15,077 15,112 15,155 15,142
Balance Sheet Data (at end of
period):
Total assets....................... $608,718 680,023 668,096 780,843 677,953
Long-term debt, less current
portion.............................. 693,159 790,540 1,091,956 1,081,622 1,031,989
Redeemable preferred stock......... -- -- 96,792 83,851 71,969
Stockholders' deficit.............. (344,110) (420,104) (807,413) (657,090) (607,350)
Working capital deficit............ (57,453) (67,166) (102,223) (18,320) (18,891)
</TABLE>
(Footnotes on following page)
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(Footnotes for preceding page)
- ------------
<TABLE>
<C> <S>
(a) Other expense for the year ended December 31, 1992 includes $6.0 million of costs
associated with the Company's withdrawal in July 1992 of its planned initial public
offering and related recapitalization transactions.
(b) In connection with the refinancing that occurred in 1991, an $18.6 million
extraordinary item-- debt restructuring charge was recorded in the year ended December
31, 1991, consisting of consent payments to holders of the 13 3/4% Senior Subordinated
Debentures due November 30, 2001 of Dr Pepper (the "Dr Pepper Subordinated
Debentures"), the charge relating to the interest rate increase on such debt, and the
write-off of the unamortized balance of deferred debt issuance costs related to the
credit agreement of Dr Pepper.
(c) In connection with the 1992 Recapitalization, a $56.9 million extraordinary item--debt
restructuring charge was recorded in the year ended December 31, 1992, consisting of
premiums and fees in respect of the debt retirements and write-off of the unamortized
balance of deferred debt issuance costs related to the credit agreement of Seven-Up,
the term loans of Dr Pepper, the 11 1/2% Guaranteed Senior Secured Notes due 1996 of Dr
Pepper, the Dr Pepper Subordinated Debentures, the 12 5/8% Senior Subordinated Notes
due May 15, 1999 of Seven-Up and the 15 1/2% Senior Subordinated Discount Notes due
1998 of the Holding Company.
(d) In connection with the Offering, a $14.3 million extraordinary charge was recorded in
1993 which included (i) a write-off of a portion of the unamortized balance of deferred
debt issuance costs related to the Credit Agreement borrowings and the Discount Notes
and (ii) the premium related to the redemption of a portion of the Discount Notes. In
addition, a $1.9 million extraordinary charge was recorded in 1993 reflecting a
write-off of a portion of the unamortized balance of deferred debt issuance costs
related to the Credit Agreement borrowings. The write-off was the result of repayments
of the term loan facility under the Credit Agreement (the "Term Loan Facility") in
advance of scheduled requirements. These extraordinary items were recorded net of
applicable taxes.
(e) In connection with the retirement of a portion of the Discount Notes, an extraordinary
charge of $11.2 million was recorded in 1994, net of applicable income taxes. The
extraordinary charge reflects a write-off of a portion of the unamortized balance of
deferred debt issuance costs as well as the premium paid in excess of the accreted
value.
(f) The Company adopted in the fourth quarter of 1992 Statement 109 (as hereinafter
defined) relating to accounting for income taxes and applied the provisions thereof
retroactively effective January 1, 1992.
(g) Income (loss) before extraordinary items per common share for each of the years ended
December 31, 1990, 1991, 1992, 1993 and 1994 is based on the weighted average number of
common shares outstanding after giving retroactive effect to the 1 for 5 reverse stock
split effected on June 25, 1992. Except for the years ended December 31, 1994 and 1993,
shares issuable upon exercise of stock options and deliverable upon the exercise of
outstanding warrants were antidilutive and were excluded from the calculation.
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS--YEAR ENDED DECEMBER 31, 1994 COMPARED TO
YEAR ENDED DECEMBER 31, 1993
Net sales for the year ended December 31, 1994 increased 8.7% to $769.0
million compared to $707.4 million for the year ended December 31, 1993. All of
the Company's operating units recorded net sales increases in 1994 compared to
1993. These sales increases were primarily the result of volume increases for
the Company's DR PEPPER, Diet DR PEPPER, 7UP and IBC brands over the comparable
period in 1993, as well as price increases on DR PEPPER, 7UP and certain other
products.
Cost of sales for 1994 increased 10.1% to $127.7 million compared to $116.0
million in 1993. This increase was primarily due to the increase in concentrate
and syrup sales volume. Gross profit as a percentage of net sales of 83.4% was
essentially unchanged from 1993.
Total operating expenses, which include marketing expense, general and
administrative expense and amortization of intangible assets, increased by 7.2%
to $437.8 million compared to $408.4 million in 1993. The increase was primarily
due to increased marketing expenses in response to improved sales volume. The
Company's general and administrative expenses increased 6.7% to $32.9 million
primarily as the result of higher employee-related and legal costs. General and
administrative expenses as a percentage of net sales decreased to 4.3% from 4.4%
in 1993.
As a result of the above factors, operating profit for the year ended
December 31, 1994 increased 11.2% to $203.6 million compared to $183.0 million
in 1993. Operating profit as a percentage of net sales increased to 26.5% in
1994 from 25.9% in 1993.
Interest expense for 1994 decreased 6.0% to $80.5 million compared to $85.6
million in 1993. The decrease was due to the impact of the Company's
deleveraging efforts (primarily the retirement of a portion of the Discount
Notes).
The increase in income tax expense as compared to 1993 is principally due to
the utilization of net operating loss carryforwards during 1993.
In connection with the retirement of a portion of the Discount Notes, an
extraordinary charge of $11.2 million was recorded in 1994, net of applicable
income taxes. The extraordinary charge reflects a write-off of a portion of the
unamortized balance of deferred debt issuance costs as well as the premium paid
in excess of the accreted value.
In connection with the Offering, a $14.3 million extraordinary charge was
recorded in 1993 which included (i) a write-off of a portion of the unamortized
balance of deferred debt issuance costs related to the Credit Agreement
borrowings and the Discount Notes and (ii) the premium related to the redemption
of a portion of the Discount Notes. In addition, a $1.9 million extraordinary
charge was recorded in 1993 reflecting a write-off of a portion of the
unamortized balance of deferred debt issuance costs related to the Credit
Agreement borrowings. The write-off was the result of repayments of the Term
Loan Facility in advance of scheduled requirements. These extraordinary items
were recorded net of applicable taxes.
As a result of the above factors, the Company earned $66.5 million of net
income in 1994 compared to a $77.9 million of net income earned in 1993.
RESULTS OF OPERATIONS--YEAR ENDED DECEMBER 31, 1993 COMPARED TO
YEAR ENDED DECEMBER 31, 1992
Net sales for the year ended December 31, 1993 increased 7.4% to $707.4
million compared to $658.7 million for the year ended December 31, 1992. All of
the Company's operating units recorded
13
<PAGE>
net sales increases in 1993 compared to 1992, except for the International
Division which was unchanged. These sales increases were primarily the result of
volume increases for the Company's DR PEPPER, Diet DR PEPPER, 7UP and IBC brands
over the comparable period in 1992, as well as price increases on DR PEPPER, 7UP
and certain other products.
Costs of sales for 1993 decreased 8.0% to $116.0 million compared to $126.0
million in 1992. This decrease was primarily due to a decrease in sweetener
costs somewhat offset by an increase in concentrate and syrup sales volume.
Gross profit as a percentage of net sales increased from 80.9% in 1992 to 83.6%
in 1993.
Total operating expenses, which include marketing expense, general and
administrative expense and amortization of intangible assets, increased by 9.7%
to $408.4 million compared to $372.1 million in 1992. The increase was primarily
due to increased marketing expenses in response to improved sales volume. The
Company's general and administrative expenses increased 12.8% to $30.8 million
primarily as the result of higher legal costs. Excluding this increase, general
and administrative expenses as a percentage of net sales would have remained at
4.1%.
As a result of the above factors, operating profit for the year ended
December 31, 1993 increased 14.0% to $183.0 million compared to $160.6 million
in 1992. Operating profit as a percentage of net sales increased to 25.9% in
1993 from 24.4% in 1992.
Interest expense for 1993 decreased 43.1% to $85.6 million compared to
$150.2 million in 1992. The decrease was due to the consummation of the 1992
Recapitalization and the Offering which together reduced outstanding borrowings
and resulted in lower interest rates on borrowings.
Other expense for the year ended December 31, 1992 includes $6.0 million in
costs associated with the Company's withdrawal of its planned public offering in
July 1992.
Income tax expense of $2.1 million for the year ended December 31, 1993
consists of current Federal tax expense of $1.1 million, current state tax
expense of $4.0 million and a deferred Federal tax benefit of $3.0 million.
In February 1992, the Financial Accounting Standards Board issued Statement
109, "Accounting for Income Taxes" ("Statement 109") which requires a change
from the deferred method of accounting for income taxes of APB Opinion 11 to the
asset and liability method of accounting for income taxes. Under the asset and
liability method of Statement 109, 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. Under
Statement 109, 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.
The Company adopted Statement 109 in the fourth quarter of 1992 and applied
the provisions of Statement 109 retroactively to January 1, 1992. The cumulative
effect as of January 1, 1992 of the change in the method of accounting for
income taxes is a charge to earnings of $74.8 million and has been reported
separately in the 1992 consolidated statement of operations. Financial
statements for periods prior to January 1, 1992 have not been restated for
Statement 109.
Income tax benefit of $182,000 for the year ended December 31, 1992 consists
of current state tax expense of $424,000 and a deferred Federal income tax
benefit of $606,000. The deferred income tax benefit includes a charge in lieu
of taxes resulting from initial recognition of acquired tax benefits of $1.1
million.
14
<PAGE>
In connection with the Offering, a $14.3 million extraordinary charge was
recorded in 1993 which included (i) a write-off of a portion of the unamortized
balance of deferred debt issuance costs related to the Credit Agreement
borrowings and the Discount Notes and (ii) the premium related to the redemption
of a portion of the Discount Notes. In addition, a $1.9 million extraordinary
charge was recorded in 1993 reflecting a write-off of a portion of the
unamortized balance of deferred debt issuance costs related to the Credit
Agreement borrowings. The write-off was the result of repayments of the Term
Loan Facility in advance of scheduled requirements. These extraordinary items
were recorded net of applicable taxes.
In connection with the 1992 Recapitalization, the Company recorded an
extraordinary charge of $56.9 million consisting of a write-off of the
unamortized balance of deferred debt issuance costs related to the debt
retirements and premiums and fees in respect of the debt retirements.
As a result of the above factors, the Company earned $77.9 million of net
income in 1993 compared to a $140.1 million net loss incurred in 1992.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations, together with borrowings under the revolving
credit facility under the Credit Agreement (the "Revolving Facility"), have
historically been sufficient to fund the Company's working capital requirements,
capital expenditures, principal and interest requirements described below.
The Holding Company conducts its business through DP/7UP and the primary
asset of the Holding Company is the common stock of DP/7UP. The Holding Company
has no material operations of its own. Accordingly, the Holding Company is
dependent on the cash flow of DP/7UP to meet its obligations. The Holding
Company has no material obligations other than those under the Discount Notes.
Accordingly, the Holding Company is not expected to have any material need for
cash until interest on the Discount Notes becomes payable in cash on May 1,
1998. The Holding Company will be required to make sinking fund payments equal
to 25% of the then outstanding principal amount of the Discount Notes in each of
2000 and 2001. The Discount Notes will mature in 2002. The Credit Agreement
imposed significant restrictions on the payment of dividends and the making of
loans by DP/7UP to the Holding Company. The Credit Agreement did, however, allow
DP/7UP to pay dividends to the Holding Company in an amount necessary to make
cash interest payments on the Discount Notes, provided that such interest
payments were permitted to be made at such time in accordance with the
subordination provisions relating to the Discount Notes and so long as no
payment default or bankruptcy default then existed under the Credit Agreement
with respect to the Holding Company or DP/7UP. The indenture governing the
Discount Notes also imposes limits on the payment of dividends by the Holding
Company.
The operations of DP/7UP do not require significant outlays for capital
expenditures, and its working capital requirements have historically been funded
with internally generated funds. Marketing expenditures have historically been,
and are expected to remain, the principal recurring use of funds for the
foreseeable future. Such expenditures are, to an extent, controllable by
management and are generally based on a percentage of unit sales volume.
DP/7UP's other principal use of funds in the future will be the payment of
dividends to the Holding Company for purposes of making principal and interest
payments on the Discount Notes.
As of December 31, 1994, DP/7UP was required to repay the principal of
$440.0 million under the Term Loan Facility as follows: $100.0 million in 1995,
$110.0 million in 1996, and $115.0 million in each of 1997 and 1998. The
Revolving Facility includes an amount for letters of credit in an aggregate face
amount of up to $15.0 million. At December 31, 1994, the outstanding balance of
revolving loans and the aggregate face amount of letters of credit issued under
the Revolving Facility were $101.0 million and $0.2 million, respectively. As
noted below, the Term Loan Facility and Revolving Facility
15
<PAGE>
under the Credit Agreement were repaid in full on March 6, 1995 and the Credit
Agreement was terminated.
The Company's former obligations under the Credit Agreement bore interest at
floating rates making the Company sensitive to changes in prevailing interest
rates. Accordingly, in order to minimize the effect of significant changes in
prevailing interest rates, and as permitted by the Credit Agreement, the Company
has from time to time entered into interest rate swap and interest rate cap
agreements. At December 31, 1994, the Company was a counterparty to a swap
expiring December 1, 1995, based on six-month LIBOR with a notional amount of
$150 million. Interest rate cap agreements, based on six-month LIBOR capped at
6% with a total notional amount of $250 million, cover all or a portion of the
period from February 1, 1995 through February 1, 1996. Premiums for these
agreements accrue to interest expense over the life of each agreement. Any
interest rate differentials to be received or paid are recognized as adjustments
to interest expense. The net effect on interest expense from interest rate
instruments was insignificant for the years ended December 31, 1994 and 1993.
Market risk relating to financial instruments is evaluated periodically based on
quotes from financial institutions.
The Company had working capital deficits of $57.5 million at December 31,
1994 and $67.2 million at December 31, 1993. The Company generally operates with
a working capital deficit due to its low inventory investment and because it has
a significant amount of accrued marketing expenses in current liabilities. The
deficit at December 31, 1994 was improved from the December 31, 1993 deficit due
to the net increase in working capital components as a result of the timing of
cash receipts and disbursements and the seasonal nature of the business. As a
result of the repayment of the Term Loan Facility and Revolving Facility on
March 6, 1995, such deficits have been eliminated.
Capital expenditures totaled $2.5 million in 1994 and $3.8 million in 1993.
The Credit Agreement contained numerous financial and operating covenants
and prohibitions that imposed limitations on the Company's liquidity, including
the satisfaction of certain financial ratios and limitations on the incurrence
of additional indebtedness. Through December 31, 1994, the Company had satisfied
all required financial ratios. The indenture governing the Discount Notes also
contains covenants that impose limitations on the Company's liquidity, including
a limitation on the incurrence of additional indebtedness. The ability of the
Company to meet its debt service requirements and to comply with the financial
covenants in the indenture will be dependent upon future performance, which is
subject to financial, economic, competitive and other factors affecting the
Holding Company and DP/7UP, many of which are beyond their control.
As a result of the Merger, Cadbury owns approximately 98.7% of the
outstanding Common Stock of the Company and controls the operations of the
Company. The Company is thus able to access the resources of Cadbury in addition
to cash provided by operations to fund its cash requirements. The outstanding
balances of the Term Loan Facility and the Revolving Facility were repaid with
cash provided by Cadbury and the Credit Agreement was terminated, effective as
of March 6, 1995.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14, "Index to Consolidated Financial Statements and Schedules",
included herein, for information required under Item 8.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no disagreements with the registrant's accountants on
accounting or financial disclosure.
16
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information for this item is incorporated herein by reference to the
Company's Proxy Statement to be filed pursuant to Regulation 14A under the
Securities Exchange Act of 1934 in connection with the Holding Company's 1995
Annual Meeting of Shareholders.
ITEM 11. EXECUTIVE COMPENSATION
The information for this item is incorporated herein by reference to the
Company's Proxy Statement to be filed pursuant to Regulation 14A under the
Securities Exchange Act of 1934 in connection with the Holding Company's 1995
Annual Meeting of Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information for this item is incorporated herein by reference to the
Company's Proxy Statement to be filed pursuant to Regulation 14A under the
Securities Exchange Act of 1934 in connection with the Holding Company's 1995
Annual Meeting of Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information for this item is incorporated herein by reference to the
Company's Proxy Statement to be filed pursuant to Regulation 14A under the
Securities Exchange Act of 1934 in connection with the Holding Company's 1995
Annual Meeting of Shareholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
(a) 1. Financial Statements
See "Index to Financial Statements and Schedules" appearing after the
signature pages hereof.
2. Financial Statement Schedules
See "Index to Financial Statements and Schedules" appearing after the
signature pages hereof.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of 1994.
(c) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- -------- --------------------------------------------------------------------------------------
<C> <S>
2.1 --Agreement and Plan of Merger among Cadbury Schweppes plc, DP/SU Acquisition Inc.
and Dr Pepper/Seven-Up Companies, Inc., dated as of January 25, 1995 (8)
3.1 --Amended and Restated Certificate of Incorporation of the Registrant, as amended. (5)
3.2 --Form of Amended and Restated Bylaws of the Registrant. (5)
3.3 --Rights Agreement between Dr Pepper/Seven-Up Companies, Inc. and Bank One Texas,
N.A., as Rights Agent, dated September 1, 1993 (the "Rights Agreement"). (9)
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- -------- -------------------------------------------------------------------------------------
<C> <S>
3.4 --First Amendment to the Rights Agreement dated January 25, 1995. (10)
10.6 --Common Stock Registration Rights Agreement, dated as of May 19, 1988, by and among
Hicks & Haas Holdings, Ltd., DLJ Capital Corporation, Shearson Lehman Hutton Inc.,
Shearson Lehman Brothers Capital Partners I, Prudential-Bache Interfunding Inc.,
Prudential-Bache Capital Partners I, L.P., Citicorp Capital Investors Ltd., John
R. Albers, Ira M. Rosenstein, The John L. Kemmerer, Jr. Trust Dated 6/24/57,
Cadbury Schweppes Inc., Bankers Trust Company and Dr Pepper/Seven-Up Companies,
Inc. (1)
10.6.1 --Amendment to Common Stock Registration Rights Agreement, amending the Common Stock
Registration Rights Agreement, dated as of May 19, 1988. (5)
10.6.2 --Form of Second Amendment to Common Stock Registration Rights Agreement, amending
the Common Stock Registration Rights Agreement, dated as of May 19, 1988. (5)
10.13 --Commercial Lease, dated as of August 20, 1987, among The Seven-Up Company, Dr
Pepper Company and Walnut Glen Towers, Ltd. (1)
10.14 --Dr Pepper Company Profit Sharing Plan, as amended, dated as of January 1, 1987. (1)
10.15 --Restated Pension Plan of Dr Pepper/Seven-Up Corporation. (1)
10.16 --Supplemental Pension Plan of Dr Pepper/Seven-Up Corporation. (1)
10.17 --Supplemental Disability Plan of Dr Pepper/Seven-Up Corporation. (2)
10.18 --Supplemental Death Benefit Plan of Dr Pepper/Seven-Up Corporation. (2)
10.21 --Executive Severance Agreement for John R. Albers dated August 27, 1991. (3)
10.21.1 --Amendment to Executive Severance Agreement for John R. Albers dated February 23,
1995. (11)
10.22 --Executive Severance Agreement for Ira M. Rosenstein dated August 27, 1991. (3)
10.22.1 --Amendment to Executive Severance Agreement for Ira M. Rosenstein dated February
23, 1995. (11)
10.23 --Letter Agreement dated as of November 9, 1989 for Charles P. Grier. (3)
10.24 --Executive Severance Agreement dated as of August 27, 1991 for True H. Knowles. (3)
10.25 --Executive Severance Agreement dated as of April 8, 1992 for Francis I. Mullin,
III. (4)
10.31 --Credit Agreement (including exhibits thereto) among The Seven-Up Company and Dr
Pepper Company (and their successor by merger Dr Pepper/Seven-Up Corporation), Dr
Pepper/Seven-Up Companies, Inc. and Bankers Trust Company, Barclays Bank PLC,
Canadian Imperial Bank of Commerce, Atlanta Agency, NationsBank of North Carolina,
N.A., The Chase Manhattan Bank, N.A., and The First National Bank of Chicago. (4)
10.31.1 --First amendment, dated as of October 26, 1992, among Dr Pepper/Seven-Up
Corporation, Dr Pepper/Seven-Up Companies, Inc. and certain banks. (6)
10.31.2 --Second amendment, dated as of November 5, 1992, among Dr Pepper/Seven-Up
Corporation, Dr Pepper/Seven-Up Companies, Inc. and certain banks. (6)
10.31.3 --Third amendment, dated as of February 17, 1993, among Dr Pepper/SevenUp
Corporation, Dr Pepper/Seven-Up Companies, Inc. and certain banks. (6)
10.31.4 --Fourth amendment, dated as of March 4, 1993, among Dr Pepper/Seven-Up Corporation,
Dr Pepper/Seven-Up Companies, Inc. and certain banks. (6)
10.31.5 --Fifth amendment, (including exhibits thereto) dated as of December 28, 1993, among
Dr Pepper/Seven-Up Corporation, Dr Pepper/Seven-Up Companies, Inc. and certain
banks. (6)
10.31.6 --Sixth amendment, dated as of June 28, 1994, among Dr Pepper/Seven-Up Corporation,
Dr Pepper/Seven-Up Companies, Inc. and certain banks. (7)
10.32 --Dr Pepper/Seven-Up Companies, Inc. Amended and Restated 1988 Stock Option Plan. (4)
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- -------- ------------------------------------------------------------------------------------
<C> <S>
10.33 --Dr Pepper/Seven-Up Companies, Inc. Amended and Restated 1988 Non-Qualified Stock
Option Plan. (4)
10.34 --Form of Tax Sharing Agreement, dated as of January 1, 1992, between Dr
Pepper/Seven-Up Companies, Inc. and Dr Pepper/Seven-Up Corporation. (4)
10.35 --Indenture, dated as of October 28, 1992, between Dr Pepper/Seven-Up Companies,
Inc. and Bank One, Texas N.A., as trustee. (4)
10.36 --Dr Pepper/Seven-Up Companies, Inc. 1993 Stock Ownership Plan. (5)
10.37 --Dr Pepper/Seven-Up Companies, Inc. Employee Stock Purchase Plan. (5)
10.38 --Dr Pepper/Seven-Up Companies, Inc. Deferred Compensation Plan for Non-Employee
Directors. (5)
10.39 --Form of Dr Pepper/Seven-Up Companies, Inc. 1994 Performance Award Plan. (11)
10.40 --Dr Pepper/Seven-Up Companies, Inc. Non-Qualified Stock Option Plan for Non-
Employee Directors. (5)
10.41 --Employment Agreement, effective as of January 1, 1993, between Dr Pepper/Seven-Up
Companies, Inc. and John R. Albers. (6)
10.42 --Employment Agreement, effective as of January 1, 1993, between Dr Pepper/Seven-Up
Companies, Inc. and Ira M. Rosenstein. (6)
22 --Subsidiaries of Registrant. (11)
24.1 --Consent of KPMG Peat Marwick LLP, independent certified public accountants. (11)
27 --Financial Data Schedule (11)
99 --Portion of Registrant's Solicitation/Recommendation Statement on Schedule 14D-9
dated February 1, 1995 and amendments thereto setting forth information with
respect to certain shareholder litigation.
</TABLE>
- ------------
(1) Incorporated herein by reference to Registration Statement No. 33-23174 of
the Company.
(2) Incorporated herein by reference to Registration Statement No. 33-9428 of Dr
Pepper Company.
(3) Incorporated herein by reference to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1991.
(4) Incorporated herein by reference to the Registrant's Registration Statement
on Form S-1 (Registration No. 33-47397).
(5) Incorporated herein by reference to the Registrant's Registration Statement
on Form S-1 (Registration No. 33-55262).
(6) Incorporated by reference to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1993.
(7) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1994.
(8) Incorporated by reference to the Registrant's Solicitation/Recommendation
Statement on Schedule 14D-9 dated February 1, 1995.
(9) Incorporated by reference to the Registrant's Form 8-A dated September 1,
1993.
(10) Incorporated by reference to amendment No. 1 to the Registrant's
Solicitation/Recommendation Statement on Schedule 14D-9 dated February 13,
1995.
(11) Filed herewith.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
DR PEPPER/SEVEN-UP COMPANIES, INC.
Date: March 30, 1995
By /s/ JOHN R. ALBERS
...................................
John R. Albers
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------ ------------------------------------ ---------------
<S> <C> <C>
/s/ JOHN R. ALBERS President and Chief Executive March 30, 1995
.................................... Officer (Principal Executive
John R. Albers Officer of the Registrant)
/s/ IRA M. ROSENSTEIN Executive Vice President and Chief March 30, 1995
.................................... Financial Officer (Principal
Ira M. Rosenstein Financial Officer of the
Registrant)
/s/ MICHAEL R. BUITER Vice President--Finance and March 30, 1995
.................................... Treasurer (Principal Accounting
Michael R. Buiter Officer of the Registrant)
/s/ JOHN F. BROCK Director March 30, 1995
....................................
John F. Brock
/s/ HENRY A. UDOW Director March 30, 1995
....................................
Henry A. Udow
/s/ DAVID A. GERICS Director March 30, 1995
....................................
David A. Gerics
</TABLE>
20
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Dr Pepper/Seven-Up Companies, Inc.:
Independent Auditors' Report....................................................... F-2
Consolidated Balance Sheets--December 31, 1994 and 1993............................ F-3
Consolidated Statements of Operations--Three years ended December 31, 1994......... F-4
Consolidated Statements of Stockholders' Deficit--Three years ended December 31,
1994............................................................................. F-5
Consolidated Statements of Cash Flows--Three years ended December 31, 1994......... F-6
Notes to Consolidated Financial Statements......................................... F-7
Financial Statement Schedules:
I--Condensed Financial Information............................................... F-18
II--Valuation and Qualifying Accounts............................................ F-22
</TABLE>
All other schedules are omitted as the required information is inapplicable
or presented in the consolidated financial statements or related notes.
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
DR PEPPER/SEVEN-UP COMPANIES, INC.:
We have audited the accompanying consolidated balance sheets of Dr
Pepper/Seven-Up Companies, Inc. and subsidiaries as listed in the accompanying
index. In connection with our audits of the consolidated financial statements,
we also have audited the financial statement schedules as listed in the
accompanying index. These consolidated financial statements and financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedules 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 Dr
Pepper/Seven-Up Companies, Inc. and subsidiaries as of December 31, 1994 and
1993, and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1994, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein.
As discussed in note 4 to the consolidated financial statements, the Company
changed its method of accounting for income taxes in 1992.
KPMG Peat Marwick LLP
February 10, 1995
Dallas, Texas
F-2
<PAGE>
DR PEPPER/SEVEN-UP COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 AND 1993
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
ASSETS (note 3)
Current assets:
Accounts receivable, less allowance for doubtful accounts of $1,668
in 1994 and $1,737 in 1993......................................... $ 80,995 70,255
Inventories.......................................................... 16,648 14,550
Prepaid advertising.................................................. 18,720 16,872
Deferred income taxes (note 4)....................................... 23,532 24,175
Other current assets................................................. 4,172 1,608
-------- --------
Total current assets............................................. 144,067 127,460
-------- --------
Property, plant and equipment, net (note 2)............................ 18,607 19,012
Intangible assets (note 10):
Franchises........................................................... 407,069 459,988
Goodwill, formulas, trademarks and other............................. 131,248 142,872
-------- --------
538,317 602,860
Less accumulated amortization........................................ 124,538 111,434
-------- --------
Total intangible assets, net..................................... 413,779 491,426
-------- --------
Deferred debt issuance costs, less accumulated amortization of $16,582
in 1994 and $8,711 in 1993........................................... 22,167 31,313
Other assets........................................................... 10,098 10,812
-------- --------
Total assets..................................................... $608,718 680,023
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable..................................................... $ 19,999 25,060
Accrued marketing expenses........................................... 60,730 67,026
Other accrued expenses............................................... 20,724 17,266
Current portion of long-term debt (note 3)........................... 100,067 85,274
-------- --------
Total current liabilities........................................ 201,520 194,626
-------- --------
Long-term debt, less current portion (note 3).......................... 693,159 790,540
Deferred credits and other............................................. 15,178 28,805
Deferred income taxes (note 4)......................................... 42,971 86,156
Stockholders' deficit (notes 3 and 5):
Common stock, $.01 par value, authorized 145,000,000 shares, issued
61,771,287 shares in 1994 and 60,796,377 shares in 1993................ 617 608
Additional paid-in capital........................................... 416,203 406,728
Accumulated deficit.................................................. (761,153) (827,672)
Foreign currency translation adjustment.............................. 223 232
Less treasury shares (6,451 in 1994 and 148,152 in 1993), at cost.... -- --
-------- --------
Total stockholders' deficit...................................... (344,110) (420,104)
Commitments and contingencies (notes 7 and 10)
-------- --------
Total liabilities and stockholders' deficit...................... $608,718 680,023
-------- --------
-------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
DR PEPPER/SEVEN-UP COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE YEARS ENDED DECEMBER 31, 1994
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1994 1993 1992
-------- ------- --------
<S> <C> <C> <C>
Net sales (note 8)........................................... $769,015 707,378 658,718
Cost of sales................................................ 127,650 115,981 126,002
-------- ------- --------
Gross profit........................................... 641,365 591,397 532,716
-------- ------- --------
Operating expenses:
Marketing.................................................. 391,806 362,484 329,706
General and administrative................................. 32,889 30,816 27,312
Amortization of intangible assets.......................... 13,104 15,077 15,112
-------- ------- --------
Total operating expenses............................... 437,799 408,377 372,130
-------- ------- --------
Operating profit....................................... 203,566 183,020 160,586
-------- ------- --------
Other income (expense):
Interest expense........................................... (80,452) (85,560) (150,245)
Preferred stock dividends of subsidiaries.................. (1,308) (1,744) (17,538)
Recapitalization charge (note 9)........................... -- -- (6,026)
Other, net................................................. 484 495 4,627
-------- ------- --------
Total other income (expense)........................... (81,276) (86,809) (169,182)
-------- ------- --------
Income (loss) before income taxes, extraordinary item
and cumulative effect of accounting change........... 122,290 96,211 (8,596)
Income tax expense (benefit) (note 4)........................ 44,591 2,087 (182)
-------- ------- --------
Income (loss) before extraordinary item and cumulative
effect of accounting change.................................. 77,699 94,124 (8,414)
-------- ------- --------
Extraordinary item--extinguishment of debt, less applicable
income taxes (notes 3, 4 and 9).............................. 11,180 16,199 56,934
Cumulative effect of accounting change (note 4).............. -- -- 74,800
-------- ------- --------
Net income (loss)...................................... 66,519 77,925 (140,148)
Preferred stock dividend requirements........................ -- -- 12,941
-------- ------- --------
Net income (loss) attributable to outstanding common
stock........................................................ $ 66,519 77,925 (153,089)
-------- ------- --------
-------- ------- --------
Income (loss) per common share and share equivalent:
Income (loss) before extraordinary item and cumulative
effect of accounting change.............................. $ 1.13 1.46 (.60)
Extraordinary item......................................... (.17) (.25) (1.60)
Cumulative effect of accounting change..................... -- -- (2.11)
-------- ------- --------
Net income (loss)...................................... $ 0.96 1.21 (4.31)
-------- ------- --------
-------- ------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
DR PEPPER/SEVEN-UP COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
THREE YEARS ENDED DECEMBER 31, 1994
(IN THOUSANDS, EXCEPT SHARES)
<TABLE>
<CAPTION>
FOREIGN
ADDITIONAL CURRENCY TOTAL
NUMBER OF COMMON PAID-IN ACCUMULATED TRANSLATION TREASURY STOCKHOLDERS'
SHARES STOCK CAPITAL DEFICIT ADJUSTMENT SHARES DEFICIT
---------- ------ ---------- ----------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1991...................... 35,461,339 $385 93,638 (750,916) 193 (390) (657,090)
Stock sold to employees... 112,740 -- 292 -- -- 390 682
Senior Preferred Stock
dividends................. -- -- -- (12,941) -- -- (12,941)
Reclassification of common
stock warrants............ -- -- 11,085 -- -- -- 11,085
Redemption of subsidiary's
preferred stock........... -- -- (11,128) -- -- -- (11,128)
Other..................... (25) -- 2,125 -- 2 -- 2,127
Net loss.................. -- -- -- (140,148) -- -- (140,148)
---------- ------ ---------- ----------- --- -------- -------------
Balance, December 31,
1992...................... 35,574,054 385 96,012 (904,005) 195 -- (807,413)
Issuance of common stock
(note 9).................. 21,578,313 216 305,122 -- -- -- 305,338
Exercise of employee stock
options, including tax
benefits.................. 607,638 6 4,944 -- -- -- 4,950
Exercise of outstanding
warrants.................. 2,807,895 -- -- -- -- -- --
Other..................... 80,325 1 650 (1,592) 37 -- (904)
Net income................ -- -- -- 77,925 -- -- 77,925
---------- ------ ---------- ----------- --- -------- -------------
Balance, December 31,
1993...................... 60,648,225 608 406,728 (827,672) 232 -- (420,104)
Exercise of employee stock
options, including tax
benefits.................. 974,717 9 10,745 -- -- -- 10,754
Exercise of outstanding
warrants.................. 141,719 -- -- -- -- -- --
Redemption of subsidiary's
preferred stock........... -- -- (1,909) -- -- -- (1,909)
Other..................... 175 -- 639 -- (9) -- 630
Net income................ -- -- -- 66,519 -- -- 66,519
---------- ------ ---------- ----------- --- -------- -------------
Balance, December 31,
1994...................... 61,764,836 $617 416,203 (761,153) 223 -- (344,110)
---------- ------ ---------- ----------- --- -------- -------------
---------- ------ ---------- ----------- --- -------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
DR PEPPER/SEVEN-UP COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE YEARS ENDED DECEMBER 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1993 1992
--------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)..................................... $ 66,519 77,925 (140,148)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization of intangibles, debt
discounts and deferred debt issuance costs.............. 53,973 59,634 90,289
Debt restructuring charge........................... 2,039 8,844 24,664
Cumulative effect of accounting change.............. -- -- 74,800
Preferred stock dividends of subsidiary............. -- -- 11,119
Deferred income taxes............................... 23,501 (3,059) (606)
Other............................................... 7,207 1,621 1,332
Changes in assets and liabilities:
Accounts receivable............................... (10,740) (12,988) (6,565)
Inventories....................................... (2,098) (1,865) (466)
Prepaid advertising and other assets.............. (3,246) 1,117 (7,068)
Accounts payable and accrued expenses............. (8,137) (7,720) 7,823
--------- ---------- ----------
Net cash provided by operating activities....... 129,018 123,509 55,174
--------- ---------- ----------
Cash flows from investing activities:
Capital expenditures.................................. (2,546) (3,754) (1,861)
Investment in joint venture........................... (456) -- --
Sales of marketable securities with maturity less than
three months, net....................................... -- -- 31,166
Purchases of marketable securities.................... -- -- (312,108)
Sales of marketable securities........................ -- -- 366,733
Other................................................. -- -- (2,000)
--------- ---------- ----------
Net cash provided by (used in) investing
activities.............................................. (3,002) (3,754) 81,930
--------- ---------- ----------
Cash flows from financing activities:
Proceeds from long-term debt.......................... 275,000 831,000 1,266,001
Payments on long-term debt............................ (387,662) (1,156,960) (1,269,407)
Proceeds from sale of common stock.................... -- 305,338 --
Repurchase of preferred stock......................... (13,902) (98,383) (120,744)
Payments of refinancing costs......................... (763) (4,381) (53,149)
Increase (decrease) in cash overdraft................. (1,262) 2,442 5,181
Other................................................. 2,573 1,189 469
--------- ---------- ----------
Net cash used in financing activities........... (126,016) (119,755) (171,649)
--------- ---------- ----------
Net decrease in cash and cash equivalents............... -- -- (34,545)
Cash and cash equivalents at beginning of year.......... -- -- 34,545
--------- ---------- ----------
Cash and cash equivalents at end of year................ $ -- -- --
--------- ---------- ----------
--------- ---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
DR PEPPER/SEVEN-UP COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Consolidation
The consolidated financial statements include the accounts of Dr
Pepper/Seven-Up Companies, Inc. and subsidiaries ("Company"). All significant
intercompany balances and transactions have been eliminated in consolidation.
(b) Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out method. A summary of inventories at December 31,
1994 and 1993 follows (in thousands):
1994 1993
------- ------
Finished products........................................ $ 6,449 5,362
Raw materials and supplies............................... 10,199 9,188
------- ------
$16,648 14,550
------- ------
------- ------
(c) Marketing and Advertising Costs
Marketing costs include costs of advertising, marketing and promotional
programs. Prepaid advertising consists of various marketing, media and
advertising prepayments, materials in inventory and production costs of future
media advertising; these assets are expensed in the year used. Marketing costs,
other than prepayments, are expensed in the year incurred.
(d) Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Depreciation is computed
by the straight-line method over the estimated useful lives ranging from 3 to 10
years. Maintenance and repairs are charged to operations as incurred and
expenditures for major renewals and improvements are capitalized.
(e) Intangible Assets
Franchises, goodwill, formulas, trademarks and other intangible assets are
being amortized over 40 years on a straight-line basis. The Company continually
reevaluates the recoverability of the carrying amount of these intangible assets
based on projected undiscounted operating cash flows.
(f) Deferred Debt Issuance Costs
Deferred debt issuance costs are amortized using the effective interest
method over the life of the debt issue to which they relate.
(g) Derivatives
Premiums paid for purchased interest rate cap agreements are amortized to
interest expense over the terms of the caps. Amounts receivable under cap
agreements are accrued as a reduction of interest expense.
F-7
<PAGE>
DR PEPPER/SEVEN-UP COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
(h) Income Taxes
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.
(i) Income (Loss) Per Common Share and Share Equivalent
Income (loss) per common share and share equivalent is based on the weighted
average number of common shares and share equivalents outstanding during the
year (67,005,000 in 1994, 64,621,000 in 1993 and 35,533,000 in 1992). Income
(loss) per common share and share equivalent was the same for primary and fully
diluted per share amounts. Income per common share and share equivalent for 1994
was determined after deducting $1,909,000 for the premium paid by the Company in
1994 to redeem the remaining outstanding preferred stock of a subsidiary.
(j) Statements of Cash Flows
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
During 1994, 1993 and 1992, the Company paid interest of $37,874,000,
$43,926,000 and $85,203,000, respectively, and income taxes of $9,636,000,
$3,538,000 and $1,202,000, respectively.
(2) PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment and accumulated depreciation at
December 31, 1994 and 1993 follows (in thousands):
1994 1993
-------- -------
Land................................................... $ 1,106 1,106
Buildings and improvements............................. 9,224 9,151
Machinery, equipment and furniture..................... 41,280 38,903
-------- -------
51,610 49,160
Accumulated depreciation............................... (33,003) (30,148)
-------- -------
$ 18,607 19,012
-------- -------
-------- -------
Depreciation expense was $2,925,000 in 1994, $2,969,000 in 1993 and
$2,950,000 in 1992.
F-8
<PAGE>
DR PEPPER/SEVEN-UP COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994
(3) LONG-TERM DEBT
Long-term debt at December 31, 1994 and 1993 consists of the following (in
thousands):
1994 1993
-------- -------
Credit Agreement....................................... $541,000 574,000
Discount Notes......................................... 252,101 301,427
Other notes............................................ 125 387
-------- -------
793,226 875,814
Less current portion of long-term debt................. 100,067 85,274
-------- -------
$693,159 790,540
-------- -------
-------- -------
(a) Credit Agreement
The Company's Credit Agreement provides for $525,000,000 of borrowings
available under a Term Loan Facility and $150,000,000 of borrowings available
under a Revolving Facility from a group of banks. Outstanding borrowings under
the Term Loan Facility and the Revolving Facility bear interest at the lead
bank's prime rate (8.25% at December 31, 1994) plus 1/4% per annum or the lead
banks' average Eurodollar Rate plus 3/4% per annum. The Term Loan Facility
requires semiannual principal payments to maturity on December 31, 1998. The
Revolving Facility will mature on the earlier to occur of December 31, 1998 or
the date on which there are no amounts outstanding under the Term Loan Facility.
The Company must pay an annual commitment fee of 3/8% on the unused portion of
the Revolving Facility. Borrowings under the Credit Agreement are principally
secured by the Company's assets, including franchise contracts relating to
bottling arrangements.
The Credit Agreement contains certain restrictive covenants which require
the Company, among other things, to satisfy certain financial ratios and
restricts investments in and loans to affiliates, capital expenditures,
additional debt and payment of dividends, as defined.
In 1994, the Company entered into interest rate cap agreements to reduce the
potential impact of increases in interest rates on borrowings under the Credit
Agreement. As of December 31, 1994, the Company was a party to interest rate cap
agreements with a total notional amount of $250,000,000. The terms of the
agreements cover all or a portion of the period February 1, 1995 through
February 1, 1996 and provide for a LIBOR-based cap rate of 6%.
(b) Discount Notes
The 11 1/2% Senior Subordinated Discount Notes (the "Discount Notes") had a
face amount of $345,055,000 at December 31, 1994, bear interest at a rate of
11.5% per annum and are redeemable at the option of the Company at redemption
prices declining annually from 104.3125% on November 1, 1997 to par on or after
November 1, 2000. Interest is payable semiannually on the Discount Notes
beginning May 1, 1998. A mandatory sinking fund will retire 25% of the original
principal amount in each of the years 2000 and 2001, or 50% of the issue prior
to maturity.
The Discount Notes mature on November 1, 2002 and are subordinate to all
outstanding borrowings under the Credit Agreement. The indenture governing the
Discount Notes contains
F-9
<PAGE>
DR PEPPER/SEVEN-UP COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994
(3) LONG-TERM DEBT--(CONTINUED)
covenants that impose limitations on the Company's liquidity, including a
limitation on the incurrence of additional indebtedness.
During 1994, the Company retired a portion of the Discount Notes through
open market purchases. In connection with these transactions, the Company
recognized an extraordinary charge of $11,180 resulting from the write-off of
deferred debt issuance costs and the payment of premiums on the redemption of
the Discount Notes.
Aggregate maturities of long-term debt for each of the five years subsequent
to December 31, 1994 follows: $100,067,000 in 1995; $110,055,000 in 1996;
$115,003,000 in 1997, $216,000,000 in 1998 and none in 1999.
The following table presents the carrying amounts and estimated fair values
of the Company's interest rate cap agreements, Credit Agreement and Discount
Notes as of December 31, 1994 and 1993 (in thousands):
<TABLE>
<CAPTION>
1993 1994
------------------- -------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Assets--other current assets (interest rate cap
agreements).......................................... $ 2,936 3,737 -- --
Liabilities:
Credit Agreement................................... 541,000 541,000 574,000 574,000
Discount Notes..................................... 252,101 272,593 301,427 357,651
</TABLE>
The estimated fair values of the interest rate cap agreements are based on
dealer quotes. The carrying amount of the Credit Agreement is assumed to
approximate the estimated fair value since the borrowings bear interest at
current market rates. The estimated fair value of the Discount Notes is based on
the quoted market price for the issue.
(4) INCOME TAXES
Total income tax expense (benefit) for the years ended December 31, 1994,
1993 and 1992 was allocated as follows (in thousands):
1994 1993 1992
------- ------ ------
Income (loss) before extraordinary item and
cumulative effect of accounting change........... $44,591 2,087 (182)
Extraordinary item............................... (6,020) (731) --
Goodwill--initial recognition of acquired tax
benefits......................................... -- -- (1,148)
Additional paid-in capital--compensation expense
recognized for tax purposes...................... (7,430) (3,789) (818)
------- ------ ------
$31,141 (2,433) (2,148)
------- ------ ------
------- ------ ------
F-10
<PAGE>
DR PEPPER/SEVEN-UP COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994
(4) INCOME TAXES--(CONTINUED)
Income tax expense (benefit) attributable to income (loss) before income
taxes, extraordinary item and cumulative effect of accounting change for the
years ended December 31, 1994, 1993 and 1992 consists of (in thousands):
1994 1993 1992
------- ------ ----
Current:
Federal.......................................... $16,760 1,147 --
State............................................ 4,330 3,999 424
Deferred........................................... 23,501 (3,059) (606)
------- ------ ----
$44,591 2,087 (182)
------- ------ ----
------- ------ ----
Deferred income tax benefit for the year ended December 31, 1993 includes a
charge of $2,046,000 for adjustments to deferred tax assets and liabilities for
the increase in the U.S. federal income tax rate.
Income tax expense (benefit) for the years ended December 31, 1994, 1993 and
1992 differed from the amount computed by applying the U.S. federal income tax
rate of 35% in 1994 and 1993 and 34% in 1992 to income (loss) before income
taxes, extraordinary item and cumulative effect of accounting change as a result
of the following (in thousands):
1994 1993 1992
------- ------- ------
Computed "expected" tax expense (benefit)....... $42,802 33,674 (2,922)
Increase (reduction) in income taxes resulting
from:
Benefit of net operating loss carryforwards... -- (24,253) --
Reduction in valuation allowance.............. (3,850) (8,623) --
State income taxes, net of federal income tax
benefit......................................... 2,815 2,599 280
Other, net.................................... 2,824 (1,310) 2,460
------- ------- ------
$44,591 2,087 (182)
------- ------- ------
------- ------- ------
F-11
<PAGE>
DR PEPPER/SEVEN-UP COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994
(4) INCOME TAXES--(CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1994 and 1993 are presented below (in thousands):
1994 1993
------- -------
Deferred tax assets:
Net operating loss carryforwards...................... $64,176 94,426
Trademarks............................................ 10,874 7,276
Other................................................. 7,190 7,750
------- -------
Total gross deferred tax assets................... 82,240 109,452
Less valuation allowance.............................. (34,288) (70,323)
------- -------
Net deferred tax assets........................... 47,952 39,129
------- -------
Deferred tax liabilities:
Franchises and other intangible assets................ 63,892 97,212
Property and equipment................................ 2,517 2,704
Other................................................. 982 1,194
------- -------
Total gross deferred tax liabilities.............. 67,391 101,110
------- -------
Net deferred tax liability........................ $19,439 61,981
------- -------
------- -------
The valuation allowance for deferred tax assets as of January 1, 1993 was
$93,313,000. The net change in the total valuation allowance for the years ended
December 31, 1994 and 1993 was a decrease of $36,035,000 and a decrease of
$22,990,000, respectively.
As of December 31, 1994, the Company and its subsidiaries have approximately
$183,000,000 of federal income tax loss carryforwards (see note 10) which expire
in years 2001 through 2007. The Company is subject to an annual limitation of
approximately $60,000,000 for utilizing its federal income tax loss
carryforwards.
If the Company subsequently were to recognize tax benefits related to the
December 31, 1994 valuation allowance for deferred tax assets, such benefits
would be allocated to intangible assets (approximately $6,264,000), and income
tax benefit, which would be reported in the consolidated statement of operations
(approximately $28,024,000).
The Company adopted Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes" (Statement 109) in the fourth quarter of 1992 and
applied the provisions of Statement 109 retroactively to January 1, 1992. The
cumulative effect of the change in accounting for income taxes of $74,800,000
was determined as of January 1, 1992 and is reported separately in the 1992
consolidated statement of operations.
(5) STOCKHOLDERS' DEFICIT
(a) Shareholder Rights Plan
In September 1993, the Company's Board of Directors adopted a Shareholder
Rights Plan pursuant to which purchase rights were issued to holders of its
common stock at the rate of one right for each share of common stock. The rights
will trade with the Company's common stock until exercisable.
F-12
<PAGE>
DR PEPPER/SEVEN-UP COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994
(5) STOCKHOLDERS' DEFICIT--(CONTINUED)
The rights become exercisable only at the time a person or group acquires, or
commences a public tender offer for a defined percentage of the Company's common
stock. Once a right becomes exercisable, the holders of the rights (other than
the acquiring person or group) may purchase the Company's common stock at 50% of
its then market price. The rights expire on September 13, 2003, unless earlier
redeemed by the Company at a price of $.01 per right.
(b) Employee Incentive Plans
The Company sponsors certain employee incentive plans under which stock
options and stock awards may be granted to key officers and salaried employees
of the Company. Options granted under the plans are exercisable at such times
and in such amounts as determined by a committee selected by the Board of
Directors of the Company. No options granted under the plans are exercisable
more than ten years after the date of grant. At December 31, 1994, 2,217,609
shares were available for grant under the plans. Further information relating to
options is as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Outstanding at January 1................................ 7,648 7,078 6,926
Granted............................................... 522 1,204 229
Exercised............................................. (975) (608) --
Cancelled............................................. (109) (26) (77)
Outstanding at December 31.............................. 7,086 7,648 7,078
Exercisable at December 31.............................. 5,843 4,641 3,034
Option price per share:
Exercised............................................... $.05-20.75 $.05-10.17 --
---------- ---------- ----------
---------- ---------- ----------
Unexercised at December 31.............................. $.05-25.38 $.05-20.75 $.05-10.17
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
F-13
<PAGE>
DR PEPPER/SEVEN-UP COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994
(6) PENSION BENEFITS
The Company has defined benefit pension plans covering substantially all of
its employees. The benefits are primarily based on years of service and the
employees' compensation during the last years of employment. Pension costs are
funded in amounts not less than minimum statutory funding requirements nor more
than the maximum amount that can be deducted for federal income tax purposes.
The Company also has a nonqualified unfunded defined benefit plan covering
certain executive employees. The following table sets forth the plans' funded
status and amounts recognized at December 31, 1994 and 1993 (in thousands):
<TABLE>
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
Actuarial present value of accumulated benefit obligations, including
vested benefits of $36,544 in 1994 and $35,048 in 1993................. $40,180 37,902
------- -------
------- -------
Projected benefit obligation for services rendered to date............... 55,589 52,646
Plan assets at fair value, primarily listed stocks and United States
government securities.................................................. 28,973 26,753
------- -------
Projected benefit obligation in excess of plan assets.................... 26,616 25,893
Unrecognized net asset at adoption....................................... 575 616
Unrecognized prior service costs......................................... (3,306) (3,202)
Unrecognized net loss.................................................... (13,844) (14,853)
Adjustment required to recognize minimum liability....................... 1,167 2,695
------- -------
Accrued pension liability.......................................... $11,208 11,149
------- -------
------- -------
</TABLE>
Net pension cost includes the following components (in thousands):
1994 1993 1992
------ ------ -----
Service cost....................................... $2,760 2,375 1,897
Interest cost...................................... 4,277 3,676 3,082
Actual return on assets............................ 535 (1,799) (812)
Net amortization and deferral...................... (1,552) 1,053 101
------ ------ -----
Net pension cost............................. $6,020 5,305 4,268
------ ------ -----
------ ------ -----
The assumptions used in computing the information above were as follows:
1994 1993 1992
---- ---- -------
Weighted average discount rate........................ 8.75% 7.9 8.25
Rate of increase in future compensation levels........ 5.5 5.5 5.5-8.0
Expected long-term rate of return on assets........... 8.5 % 8.5 8.5
---- ---- -------
---- ---- -------
(7) LEASE COMMITMENTS
The Company has operating leases principally for office space, automobiles
and computer equipment. Rent expense on operating leases was $6,489,000 in 1994,
$6,490,000 in 1993 and $6,479,000 in 1992. The future minimum rentals under
noncancellable operating leases in effect as of December 31, 1994 were
$7,023,000 in 1995; $5,995,000 in 1996; $5,067,000 in 1997 and $2,661,000 in
1998.
F-14
<PAGE>
DR PEPPER/SEVEN-UP COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994
(8) RELATED PARTY AND MAJOR CUSTOMER TRANSACTIONS
In October 1993, Cadbury Schweppes plc ("Cadbury") increased its ownership
in the Company to approximately 26% of the outstanding common stock. The Company
currently performs contract manufacturing for an affiliate of Cadbury. For the
years 1994, 1993 and 1992, the Company received $2,104,000, $2,025,000 and
$1,724,000, respectively, for such contract manufacturing services.
A director of the Company also serves as a director of a company engaged in
the business of bottling DR PEPPER brand and 7UP brand beverages. For the years
1994, 1993 and 1992, the Company had sales to the bottling company of
$62,200,000, $56,300,000 and $52,500,000.
Sales to PepsiCo, Inc. owned bottling operations accounted for 13.8%, 13.5%
and 12.3% of consolidated net sales in 1994, 1993 and 1992, respectively.
(9) RECAPITALIZATION TRANSACTIONS
During 1993 and 1992, the Company was involved in certain significant
recapitalization transactions that are described in more detail as follows:
(a) 1993 Public Offering
During 1993, the Company completed an initial public offering of 21,578,313
shares of its common stock resulting in net proceeds to the Company of
approximately $305,400,000. The net proceeds were used to redeem $115,500,000 of
the accreted balance of the Discount Notes, reduce borrowings of $82,500,000
under the Credit Agreement and redeem all of the Redeemable Senior Preferred
Stock. In connection with this transaction, the Company recognized an
extraordinary charge of $14,300,000 resulting from the write-off of deferred
debt issuance costs and the payment of premiums on the redemption of the
Discount Notes.
(b) 1992 Recapitalization
In 1992, the Company completed a recapitalization transaction which included
the issuance of $656,509,000 principal amount (gross proceeds of $375,001,000)
of the Discount Notes and borrowings of $816,000,000 under the Credit Agreement.
The proceeds from the borrowings and approximately $169,900,000 of cash on hand
were used to effect the retirement of certain indebtedness and preferred stock.
In connection with this transaction, the Company recognized an extraordinary
charge of $56,934,000 for payment of call premiums and consents to former
bondholders and the write-off of the unamortized balance of deferred debt
issuance costs.
(c) Other Transactions
During the second quarter of 1992, the Company pursued a recapitalization
plan which included an initial public offering of the Company's common stock. On
July 1, 1992, the Company announced that it had withdrawn its offering and a
charge of $6,026,000 was recorded in 1992 to reflect the costs associated with
this recapitalization effort.
F-15
<PAGE>
DR PEPPER/SEVEN-UP COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994
(10) CONTINGENCIES
(a) Former Headquarters
The Company is a defendant in an action alleging that the Company breached
an oral agreement to lease space in a new office building in connection with the
Company's move of its corporate headquarters. The plaintiff also alleges that
the Company fraudulently misrepresented the existence of asbestos in the
Company's former corporate headquarters building. The plaintiff claims to have
suffered over $31.5 million in actual damages with punitive damages in excess of
$50 million.
Management of the Company intends to vigorously contest the plaintiff's
allegations and believes that the resolution of these matters will not have a
material adverse effect on the Company's financial condition or operating
results.
(b) Internal Revenue Service Matter
The Internal Revenue Service has completed its examination of federal income
tax returns of Dr Pepper Company ("Dr Pepper") and The Seven-Up Company
("Seven-Up"), predecessors in interest to DP/7UP, for the periods ended December
31, 1986, December 31, 1987 and May 19, 1988, and of the Company for the period
ended December 31, 1988. The Company was notified of proposed IRS adjustments
disallowing certain deductions, including substantially all amortization of
intangible assets related to the 1986 acquisitions of Dr Pepper and Seven-Up.
During the second quarter of 1994, the Company accepted a global tax settlement
from the IRS with respect to certain of the proposed adjustments relating to the
deductibility of a portion of intangible assets. As a result of the settlement,
the Company reduced its recorded deferred tax liabilities by approximately $65.0
million. The corresponding effect of this adjustment to deferred tax liabilities
was applied as a reduction of intangible assets for financial reporting
purposes. If the remaining proposed IRS adjustments are sustained, in whole or
in part, the Company's net operating loss carryforwards for federal income tax
purposes would be significantly reduced. The Company is vigorously contesting
the remaining proposed adjustments. Management of the Company believes the
ultimate resolution of the remaining proposed adjustments will not have a
material adverse effect on the Company's financial condition or operating
results.
(c) Other Litigation
The Company and its operating subsidiary, Dr Pepper/Seven-Up Corporation, is
a defendant in various other lawsuits arising out of the ordinary conduct of
their business. In the opinion of management, the resolution of these matters is
not expected to have a material adverse effect upon the Company's consolidated
financial condition or operating results.
(11) SUBSEQUENT EVENT
On January 25, 1995, Cadbury and the Company entered into a merger agreement
pursuant to which Cadbury, through a wholly-owned subsidiary, will make a cash
tender offer of $33 a share for the remaining outstanding shares and share
equivalents of the Company not already owned by Cadbury. The board of directors
of the Company has approved the offer as a Permitted Offer (as defined) under
the Company's Shareholder Rights Plan (see note 5(a)) so that purchase rights do
not become
F-16
<PAGE>
DR PEPPER/SEVEN-UP COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994
(11) SUBSEQUENT EVENT--(CONTINUED)
exercisable under the Shareholder Rights Plan. Consummation of the transaction
is subject to the satisfaction of certain conditions, including approval by
Cadbury shareholders and antitrust approvals.
(12) QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER
-----------------------------------------
FIRST SECOND THIRD FOURTH
-------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
1994:
Net sales.......................................... $185,741 197,389 201,928 183,957
Gross profit....................................... 153,984 164,513 167,806 155,062
Operating profit................................... 47,695 55,265 52,839 47,767
Income before extraordinary item................... 17,696 23,814 21,976 14,213
Net income......................................... 9,584 23,814 20,747 12,374
Income per common share:
Before extraordinary item........................ .26 .36 .30 .21
Net income....................................... $.14 .36 .28 .18
-------- ------- ------- -------
-------- ------- ------- -------
<CAPTION>
QUARTER
-----------------------------------------
FIRST SECOND THIRD FOURTH
-------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
1993:
Net sales.......................................... $170,782 182,523 186,921 167,152
Gross profit....................................... 144,566 151,055 155,346 140,430
Operating profit................................... 43,245 51,854 49,485 38,436
Income before extraordinary item................... 18,012 30,271 24,294 21,547
Net income......................................... 3,111 30,271 23,215 21,328
Income per common share:
Before extraordinary item........................ .31 .46 .37 .32
Net income....................................... $.05 .46 .35 .32
-------- ------- ------- -------
-------- ------- ------- -------
</TABLE>
F-17
<PAGE>
SCHEDULE I
DR PEPPER/SEVEN-UP COMPANIES, INC. AND SUBSIDIARIES
CONDENSED BALANCE SHEETS
DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
1994 1993
--------- --------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Other assets, principally deferred debt issuance costs, less
accumulated amortization of $1,544 in 1994 and $899 in 1993......... $ 5,611 8,294
--------- --------
--------- --------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Deficit investment in Dr Pepper/Seven-Up Corporation, at equity....... $ 97,843 127,203
Long-term debt........................................................ 252,101 301,427
Stockholders' deficit:
Common stock........................................................ 617 608
Additional paid-in capital.......................................... 416,203 406,728
Accumulated deficit................................................. (761,153) (827,672)
--------- --------
(344,333) (420,336)
Less treasury shares, at cost....................................... -- --
Total stockholders' deficit....................................... (344,333) (420,336)
--------- --------
Total liabilities and stockholders' deficit....................... $ 5,611 8,294
--------- --------
--------- --------
</TABLE>
See accompanying notes to condensed financial statements.
F-18
<PAGE>
SCHEDULE I--(CONTINUED)
DR PEPPER/SEVEN-UP COMPANIES, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF OPERATIONS
THREE YEARS ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
1994 1993 1992
-------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Equity in earnings of Dr Pepper/Seven-Up Corporation........ $ 94,246 78,245 33,012
Other income (expense):
Interest expense.......................................... (30,718) (35,126) (71,513)
Other, net................................................ -- (351) 343
-------- ------- --------
Total other income (expense).......................... (30,718) (35,477) (71,170)
-------- ------- --------
Income (loss) before income taxes extraordinary item
and cumulative effect of accounting change.......... 63,528 42,768 (38,158)
Income tax benefit.......................................... (14,171) (51,356) (29,744)
-------- ------- --------
Income (loss) before extraordinary item and cumulative
effect of accounting change............................. 77,699 94,124 (8,414)
Extraordinary item--extinguishment of debt, less applicable
income taxes................................................ 11,180 16,199 56,934
Cumulative effect of accounting change...................... -- -- 74,800
Net income (loss)..................................... 66,519 77,925 (140,148)
Preferred stock dividend requirements....................... -- -- 12,941
-------- ------- --------
Net income (loss) attributable to outstanding common
stock....................................................... $ 66,519 77,925 (153,089)
-------- ------- --------
-------- ------- --------
Income (loss) per common share:
Income (loss) before extraordinary item and cumulative
effect of accounting change............................. $ 1.13 1.46 (.60)
Extraordinary item........................................ (.17) (.25) (1.60)
Cumulative effect of accounting change.................... -- -- (2.11)
-------- ------- --------
Net income (loss)..................................... $ 0.96 1.21 (4.31)
-------- ------- --------
-------- ------- --------
</TABLE>
See accompanying notes to condensed financial statements.
F-19
<PAGE>
SCHEDULE I--(CONTINUED)
DR PEPPER/SEVEN-UP COMPANIES, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CASH FLOWS
THREE YEARS ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).......................................... $ 66,519 77,925 (140,148)
Amortization of debt discounts and deferred debt issuance
costs........................................................ 30,718 35,126 65,302
Debt restructuring charge.................................. 2,039 3,790 6,104
Income taxes............................................... (14,171) (51,356) (31,411)
Equity in undistributed (earnings) losses of Dr Pepper/
Seven-Up Corporation..................................... (94,246) (73,125) 91,102
-------- -------- --------
Net cash used in operating activities.................. (9,141) (7,640) (9,051)
-------- -------- --------
Cash flows from investing activities:
Sales of marketable securities with maturities less than
three months, net........................................ -- -- 31,166
Purchases of marketable securities......................... -- -- (312,108)
Sales of marketable securities............................. -- -- 366,733
Decrease in long-term note receivable from Dr Pepper/
Seven-Up Corporation..................................... -- -- 6,501
-------- -------- --------
Net cash provided by investing activities.............. -- -- 92,292
-------- -------- --------
Cash flows from financing activities:
Proceeds from long-term debt............................... -- -- 375,001
Payments on long-term debt................................. (79,400) (115,512) (543,738)
Payment of refinancing costs............................... -- -- (12,725)
Proceeds from sale of common stock......................... -- 305,366 --
Advances (to) from Dr Pepper/Seven Up Corporation.......... 91,340 (84,622) 97,633
Repurchase of preferred stock.............................. (1,909) (98,383) --
Other...................................................... (890) 791 588
-------- -------- --------
Net cash provided by (used in) financing activities.... 9,141 7,640 (83,241)
-------- -------- --------
Net change in cash and cash equivalents...................... -- -- --
Cash and cash equivalents at beginning of year............... -- -- --
-------- -------- --------
Cash and cash equivalents at end of year..................... $ -- -- --
-------- -------- --------
-------- -------- --------
</TABLE>
See accompanying notes to condensed financial statements.
F-20
<PAGE>
SCHEDULE I--(CONTINUED)
DR PEPPER/SEVEN-UP COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 1994
(1) GENERAL
The accompanying condensed financial statements of Dr Pepper/Seven-Up
Companies, Inc. (Company) should be read in conjunction with the consolidated
financial statements of the Company included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1994.
(2) INVESTMENTS
The Company's investments in Dr Pepper/Seven-Up Corporation (DP/7UP)
includes cumulative advances from DP/7UP of $104,821,000 at December 31, 1994.
(3) OBLIGATIONS, GUARANTEES AND COMMITMENTS
As of December 31, 1994, the Company had long-term debt of $252,101,000 in
the form of 11 1/2% Senior Subordinated Discount Notes due 2002. In addition,
the Company has guaranteed the obligations under DP/7UP Credit Agreement. See
note 3 to the consolidated financial statements regarding these obligations.
Also see notes 6, 7 and 10 to the consolidated financial statements of the
Company.
F-21
<PAGE>
SCHEDULE II
DR PEPPER/SEVEN-UP COMPANIES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING OF COSTS AND OTHER AT END
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTION OF PERIOD
- ---------------------------------------- ------------ ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1994:
Allowance for doubtful accounts....... $ 1,737 106 -- 175 1,668
------------ ---------- ---------- --------- ---------
------------ ---------- ---------- --------- ---------
Accumulated amortization of intangible
assets.................................. $111,434 13,104 -- -- 124,538
------------ ---------- ---------- --------- ---------
------------ ---------- ---------- --------- ---------
Accumulated amortization of deferred
debt issuance costs..................... $ 8,711 7,871 -- -- 16,582
------------ ---------- ---------- --------- ---------
------------ ---------- ---------- --------- ---------
Year ended December 31, 1993:
Allowance for doubtful accounts....... $ 1,573 274 -- 110 1,737
------------ ---------- ---------- --------- ---------
------------ ---------- ---------- --------- ---------
Accumulated amortization of intangible
assets.................................. $ 96,357 15,077 -- -- 111,434
------------ ---------- ---------- --------- ---------
------------ ---------- ---------- --------- ---------
Accumulated amortization of deferred
debt issuance costs..................... $ 1,508 7,203 -- -- 8,711
------------ ---------- ---------- --------- ---------
------------ ---------- ---------- --------- ---------
Year ended December 31, 1992:
Allowance for doubtful accounts....... $ 1,466 399 -- 292 1,573
------------ ---------- ---------- --------- ---------
------------ ---------- ---------- --------- ---------
Accumulated amortization of intangible
assets.................................. $ 81,245 15,112 -- -- 96,357
------------ ---------- ---------- --------- ---------
------------ ---------- ---------- --------- ---------
Accumulated amortization of deferred
debt issuance costs..................... $ 31,317 8,484 -- 38,293(1) 1,508
------------ ---------- ---------- --------- ---------
------------ ---------- ---------- --------- ---------
</TABLE>
- ------------
(1) Represents write-off of the accumulated amortization of deferred debt
issuance costs in connection with extinguishments of debt.
F-22
EXHIBIT 10.21.1
AMENDMENT TO EXECUTIVE SEVERANCE AGREEMENT
This Amendment, dated as of February 23, 1995 (the "Amendment") is between
Dr Pepper/ Seven-Up Companies, Inc., a Delaware corporation (the "Company") and
John R. Albers (the "Executive").
WITNESSETH
WHEREAS, the Company and the Executive are parties to an Executive Severance
Agreement dated as of August 27, 1991, as heretofore amended (the "Agreeent");
and
WHEREAS, the Company, Cadbury Schweppes plc, an English company, and DP/SU
Acquisition Inc., a Delaware corporation, have entered into an Agreement and
Plan of Merger dated as of January 25, 1995 (the "Merger Agreement"); and
WHEREAS, the Merger Agreement provides that the Agreement be amended as set
forth below; and
WHEREAS, the Company and the Executive desire to amend the Agreement as set
forth below.
NOW, THEREFORE, in consideration of the premises and mutual agreements
herein set forth, the parties hereby agree as follows:
SECTION 1. Amendment to Paragraph 5(b)(iii). The definition of "Good Reason"
is amended by amending subparagraphs (F) and (G) and adding new subparagraph (H)
to such definition:
(F) Any failure of the Company to obtain the express written assumption
of the obligation to perform this Agreement by any successor as contemplated
by paragraph 7;
(G) Any breach by the Company of any of the provisions of this
Agreement, any employment agreement between the Company and the Executive,
or any failure by the Company to carry out any of its obligations hereunder;
or
(H) Any other event or reason for which the Executive in his sole
discretion may choose to resign.
SECTION 2. Severability. If any term, provision, covenant or restriction of
this Amendment is held by a court of competent jurisdiction or other authority
to be invalid, void or unenforceable, the remainder of the terms, provisions,
convenants and restrictions of this Amendment shall remain in full force and
effect and shall in no way be affected, impaired of invalidated.
SECTION 3. Governing Law. THIS AMENDMENT SHALL BE DEEMED TO BE A CONTRACT
UNDER THE LAWS OF THE STATE OF TEXAS AND FOR ALL PURPOSES SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF SUCH STATE APPLICABLE TO CONTRACTS
MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE.
SECTION 4. Counterparts. This Amendment may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
SECTION 5. Effect of Amendment. Except as expressly modified herein, the
Agreement shall remain in full force and effect.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly
executed as of the day and year first above written.
DR PEPPER/SEVEN-UP COMPANIES, INC.
By:
......................................
Nelson A. Banks
Vice President and General Counsel
EXECUTIVE
..........................................
John R. Albers
EXHIBIT 10.22.1
AMENDMENT TO EXECUTIVE SEVERANCE AGREEMENT
This Amendment, dated as of February 23, 1995 (the "Amendment") is between
Dr Pepper/ Seven-Up Companies, Inc., a Delaware corporation (the "Company") and
Ira M. Rosenstein (the "Executive").
WITNESSETH
WHEREAS, the Company and the Executive are parties to an Executive Severance
Agreement dated as of August 27, 1991, as heretofore amended (the "Agreement");
and
WHEREAS, the Company, Cadbury Schweppes plc, an English company, and DP/SU
Acquisition Inc., a Delaware corporation, have entered into an Agreement and
Plan of Merger dated as of January 25, 1995 (the "Merger Agreement"); and
WHEREAS, the Merger Agreement provides that the Agreement be amended as set
forth below; and
WHEREAS, the Company and the Executive desire to amend the Agreement as set
forth below.
NOW, THEREFORE, in consideration of the premises and mutual agreements
herein set forth, the parties hereby agree as follows:
SECTION 1. Amendment to Paragraph 5(b)(iii). The definition of "Good Reason"
is amended by amending subparagraphs (F) and (G) and adding new subparagraph (H)
to such definition:
(F) Any failure of the Company to obtain the express written assumption
of the obligation to perform this Agreement by any successor as contemplated
by paragraph 7;
(G) Any breach by the Company of any of the provisions of this
Agreement, any employment agreement between the Company and the Executive,
or any failure by the Company to carry out any of its obligations hereunder;
or
(H) Any other event or reason for which the Executive in his sole
discretion may choose to resign.
SECTION 2. Severability. If any term, provision, covenant or restriction of
this Amendment is held by a court of competent jurisdiction or other authority
to be invalid, void or unenforceable, the remainder of the terms, provisions,
convenants and restrictions of this Amendment shall remain in full force and
effect and shall in no way be affected, impaired of invalidated.
SECTION 3. Governing Law. THIS AMENDMENT SHALL BE DEEMED TO BE A CONTRACT
UNDER THE LAWS OF THE STATE OF TEXAS AND FOR ALL PURPOSES SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF SUCH STATE APPLICABLE TO CONTRACTS
MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE.
SECTION 4. Counterparts. This Amendment may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
SECTION 5. Effect of Amendment. Except as expressly modified herein, the
Agreement shall remain in full force and effect.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly
executed as of the day and year first above written.
DR PEPPER/SEVEN-UP COMPANIES, INC.
By:
..................................
Nelson A. Bangs
Vice President and General Counsel
EXECUTIVE
......................................
Ira M. Rosenstein
EXHIBIT 10.39
March 15, 1994
1
Dr Pepper/Seven-Up Companies, Inc.
Dear 2:
We are pleased to inform you of your selection to participate in the 1994
Performance Award Plan of the Dr Pepper/Seven-Up Corporation (the
"Corporation"). This Performance Award Plan (the "Plan") is designed to permit
certain key employees an opportunity to augment their annual base salary
compensation through cash bonus payments for assisting the Corporation in
meeting and/or exceeding certain specified annual objectives.
This is an annual Plan which will be operated only during the 1994 calendar
year. The Plan is not automatically renewable. This letter deals only with
arrangements with you for the performance period from January 1, 1994 through
December 31, 1994.
For achievement of the planned 1994 objectives of the Corporation, as described
below, you will earn a performance award bonus (hereinafter the "Bonus" or
"Bonuses") based upon the following criteria.
1. The basis upon which your Bonus, if any, under the Plan will be
determined is by the combined 1994 Corporate Fountain/Foodservice
planned sales volume for your area of 3 gallons (the "Goal"), as
follows.
<TABLE>
<S> <C> <C>
Formula:
% Achievement of 1994 Goal
- ---------------------------------------------------------------------------------------
95% 100% 100%+
Percent of Base Salary* Earned
- ---------------------------------------------------------------------------------------
10% 15% Additional 1% for each
percentage point above
plan to a maximum
of 30% of annual salary.
* Determined as of December 31, 1994
</TABLE>
2. 100% of the Performance Award will be based on achievement of planned
sales volume. The maximum Award will be 30% of annual salary.
Achievement levels are graduated upward by full percentage points. For
example, achievement of 100.8% of plan will be paid as achievement of
100%.
All Bonuses under the Plan will be reviewed by the Chief Executive Officer of
the Corporation and evaluated on the following criteria: expense control, policy
management, and general professional presentation.
<PAGE>
PLAN RULES AND RESTRICTIONS:
The implementation and interpretation of the Plan and the decision to pay any
Bonuses thereunder shall be at the sole discretion of the Corporation. The
Corporation reserves the right to amend the Plan, including individual
objectives and payment schedules during the 1994 calendar year or at any time
prior to paying any Bonuses to participants under the Plan. The sole right to
cancel the Plan or any Bonuses thereunder is also reserved by The Corporation.
Any participant that enters the Plan after the first month of the Calendar year,
whether through new hire or new job assignment, will have the Bonus payment
prorated from the date of entrance into the Plan. The specific conditions of the
Plan are as follows:
1. The final results of this Plan will be approved by the Chief Executive
Officer of the Corporation. Plan participants may not negotiate,
interpret, or contest such results.
2. Payment of all Bonuses will be made within 30 days of the date the
performance data is approved by the Chief Executive Officer of the
Corporation.
3. If you are transferred, change job titles or receive a new job
assignment within The Corporation during 1994, consideration will be
given for the payment of a prorated Bonus payment under the Plan based
on the number of months you held your previous position when compared
to the achieved results for that position for the full 1994 calendar
year. If you are assigned a new job which qualifies for participation
in the Plan, you will be notified at that time with confirmation in
writing.
4. Termination of employment from The Corporation for any reason, other
than death or disability, prior to December 31, 1994, terminates an
individual's eligibility under the Plan and no payment will be made to
said individual, unless authorized by the Chief Executive Officer of
The Corporation.
5. If you are disabled or otherwise require an approved leave of absence
during the year, Bonuses will be paid at the sole discretion of the
Chief Executive Officer of The Corporation.
6. In the case of your death, The Corporation will review your individual
circumstances for consideration of payment of any Bonus.
7. This Plan and its provisions must be held strictly confidential by
you. Except as provided in the immediately succeeding sentence,
disclosure of this Plan or any confidential information in connection
therewith to any person or firm shall result in the termination of
your participation in the Plan if The Corporation, in its sole
discretion, deems such termination necessary. You may discuss the Plan
and your participation therein in confidence with your immediate
supervisor as well as The Corporation's Director of Human Resources
and his designated Plan Administrator.
8. By signing this letter, you acknowledge (i) your understanding and
agreement to the provisions of this Plan and (ii) that any Bonus
payments thereunder are solely within the discretion of The
Corporation.
9. Please return one copy of the signed letter to the Human Resources
Department for our records.
.................................... ....................................
John R. Albers Plan Participant
Chief Executive Officer
2
EXHIBIT 22
DR PEPPER/SEVEN-UP COMPANIES, INC.
SUBSIDIARIES OF REGISTRANT
<TABLE>
<CAPTION>
NAME STATE OF INCORPORATION
- ---------------------------------------------- ----------------------------------------------
<S> <C>
Dr Pepper/Seven-Up Corporation................ Delaware
</TABLE>
EXHIBIT 24.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
DR PEPPER/SEVEN-UP COMPANIES, INC.:
We consent to incorporation by reference in the registration statement (No.
33-69404) on Form S-8 of Dr Pepper/Seven-Up Companies, Inc. of our report dated
February 10, 1995, relating to the consolidated balance sheets of Dr
Pepper/Seven-Up Companies, Inc. and subsidiaries as of December 31, 1994 and
1993, and the related consolidated statements of operations, stockholders'
deficit and cash flows and related schedules for each of the years in the
three-year period ended December 31, 1994, which report appears in the December
31, 1994 annual report on Form 10-K of Dr Pepper/Seven-Up Companies, Inc. Our
report refers to a change in the method of accounting for income taxes.
KPMG PEAT MARWICK LLP
Dallas, Texas
March 30, 1995
