<PAGE> 1
Filed Pursuant to Rule 424(b)(3)
Registration Nos. 333-33225,
333-33225-01, 333-33225-02
333-33225-03, 333-33225-04
333-33225-05 and 333-33225-06
PROSPECTUS
[AMERISERVE LOGO]
AmeriServe Food Distribution, Inc.
10 1/8% New Senior Subordinated Notes Due 2007
------------------------
The 10 1/8% New Senior Subordinated Notes due 2007 (the "New Senior
Subordinated New Notes" or "New Notes") were issued in exchange for the 10 1/8%
Senior Subordinated Notes due 2007 (the "Senior Subordinated Notes" or "Notes")
by AmeriServe Food Distribution, Inc. (the "Company"), a Nebraska corporation.
The New Notes are fully and unconditionally guaranteed on a senior subordinated
basis by, and are joint and several obligations of, AmeriServ Food Company, a
Delaware corporation and a subsidiary of the Company, AmeriServe
Transportation, Inc., a Nebraska corporation and a subsidiary of the Company,
Chicago Consolidated Corporation, an Illinois corporation and a subsidiary of
the Company, Northland Transportation Services, Inc., a Nebraska corporation
and a subsidiary of the Company, The Harry H. Post Company, a Colorado
corporation and a subsidiary of the Company, and Delta Transportation, Ltd., a
Wisconsin corporation and a subsidiary of the company (the "Subsidiary
Guarantors"). See "Description of New Notes."
The New Senior Subordinated Notes bear interest from July 11, 1997, the
date of issuance of the Senior Subordinated Notes that are tendered in exchange
for the New Senior Subordinated Notes (or the most recent Interest Payment Date
(as defined herein) to which interest on such Notes has been paid), at a rate
equal to 10 1/8% per annum. Interest on the New Senior Subordinated Notes will
be payable semiannually on January 15 and July 15 of each year, commencing
January 15, 1998.
The New Notes are redeemable at the option of the Company, in whole or in
part, at any time on or after July 15, 2002 in cash at the redemption prices set
forth herein, plus accrued and unpaid interest and liquidated damages, if any,
thereon to the date of redemption. Prior to July 15, 2000, up to 33% of the
initially outstanding aggregate principal amount of New Senior Subordinated
Notes will be redeemable at the option of the Company, on one or more occasions,
from the net proceeds of public or private sales of common stock of, or
contributions to the common equity capital of, the Company, at a price of
110.125% of the principal amount of the New Senior Subordinated Notes, together
with accrued and unpaid interest, and liquidated damages, if any, to the date of
redemption; provided that at least 67% of the initially outstanding aggregate
principal amount of New Senior Subordinated Notes remains outstanding
immediately after such redemption. Upon the occurrence of a Change of Control
(as defined herein), each Holder of New Notes may require the Company to
repurchase all or a portion of such Holder's New Notes at 101% of the aggregate
principal amount of the New Senior Subordinated Notes, together with accrued and
unpaid interest, and Liquidated Damages, if any, to the date of repurchase. See
"Risk Factors -- Payment Upon a Change of Control" and "Description of New
Notes -- Repurchase at the Option of Holders."
The New Notes are general, unsecured obligations of the Company, are
subordinated to all Senior Debt and rank senior or pari passu in right of
payment to all existing and future subordinated indebtedness of the Company. The
claims of holders of the New Notes are subordinate to the Senior Debt, which, as
of June 28, 1997, on a pro forma basis, after giving effect to the Transactions
and the Refinancing (each, as defined herein), would have been approximately
$374.1 million. See "Capitalization."
------------------------
SEE "RISK FACTORS," COMMENCING ON PAGE 10, FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE NEW
NOTES.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
This Prospectus is to be used by Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJ") and BancAmerica Robertson Stephens ("BancAmerica Robertson
Stephens") in connection with the offers and sales in market-making transactions
at negotiated prices related to prevailing market prices at the time of sale.
The Company does not intend to list the New Notes on any securities exchange or
to seek admission thereof to trading in the National Association of Securities
Dealers Automated Quotation System. DLJ and BancAmerica have advised the Company
that they intend to make a market in the New Notes; however, they are not
obligated to do so and any market-making may be discontinued at any time. The
Company will receive no portion of the proceeds of the sale of the New Notes and
will bear expenses incident to the registration thereof.
DONALDSON, LUFKIN & JENRETTE BANCAMERICA ROBERTSON STEPHENS
SECURITIES CORPORATION
------------------------
The date of this Prospectus is December 11, 1997.
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No dealer, salesperson or other person has been authorized to give
information or to make any representations not contained in this Prospectus,
and, if given or made, such information or representations must not be relied
upon as having been authorized by the Company, DLJ or BancAmerica. This
Prospectus does not constitute an offer to sell or the solicitation of an offer
to buy any security other than the New Notes offered hereby, nor does it
constitute an offer to sell or the solicitation of an offer to buy any of the
New Notes to any person in any jurisdiction in which it is unlawful to make such
an offer or solicitation to such person. Neither the delivery of this Prospectus
nor any sale made hereunder shall under any circumstances create any implication
that the information contained herein is correct as of any date subsequent to
the date hereof.
AVAILABLE INFORMATION
The Company and the Subsidiary Guarantors have filed with the Securities
and Exchange Commission ("SEC") a Registration Statement on Form S-4 under the
Securities Act for the registration of the New Notes offered hereby (the
"Registration Statement"). This Prospectus, which constitutes a part of the
Registration Statement, does not contain all of the information set forth in the
Registration Statement, certain items of which are contained in exhibits and
schedules to the Registration Statement as permitted by the rules and
regulations of the SEC. For further information with respect to the Company or
the New Notes offered hereby, reference is made to the Registration Statement,
including the exhibits and financial statement schedules thereto, which may be
inspected without charge at the public reference facility maintained by the SEC
at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and copies of
which may be obtained from the SEC at prescribed rates. Statements made in this
Prospectus concerning the contents of any document referred to herein are not
necessarily complete. With respect to each such document filed with the SEC as
an exhibit to the Registration Statement, reference is made to the exhibit for a
more complete description of the matter involved, and each such statement shall
be deemed qualified in its entirety by such reference.
Upon the effectiveness of the Registration Statement, the Company became
subject to the information requirements of the Securities Exchange Act of 1934
(the "Exchange Act"), and in accordance therewith will file reports and other
information with the SEC. Such reports and other information filed by the
Company can be inspected and copied at the public reference facilities of the
SEC at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, at the Website
(http://www.sec.gov) maintained by the SEC, and the regional offices of the SEC
located at 7 World Trade Center, 13th Floor, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, 14th Floor, Chicago, Illinois 60661.
Copies of such materials may be obtained from the Public Reference Section of
the SEC, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at
its public reference facilities in New York, New York and Chicago, Illinois at
prescribed rates.
So long as the Company is subject to the periodic reporting requirements of
the Exchange Act, it is required to furnish the information required to be filed
with the SEC to (i) State Street Bank and Trust Company as trustee (the "Senior
Subordinated Note Trustee"), under the Indenture dated as of July 11, 1997 (the
"Senior Subordinated Note Indenture") among the Company, the Subsidiary
Guarantors and the Senior Subordinated Note Trustee, pursuant to which the
outstanding 10 1/8% Senior Subordinated Notes due 2007 of the Company (the
"Senior Subordinated Notes") were, and the New Senior Subordinated Notes will
be, issued and (ii) the holders of the Notes and the New Notes. The Company has
agreed that, even if they are not required under the Exchange Act to furnish
such information to the SEC, they will nonetheless continue to furnish
information that would be required to be furnished by the Company by Section 13
of the Exchange Act to the Trustees and the holders of the Notes or New Notes as
if they were subject to such periodic reporting requirements.
In addition, the Company and the Subsidiary Guarantors have agreed that for
so long as any of the New Notes remain outstanding, they will make available to
any prospective purchaser of the New Notes or Holder of the New Notes in
connection with any sale thereof, the information required by Rule 144A(d)(4)
under the Securities Act.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to and
should be read in conjunction with the more detailed information and financial
statements, including the notes thereto, appearing elsewhere in this Prospectus.
Unless otherwise indicated, all references in this Prospectus to the Company's
business and pro forma data give effect to the transactions described below. An
index of certain defined terms used herein can be found on page 99. Unless the
context indicates or otherwise requires, references in this Prospectus to the
"Company" or "AmeriServe" are to AmeriServe Food Distribution, Inc., its
predecessors and its subsidiaries, and give effect to the acquisition of PFS and
the contribution of The Harry H. Post Company ("Post"), each as described below,
and references to "NEHC" are to Nebco Evans Holding Company, a Delaware
corporation and the parent of the Company.
THE COMPANY
AmeriServe is North America's largest systems foodservice distributor
specializing in distribution to chain restaurants, the fastest growing segment
of the domestic restaurant industry. The Company is the primary supplier to its
customers of a wide variety of items, including fresh and frozen meat and
poultry, seafood, frozen foods, canned and dry goods, fresh and pre-processed
produce, beverages, dairy products, paper goods, cleaning supplies and
equipment. The Company serves over 30 different restaurant chains and over
26,500 restaurant locations in North America. The Company has had long-standing
relationships with such leading restaurant concepts as Pizza Hut, Taco Bell,
KFC, Wendy's, Burger King, Dairy Queen, Subway and Applebee's. The Company's
strategy is to capitalize on its market leading position, compelling industry
trends and management's extensive experience to: (i) pursue profitable internal
and external growth opportunities; (ii) capitalize on its nationwide network of
distribution centers to increase customer density and regional market
penetration; (iii) continue to provide low cost, superior customer service; and
(iv) maximize operating leverage by pursuing selective acquisitions within the
fragmented foodservice distribution industry. For the fiscal year ended December
28, 1996, the Company generated pro forma net sales, pro forma EBITDA and pro
forma net loss of $4.9 billion, $126.7 million and $1.9 million, respectively.
The Company has achieved a record of strong growth in net sales and EBITDA
by successfully implementing this strategy. From 1992 to 1996, exclusive of PFS,
the Company's net sales increased from $293.6 million to $1.3 billion,
representing a compound annual growth rate ("CAGR") of 44.5%. During the same
period, the Company's EBITDA, exclusive of PFS, increased from $6.0 million to
$26.0 million, representing a CAGR of 44.1%. The Company believes it is well
positioned to continue to expand its presence in the systems foodservice
distribution industry as a result of its reputation for providing superior
customer service as well as its ability to provide low cost, efficient services.
The Company believes that it was primarily as a result of these factors that in
January 1997 it was awarded a three-year exclusive contract effective April 1997
to provide foodservice distribution to approximately 2,600 Arby's restaurants.
The Company estimates that this contract, which management believes represents
the single largest customer migration in the systems foodservice distribution
industry, will result in the addition of approximately $325 million of net sales
in the first 12 months of such contract.
On July 11, 1997, in furtherance of its strategy, NEHC acquired PFS, the
foodservice distribution business ("PFS") of PepsiCo, Inc. ("PepsiCo") (the
"Acquisition"). Prior to the Acquisition, PFS was North America's second largest
systems foodservice distributor, serving over 17,000 restaurants in the Pizza
Hut, Taco Bell and KFC restaurant systems. The Company expects to realize
significant benefits from the Acquisition, including: (i) enhanced customer and
concept diversification; (ii) increased customer density; (iii) broadened
national and international presence; and (iv) substantial cost savings and
economies of scale. In addition, in connection with the Acquisition, the Company
has entered into the Distribution Agreement whereby it will be the exclusive
distributor of selected products for five years to the approximately 9,800 Pizza
3
<PAGE> 4
Hut, Taco Bell and KFC restaurants in the continental United States owned by
PepsiCo and previously serviced by PFS. These restaurants accounted for
approximately 68% of PFS's 1996 net sales and 44% of the Company's 1996 pro
forma net sales after giving effect to the Arby's contract.
The Company believes it is well positioned to capitalize on the attractive
characteristics of the chain restaurant segment of the foodservice distribution
industry, which include: (i) the high growth rate of the segment, which
experienced an approximately 7.4% net sales CAGR from 1985 to 1995; (ii) the
uniformity of product offerings and consistency of demand by chain restaurant
customers; (iii) the increased focus by chain restaurants on foodservice
distributors that can provide consistent quality, reliable service and value on
a nationwide basis to maintain the chain's uniform standards; and (iv) the
fragmented nature of the industry, which includes over 3,000 foodservice
distribution companies. As the largest systems foodservice distributor serving
chain restaurants, the Company believes it is better positioned than its
competitors to offer consistent quality, reliable service and value on a
national scale in order to accommodate the growth of each customer.
COMPETITIVE ADVANTAGES
The Company believes that it will benefit from the following competitive
advantages:
- Market Leader with a Nationwide Presence. As a result of its national
presence, the Company believes it is one of the few systems foodservice
distributors capable of effectively serving large national accounts. The
Company believes it has significant advantages over smaller, regional
foodservice distributors as a result of its ability to: (i) derive
significant economies of scale in operating and distribution expenses;
(ii) benefit from increased purchasing power; (iii) make significant
investments in advanced technology and equipment, which enhance
productivity and customer service; and (iv) provide superior customer
service on a national scale.
- Low Cost Structure. The Company believes that it is uniquely positioned
to provide distribution services to chain restaurants at attractive
prices while also providing superior customer service. A critical
component of the Company's ability to reduce costs is the Company's
effective management of its warehouse and distribution costs, primarily
as a result of: (i) utilizing fewer, larger distribution centers within
each of its geographic regions; and (ii) maximizing customer density
within each region it serves. Furthermore, the Company has made
significant investments in advanced distribution centers, transportation
equipment and information technology, which enable it to efficiently
serve its customers.
- Stable Customer Base. The Company services over 26,500 restaurant
locations within more than 30 different restaurant concepts. The Company
believes it has among the best relationships with its customers of any
systems foodservice distributor as evidenced by the length and stability
of such relationships. For example, as a result of its ability to provide
high quality service at attractive rates, the Company has developed
long-standing relationships with many of the leading restaurant concepts,
including Dairy Queen (customer for 46 years), Burger King (customer for
36 years), KFC (customer for 26 years), Wendy's (customer for 21 years),
Pizza Hut (customer for 20 years) and Taco Bell (customer for 18 years).
- Experienced Management Team. The Company's management team has extensive
experience in the systems foodservice distribution business and has
developed long-standing relationships with franchisees and senior
management of successful concepts. The top four senior executives of the
Company have an average of approximately 24 years of experience with the
Company. In addition, prior to the Acquisition, the Company's management
team has successfully integrated five acquisitions since 1990,
representing approximately $1.2 billion in aggregate annual sales.
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<PAGE> 5
BUSINESS STRATEGY
The Company's objective is to continue to increase net sales and EBITDA by
implementing the following key elements of its business strategy:
- Continue to Pursue Internal and External Growth Opportunities. The
Company intends to continue to grow through a combination of the
development of new business from existing customers, the addition of new
chains, international expansion and selective acquisitions.
- Capitalize on the Benefits of the PFS Acquisition. Management believes
that combining the operations of AmeriServe and PFS will present it with
opportunities to eliminate duplicative costs and realign the Company's
distribution center network to capitalize effectively on economies of
scale and the benefits of higher customer density.
- Continue to Maximize Operating Leverage. As the largest systems
foodservice distributor in North America, the Company pursues a low-cost
operating strategy based primarily on achieving economies of scale in the
areas of warehousing, transportation, general and administrative
functions and management information systems.
- Continue to Provide Superior Customer Service. The Company believes it
enjoys a reputation for providing consistent, high quality service based
on its customer focus, its commitment to service excellence and the depth
of its management team.
THE TRANSACTIONS
In connection with the Acquisition, the Company: (i) consummated the Note
Offering (as defined herein); (ii) entered into the New Credit Facility (as
defined herein); (iii) established the Accounts Receivable Program (as defined
herein); (iv) received the Equity Contribution (as defined herein); (v) effected
the Preferred Stock Contribution (as defined herein); and (vi) consummated the
Post Contribution (as defined herein) (collectively, the "Transactions"). See
"The Transactions," "Description of Indebtedness" and "Certain Relationships and
Related Party Transactions."
THE REFINANCING
On October 15, 1997, the Company completed the offering (the "Senior Notes
Offering") and sale of its 8 7/8% Senior Notes due 2006 (the "Senior Notes") in
transactions not registered under the Securities Act in reliance upon the
exemption provided in Section 4(2) of the Securities Act. The Senior Notes
Offering was completed as part of the refinancing of certain outstanding term
indebtedness of the Company incurred under the New Credit Facility in connection
with the Acquisition to, among other things, (i) extend the maturity of those
borrowings, (ii) fix the interest rate of those borrowings at a rate believed by
the Company to be attractive for fixed rate financing, and (iii) provide the
Company with additional cash to be utilized for working capital and to fund
possible future acquisitions (collectively, the "Refinancing"). See "The
Refinancing," "The Business -- Business Strategy," "Description of the
Indebtedness -- New Credit Facility" and "-- 8 7/8% Senior Notes due 2006."
------------------------
The Company's principal executive offices are located at 17975 West Sarah
Lane, Suite 100, Brookfield, Wisconsin 53045 and its telephone number is (414)
792-9300.
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SUMMARY OF TERMS OF NEW NOTES
The form and terms of the New Notes are the same as the form and terms of
the Notes (which they have replaced) except that (i) the New Notes have been
registered under the Securities Act and, therefore, do not bear legends
restricting the transfer thereof and (ii) the Holders of the New Notes generally
are not entitled to further registration rights under the Registration Rights
Agreement, which rights generally were satisfied when the Exchange Offer was
consummated. The New Notes evidence the same debt as the Notes and are entitled
to the benefits of the Indenture. See "Description of New Notes."
THE COMPANY................ AmeriServe Food Distribution, Inc.
MATURITY DATE.............. July 15, 2007.
SECURITIES OFFERED......... $500,000,000 principal amount of 10 1/8% New Senior
Subordinated Notes.
INTEREST RATE.............. The New Notes bear interest at the rate of 10 1/8%
per annum, payable semi-annually on January 15 and
July 15 of each year, commencing January 15, 1998.
SUBORDINATION.............. The New Notes are general unsecured obligations of
the Company, rank subordinate in right of payment
to all Senior Debt and rank senior or pari passu in
right of payment to all existing and future
subordinated indebtedness of the Company. The New
Notes are fully and unconditionally guaranteed on a
senior subordinated basis by the Subsidiary
Guarantors. The New Note Guarantees (as defined
herein) are general unsecured obligations of the
Subsidiary Guarantors, rank subordinate in right of
payment to all Senior Debt of the Subsidiary
Guarantors and rank senior or pari passu in right
of payment to all existing and future subordinated
indebtedness of the Subsidiary Guarantors. The New
Note Guarantees are joint and several obligations
of the Subsidiary Guarantors. As of June 28, 1997,
on a pro forma basis, after giving effect to the
Transactions and the Refinancing, the New Notes
would have been subordinate to $374.1 million of
Senior Debt. See "Risk Factors -- Subordination."
OPTIONAL REDEMPTION........ The New Notes are redeemable at the option of the
Company, in whole or in part, at any time on or
after July 15, 2002 in cash at the redemption
prices set forth herein, plus accrued and unpaid
interest and liquidated damages, if any, thereon to
the date of redemption. In addition, at any time
prior to July 15, 2000, the Company may redeem up
to 33% of the initially outstanding aggregate
principal amount of New Notes at a redemption price
equal to 110.125% of the principal amount thereof,
plus accrued and unpaid interest and liquidated
damages, if any, thereon to the redemption date,
with the net proceeds of a Public Equity Offering;
provided that, in each case, at least 67% of the
initially outstanding aggregate principal amount of
New Notes remains outstanding immediately after the
occurrence of any such redemption. See "Description
of New Notes -- Optional Redemption."
CHANGE OF CONTROL.......... Upon the occurrence of a Change of Control, each
holder of New Notes has the right to require the
Company to repurchase all or any part of such
holder's New Notes at an offer price in cash equal
to 101% of the aggregate principal amount thereof,
plus accrued and unpaid interest and liquidated
damages, if any, thereon to the date of repurchase.
See "Description of New Notes -- Repurchase at the
Option of Holders -- Change of Control." There can
be no assurance that, in the event of a Change of
Control, the Company would have sufficient funds to
repur-
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chase all New Notes tendered. See "Risk
Factors -- Payment Upon a Change of Control."
NEW NOTE GUARANTEES........ The New Notes are fully and unconditionally
guaranteed on a senior subordinated basis by, and
are joint and several obligations of, the
Subsidiary Guarantors.
CERTAIN COVENANTS.......... The Indenture contains certain covenants that
limit, among other things, the ability of the
Company to: (i) pay dividends, redeem capital stock
or make certain other restricted payments or
investments; (ii) incur additional indebtedness or
issue preferred equity interests; (iii) merge,
consolidate or sell all or substantially all of its
assets; (iv) create liens on assets; and (v) enter
into certain transactions with affiliates or
related persons. See "Description of New
Notes -- Certain Covenants."
FORM AND DENOMINATION...... The certificates representing the New Notes are
issued in fully registered form, deposited with a
custodian for and registered in the name of a
nominee of the Depository in the form of a Global
New Note certificate. Beneficial interests in the
certificates representing the Global New Note are
shown on, and transfers thereof are effected
through, records maintained by the Depository and
its Participants. See "Book Entry, Delivery and
Form."
EXCHANGE OFFER;
REGISTRATION RIGHTS........ If any Holder of an aggregate of at least $2.0
million in principal amount of Notes notifies the
Company within 20 business days of the consummation
of the Exchange Offer that (A) such Holder is
prohibited by law or SEC policy from participating
in the Exchange Offer, or (B) such Holder may not
resell the New Notes acquired by it in the Exchange
Offer to the public without delivering a prospectus
and the Prospectus contained in the Exchange Offer
Registration Statement is not appropriate or
available for such resales by such Holder, or (C)
such Holder is a broker-dealer and holds Notes
acquired directly from the Company or one of its
respective affiliates, then the Company and the
Subsidiary Guarantors are required to provide a
shelf registration statement (the "Shelf
Registration Statement") to cover resales of the
Notes by the Holders thereof. Notwithstanding the
foregoing, at any time after consummation of the
Exchange Offer, the Company may allow the Shelf
Registration Statement to cease to be effective and
usable if (i) the Board of Directors of the Company
determines in good faith that it is in the best
interests of the Company not to disclose the
existence of or facts surrounding any proposed or
pending material corporate transaction involving
the Company, and the Company notifies the Holders
within a certain period of time after the Board of
Directors makes such determination, or (ii) the
prospectus contained in the Shelf Registration
Statement contains an untrue statement of a
material fact necessary in order to make the
statements therein, in the light of the
circumstances under which they were made, not
misleading. The Company will pay certain liquidated
damages to Holders of Notes and Holders of New
Notes if the Company is not in compliance with its
obligations under the Registration Rights
Agreement. See "Exchange Offer; Registration
Rights."
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
PARTICIPANTS IN THE EXCHANGE OFFER, SEE "RISK FACTORS."
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SUMMARY UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS)
The following table sets forth summary unaudited pro forma consolidated
balance sheet data at June 28, 1997 and summary unaudited pro forma consolidated
income statement data of the Company for the fiscal year ended December 28, 1996
and the six months ended June 28, 1997. The Company has a fiscal year ending on
the Saturday closest to the end of the calendar year. The Company's fiscal year
was 52 weeks. PFS had a fiscal year ending on the last Wednesday in December.
PFS' fiscal year was 52 weeks. The pro forma consolidated balance sheet data at
June 28, 1997 give effect to the Transactions and the Refinancing as if they had
occurred on June 28, 1997. The pro forma consolidated income statement data and
other data for the fiscal year ended December 28, 1996 and the six months ended
June 28, 1997 give effect to the Transactions and the Refinancing as if they had
occurred at the beginning of the period presented. The following information
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations," the historical and unaudited pro
forma financial statements of the Company, the historical financial statements
of PFS and the related notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
SIX MONTHS
FISCAL YEAR ENDED
1996 JUNE 28, 1997
----------- -------------
<S> <C> <C>
INCOME STATEMENT DATA:
Net sales.................................................................. $ 4,874,980 $ 2,301,244
Gross profit............................................................... 488,051 234,697
Operating expenses......................................................... 405,502 201,395
Operating income........................................................... 82,549 33,302
OTHER DATA:
Pro forma EBITDA(1)........................................................ $ 126,653 $ 55,768
Depreciation and amortization.............................................. 44,587 22,466
Capital expenditures....................................................... 41,510 19,775
Ratio of earnings to fixed charges(2)...................................... N/A N/A
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 28, 1997
-------------------------
ACTUAL PRO FORMA
---------- ----------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................................... $ 3,413 $ 161,856
Working capital............................................................. 213,067 169,895
Total assets................................................................ 1,416,592 1,404,356
Long-term debt, including current portion................................... 995,615 874,070
Stockholder's equity........................................................ 41,630 147,907
</TABLE>
- ---------------
(1) Pro forma EBITDA represents pro forma operating income plus pro forma
depreciation and amortization and excludes one-time non-recurring gains and
losses.
Pro forma EBITDA is computed as follows:
<TABLE>
<CAPTION>
SIX MONTHS
FISCAL YEAR ENDED
1996 JUNE 28, 1997
----------- -------------
<S> <C> <C>
Pro forma operating income......................................................... $ 82,549 $33,302
Pro forma depreciation and amortization............................................ 44,587 22,466
Non-recurring gains/losses:
Gain on sale of assets........................................................... (4,283) --
Integration costs................................................................ 3,800 --
----------- -------------
Pro forma EBITDA................................................................... $ 126,653 $55,768
========== ============
</TABLE>
EBITDA is presented because management believes it is a widely accepted
financial indicator used by certain investors and analysts to analyze and
compare companies on the basis of operating performance. The Company
understands that, EBITDA, as used herein, is not necessarily comparable to
other similarly titled captions of other companies due to potential
inconsistencies in the method of calculation. EBITDA is not intended to
represent cash flows for the period, nor has it been presented as an
alternative to operating income as an indicator of operating performance and
should not be considered in isolation or as a substitute for measures of
performance prepared in accordance with generally accepted accounting
principles. See the historical and unaudited pro forma financial statements
of the Company, the historical financial statements of PFS and the related
notes thereto included elsewhere herein.
(2) For purposes of computing this ratio, earnings consist of income before
income taxes plus fixed charges. Fixed charges consist of interest expense,
amortization of deferred finance fees and one-third of the rent expense from
operating leases, which management believes is a reasonable approximation of
the interest factor of the rent. For the fiscal year ended December 28, 1996
and the six months ended June 28, 1997, on a pro forma basis, earnings were
inadequate to cover fixed charges by $3.1 million and $10.3 million,
respectively.
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SUMMARY SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS)
The following table sets forth summary historical financial data of
AmeriServe and PFS for the fiscal years 1994, 1995 and 1996, which have been
derived from the audited financial statements of AmeriServe and PFS,
respectively. The financial statements of AmeriServe were audited by Ernst &
Young LLP for fiscal years 1994, 1995 and 1996. The financial statements of PFS
were audited by KPMG Peat Marwick LLP for fiscal years 1994, 1995 and 1996.
AmeriServe has a fiscal year ending on the Saturday closest to the end of the
calendar year. Each fiscal year for AmeriServe was 52 weeks. PFS had a 52-53
week fiscal year ending on the last Wednesday in December. Each fiscal year for
PFS was 52 weeks, except 1994, which contained 53 weeks. Data for the first six
months of 1996 and 1997 have been derived from unaudited financial statements of
AmeriServe and PFS, which, in the opinion of management, include all adjustments
necessary for a fair presentation of the information. Data at and for the first
six months of 1997 do not purport to be indicative of results to be expected for
the full fiscal year. The following information should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations," the historical and unaudited pro forma financial statements of the
Company, the historical financial statements of PFS and related notes thereto
included elsewhere herein.
<TABLE>
<CAPTION>
FISCAL YEAR SIX MONTHS
------------------------------------ -------------------
AMERISERVE 1994 1995 1996 1996 1997
- ------------------------------------------------------------- ---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales.................................................. $ 358,516 $ 400,017 $1,280,598 $584,791 $741,009
Gross profit............................................... 37,914 40,971 128,849 59,011 72,465
Operating expenses......................................... 34,488 36,695 114,560 53,328 67,133
Operating income........................................... 3,426 4,276 14,289 5,683 5,332
OTHER DATA:
EBITDA(1).................................................. $ 6,710 $ 7,038 $ 26,041 $ 9,923 $ 11,743
Depreciation and amortization.............................. 3,284 2,762 10,061 4,240 6,411
Capital expenditures....................................... 1,331 2,496 12,518 2,783 7,275
Net cash provided by (used in):
Operating activities..................................... 4,276 4,505 1,213 (2,345) (8,543)
Investing activities..................................... (5,422) (5,574) (105,013) (100,659) (13,246)
Financing activities..................................... 490 619 105,387 103,733 23,040
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR SIX MONTHS
------------------------------------ -----------------------
PFS 1994 1995 1996 1996 1997
- --------------------------------------------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales.............................................. $3,279,837 $3,458,944 $3,422,086 $1,552,475 $1,498,345
Gross profit........................................... 326,672 344,777 341,484 154,852 155,686
Operating expenses..................................... 239,772 265,305 261,741 122,528 120,945
Operating income....................................... 86,900 79,472 79,743 32,324 34,741
OTHER DATA:
EBITDA(1).............................................. $ 103,953 $ 98,236 $ 99,573 $ 41,143 $ 43,555
Depreciation and amortization.......................... 17,053 18,764 19,830 8,819 8,814
Capital expenditures................................... 21,310 25,245 28,771 14,214 12,291
Net cash provided by (used in):
Operating activities................................. 64,717 29,580 78,437 897 7,972
Investing activities................................. (20,263) (24,388) (27,561) (13,182) (4,048)
Financing activities................................. (44,360) (5,163) (49,454) 12,661 (5,517)
</TABLE>
- ---------------
(1) EBITDA represents operating income plus depreciation and amortization and
excludes one-time non-recurring gains and losses. EBITDA for AmeriServe in
fiscal 1996 adds back a net one-time, non-recurring charge of $1.7 million.
EBITDA is presented because management believes it is a widely accepted
financial indicator used by certain investors and analysts to analyze and
compare companies on the basis of operating performance. EBITDA is not
intended to represent cash flows for the period, nor has it been presented
as an alternative to operating income as an indicator of operating
performance and should not be considered in isolation or as a substitute for
measures of performance prepared in accordance with generally accepted
accounting principles. The Company understands that, while EBITDA is
frequently used by securities analysts in the evaluation of companies,
EBITDA, as used herein, is not necessarily comparable to other similarly
titled captions of other companies due to potential inconsistencies in the
method of calculation. See the historical and unaudited pro forma financial
statements of the Company and the historical financial statements of PFS and
the related notes thereto included elsewhere herein.
9
<PAGE> 10
RISK FACTORS
Investors should consider carefully the factors set forth below, as well as
the other information set forth elsewhere in this Prospectus, before making a
decision to invest in the New Notes. This Prospectus includes forward-looking
statements, including statements concerning the Company's business strategy,
operations, cost savings initiatives, economic performance, financial condition
and liquidity and capital resources. Such statements are subject to various
risks and uncertainties. The Company's actual results may differ materially from
the results discussed in such forward-looking statements because of a number of
factors, including those identified in this "Risk Factors" section and elsewhere
in this Prospectus. See "Summary," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "The Business." The
forward-looking statements are made as of the date of this Prospectus, and the
Company assumes no obligation to update the forward-looking statements or to
update the reasons why actual results could differ from those projected in the
forward-looking statements.
SUBSTANTIAL LEVERAGE AND DEBT SERVICE
The Company is and will continue to be highly leveraged as a result of the
substantial indebtedness it incurred in connection with the Transactions and the
Refinancing. After giving pro forma effect to the Transactions and the
Refinancing, the Company would have had total indebtedness of $874.1 million and
stockholder's equity of $147.9 million as of June 28, 1997, and the Company's
earnings would have been inadequate to cover fixed charges by $3.1 million and
$10.3 million for the year ended December 28, 1996 and the six months ended June
28, 1997, respectively. In addition to the Senior Notes, the Company may incur
additional indebtedness in the future, subject to limitations imposed by the
Indenture, the indenture relating to the Senior Notes and the New Credit
Facility. See "Capitalization," "Unaudited Pro Forma Combined Financial
Statements," "The Transactions -- The Acquisition," "The Refinancing" and
"Description of Indebtedness."
The Company's ability to make scheduled payments of principal of, or to pay
interest on, or to refinance its indebtedness (including the New Notes) depends
on its future performance, which, to a certain extent, is subject to general
economic, financial, competitive, legislative, regulatory and other factors
beyond its control. Based upon the current level of operations and anticipated
growth, the management of the Company believes that available cash flow,
together with available borrowings under the New Credit Facility and other
sources of liquidity, including the Accounts Receivable Program, will be
adequate to meet the Company's anticipated future requirements for working
capital, capital expenditures, scheduled payments of principal of and interest
on its indebtedness, and interest on the New Notes. However, all or a portion of
the principal payments at maturity on the New Notes may require refinancing.
There can be no assurance that the Company's business will generate sufficient
cash flow from operations or that future borrowings will be available in an
amount sufficient to enable the Company to service its indebtedness, including
the New Notes, or to make necessary capital expenditures, or that any
refinancing would be available on commercially reasonable terms or at all. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
The degree to which the Company is now leveraged and will continue to be
leveraged as a result of the Senior Notes Offering could have important
consequences to holders of the New Notes, including, but not limited to, the
following: (i) a substantial portion of the Company's cash flow from operations
will be required to be dedicated to debt service and will not be available for
other purposes; (ii) the Company's ability to obtain additional financing in the
future could be limited; (iii) certain of the Company's borrowings are at
variable rates of interest, which could result in higher interest expense in the
event of an increase in interest rates; and (iv) the Indenture, the New Credit
Facility and the indenture relating to the Senior Notes contain financial and
restrictive covenants that limit the ability of the Company to, among other
things, borrow additional funds, dispose of assets or pay cash dividends.
Failure by the Company to comply with such covenants could result in an event of
default, which, if not cured or waived, could have a material adverse effect on
the Company. In addition, the degree to which the Company is leveraged could
prevent it from repurchasing all New Notes tendered to it upon the occurrence of
a Change of Control. See "Description of
10
<PAGE> 11
New Notes -- Repurchase at the Option of Holders -- Change of Control,"
"Description of Indebtedness -- New Credit Facility," "-- 8 7/8 Senior Notes due
2006" and "The Transactions -- The Acquisition."
SUBORDINATION TO SENIOR DEBT; ENCUMBRANCES ON ASSETS
The New Notes are subordinated in right of payment to all existing and
future Senior Debt, including the principal of or premium, if any, and interest
on and all other amounts due on or payable in connection with Senior Debt. At
June 28, 1997, on a pro forma basis after giving effect to the Transactions and
the Refinancing, there would have been outstanding approximately $374.1 million
of Senior Debt to the New Notes. By reason of such subordination, in the event
of the insolvency, liquidation, reorganization, dissolution or other winding-up
of the Company or upon a default in payment with respect to, or the acceleration
of, any Senior Debt, the Holders of such Senior Debt must be paid in full before
the holders of the New Notes may be paid. If the Company incurs any additional
pari passu debt, the holders of such debt would be entitled to share ratably
with the holders of the New Notes in any proceeds distributed in connection with
any insolvency, liquidation, reorganization, dissolution or other winding-up of
the Company. This may have the effect of reducing the amount of proceeds paid to
holders of the New Notes. In addition, no payments may be made with respect to
the principal of, premium and Liquidated Damages, if any, or interest on the New
Notes if a payment default exists with respect to Senior Debt and, under certain
circumstances, no payments may be made with respect to the principal of, premium
and Liquidated Damages, if any, or interest on the New Notes for a period of up
to 179 days if a non-payment default exists with respect to Senior Debt. In
addition, the Indenture permits the Company and its subsidiaries to incur
additional debt if certain conditions are met. See "Description of New
Notes -- Subordination."
Under the New Credit Facility, NEHC granted to the lenders thereunder (the
"Lenders") security interests in all of the capital stock of the Company, and
the Company granted to the Lenders security interests in substantially all of
the current and future assets of the Company, including a pledge of all of the
issued and outstanding shares of capital stock of certain of the Company's
subsidiaries. In the event of a default on secured indebtedness (whether as a
result of the failure to comply with a payment or other covenant, a cross-
default, or otherwise), such Lenders will have a prior secured claim on the
capital stock of the Company and the assets of the Company and its subsidiaries.
If such Lenders should attempt to foreclose on their collateral, the Company's
financial condition and the value of the New Notes will be materially adversely
affected and could be eliminated. See "Description of Indebtedness."
RELIANCE ON KEY CONTRACTS
In January 1997, the Company entered into a three-year agreement, which
became effective April 1997, to become the primary supplier to approximately
2,600 Arby's restaurants nationwide. The Company expects to generate at least
$325 million of annual net sales during the term of the agreement. No assurance
can be given that the Company's contract with Arby's will be renewed upon
expiration, that any renewal of such contract will be on terms as favorable to
the Company as the current contract or that the Company will realize expected
net sales under the existing contract.
In connection with the Acquisition, the Company entered into a five-year
Distribution Agreement effective from the Transactions Closing (as defined
herein) with each of PepsiCo's chain restaurant businesses pursuant to which the
Company will be the exclusive distributor of specified restaurant products
purchased by Pizza Hut, Taco Bell and KFC restaurants within the continental
United States, which are owned, directly or indirectly, by the subsidiaries of
PepsiCo which hold each of the three restaurant businesses as of the Closing
(other than certain specified restaurants) or which are acquired or built by
PepsiCo's chain restaurant business during the term of the Distribution
Agreement. Each of the subsidiaries which is a party to the Distribution
Agreement will be owned by TRICON Global Restaurants, Inc. ("TRICON") following
PepsiCo's spin-off of its core restaurant businesses to its shareholders. As a
result, the spin-off of TRICON will have no impact on the Distribution
Agreement. On a pro forma basis after giving effect to the Transactions and
after giving effect to the Arby's contract, approximately 44% of the Company's
1996 net
11
<PAGE> 12
sales would have been generated under the Distribution Agreement. The
Distribution Agreement may be terminated at any time (i) by any party in the
event that the other party breaches any material term and such breach remains
unremedied for a period of 30 calendar days after written notice of such breach,
(ii) by the PepsiCo Chains if the Company is in material breach of the
Distribution Agreement for failure to maintain specified service levels for a
specified period of time or (iii) by either party in the event that the other
party becomes the subject of a bankruptcy, insolvency or other similar
proceeding. See "The Acquisition -- Distribution Agreement."
While exclusive or written arrangements are not typically the basis of
foodservice distribution sales and have not historically been requisite to the
Company's growth, the Distribution Agreement will expire in five years and no
assurance can be given that the Distribution Agreement will be renewed or, if
renewed, whether such renewal will be on terms as favorable as the existing
agreement. Furthermore, no assurance can be given that the Company will be able
to achieve the expected net sales under the current Distribution Agreement.
Gross profit and net pretax profit on certain sales by PFS to Pizza Hut under
the Distribution Agreement are limited.
DEPENDENCE ON CERTAIN CHAINS AND CUSTOMERS
The Company derives substantially all of its net sales from several chain
restaurant concepts. On a pro forma basis after giving effect to the
Transactions, and the Arby's contract, the largest chains serviced by the
Company would have been Pizza Hut, Taco Bell and KFC, representing 28%, 28% and
12% of 1996 net sales, respectively. Adverse developments affecting such chains
or a decision by a corporate owner or franchisor to revoke its approval of the
Company as a distributor could have a material adverse effect on the Company's
operating results.
The Company's customers are generally individual franchisees or
corporate-owned restaurants within such restaurant chains. Although the
corporate owner or franchisor of a chain generally reserves the right to approve
the distributors for its franchisees, each customer generally makes its
selection of a foodservice distributor from an approved group of distributors.
On a pro forma basis after giving effect to the Transactions and after giving
effect to the Arby's contract, the Company's largest customer would have been
PepsiCo, representing 44% of the Company's 1996 net sales. No other customer
accounted for more than 10% of the Company's pro forma net sales in 1996.
Adverse events affecting any of the Company's largest customers, a material
decrease in sales to any such customers or the loss of a major customer through
the acquisition thereof by a company with an internal foodservice distribution
business or otherwise could have a material adverse effect on the Company's
operating results. In addition, the Company's continued growth is dependent in
part on the continued growth and expansion of its customers.
A significant portion of the Company's business is conducted with customers
with which the Company does not have contracts. Such customers could cease doing
business with the Company on little or no notice. The Company's contracts with
its other customers are subject to termination by the customer prior to
expiration of the stated term under circumstances specified in each contract,
including, in some cases, failure to comply with performance reliability
standards. Although the Company is not aware of any issues of non-compliance
that could reasonably be expected to result in termination of any such contracts
prior to expiration of the stated term, and has not been notified by any
customer that it intends to terminate its contract with the Company, there can
be no assurance that historic levels of business from any customer of the
Company will be maintained in the future. See " -- Key Contracts" and "The
Business -- Customers."
ABILITY TO INTEGRATE ACQUISITIONS
The Company has achieved a significant portion of its growth through
acquisitions and will continue to try to grow in this way. Although each of the
previously acquired companies has a significant operating history, the Company
has a limited history of owning and operating the most recently acquired of
these businesses on a consolidated basis. Holberg Industries, Inc. ("Holberg")
acquired NEBCO Distribution of Omaha, Inc. ("NEBCO") in 1986. NEBCO acquired
Evans Brothers Company ("Evans") in January 1990 and the
12
<PAGE> 13
combined company was renamed "NEBCO EVANS Distribution, Inc." ("NEBCO EVANS").
NEBCO EVANS acquired L.L. Distribution Systems Inc. in 1990, Condon Supply
Company in 1991, AmeriServ Food Company ("AmeriServ") in January 1996 and, in
April 1997, changed its name to AmeriServe Food Distribution, Inc. Following the
Acquisition, the Company will have to integrate PFS with its existing business,
including its prior acquisitions. While the Company believes that such
integration provides significant opportunities to reduce costs, there can be no
assurance that the Company will be able to meet performance expectations or
successfully integrate these businesses on a timely basis without disruption in
the quality and reliability of service to its customers or diversion of
management resources. In addition, while the Company has made acquisitions
successfully before, the Acquisition is substantially larger than the Company's
prior acquisitions. The integration of such businesses will also require
improvements in the Company's management information systems. There can be no
assurance that such improvements will be realized on a timely basis.
DEPENDENCE ON KEY PERSONNEL
The Company's success is, and will continue to be, substantially dependent
upon the continued services of its senior management, particularly Mr. John V.
Holten, Chairman and Chief Executive Officer of the Company, and Mr. Raymond E.
Marshall, President and Treasurer of the Company. The loss of the services of
one or more members of senior management could adversely affect the Company's
operating results. The Company has entered into employment agreements with Mr.
Marshall and other members of senior management, and has obtained key-man life
insurance in the amount of $3.0 million on Mr. Marshall. In addition, the
Company's continued growth depends on the ability to attract and retain skilled
operating managers and employees and the ability of its key personnel to manage
the Company's growth and consolidate and integrate its operations. See
"Management."
COMPETITION
The foodservice distribution industry is highly competitive. The Company
competes with other systems foodservice distribution companies that focus on
chain restaurants and with broadline foodservice distributors that distribute to
a wide variety of customers. Further, the Company could face increased
competition to the extent that there is an increase in the number of foodservice
distributors specializing in distribution to chain restaurants on a nationwide
basis. See "The Business -- Competition."
CONTROL BY PRINCIPAL STOCKHOLDER
As a result of the consummation of the Transactions, Holberg indirectly
owns a majority of the issued and outstanding capital stock of NEHC, which in
turn directly owns all of the issued and outstanding capital stock of the
Company. See "Security Ownership of Certain Beneficial Holders and Management."
Holberg and DLJ collectively have sufficient voting power to elect the entire
Board of Directors of each of NEHC, and through NEHC, the Company, and thereby
exercise control over the business, policies and affairs of NEHC and the
Company, and, in general, determine the outcome of any corporate transaction or
other matters submitted to stockholders for approval, such as any amendment to
the certificate of incorporation of the Company (the "Certificate of
Incorporation"), the authorization of additional shares of capital stock, and
any merger, consolidation or sale of all or substantially all of the assets of
the Company, all of which could adversely affect the Company and holders of the
New Notes.
PAYMENT UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder of New Notes may
require the Company to repurchase all or a portion of such holder's New Notes at
101% of the principal amount of the New Notes, together with accrued and unpaid
interest, if any, and Liquidated Damages, if any, to the date of repurchase. The
Indenture requires that prior to such a repurchase, the Company must either
repay all outstanding indebtedness under the New Credit Facility or obtain any
required consent to such repurchase. If a Change of
13
<PAGE> 14
Control were to occur, the Company may not have the financial resources to repay
all of its obligations under the New Credit Facility, the New Notes and the
other indebtedness that would become payable upon such event. See "Description
of New Notes -- Repurchase at the Option of Holders -- Change of Control."
FRAUDULENT CONVEYANCE RISKS
Management of the Company believes that the indebtedness represented by the
New Notes is being incurred for proper purposes and in good faith, and that,
based on present forecasts, asset valuations and other financial information,
after the consummation of the Transactions and the Refinancing, the Company will
be solvent, will have sufficient capital for carrying on its business and will
be able to pay its debts as they mature. See "-- Substantial Leverage and Debt
Service." Notwithstanding management's belief, however, if a court of competent
jurisdiction in a suit by an unpaid creditor or a representative of creditors
(such as a trustee in bankruptcy or a debtor-in-possession) were to find that,
at the time of the incurrence of such indebtedness, the Company was insolvent,
was rendered insolvent by reason of such incurrence, was engaged in a business
or transaction for which its remaining assets constituted unreasonably small
capital, intended to incur, or believed that it would incur, debts beyond its
ability to pay such debts as they matured, or intended to hinder, delay or
defraud its creditors, and that the indebtedness was incurred for less than
reasonably equivalent value, then such court could, among other things, (i) void
all or a portion of the Company's obligations to the holders of the New Notes,
the effect of which would be that the holders of the New Notes may not be repaid
in full and/or (ii) subordinate the Company's obligations to the holders of the
New Notes to other existing and future indebtedness of the Company to a greater
extent than would otherwise be the case, the effect of which would be to entitle
such other creditors to be paid in full before any payment could be made on the
New Notes.
The Company's obligations under the New Notes are guaranteed, jointly and
severally, on a senior subordinated basis, by each of the Subsidiary Guarantors.
Management of the Company believes that indebtedness represented by the New Note
Guarantees is being incurred by the Subsidiary Guarantors for proper purposes
and in good faith, and that, based on present forecasts, asset valuations and
other financial information, after consummation of the Transactions and the
Refinancing, each of the Subsidiary Guarantors will be solvent, will have
sufficient capital for carrying on its business, and will be able to pay its
debts as they mature. See "-- Substantial Leverage and Debt Service."
Notwithstanding management's belief, however, if a court of competent
jurisdiction in a suit by an unpaid creditor or a representative of creditors
(such as a trustee in bankruptcy or a debtor-in-possession) were to find that,
at the time of the incurrence of such indebtedness, the Subsidiary Guarantors
were insolvent, were rendered insolvent by reason of such incurrence, were
engaged in a business or transaction for which their remaining assets
constituted unreasonably small capital, intended to incur, or believed that they
would incur, debts beyond their ability to pay such debts as they matured, or
intended to hinder, delay or defraud their creditors, and that the indebtedness
was incurred for less than reasonably equivalent value, then such court could,
among other things, (i) void all or a portion of such Subsidiary Guarantors'
obligations to the holders of the New Notes, the effect of which would be that
the holders of the New Notes may not be repaid in full or at all and/or (ii)
subordinate such Subsidiary Guarantors' obligations to the holders of the New
Notes to other existing and future indebtedness of such Subsidiary Guarantors,
the effect of which would be to entitle such other creditors to be paid in full
before any payment could be made on the New Notes. Among other things, a legal
challenge to a New Note Guarantee on fraudulent conveyance grounds may focus on
the benefits, if any, realized by the Subsidiary Guarantors as a result of the
issuance by the Company of the New Notes.
TRADING MARKET FOR THE NEW NOTES
There is no existing trading market for the New Notes, and there can be no
assurance regarding the future development of a market for the New Notes or the
ability of the Holders of the New Notes to sell their New Notes or the price at
which such Holders may be able to sell their New Notes. If such market were to
develop, the New Notes could trade at prices that may be higher or lower than
their initial offering price depending on many factors, including prevailing
interest rates, the Company's operating results and the
14
<PAGE> 15
market for similar securities. Although they are not obligated to do so, DLJ and
BancAmerica Robertson Stephens intend to make a market in the New Notes. Any
such market-making activity may be discontinued at any time, for any reason,
without notice at the sole discretion of DLJ and BancAmerica Robertson Stephens.
No assurance can be given as to the liquidity of or the trading market for the
New Notes.
DLJ and BancAmerica Robertson Stephens may be deemed to be affiliates of
the Company and, as such, may be required to deliver a prospectus in connection
with their market-making activities in the New Notes. Pursuant to the
Registration Rights Agreement, the Company and the Subsidiary Guarantors agreed
to use their respective best efforts to file and maintain a registration
statement that would allow DLJ and BancAmerica Robertson Stephens to engage in
market-making transactions in the New Notes for up to 120 days from the date on
which the Exchange Offer is consummated. The Company has agreed to bear
substantially all the costs and expenses related to such registration statement.
FORWARD-LOOKING STATEMENTS
This Prospectus includes forward-looking statements, including statements
concerning the Company's business strategy, operations, cost savings
initiatives, economic performance, financial condition and liquidity and capital
resources. Such statements are subject to various risks and uncertainties. The
Company's actual results may differ materially from the results discussed in
such forward-looking statements because of a number of factors, including those
identified in the sections of this Prospectus captioned "Prospectus Summary,"
"Risk Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "The Business." Forward-looking statements are made
as of the date of this Prospectus, and the Company assumes no obligation to
update the forward-looking statements, or to update the reasons why actual
results could differ from those projected in the forward-looking statements.
THE TRANSACTIONS
In connection with the Acquisition, the Company: (i) consummated the Note
Offering; (ii) entered into the New Credit Facility; (iii) established the
Accounts Receivable Program; (iv) received the Equity Contribution; (v) effected
the Preferred Stock Contribution; and (vi) consummated the Post Contribution.
See "Description of Indebtedness" and "Certain Relationships and Related Party
Transactions."
THE ACQUISITION
Pursuant to an Asset Purchase Agreement (together with the related
agreement covering Canadian assets, the "Asset Purchase Agreement"), dated as of
May 23, 1997, by and between NEHC and PepsiCo, which was assigned to the Company
at the closing of the Transactions on July 11, 1997 (the "Transactions
Closing"), the Company subject to the terms and conditions contained in the
Asset Purchase Agreement, acquired substantially all of the assets and
properties used or held for use by PFS for $830.0 million in cash, subject to
adjustment, and assumed certain liabilities, including post-closing purchase
price adjustments.
THE POST CONTRIBUTION
In connection with the January 1996 purchase of AmeriServ, the Company
acquired a minority interest in Post Holdings Company ("Post Holdings"), which
owned 93.6% of Post. Post is a systems food distributor with three distribution
centers in the western United States. For the fiscal year ending December 28,
1996, Post generated net sales of $119.4 million and EBITDA of $1.9 million. On
November 25, 1996, NEHC: (i) acquired (a) the Company's ownership interest in
Post Holdings, and (b) Daniel W. Crippen's 50% ownership of Post Holdings and
(ii) merged Post Holdings with and into NEHC with NEHC as the surviving entity.
Mr. Crippen is the Company's Chief Operating Officer and was the President of
Post.
In connection with the Acquisition: (i) the remaining 6.4% of the capital
stock outstanding of Post was acquired from the minority stockholder; (ii) a
dividend of $4.7 million was declared to eliminate the
15
<PAGE> 16
intercompany balance between Post and NEHC; (iii) all of the capital stock of
Post was transferred to AmeriServ Food Company, a subsidiary of the Company; and
(iv) Post's $10.6 million of outstanding indebtedness was refinanced. AmeriServ
Food Company's investment in NEHC preferred stock of $2.5 million was cancelled
(collectively, the "Post Contribution"). See note 2 to the historical financial
statements of the Company.
EQUITY CONTRIBUTION
In connection with the Acquisition, NEHC contributed $130.0 million of cash
to the Company (the "Equity Contribution"). The Equity Contribution was financed
through NEHC's sale of debt and equity securities. A portion of such funds was
raised by NEHC through the sale to DLJ Merchant Banking, L.P. II and Affiliates
("DLJMBII") of preferred stock and warrants for aggregate consideration of
$115.0 million. See "Certain Relationships and Related Party Transactions."
PREFERRED STOCK CONTRIBUTION
In connection with the Acquisition, NEHC contributed to the Company an
aggregate principal amount of $45.0 million of outstanding non-convertible
preferred stock of the Company (the "Preferred Stock Contribution"). See
"Capitalization."
SOURCES AND USES OF FUNDS
The gross proceeds from the sale of the Notes, together with borrowings
under the New Credit Facility, proceeds from the Accounts Receivable Program and
the Equity Contribution, were used and will be used by the Company: (i) to fund
the purchase price payable in connection with the Acquisition; (ii) to repay in
full certain existing indebtedness; (iii) to provide working capital; and (iv)
to pay fees and expenses in connection with the Transactions.
The following table sets forth the estimated sources and uses of funds in
connection with the Transactions, assuming that the Transactions occurred on
June 28, 1997 (in millions):
<TABLE>
<S> <C>
SOURCES
New Credit Facility(1)
Revolving Credit Facility........................................ $ 0.0
Term Loans....................................................... 205.0
--------
Total.................................................... 205.0
Accounts Receivable Program(2)..................................... 225.0
Senior Subordinated New Notes due 2007............................. 500.0
Equity Contribution................................................ 130.0
--------
Total sources............................................ $1,060.0
========
USES
Repayment of PepsiCo, Inc. note payable............................ $ 830.0
Refinance AmeriServe senior debt................................... 138.8
Refinance other debt............................................... 16.2
Cash for working capital........................................... 24.4
Estimated fees and expenses........................................ 50.6
--------
Total uses............................................... $1,060.0
========
</TABLE>
- ---------------
(1) At the Transactions Closing, the Company entered into a new $355.0 million
senior credit facility (the "New Credit Facility") by and among Bank of
America National Trust and Savings Association ("Bank of
16
<PAGE> 17
America NT&SA"; in such capacity, the "Administrative Agent"), and DLJ
Capital Funding, Inc. (in such capacity, the documentation agent; and with
the Administrative Agent, the "Agents") and the other Lenders thereto.
BancAmerica Robertson Stephens ("BancAmerica Robertson Stephens") served as
the syndication agent. The following amounts were drawn under the New Credit
Facility: $205.0 million of term loans (the "Term Loans"), consisting of:
(a) $78.1 million Term Loan A, which matures in six years; (b) $42.3 million
of Term Loan B, which matures in seven years; (c) $42.3 million of Term Loan
C, which matures in eight years; and (d) $42.3 million of Term Loan D, which
matures in nine years. The Term Loans were fully repaid in connection with
the Refinancing. See "The Refinancing" and "Description of
Indebtedness -- New Credit Facility." A $150.0 million revolving credit
facility (the "Revolving Credit Facility") remains available as part of the
New Credit Facility for working capital and general corporate purposes,
including the issuance of letters of credit which were $11.1 million at the
Transactions Closing, subject to the achievement of certain financial ratios
and compliance with certain conditions.
(2) At the Transactions Closing, the Company entered into a $250.0 million
Accounts Receivable Program (the "Accounts Receivable Program"),
approximately $225.0 million of which was funded at Closing. Under the
Accounts Receivable Program, the Company established a wholly-owned, special
purpose bankruptcy-remote subsidiary that purchases from the Company, on a
revolving basis, all trade receivables generated by the Company and/or one
or more of its subsidiaries. See "Description of Indebtedness -- Accounts
Receivable Program."
USE OF PROCEEDS
This Prospectus is delivered in connection with the sale of the New Notes
by DLJ and BancAmerica Robertson Stephens in market-making transactions. The
Company will not receive any of the proceeds from such transactions.
THE REFINANCING
On October 15, 1997, the Company completed the Senior Notes Offering,
pursuant to which it offered and sold $350 million of its 8 7/8% Senior Notes
due 2006 (the "Senior Notes"). The Senior Notes Offering was completed as part
of the refinancing of certain outstanding term indebtedness of the Company
incurred under the New Credit Facility in connection with the Acquisition. The
purpose of the Refinancing was to, among other things, (i) extend the maturity
of those borrowings, (ii) fix the interest rate of those borrowings at a rate
believed by the Company to be attractive for fixed rate financing, and (iii)
provide the Company with additional cash to be utilized for working capital and
to fund possible future acquisitions (collectively, the "Refinancing"). See "The
Business -- Business Strategy" and "Description of Indebtedness -- New Credit
Facility" and "Description of Indebtedness -- 8 7/8% Senior Notes due 2006."
The net proceeds from the sale of the Senior Notes were approximately
$339.0 million (after deducting discounts and commissions and estimated expenses
of the Senior Notes Offering) and were used by the Company to repay $205 million
of Term Loans (as defined herein) which were outstanding under the New Credit
Facility and provide cash for working capital and other general corporate
purposes.
17
<PAGE> 18
CAPITALIZATION
(DOLLARS IN THOUSANDS)
The following table sets forth the consolidated cash and capitalization of
the Company as of June 28, 1997 and the pro forma consolidated capitalization of
the Company as of June 28, 1997, adjusted to reflect the Transactions and the
Refinancing. This table should be read in conjunction with the historical and
unaudited pro forma financial statements of the Company and the related notes
thereto included elsewhere herein. See "The Transactions" and "The Refinancing."
<TABLE>
<CAPTION>
AS OF JUNE 28, 1997
-------------------------
ACTUAL PRO FORMA
---------- ----------
<S> <C> <C>
Cash and cash equivalents........................................... $ 3,413 $ 161,856
======== ========
Long-term debt (including current portion):
Existing credit facility.......................................... $ 138,800 $ --
Revolving Credit Facility......................................... -- --
Term Loans........................................................ -- --
Capital lease obligations......................................... 21,239 24,070
Senior Notes due 2006............................................. -- 350,000
Note payable to PepsiCo, Inc...................................... 830,000 --
Senior Subordinated Notes due 2007................................ -- 500,000
Other............................................................. 5,576 --
-------- --------
Total long-term debt...................................... 995,615 874,070
Stockholder's equity:
Preferred......................................................... 45,000 --
Common............................................................ (3,370) 147,907
-------- --------
Total stockholder's equity................................ 41,630 147,907
-------- --------
Total capitalization................................................ $1,037,245 $1,021,977
======== ========
</TABLE>
18
<PAGE> 19
SELECTED AMERISERVE HISTORICAL FINANCIAL DATA
(DOLLARS IN THOUSANDS)
The following table presents selected historical financial data of the
Company at and for the fiscal years 1992, 1993, 1994, 1995 and 1996, which have
been derived from the audited financial statements of the Company, and at and
for the first six months of 1996 and 1997, which have been derived from the
unaudited interim financial statements of the Company. The historical financial
statements of the Company for the fiscal years 1994, 1995 and 1996 were audited
by Ernst & Young LLP. The historical data of the Company at and for the first
six months of 1996 and 1997 have been derived from, and should be read in
conjunction with, the unaudited financial statements of the Company and the
related notes thereto, included elsewhere herein. In the opinion of management,
such interim financial statements reflect all adjustments (consisting only of
normal and recurring adjustments) necessary to fairly present the information
presented for such periods. The results of operations for the first six months
of 1997 are not necessarily indicative of the results of operations to be
expected for the full year. The selected financial data set forth below should
be read in conjunction with "The Refinancing," "The Transactions," "Summary
Selected Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and the historical financial statements of
the Company and the related notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
FISCAL YEAR SIX MONTHS
------------------------------------------------------ ---------------------
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............................ $293,621 $327,606 $358,516 $400,017 $1,280,598 $584,791 $ 741,009
Gross profit......................... 33,827 35,153 37,914 40,971 128,849 59,011 72,465
Operating expenses................... 30,347 32,054 34,488 36,695 114,560 53,328 67,133
-------- -------- -------- -------- ----------- -------- ----------
Operating income..................... 3,480 3,099 3,426 4,276 14,289 5,683 5,332
Interest expense..................... (3,404) (2,759) (3,294) (3,936) (10,999) (5,281) (7,243)
Interest income-Holberg and
affiliate.......................... 293 150 533 749 528 215 237
-------- -------- -------- -------- ----------- -------- ----------
Income (loss) before income taxes,
extraordinary loss, and cumulative
effect of accounting change........ 369 490 665 1,089 3,818 617 (1,674)
Provision (credit) for income
taxes.............................. 223 172 523 583 1,300 340 (629)
-------- -------- -------- -------- ----------- -------- ----------
Income (loss) before extraordinary
loss and cumulative effect of
accounting change.................. 146 318 142 506 2,518 277 (1,045)
Extraordinary loss on early
extinguishment of debt............. -- (613) -- -- -- -- --
Cumulative effect of change in method
of accounting for income taxes..... -- (495) -- -- -- -- --
-------- -------- -------- -------- ----------- -------- ----------
Net income (loss)...................... $ 146 $ (790) $ 142 $ 506 $ 2,518 $ 277 $ (1,045)
======== ======== ======== ======== =========== ======== ==========
OTHER DATA:
EBITDA(1)............................ $ 6,034 $ 6,195 $ 6,710 $ 7,038 $ 26,041 $ 9,923 $ 11,743
Depreciation and amortization........ 2,554 3,096 3,284 2,762 10,061 4,240 6,411
Capital expenditures................. 3,446 2,205 1,331 2,496 12,518 2,783 7,275
Net cash provided by (used in):
Operating activities............... 10,462 4,680 4,276 4,505 1,213 (2,345) (8,543)
Investing activities............... (3,352) (6,556) (5,422) (5,574) (105,013) (100,659) (13,246)
Financing activities............... (6,462) 2,676 490 619 105,387 103,733 23,040
Ratio of earnings to fixed
charges(2)......................... 1.1x 1.1x 1.1x 1.2x 1.2x 1.1x N/A
BALANCE SHEET DATA:
Cash................................. $ 882 $ 1,682 $ 1,025 $ 575 $ 2,162 $ 1,304 $ 3,413
Total assets......................... 68,040 75,265 79,218 77,503 291,103 291,908 1,416,592
Long-term debt, including current
portion............................ 34,065 34,170 32,160 32,779 129,905 119,893 995,615
Total stockholder's equity........... 10,212 14,779 17,205 10,157 42,675 40,434 41,630
</TABLE>
- ---------------
(1) EBITDA represents operating income plus depreciation, amortization and
excludes one-time, non-recurring gains and losses. EBITDA in fiscal 1996
adds back a net one-time, non-recurring charge of $1.7 million. EBITDA is
presented because management believes it is a widely accepted financial
indicator used by certain investors and analysts to analyze and compare
companies on the basis of operating performance. EBITDA is not intended to
represent cash flows for the period, nor has it been presented as an
alternative to operating income as an indicator of operating performance and
should not be considered in isolation or as a substitute for measures of
performance prepared in accordance with generally accepted accounting
principles. The Company understands that, while EBITDA is frequently used by
securities analysts in the evaluation of companies, EBITDA, as used herein,
is not necessarily comparable to other similarly titled captions of other
companies due to potential inconsistencies in the method of calculation. See
the historical and unaudited pro forma financial statements of the Company
and the related notes thereto included elsewhere herein.
(2) For purposes of computing this ratio, earnings consist of income before
income taxes plus fixed charges. Fixed charges consist of interest expense,
amortization of deferred finance fees and one-third of the rent expense from
operating leases, which management believes is a reasonable approximation of
the interest factor of the rent. For the first six months of 1997, earnings
were inadequate to cover fixed charges by $1.7 million.
19
<PAGE> 20
SELECTED PFS HISTORICAL FINANCIAL DATA
(DOLLARS IN THOUSANDS)
The following table presents selected historical financial data of PFS at
and for the fiscal years 1992, 1993, 1994, 1995 and 1996, and the first six
months of 1996 and 1997. The selected historical financial data for the fiscal
years 1992, 1993, 1994, 1995 and 1996 have been derived from the audited
financial statements of PFS. The historical financial statements of PFS for the
fiscal years 1992, 1993, 1994, 1995 and 1996 were audited by KPMG Peat Marwick
LLP. The historical data of PFS at and for the first six months of 1996 and 1997
have been derived from, and should be read in conjunction with, the unaudited
financial statements of PFS and the related notes thereto, which are included
elsewhere herein. In the opinion of management, such interim financial
statements reflect all adjustments (consisting only of normal and recurring
adjustments) necessary to fairly present the information presented for such
periods. The results of operations for the first six months of 1997 are not
necessarily indicative of the results of operations to be expected for the full
year. The selected financial data set forth below should be read in conjunction
with "The Refinancing," "The Transactions," "Summary Selected Financial Data,"
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations" and the historical financial statements of PFS and the related notes
thereto included elsewhere herein.
<TABLE>
<CAPTION>
FISCAL YEAR(1) SIX MONTHS(1)
-------------------------------------------------------------- -----------------------
1992 1993 1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales................... $2,799,673 $3,126,745 $3,279,837 $3,458,944 $3,422,086 $1,552,475 $1,498,345
Gross profit................ 273,858 304,030 326,672 344,777 341,484 154,852 155,686
Operating expenses.......... 198,776 219,332 239,772 265,305 261,741 122,528 120,945
---------- ---------- ------------ ---------- ---------- -------- ----------
-------
Operating income............ 75,082 84,698 86,900 79,472 79,743 32,324 34,741
Interest expense(4)......... (10,331) (10,282) (12,934) (17,613) (15,566) (7,102) (8,041)
---------- ---------- ------------ ---------- ---------- -------- ----------
-------
Income before income
taxes..................... 64,751 74,416 73,966 61,859 64,177 25,222 26,700
Provision for income
taxes..................... 24,624 28,703 28,874 23,844 24,597 9,928 9,924
---------- ---------- ------------ ---------- ---------- -------- ----------
-------
Net income.................. $ 40,127 $ 45,713 $ 45,092 $ 38,015 $ 39,580 $ 15,294 $ 16,776
========== ========== =================== ========== ========== ======== ==========
OTHER DATA:
EBITDA(2)................... $ 87,264 $ 96,872 $ 103,953 $ 98,236 $ 99,573 $ 41,143 $ 43,555
Depreciation and
amortization.............. 13,202 13,676 17,053 18,764 19,830 8,819 8,814
Capital expenditures........ 16,246 24,927 21,310 25,245 28,771 14,214 12,291
Net cash provided by (used
in):
Operating activities...... 29,077 29,412 64,717 29,580 78,437 897 7,972
Investing activities...... (18,709) (20,679) (20,263) (24,388) (27,561) (13,182) (4,048)
Financing activities...... (10,377) (8,758) (44,360) (5,163) (49,454) 12,661 (5,517)
Ratio of earnings to fixed
charges(3)................ 5.5x 6.1x 5.2x 3.8x 4.1x 3.7x 3.6x
BALANCE SHEET DATA:
Cash........................ $ (441) $ 80 $ 174 $ 203 $ 1,625 $ 579 $ 32
Total assets................ 401,168 462,042 479,799 516,288 478,921 521,014 508,455
Long-term debt, including
current portion........... -- -- -- -- -- -- --
Divisional equity........... 77,997 100,146 85,707 88,579 93,405 96,168 87,639
</TABLE>
- ---------------
(1) PFS had a 52-53 week fiscal year ending on the last Wednesday in December.
Each fiscal year had 52 weeks, except 1994 contained 53 weeks. Each six
months presented was 24 weeks.
(2) EBITDA represents operating income plus depreciation, amortization and
excludes one-time non-recurring gains and losses. EBITDA is presented
because management believes it is a widely accepted financial indicator used
by certain investors and analysts to analyze and compare companies on the
basis of operating performance. EBITDA is not intended to represent cash
flows for the period, nor has it been presented as an alternative to
operating income as an indicator of operating performance and should not be
considered in isolation or as a substitute for measures of performance
prepared in accordance with generally accepted accounting principles.
Management understands that, while EBITDA is frequently used by securities
analysts in the evaluation of companies, EBITDA, as used herein, is not
necessarily comparable to other similarly titled captions of other companies
due to potential inconsistencies in the method of calculation. See the
historical financial statements of PFS and the related notes thereto
included elsewhere herein.
(3) For purposes of computing this ratio, earnings consist of income before
income taxes plus fixed charges. Fixed charges consist of interest expense,
amortization of deferred finance fees and one-third of the rent expense from
operating leases, which management believes is a reasonable approximation of
the interest factor of the rent.
(4) Interest is paid on advances from PepsiCo, Inc. and affiliates at the prime
rate (8.35% at December 31, 1996). The advances are not subject to stated
repayment terms. PFS and PepsiCo, Inc. have agreed to reclassify amounts
between advances and divisional equity in order to maintain a preestablished
debt to equity ratio, as defined, as part of agreements between PFS and
Pizza Hut, Inc. and its franchisees.
20
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
AmeriServe is North America's largest systems foodservice distributor
specializing in distribution to chain restaurants, the fastest growing segment
of the domestic restaurant industry. The Company serves over 30 different
restaurant chains and over 26,500 restaurant locations in North America. The
Company has long-standing relationships with such leading restaurant concepts as
Pizza Hut, Taco Bell, KFC, Wendy's, Arby's, Burger King, Dairy Queen, Subway and
Applebee's. Holberg was formed in 1986 to acquire and manage foodservice
distribution businesses. Management believes the Company's history of
successfully identifying and integrating acquisitions helped the Company achieve
its current market position.
Acquisitions prior to the Acquisition of PFS consisted of:
M The acquisition in December 1986 of NEBCO, a regional systems distributor
based in Omaha, Nebraska for $6.0 million. NEBCO had annual sales of
approximately $60 million at the time of such acquisition.
M The acquisition in January 1990 of Evans, a regional systems distributor
based in Waukesha, Wisconsin for $33.9 million. Evans had annual sales of
approximately $115 million at the time of such acquisition.
M The acquisition in December 1990 of L.L. Distribution Systems Inc., a
regional systems distributor based in Plymouth, Minnesota for $10.0
million. L.L. Distribution Systems Inc. had annual sales of approximately
$50 million at the time of such acquisition.
M The acquisition in March 1991 of Condon Supply Company, a regional
systems distributor based in St. Cloud, Minnesota for $3.4 million.
Condon Supply Company had annual sales of approximately $15 million at
the time of such acquisition.
M The acquisition in January 1996 of AmeriServ, a wholesale distributor of
food and other supply items based in Dallas, Texas for a purchase price
of $92.9 million. AmeriServ had annual sales of approximately $940
million at the time of such acquisition.
M The acquisition of Chicago Consolidated Corporation, an operator of
redistribution facilities for dry goods based in Chicago, Illinois for
approximately $2.0 million.
Primarily as a result of these acquisitions, the Company's net sales
increased from $277.9 million in 1991 to $1.3 billion in 1996. In May 1997, in
furtherance of its growth strategy, the Company entered into an agreement to
acquire PFS, subject to certain conditions. See "The Transactions."
RECENT DEVELOPMENTS
During the third quarter of 1997, management of the Company performed an
extensive review of the existing operations including the recently acquired PFS
operations with the objective of developing a business plan for the
restructuring and consolidation of the organizations. The business plan, which
was approved by the Company's Board of Directors late in the third quarter,
identified a number of actions designed to significantly increase the efficiency
and effectiveness of the combined entity's warehouse and transportation network
and operational support infrastructure, and position the Company for continued
sales growth and increased penetration in the chain restaurant segment of the
foodservice distribution industry. These actions include construction of new
strategically located warehouse facilities, closures of certain existing
warehouse facilities and expansions of others, dispositions of property and
equipment, conversion of computer systems, reductions in workforce and
relocation of the Company's headquarters.
To reflect the impact of the business plan on existing operations, the
Company intends to record a restructuring charge of approximately $31.0 million,
to be recorded in the third quarter of 1997, which primarily relates to these
actions. Included in this charge are approximately: (i) $18.0 million related to
impairment of property, equipment and other assets; (ii) $9.0 million for exit
costs associated with future lease
21
<PAGE> 22
terminations and employee displacements; and (iii) $4.0 million of integration
expenses incurred in the third quarter of 1997 associated with a previous
acquisition and certain incurred employee relocations associated with the
business plan.
Although the business plan action, when completed, is expected to result in
cost savings of $7.9 million, results in 1998 will be impacted by start-up costs
and other operating inefficiencies associated with the warehouse and
transportation network reconfiguration, including workforce hiring and training
and integration of customer delivery routes.
RESULTS OF OPERATIONS OF AMERISERVE
The following financial information presents certain historical financial
information of AmeriServe, expressed as a percentage of net sales, for the
fiscal years 1994, 1995 and 1996 and for the first six months of 1996 and 1997.
<TABLE>
<CAPTION>
FISCAL YEAR SIX MONTHS
------------------------- ---------------
1994 1995 1996 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales.......................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit....................................... 10.6 10.2 10.1 10.1 9.8
Distribution, selling and administrative
expenses......................................... 9.6 9.1 9.0 9.1 9.1
Operating income................................... 1.0 1.1 1.1 1.0 0.7
</TABLE>
FIRST SIX MONTHS OF 1997 COMPARED TO FIRST SIX MONTHS OF 1996
AmeriServ was acquired on January 26, 1996. Therefore, the first six months
of 1996 include only five months of operations related to the acquisition of
AmeriServ.
Net Sales. Net sales increased by $156.2 million, or 26.7%, during the
first six months of 1997 as compared to the first six months of 1996. The pro
forma effect of the AmeriServ acquisition accounted for $55.1 million, or 35.3%,
of such increase, and increased account penetration, new store openings and
service to Arby's accounted for the remaining $101.1 million, or 64.7%, of such
increase. The increased account penetration in new store openings was
principally a result of successful marketing of the Company's service
capabilities and attractive pricing.
Gross Profit. Gross profit increased by $13.5 million, or 22.8%, during
the first six months of 1997 as compared to the first six months of 1996. The
increase was due to the pro forma effect of the AmeriServ acquisition ($5.2
million) and the increase in sales ($8.3 million). Gross margin decreased from
10.1% during the first six months of 1996 as compared to 9.8% for the first six
months of 1997 due to the slightly higher cost of products purchased by
customers added through the AmeriServ acquisition.
Distribution, Selling and Administrative Expenses. Distribution, selling
and administrative expenses increased by $13.8 million, or 25.9%, during the
first six months of 1997 as compared to the first six months of 1996. The
increase was primarily due to costs related to preparation for the commencement
of service to Arby's. Distribution, selling and administrative expenses as a
percent of net sales remained constant at 9.1% during the first six months of
1997 as compared to the first six months of 1996.
Operating Income. Operating income decreased by $0.4 million, or 6.2%,
during the first six months of 1997 as compared to the first six months of 1996.
The decrease was due to increased (i) depreciation resulting from capital
projects and capital expenditures associated with the integration of AmeriServ
and (ii) amortization resulting from goodwill associated with the acquisition of
AmeriServ, offset by the increase in net sales. Operating income margin
decreased from 1.0% during the first six months of 1996 to 0.7% during the first
six months of 1997.
FISCAL 1996 COMPARED TO FISCAL 1995
Net Sales. Net sales increased by $880.6 million, or 220.1%, during fiscal
1996 as compared to fiscal 1995. This increase was primarily due to the
acquisition of AmeriServ. The increase in net sales was net of
22
<PAGE> 23
certain account resignations made during fiscal 1996. The Company regularly
reviews the profitability of its account portfolio, and at times decides to
discontinue relationships with accounts deemed not sufficiently profitable for
the Company.
Gross Profit. Gross profit increased by $87.9 million, or 214.5%, during
fiscal 1996 as compared to fiscal 1995. The increase was due to the acquisition
of AmeriServ. Gross margin declined slightly from 10.2% during fiscal 1995 as
compared to 10.1% during fiscal 1996, due to the slightly higher cost of
products purchased by customers added through the AmeriServ acquisition.
Distribution, Selling and Administrative Expenses. Distribution, selling
and administrative expenses increased by $77.9 million, or 212.2%, during fiscal
1996 as compared to fiscal 1995. The overall increase was primarily due to the
AmeriServ acquisition. Distribution, selling and administrative expenses as a
percent of net sales decreased from 9.1% during fiscal 1995 to 9.0% during
fiscal 1996, due to decreased operating costs offset by an increase in
depreciation and amortization of $7.3 million. The increased amortization and
depreciation were a result of the AmeriServ acquisition and the capital
expenditures made by the Company in 1996.
Operating Income. Operating income increased by $10.0 million, or 234.2%,
during fiscal 1996 as compared to fiscal 1995 principally as a result of the
increase in net sales. Operating margin remained constant at 1.1% in fiscal 1995
and fiscal 1996.
FISCAL 1995 COMPARED TO FISCAL 1994
Net Sales. Net sales increased by $41.5 million, or 11.6%, during fiscal
1995 as compared to fiscal 1994. This increase was primarily due to new store
openings by existing customers, increased account penetration and expanded
geographical coverage.
Gross Profit. Gross profit increased by $3.1 million, or 8.1%, during
fiscal 1995 as compared to fiscal 1994. The increase was due to new store
openings by existing customers, increased account penetration and expanded
geographical coverage, offset by lower gross margins. Gross margin decreased
from 10.6% during fiscal 1994 to 10.2% during fiscal 1995, consistent with
decreases in gross margin throughout the industry at that time.
Distribution, Selling and Administrative Expenses. Distribution, selling
and administrative expenses increased by $2.2 million, or 6.4%, during fiscal
1995 as compared to fiscal 1994. The increase was primarily due to several
distribution center expansions. Distribution, selling and administrative
expenses as a percent of net sales decreased from 9.6% during fiscal 1994 to
9.1% during fiscal 1995.
Operating Income. Operating income increased by $0.9 million, or 24.8%,
during fiscal 1995 as compared to fiscal 1994 for the reasons stated above. As a
result, operating income margin increased from 1.0% during fiscal 1994 to 1.1%
during fiscal 1995.
RESULTS OF OPERATIONS OF PFS
The following financial information presents certain historical financial
information of PFS, expressed as a percentage of net sales, for the fiscal years
1994, 1995 and 1996 and for the first six months of 1996 and 1997. PFS sales are
reported net of rebates as a result of profit limitation agreements with Pizza
Hut, Inc. and its franchisees. Such profit limitation agreements continue after
the Transactions Closing.
<TABLE>
<CAPTION>
FISCAL YEAR SIX MONTHS
----------------------------- -----------------
1994 1995 1996 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales.................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit............................... 10.0 10.0 10.0 10.0 10.4
Operating expenses......................... 7.4 7.7 7.7 7.9 8.1
Operating income........................... 2.6 2.3 2.3 2.1 2.3
</TABLE>
23
<PAGE> 24
FIRST SIX MONTHS 1997 COMPARED TO FIRST SIX MONTHS 1996
Net Sales. PFS net sales of $1,498.3 million declined by $54.1 million, or
3.5%, during the first six months of 1997 as compared to the first six months of
1996, primarily due to new product rollouts and sales of promotional items in
the first six months of 1996 and lower store volumes in the current period,
offset slightly by an increased market share in the first six months of 1997.
Gross Profit. Gross profit increased by $0.8 million, or 0.5%, during the
first six months of 1997 as compared to the first six months of 1996, due to the
impact of low margin promotional sales on margins during the first six months of
1996. Gross margin increased from 10.0% during the first six months of 1996 to
10.4% during the first six months of 1997, due to a shift in sales to higher
margin products.
Operating Expenses. Operating expenses decreased by $1.6 million, or 1.3%,
during the first six months of 1997 as compared to the first six months of 1996,
due to lower headcounts, lower computer processing charges and a decline in bad
debt expense, partially offset by costs associated with a new computer system,
which is expected to be implemented in 1998.
Operating Income. Operating income increased by $2.4 million, or 7.5%,
during the first six months of 1997 as compared to the first six months of 1996
due to the reasons stated above. As a result, operating income margin increased
from 2.1% during the first six months of 1996 to 2.3% during the first six
months of 1997.
FISCAL 1996 COMPARED TO FISCAL 1995
Net Sales. Net sales decreased by $36.9 million, or 1.1%, during fiscal
1996 as compared to fiscal 1995. This decrease was due to the impact of soft
sales in the equipment segment, which declined by $24.7 million from fiscal
1995. Food and supply revenues declined by $12.2 million during fiscal 1996 as
compared to fiscal 1995, due to soft volumes in our customer base, offset
slightly by increased market share.
Gross Profit. Gross profit decreased by $3.3 million, or 1.0%, during
fiscal 1996 as compared to fiscal 1995, due to the decrease in revenue during
fiscal 1996. Gross margin was consistent with prior year results during fiscal
1996.
Operating Expenses. Operating expenses decreased by $3.6 million, or 1.3%,
during fiscal 1996 as compared to fiscal 1995. This decline reflected
temporarily higher field management expenses in fiscal 1995 and lower bad debt
expense in fiscal 1996, partially offset by increased depreciation expense in
fiscal 1996 due to several distribution center expansions and the relocation of
a distribution center.
Operating Income. Operating income increased by $0.3 million, or 0.3%,
during fiscal 1996 as compared to fiscal 1995. This increase was primarily due
to a favorable performance in operating expenses, largely offset by a decline in
gross margin. Operating income margin during fiscal 1996 was consistent with the
prior year's margin of 2.3%.
FISCAL 1995 COMPARED TO FISCAL 1994
Net Sales. Net sales increased by $179.1 million, or 5.5%, during fiscal
1995 as compared to fiscal 1994, due to an increase in the number of units
served by an average of almost 1,000 stores, as well as increased product costs.
Strong food and supply sales were offset by soft sales in the equipment segment.
Gross Profit. Gross profit increased by $18.1 million, or 5.5%, during
fiscal 1995 as compared to fiscal 1994, due to the increase in revenue during
fiscal 1995. Gross margin was consistent with prior year results during fiscal
1995.
Operating Expenses. Operating expenses increased by $25.5 million, or
10.6%, during fiscal 1995 as compared to fiscal 1994, reflecting increased bad
debt expense, costs associated with a short-term field management reorganization
and increased depreciation due to the relocation of a distribution center and
several center expansions.
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<PAGE> 25
Operating Income. Operating income decreased by $7.4 million, or 8.5%,
during fiscal 1995 as compared to fiscal 1994, for the reasons stated above.
Operating income margin decreased from 2.6% during fiscal 1994 to 2.3% during
fiscal 1995 as a result of the increased operating expenses.
LIQUIDITY AND CAPITAL RESOURCES
HISTORICAL AMERISERVE
The Company had $213.1 million of working capital at June 28, 1997 as
compared to $18.0 million at the end of fiscal 1996. The increase of $195.1
million was primarily due to increased receivables of $341.4 million and
increased inventory of $103.0 million, offset by increased accounts payable of
$202.1 million and increased accrued liabilities of $52.6 million. The changes
in working capital were due to the acquisition of PFS and the new business to
Arby's.
The Company had $18.0 million of working capital at December 28, 1996
compared to $10.5 million of working capital at December 30, 1995. The increase
was due to the working capital required to service the customer base of
AmeriServ, which was acquired on January 25, 1996.
The Company had $10.5 million of working capital at December 30, 1995 as
compared to $10.9 million of working capital at December 31, 1994. The decrease
was due to an increase in accounts payable.
Net cash used in operating activities for the first six months of 1997 was
$8.5 million compared to net cash used in operating activities of $2.3 million
for the first six months of 1996. The increase in cash used in operating
activities was primarily due to the increase in working capital needs for the
new Arby's business.
Net cash used in investing activities during the first six months of 1997
was $13.2 million compared to net cash used in investing activities of $100.7
million for the first six months of 1996. The decrease in cash used in investing
activities was primarily due to the acquisition of AmeriServ for $92.9 million
during 1996, offset by an increase in capital expenditures of $4.5 million.
Net cash provided by financing activities during the first six months of
1997 was $23.0 million compared to net cash provided by financing activities of
$103.7 million for the first six months of 1996. The decrease in cash provided
by financing activities was primarily due to proceeds from the issuance of
preferred stock and borrowings under the Company's credit facility in order to
fund the acquisition of AmeriServ in 1996, offset by borrowings under the
Company's credit facilities in the first six months of 1997 to service the
working capital needs of Arby's.
Net cash provided by operating activities during fiscal 1996 was $1.2
million compared to $4.5 million in fiscal 1995. The decrease in cash provided
by operating activities was due to the increase in working capital at December
28, 1996 compared to December 30, 1995 (as discussed above), offset by an
increase in net income from $0.5 million during fiscal 1995 to $2.5 million in
fiscal 1996 and an increase in depreciation and amortization from $2.8 million
in fiscal 1995 to $10.1 million in fiscal 1996.
Net cash used in investing activities during fiscal 1996 increased $99.4
million to $105.0 million compared to $5.6 million in fiscal 1995. This increase
was principally due to the acquisition of AmeriServ for $92.9 million during
fiscal 1996. In addition, capital expenditures increased from $2.5 million in
fiscal 1995 to $12.5 million in fiscal 1996 as a result of expenditures to
modify and expand certain distribution centers.
Net cash provided by financing activities during fiscal 1996 was $105.4
million compared to $0.6 million in fiscal 1995. This increase was principally
due to proceeds from the issuance of preferred stock and borrowings under the
Company's credit facilities in order to fund the acquisition of AmeriServ.
Net cash provided by operating activities during fiscal 1995 was $4.5
million, which was comparable to the net cash provided by operating activities
of $4.3 million in fiscal 1994. Net cash used in investing activities during
fiscal 1995 was $5.6 million compared to $5.4 million in fiscal 1995. Net cash
provided by financing activities during fiscal 1995 was $0.6 million compared to
$0.5 million in fiscal 1994.
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<PAGE> 26
PRO FORMA
After the Transactions and the Refinancing, the Company's primary capital
requirements, on a pro forma basis, will be for debt service, working capital
and capital expenditures. The Company believes that cash flow from operating
activities, cash and cash equivalents and borrowings under the New Credit
Facility will be adequate to meet the Company's short-term and long-term
liquidity requirements prior to the maturity of its long-term indebtedness,
although no assurance can be given in this regard. Under the New Credit
Facility, the Revolving Credit Facility provides $150 million of revolving
credit availability, of which approximately $138.9 million is available (after
reductions of $11.1 million of letters of credit) for draw subject to customary
covenants. In addition, the Company may increase the Accounts Receivable
Program, further improving liquidity, although no assurance can be given that
the Receivables will be sufficient to increase the Accounts Receivable Program.
See "Risk Factors -- Substantial Leverage and Debt Service."
The Company estimates that capital expenditures for fiscal 1997 will be
approximately $35 million, which includes maintenance capital expenditures and
various planned and potential projects designed to increase efficiencies and
enhance the Company's competitiveness and profitability. Specifically, such
capital expenditures include the planned distribution center consolidation,
modification and expansion of certain distribution centers, integration and
upgrade of MIS and other general capital improvements.
HISTORICAL PFS
Net cash provided by operating activities for the first six months of 1997
increased $7.1 million compared to the first six months of 1996. Growth in net
income contributed $1.5 million of this increase. Changes in receivables and
accounts payable resulted in a $1.2 million decline in cash outflows compared to
1996. An unfavorable change in accounts receivable reflected a recovery in sales
from the late 1996 decline. This impact was more than offset by a favorable
change in accounts payable that also reflected the recovery in sales from the
late 1996 decline, as well as timing of payments in the first six months of
1996. Accrued liabilities provided a favorable change of $2.9 million due to
increases in 1997 bonus accruals to be paid in 1998. Investing activities
provided a $9.1 million favorable change as compared to 1996, which included
$7.3 million in transfers of property to affiliates of the Parent in
anticipation of the sale of PFS and a $1.9 million decline in capital spending.
Financing activities, which largely represent net transfers of funds to/from the
Parent, reflected an $18.2 million change from a cash inflow in 1996 to a cash
outflow in 1997. This change includes $9.0 million representing the increase in
net cash provided by operating activities and a decrease in capital spending, as
well as the $7.3 million in transfers of property to affiliates of the Parent.
Net cash provided by operating activities in fiscal 1996 increased $48.9
million, or 165.2%, compared to fiscal 1995. This growth was driven by favorable
changes in working capital. Changes in receivables, inventories and accounts
payable provided net cash inflows of $22.7 million in 1996 compared to cash
outflows of $29.4 million in 1995. These changes reflect a decline in net sales
late in 1996, compared to sales growth in 1995. Investing activities reflected
capital spending growth over 1995 of $3.5 million to $28.8 million. Capital
spending activity was led by purchases of fleet and material handling equipment
and expenditures related to the expansion of a distribution center. Financing
activities, which largely represent net transfers of funds to/from the Parent,
reflected a $44.3 million increase in cash outflows compared to 1995. This
change primarily represents the increase in net cash provided by operating
activities, partially offset by the increase in capital spending.
Net cash provided by operating activities in fiscal 1995 decreased $35.1
million, or 54.3%, compared to fiscal 1994. Changes in accrued liabilities
accounted for $17.8 million of the decline reflecting timing of income and sales
tax payments. Unfavorable changes in accounts payable of $11.9 million were due
to timing of payments while unfavorable changes in inventories of $9.9 million
resulted from sales growth in fiscal 1995 and inventory control efforts late in
fiscal 1994. Investing activities reflected capital spending growth over 1994 of
$3.9 million to $25.2 million. Capital spending activity was led by purchases of
fleet and material handling equipment and expenditures related to the relocation
of two distribution centers. Financing activities, which largely represent net
transfers of funds to/from the Parent, reflected a $39.2 million decrease in
cash outflows
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<PAGE> 27
compared to 1996. This change primarily represents the decline in net cash
provided by operating activities as well as the increase in capital spending.
SEASONALITY AND INFLATION
Historically, AmeriServe's sales and operating results have reflected
seasonal variations. The Company experiences lower net sales and income from
operations in the first and fourth quarters, with the effects being more
pronounced in the first quarter. Additionally, the effect of these seasonal
variations is more pronounced in regions where winter weather is generally more
inclement.
Inflation has not had a significant impact on the Company's operations.
Food price deflation could adversely affect the Company's profitability as a
significant portion of the Company's sales are at prices based on product cost
plus a percentage markup. The Company has not been adversely affected by food
price deflation in recent years.
ENVIRONMENTAL MATTERS
Under applicable environmental laws, the Company may be responsible for
remediation of environmental conditions and may be subject to associated
liabilities (including liabilities resulting from lawsuits brought by private
litigants) relating to its distribution centers and the land on which its
distribution centers are situated, regardless of whether the Company leases or
owns the stores or land in question and regardless of whether such environmental
conditions were created by the Company or by a prior owner or tenant.
The Company believes it currently conducts its business, and in the past
has conducted its business, in substantial compliance with applicable
environmental laws and regulations. In addition, compliance with federal, state
and local laws enacted for protection of the environment has had no material
effect on the Company. However, there can be no assurance that environmental
conditions relating to prior, existing or future distribution centers or
distribution center sites will not have a material adverse effect on the
Company.
In connection with the Acquisition, the Company reviewed existing reports
and retained environmental consultants to conduct an environmental audit of
PFS's operations in order to identify conditions that could have material
adverse effects on the Company. The Company has obtained final reports on the
results of such audit with regard to PFS, which concluded that there are no
environmental matters that are likely to have a material adverse effect on the
Company.
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<PAGE> 28
THE BUSINESS
AmeriServe is North America's largest systems foodservice distributor
specializing in distribution to chain restaurants, the fastest growing segment
of the domestic restaurant industry. The Company is the primary supplier to its
customers of a wide variety of items, including fresh and frozen meat and
poultry, seafood, frozen foods, canned and dry goods, fresh and pre-processed
produce, beverages, dairy products, paper goods, cleaning supplies and
equipment. The Company serves over 30 different restaurant chains and over
26,500 restaurant locations in North America. The Company has had long-standing
relationships with such leading restaurant concepts as Pizza Hut, Taco Bell,
KFC, Wendy's, Burger King, Dairy Queen, Subway and Applebee's. The Company's
strategy is to capitalize on its market leading position, compelling industry
trends and management's extensive experience to: (i) pursue profitable internal
and external growth opportunities; (ii) capitalize on its nationwide network of
distribution centers to increase customer density and regional market
penetration; (iii) continue to provide low cost, superior customer service; and
(iv) maximize operating leverage by pursuing selective acquisitions within the
fragmented foodservice distribution industry. For the fiscal year ended December
28, 1996, the Company generated pro forma net sales, pro forma EBITDA and pro
forma net loss of $4.9 billion, $126.7 million and $1.9 million, respectively.
The Company has achieved a record of strong growth in net sales and EBITDA
by successfully implementing this strategy. From 1992 to 1996, exclusive of PFS,
the Company's net sales increased from $293.6 million to $1.3 billion,
representing a CAGR of 44.5%. During the same period, the Company's EBITDA,
exclusive of PFS, increased from $6.0 million to $26.0 million, representing a
CAGR of 44.1%. The Company believes it is well positioned to continue to expand
its presence in the systems foodservice distribution industry as a result of its
reputation for providing superior customer service as well as its ability to
provide low cost, efficient services. The Company believes that it was primarily
as a result of these factors that in January 1997 it was awarded a three-year
exclusive contract effective April 1997 to provide foodservice distribution to
approximately 2,600 Arby's restaurants. The Company estimates that this
contract, which management believes represents the single largest customer
migration in the systems foodservice distribution industry, will result in the
addition of approximately $325 million of net sales in the first 12 months of
such contract.
On July 11, 1997, in furtherance of its strategy, NEHC acquired PFS, the
foodservice distribution business of PepsiCo. Prior to the Acquisition, PFS was
North America's second largest systems foodservice distributor, serving over
17,000 restaurants in the Pizza Hut, Taco Bell and KFC restaurant systems. The
Company expects to realize significant benefits from the Acquisition, including:
(i) enhanced customer and concept diversification; (ii) increased customer
density; (iii) broadened national and international presence; and (iv)
substantial cost savings and economies of scale. In addition, in connection with
the Acquisition, the Company has entered into the Distribution Agreement,
whereby it will be the exclusive distributor of selected products for five years
to the approximately 9,800 Pizza Hut, Taco Bell and KFC restaurants in the
continental United States owned by PepsiCo and previously serviced by PFS. These
restaurants accounted for approximately 68% of PFS's 1996 net sales and 44% of
the Company's 1996 pro forma net sales after giving effect to the Arby's
contract.
The Company believes it is well positioned to capitalize on the attractive
characteristics of the chain restaurant segment of the foodservice distribution
industry, which include: (i) the high growth rate of the segment, which
experienced an approximately 7.4% net sales CAGR from 1985 to 1995; (ii) the
uniformity of product offerings and consistency of demand by chain restaurant
customers; (iii) the increased focus by chain restaurants on foodservice
distributors that can provide consistent quality and reliable service on a
nationwide basis to maintain the chain's uniform standards; and (iv) the
fragmented nature of the industry, which includes over 3,000 foodservice
distribution companies. As the largest systems foodservice distributor serving
chain restaurants, the Company believes it is better positioned than its
competitors to offer consistent quality, reliable service and value on a
national scale in order to accommodate the growth of each customer.
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<PAGE> 29
FOODSERVICE DISTRIBUTION INDUSTRY
Generally
The foodservice distribution business involves the purchasing, receiving,
warehousing, marketing, selecting, loading and transportation of fresh and
frozen meat and poultry, seafood, frozen foods, canned and dry goods, fresh and
preprocessed produce, beverages, dairy products, paper goods, cleaning supplies,
equipment and other supplies from manufacturers and vendors to a broad range of
enterprises, including restaurants, cafeterias, nursing homes, hospitals, other
health care facilities and schools (but generally does not include supermarkets
and other retail grocery stores). The United States foodservice distribution
industry was estimated to generate $123 billion in sales in 1996.
Within the foodservice distribution industry, there are two primary types
of distributors: broadline foodservice distributors and specialist foodservice
distributors, such as the Company. Broadline foodservice distributors service a
wide variety of customers including both independent and chain restaurants,
schools, cafeterias and hospitals. Broadline distributors may purchase and
inventory as many as 25,000 different food and food-related items. Customers
utilizing broadline foodservice distributors typically purchase inventory from
several distributors. Specialist foodservice distributors may be segregated into
three categories: product specialists, which distribute a limited number of
products (such as produce or meat); market specialists, which distribute to one
type of restaurant (such as Mexican); and systems specialists, which focus on
one type of customer (such as chain restaurants or health care facilities).
Systems specialists, such as the Company, typically serve as a single source of
supply for their customers. In addition, chain restaurant foodservice
distributors are less vulnerable to customer migrations because much of their
inventory is proprietary to the restaurant concept. Also, broadline foodservice
distributors generally rely on sales representatives who must call on customers
regularly. Systems' distributors, however, regularly process orders
electronically without the need for a sales representative's involvement.
Systems Specialty -- Chain Restaurants
The Company operates as a systems distributor that specializes in servicing
chain restaurants. The chain restaurant segment represents a significant portion
of the foodservice distribution industry, with 1996 industry sales in this
segment estimated by the Company to be approximately $103 billion at the retail
level and approximately $44 billion at the distributor level. In addition,
retail sales in this segment are estimated to have grown at a CAGR of
approximately 7.4% from 1985 to 1995, reflecting both the growth of existing
chain restaurants and the introduction of new chain restaurant concepts. The
chain restaurant market at the retail level is projected to grow from $103
billion in 1996 to $162 billion by 2005, representing a ten-year inflation
adjusted CAGR of approximately 5%.
The Company believes a significant factor influencing growth in the systems
distribution market share segment is the ability of the systems distributor to
provide consistently high quality and reliable distribution services at
competitive prices, which has resulted in customers' forming long-term
relationships with their systems distributor in order to tailor specific
programs that meet the particular needs of the customer while creating operating
and cost efficiencies for both the customer and the systems distributor.
The Company believes that systems distributors are better able to service
chain restaurants than broadline distributors because the Company believes
systems distributors are often able to offer their customers a higher quality of
service at a lower cost. Given the uniformity of product offerings and the
consistency of demand of chain restaurants, a systems distributor has the
opportunity to reduce its overall costs and consequently those of its customers
through purchasing and holding fewer SKUs in inventory than a broadline
distributor. This reduces both the inbound and outbound freight costs through
higher volumes and larger drop sizes and provides more efficient and reliable
distribution schedules, thereby reducing labor costs of both the systems
distributor and its customer. In addition, systems distributors generally
require a smaller sales force than broadline distributors. The Company believes
that the uniformity of product offerings, frequency of deliveries and magnitude
of volumes allow a systems distributor to chain restaurants to significantly
improve net asset turnover as compared to a broadline distributor. In addition,
management believes that the larger systems distributors have the volume and
scale to offer chain restaurants an
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<PAGE> 30
opportunity to further reduce their costs through value-added services, such as
procurement of nonproprietary items and in-bound freight logistics management.
In addition, larger systems distributors can invest in technology and business
processes, such as electronic order entry, to reduce the cost of distributing to
the restaurants.
The Company believes that it has the leading market share in the chain
restaurant foodservice distribution segment. The foodservice distribution
industry remains highly fragmented and continues to experience significant
consolidation. The number of foodservice distributors has decreased from
approximately 3,600 in 1985 to approximately 3,000 in 1997, with a significant
increase in the market shares of the largest distributors. The Company
anticipates that further consolidation may take place in this segment and
intends to be a leading participant in any such further consolidation.
BUSINESS STRATEGY
The Company's objective is to continue to grow net sales and EBITDA by
implementing the following key elements of its business strategy:
- Continue to Pursue Internal and External Growth Opportunities. The
Company intends to continue to grow through a combination of the
development of new business from existing customers, the addition of new
chains, international expansion and selective acquisitions.
Growth From Existing Chains. As the primary foodservice distributor to
most of its customers, the Company expects to benefit from the continued
growth of the domestic chain restaurant industry, the fastest growing
sector of the restaurant industry. From 1985 to 1995, the chain restaurant
segment experienced an approximately 7.4% net sales CAGR, which exceeds
the estimated 3.0% CAGR experienced by the overall restaurant industry.
The Company expects to realize growth from its existing base of customers
and concepts primarily due to: (i) increased traffic within existing
restaurants; (ii) the addition of new product lines; (iii) new restaurant
development and restaurant acquisitions by existing customers; and (iv)
the addition of new customers within concepts currently serviced by the
Company.
Growth Through Addition of New Chains. The Company continually
monitors the marketplace for opportunities to expand its portfolio of
customers and concepts. The Company targets (i) chains operating in
geographic areas where the Company could benefit from increased customer
density, further enhancing its operating leverage, and (ii) concepts that
could benefit from the Company's national presence and superior customer
service. In April 1997, the Company began operating under a recently
awarded three-year exclusive contract to provide foodservice distribution
to over 2,600 Arby's restaurants nationwide. The Company estimates that
this contract, which management believes represents the single largest
customer migration in the systems foodservice distribution industry, will
result in the addition of approximately $325 million of net sales in the
first 12 months of such contract. In addition, the Company plans to pursue
additional export opportunities and further expand its operations in
international markets. After giving effect to the Acquisition, the Company
exports products from its distribution centers in the United States to
approximately 65 foreign countries.
Pursue Selective Acquisition Opportunities. As North America's largest
systems foodservice distributor serving chain restaurants, the Company
believes it is well positioned to capitalize on the consolidation taking
place in the fragmented foodservice distribution industry. The number of
foodservice distributors has decreased from approximately 3,600 in 1985 to
approximately 3,000 in 1997, with a significant increase in the market
shares of the largest distributors. The Company intends to continue to
make strategic fold-in acquisitions in order to augment its operations in
existing markets, enhance customer density and further reduce costs, and
may also make larger acquisitions as appropriate opportunities arise.
- Capitalize on the Benefits of the PFS Acquisition. Management believes
that combining the operations of AmeriServe and PFS will present it with
opportunities to eliminate duplicative costs and realign the Company's
distribution center network to effectively capitalize on economies of
scale and
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<PAGE> 31
the benefits of higher customer density. Management has identified
approximately $27 million of annual cost savings, which it believes it
can achieve through the elimination of general and administrative
expenses and the consolidation of distribution centers in certain
markets. Following the Acquisition, the Company expects to reduce the
number of current distribution centers from 39 to 29. In addition, the
five-year Distribution Agreement will further secure the Company's
customer base and provide for a long-term contract covering approximately
44% of the Company's pro forma 1996 net sales after giving effect to the
Arby's contract.
- Continue to Maximize Operating Leverage. As the largest systems
foodservice distributor in North America, the Company pursues a low-cost
operating strategy based primarily on achieving economies of scale in the
areas of warehousing, transportation, general and administrative
functions and management information systems. The Company generates
significant operating leverage by utilizing large distribution centers
strategically within each of its geographic markets, enabling it to: (i)
service multiple concepts from the same warehouse; (ii) maximize the
density of restaurants served from each facility; (iii) optimize delivery
routes; (iv) invest in advanced technology, which increases operational
efficiencies and enhances customer service; and (v) manage inventory more
efficiently.
- Continue to Provide Superior Customer Service. The Company believes it
enjoys a reputation for providing consistent, high quality service based
on its customer focus, its commitment to service excellence and the depth
of its management team. The Company has successfully implemented a
decentralized management structure that enables the Company to respond
quickly and flexibly to local customer needs. The Company typically
interacts with its customers on a daily basis, and generally makes
multiple deliveries to each restaurant each week. The Company measures
daily its service performance by continuously monitoring the accuracy and
promptness of deliveries. The Company's advanced computer systems are
linked to many of its customers' locations, enabling customers to
communicate electronically with the Company, thereby reducing the
Company's administrative costs, and enabling it to more efficiently
respond to customers' needs. In addition, the Company's national presence
allows it to provide consistent and reliable service to national
restaurant concepts with geographically diverse locations.
CUSTOMERS
The Company's customers are generally individual franchisees or
corporate-owned restaurants of chain restaurant concepts. The Company's
customers include over 30 restaurant concepts with over 26,500 restaurant
locations. The corporate owner or franchisor of the restaurant concept generally
reserves the right to designate one or more approved foodservice distributors
within a geographic region, and each franchisee is typically allowed to select
its foodservice distributor from such approved list.
Concept Mix and Concentration
On a pro forma basis after giving effect to the Transactions and the Arby's
contract, the Company's net sales in 1996 to its largest restaurant concepts
were as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF 1996 NET SALES
--------------------------------
PRO FORMA
CONCEPT AMERISERVE PFS COMBINED
------------------------------------------------------- ---------- --- ---------
<S> <C> <C> <C>
Pizza Hut restaurants(1)............................... 43% 28%
Taco Bell restaurants(2)............................... 43% 28%
KFC restaurants(3)..................................... 7% 14% 12%
Wendy's restaurants.................................... 30% 10%
Arby's restaurants..................................... 17% 6%
Burger King restaurants................................ 14% 5%
</TABLE>
- ---------------
(1) PepsiCo -- owned Pizza Hut restaurants accounted for approximately 17.4% of
pro forma combined net sales.
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(2) PepsiCo -- owned Taco Bell restaurants accounted for approximately 18.3% of
pro forma combined net sales.
(3) PepsiCo -- owned KFC restaurants accounted for approximately 7.9% of pro
forma combined net sales.
On a pro forma basis after giving effect to the Transactions and to the
Arby's contract, aggregate sales to PepsiCo Chains would have represented 44% of
the Company's 1996 net sales. No other single customer accounted for more than
10% of the Company's pro forma net sales in fiscal 1996. See "Risk Factors --
Dependence on Certain Chains and Customers."
Length of Customer Relationships
The Company has enjoyed long and successful relationships with its
customers that, in many cases, date back to the initial start-up of the
concept's operations. The following table illustrates concepts that are serviced
by the Company and the number of years the Company has serviced customers within
these concepts:
<TABLE>
<CAPTION>
YEARS AS A
CONCEPT CUSTOMER
-------------------------------------------------- ----------
<S> <C>
Dairy Queen....................................... 46
Burger King....................................... 36
KFC............................................... 26
Wendy's........................................... 21
Pizza Hut......................................... 20
Taco Bell......................................... 18
Applebee's........................................ 8
Subway............................................ 6
</TABLE>
The Distribution Agreement entered into with PepsiCo will provide the
Company with exclusive distribution rights for certain restaurant products to
approximately 9,800 Pizza Hut, Taco Bell and KFC restaurants for a five-year
term. Historically, PFS has had great success retaining business with
restaurants formerly owned by PepsiCo that have been refranchised. The
increasing penetration of franchise restaurants and the strong refranchising
retention rate have resulted in an overall net increase in restaurants served
every year. PFS's high level of customer satisfaction is a direct result of
management's emphasis on customer service. PFS's field level management is
responsible for maintaining and reinforcing long-standing partnerships with the
Pizza Hut, Taco Bell and KFC restaurants.
In January 1997, the Company entered into a three-year agreement, which
became effective April 1997, to become the primary supplier to approximately
2,600 Arby's restaurants nationwide. Management believes this to be the single
largest customer migration in the systems foodservice distribution business. The
Company services these restaurants together with three other cooperating
distributors. The cooperating distributors currently serve Arby's restaurants
located outside the Company's pre-Acquisition primary service territory. The
Company expects to generate at least $325 million of net sales during the first
12 months of the Distribution Agreement. See "Risk Factors -- Key Contracts."
OPERATIONS AND DISTRIBUTION
The Company's operations generally can be categorized into three business
processes: product replenishment, product storage and order fulfillment. Product
replenishment involves the management of logistics from the vendors through the
delivery of products to the Company's distribution centers. Product storage
involves the warehousing and rotation of temperature-controlled inventory at the
distribution centers pending sale to customers. Order fulfillment involves all
activities from customer order placement and selecting and loading through
delivery from the distribution centers to the restaurant location. Supporting
these processes is the Company's nationwide network of distribution centers, its
fleet of approximately 900 tractors and 1,200 trailers and its management
information systems. Substantially all the Company's products are purchased,
stored and delivered in sealed cases, that the Company does not open or alter.
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Product Replenishment
While the Company is responsible for purchasing products to be delivered to
its customers, chain restaurants typically approve the vendors and negotiate the
price for their proprietary products. The Company determines the distribution
centers that will warehouse products for each customer and the quantities in
which such products will be purchased. Order quantities for each product are
systematically determined for each distribution center, taking into account both
recent sales history and projected customer demand. The distribution centers
selected to serve a customer are based on the location of the restaurants to be
serviced.
The Company works with its chain customers in order to optimize
transportation from vendor locations to distribution centers. By utilizing the
collective demand of its customers for inbound transportation, its existing
fleet of trucks, and its expertise in managing transportation, the Company can,
in many instances, offer its customers inbound transportation on a more
economical basis than the vendors that have traditionally provided such
services. The Company believes it can offer its customers lower inbound
transportation costs through (i) the use of the Company's delivery fleet to
backhaul products, and (ii) the consolidation of products from more than one
vendor or for use by more than one customer to increase truckloads and brokering
freight to third-party carriers with whom the Company has negotiated lower
transportation rates.
Product Storage
The Company currently warehouses approximately 1,100 to 5,500 SKUs
(excluding the redistribution and equipment distribution centers) for its
customers at 36 facilities in 30 metropolitan areas. Upon receipt of the product
at the distribution centers, the product is inspected and stored in pallets, in
racks or in bulk in the appropriate temperature-controlled environment. Products
stored at the distribution centers are generally not reserved for a specific
customer. Rather, customer orders are filled from the common inventory at the
relevant distribution center. The Company's computer systems continuously
monitor inventory levels in an effort to maintain optimal levels, taking into
account required service levels, buying opportunities and capital requirements.
Each distribution center contains ambient, refrigerated (including cool docks)
and frozen space, as well as offices for operations, sales and customer service
personnel and a computer network, accessing systems at other distribution
centers and the Company's corporate support centers.
A majority of the Company's distribution centers are between 100,000 to
200,000 square feet with approximately 20% refrigerated storage space, 30%
frozen storage space and 50% dry storage area. The Company uses sophisticated
logistics programs to strategically locate new distribution centers in areas
near key highways with specific consideration given to the proximity of
customers and suppliers. The Company also employs consultants in distribution
center layout and product flow to design the distribution center with the
objective of maximizing product throughput. The Company estimates that each
distribution center can effectively service customers within a 350 mile radius,
although the Company's objective is to service customers within a 150 mile
radius.
Order Fulfillment
The Company places a significant emphasis on providing high quality service
in order fulfillment. By providing high quality service and reliability, the
Company believes that it can reduce the number of reorders and redeliveries,
reducing costs for both the Company and its customers. Each restaurant places
product orders based on recent usage, estimated sales and existing restaurant
inventories. The Company uses its management information systems to continually
update routes and delivery times with each customer in order to lower
fulfillment costs. Product orders are placed with the Company one to three times
a week either through the Company's customer service representatives or through
electronic transmission using specially designed software. Many of the
restaurants served by the Company transmit product orders electronically.
Once ordered by the customer, products are picked and labeled at each
distribution center, and the products are generally placed on a pallet for the
loading of outbound trailers. Delivery routes are scheduled to both fully
utilize the trailer's load capacity and minimize the number of miles driven in
order to exploit the cost benefit of customer density.
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<PAGE> 34
Fleet
The Company operates a fleet of approximately 900 tractors and 1,200
trailers. The Company leases approximately 300 of the tractors from General
Electric Capital Corp. pursuant to full-service leases that include maintenance,
licensing and fuel tax reporting. The Company owns approximately 600 tractors
and approximately 800 trailers. The remaining trailers are leased under similar
full-service leases from a variety of leasing companies. Lease terms average six
years for new tractors and nine years for new trailers.
Most of the Company's vehicles contain onboard computers. The computers
assist in managing fleet operations and provide expense controls, automated
service level data collection and real-time driver feedback, thereby enhancing
the Company's service level to customers. Data from the onboard computers are
loaded into the routing software after each route in order to continually
optimize the route structure. Substantially all of the Company's trailers
contain three temperature-controlled compartments, which allow the Company to
simultaneously deliver frozen food, refrigerated food and dry goods.
Management Information Systems
AmeriServe and PFS currently operate with different computer systems.
AmeriServe utilizes a variety of personal computer and IBM AS/400-based software
applications. PFS also operates with a variety of applications, the core of
which are mainframe-based. Both companies have invested significantly in their
systems, and both consider their systems to be among the leaders in the
industry. Programs in use include various customized and special-purpose
applications, such as warehouse management tools, remote order entry, automated
replenishment, delivery routing, and onboard computers for delivery trucks.
Following the Acquisition, the Company intends to replace its core
applications with software from J.D. Edwards in order to integrate the systems
of AmeriServe and PFS. This conversion process is expected to take 18 to 24
months to complete and will result in all of the Company's distribution centers
operating with the same computer systems and the same operating policies and
practices.
Procurement, Logistics and Re-Distribution
The Company procures a wide range of food, paper and cleaning products for
ultimate distribution to its chain restaurant customers. These products include
fresh and frozen meat and poultry, seafood, frozen foods, canned and dry goods,
fresh and preprocessed produce, beverages, dairy products, paper goods, cleaning
supplies and equipment. The Company is also exclusively responsible for the
inventory management of these items for its customers. The Company also operates
two re-distribution centers for the purpose of purchasing slow-moving inventory
items and consolidating these items into full truckload shipments to the
Company's distribution centers nationally, as well as to customers outside the
Company. The re-distribution division has been approved as a national
consolidation point for Burger King, Dairy Queen, Arby's, KFC, Taco Bell, Pizza
Hut and several other chains. The major benefits of consolidation are: (i)
effective reduction of inbound freight costs; and (ii) increased distributor
inventory turns, providing optimal quantity purchase opportunities and
optimizing the inventory management of both the Company's distribution centers
and the chain customers. The Company also offers re-distribution services to
customers outside of the continental U.S.
The Company operates a freight logistics division for the purpose of
achieving the lowest landed costs to its distribution centers through the review
of purchase orders generated at the various distribution centers. The Company
generates freight savings through leveraged purchasing, with key carriers
operating in defined traffic lanes. This division also provides logistical
services to a substantial number of customers outside of the Company on a fee
basis. Current inbound purchase orders controlled by this division exceed 2,500
truckloads monthly. Further, the Company operates a nationally registered common
carrier fleet of temperature-controlled tractor-trailer units. This division
serves as a "core-carrier" to several national food manufacturers and is an
integral part of the Company's inbound freight logistics initiative.
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<PAGE> 35
MARKETING AND CUSTOMER SERVICE
The Company employs national and regional marketing representatives who
service existing customers, as well as focus on developing new customers from
among other restaurant concepts. Additionally, each division President and
certain members of senior management are active in maintaining relationships
with current and potential customers. The Company compensates its sales and
marketing representatives under various compensation plans, which combine a base
pay with an incentive bonus.
The Company's customer service activities are highly customized to the
unique needs of each customer. Each customer has a dedicated account manager who
is responsible for overseeing all of a customer's needs and coordinating the
services provided to such customer. In order to manage problem resolution, the
Company tracks customer calls to ensure that appropriate action and follow-up
occur. The Company's representatives travel frequently to the customer's
restaurant or office for regularly scheduled meetings and key project reviews to
ensure close coordination between the Company and the customer.
A key component of the Company's marketing plan is the use of customized
information systems to improve customer service, and to assist the customer in
the daily operation of its business. The Company utilizes on-line order entry
inventory systems, which permit the Company to simultaneously take orders,
compare the order to previous orders, track and replenish inventory and schedule
the delivery. In addition to placing orders, certain customers may also access
their own accounts, and inventory information, and print copies of order
acknowledgments, invoices and account statements. This electronic data
interchange system provides certain customers with access to the Company's
information systems at their convenience and enables the Company to accept
orders 24 hours a day, seven days a week. The electronic data interchange not
only allows for greater efficiencies, but also produces reduced administrative
expenses and fewer ordering errors. The Company believes that this system
provides customers with superior value-added services, which strengthens the
relationship between the Company and its customers and creates certain
competitive strengths.
COMPETITION
The foodservice distribution industry is highly competitive. Competitors
include other systems distribution companies focused on the chain restaurants
and captive, multi-unit franchisor-owned distribution companies and broadline
foodservice distributors.
The Company competes directly with other systems specialists that target
chain restaurant concepts. The Company's principal competitors are ProSource,
Inc., Sysco Corporation's Sygma division, Marriott Distribution Services Inc.,
Alliant Foodservice Inc. and MBM Corp. The Company also competes with regional
and local distributors in the foodservice industry, principally for business
from franchisee-owned chain restaurants. National and regional chain restaurant
concepts typically receive service from one or more systems distributors.
Distributors are appointed or approved to service these concepts and/or their
franchisees on either a national or regional basis. The Company believes that
distributors in the foodservice industry compete on the bases of quality,
reliability of service and price. Because a number of the Company's customers
prefer a distributor that is able to service their restaurants on a nationwide
basis, the Company believes that it is in a strong position to retain and
compete for national chain restaurant customers and concepts. The Company
believes that restaurant management, in general, is reluctant to change
distributors or use multiple distributors if service and prices are
satisfactory. Accordingly, the ability to provide quality service and deliver
the products in a timely, dependable manner is the key to building, as well as
maintaining, customer relationships. The Company believes it has an excellent
reputation as a prompt and reliable systems foodservice distributor with
competitive prices.
Opportunities for growth by gaining access to new chains typically occur at
the expense of a competitor and are awarded in a bid or negotiation situation,
in which large blocks of business are awarded to the most efficient distributor.
The Company believes that a key competitive advantage is continuously pursuing a
strategy of being the low-cost provider of distribution and other value-added
services within the industry. See "Risk Factors -- Competition."
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<PAGE> 36
LITIGATION
From time to time the Company is involved in litigation relating to claims
arising out of its normal business operations. The Company is not currently
engaged in any legal proceedings that are expected, individually or in the
aggregate, to have a material adverse effect on the Company.
REGULATORY MATTERS
The Company is subject to a number of federal, state and local laws,
regulations and codes, including those relating to the protection of human
health and the environment, compliance with which has required, and will
continue to require, capital and operating expenditures. The Company believes
that it is in compliance, in all material respects, with all such laws,
regulations and codes. The Company, however, is not able to predict the impact
of any changes in the requirements or mode of enforcement of these laws,
regulations and codes on its operating results.
EMPLOYEES
As of June 28, 1997, after giving effect to the Acquisition, the Company
had approximately 4,800 full-time employees, approximately 400 of whom were
employed in corporate support functions and approximately 4,400 of whom were
warehouse, transportation, sales, and administrative staff at the distribution
centers. As of such date, approximately 275 of the Company's employees were
covered by two collective bargaining agreements. One such collective bargaining
agreement, covering approximately 200 employees, will expire in January 1998.
The other such collective bargaining agreement, covering approximately 75
employees, will expire at the end of November 1998. The Company has not
experienced any significant labor disputes or work stoppages and believes that
its relationships with its employees are good. Substantially all full-time
employees who are over age 21 and have completed one year of service with the
Company are eligible to participate in the Company's 401(k) plans.
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FACILITIES
The Company currently operates 39 distribution centers located throughout
the United States and Canada as follows:
<TABLE>
<CAPTION>
AMERISERVE PFS
- ------------------------------------------------- -------------------------------------------------
APPROXIMATE LEASED/ APPROXIMATE LEASED/
LOCATION SQUARE FEET OWNED LOCATION SQUARE FEET OWNED
- --------------------------- ----------- ------- --------------------------- ----------- -------
<S> <C> <C> <C> <C> <C>
Albuquerque, NM............ 65,000 Leased Albany, NY................. 104,000 Leased
Canton, MS................. 80,500 Leased Arlington, TX.............. 105,600 Leased
Charlotte, NC.............. 158,500 Owned Charlotte, NC.............. 91,771 Leased
Denver, CO................. 119,000 Leased Columbus, OH............... 143,903 Leased
Fort Worth, TX............. 113,000 Leased Denver, CO................. 74,360 Leased
Gainesville, FL............ 53,000 Leased Gulfport, MS............... 63,792 Leased
Grand Rapids, MI........... 180,000 Leased Houston, TX................ 69,800 Leased
Hebron, KY................. 124,000 Leased Indianapolis, IN........... 115,200 Leased
Jacksonville, FL........... 119,600 Leased Indianapolis, IN(3)........ 180,100 Leased
Lemont, IL(1).............. 105,000 Leased Jonesboro, GA.............. 124,076 Leased
Madison, WI(1)............. 123,000 Leased Lenexa, KS................. 105,600 Leased
Norcross, GA............... 169,900 Owned Manassas, VA............... 100,337 Owned
Omaha, NE.................. 105,000 Leased Memphis, TN................ 70,750 Leased
Orlando, FL(2)............. 268,000 Leased Milwaukee, WI.............. 123,185 Leased
Plymouth, MN............... 104,200 Leased Mississauga, Ontario....... 53,487 Leased
Salt Lake City, UT......... 31,000 Leased Mt. Holly, NJ.............. 126,637 Leased
Waukesha, WI............... 196,000 Leased Novi, MI................... 72,830 Leased
Oklahoma City, OK.......... 52,500 Leased
Ontario, CA................ 201,454 Leased
Orlando, FL................ 115,240 Leased
Portland, OR............... 81,815 Leased
Stockton, CA............... 105,000 Leased
Tempe, AZ.................. 67,660 Leased
</TABLE>
- ---------------
(1) Re-distribution facilities
(2) Under construction
(3) PFS restaurant equipment distribution center
Within five years of December 31, 1996, two of the Company's distribution
center leases are due to expire. The Company believes that it will be able to
renew expiring leases at reasonable rates in the future. The Company believes
that its existing distribution centers, together with planned modifications and
expansions, provide sufficient space to support its expected expansion over the
next several years.
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THE ACQUISITION
Pursuant to the Asset Purchase Agreement, which was assigned to the Company
at the Transactions Closing (with the Canadian agreement being assigned to a
Canadian subsidiary of the Company), the Company acquired substantially all of
the assets and properties used or held for use by PFS for a price of $830.0
million in cash, subject to adjustment, and assumed certain liabilities.
The Asset Purchase Agreement contains customary representations and
warranties from PepsiCo with respect to the assets and liabilities of PFS.
PepsiCo has agreed to indemnify NEHC and its affiliates, including the Company,
for any loss (i) resulting from any breach of any such representation, warranty
or agreement made by PepsiCo, provided, however, that such indemnity is limited
to cover only losses in excess of $3.0 million in the aggregate; or (ii)
resulting from or arising out of any liability or obligation not expressly
assumed by the Company pursuant to the Asset Purchase Agreement. The Company has
agreed to indemnify PepsiCo and its affiliates for any loss resulting from any
breach of any representation, warranty or agreement made by the Company pursuant
to the Asset Purchase Agreement or the operation of PFS by the Company after the
Closing. PepsiCo has agreed to refrain from actively and directly soliciting any
officer, manager or key employee of the Company without the prior written
consent of the Company for the 12 months following the Transactions Closing.
DISTRIBUTION AGREEMENT
Upon consummation of the Acquisition, the Company was assigned and assumed
the Sales and Distribution Agreement (the "Distribution Agreement") dated as of
May 6, 1997, as amended as of May 29, 1997, by and among PFS and PepsiCo's chain
restaurant businesses (the "PepsiCo Chains"). The Distribution Agreement
provides that the Company will be the exclusive distributor of specified
restaurant products purchased by the Pizza Hut, Taco Bell and KFC restaurants
within the continental United States, which are owned by the PepsiCo Chains as
of the Transactions Closing (other than certain specified restaurants), or which
are acquired or built by the PepsiCo Chains during the term of the Distribution
Agreement. The Distribution Agreement will continue to cover restaurants
refranchised by PepsiCo (other than KFC restaurants) for the five-year term.
Additionally, the Distribution Agreement provides that the Company will be an
approved distributor of specified restaurant products sold to all Pizza Hut,
Taco Bell and KFC restaurants, whether franchised or owned by the PepsiCo
Chains, in the United States, Canada or the countries to which PFS currently
exports restaurant products from its distribution centers in the United States.
The Distribution Agreement will be effective from the Transactions Closing and
through the fifth anniversary of the Transactions Closing, unless renewed or
extended by mutual agreement of the parties. The Distribution Agreement may be
terminated at any time (i) by any party in the event that the other party
breaches any material term and such breach remains unremedied for a period of 30
calendar days after written notice of such breach from the non-breaching party,
(ii) by the PepsiCo Chains if the Company is in material breach of the
Distribution Agreement for failure to maintain specified service levels for a
specified period or (iii) by any party in the event that the other party becomes
the subject of a bankruptcy, insolvency or other similar proceeding. See "Risk
Factors -- Key Contracts."
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<PAGE> 39
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information as of August 1, 1997,
with respect to each person who is an executive officer or director of the
Company, as indicated below:
<TABLE>
<CAPTION>
NAME AGE TITLE
- --------------------------------- ---- ------------------------------------------------------
<S> <C> <C>
John V. Holten.............. 40 Director, Chairman and Chief Executive Officer
John R. Evans............... 57 Director and Vice Chairman
Raymond E. Marshall......... 47 Director, President PFS Foodservice Group
Daniel W. Crippen........... 45 Director and President, AmeriServe Foodservice Group
William F. Woodall.......... 50 President and Chief Operating Officer, Procurement
Group
Donald J. Rogers............ 37 Chief Financial Officer and Secretary
Edward Zielinski............ 45 Senior Vice President--Operations Support
Susan E. Adzick............. 42 Senior Vice President--South Region
David Rader................. 49 President--Shared Services Group
Kurt E. Twining............. 42 Senior Vice President--Human Resources
Steve A. Johnson............ 52 Senior Vice President--Logistics
Diana M. Moog............... 38 Senior Vice President--Finance & Treasurer
Gene Meken.................. 39 Senior Vice President & Chief Financial Officer -- PFS
Foodservice Group
Kenneth W. Gerhardt......... 47 Chief Information Officer, Senior Vice
President--Information Technology
Robert W. Jorge............. 48 Senior Vice President--Western Region
Kenneth R. Lane............. 50 Senior Vice President--Northern Region
Gunnar E. Klintberg......... 48 Director and Vice President
A. Petter Ostberg........... 35 Vice President
Leif F. Onarheim............ 62 Director
Peter T. Grauer............. 51 Director
Benoit Jamar................ 42 Director
</TABLE>
John V. Holten. Mr. Holten has served as Chairman and Chief Executive
Officer of Holberg since its inception in 1986. Mr. Holten was Managing Director
of DnC Capital Corporation, a merchant banking firm in New York City, from 1984
to 1986. Mr. Holten received his M.B.A. from Harvard University in 1982 and he
graduated from the Norwegian School of Economics and Business Administration in
1980.
John R. Evans. Mr. Evans has been in the foodservice distribution industry
for nearly forty years, all of which have been with the Company or its
predecessors. Mr. Evans became President of Evans in 1971, and was named Chief
Executive Officer of the combined company when Evans merged with NEBCO in 1990.
Along with building Evans from its infancy, Mr. Evans has played an active
leadership role in the industry. Mr. Evans obtained his degree from Spencerian
College and serves on the Board of Directors of each of M&I Northern Bank,
Aerial Company, Inc., AFI Inc., and AmeriServe.
Raymond E. Marshall. Mr. Marshall has 27 years of foodservice distribution
experience, including 24 years with the Company or its predecessors. Mr.
Marshall progressed through management positions in virtually all areas of NEBCO
before being named President and Chief Executive Officer in 1980. In 1989, at
the time of the merger between NEBCO and Evans, Mr. Marshall was named President
and Chief Operating Officer of NEBCO EVANS. He took on his new position as
President of AmeriServe in April 1996. Mr. Marshall earned his PMD from Harvard
Business School in 1980 after attending the University of Omaha and serves on
the Board of Directors of each of NEHC, AmeriServe and Independent Distributors
of America ("IDA").
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<PAGE> 40
Daniel W. Crippen. Mr. Crippen has spent the last 20 years in the
foodservice distribution business with Post. In addition, Mr. Crippen was
appointed to his present position at AmeriServe in April 1997. He is Chairman of
the Board of Directors of IDA. Mr. Crippen received his B.A. from Augustana
College in Rock Island, Illinois in 1973 and is a certified public accountant.
William F. Woodall. Mr. Woodall has over 18 years' experience in the
distribution industry. Mr. Woodall worked as Transportation Director for
Perlman/Rocque Company from 1978 to 1980. From 1980 to 1982 he was Vice
President for Distribution of Chart House, Inc. In 1982, Mr. Woodall became
President of IDA, and in 1990 founded Chicago Consolidated Company ("CCC"). Mr.
Woodall was appointed to his present position as President and Chief Operating
Officer of the Procurement Group at AmeriServe in April 1996. Mr. Woodall
attended the University of Illinois at Chicago. He is currently on the Board of
Directors of EMCO, Inc. and holds various other positions with industry
organizations. He served four years in the United States Navy--Aviation, and was
a police officer for eight years.
Donald J. Rogers. Mr. Rogers joined AmeriServe in March 1993 after
spending five years with Holberg. While at Holberg, Mr. Rogers worked closely
with AmeriServe's management on a variety of projects. Before joining Holberg,
Mr. Rogers held financial analyst positions at The Dun & Bradstreet Corporation
and Keypoint Financial Corporation and spent three years in a management
training program at Metropolitan Life Insurance Company. Mr. Rogers earned an
M.B.A. from UCLA Graduate School of Management in 1987 and his B.S. degree from
The Wharton School, University of Pennsylvania in 1982.
Edward Zielinski. Mr. Zielinski joined AmeriServe in 1996 from Alliant
Foodservice Inc. (formerly Kraft Foodservice) where he held the position of
Director of Logistics and Field Operations since 1990, with responsibility for
the management and operating performance of all field operations throughout the
company. Prior to Alliant, Mr. Zielinski held a variety of logistics and
industrial engineering positions with various companies including Baxter
Healthcare Corporation, Edward Don, National Can Industries and Amway. Mr.
Zielinski holds a B.S. degree from the University of Illinois and an M.B.A. from
the Rochester Institute of Technology.
Susan E. Adzick. Ms. Adzick joined AmeriServe as part of the acquisition
of PFS. At PFS, Ms. Adzick was Vice President of Operations for the South
Region. Prior to joining PFS in 1994, Ms. Adzick was Director of Quality
Management with Occidental Chemical Company at their headquarters in Dallas,
Texas. She has held various management and technical positions in the chemical
industry with Stouffer Chemical Company in phosphate based manufacturing for
nine years, and with DuPont Chemical Company for two years. Ms. Adzick received
her undergraduate degree in Biomedical Engineering from Vanderbilt University
and an M.B.A. from the same university.
David Rader. Mr. Rader assumed the position of Vice President, Finance and
Chief Financial Officer of PFS in 1993. Mr. Rader joined the PepsiCo
organization in 1975 as Financial Analyst for Frito-Lay. He then moved to Taco
Bell as Director of Business Planning. Mr. Rader then held the positions of Vice
President, Planning and Vice President, Controller for Taco Bell before joining
PFS as Vice President of Finance in 1987. He was previously with Chrysler
Corporation. Mr. Rader received his M.B.A. in marketing/finance and his B.S. in
electrical engineering from Ohio State University.
Kurt E. Twining. Mr. Twining joined AmeriServe in connection with the
acquisition of PFS. Mr. Twining joined PFS in 1986 as Manager, Employee
Relations. He then held positions of Manager, Staffing and Development;
Director, Employee Relations; Senior Director, Employee Relations; Senior
Director, Organization and Management Development; and Vice President, Field
Human Resources and Safety. Previously, he was employed by Texas Instruments.
Mr. Twining earned his B.S. in criminal justice and psychology and an M.S. in
labor relations from Michigan State University.
Steve A. Johnson. Mr. Johnson joined AmeriServe in connection with the
acquisition of PFS. Mr. Johnson joined the PepsiCo organization in 1974 as a
Distribution Engineer for Frito-Lay. He then held the positions of Group Manager
for Logistics; Warehouse Industrial Engineering; and Sales Productivity,
respectively. In 1989, Mr. Johnson joined PFS as Director of Logistics, followed
by his promotion to Senior Director of Logistics in 1991. He was previously
Owner/Consultant for Systems Research Corporation.
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<PAGE> 41
Mr. Johnson received his Masters in industrial engineering and B.S. in
agriculture from Kansas State University and has completed coursework toward a
Ph.D. in operations research.
Diana M. Moog. Mrs. Moog joined AmeriServe as Senior Vice President and
Treasurer at the time of its acquisition of PFS. Most recently she had served as
Vice President, Controller of PFS. Mrs. Moog had held various positions at
PepsiCo, Inc. from 1989 to 1997 including Manager, Financial Reporting for
PepsiCo, Inc. and Assistant Controller, Frito-Lay. Prior to PepsiCo, Mrs. Moog
spent eight years with Ernst & Young as a Senior Manager. Mrs. Moog is a
certified public accountant and earned her Bachelors of Business Administration
in accounting from Texas Tech University in 1981.
Gene Meken. Mr. Meken joined AmeriServe in 1997 with the acquisition of
PFS from PepsiCo, Inc., where he worked for almost 12 years. In five years at
PFS, Mr. Meken was Vice President of Strategic Business Planning and Vice
President, Controller. He held a variety of other financial planning and
accounting positions at PepsiCo and its divisions, including Assistant
Controller of Pepsi-Cola International and Senior Manager of Planning at PepsiCo
Food Systems International. Prior to PepsiCo, he was a financial manager with
Thorn EMI (USA), Inc. and an audit senior at KPMG Peat Marwick. Mr. Meken holds
a BS in Accounting from the University of Connecticut and is a certified public
accountant.
Kenneth W. Gerhardt. Mr. Gerhardt joined AmeriServe in 1997 from PepsiCo
where he had served since 1991 in a variety of technology leadership roles. Most
recently, he served as Vice President, Information Technology for PFS where he
instigated the systems re-engineering initiatives adopted by AmeriServe. Prior
to joining PFS, Mr. Gerhardt served as Senior Director, Information Technology
for Pepsi Cola where he was responsible for financial, manufacturing, and
distribution systems. Mr. Gerhardt also served as Senior Director, Corporate
Systems for Pizza Hut, Inc. where he was responsible for financial,
marketing/sales, and customer access systems. Prior to joining PepsiCo, Mr.
Gerhardt worked in the transportation industry from 1984-1991 as Director,
Airline Information Systems for Trans World Airlines. Mr. Gerhardt also served
as Manager, Systems Planning for the Indiana University System from 1979-1984.
Mr. Gerhardt holds a Masters Degree from Indiana University.
Robert W. Jorge. Mr. Jorge joined AmeriServe as part of the acquisition of
PFS. At PFS he was Vice President of Operations for the Western Region. He
joined PFS in 1990 as Distribution Services Manager in Grand Prairie, Texas and
was subsequently promoted to Director, Senior Director and Vice President of
Procurement Services. Prior to joining PFS, Mr. Jorge spent 12 years with
American Hospital Supply Corporation and Baxter Healthcare Corporation in
various field operating positions. Mr. Jorge received his undergraduate degree
from American International College in 1971 and spent 6 years as a U.S. Naval
Aviator and Human Resources Management Specialist.
Kenneth R. Lane. Mr. Lane joined AmeriServe in connection with the
acquisition of PFS. The prior 24 years were spent with PepsiCo as PFS Vice
President Operations, North, overseeing the Northern United States as well as
international operations in Mexico, Canada, and Puerto Rico. Prior to the PFS
assignment, other positions included Vice President Distribution for the Central
Division of Frito-Lay, Director of Sales Development for Frito-Lay, Division
Sales Manager for Frito-Lay, and Department Manager, Financial Services for
Frito-Lay. Before Frito-Lay, he served as Retail Control Manager for Shop-Rite
Foods, Inc. for three years.
Gunnar E. Klintberg. Mr. Klintberg has served as Vice Chairman of Holberg
since its inception in 1986. Mr. Klintberg was a Managing Partner of DnC Capital
Corporation, a merchant banking firm in New York City, from 1983 to 1986. From
1975 to 1983, Mr. Klintberg held various management positions with the Axel
Johnson Group, headquartered in Stockholm, Sweden. Mr. Klintberg headed up the
Axel Johnson Group's headquarters in Moscow from 1976 to 1979 and served as
assistant to the President of Axel Johnson Group's $1 billion operation in the
U.S., headquartered in New York City, from 1979 to 1983. Mr. Klintberg received
his undergraduate degree from Dartmouth College in 1972 and a degree in Business
Administration and Economics from the University of Uppsala, Sweden in 1974.
A. Petter Ostberg. Mr. Ostberg joined Holberg in 1994 and was appointed
Chief Financial Officer of Holberg in 1997. Prior to joining Holberg, Mr.
Ostberg held various finance positions from 1990 to 1994 with
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<PAGE> 42
New York Cruise Lines, Inc., including Group Vice President, Treasurer and
Secretary. Prior to joining New York Cruise Lines, Inc., Mr. Ostberg was General
Manager of Planter Technology Ltd. in Mountain View, California, and from 1985
to 1987, Mr. Ostberg was a Financial Analyst with Prudential Securities, Inc. in
New York. Mr. Ostberg received a B.A. in International Relations and Economics
from Tufts University in 1985, and an M.B.A. from Stanford University Graduate
School of Business in 1989.
Leif F. Onarheim. Mr. Onarheim is one of Norway's leading industrialists
and for the last 4 years held the position as president of Norway's largest
business school. In 1996, Mr. Onarheim was elected chairman of NHO, the
country's largest association of business and industry. From 1980 to 1992 Mr.
Onarheim served as CEO of Nora Industries. When Nora merged with Orkla
Borregaard to form the Orkla Group in 1991, Onarheim briefly served as the new
group's Chairman. The Orkla Group is one of Scandinavia's largest branded goods
company with production facilities in the US, Germany, Poland and England. Mr.
Onarheim is a graduate of the Norwegian School of Business and Economics in
Bergen, Norway. He serves as Chairman of the Board of Directors of H. Aschehoug
& Co. publishers, Norwegian Fair, Netcom ASA and Narvesen ASA, Vice Chairman of
Saga Petroleum ASA and is a board member with Wilhelm Wihelmsen Ltd. (shipping).
He has been a director of AmeriServe since 1986 and a director of Holberg since
1997.
Peter T. Grauer. Mr. Grauer has been a Managing Director of DLJ Merchant
Banking, Inc. since September 1992. From April 1989 to September 1992, he was
Co-Chairman of Grauer & Wheat, Inc., an investment firm specializing in
leveraged buyouts. Prior thereto Mr. Grauer was a Senior Vice President of
Donaldson, Lufkin & Jenrette Securities Corporation. Mr. Grauer serves on the
Board of Directors of each of Doane Products Co. and Total Renal Care, Inc.
Benoit Jamar. Mr. Jamar is a Managing Director in the Mergers &
Acquisitions group at Donaldson, Lufkin & Jenrette Securities Corporation. Prior
to joining Donaldson, Lufkin & Jenrette Securities Corporation in 1989, he
worked at Lehman Brothers in its financial restructuring group.
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<PAGE> 43
EXECUTIVE COMPENSATION
The following table sets forth the information for 1996 with regard to
compensation for services rendered in all capacities to the Company by the Chief
Executive Officer and the other four most highly compensated executive officers
of the Company (collectively, the "Named Executive Officers"). Information set
forth in the table reflects compensation earned by such individuals for services
with the Company or its respective subsidiaries.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
OTHER
ANNUAL ALL OTHER
FISCAL SALARY BONUS COMPENSATION COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($)(1) ($) ($) ($)(2)
---------------------------- ------ -------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
John V. Holten.............. 1996 -- -- -- --
Chairman and Chief 1995 -- -- -- --
Executive Officer 1994 -- -- -- --
Raymond E. Marshall......... 1996 273,793 265,000(3) -- 11,600
President and Treasurer 1995 212,492 109,220 -- 10,400
1994 202,000 64,000 -- 6,800
Daniel W. Crippen........... 1996 246,764 265,076 -- 9,659
Chief Operating Officer 1995 202,538 129,464 -- 9,788
1994 202,250 295,284 -- 9,394
Donald J. Rogers............ 1996 158,529 125,000(3) 33,000(4) 11,600
Chief Financial Officer 1995 115,671 45,000 33,000(4) 10,400
and Secretary 1994 106,050 15,000 34,000(4) 6,800
John R. Evans............... 1996 263,000 -- -- 4,800
Vice Chairman 1995 262,832 -- -- 4,800
1994 262,600 -- -- 4,800
</TABLE>
- ---------------
(1) The amounts shown in this column include amounts contributed by the Company
to its 401(k) plan under a contribution matching program.
(2) The amounts shown in this column reflect premiums paid by the Company on
behalf of Named Executive Officers for whole life insurance policies and
annuities to which the Named Executive Officers are entitled to the cash
surrender value.
(3) These amounts include discretionary cash bonuses paid by Holberg for
services provided during 1995 in connection with the acquisition of
AmeriServ Food Company.
(4) This amount reflects forgiveness by the Company of a portion of a $100,000
relocation assistance loan.
The Company will pay an annual $4.0 million management fee to Holberg for
management services. The amount of this fee is not set or allocated with respect
to any particular employee's compensation from Holberg.
DIRECTOR COMPENSATION
Non-employee directors who are unaffiliated with DLJ receive $15,000 annual
compensation for serving on the Company's Board of Directors. Other directors of
the Company do not receive compensation for such service.
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<PAGE> 44
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company did not have a Compensation Committee in fiscal 1996. The
Company intends to form a Compensation Committee in fiscal 1997. The members of
such committee have not yet been determined. During fiscal 1996, no executive
officer of the Company served as a member of the Compensation Committee of
another entity.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
Mr. Marshall's current employment agreement with the Company provides for a
three year term, scheduled to lapse on January 1, default annual renewals, and
an annual base salary of $210,000, which will increase for 1997 to $285,000 plus
an annual bonus to be determined by the Chairman of the Board of Directors after
considering the Company's Reported Operating Profit, plus participation in any
employee benefit plan sponsored by the Company. Mr. Marshall agrees not to
disclose confidential information for so long as such information remains
competitively sensitive. During the term of the employment agreement and for one
year after its termination, Mr. Marshall agrees not to render services to, or
have any ownership interest in, any business which is competitive with the
Company. Mr. Marshall's employment agreement does not contain any change of
control provisions.
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<PAGE> 45
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL HOLDERS AND MANAGEMENT
All of the Company's capital stock is held by NEHC. The following table
sets forth certain information regarding the beneficial ownership of NEHC Common
Stock by (i) each person known to the Company to own beneficially more than 5%
of any class of NEHC Common Stock, (ii) each director of the Company, (iii) each
Named Executive Officer of the Company and (iv) all executive officers and
directors of the Company, as a group. All information with respect to beneficial
ownership has been furnished to the Company by the respective stockholders of
NEHC. Except as otherwise indicated in the footnotes, each beneficial owner has
the sole power to vote and to dispose of all shares held by such holder.
<TABLE>
<CAPTION>
PERCENT
AMOUNT AND NATURE OF SHARES
NAME AND ADDRESS OF BENEFICIAL OWNERSHIP OUTSTANDING
- ------------------------------- ------------------------------------------------- --------------
<S> <C> <C>
Nebco Evans Distributors, Inc.
("NED")...................... 6,508 shares of Class A Common Stock 100%(+)
1,733 shares of Class B Common Stock 100%(+)
Orkla ASA ("Orkla")............ (1)
DLJ Merchant Banking, L.P. and Warrants to purchase 3,682 shares of
affiliates ("DLJMB")......... Class A Common Stock 36.1%(++)
Warrants to purchase 981 shares of
Class B Common Stock 36.1%(++)
John V. Holten................. (2)
Daniel W. Crippen.............. (3)
John R. Evans.................. --
Peter T. Grauer................ (4)
Benoit Jamar................... (4)
Gunnar E. Klintberg............ (5)
Raymond E. Marshall............ (6)
Leif F. Onarheim............... (7)
Donald J. Rogers............... (8)
</TABLE>
- ------------------------
(+) Computed with respect to the currently outstanding shares of Class A and
Class B Common Stock of NEHC, and without taking into account any options
or convertible interests of NEHC.
(++) Computed with respect to the currently outstanding shares of Class A and
Class B Common Stock of NEHC and the warrants held by DLJMB, but without
taking into account any other options or convertible interests of NEHC.
Holberg has exercised a contractual right to repurchase from DLJMB and
affiliates (i) 55% of the junior exchangeable preferred stock of NEHC
acquired by DLJMB and affiliates in connection with the Acquisition (see
"Certain Relationships and Related Party Transactions"), and (ii)
warrants conferring the right to acquire 851.84 shares of the Common
Stock. The consummation of such repurchase is expected to be in or before
January 1998. The ownership information reported herein does not give
effect to such expected repurchase, but reflects actual ownership as of
the date hereof.
(1) Orkla owns approximately 7% of the outstanding common stock of NED, and
has an additional interest in the common stock of NED of approximately 8%
through certain warrants to purchase such common stock. In addition, Orkla
owns approximately 30% of the outstanding common stock of Holberg (which
itself owns the balance of the common stock of NED not owned directly by
Orkla and has an additional interest in the common stock of NED of
approximately 75% through certain preferred stock convertible into common
stock), and an additional interest in the common stock of Holberg of
approximately 17% through certain preferred stock convertible into common
stock. The warrant and convertible interests described in this note have
been computed based upon the outstanding common shares of NED and Holberg,
without taking into account any options or convertible interests of NED or
Holberg. Orkla also has certain contractual rights as to NED and NEHC
pursuant to an Amended and Restated Investors Agreement among DLJMB, NEHC,
NED, Holberg and Orkla.
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<PAGE> 46
(2) Mr. Holten owns all of the outstanding common stock of the corporate
parent of Holberg, which entity owns approximately 70% of the outstanding
common stock of Holberg, and an additional interest in the common stock of
Holberg of approximately 25% through certain preferred stock convertible
into common stock. As noted above, Holberg owns approximately 93% of the
outstanding NED common stock and has an additional interest through
certain preferred stock convertible into common stock. The convertible
interests described in this note have been computed based upon the
outstanding common shares of Holberg and NED, without taking into account
any options or convertible interests of Holberg or NED.
(3) Mr. Crippen owns shares of a series of convertible preferred stock of NEHC
that, if converted, would result in his ownership of approximately 1.6% of
the outstanding common stock of NEHC, taking into account the actually
outstanding shares and the warrants held by DLJMB.
(4) Messrs. Grauer and Jamar are Managing Directors of DLJ, and may be
considered to have beneficial ownership of the interests of DLJMB in the
Company and NEHC. Messrs. Grauer and Jamar disclaim such beneficial
ownership.
(5) Mr. Klintberg is an officer and director of NED and certain of its
corporate parents, but disclaims beneficial ownership of any of the shares
owned by NED.
(6) Mr. Marshall has an interest of 5% in NED through certain options that
have been granted to him by NED. Such interest has been computed based
upon the outstanding common shares of NED, without taking into account any
options or convertible interests of NED.
(7) Mr. Onarheim has an interest of less than 1% in NED through certain
options that have been granted to him by NED. Such interest has been
computed based upon the outstanding common shares of NED, without taking
into account any options or convertible interests of NED. Mr. Onarheim has
also had a long affiliation with Orkla and acts as Orkla's representative
on the Board of Directors of the Company and NEHC, but disclaims
beneficial ownership of any interests held by Orkla.
(8) Mr. Rogers has an indirect interest of less than 1% in NEHC and the
Company through certain options that have been granted to him as an
indirect corporate shareholder of NEHC.
46
<PAGE> 47
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
DLJMB, an affiliate of DLJ, and certain of its affiliates beneficially own
approximately 36.1% of the common stock of NEHC. Peter T. Grauer, a principal of
DLJ, is a member of the Board of Directors of NEHC and the Company; Benoit
Jamar, a principal of DLJ, is a member of the Board of Directors of NEHC and the
Company. Further, DLJ Capital Funding, Inc., an affiliate of DLJ, acted as
documentation agent in connection with the New Credit Facility for which it
received certain customary fees and expenses. In addition, DLJ received a merger
advisory fee of $4.0 million in cash from the Company upon consummation of the
Transactions.
Holberg has received customary investment banking and advisory fees from
the Company and its affiliates in connection with certain prior transactions and
received a $4.0 million merger advisory fee upon consummation of the
Transaction. In addition, it is expected that the Company will pay Holberg a
financial advisory and arrangement fee of $1.0 million in connection with the
Refinancing, as well as a management fee of approximately $4.0 million annually
for 1997 and subsequent years. See "Management--Executive Compensation."
The Company leases a warehouse and office facility in Waukesha, Wisconsin
from an affiliated partnership owned by certain former shareholders of an
acquired company, including Mr. John Evans, for approximately $810,000 per year
through May 31, 2008.
With the January 1996 acquisition of AmeriServ, the Company acquired a
minority interest in Post Holdings, a 93.6% owner of Post. On November 25, 1996
NEHC acquired: (i) the Company's ownership interest in Post Holdings; and (ii)
Daniel W. Crippen's 50% ownership of Post Holdings. In connection with this
transaction, Mr. Crippen, the Company's Chief Operating Officer, received $4.4
million ($2.0 million cash and $2.4 million in NEHC 8% Senior Convertible
Preferred Stock) in exchange for his 50% equity interest in Post Holdings.
The Company participates in a self-insured group casualty (including
workers compensation and auto liability) risk program with an affiliate, which
determines the insurance expenses to be allocated to the Company. The Company
and Holberg also periodically engage in bi-lateral interest-bearing loans and
advances. See Note 10 to the Company's historical financial statements included
elsewhere herein.
DLJ and BancAmerica Robertson Stephens have, from time to time, provided
investment banking and other financial advisory services for which they have
received customary compensation, including fees received in connection with the
offering of the Senior Subordinated Notes.
In connection with the Acquisition, NEHC, pursuant to the Equity
Contribution, contributed $130.0 million of cash to the Company. This
contribution was financed in part through NEHC's sale of debt and equity
securities, as well as warrants to purchase NEHC Common Stock, to DLJMB II.
The equity securities sold by NEHC to affiliates of DLJ for an aggregate of
$115 million consist of NEHC senior exchangeable preferred stock, junior
exchangeable preferred stock and warrants to purchase shares of NEHC Class A
Common Stock (representing the right to acquire an aggregate of up to 22.5% of
the common stock of NEHC).
In connection with the consummation of the Transactions, NEHC made an
offering of 12 3/8% Senior Discount Notes due 2007 (the "Senior Discount
Notes"). Upon consummation of such offering, all of the outstanding Old NEHC
Notes were redeemed with the proceeds of the issuance of the Senior Discount
Notes, and the proceeds from such offering in excess of the amount used in such
redemption were used by NEHC in the Equity Contribution.
See "The Transactions," "The Refinancing" and "Plan of Distribution."
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<PAGE> 48
DESCRIPTION OF INDEBTEDNESS
The following sets forth information concerning the Company's indebtedness,
other than the Notes, outstanding immediately following the consummation of the
Refinancing.
ACCOUNTS RECEIVABLE PROGRAM
In connection with the Acquisition, the Company entered into the Accounts
Receivable Program. The Accounts Receivable Program is structured as an
off-balance sheet financing for accounting purposes.
Under the Accounts Receivable Program, the Company will transfer to
AmeriServe Funding Corporation ("AmeriServe Funding"), a newly-formed
wholly-owned, special purpose bankruptcy-remote subsidiary, on a daily basis,
all of the trade receivables (the "Receivables") generated by the Company and/or
one or more of its subsidiaries. AmeriServe Funding will then sell the
receivables to a newly-formed master trust, AmeriServe Master Trust (the
"Trust"), which will issue a series of certificates representing an undivided
interest in the assets of the Trust. The certificates will be purchased by any
of Bank of America, a commercial paper conduit administered by Bank of America
NT&SA, and/or a group of banks (all of the foregoing, collectively, referred to
as the "Banks").
Up to $225.0 million of proceeds are presently available under the Accounts
Receivable Program. However, when the Company satisfies certain reporting
requirements, up to $250.0 million of total proceeds will be available. The
Accounts Receivable Program is available to AmeriServe Funding for five years
from the Transactions Closing, subject to early termination in accordance with
the terms of the transaction documents.
All of the Receivables are transferred on a daily basis to AmeriServe
Funding. The exchange price for the Receivables conveyed to AmeriServe Funding
is a dollar amount equal to the aggregate unpaid balance of the Receivables less
a discount specified in the transaction documents. AmeriServe Funding may also
pay the exchange price for such Receivables by increasing the principal amount
of notes payable by it to the Company and subsidiaries of the Company rather
than paying cash for such Receivables. Certain of the Receivables have been
transferred by the Company to AmeriServe Funding as a contribution of capital.
AmeriServe Funding (and the Trust, in turn) has obtained first priority,
perfected ownership interests in the Receivables, and any related security and
proceeds thereof. The Company serves as the initial master servicer of the
Accounts Receivable Program.
The Banks' yield on their Invested Amount is based on either LIBOR or a
Base Rate plus a margin. The "Invested Amount" is generally calculated as the
sum of the purchase prices paid by the Banks from time to time for undivided
interests in the Receivables in the Trust, reduced by the aggregate amount of
distributions made to the Banks on account of principal. As of June 30, 1997,
the Banks' yield would have been 6.875%.
A non-usage fee of 3/8 of 1% per annum on a daily average of (i) the
aggregate commitments of the Banks under the Accounts Receivable Program minus
(ii) the Invested Amount is payable by AmeriServe Funding monthly in arrears.
Prior to termination of the Banks' commitment under the Accounts Receivable
Program, AmeriServe Funding may cause the Trust to sell undivided interests in
the Receivables to the Banks from time to time so long as certain conditions are
satisfied, including, without limitation, that after giving effect to such sale,
the Invested Amount (less amounts held in certain Trust accounts) would not
exceed the Base Amount. The "Base Amount" generally will be equal to the result
of (a)(i) the Net Eligible Receivables, times (ii) 100% minus the Applicable
Reserve Ratio, minus (b) the Carrying Cost Receivables Reserve. The "Net
Eligible Receivables" generally will be calculated as the aggregate unpaid
balance of Receivables held by the Trust that satisfy certain eligibility
criteria, less unapplied cash held by the Trust, less funds not yet made
available by lockbox banks holding collections on Receivables, less the
aggregate amount of excess concentrations of Receivables as specified in the
transaction documents. The "Applicable Reserve Ratio" will be calculated
consistent with the trade receivable rating methodology of Standard & Poor's
and/or Duff & Phelps, will incorporate specified loss reserve ratios and
dilution reserve ratios, and will be subject to a floor of 15%. The "Carrying
Cost Receivables Reserve" generally will be calculated to reflect interest
payable to the Banks, the servicing fee payable from the Assets of the Trust,
certain accrued and unpaid expenses and certain additional amounts based on days
sales outstanding.
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<PAGE> 49
The Accounts Receivable Program contains customary conditions, including,
without limitation, delivery of true sale and non-consolidation opinions. In
addition, BancAmerica Robertson Stephens has been satisfied that structural
enhancements are in place so that the Accounts Receivable Program satisfies, at
a minimum, the "BBB" rating criteria of Standard & Poor's and/or Duff & Phelps.
The Accounts Receivable Program also contains customary termination events,
including, without limitation, bankruptcy or insolvency of the Company or
AmeriServe Funding, cross-acceleration to other material indebtedness of the
Company and Receivables performance triggers.
NEW CREDIT FACILITY
The Company has entered into the New Credit Facility, pursuant to which the
Company has available a new revolving credit facility (the "Revolving Credit
Facility"), and, prior to the Refinancing four term loan facilities (the "Term
Loans"). At the closing of the Senior Notes Offering, the Company used a portion
of the proceeds from the Senior Notes Offering to repay in full the Term Loans.
The undrawn amount of $150.0 million under the Revolving Credit Facility remains
available for working capital and general corporate purposes, including the
issuance of letters of credit, which were $11.1 million at the Transactions
Closing, subject to the achievement of certain financial ratios and compliance
with certain conditions.
The initial interest rate for borrowings under the Revolving Credit
Facility will be, at the option of the Company, LIBOR plus 2.50% or the Base
Rate plus 1.25%. The initial rates for borrowings under the Revolving Credit
Facility will remain in effect until December 31, 1997, at which time they may
be reduced according to a pricing grid contained in the New Credit Facility
agreements. The Company may elect interest periods of one, two, three or six
months for LIBOR borrowings. Calculation of interest shall be on the basis of
actual days elapsed in a year of 360 days (or 365 or 366 days, as the case may
be, in the case of the Base Rate Loans based on the Administrative Agent's
"reference rate") and interest shall be payable at the end of each interest
period and, in any event, at least every three months or 90 days, as the case
may be. The "Base Rate" is the higher of (i) the Administrative Agent's
reference rate and (ii) the Federal Funds Effective Rate plus one-half of 1%.
LIBOR will at all times include statutory reserves to the extent actually
incurred.
NEHC and all domestic subsidiaries of the Company guarantee indebtedness
under the New Credit Facility (the "Guarantors"). All extensions of credit under
the New Credit Facility to the Company and guaranties of subsidiaries of the
Company are secured by all existing and after-acquired personal property (other
than accounts receivable transferred in connection with the Accounts Receivable
Program or any securitization refinancing of the Accounts Receivable Program) of
the Company and its subsidiaries, including all outstanding capital stock of the
Company and of all of its domestic subsidiaries, 65% of outstanding capital
stock of the Company's foreign subsidiaries and any intercompany debt
obligations, and, subject to exceptions to be agreed upon, all existing and
after-acquired real property fee and leasehold interests. NEHC's guaranty is
secured by a pledge of all outstanding capital stock of the Company. With
certain exceptions, NEHC, the Company and its subsidiaries are prohibited from
pledging any of their assets other than under the New Credit Facility.
Under the New Credit Facility, the letter of credit fee is 2.50% per annum
for standby letters of credit, which will be shared by all Lenders, and an
additional 0.25% per annum to be retained by the issuing bank for issuing the
standby letters of credit, based upon the amount available for drawing under
outstanding standby letters of credit. There will be adjustments, after December
31, 1997, in the letter of credit fees described above, according to a to be
determined pricing grid contained in the New Credit Facility agreements.
Indebtedness under the New Credit Facility may be prepaid in whole or in
part without premium or penalty (subject in some cases to related breakage) and
the Lenders' commitments relative thereto reduced or terminated upon such notice
and in such amounts as may be agreed upon.
The Company is required to make the following mandatory prepayments and
permanent reduction of the commitments under the Revolving Credit Facility
(subject to certain exceptions and basket amounts set forth in the New Credit
Facility): (a) with respect to asset sales, prepayments in an amount equal to
100% of (i) the net after-tax cash proceeds of the sale or other disposition of
any property or assets of the Company or any of its subsidiaries other than net
cash proceeds of sales or certain other dispositions in the ordinary course of
business, or (ii) the net after-tax cash proceeds in excess of $275 million from
the sale or other disposition of receivables payable upon receipt; (b) with
respect to debt financings of the Company or any of its
49
<PAGE> 50
subsidiaries, prepayments in an amount equal to 100% of the net cash proceeds
received from such debt financings (excluding, among other things, the Senior
Subordinated Notes and, with respect to the Revolving Credit Facility, the
Notes), payable upon receipt; (c) with respect to equity offerings of the
Company or any of its subsidiaries, prepayments in an amount equal to 50% of the
net cash proceeds received from the issuance of such equity securities, payable
upon receipt; and (d) with respect to Excess Cash Flow (as defined in the New
Credit Facility), prepayments in an amount equal to 50% of Excess Cash Flow,
payable within 90 days of fiscal year-end.
The New Credit Facility contains customary and appropriate representations
and warranties, including without limitation those relating to due organization
and authorization, no conflicts, financial condition, no material adverse
changes, title to properties, liens, litigation, payment of taxes, no material
adverse agreements, compliance with laws, environmental liabilities and full
disclosure.
The New Credit Facility also contains customary and appropriate conditions
to all borrowings under the Revolving Credit Facility including requirements
relating to prior written notice of borrowing, the accuracy of representations
and warranties, and the absence of any default or potential event of default.
The New Credit Facility also contains customary affirmative and negative
covenants (including, where appropriate, certain exceptions and baskets),
including but not limited to furnishing information and limitations on other
indebtedness, liens, investments, guarantees, restricted payments, restructuring
and reserve costs, mergers and acquisitions, sales of assets, capital
expenditures, leases, and affiliate transactions. The New Credit Facility also
contains financial covenants relating to minimum interest coverage; minimum
fixed charge coverage; and maximum leverage.
Events of default under the New Credit Facility include those relating to:
(a) non-payment of interest, principal or fees payable under the New Credit
Facility; (b) non-performance of certain covenants; (c) cross default to other
material debt of the Company and its subsidiaries; (d) bankruptcy or insolvency;
(e) judgments in excess of specified amounts; (f) impairment of security
interests in collateral; (g) invalidity of guarantees; (h) materially inaccurate
or false representations or warranties; and (i) change of control.
8 7/8% SENIOR NOTES DUE 2006 (THE "SENIOR NOTES")
On October 15, 1997, the Company issued and sold $350,000,000 principal
amount of the Senior Notes pursuant to an Indenture, dated as of October 15,
1997, by and among the Company, the Subsidiary Guarantors and State Street Bank
and Trust Company as Trustee (the "Senior Note Indenture"). The Senior Notes
were sold pursuant to exemptions from, or in transactions not subject to, the
registration requirements of the Securities Act and applicable state securities
laws. The Company consummated an offer to exchange the Senior Notes for new
Senior Notes, which are registered under the Securities Act with terms
substantially identical to the Senior Notes.
The Senior Notes will mature on October 15, 2006. Interest accrues at the
rate of 8 7/8% per annum and is payable semi-annually in arrears on April 15 and
October 15 of each year. Payment of principal, premium and interest are
effectively subordinated, however, to all secured obligations of the Company,
including the Company's borrowings, if any, under the New Credit Facility, to
the extent of the assets securing such obligations.
The Senior Notes may not be redeemed at the option of the Company any time
prior to April 15, 2002. Thereafter, the Senior Notes may be prepaid with a
premium that declines each year until April 15, 2004 when the Senior Notes may
be prepaid in whole or in part at 100% of their principal amount. Upon a Change
of Control, each holder can require the Company to redeem such holder's Senior
Notes at an offer price equal to 101% of their principal amount plus accrued and
unpaid interest, subject to restrictions contained in the New Credit Facility
and the Senior Note Indenture.
The Senior Note Indenture contains various restrictive convenants that,
among other things, limit (i) the incurrence of indebtedness by the Company and
its subsidiaries and the issuance of preferred stock by the Company, (ii) the
payment of dividends on capital stock of the Company and its subsidiaries and
certain other Restricted Payments (as defined in the Senior Note Indenture),
(iii) transactions with affiliates, (iv) the business activities of the Company,
(v) the creation of liens on the assets of the Company and (vi) consolidations,
mergers, conveyances, transfers and leases of all or substantially all of the
Company's assets. All of these limitations, however, are subject to a number of
important qualifications.
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<PAGE> 51
Events of default under the Senior Note Indenture include, among other
things, (i) a default continuing for 30 days in payment of interest or
Liquidated Damages when due, (ii) a default in the payment of any principal or
premium when due, (iii) the failure to comply with covenants in the Senior Note
Indenture, subject in certain instances to grace periods, (iv) a default under
other indebtedness of the Company or any Subsidiary in excess of $15 million
which is caused by a failure to make a required payment beyond any applicable
grace period or which results in the acceleration of such indebtedness prior to
its stated maturity, (v) certain events of bankruptcy or insolvency with respect
to the Company of any subsidiary, and (vi) the failure to pay any judgment in
excess of $5 million for a period of 60 days. However, certain of these defaults
will not constitute an Event of Default (as defined under the Senior Note
Indenture) until the Trustee or the holders of 25% in principal amount of the
outstanding Senior Notes notify the Company of the default and the Company does
not cure such default within the time required after receipt of such notice.
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<PAGE> 52
DESCRIPTION OF NEW NOTES
GENERAL
The New Notes are issued pursuant to the same indenture (the "Indenture")
among the Company, the direct or indirect domestic Restricted Subsidiaries of
the Company (together, the "Subsidiary Guarantors"), and State Street Bank and
Trust Company, as trustee (the "Trustee"), under which the Notes were issued.
See "Notice to Investors." The terms of the New Notes include those stated in
the Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). The New Notes are
subject to all such terms, and Holders of Notes are referred to the Indenture
and the Trust Indenture Act for a statement thereof. The following summary of
the material provisions of the Indenture does not purport to be complete and is
qualified in its entirety by reference to the Indenture and the Registration
Rights Agreement, including the definitions therein of certain terms used below.
Copies of the Indenture and Registration Rights Agreement are available as set
forth below under "-- Additional Information." The definitions of certain terms
used in the following summary are set forth below under "-- Certain
Definitions."
The New Notes are general unsecured obligations of the Company,
subordinated in right of payment to all existing and future Senior Debt of the
Company, including Indebtedness pursuant to the New Credit Facility. The
Company's obligations under the New Notes are fully and unconditionally
guaranteed (the "New Note Guarantees") on a senior subordinated basis by, and
are joint and several obligations of, the Subsidiary Guarantors. See "-- New
Note Guarantees." As of June 28, 1997, on a pro forma basis giving effect to the
Refinancing and the Transactions, the Company would have had approximately
$374.1 million of Senior Debt. The Indenture permits the incurrence of
additional Senior Debt, pari passu Indebtedness and subordinated Indebtedness in
the future.
The operations of the Company are conducted in part through its
Subsidiaries, and the Company may, therefore, be dependent upon the cash flow of
its Subsidiaries to meet its debt obligations, including its obligations under
the New Notes. All of the existing domestic Restricted Subsidiaries of the
Company are, and all future domestic Restricted Subsidiaries are expected to be,
Subsidiary Guarantors. As of the date of the Indenture, all of the Company's
Subsidiaries, except for the Receivables Subsidiary, are Restricted
Subsidiaries. However, under certain circumstances, the Company will be able to
designate current or future Subsidiaries as Unrestricted Subsidiaries.
Unrestricted Subsidiaries will not be subject to many of the restrictive
covenants set forth in the Indenture.
PRINCIPAL, MATURITY AND INTEREST
The New Notes are limited in aggregate principal amount to $500.0 million
and will mature on July 15, 2007. Interest on the New Notes accrues at the rate
of 10 1/8% per annum and is payable semi-annually in arrears on July 15 and
January 15 of each year, commencing on January 15, 1998, to Holders of record on
the immediately preceding July 1 and January 1. Interest on the New Notes
accrues from the most recent date to which interest has been paid or, if no
interest has been paid, from July 11, 1997. Interest is computed on the basis of
a 360-day year comprised of twelve 30-day months. Principal, premium and
Liquidated Damages, if any, and interest on the New Notes are payable at the
office or agency of the Company maintained for such purpose within the City and
State of New York or, at the option of the Company, payment of interest and
liquidated damages, if any, may be made by check mailed to the Holders of the
New Notes at their respective addresses set forth in the register of Holders of
New Notes; provided that all payments of principal, premium and Liquidated
Damages, if any, and interest with respect to New Notes the Holders of which
have given wire transfer instructions to the Company are required to be made by
wire transfer of immediately available funds to the accounts specified by the
Holders thereof. Until otherwise designated by the Company, the Company's office
or agency in New York is the office of the Trustee maintained for such purpose.
The New Notes are issued in denominations of $1,000 and integral multiples
thereof.
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SUBORDINATION
The payment of principal of, premium and liquidated damages, if any, and
interest on the New Notes is subordinated in right of payment, as set forth in
the Indenture, to the prior payment in full of all Senior Debt, whether
outstanding on the date of the Indenture or thereafter created, incurred or
assumed and all permissible renewals, extensions, refundings or refinancings
thereof.
The Indenture provides that, upon any payment or distribution of assets of
the Company of any kind or character, whether in cash, property or securities,
to creditors in any Insolvency or Liquidation Proceeding with respect to the
Company all amounts due or to become due under or with respect to all Senior
Debt will first be paid in full in cash before any payment is made on account of
the New Notes, except that the Holders of New Notes may receive Reorganization
Securities. Upon any such Insolvency or Liquidation Proceeding, any payment or
distribution of assets of the Company of any kind or character, whether in cash,
property or securities (other than Reorganization Securities), to which the
Holders of the New Notes or the Trustee would be entitled will be paid by the
Company or by any receiver, trustee in bankruptcy, liquidating trustee, agent or
other person making such payment or distribution, or by the Holders of the New
Notes or by the Trustee if received by them, directly to the holders of Senior
Debt (pro rata to such holders on the basis of the amounts of Senior Debt held
by such holders) or their Representative or Representatives, as their interests
may appear, for application to the payment of the Senior Debt remaining unpaid
until all such Senior Debt has been paid in full in cash, after giving effect to
any concurrent payment, distribution or provision therefor to or for the holders
of Senior Debt.
The Indenture provides that (a) in the event of and during the continuation
of any default in the payment of principal of, interest or premium, if any, on
any Senior Debt, or any Obligation owing from time to time under or in respect
of Senior Debt, or in the event that any event of default (other than a payment
default) with respect to any Senior Debt will have occurred and be continuing
and will have resulted in such Senior Debt becoming or being declared due and
payable prior to the date on which it would otherwise have become due and
payable, or (b) if any event of default other than as described in clause (a)
above with respect to any Designated Senior Debt will have occurred and be
continuing permitting the holders of such Designated Senior Debt (or their
Representative or Representatives) to declare such Designated Senior Debt due
and payable prior to the date on which it would otherwise have become due and
payable, then no payment will be made by or on behalf of the Company on account
of the New Notes (other than payments in the form of Reorganization Securities)
(x) in case of any payment or nonpayment default specified in (a), unless and
until such default will have been cured or waived in writing in accordance with
the instruments governing such Senior Debt or such acceleration will have been
rescinded or annulled, or (y) in case of any nonpayment event of default
specified in (b), during the period (a "Payment Blockage Period") commencing on
the date the Company or the Trustee receives written notice (a "Payment Notice")
of such event of default (which notice will be binding on the Trustee and the
Holders of New Notes as to the occurrence of such a payment default or
nonpayment event of default) from the Credit Agent (or other holders of
Designated Senior Debt or their Representative or Representatives) and ending on
the earliest of (A) 179 days after such date, (B) the date, if any, on which
such Designated Senior Debt to which such default relates is paid in full in
cash or such default is cured or waived in writing in accordance with the
instruments governing such Designated Senior Debt by the holders of such
Designated Senior Debt and (C) the date on which the Trustee receives written
notice from the Credit Agent (or other holders of Designated Senior Debt or
their Representative or Representatives), as the case may be, terminating the
Payment Blockage Period. During any consecutive 360-day period, the aggregate of
all Payment Blockage Periods shall not exceed 179 days and there shall be a
period of at least 181 consecutive days in each consecutive 360-day period when
no Payment Blockage Period is in effect. No event of default which existed or
was continuing with respect to the Senior Debt for which notice commencing a
Payment Blockage Period was given on the date such Payment Blockage Period
commenced shall be or be made the basis for the commencement of any subsequent
Payment Blockage Period unless such event of default is cured or waived for a
period of not less than 90 consecutive days.
As a result of the subordination provisions described above, in the event
of the Company's liquidation, dissolution, bankruptcy, reorganization,
insolvency, receivership or similar proceeding or in an assignment for the
benefit of the creditors or a marshalling of the assets and liabilities of the
Company, Holders of New Notes
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<PAGE> 54
may recover less ratably than creditors of the Company who are holders of Senior
Debt. See "Risk Factors -- Subordination." The Indenture limits, subject to
certain financial tests, the amount of additional Indebtedness, including Senior
Debt, that the Company and its Restricted Subsidiaries can incur. See
" -- Certain Covenants -- Incurrence of Indebtedness and Issuance of Preferred
Stock."
NEW NOTE GUARANTEES
The Company's payment obligations under the New Notes are fully and
unconditionally guaranteed by the Subsidiary Guarantors on a joint and several
basis. The New Note Guarantees are subordinated to the prior payment in full of
all Senior Debt of each Subsidiary Guarantor (including such Subsidiary
Guarantor's guarantee of the New Credit Agreement, if any) to the same extent
that the New Notes are subordinated to Senior Debt of the Company. The
obligations of any Subsidiary Guarantor under its New Note Guarantee are limited
so as not to constitute a fraudulent conveyance under applicable law.
The Indenture provides that no Subsidiary Guarantor may consolidate with or
merge with or into (whether or not such Subsidiary Guarantor is the surviving
Person), another corporation, Person or entity whether or not affiliated with
such Subsidiary Guarantor unless, subject to the provisions of the following
paragraph, (i) the Person formed by or surviving any such consolidation or
merger (if other than such Subsidiary Guarantor) assumes all the obligations of
such Subsidiary Guarantor pursuant to a supplemental indenture in form and
substance reasonably satisfactory to the Trustee, under the New Notes and the
Indenture; (ii) immediately after giving effect to such transaction, no Default
or Event of Default exists; (iii) such Subsidiary Guarantor, or any Person
formed by or surviving any such consolidation or merger, would have Consolidated
Net Worth (immediately after giving effect to such transaction) equal to or
greater than the Consolidated Net Worth of such Subsidiary Guarantor immediately
preceding the transaction; and (iv) the Company would be permitted by virtue of
its pro forma Fixed Charge Coverage Ratio, immediately after giving effect to
such transaction, to incur at least $1.00 of additional Indebtedness pursuant to
the Fixed Charge Coverage Ratio test set forth in the covenant described below
under the caption " -- Certain Covenants -- Incurrence of Indebtedness and
Issuance of Preferred Stock." The requirements of clauses (iii) and (iv) of this
paragraph will not apply in the case of a consolidation with or merger with or
into (a) the Company or another Subsidiary Guarantor or (b) any other Person if
the acquisition of all of the Equity Interests in such Person would have
complied with the provisions of the covenants described below under the captions
" -- Certain Covenants -- Restricted Payments" and " -- Incurrence of
Indebtedness and Issuance of Preferred Stock."
The Indenture provides that (a) in the event of a sale or other disposition
of all of the assets of any Subsidiary Guarantor, by way of merger,
consolidation or otherwise, or a sale or other disposition of all of the capital
stock of any Subsidiary Guarantor, or (b) in the event that the Company
designates a Subsidiary Guarantor to be an Unrestricted Subsidiary, or such
Subsidiary Guarantor ceases to be a Subsidiary of the Company, then such
Subsidiary Guarantor (in the event of a sale or other disposition, by way of
such a merger, consolidation or otherwise, of all of the capital stock of such
Subsidiary Guarantor or any such designation) or the entity acquiring the
property (in the event of a sale or other disposition of all of the assets of
such Subsidiary Guarantor) will be released and relieved of any obligations
under its New Note Guarantee; provided that the Net Proceeds of such sale or
other disposition are applied in accordance with the applicable provisions of
the Indenture. See " -- Repurchase at the Option of Holders." In the case of a
sale, assignment, lease, transfer, conveyance or other disposition of all or
substantially all of the assets of a Subsidiary Guarantor, upon the assumption
provided for in clause (ii) of the covenant described under the caption " --
Certain Covenants -- Merger, Consolidation, or Sale of Assets," such Subsidiary
Guarantor shall be discharged from all further liability and obligation under
the Indenture.
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<PAGE> 55
OPTIONAL REDEMPTION
The New Notes are not redeemable at the Company's option prior to July 15,
2002. Thereafter, the New Notes will be subject to redemption at any time at the
option of the Company, in whole or in part, upon not less than 30 nor more than
60 days' notice, at the redemption prices (expressed as percentages of principal
amount) set forth below plus accrued and unpaid interest and Liquidated Damages
thereon, if any, to the applicable redemption date, if redeemed during the
twelve-month period beginning on July 15 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
-------------------------------------------------- ----------
<S> <C>
2002.............................................. 105.063%
2003.............................................. 103.375%
2004.............................................. 101.688%
2005 and thereafter............................... 100.000%
</TABLE>
Notwithstanding the foregoing, at any time prior to July 15, 2000, the
Company may redeem up to 33% of the original aggregate principal amount of New
Notes at a redemption price of 110.125% of the principal amount thereof, plus
accrued and unpaid interest and Liquidated Damages thereon, if any, to the
redemption date, with the net cash proceeds of a Public Equity Offering;
provided that at least 67% of the original aggregate principal amount of New
Notes remains outstanding immediately after the occurrence of such redemption;
and provided, further, that such redemption shall occur within 45 days of the
date of the closing of such Public Equity Offering.
SELECTION AND NOTICE
If less than all of the New Notes are to be redeemed at any time, selection
of New Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
New Notes are listed, or, if the New Notes are not so listed, on a pro rata
basis, by lot or by such method as the Trustee shall deem fair and appropriate;
provided that no New Notes of $1,000 or less shall be redeemed in part. Notices
of redemption shall be mailed by first class mail at least 30 but not more than
60 days before the redemption date to each Holder of New Notes to be redeemed at
its registered address. Notices of redemption may not be conditional. If any New
Note is to be redeemed in part only, the notice of redemption that relates to
such New Note shall state the portion of the principal amount thereof to be
redeemed. A new New Note in principal amount equal to the unredeemed portion
thereof will be issued in the name of the Holder thereof upon cancellation of
the original New Note. New Notes called for redemption become due on the date
fixed for redemption. On and after the redemption date, interest ceases to
accrue on New Notes or portions of them called for redemption.
MANDATORY REDEMPTION
Except as set forth below under " -- Repurchase at the Option of Holders,"
the Company is not required to make mandatory redemption or sinking fund
payments with respect to the New Notes.
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control
Upon the occurrence of a Change of Control, each Holder of New Notes has
the right to require the Company to repurchase all or any part (equal to $1,000
or an integral multiple thereof) of such Holder's New Notes pursuant to the
offer described below (the "Change of Control Offer") at an offer price in cash
equal to 101% of the aggregate principal amount thereof plus accrued and unpaid
interest and Liquidated Damages thereon, if any, to the date of purchase (the
"Change of Control Payment"). Within 30 days following any Change of Control,
the Company will mail a notice to each Holder describing the transaction or
transactions that constitute the Change of Control and offering to repurchase
New Notes on the date specified in such notice, which date shall be no earlier
than 30 days and no later than 60 days from the date such notice is mailed (the
"Change of Control Payment Date"), pursuant to the procedures required by the
Indenture and
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<PAGE> 56
described in such notice. The Company will comply with the requirements of Rule
14e-1 under the Exchange Act and any other securities laws and regulations
thereunder to the extent such laws and regulations are applicable in connection
with the repurchase of the New Notes as a result of a Change of Control.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (1) accept for payment all New Notes or portions thereof properly
tendered pursuant to the Change of Control Offer, (2) deposit with the Paying
Agent an amount equal to the Change of Control Payment in respect of all New
Notes or portions thereof so tendered and (3) deliver or cause to be delivered
to the Trustee the New Notes so accepted together with an Officers' Certificate
stating the aggregate principal amount of New Notes or portions thereof being
purchased by the Company. The Paying Agent will promptly mail to each Holder of
New Notes so tendered the Change of Control Payment for such New Notes, and the
Trustee will promptly authenticate and mail (or cause to be transferred by book
entry) to each Holder a new New Note equal in principal amount to any
unpurchased portion of the New Notes surrendered, if any; provided that each
such new New Note will be in a principal amount of $1,000 or an integral
multiple thereof. The Indenture provides that, prior to complying with the
provisions of this covenant, but in any event within 90 days following a Change
of Control, the Company will either repay all outstanding Senior Debt or obtain
the requisite consents, if any, under all agreements governing outstanding
Senior Debt to permit the repurchase of New Notes required by this covenant. The
Company will publicly announce the results of the Change of Control Offer on, or
as soon as practicable after, the Change of Control Payment Date.
The Change of Control provisions described above are applicable whether or
not any other provisions of the Indenture are applicable. Except as described
above with respect to a Change of Control, the Indenture does not contain
provisions that permit the Holders of the New Notes to require that the Company
repurchase or redeem the New Notes in the event of a takeover, recapitalization
or similar transaction.
The New Credit Facility provides that certain change of control events with
respect to the Company would constitute a default thereunder. Any future credit
agreements or other agreements relating to Senior Debt to which the Company
becomes a party may contain similar restrictions and provisions. In the event a
Change of Control occurs at a time when the Company is prohibited from
purchasing New Notes, the Company could seek the consent of its lenders to
purchase the New Notes or could attempt to refinance the borrowings that contain
such prohibition. If the Company does not obtain such consent or repay such
borrowings, the Company will remain prohibited from purchasing New Notes. In
such case, the Company's failure to purchase tendered New Notes would constitute
an Event of Default under the Indenture which would, in turn, constitute a
default under the New Credit Facility. In such circumstances, the subordination
provisions in the Indenture would likely restrict payments to the Holders of New
Notes. See "Description of Indebtedness."
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by the Company and
purchases all New Notes validly tendered and not withdrawn under such Change of
Control Offer.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company and its Subsidiaries taken as a whole. Although
there is a developing body of case law interpreting the phrase "substantially
all," there is no precise established definition of that phrase under applicable
law. Accordingly, the ability of a Holder of New Notes to require the Company to
repurchase such New Notes as a result of a sale, lease, transfer, conveyance or
other disposition of less than all of the assets of the Company and its
Subsidiaries taken as a whole to another Person or group may be uncertain.
Asset Sales
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, consummate an Asset Sale other than transfers
of Receivables to a Receivables Subsidiary in connection with a Receivables
Transaction unless (i) the Company (or the Restricted Subsidiary, as the case
may be) receives consideration at the time of such Asset Sale at least equal to
the fair market value (evidenced by a
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<PAGE> 57
resolution of the Board of Directors set forth in an Officers' Certificate
delivered to the Trustee) of the assets or Equity Interests issued or sold or
otherwise disposed of and (ii) at least 80% of the consideration therefor
received by the Company or such Restricted Subsidiary is in the form of cash;
provided that the amount of (x) any liabilities (as shown on the Company's or
such Restricted Subsidiary's most recent balance sheet) of the Company or any
Restricted Subsidiary (other than contingent liabilities and liabilities that
are by their terms subordinated to the New Notes or any guarantee thereof) that
are assumed by the transferee of any such assets pursuant to a customary
novation agreement that releases the Company or such Restricted Subsidiary from
further liability and (y) any securities, notes or other obligations received by
the Company or any such Restricted Subsidiary from such transferee that are
converted by the Company or such Restricted Subsidiary into cash within 180 days
(to the extent of the cash received), shall be deemed to be cash for purposes of
this provision.
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
the Company may apply such Net Proceeds, at its option, (a) to permanently repay
Senior Debt (and to correspondingly reduce commitments with respect thereto in
the case of revolving borrowings), or (b) to the acquisition of a controlling
interest in another business, the making of a capital expenditure or the
acquisition of other long-term assets, in each case, in a Permitted Business.
Pending the final application of any such Net Proceeds, the Company may
temporarily reduce the revolving Indebtedness under the New Credit Facility or
otherwise invest such Net Proceeds in any manner that is not prohibited by the
Indenture. Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the first sentence of this paragraph will be deemed to constitute
"Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $15.0
million, the Company will be required to make an offer to all Holders of New
Notes (an "Asset Sale Offer") to purchase the maximum principal amount of New
Notes that may be purchased out of the Excess Proceeds, at an offer price in
cash in an amount equal to 100% of the principal amount thereof plus accrued and
unpaid interest and Liquidated Damages thereon, if any, to the date of purchase,
in accordance with the procedures set forth in the Indenture. To the extent that
the aggregate amount of New Notes tendered pursuant to an Asset Sale Offer is
less than the Excess Proceeds, the Company may use any remaining Excess Proceeds
for general corporate purposes. If the aggregate principal amount of New Notes
surrendered by Holders thereof exceeds the amount of Excess Proceeds, the
Trustee shall select the New Notes to be purchased on a pro rata basis. Upon
completion of such offer to purchase, the amount of Excess Proceeds shall be
reset at zero.
CERTAIN COVENANTS
Restricted Payments
The Indenture provides that from and after the date of the Indenture the
Company will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly: (i) declare or pay any dividend or make any other
payment or distribution on account of the Company's or any of its Restricted
Subsidiaries' Equity Interests (including, without limitation, any payment in
connection with any merger or consolidation involving the Company) or to the
direct or indirect holders of the Company's or any of its Restricted
Subsidiaries' Equity Interests in their capacity as such (other than dividends
or distributions payable in Equity Interests (other than Disqualified Stock) of
the Company); (ii) purchase, redeem or otherwise acquire or retire for value
(including without limitation, in connection with any merger or consolidation
involving the Company) any Equity Interests of the Company or any direct or
indirect parent of the Company; (iii) make any payment on or with respect to, or
purchase, redeem, defease or otherwise acquire or retire for value any
Indebtedness that is pari passu with or subordinated to the New Notes (other
than the Notes), except a payment of interest or principal at Stated Maturity;
or (iv) make any Restricted Investment (all such payments and other actions set
forth in clauses (i) through (iv) above being collectively referred to as
"Restricted Payments"), unless, at the time of and after giving effect to such
Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(b) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the applicable four-quarter
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period, have been permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in
the first paragraph of the covenant described below under caption
"-- Incurrence of Indebtedness and Issuance of Preferred Stock"; and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company and its Subsidiaries after
the date of the Indenture (excluding Restricted Payments permitted by
clause (ii) of the next succeeding paragraph), is less than the sum of (i)
50% of the Consolidated Net Income of the Company for the period (taken as
one accounting period) from the beginning of the first fiscal quarter
commencing after the date of the Indenture to the end of the Company's most
recently ended fiscal quarter for which internal financial statements are
available at the time of such Restricted Payment (or, if such Consolidated
Net Income for such period is a deficit, less 100% of such deficit), plus
(ii) 100% of the aggregate net cash proceeds received by the Company from
the issue or sale since the date of the Indenture of Equity Interests of
the Company (other than Disqualified Stock) or of Disqualified Stock or
debt securities of the Company that have been converted into such Equity
Interests (other than Equity Interests (or Disqualified Stock or
convertible debt securities) sold to a Subsidiary of the Company and other
than Disqualified Stock or convertible debt securities that have been
converted into Disqualified Stock), plus (iii) to the extent that any
Restricted Investment that was made after the date of the Indenture is sold
for cash or otherwise liquidated or repaid for cash, the lesser of (A) the
cash return of capital with respect to such Restricted Investment (less the
cost of disposition, if any) and (B) the initial amount of such Restricted
Investment, plus (iv) if any Unrestricted Subsidiary (A) is redesignated as
a Restricted Subsidiary, the fair market value of such redesignated
Subsidiary (as determined in good faith by the Board of Directors) as of
the date of its redesignation or (B) pays any cash dividends or cash
distributions to the Company or any of its Restricted Subsidiaries, 50% of
any such cash dividends or cash distributions made after the date of the
Indenture.
The foregoing provisions will not prohibit (i) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of the
Indenture; (ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any pari passu or subordinated Indebtedness or Equity Interests
of the Company in exchange for, or out of the net cash proceeds of the
substantially concurrent sale or issuance (other than to a Restricted Subsidiary
of the Company) of, other Equity Interests of the Company (other than any
Disqualified Stock); provided that the amount of any such net cash proceeds that
are utilized for any such redemption, repurchase, retirement, defeasance or
other acquisition shall be excluded from clause (c)(ii) of the preceding
paragraph; (iii) the defeasance, redemption, repurchase or other acquisition of
pari passu or subordinated Indebtedness with the net cash proceeds from an
incurrence of Permitted Refinancing Indebtedness; (iv) the payment of any
dividend by a Restricted Subsidiary of the Company to the holders of its Equity
Interests on a pro rata basis; (v) the declaration or payment of dividends to
NEHC for expenses incurred by NEHC or Holberg in its capacity as a holding
company that are attributable to the operations of the Company and its
Restricted Subsidiaries, including, without limitation, (a) customary salary,
bonus and other benefits payable to officers and employees of NEHC or Holberg,
(b) fees and expenses paid to members of the Board of Directors of NEHC or
Holberg, (c) general corporate overhead expenses of NEHC or Holberg, (d)
foreign, federal, state or local tax liabilities paid by NEHC or Holberg, (e)
management, consulting or advisory fees paid to Holberg not to exceed $4.0
million in any fiscal year, and (f) the repurchase, redemption or other
acquisition or retirement for value of any Equity Interests of NEHC or Holberg
held by any member of NEHC's or the Company's (or any of their Restricted
Subsidiaries') management pursuant to any management equity subscription
agreement or stock option agreement in effect as of the date of the Indenture;
provided, however, the aggregate amount paid pursuant to the foregoing clauses
(a) through (f) does not exceed $7.0 million in any fiscal year; (vi)
Investments in any Person (other than the Company or a Wholly-Owned Restricted
Subsidiary) engaged in a Permitted Business in an amount not to exceed $5.0
million; (vii) other Investments in Unrestricted Subsidiaries having an
aggregate fair market value, taken together with all other Investments made
pursuant to this clause (vii) that are at that time outstanding, not to exceed
$2.0 million; (viii) Permitted Investments; (ix) payments to NEHC or Holberg
pursuant to the tax sharing agreement among Holberg and other
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members of the affiliated corporations of which Holberg is the common parent; or
(x) other Restricted Payments in an aggregate amount not to exceed $10.0
million.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default; provided
that in no event shall the business currently operated by any Subsidiary
Guarantor be transferred to or held by an Unrestricted Subsidiary. For purposes
of making such determination, all outstanding Investments by the Company and its
Restricted Subsidiaries (except to the extent repaid in cash) in the Subsidiary
so designated will be deemed to be Restricted Payments at the time of such
designation and will reduce the amount available for Restricted Payments under
the first paragraph of this covenant. All such outstanding Investments are
deemed to constitute Investments in an amount equal to the fair market value of
such Investments at the time of such designation (as determined in good faith by
the Board of Directors). Such designation is only permitted if such Restricted
Payment would be permitted at such time and if such Restricted Subsidiary
otherwise meets the definition of an Unrestricted Subsidiary.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by the Company or such Subsidiary, as the
case may be, pursuant to the Restricted Payment. The fair market value of any
non-cash Restricted Payment shall be determined in good faith by the Board of
Directors whose resolution with respect thereto shall be delivered to the
Trustee; such determination will be based upon an opinion or appraisal issued by
an accounting, appraisal or investment banking firm of national standing if such
fair market value exceeds $10.0 million. Not later than the date of making any
Restricted Payment, the Company shall deliver to the Trustee an Officers'
Certificate stating that such Restricted Payment is permitted and setting forth
the basis upon which the calculations required by the covenant "-- Restricted
Payments" were computed, together with a copy of any fairness opinion or
appraisal required by the Indenture.
Incurrence of Indebtedness and Issuance of Preferred Stock
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guarantee or otherwise become directly or indirectly liable, contingently or
otherwise, with respect to (collectively, "incur") any Indebtedness (including
Acquired Debt) and that the Company will not issue any Disqualified Stock and
will not permit any of its Subsidiaries to issue any shares of preferred stock;
provided, however, that the Company may incur Indebtedness (including Acquired
Debt) or issue shares of Disqualified Stock if the Fixed Charge Coverage Ratio
for the Company's most recently ended four full fiscal quarters for which
internal financial statements are available immediately preceding the date on
which such additional Indebtedness is incurred or such Disqualified Stock is
issued would have been at least 2.0 to 1, determined on a pro forma basis
(including a pro forma application of the net proceeds therefrom), as if the
additional Indebtedness had been incurred, or the Disqualified Stock had been
issued, as the case may be, at the beginning of such four-quarter period.
The provisions of the first paragraph of this covenant will not apply to
the incurrence of any of the following items of Indebtedness (collectively,
"Permitted Debt"):
(i) the incurrence by the Company of term Indebtedness under the New
Credit Facility; provided that the aggregate principal amount of all term
Indebtedness outstanding under the New Credit Facility after giving effect
to such incurrence does not exceed the aggregate amount of term
Indebtedness borrowed under the New Credit Facility on July 11, 1997 less
the aggregate amount of all repayments, optional or mandatory, of the
principal of any term Indebtedness under the New Credit Facility (other
than repayments that are immediately reborrowed) that have been made since
July 11, 1997; provided that the foregoing proviso shall not limit the
principal amount of Permitted Refinancing Indebtedness that may be incurred
to refund, refinance or replace any Indebtedness incurred pursuant to this
clause (i);
(ii) the incurrence by the Company of revolving Indebtedness and
letters of credit pursuant to the New Credit Facility; provided that the
aggregate principal amount of all revolving Indebtedness (with letters of
credit being deemed to have a principal amount equal to the maximum
potential liability of the
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Company thereunder) outstanding under the New Credit Facility after giving
effect to such incurrence does not exceed $150.0 million; provided that the
foregoing proviso shall not limit the principal amount of Permitted
Refinancing Indebtedness that may be incurred to refinance or replace any
Indebtedness incurred pursuant to this clause (ii);
(iii) the incurrence by the Company and its Restricted Subsidiaries of
the Existing Indebtedness;
(iv) the incurrence by the Company and the Subsidiary Guarantors of
Indebtedness represented by the New Notes and the New Note Guarantees,
respectively;
(v) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness represented by Capital Lease Obligations,
mortgage financings or purchase money obligations, in each case incurred
for the purpose of financing all or any part of the purchase price or cost
of construction or improvement of property, plant or equipment used in the
business of the Company or such Restricted Subsidiary (whether through the
direct purchase of assets or the Capital Stock of any Person owning such
Assets), in an aggregate principal amount not to exceed $125.0 million;
(vi) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness in connection with the acquisition of assets
or a new Restricted Subsidiary; provided that such Indebtedness was
incurred by the prior owner of such assets or such Restricted Subsidiary
prior to such acquisition by the Company or one of its Subsidiaries and was
not incurred in connection with, or in contemplation of, such acquisition
by the Company or one of its Subsidiaries; provided further that the
principal amount (or accreted value, as applicable) of such Indebtedness,
together with any other outstanding Indebtedness incurred pursuant to this
clause (vi), does not exceed $5.0 million;
(vii) the incurrence by the Company or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the
net proceeds of which are used to refund, refinance or replace Indebtedness
that was permitted by the Indenture to be incurred;
(viii) the incurrence by the Company or any of its Restricted
Subsidiaries of intercompany Indebtedness between or among the Company and
any of its Wholly-Owned Restricted Subsidiaries; provided, however, that
(i) if the Company is the obligor on such Indebtedness and the payee is not
a Subsidiary Guarantor, such Indebtedness is expressly subordinated to the
prior payment in full in cash of all Obligations with respect to the New
Notes and (ii)(A) any subsequent issuance or transfer of Equity Interests
that results in any such Indebtedness being held by a Person other than the
Company or a Wholly Owned Restricted Subsidiary and (B) any sale or other
transfer of any such Indebtedness to a Person that is not either the
Company or a Wholly Owned Restricted Subsidiary shall be deemed, in each
case, to constitute an incurrence of such Indebtedness by the Company or
such Restricted Subsidiary, as the case may be;
(ix) the incurrence by the Company or any of its Restricted
Subsidiaries of Hedging Obligations that are incurred for the purpose of
fixing or hedging currency risk or interest rate risk with respect to any
floating rate Indebtedness that is permitted by the terms of this Indenture
to be outstanding;
(x) the guarantee by the Company or any of its Restricted Subsidiaries
of Indebtedness of the Company or a Restricted Subsidiary of the Company
that was permitted to be incurred by another provision of this covenant;
(xi) the incurrence by the Company's Unrestricted Subsidiaries of
Non-Recourse Debt, provided, however, that if any such Indebtedness ceases
to be Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be
deemed to constitute an incurrence of Indebtedness by a Restricted
Subsidiary of the Company;
(xii) Asset Sales in the form of Receivables Transactions;
(xiii) Indebtedness incurred by the Company or any of its Restricted
Subsidiaries constituting reimbursement obligations with respect to letters
of credit issued in the ordinary course of business, including without
limitation to letters of credit in respect to workers' compensation claims
or self-
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insurance, or other Indebtedness with respect to reimbursement type
obligations regarding workers' compensation claims; provided, however, that
upon the drawing of such letters of credit or the incurrence of such
Indebtedness, such obligations are reimbursed within 30 days following such
drawing or incurrence;
(xiv) Indebtedness arising from agreements of the Company or a
Restricted Subsidiary providing for indemnification, adjustment of purchase
price or similar obligations, in each case, incurred or assumed in
connection with the disposition of any business, asset or Subsidiary, other
than guarantees of Indebtedness incurred by any Person acquiring all or any
portion of such business, assets or Subsidiary for the purpose of financing
such acquisition; provided that the maximum aggregate liability of all such
Indebtedness shall at no time exceed 50% of the gross proceeds actually
received by the Company or a Restricted Subsidiary in connection with such
disposition;
(xv) obligations in respect of performance and surety bonds and
completion guarantees provided by the Company or any Restricted Subsidiary
in the ordinary course of business;
(xvi) guarantees incurred in the ordinary course of business in an
aggregate principal amount not to exceed $5.0 million at any time
outstanding; and
(xvii) the incurrence by the Company or any of its Restricted
Subsidiaries of additional Indebtedness, including Attributable Debt
incurred after the date of the Indenture, in an aggregate principal amount
(or accreted value, as applicable) at any time outstanding, including all
Permitted Refinancing Indebtedness incurred to refund, refinance or replace
any other Indebtedness incurred pursuant to this clause (xvii), not to
exceed $25.0 million.
For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (i) through (xvii) above or is
entitled to be incurred pursuant to the first paragraph of this covenant, the
Company shall, in its sole discretion, classify such item of Indebtedness in any
manner that complies with this covenant and such item of Indebtedness will be
treated as having been incurred pursuant to only one of such clauses or pursuant
to the first paragraph hereof. Accrual of interest and the accretion of accreted
value will not be deemed to be an incurrence of Indebtedness for purposes of
this covenant.
Liens
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, create, incur, assume or otherwise cause or
suffer to exist or become effective any Lien of any kind securing trade payables
or Indebtedness that does not constitute Senior Debt (other than Permitted
Liens) upon any of their property or assets, now owned or hereafter acquired.
Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any encumbrance or restriction on
the ability of any Restricted Subsidiary to (i)(a) pay dividends or make any
other distributions to the Company or any of its Restricted Subsidiaries (1) on
its Capital Stock or (2) with respect to any other interest or participation in,
or measured by, its profits, or (b) pay any indebtedness owed to the Company or
any of its Restricted Subsidiaries, (ii) make loans or advances to the Company
or any of its Restricted Subsidiaries or (iii) transfer any of its properties or
assets to the Company or any of its Restricted Subsidiaries, except for such
encumbrances or restrictions existing under or by reason of (a) Existing
Indebtedness as in effect on July 11, 1997, (b) the New Credit Facility as in
effect as of July 11, 1997, and any amendments, modifications, restatements,
renewals, increases, supplements, refundings, replacements or refinancings
thereof, provided that such amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacement or refinancings are no more
restrictive in the aggregate (as determined by the Credit Agent in good faith)
with respect to such dividend and other payment restrictions than those
contained in the New Credit Facility as in effect on July 11, 1997, (c) the
Indenture and the New Notes,
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(d) any applicable law, rule, regulation or order, (e) any instrument governing
Indebtedness or Capital Stock of a Person acquired by the Company or any of its
Restricted Subsidiaries as in effect at the time of such acquisition (except to
the extent such Indebtedness was incurred in connection with or in contemplation
of such acquisition), which encumbrance or restriction is not applicable to any
Person, or the properties or assets of any Person, other than the Person, or the
property or assets of the Person, so acquired, provided that, in the case of
Indebtedness, such Indebtedness was permitted by the terms of the Indenture to
be incurred, (f) by reason of customary non-assignment provisions in leases
entered into in the ordinary course of business and consistent with past
practices, (g) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions of the nature described in clause
(iii) above on the property so acquired, (h) Permitted Refinancing Indebtedness,
provided that the material restrictions contained in the agreements governing
such Permitted Refinancing Indebtedness are no more restrictive than those
contained in the agreements governing the Indebtedness being refinanced, (i)
contracts for the sale of assets, including without limitation customary
restrictions with respect to a Subsidiary pursuant to an agreement that has been
entered into for the sale or disposition of all or substantially all of the
Capital Stock or assets of such Subsidiary, and (j) restrictions on cash or
other deposits or net worth imposed by customers under contracts entered into in
the ordinary course of business.
Merger, Consolidation, or Sale of Assets
The Indenture provides that the Company may not consolidate or merge with
or into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of its properties or assets in one or more related transactions, to another
corporation, Person or entity unless (i) the Company is the surviving
corporation or the entity or the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the United States,
any state thereof or the District of Columbia; (ii) the entity or Person formed
by or surviving any such consolidation or merger (if other than the Company) or
the entity or Person to which such sale, assignment, transfer, lease, conveyance
or other disposition shall have been made assumes all the obligations of the
Company under the New Notes and the Indenture pursuant to a supplemental
indenture in a form reasonably satisfactory to the Trustee; (iii) immediately
after such transaction no Default or Event of Default exists; and (iv) except in
the case of a merger of the Company with or into a Wholly-Owned Restricted
Subsidiary of the Company, the Company or the entity or Person formed by or
surviving any such consolidation or merger (if other than the Company), or to
which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made will, at the time of such transaction and after giving pro
forma effect thereto as if such transaction had occurred at the beginning of the
applicable four-quarter period, be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set
forth in the first paragraph of the covenant described above under the caption
" -- Incurrence of Indebtedness and Issuance of Preferred Stock."
Transactions with Affiliates
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer
or otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any transaction,
contract, agreement, understanding, loan, advance or guarantee with, or for the
benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction")
involving consideration in excess of $3.0 million unless (i) such Affiliate
Transaction is on terms that are no less favorable to the Company or the
relevant Restricted Subsidiary than those that would have been obtained in a
comparable transaction by the Company or such Restricted Subsidiary with an
unrelated Person and (ii) the Company delivers to the Trustee (a) with respect
to any Affiliate Transaction or series of related Affiliate Transactions
involving aggregate consideration in excess of $7.5 million, a resolution of the
Board of Directors set forth in an Officers' Certificate certifying that such
Affiliate Transaction complies with clause (i) above and that such Affiliate
Transaction has been approved by a majority of the disinterested members of the
Board of Directors and (b) with respect to any Affiliate Transaction or series
of related Affiliate Transactions involving either aggregate consideration in
excess of $15.0 million or an aggregate
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consideration in excess of $10.0 million where there are no disinterested
members of the Board of Directors, an opinion as to the fairness to the Holders
of such Affiliate Transaction from a financial point of view issued by an
accounting, appraisal or investment banking firm of national standing; provided
that the following shall not be deemed Affiliate Transactions: (q) any
employment agreement entered into by the Company or any of its Restricted
Subsidiaries in the ordinary course of business and consistent with the past
practice of the Company or such Restricted Subsidiary, (r) transactions between
or among the Company and/or its Restricted Subsidiaries, (s) Permitted
Investments and Restricted Payments that are permitted by the provisions of the
Indenture described above under the caption " -- Restricted Payments," (t)
customary loans, advances, fees and compensation paid to, and indemnity provided
on behalf of, officers, directors, employees or consultants of the Company or
any of its Restricted Subsidiaries, (u) annual management fees paid to Holberg
not to exceed $5.0 million in any one year, (v) transactions pursuant to any
contract or agreement in effect on the date of the Indenture as the same may be
amended, modified or replaced from time to time so long as any such amendment,
modification or replacement is no less favorable to the Company and its
Restricted Subsidiaries than the contract or agreement as in effect on the Issue
Date or is approved by a majority of the disinterested directors of NEHC, (w)
transactions between the Company or its Restricted Subsidiaries on the one hand,
and Holberg on the other hand, involving the provision of financial or advisory
services by Holberg; provided that fees payable to Holberg do not exceed the
usual and customary fees for similar services, (x) transactions between the
Company or its Restricted Subsidiaries on the one hand, and Donaldson, Lufkin &
Jenrette Securities Corporation or its Affiliates ("DLJ") on the other hand,
involving the provision of financial, advisory, placement or underwriting
services by DLJ; provided that fees payable to DLJ do not exceed the usual and
customary fees of DLJ for similar services, (y) the insurance arrangements
between NEHC and its Subsidiaries and an Affiliate of Holberg that are not less
favorable to the Company or any of its Subsidiaries than those that are in
effect on the date hereof provided such arrangements are conducted in the
ordinary course of business consistent with past practices, and (z) payments
under the tax sharing agreement among Holberg and other members of the
affiliated group of corporations of which it is the common parent.
Anti-Layering
The Indenture provides that (i) the Company will not incur, create, issue,
assume, guarantee or otherwise become liable for any Indebtedness that is both
(a) subordinate or junior in right of payment to any Senior Debt and (b) senior
in any respect in right of payment to the New Notes and (ii) no Subsidiary
Guarantor will incur, create, issue, assume, guarantee or otherwise become
liable for any Indebtedness that is both (a) subordinate or junior in right of
payment to its Senior Debt and (b) senior in right of payment to its Note
Guarantee.
Sale and Leaseback Transactions
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, enter into any sale and leaseback
transaction; provided that the Company may enter into a sale and leaseback
transaction if (i) the Company could have (a) incurred Indebtedness in an amount
equal to the Attributable Debt relating to such sale and leaseback transaction
pursuant to the covenant described above under the caption " -- Incurrence of
Indebtedness and Issuance of Preferred Stock" and (b) incurred a Lien to secure
such Indebtedness pursuant to the covenant described above under the caption
" -- Liens," (ii) the gross cash proceeds of such sale and leaseback transaction
are at least equal to the fair market value (as determined in good faith by the
Board of Directors and set forth in an Officers' Certificate delivered to the
Trustee) of the property that is the subject of such sale and leaseback
transaction and (iii) the transfer of assets in such sale and leaseback
transaction is permitted by, and the Company applies the proceeds of such
transaction in compliance with, the covenant described above under the caption
" -- Repurchase at the Option of Holders -- Asset Sales."
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Limitation on Issuances and Sales of Capital Stock of Wholly-Owned Restricted
Subsidiaries
The Indenture provides that the Company (i) will not, and will not permit
any Wholly-Owned Restricted Subsidiary of the Company to, transfer, convey,
sell, lease or otherwise dispose of any Capital Stock of any Wholly-Owned
Subsidiary of the Company to any Person (other than the Company or a
Wholly-Owned Restricted Subsidiary of the Company), unless (a) such transfer,
conveyance, sale, lease or other disposition is of all the Capital Stock of such
Wholly-Owned Restricted Subsidiary and (b) the cash Net Proceeds from such
transfer, conveyance, sale, lease or other disposition are applied in accordance
with the covenant described above under the caption " -- Asset Sales," and (ii)
will not permit any Wholly-Owned Restricted Subsidiary of the Company to issue
any of its Equity Interests (other than, if necessary, shares of its Capital
Stock constituting directors' qualifying shares) to any Person other than to the
Company or a Wholly-Owned Restricted Subsidiary of the Company.
Limitations on Issuances of Guarantees of Indebtedness
The Indenture provides that the Company will not permit any Restricted
Subsidiary, directly or indirectly, to Guarantee or pledge any assets to secure
the payment of any other Indebtedness of the Company unless either such
Restricted Subsidiary (x) is a Subsidiary Guarantor or (y) simultaneously
executes and delivers a supplemental indenture to the Indenture providing for
the Guarantee of the payment of the New Notes by such Restricted Subsidiary,
which Guarantee shall be senior to or pari passu with such Restricted
Subsidiary's Guarantee of or pledge to secure such other Indebtedness.
Notwithstanding the foregoing, any such Guarantee by a Restricted Subsidiary of
the New Notes shall provide by its terms that it shall be automatically and
unconditionally released and discharged upon any sale, exchange or transfer, to
any Person not an Affiliate of the Company, of all of the Company's stock in, or
all or substantially all the assets of, such Restricted Subsidiary, which sale,
exchange or transfer is made in compliance with the applicable provisions of the
Indenture. The form of such Guarantee is attached as an exhibit to the
Indenture.
Business Activities
The Company will not, and will not permit any Restricted Subsidiary to,
engage in any business other than a Permitted Business, except to such extent as
would not be material to the Company and its Restricted Subsidiaries taken as a
whole.
Additional Guarantees
The Indenture provides that (i) if the Company or any of its Restricted
Subsidiaries shall, after the date of the Indenture, transfer or cause to be
transferred, including by way of any Investment, in one or a series of
transactions (whether or not related), any assets, businesses, divisions, real
property or equipment having an aggregate fair market value (as determined in
good faith by the Board of Directors) in excess of $1.0 million to any
Restricted Subsidiary that is not a Subsidiary Guarantor or a Foreign
Subsidiary, (ii) if the Company or any of its Restricted Subsidiaries shall
acquire another Restricted Subsidiary other than a Foreign Subsidiary having
total assets with a fair market value (as determined in good faith by the Board
of Directors) in excess of $1.0 million, or (iii) if any Restricted Subsidiary
other than a Foreign Subsidiary shall incur Acquired Debt in excess of $1.0
million, then the Company shall, at the time of such transfer, acquisition or
incurrence, (i) cause such transferee, acquired Restricted Subsidiary or
Restricted Subsidiary incurring Acquired Debt (if not then a Subsidiary
Guarantor) to execute a New Note Guarantee of the Obligations of the Company
under the New Notes in the form set forth in the Indenture and (ii) deliver to
the Trustee an Opinion of Counsel, in form reasonably satisfactory to the
Trustee, that such Note Guarantee is a valid, binding and enforceable obligation
of such transferee, acquired Restricted Subsidiary or Restricted Subsidiary
incurring Acquired Debt, subject to customary exceptions for bankruptcy,
fraudulent conveyance and equitable principles. Notwithstanding the foregoing,
the Company or any of its Restricted Subsidiaries may make a Restricted
Investment in any Wholly-Owned Restricted Subsidiary of the Company without
compliance with this covenant provided that such Restricted Investment is
permitted by the covenant described under the caption, " -- Restricted
Payments."
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Reports
The Indenture provides that, whether or not required by the rules and
regulations of the Commission, so long as any New Notes are outstanding, the
Company will furnish to the Holders of New Notes (i) all quarterly and annual
financial information that would be required to be contained in a filing with
the Commission on Forms 10-Q and 10-K if the Company were required to file such
Forms, including a "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and, with respect to the annual information only, a
report thereon by the Company's certified independent accountants and (ii) all
current reports that would be required to be filed with the Commission on Form
8-K if the Company were required to file such reports. In addition, whether or
not required by the rules and regulations of the Commission, the Company will
file a copy of all such information and reports with the Commission for public
availability (unless the Commission will not accept such a filing) and make such
information available to securities analysts and prospective investors upon
request. In addition, the Company has agreed that, for so long as any New Notes
remain outstanding, it will furnish to the Holders and to securities analysts
and prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to, the New Notes (whether or not prohibited by
the subordination provisions of the Indenture); (ii) default in payment when due
of the principal of or premium, if any, on the New Notes (whether or not
prohibited by the subordination provisions of the Indenture); (iii) failure by
the Company to comply with the provisions described under the captions
" -- Repurchase at the Option of Holders -- Change of Control," " -- Certain
Covenants -- Asset Sales," or " -- Certain Covenants -- Merger, Consolidation,
or Sale of Assets"; (iv) failure by the Company for 30 days after notice from
the Trustee or at least 25% in principal amount of the New Notes then
outstanding to comply with the provisions described under the captions
" -- Restricted Payments" or "-- Incurrence of Indebtedness and Issuance of
Preferred Stock"; (v) failure by the Company for 60 days after notice from the
Trustee or at least 25% in principal amount of the New Notes then outstanding to
comply with any of its other agreements in the Indenture or the New Notes; (vi)
default under any mortgage, indenture or instrument under which there may be
issued or by which there may be secured or evidenced any Indebtedness for money
borrowed by the Company or any of its Subsidiaries (or the payment of which is
guaranteed by the Company or any of its Subsidiaries) whether such Indebtedness
or Guarantee now exists, or is created after the date of the Indenture, which
default (a) is caused by a failure to pay principal of or premium, if any, or
interest on such Indebtedness prior to the expiration of the grace period
provided in such Indebtedness on the date of such default (a "Payment Default")
or (b) results in the acceleration of such Indebtedness prior to its express
maturity and, in each case, the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness under which
there has been a Payment Default or the maturity of which has been so
accelerated, aggregates $15.0 million or more; (vii) failure by the Company or
any of its Subsidiaries to pay final judgments aggregating in excess of $5.0
million, which judgments are not paid, discharged or stayed for a period of 60
days; and (viii) certain events of bankruptcy or insolvency with respect to the
Company or any of its Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding New Notes
may declare all the New Notes to be due and payable immediately provided,
however, that if any Indebtedness or Obligation is outstanding pursuant to the
New Credit Facility, upon a declaration of acceleration by the holders of the
New Notes or the Trustee, all principal and interest under the Indenture shall
be due and payable upon the earlier of (x) the day which five Business Days
after the provision to the Company, the Credit Agent and the Trustee of such
written notice of acceleration or (y) the date of acceleration of any
Indebtedness under the New Credit Facility; and provided further that in the
event of an acceleration based upon an Event of Default set forth in clause (vi)
above, such declaration of acceleration shall be automatically annulled if the
holders of Indebtedness which is the subject of such failure to pay at maturity
or acceleration have rescinded their declaration of acceleration in respect of
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such Indebtedness or such failure to pay at maturity shall have been cured or
waived within 30 days thereof and no other Event of Default has occurred during
such 30-day period which has not been cured, paid or waived. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to the Company or any of its Subsidiaries
all outstanding New Notes will become due and payable without further action or
notice. Holders of the New Notes may not enforce the Indenture or the New Notes
except as provided in the Indenture. Subject to certain limitations, Holders of
a majority in principal amount of the then outstanding New Notes may direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders of the New Notes notice of any continuing Default or Event of Default
(except a Default or Event of Default relating to the payment of principal or
interest) if it determines that withholding notice is in their interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the New Notes pursuant to the
optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the New Notes. If an Event of Default occurs prior to
July 15, 2002 by reason of any willful action (or inaction) taken (or not taken)
by or on behalf of the Company with the intention of avoiding the prohibition on
redemption of the New Notes prior to July 15, 2002, then the premium specified
in the Indenture shall also become immediately due and payable to the extent
permitted by law upon the acceleration of the New Notes.
The Holders of a majority in aggregate principal amount of the New Notes
then outstanding by notice to the Trustee may on behalf of the Holders of all of
the New Notes waive any existing Default or Event of Default and its
consequences under the Indenture except a continuing Default or Event of Default
in the payment of interest on, or the principal of, the New Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company
or the Subsidiary Guarantors, as such, shall have any liability for any
obligations of the Company or any Subsidiary Guarantor under the New Notes, the
Indenture, the New Note Guarantees or for any claim based on, in respect of, or
by reason of, such obligations or their creation. Each Holder of New Notes by
accepting a New Note waives and releases all such liability. The waiver and
release are part of the consideration for issuance of the New Notes. Such waiver
may not be effective to waive liabilities under the federal securities laws and
it is the view of the Commission that such a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding New Notes and all
obligations of the Subsidiary Guarantors under the New Note Guarantees ("Legal
Defeasance") except for (i) the rights of Holders of outstanding New Notes to
receive payments in respect of the principal of, premium and Liquidated Damages,
if any, and interest on such New Notes when such payments are due from the trust
referred to below, (ii) the Company's obligations with respect to the New Notes
concerning issuing temporary New Notes, registration of New Notes, mutilated,
destroyed, lost or stolen New Notes and the maintenance of an office or agency
for payment and money for security payments held in trust, (iii) the rights,
powers, trusts, duties and immunities of the Trustee, and the Company's
obligations in connection therewith and (iv) the Legal Defeasance provisions of
the Indenture. In addition, the Company may, at its option and at any time,
elect to have the obligations of the Company and the Subsidiary Guarantors
released with respect to certain covenants that are described in the Indenture
("Covenant Defeasance") and thereafter any omission to comply with such
obligations shall not constitute a Default or Event of Default with respect to
the New Notes. In the event Covenant Defeasance occurs, certain
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events (not including non-payment, bankruptcy, receivership, rehabilitation and
insolvency events) described under "-- Events of Default" will no longer
constitute an Event of Default with respect to the New Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the New Notes, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants,
to pay the principal of, premium and Liquidated Damages, if any, and interest on
the outstanding New Notes on the stated maturity or on the applicable redemption
date, as the case may be, and the Company must specify whether the New Notes are
being defeased to maturity or to a particular redemption date; (ii) in the case
of Legal Defeasance, the Company shall have delivered to the Trustee an opinion
of counsel in the United States reasonably acceptable to the Trustee confirming
that (A) the Company has received from, or there has been published by, the
Internal Revenue Service a ruling or (B) since the date of the Indenture, there
has been a change in the applicable federal income tax law, in either case to
the effect that, and based thereon such opinion of counsel shall confirm that,
the Holders of the outstanding New Notes will not recognize income, gain or loss
for federal income tax purposes as a result of such Legal Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such Legal Defeasance had not
occurred; (iii) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that the Holders of the outstanding New
Notes will not recognize income, gain or loss for federal income tax purposes as
a result of such Covenant Defeasance and will be subject to federal income tax
on the same amounts, in the same manner and at the same times as would have been
the case if such Covenant Defeasance had not occurred; (iv) no Default or Event
of Default shall have occurred and be continuing on the date of such deposit
(other than a Default or Event of Default resulting from the borrowing of funds
to be applied to such deposit) or insofar as Events of Default from bankruptcy
or insolvency events are concerned, at any time in the period ending on the 91st
day after the date of deposit; (v) such Legal Defeasance or Covenant Defeasance
will not result in a breach or violation of, or constitute a default under any
material agreement or instrument (other than the Indenture) to which the Company
or any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound; (vi) the Company must have delivered to the Trustee an
opinion of counsel to the effect that after the 91st day following the deposit,
the trust funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally; (vii) the Company must deliver to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the intent
of preferring the Holders of New Notes over the other creditors of the Company
with the intent of defeating, hindering, delaying or defrauding creditors of the
Company or others; and (viii) the Company must deliver to the Trustee an
Officers' Certificate and an opinion of counsel, each stating that all
conditions precedent provided for relating to the Legal Defeasance or the
Covenant Defeasance have been complied with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange New Notes in accordance with the
Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company is not required to transfer or exchange
any New Note selected for redemption. Also, the Company is not required to
transfer or exchange any New Note for a period of 15 days before a selection of
New Notes to be redeemed.
The registered Holder of a New Note will be treated as the owner of it for
all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture,
the New Notes or the New Note Guarantees may be amended or supplemented with the
consent of the Holders of at least a majority in principal amount of the New
Notes then outstanding (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer for, New
Notes), and any existing default or
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compliance with any provision of the Indenture, the New Notes or the New Note
Guarantees may be waived with the consent of the Holders of a majority in
principal amount of the then outstanding New Notes (including consents obtained
in connection with a tender offer or exchange offer for New Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any New Notes held by a non-consenting Holder): (i) reduce the
principal amount of New Notes whose Holders must consent to an amendment,
supplement or waiver; (ii) reduce the principal of or change the fixed maturity
of any Note or alter the provisions with respect to the redemption of the New
Notes (other than provisions relating to the covenants described above under the
caption "-- Repurchase at the Option of Holders"); (iii) reduce the rate of or
change the time for payment of interest on any New Note; (iv) waive a Default or
Event of Default in the payment of principal of or premium, if any, or interest
on the New Notes (except a rescission of acceleration of the New Notes by the
Holders of at least a majority in aggregate principal amount of the New Notes
and a waiver of the payment default that resulted from such acceleration); (v)
make any New Note payable in money other than that stated in the New Notes; (vi)
make any change in the provisions of the Indenture relating to waivers of past
Defaults or the rights of Holders of New Notes to receive payments of principal
of or premium, if any, or interest on the New Notes; (vii) waive a redemption
payment with respect to any New Note (other than a payment required by one of
the covenants described above under the caption "-- Repurchase at the Option of
Holders") or (viii) make any change in the foregoing amendment and waiver
provisions. In addition, any amendment to the provisions of Article 10 of the
Indenture (which relate to subordination) will require the consent of the
Holders of at least 75% in aggregate principal amount of the New Notes then
outstanding if such amendment would adversely affect the rights of Holders of
New Notes.
Notwithstanding the foregoing, without the consent of any Holder of New
Notes, the Company, the Subsidiary Guarantors and the Trustee may amend or
supplement the Indenture, the New Notes or the New Note Guarantees to cure any
ambiguity, defect or inconsistency, to provide for uncertificated New Notes in
addition to or in place of certificated New Notes, to provide for the assumption
of the Company's and the Subsidiary Guarantors' obligations to Holders of New
Notes in the case of a merger or consolidation, to make any change that would
provide any additional rights or benefits to the Holders of New Notes or that
does not adversely affect the legal rights under the Indenture of any such
Holder, to comply with requirements of the Commission in order to effect or
maintain the qualification of the Indenture under the Trust Indenture Act or to
allow any Subsidiary to guarantee the New Notes.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the Commission for permission to continue
or resign.
The Holders of a majority in principal amount of the then outstanding New
Notes will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the conduct
of his own affairs. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request of any Holder of New Notes, unless such Holder shall have offered to the
Trustee security and indemnity satisfactory to it against any loss, liability or
expense.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture and
Registration Rights Agreement without charge by writing to AmeriServe,
Brookfield Lake Corporate Center, 17975 West Sarah Lane, Suite 100, Brookfield,
Wisconsin 53045; Attention: Secretary.
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BOOK-ENTRY, DELIVERY AND FORM
The New Notes as issued in exchange for the Notes generally are represented
by one or more fully-registered global notes without interest coupons
(collectively the "Global New Note"). Notwithstanding the foregoing, Notes held
in certificated form were exchanged solely for New Notes in certificated form as
discussed below. The Global New Note was deposited upon issuance with the
Depository Trust Company (the "DTC") and is registered in the name of DTC or its
nominee (the "Global New Note Registered Owner"), in each case for credit to an
account of a direct or indirect participant as described below. Except as set
forth below, the Global New Note may be transferred, in whole and not in part,
only to another nominee of the DTC or to a successor of the DTC or its nominee.
See "-- Exchange of Book-Entry New Notes for Certificated New Notes."
The New Notes may be presented for registration of transfer and exchange at
the offices of the Registrar.
Depository Procedures
DTC has advised the Company that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "Participants") and to facilitate the clearance and settlement of
transactions in those securities between Participants through electronic
book-entry changes in accounts of Participants. The Participants include
securities brokers and dealers (including the Initial Purchaser), banks, trust
companies, clearing corporations and certain other organizations. Access to
DTC's system is also available to other entities such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a Participant, either directly or indirectly (collectively, the "Indirect
Participants"). Persons who are not Participants may beneficially own securities
held by or on behalf of DTC only through the Participants or Indirect
Participants. The ownership interest and transfer of ownership interest of each
actual purchaser of each security held by or on behalf of DTC are recorded on
the records of the Participants and Indirect Participants.
DTC has also advised the Company that pursuant to procedures established by
it, (i) upon deposit of the Global New Notes, DTC will credit the accounts of
Participants designated by the Initial Purchaser with portions of the principal
amount of Global New Notes and (ii) ownership of such interests in the Global
New Notes will be shown on, and the transfer ownership thereof will be effected
only through, records maintained by DTC (with respect to Participants) or by
Participants and the Indirect Participants (with respect to other owners of
beneficial interests in the Global New Notes).
EXCEPT AS DESCRIBED BELOW, OWNERS OF INTERESTS IN THE GLOBAL NEW NOTES DO
NOT HAVE NEW NOTES REGISTERED IN THEIR NAMES, DO NOT RECEIVE PHYSICAL DELIVERY
OF NEW NOTES IN CERTIFICATED FORM AND ARE NOT CONSIDERED THE REGISTERED OWNERS
OR HOLDERS THEREOF UNDER THE INDENTURE FOR ANY PURPOSE.
Payments in respect of the principal and premium and Liquidated Damages, if
any, and interest on a Global New Note registered in the name of DTC or its
nominee are payable by the Trustee to DTC or its nominee in its capacity as the
registered holder under the Indenture. Under the terms of the Indenture, the
Company and the Trustee will treat the persons in whose names the New Notes,
including the Global New Notes, are registered as the owners thereof for the
purpose of receiving such payments and for any and all other purposes
whatsoever. Consequently, none of the Company, the Trustee nor any agent of the
Company or the Trustee has or will have any responsibility or liability for (i)
any aspect of DTC's records or any Participant's or Indirect Participant's
records relating to or payments made on account of beneficial ownership
interests in the Global New Notes, or for maintaining, supervising or reviewing
any of DTC's records or any Participant's or Indirect Participant's records
relating to the beneficial ownership interests in the Global New Notes or (ii)
any other matter relating to the actions and practices of DTC or any of its
Participants or Indirect Participants.
DTC has advised the Company that its current practice, upon receipt of any
payment in respect of securities such as the New Notes (including principal and
interest), is to credit the accounts of the relevant Participants with the
payment on the payment date, in amounts proportionate to their respective
holdings in principal amount of beneficial interests in the relevant security
such as the Global New Notes as shown on the records of DTC. Payments by
Participants and the Indirect Participants to the beneficial owners of New Notes
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are governed by standing instructions and customary practices and are not the
responsibility of DTC, the Trustee or the Company. Neither the Company nor the
Trustee are liable for any delay by DTC or its Participants in identifying the
beneficial owners of the New Notes, and the Company and the Trustee may
conclusively rely on and are protected in relying on instructions from DTC or
its nominee as the registered owner of the New Notes for all purposes.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of New Notes only at the direction of one or more Participants
to whose account DTC interests in the Global New Notes are credited and only in
respect of such portion of the aggregate principal amount of the New Notes as to
which such Participant or Participants have given direction. However, if there
is an Event of Default under the New Notes, DTC reserves the right to exchange
Global New Notes for legended New Notes in certificated form, and to distribute
such New Notes to its Participants.
The information in this section concerning DTC and its book-entry system
has been obtained from sources that the Company believes to be reliable, but the
Company takes no responsibility for the accuracy thereof.
Although DTC has agreed to the foregoing procedures to facilitate transfers
of interests in the Global New Notes among Participants in DTC, it is under no
obligation to perform or to continue to perform such procedures, and such
procedures may be discontinued at any time. None of the Company, the Initial
Purchaser or the Trustee will have any responsibility for the performance by
DTC, or its Participants or indirect Participants of its obligations under the
rules and procedures governing their operations.
Exchange of Book-Entry New Notes for Certificated New Notes
A Global New Note is exchangeable for definitive New Notes in registered
certificated form if (i) DTC (x) notifies the Company that it is unwilling or
unable to continue as depositary for the Global New Note and the Company
thereupon fails to appoint a successor depositary or (y) has ceased to be a
clearing agency registered under the Exchange Act, (ii) the Company, at its
option, notifies the Trustee in writing that it elects to cause the issuance of
the New Notes in certificated form or (iii) there shall have occurred and be
continuing to occur a Default or an Event of Default with respect to the New
Notes. In addition, beneficial interests in a Global New Note may be exchanged
for certificated New Notes upon request but only upon at least 20 days' prior
written notice given to the Trustee by or on behalf of DTC in accordance with
customary procedures. In all cases, certificated New Notes delivered in exchange
for any Global New Note or beneficial interest therein are registered in the
names, and issued in any approved denominations, requested by or on behalf of
the depositary (in accordance with its customary procedures).
Subject to the restrictions on the transferability of the New Notes
described in "Risk Factors -- Restrictions on Transfer," a New Note in
definitive form will be issued (i) in the Exchange Offer solely in exchange for
certificated Notes or (ii) following the Exchange Offer, upon the resale, pledge
or other transfer of any New Note or interest therein to any person or entity
that does not participate in the Depository. The exchange of certificated Notes
in the Exchange Offer may be made only by presentation of the Notes, duly
endorsed, together with a duly completed Letter of Transmittal and other
required documentation as described under "The Exchange Offer -- Procedures for
Tendering" and "-- Guaranteed Delivery Procedures." Transfers of certificated
New Notes may be made only by presentation of New Notes, duly endorsed, to the
Trustees for registration of transfer on the Note Register maintained by the
Trustees for such purposes.
The information in this section concerning the Depository and the
Depository's book-entry system has been obtained from sources that the Company
believes to be reliable, but the Company takes no responsibility for the
accuracy thereof.
CERTIFICATED NEW NOTES
Subject to certain conditions, any person having a beneficial interest in
the Global New Note may, upon request to the Trustee, exchange such beneficial
interest for New Notes in the form of Certificated New Notes. Upon any such
issuance, the Trustee is required to register such Certificated New Notes in the
name of, and cause the same to be delivered to, such person or persons (or the
nominee of any thereof). In addition,
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if (i) the Company notifies the Trustee in writing that the DTC is no longer
willing or able to act as a depositary and the Company is unable to locate a
qualified successor within 90 days or (ii) the Company, at its option, notifies
the Trustee in writing that it elects to cause the issuance of New Notes in the
form of Certificated New Notes under the Indenture, then, upon surrender by the
Global New Note Holder of its Global New Note, New Notes in such form will be
issued to each person that the Global New Note Holder and the DTC identify as
being the beneficial owner of the related New Notes.
Neither the Company nor the Trustee is liable for any delay by the Global
New Note Holder or the DTC in identifying the beneficial owners of New Notes and
the Company and the Trustee may conclusively rely on, and is protected in
relying on, instructions from the Global New Note Holder or the DTC for all
purposes.
SAME DAY SETTLEMENT AND PAYMENT
The Indenture requires that payments in respect of the New Notes
represented by the Global New Note (including principal, premium, if any,
interest and Liquidated Damages, if any) be made by wire transfer of immediately
available next day funds to the accounts specified by the Global New Note
Holder. With respect to Certificated New Notes, the Company will make all
payments of principal, premium, if any, interest and Liquidated Damages, if any,
by wire transfer of immediately available funds to the accounts specified by the
Holders thereof or, if no such account is specified, by mailing a check to each
such Holder's registered address. The Company expects that secondary trading in
the Certificated New Notes to be settled in immediately available funds.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
The Company, the Subsidiary Guarantors and the Initial Purchasers entered
into the Registration Rights Agreement on the Closing date. Pursuant to the
Registration Rights Agreement, the Company and the Subsidiary Guarantors agreed
to file with the Commission the Exchange Offer Registration Statement of which
this Prospectus is a part on the appropriate form under the Securities Act with
respect to the New Notes. Pursuant to the Exchange Offer, the Company offered to
the Holders of Transfer Restricted Securities who were able to make certain
representations the opportunity to exchange their Transfer Restricted Securities
for New Notes. If any Holder of Transfer Restricted Securities notifies the
Company prior to the 20th day following consummation of the Exchange Offer that
(i) it is prohibited by law or Commission policy from participating in the
Exchange Offer or (ii) that it may not resell the New Notes acquired by it in
the Exchange Offer to the public without delivering a prospectus and the
prospectus contained in the Exchange Offer Registration Statement is not
appropriate or available for such resales or (iii) that it is a broker-dealer
and owns Notes acquired directly from the Company or an affiliate of the
Company, the Company and the Subsidiary Guarantors will file with the Commission
a Shelf Registration Statement to cover resales of the Notes by the Holders
thereof who satisfy certain conditions relating to the provision of information
in connection with the Shelf Registration Statement. The Company and the
Subsidiary Guarantors will use their best efforts to cause the applicable
registration statement to be declared effective as promptly as possible by the
Commission. For purposes of the foregoing, "Transfer Restricted Securities"
means each Note until (i) the date on which such Note has been exchanged by a
person other than a broker-dealer for a New Note in the Exchange Offer, (ii)
following the exchange by a broker-dealer in the Exchange Offer of a Note for a
New Note, the date on which such New Note is sold to a purchaser who receives
from such broker-dealer on or prior to the date of such sale a copy of this
Prospectus, (iii) the date on which such Note has been effectively registered
under the Securities Act and disposed of in accordance with the Shelf
Registration Statement or (iv) the date on which such Note is distributed to the
public pursuant to Rule 144 under the Act.
The Registration Rights Agreement provides, among other things, that (i)
unless the Exchange Offer would not be permitted by applicable law or Commission
policy, the Company and the Subsidiary Guarantors will have commenced the
Exchange Offer and used their best efforts to issue on or prior to 30 business
days after the date on which the Exchange Offer Registration Statement was
declared effective by the Commission, New Notes in exchange for all Notes
tendered prior thereto in the Exchange Offer and (ii) if obligated to file
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the Shelf Registration Statement, the Company and the Subsidiary Guarantors will
use their best efforts to file the Shelf Registration Statement with the
Commission on or prior to 45 days after such filing obligation arises and to
cause the Shelf Registration to be declared effective by the Commission on or
prior to 120 days after such obligation arises. If (a) the Company and the
Subsidiary Guarantors fail to file any of the Registration Statements required
by the Registration Rights Agreement on or before the date specified for such
filing, (b) any of such Registration Statements is not declared effective by the
Commission on or prior to the date specified for such effectiveness (the
"Effectiveness Target Date"), (c) the Company and the Subsidiary Guarantors fail
to consummate the Exchange Offer within 30 business days of the Effectiveness
Target Date with respect to the Exchange Offer Registration Statement, or (d)
the Shelf Registration Statement or the Exchange Offer Registration Statement is
declared effective but thereafter ceases to be effective or usable in connection
with resales of Transfer Restricted Securities during the periods specified in
the Registration Rights Agreement (each such event referred to in clauses (a)
through (d) above a "Registration Default"), then the Company will pay
Liquidated Damages to each Holder of Notes, with respect to the first 90-day
period immediately following the occurrence of the first Registration Default in
an amount equal to $.05 per week per $1,000 principal amount of Notes held by
such Holder. The amount of the Liquidated Damages will increase by an additional
$.05 per week per $1,000 principal amount of Notes with respect to each
subsequent 90-day period until all Registration Defaults have been cured, up to
a maximum amount of Liquidated Damages of $.50 per week per $1,000 principal
amount of Notes. All accrued Liquidated Damages will be paid by the Company on
each Damages Payment Date to the Global Note Holder by wire transfer of
immediately available funds or by federal funds check and to Holders of
Certificated Notes by wire transfer to the accounts specified by them or by
mailing checks to their registered addresses if no such accounts have been
specified. Following the cure of all Registration Defaults, the accrual of
Liquidated Damages will cease.
Holders of Notes were required to make certain representations to the
Company (as described in the Registration Rights Agreement) in order to
participate in the Exchange Offer and will be required to deliver information to
be used in connection with the Shelf Registration Statement and to provide
comments on the Shelf Registration Statement within the time periods set forth
in the Registration Rights Agreement in order to have their Notes included in
the Shelf Registration Statement and benefit from the provisions regarding
Liquidated Damages set forth above.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition of
any assets or rights (including, without limitation, by way of a sale and
leaseback) other than sales of inventory in the ordinary course of business
consistent with past practices and other than a Receivables Transaction
(provided that the sale, lease, conveyance or other disposition of all or
substantially all of the assets of the Company and its Restricted Subsidiaries
taken as a whole will be governed by the provisions of the Indenture described
above under the
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caption "-- Repurchase at Option of Holders -- Change of Control" and/or the
provisions described above under the caption "-- Certain Covenants -- Merger,
Consolidation or Sale of Assets" and not by the provisions of the Asset Sale
covenant), and (ii) the issue or sale by the Company or any of its Restricted
Subsidiaries of Equity Interests of any of the Company's Restricted
Subsidiaries, in the case of either clause (i) or (ii), whether in a single
transaction or a series of related transactions (a) that have a fair market
value in excess of $3.0 million or (b) for net proceeds in excess of $3.0
million. Notwithstanding the foregoing: (i) a transfer of assets by the Company
to a Wholly Owned Restricted Subsidiary or by a Wholly Owned Restricted
Subsidiary to the Company or to another Wholly Owned Restricted Subsidiary, (ii)
an issuance of Equity Interests by a Wholly Owned Restricted Subsidiary to the
Company or to another Wholly Owned Restricted Subsidiary, and (iii) a Restricted
Payment that is permitted by the covenant described above under the caption
"-- Certain Covenants -- Restricted Payments" will not be deemed to be Asset
Sales.
"Attributable Debt" in respect of a sale and leaseback transaction means,
at the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of, the
issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than six
months from the date of acquisition, (iii) certificates of deposit and
eurodollar time deposits with maturities of six months or less from the date of
acquisition, bankers' acceptances with maturities not exceeding six months and
overnight bank deposits, in each case with any lender party to the New Credit
Facility or with any domestic commercial bank having capital and surplus in
excess of $500 million and a Thompson Bank Watch Rating of "B" or better, (iv)
repurchase obligations with a term of not more than seven days for underlying
securities of the types described in clauses (ii) and (iii) above entered into
with any financial institution meeting the qualifications specified in clause
(iii) above, (v) commercial paper having the highest rating obtainable from
Moody's Investors Service, Inc. or Standard & Poor's Corporation and in each
case maturing within six months after the date of acquisition and (vi)
securities quoted by the Nasdaq National Market or listed on a United States,
Canadian or western European national securities exchange.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Subsidiaries taken as a
whole to any "person" (as such term is used in Section 13(d)(3) of the Exchange
Act) other than the Principals or their Related Parties (as defined below), (ii)
the adoption of a plan relating to the liquidation or dissolution of the
Company, (iii) the consummation of any transaction (including, without
limitation, any merger or consolidation) the result of which is that any
"person" (as defined above), other than the Principals and their Related
Parties, becomes the "beneficial owner" (as such term is defined in Rule 13d-3
and Rule 13d-5 under the Exchange Act, except that a person shall be deemed to
have "beneficial ownership" of all securities that such person has the right to
acquire, whether such right is currently exercisable or is exercisable only upon
the occurrence of a subsequent condition), directly or indirectly, of more than
50% of the Voting Stock of the Company (measured by voting power rather than
number of shares), (iv) the first day on which a majority of the members of the
Board of Directors of the Company are not Continuing Directors or (v) the
Company
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consolidates with, or merges with or into, any Person or sells, assigns,
conveys, transfers, leases or otherwise disposes of all or substantially all of
its assets to any Person, or any Person consolidates with, or merges with or
into, the Company, in any such event pursuant to a transaction in which any of
the outstanding Voting Stock of the Company is converted into or exchanged for
cash, securities or other property, other than any such transaction where the
Voting Stock of the Company outstanding immediately prior to such transaction is
converted into or exchanged for Voting Stock (other than Disqualified Stock) of
the surviving or transferee Person constituting a majority of the outstanding
shares of such Voting Stock of such surviving or transferee Person (immediately
after giving effect to such issuance).
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (i) an amount
equal to any extraordinary loss plus any net loss realized in connection with an
Asset Sale (to the extent such losses were deducted in computing such
Consolidated Net Income), plus (ii) provision for taxes based on income or
profits of such Person and its Subsidiaries for such period, to the extent that
such provision for taxes was included in computing such Consolidated Net Income,
plus (iii) consolidated interest expense of such Person and its Subsidiaries for
such period, whether paid or accrued and whether or not capitalized (including,
without limitation, amortization of debt issuance costs and original issue
discount, non-cash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated with
Capital Lease Obligations, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financings, and
net payments (if any) pursuant to Hedging Obligations), to the extent that any
such expense was deducted in computing such Consolidated Net Income, plus (iv)
depreciation, amortization (including amortization of goodwill and other
intangibles but excluding amortization of prepaid cash expenses that were paid
in a prior period) and other non-cash expenses (excluding any such non-cash
expense to the extent that it represents an accrual of or reserve for cash
expenses in any future period or amortization of a prepaid cash expense that was
paid in a prior period) of such Person and its Subsidiaries for such period to
the extent that such depreciation, amortization and other non-cash expenses were
deducted in computing such Consolidated Net Income, plus (v) in connection with
any acquisition by the Company, projected quantifiable improvements in operating
results (on an annualized basis) due to cost reductions calculated in accordance
with Article 11 of Regulation S-X of the Securities Act and evidenced by (A) in
the case of cost reductions of less than $10.0 million, an Officers' Certificate
delivered to the Trustee and (B) in the case of cost reductions of $10.0 million
or more, a resolution of the Board of Directors set forth in an Officers'
Certificate delivered to the Trustee, minus (vi) non-cash items increasing such
Consolidated Net Income for such period. Notwithstanding the foregoing, the
provision for taxes on the income or profits of, and the depreciation and
amortization and other non-cash charges of, a Subsidiary of the referent Person
shall be added to Consolidated Net Income to compute Consolidated Cash Flow only
to the extent that a corresponding amount would be permitted at the date of
determination to be dividended to the Company by such Subsidiary without prior
governmental approval (that has not been obtained), and without direct or
indirect restriction pursuant to the terms of its charter and all agreements,
instruments, judgments, decrees, orders, statutes, rules and governmental
regulations applicable to that Subsidiary or its stockholders.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that (i) the Net Income (but not loss) of any Person that is not a
Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Wholly Owned Restricted
Subsidiary thereof, (ii) the Net Income of any Restricted Subsidiary shall be
excluded to the extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not at the
date of determination permitted without any prior governmental approval (that
has not been obtained) or, directly or indirectly, by operation of the terms of
its charter or any agreement, instrument, judgment, decree, order, statute, rule
or governmental regulation applicable to that Subsidiary or its stockholders,
(iii) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded, (iv) the cumulative effect of a change in accounting principles shall
be excluded and (v) the Net Income of any Unrestricted Subsidiary shall be
excluded, whether or not distributed to the Company or one of its Restricted
Subsidiaries for purposes of the
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covenant described under the caption "Incurrence of Indebtedness and Issuance of
Preferred Stock" and shall be included for purposes of the covenant described
under the caption "Restricted Payments" only to the extent of the amount of
dividends or distributions paid in cash to the Company or one of its Restricted
Subsidiaries.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the common stockholders of such Person
and its consolidated Subsidiaries as of such date plus (ii) the respective
amounts reported on such Person's balance sheet as of such date with respect to
any series of preferred stock (other than Disqualified Stock) that by its terms
is not entitled to the payment of dividends unless such dividends may be
declared and paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash received by such
Person upon issuance of such preferred stock, less (x) all write-ups (other than
write-ups resulting from foreign currency translations and write-ups of tangible
assets of a going concern business made within 12 months after the acquisition
of such business) subsequent to the date of the Indenture in the book value of
any asset owned by such Person or a consolidated Subsidiary of such Person, (y)
all investments as of such date in unconsolidated Subsidiaries and in Persons
that are not Subsidiaries (except, in each case, Permitted Investments), and (z)
all unamortized debt discount and expense and unamortized deferred charges as of
such date, all of the foregoing determined in accordance with GAAP.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Company who (i) was a member of such Board of
Directors on the date of the Indenture or (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election.
"Credit Agent" means the Bank of America, in its capacity as Administrative
Agent for the lenders party to the New Credit Facility, or any successor thereto
or any person otherwise appointed.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Designated Senior Debt" means (i) any Indebtedness outstanding under the
New Credit Facility and (ii) any other Senior Debt permitted under the Indenture
the principal amount of which is $25.0 million or more and that has been
designated by the Company as "Designated Senior Debt."
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the Holder thereof, in whole or in part, on or prior to the date
that is 91 days after the date on which the New Notes mature; provided, however,
that any Capital Stock that would not qualify as Disqualified Stock but for
change of control provisions shall not constitute Disqualified Stock if the
provisions are not more favorable to the holders of such Capital Stock than the
provisions described under "-- Change of Control" applicable to the Holders of
the New Notes.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Existing Indebtedness" means Indebtedness of the Company and its
Subsidiaries (other than Indebtedness under the New Credit Facility) in
existence on the date of the Indenture, until such amounts are repaid.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of (i) the consolidated interest expense of such Person and
its Restricted Subsidiaries for such period, whether paid or accrued (including,
without limitation, original issue discount, non-cash interest payments, the
interest component of any deferred payment obligations, the interest component
of all payments associated with Capital Lease Obligations, commissions,
discounts and other fees and charges incurred in respect of letter of credit or
bankers' acceptance financings, and net payments (if any) pursuant to Hedging
Obligations) and (ii) the consolidated interest expense of such Person and its
Restricted Subsidiaries that was capitalized during such period, (iii) any
interest expense on Indebtedness of another Person that is Guaranteed by such
Person or one of its Restricted Subsidiaries or secured by a Lien on assets of
such Person or one of its
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Restricted Subsidiaries (whether or not such Guarantee or Lien is called upon)
and (iv) the product of (a) all dividend payments, whether or not in cash, on
any series of preferred stock of such Person or any of its Restricted
Subsidiaries, other than dividend payments on Equity Interests payable solely in
Equity Interests of the Company, times (b) a fraction, the numerator of which is
one and the denominator of which is one minus the then current combined federal,
state and local statutory tax rate of such Person, expressed as a decimal, in
each case, on a consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person and its
Restricted Subsidiaries for such period to the Fixed Charges of such Person and
its Restricted Subsidiaries for such period. In the event that the Company or
any of its Restricted Subsidiaries incurs, assumes, Guarantees or redeems any
Indebtedness (other than revolving credit borrowings) or issues preferred stock
subsequent to the commencement of the period for which the Fixed Charge Coverage
Ratio is being calculated but prior to the date on which the event for which the
calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"),
then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect
to such incurrence, assumption, Guarantee or redemption of Indebtedness, or such
issuance or redemption of preferred stock, as if the same had occurred at the
beginning of the applicable four-quarter reference period. In addition, for
purposes of making the computation referred to above, (i) acquisitions that have
been made by the Company or any of its Restricted Subsidiaries, including
through mergers or consolidations and including any related financing
transactions, during the four-quarter reference period or subsequent to such
reference period and on or prior to the Calculation Date shall be deemed to have
occurred on the first day of the four-quarter reference period and Consolidated
Cash Flow for such reference period shall be calculated without giving effect to
clause (iii) of the proviso set forth in the definition of Consolidated Net
Income, (ii) the Consolidated Cash Flow attributable to discontinued operations,
as determined in accordance with GAAP, and operations or businesses disposed of
prior to the Calculation Date, shall be excluded, and (iii) the Fixed Charges
attributable to discontinued operations, as determined in accordance with GAAP,
and operations or businesses disposed of prior to the Calculation Date, shall be
excluded, but only to the extent that the obligations giving rise to such Fixed
Charges will not be obligations of the referent Person or any of its Restricted
Subsidiaries following the Calculation Date.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date of the Indenture.
"Global Notes" means the Rule 144A Global Note, the Regulation S Temporary
Global Notes and the Regulation S Permanent Global Notes.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States is pledged.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates or currency rates.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or bankers' acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of the
purchase price of any property or representing any Hedging Obligations, except
any such balance that constitutes an accrued expense or trade
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payable, if and to the extent any of the foregoing indebtedness (other than
letters of credit and Hedging Obligations) would appear as a liability upon a
balance sheet of such Person prepared in accordance with GAAP, as well as all
indebtedness of others secured by a Lien on any asset of such Person (whether or
not such indebtedness is assumed by such Person) and, to the extent not
otherwise included, the Guarantee by such Person of any indebtedness of any
other Person. The amount of any Indebtedness outstanding as of any date shall be
(i) the accreted value thereof, in the case of any Indebtedness that does not
require current payments of interest, and (ii) the principal amount thereof,
together with any interest thereon that is more than 30 days past due, in the
case of any other Indebtedness.
"Insolvency or Liquidation Proceedings" means (i) any insolvency or
bankruptcy case or proceeding, or any receivership, liquidation, reorganization
or other similar case or proceeding, relative to the Company or to the creditors
of the Company, as such, or to the assets of the Company, or (ii) any
liquidation, dissolution, reorganization or winding up of the Company, whether
voluntary or involuntary, and involving insolvency or bankruptcy, or (iii) any
assignment for the benefit of creditors or any other marshalling of assets and
liabilities of the Company.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
If the Company or any Restricted Subsidiary of the Company sells or otherwise
disposes of any Equity Interests of any direct or indirect Restricted Subsidiary
of the Company such that, after giving effect to any such sale or disposition,
such Person is no longer a Restricted Subsidiary of the Company, the Company
shall be deemed to have made an Investment on the date of any such sale or
disposition equal to the fair market value of the Equity Interests of such
Restricted Subsidiary not sold or disposed of in an amount determined as
provided in the final paragraph of the covenant described above under the
caption "-- Restricted Payments."
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b) the
disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or any of
its Restricted Subsidiaries and (ii) any extraordinary or nonrecurring gain (but
not loss), together with any related provision for taxes on such extraordinary
or nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof (after
taking into account any available tax credits or deductions and any tax sharing
arrangements), and any reserve for adjustment in respect of the sale price of
such asset or assets established in accordance with GAAP.
"New Credit Facility" means that certain Credit Facility, dated as of the
date of the Indenture, by and among the Company and Bank of America, providing
for up to $150.0 million of revolving credit borrowings
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and $205.0 million of term credit borrowings, including any related notes,
guarantees, collateral documents, instruments and agreements executed in
connection therewith, and in each case as amended, modified, renewed, refunded,
replaced or refinanced from time to time.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the Company
nor any of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable (as a guarantor or
otherwise), or (c) constitutes the lender; (ii) no default with respect to which
(including any rights that the holders thereof may have to take enforcement
action against an Unrestricted Subsidiary) would permit (upon notice, lapse of
time or both) any holder of any other Indebtedness (other than the New Notes
being offered hereby) of the Company or any of its Restricted Subsidiaries to
declare a default on such other Indebtedness or cause the payment thereof to be
accelerated or payable prior to its stated maturity; and (iii) as to which the
lenders have been notified in writing that they will not have any recourse to
the stock or assets of the Company or any of its Restricted Subsidiaries.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Permitted Business" means any of the businesses and any other businesses
related to the businesses engaged in by the Company and its respective
Restricted Subsidiaries on the date of the Indenture.
"Permitted Investments" means (a) any Investment in the Company or in a
Wholly Owned Restricted Subsidiary of the Company that is engaged in a Permitted
Business; (b) any Investment in Cash Equivalents; (c) any Investment by the
Company or any Restricted Subsidiary of the Company in a Person, if as a result
of such Investment (i) such Person becomes a Wholly Owned Restricted Subsidiary
of the Company that is engaged in a Permitted Business or (ii) such Person is
merged, consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the Company or a
Wholly Owned Restricted Subsidiary of the Company that is engaged in a Permitted
Business; (d) any Restricted Investment made as a result of the receipt of
non-cash consideration from an Asset Sale that was made pursuant to and in
compliance with the covenant described above under the caption "-- Repurchase at
the Option of Holders -- Asset Sales"; (e) any acquisition of assets solely in
exchange for the issuance of Equity Interests (other than Disqualified Stock) of
the Company; (f) loans and advances made after the date of the Indenture to
Holberg Industries, Inc. not to exceed $10.0 million at any time outstanding;
(g) loans and advances made after the date of the Indenture to NEHC not to
exceed $10.0 million at any time outstanding; and (h) other Investments made
after the date of the Indenture in any Person having an aggregate fair market
value (measured on the date each such Investment was made and without giving
effect to subsequent changes in value), when taken together with all other
Investments made pursuant to this clause (h) that are at the time outstanding,
not to exceed $10.0 million.
"Permitted Liens" means (i) Liens securing Indebtedness under the New
Credit Facility that was permitted by the terms of the Indenture to be incurred;
(ii) Liens in favor of the Company; (iii) Liens on property of a Person existing
at the time such Person is merged into or consolidated with the Company or any
Restricted Subsidiary of the Company, provided that such Liens were in existence
prior to the contemplation of such merger or consolidation and do not extend to
any assets other than those of the Person merged into or consolidated with the
Company; (iv) Liens on property existing at the time of acquisition thereof by
the Company or any Restricted Subsidiary of the Company, provided that such
Liens were in existence prior to the contemplation of such acquisition; (v)
Liens to secure the performance of statutory obligations, surety or appeal
bonds, performance bonds or other obligations of a like nature incurred in the
ordinary course of business; (vi) Liens existing on the date of the Indenture;
(vii) Liens for taxes, assessments or governmental charges or claims that are
not yet delinquent or that are being contested in good faith by appropriate
proceedings promptly instituted and diligently concluded, provided that any
reserve or other appropriate provision as shall be required in conformity with
GAAP shall have been made therefor; (viii) Liens incurred in the ordinary course
of business of the Company or any Restricted Subsidiary of the Company with
respect to obligations that do not exceed $5.0 million at any one time
outstanding and that (a) are not incurred in connection with the borrowing of
money or the obtaining of advances or credit (other than trade credit in the
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ordinary course of business) and (b) do not in the aggregate materially detract
from the value of the property or materially impair the use thereof in the
operation of business by the Company or such Restricted Subsidiary, and (ix)
Liens on assets of Unrestricted Subsidiaries that (A) secure Non-Recourse Debt
of Unrestricted Subsidiaries or (B) are incurred in connection with a
Receivables Transaction.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its Restricted Subsidiaries;
provided that: (i) except for Indebtedness used to extend, refinance, renew,
replace, defease or refund the New Credit Facility, the principal amount (or
accreted value, if applicable) of such Permitted Refinancing Indebtedness does
not exceed the principal amount of (or accreted value, if applicable), plus
accrued interest on, the Indebtedness so extended, refinanced, renewed,
replaced, defeased or refunded (plus the amount of reasonable expenses incurred
in connection therewith); (ii) such Permitted Refinancing Indebtedness has a
final maturity date later than the final maturity date of, and has a Weighted
Average Life to Maturity equal to or greater than the Weighted Average Life to
Maturity of, the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded; (iii) if the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded is subordinated in right of payment to
the New Notes, such Permitted Refinancing Indebtedness has a final maturity date
later than the final maturity date of, and is subordinated in right of payment
to, the New Notes on terms at least as favorable to the Holders of New Notes as
those contained in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; and (iv) such Indebtedness
is incurred either by the Company or by the Restricted Subsidiary who is the
obligor on the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded.
"Principals" means Holberg Industries, Inc., John V. Holten, Orkla, ASA,
Nebco Evans Distributors, Inc., NEHC, DLJ Merchant Banking, L.P., DLJ
International Partners, C.V., DLJ Offshore Partners, C.V., DLJ Merchant Banking
Funding, Inc., DLJ Merchant Banking Partners II, L.P., DLJ Merchant Banking
Partners II-A, L.P., DLJ Offshore Partners II, C.V., DLJ Diversified Partners,
L.P., DLJ Diversified Partners-A, L.P., DLJ Millennium Partners, L.P., DLJ
Millennium Partners-A, L.P., DLJMB Funding II, Inc., DLJ First ESC LLC, DLJ EAB
Partners, L.P. and UK Investment Plan 1997 Partners.
"Public Equity Offering" means a public offering of Equity Interests (other
than Disqualified Stock) of (i) the Company; or (ii) NEHC to the extent the net
proceeds thereof are contributed to the Company as a capital contribution, that,
in each case, results in the net proceeds to the Company of at least $25.0
million.
"Receivables" means, with respect to any Person or entity, all of the
following property and interests in property of such Person or entity, whether
now existing or existing in the future or hereafter acquired or arising: (i)
accounts, (ii) accounts receivable incurred in the ordinary course of business,
including, without limitation, all rights to payment created by or arising from
sales of goods, leases of goods or the rendition of services, no matter how
evidenced, whether or not earned by performance, (iii) all rights to any goods
or merchandise represented by any of the foregoing after creation of the
foregoing, including, without limitation, returned or repossessed goods, (iv)
all reserves and credit balances with respect to any such accounts receivable or
account debtors, (v) all letters of credit, security or guarantees for any of
the foregoing, (vi) all insurance policies or reports relating to any of the
foregoing, (vii) all collection or deposit accounts relating to any of the
foregoing, (viii) all proceeds of the foregoing and (ix) all books and records
relating to any of the foregoing.
"Receivables Subsidiary" means an Unrestricted Subsidiary exclusively
engaged in Receivables Transactions and activities related thereto; provided,
however, that (i) at no time shall the Company and its Subsidiaries have more
than one Receivables Subsidiary and (ii) all Indebtedness or other borrowings of
such Unrestricted Subsidiary shall be Non-Recourse Debt.
"Receivables Transaction" means (i) the sale or other disposition to a
third party of Receivables or an interest therein, or (ii) the sale or other
disposition of Receivables or an interest therein to a Receivables Subsidiary
followed by a financing transaction in connection with such sale or disposition
of such Receivables (whether such financing transaction is effected by such
Receivables Subsidiary or by a third party to whom
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such Receivables Subsidiary sells such Receivables or interests therein);
provided that in each of the foregoing, the Company or its Subsidiaries receive
at least 80% of the aggregate principal amount of any Receivables financed in
such transaction.
"Regulation S" means Regulation S promulgated under the Securities Act.
"Regulation S Global Notes" means the Regulation S Temporary Global Notes
or the Regulation S Permanent Global Notes as applicable.
"Regulation S Permanent Global Notes" means the permanent global Notes that
are deposited with and registered in the name of the Depository or its nominee,
representing a series of Notes sold in reliance on Regulation S.
"Regulation S Temporary Global Notes" means the temporary global Notes that
are deposited with and registered in the name of the Depository or its nominee,
representing a series of Notes sold in reliance on Regulation S.
"Related Party" with respect to any Principal means (A) any controlling
stockholder, 80% (or more) owned Subsidiary, or spouse or immediate family
member (in the case of an individual) of such Principal or (B) any trust,
corporation, partnership or other entity, the beneficiaries, stockholders,
partners, owners or Persons beneficially holding an 80% or more controlling
interest of which consist of such Principal and/or such other Persons referred
to in the immediately preceding clause (A).
"Reorganization Securities" means securities distributed to the Holders of
the New Notes in an Insolvency or Liquidation Proceeding pursuant to a plan of
reorganization consented to by each class of the Senior Debt, but only if all of
the terms and conditions of such securities (including, without limitation,
term, tenor, interest, amortization, subordination, standstills, covenants and
defaults) are at least as favorable (and provide the same relative benefits) to
the holders of Senior Debt and to the holders of any security distributed in
such Insolvency or Liquidation Proceeding on account of any such Senior Debt as
the terms and conditions of the New Notes and the Indenture are, and provide to
the holders of Senior Debt.
"Representative" means the Trustee, agent or representative for any Senior
Debt.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Rule 144A" means Rule 144A promulgated under the Securities Act.
"Rule 144A Global Note" means a permanent global note that is deposited
with and registered in the name of the Depository or its nominee, representing a
series of Notes sold in reliance on Rule 144A.
"Senior Debt" means (i) all Indebtedness outstanding under the New Credit
Facility, including any Guarantees thereof and all Hedging Obligations with
respect thereto, (ii) any other Indebtedness permitted to be incurred by the
Company under the terms of the Indenture, unless the instrument under which such
Indebtedness is incurred expressly provides that it is on a parity with or
subordinated in right of payment to the New Notes and (iii) all Obligations with
respect to the foregoing. Notwithstanding anything to the contrary in the
foregoing, Senior Debt will not include (w) any liability for federal, state,
local or other taxes owed or owing by the Company, (x) any Indebtedness of the
Company to any of its Subsidiaries or other Affiliates, (y) any trade payables
or (z) any Indebtedness that is incurred in violation of the Indenture.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the
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occurrence of any contingency) to vote in the election of directors, managers or
trustees thereof is at the time owned or controlled, directly or indirectly, by
such Person or one or more of the other Subsidiaries of that Person (or a
combination thereof) and (ii) any partnership (a) the sole general partner or
the managing general partner of which is such Person or a Subsidiary of such
Person or (b) the only general partners of which are such Person or of one or
more Subsidiaries of such Person (or any combination thereof).
"Subsidiary Guarantors" means all direct and indirect Restricted
Subsidiaries of the Senior Subordinated Notes.
"Unrestricted Subsidiary" means (i) any Subsidiary that is designated by
the Board of Directors as an Unrestricted Subsidiary pursuant to a Board
Resolution; but only to the extent that such Subsidiary: (a) has no Indebtedness
other than Non-Recourse Debt; (b) is not party to any agreement, contract,
arrangement or understanding with the Company or any Restricted Subsidiary of
the Company unless the terms of any such agreement, contract, arrangement or
understanding are no less favorable to the Company or such Restricted Subsidiary
than those that might be obtained at the time from Persons who are not
Affiliates of the Company; (c) is a Person with respect to which neither the
Company nor any of its Restricted Subsidiaries has any direct or indirect
obligation (x) to subscribe for additional Equity Interests or (y) to maintain
or preserve such Person's financial condition or to cause such Person to achieve
any specified levels of operating results; (d) has not guaranteed or otherwise
directly or indirectly provided credit support for any Indebtedness of the
Company or any of its Restricted Subsidiaries; and (e) has at least one director
on its board of directors that is not a director or executive officer of the
Company or any of its Restricted Subsidiaries and has at least one executive
officer that is not a director or executive officer of the Company or any of its
Restricted Subsidiaries. Any such designation by the Board of Directors shall be
evidenced to the Trustee by filing with the Trustee a certified copy of the
Board Resolution giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing conditions and was
permitted by the covenant described above under the caption "Certain
Covenants -- Restricted Payments." If, at any time, any Unrestricted Subsidiary
would fail to meet the foregoing requirements as an Unrestricted Subsidiary, it
shall thereafter cease to be an Unrestricted Subsidiary for purposes of the
Indenture and any Indebtedness of such Subsidiary shall be deemed to be incurred
by a Restricted Subsidiary of the Company as of such date (and, if such
Indebtedness is not permitted to be incurred as of such date under the covenant
described under the caption "Incurrence of Indebtedness and Issuance of
Preferred Stock," the Company shall be in default of such covenant). The Board
of Directors of the Company may at any time designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; provided that such designation shall
be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of the
Company of any outstanding Indebtedness of such Unrestricted Subsidiary and such
designation shall be permitted only if (i) such Indebtedness is permitted under
the covenant described under the caption "Certain Covenants -- Incurrence of
Indebtedness and Issuance of Preferred Stock," and (ii) no Default or Event of
Default would be in existence following such designation.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person and one or
more Wholly Owned Subsidiaries of such Person.
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DESCRIPTION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a summary of certain U.S. federal income tax
considerations relevant to the purchase, ownership and disposition of the New
Notes by the holders thereof. This summary does not purport to be a complete
analysis of all the potential federal income tax effects relating to the
purchase, ownership and disposition of the New Notes. There can be no assurance
that the U.S. Internal Revenue Service will take a similar view of such
consequences. Further, the discussion does not address all aspects of taxation
that may be relevant to particular purchasers in light of their individual
circumstances (including the effect of any foreign, state or local laws) or to
certain types of purchasers (including dealers in securities, insurance
companies, financial institutions, persons that hold New Notes that are a hedge
or that are hedged against currency risks or that are part of a straddle or
conversion transaction, persons whose functional currency is not the U.S. dollar
and tax-exempt entities) subject to special treatment under U.S. federal income
tax laws. The discussion below assumes that the New Notes are held as capital
assets.
The discussion of the U.S. federal income tax consequences set forth below
is based upon currently existing provisions of the Internal Revenue Code of
1986, as amended (the "Code"), judicial decisions, and administrative
interpretations. Because individual circumstances may differ, each prospective
purchaser of the New Notes is strongly urged to consult its own tax advisor with
respect to its particular tax situation and the particular tax effects of any
state, local, non-U.S. or other tax laws and possible changes in the tax laws.
As used herein, the term "U.S. Holder" means a beneficial owner of a New
Note who or which is for U.S. federal income tax purposes either (i) a citizen
or resident of the U.S., (ii) a corporation, partnership or other entity created
or organized in or under the laws of the U.S. or of any political subdivision
thereof, (iii) an estate or trust the income of which is subject to U.S. federal
income taxation regardless of its source or (iv) a trust if a court within the
U.S. is able to exercise primary supervision over the administration of the
trust and one or more U.S. fiduciaries have the authority to control all
substantial decisions of the trust. The term also includes certain former
citizens of the U.S. whose income and gain on the New Notes will be subject to
U.S. taxation. As used herein, the term "U.S. Alien Holder" means a beneficial
owner of a New Note that is not a U.S. Holder.
PAYMENTS OF INTEREST
Interest paid on a New Note will generally be taxable to a U.S. Holder as
ordinary interest income at the time it accrues or is received in accordance
with the U.S. Holder's method of accounting for federal income tax purposes.
MARKET DISCOUNT AND PREMIUM
If a U.S. Holder that acquires a New Note has a tax basis in the New Note
that is less than its "stated redemption price at maturity," the amount of the
difference will be treated as "market discount" for U.S. federal income tax
purposes, unless such difference is less than a specified de minimis amount.
Under the market discount rules of the Code, a U.S. Holder will be required to
treat any principal payment on, or any gain on the sale, exchange, retirement or
other disposition of, a New Note as ordinary income to the extent of any accrued
market discount that has not previously been included in income. Market discount
generally accrues on a straight-line basis over the remaining term of a New
Note. A U.S. Holder may not be allowed to deduct immediately all or a portion of
the interest expense on any indebtedness incurred or continued to purchase or to
carry such New Note. A U.S. Holder may elect to include market discount in
income currently as it accrues (either on a straight-line basis or, if the
United States Holder so elects, on a constant yield basis), in which case the
interest deferral rule set forth in the preceding sentence will not apply. Such
an election will apply to all bonds acquired by the U.S. Holder on or after the
first day of the first taxable year to which such election applies and may be
revoked only with the consent of the Internal Revenue Service.
If a U.S. Holder purchases a New Note for an amount that is greater than
the sum on all amounts payable on the New Note after the purchase date, other
than stated interest, such holder will be considered to have purchased such New
Note with "amortizable bond premium" equal in amount to such excess, and may
elect (in accordance with applicable Code provisions) to amortize such premium,
using a constant yield
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method over the remaining term of the New Note. The amount amortized in any year
will be treated as a reduction of the U.S. Holder's interest income from the New
Note in such year. A U.S. Holder that elects to amortize bond premium must
reduce its tax basis in the New Note by the amount of the premium amortized in
any year. An election to amortize bond premium applies to all taxable debt
obligations then owned and thereafter acquired by the U.S. Holder and may be
revoked only with the consent of the Internal Revenue Service.
SALE, EXCHANGE OR RETIREMENT OF NEW NOTES
Upon the sale, exchange or retirement of a New Note, a U.S. Holder will
recognize taxable gain or loss equal to the difference between the amount
realized on the sale, exchange or retirement (not including any amount
attributable to accrued but unpaid interest) and such holder's adjusted tax
basis in the New Note. A U.S. Holder's adjusted tax basis in a New Note will
equal the cost of the New Note to such holder, increased by the amount of any
market discount previously included in income by such holder with respect to
such New Note and reduced by any amortized bond premium and any principal
payment received by such holder.
Subject to the discussion of market discount above, gain or loss realized
on the sale, exchange or retirement of a New Note by a U.S. Holder will be
capital gain or loss, and will be long-term capital gain or loss if at the time
of the sale, exchange or retirement the New Note has been held for more than one
year. In the case of individual U.S. Holders, net capital gain is taxed at a
maximum rate of 28% if the U.S. Holder's holding period is more than one year
but not more than 18 months and at a maximum rate of 20% if the U.S. Holder's
holding period is more than 18 months. The distinction between capital gain or
loss and ordinary income or loss is also relevant for purposes of, among other
things, limitations on the deductibility of capital losses.
A U.S. Holder will recognize no gain or loss on the exchange of a Note for
a New Note pursuant to the Exchange Offer.
TAX CONSEQUENCES TO U.S. ALIEN HOLDERS
Under present U.S. federal income and estate tax law, and subject to the
discussion below concerning backup withholding:
(a) payments of principal or interest on the New Notes by the Company
or any paying agent to a beneficial owner of a New Note that is a U.S.
Alien Holder will not be subject to U.S. federal withholding tax, provided
that, in the case of interest, (i) such Holder does not own, actually or
constructively, 10% or more of the total combined voting power of all
classes of stock of the Company entitled to vote, (ii) such Holder is not,
for U.S. federal income tax purposes, a controlled foreign corporation
related, directly or indirectly, to the Company through stock ownership,
(iii) such Holder is not a bank receiving interest described in Section
881(c)(3)(A) of the Code, and (iv) the certification requirements under
Section 871(h) or Section 881(c) of the Code and Treasury Regulations
thereunder (summarized below) are met;
(b) a U.S. Alien Holder of a New Note will not be subject to U.S.
federal income tax on gains realized on the sale, exchange or other
disposition of such New Note, unless (i) such Holder is an individual who
is present in the U.S. for 183 days or more in the taxable year of sale,
exchange or other disposition, and certain conditions are met; (ii) such
gain is effectively connected with the conduct by such Holder of a trade or
business in the U.S. and, if certain tax treaties apply, is attributable to
a U.S. permanent establishment maintained by the U.S. Alien Holder or (iii)
the U.S. Alien Holder is subject to tax pursuant to the Code provisions
applicable to certain U.S. expatriates; and
(c) a New Note held by an individual who is not a citizen or resident
of the U.S. at the time of his death will not be subject to U.S. federal
estate tax as a result of such individual's death, provided that, at the
time of such individual's death, the individual does not own, actually or
constructively, 10% or more of the total combined voting power of all
classes of stock of the Company entitled to vote and payments
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with respect to such New Note would not have been effectively connected
with the conduct by such individual of a trade or business in the U.S.
Sections 871(h) and 881(c) of the Code and currently effective Treasury
Regulations thereunder require that, in order to obtain the exemption from
withholding tax described in paragraph (a) above, either (i) the beneficial
owner of a New Note must certify, under penalties of perjury, to the Company or
paying agent, as the case may be, that such owner is a U.S. Alien Holder and
must provide such owner's name and address, and U.S. taxpayer identification
number ("TIN"), if any, or (ii) a securities clearing organization, bank or
other financial institution that holds customers' securities in the ordinary
course of its trade or business (a "Financial Institution") and holds the New
Note on behalf of the beneficial owner thereof must certify, under penalties of
perjury, to the Company or paying agent, as the case may be, that such
certificate has been received from the beneficial owner by it or by a Financial
Institution between it and the beneficial owner and must furnish the payor with
a copy thereof. A certificate described in this paragraph is effective only with
respect to payments of interest made to the certifying U.S. Alien Holder after
delivery of the certificate in the calendar year of its delivery and the two
immediately succeeding calendar years. Under temporary U.S. Treasury
Regulations, such requirement will be fulfilled if the beneficial owner of a New
Note certifies on Internal Revenue Service Form W-8, under penalties of perjury,
that it is a U.S. Alien Holder and provides its name and address, and any
Financial Institution holding the New Note on behalf of the beneficial owner
files a statement with the withholding agent to the effect that it has received
such a statement from the beneficial owner (and furnishes the withholding agent
with a copy thereof).
Treasury Regulations released on October 6, 1997 (the "New Regulations")
and effective for payments made after December 31, 1988 will provide alternative
methods for satisfying the certification requirement described above. The New
Regulations also would require, in the case of New Notes held by a foreign
partnership, that (x) the certification be provided by the partners rather than
by the foreign partnership and (y) the partnership provide certain information,
including a United States taxpayer identification number. A lookthrough rule
would apply in the case of tiered partnerships.
If a U.S. Alien Holder of a New Note is engaged in a trade or business in
the U.S., and if interest on the New Note, or gain realized on the sale,
exchange or other disposition of the New Note, is effectively connected with the
conduct of such trade or business and, if certain tax treaties apply, is
attributable to a U.S. permanent establishment maintained by the U.S. Alien
Holder, the U.S. Alien Holder, although exempt from U.S. withholding tax, will
generally be subject to regular U.S. income tax on such interest or gain in the
same manner as if it were a U.S. Holder. In lieu of the certificate described in
the preceding paragraph, such a Holder will be required to provide the Company a
properly executed Internal Revenue Service Form 4224 in order to claim an
exemption from withholding tax. In addition, if such U.S. Alien Holder is a
foreign corporation, it may be subject to a branch profits tax equal to 30% (or
such lower rate provided by an applicable treaty) of its effectively connected
earnings and profits for the taxable year, subject to certain adjustments. For
purposes of the branch profits tax, interest on and any gain recognized on the
sale, exchange or other disposition of a New Note will be included in the
earnings and profits of such U.S. Alien Holder if such interest or gain is
effectively connected with the conduct by the U.S. Alien Holder of a trade or
business in the U.S. The New Regulations will change some of the withholding
reporting requirements described above, effective for payments made after
December 31, 1998, subject to certain grandfathering provisions.
BACKUP WITHHOLDING
Under current U.S. federal income tax law, a 31% backup withholding tax
requirement applies to certain payments of interest on, and the proceeds of a
sale, exchange or redemption of, the New Notes.
Backup withholding will generally not apply with respect to payments made
to certain exempt recipients, such as corporations or other tax-exempt entities.
In the case of a non-corporate U.S. Holder, backup withholding will apply only
if such Holder (i) fails to furnish its TIN, which, for an individual, would be
his Social Security number, (ii) furnishes an incorrect TIN, (iii) is notified
by the Internal Revenue Service that it has failed to properly report payments
of interest and dividends or (iv) under certain circumstances, fails to
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certify, under penalties of perjury, that it has furnished a correct TIN and has
not been notified by the Internal Revenue Service that it is subject to backup
withholding for failure to report interest and dividend payments.
In the case of a U.S. Alien Holder, under currently effective Treasury
Regulations, backup withholding will not apply to payments made by the Company
or any paying agent thereof on a New Note if such holder has provided the
required certification under penalties of perjury that it is not a U.S. Holder
(as defined above) or has otherwise established an exemption, provided in each
case that the Company or such paying agent, as the case may be, does not have
actual knowledge that the payee is a U.S. Holder.
Under currently effective Treasury Regulations, if payments on a New Note
are made to or through a foreign office of a custodian, nominee or other agent
acting on behalf of a beneficial owner of a New Note, such custodian, nominee or
other agent acting will not be required to apply backup withholding to such
payments made to such beneficial owner. However, under the New Regulations,
backup withholding may apply to payments made after December 31, 1998 if such
custodian, nominee or other agent has actual knowledge that the payee is a U.S.
Holder.
Under currently effective Treasury Regulations, payments on the sale,
exchange or other disposition of a New Note made to or through a foreign office
of a broker generally will not be subject to backup withholding. However, under
proposed Treasury Regulations, backup withholding may apply to payments made
after December 31, 1998 if such broker has actual knowledge that the payee is a
U.S. Holder. In the case of proceeds from a sale of a New Note by a U.S. Alien
Holder paid to or through the foreign office of a U.S. broker or a foreign
office of a foreign broker that is (i) a controlled foreign corporation for U.S.
tax purposes or (ii) a person 50% or more of whose gross income for the
three-year period ending with the close of the taxable year preceding the year
of payment (or for the part of that period that the broker has been in
existence) is effectively connected with the conduct of a trade or business
within the U.S., information reporting is required unless the broker has
documentary evidence in its files that the payee is not a U.S. person and
certain other conditions are met, or the payee otherwise establishes an
exemption. Payments to or through the U.S. office of a broker will be subject to
backup withholding and information reporting unless the holder certifies, under
penalties of perjury, that it is not a U.S. Holder and that certain other
conditions are met or otherwise establishes an exemption.
Holders of New Notes should consult their tax advisors regarding the
application of backup withholding in their particular situations, the
availability of an exemption therefrom, and the procedure for obtaining such an
exemption, if available, and the impact of the New Regulations on payments made
with respect to New Notes after December 31, 1998. Any amounts withheld from
payment under the backup withholding rules will be allowed as a credit against a
Holder's U.S. federal income tax liability and may entitle such holder to a
refund, provided that the required information is furnished to the Internal
Revenue Service.
THE FOREGOING DISCUSSION IS FOR GENERAL INFORMATION AND IS NOT TAX ADVICE.
ACCORDINGLY, EACH PROSPECTIVE HOLDER OF NEW NOTES SHOULD CONSULT ITS OWN TAX
ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO THE PROSPECTIVE HOLDER OF THE
NEW NOTES, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL, OR
NON-U.S. INCOME TAX LAWS AND ANY RECENT OR PROSPECTIVE CHANGES IN APPLICABLE TAX
LAWS AND THE EFFECT OF THE NEW REGULATIONS WITH RESPECT TO PAYMENTS MADE AFTER
DECEMBER 31, 1998.
PLAN OF DISTRIBUTION
This Prospectus is to be used by DLJ and BancAmerica Robertson Stephens
(the "Initial Purchasers") in connection with offers and sales of the New Notes
in market-making transactions effected from time to time. The Initial Purchasers
may act as a principal or agent in such transactions, including as agent for the
counterparty when acting as principal or as agent for both counterparties, and
may receive compensation in the form of discounts and commissions, including
from both counterparties when it acts as agent for both. Such sales will be made
at prevailing market prices at the time of sale, at prices related thereto or at
negotiated prices.
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DLJMB, an affiliate of DLJ, and certain of its affiliates beneficially own
approximately 36.1% of the common stock of NEHC. Peter T. Grauer, a principal of
DLJ, is a member of the Board of Directors of NEHC and the Company; Benoit
Jamar, a principal of DLJ, is a member of the Board of Directors of NEHC and the
Company. Further, DLJ Capital Funding, Inc., an affiliate of DLJ, is acting as
documentation agent in connection with the New Credit Facility for which it
received certain customary fees and expenses. In addition, DLJ received a merger
advisory fee of $4.0 million in cash from the Company after consummation of the
Transactions. DLJ has informed the Company that it does not intend to confirm
sales of the New Notes to any accounts over which it exercises discretionary
authority without the prior specific written approval of such transactions by
the customer.
The Company has been advised by the Initial Purchasers that, subject to
applicable laws and regulations, the Initial Purchasers currently intend to make
a market in the New Notes following completion of the Exchange Offer. However,
the Initial Purchasers are not obligated to do so and any such market-making may
be interrupted or discontinued at any time without notice. In addition, such
market-making activity will be subject to the limits imposed by the Securities
Act and the Exchange Act. There can be no assurance that an active trading
market will develop or be sustained. See "Risk Factors -- Trading Market for the
New Notes."
DLJ and BancAmerica Robertson Stephens have, from time to time provided
investment banking and other financial advisory services to the Company in the
past for which they have received customary compensation, including fees
received in connection with the offering of the Senior Discount Notes and the
Senior Notes, and may provide such services and financial advisory services to
the Company in the future. DLJ acted as purchasers in connection with the
initial sale of the Notes and received an underwriting discount of approximately
$12.0 million in connection therewith. See "Certain Relationships and Related
Party Transactions."
The Initial Purchasers and the Company have entered into the Registration
Rights Agreement with respect to the use by the Initial Purchasers of this
Prospectus. Pursuant to such agreement, the Company agreed to bear all
registration expenses incurred under such agreement, and the Company agreed to
indemnify the Initial Purchasers against certain liabilities, including
liabilities under the Securities Act.
LEGAL MATTERS
Certain legal matters in connection with the New Notes offered hereby will
be passed upon for the Company by Wachtell, Lipton, Rosen & Katz, New York, New
York.
EXPERTS
The consolidated financial statements of the Company as of December 30,
1995 and December 28, 1996 and for each of the three years in the period ended
December 28, 1996, appearing in this Prospectus and in the Registration
Statement, and the financial statement schedule for each of the three years in
the period ended December 28, 1996 included in the Registration Statement have
been audited by Ernst & Young LLP ("Ernst & Young"), independent auditors, as
set forth in their reports thereon appearing elsewhere herein and in the
Registration Statement, and are included herein in reliance upon such reports
given upon the authority of such firm as experts in accounting and auditing.
The financial statements of PFS (A Division of PepsiCo, Inc. Held for Sale)
as of December 27, 1995 and December 25, 1996 and for each of the years in the
three-year period ended December 25, 1996 appearing in this Prospectus and in
the Registration Statement have been audited by KPMG Peat Marwick LLP,
independent auditors, as set forth in their report thereon appearing elsewhere
herein and in the Registration Statement, and are included herein in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.
The consolidated statements of operations, stockholders' equity, and cash
flows of Ameriserv Food Company for each of the two years in the period ended
December 30, 1995 appearing in this Prospectus and in the Registration Statement
have been audited by Ernst & Young, independent auditors, as set forth in their
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report thereon appearing elsewhere herein and in the Registration Statement, and
are included herein in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing.
CHANGE IN COMPANY'S ACCOUNTANT
Prior to the acquisition by the Company of AmeriServ, the Company's
principal independent auditors were Deloitte & Touche LLP ("Deloitte & Touche").
At the time of its acquisition by the Company the principal independent auditors
for AmeriServ were Ernst & Young LLP ("Ernst & Young"). In July 1996 the Company
invited both Deloitte & Touche and Ernst & Young to submit proposals to act as
principal independent auditors to the Company. On or about October 1, 1996, the
Company notified Deloitte & Touche that Deloitte & Touche had been dismissed as
the Company's principal accountants. On October 1, 1996, the Company selected
and retained Ernst & Young as the Company's principal independent auditors for
the Company's 1996 fiscal year. The Company's Board of Directors approved of
this change.
Deloitte & Touche's reports on the Company's financial statements, which
financial statements were prepared on a private entity basis and not in
accordance with the requirements of Regulation S-X, for the fiscal years ended
December 31, 1994 and December 30, 1995 did not contain an adverse opinion or a
disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope or procedure, or accounting principles. During the fiscal years
ended December 31, 1994 and December 30, 1995 and through October 1, 1996 there
were no disagreements with Deloitte & Touche, as described in Item
304(a)(1)(iv), nor were there any events that would be "reportable events"
pursuant to Item 304(a)(1)(v) of Regulation S-K.
The Company's financial statements, which financial statements have been
presented on a basis which will comply with the requirements of Regulation S-X
for the fiscal years ended December 31, 1994 and December 30, 1995 included in
this Prospectus and Registration Statement have been audited by Ernst & Young.
As required pursuant to Item 304 of Regulation S-K, filed as Exhibit 16.1
hereto is a letter from Deloitte & Touche addressed to the Securities and
Exchange Commission (the "SEC") stating that Deloitte & Touche agrees with the
statements in the first and fourth sentences of the first paragraph and the
statements in the second paragraph (and has no basis to agree or disagree with
the other statements) of this section.
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INDEX OF CERTAIN DEFINED TERMS
<TABLE>
<CAPTION>
PAGE NO.
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<S> <C>
Accounts Receivable Program...... 26
Acquisition...................... 3
Administrative Agent............. 26
Agents........................... 26
AmeriServe Funding............... 58
AmeriServ........................ 15
AmeriServe....................... 3
Applicable Reserve Ratio......... 58
Asset Purchase Agreement......... 25
BancAmerica Robertson Stephens... 26
Bank of America NT&SA............ 26
Banks............................ 58
Base Amount...................... 58
CAGR............................. 3
Carrying Cost Receivable
Reserve........................ 58
CCC.............................. 50
Certificate of Incorporation..... 15
Change of Control................ 83
Code............................. 92
Commission....................... 2
Company.......................... 1
Depository....................... ii
Distribution Agreement........... 48
DLJ.............................. ii, 7
DLJMB............................ 55
EBITDA........................... 11
Equity Contribution.............. 25
Evans............................ 14
Exchange Act..................... 2
Exchange Offer................... 1
Financial Institution............ 94
Global New Note.................. 79
Guarantors....................... 59
Holberg.......................... 14
IDA.............................. 49
Indebtedness..................... 86
Indenture........................ 1
Initial Purchasers............... ii
Invested Amount.................. 58
Lenders.......................... 13
<CAPTION>
PAGE NO.
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<S> <C>
Named Executive Officers......... 53
NEBCO............................ 14
NEBCO EVANS...................... 15
NED.............................. 55
NEHC............................. 3
Net Eligible Receivables......... 58
New Credit Facility.............. 26
New Notes........................ 1
New Note Guarantees.............. 1
New Regulations.................. 94
Offering......................... 2
Participants..................... 79
PepsiCo.......................... 3
PepsiCo Chains................... 48
PFS.............................. 3
Post............................. 3
Post Contribution................ 25
Post Holdings.................... 25
Preferred Stock Contribution..... 25
Receivables...................... 58
Registration Rights Agreement.... 1
Regulation S Permanent Global
Notes.......................... 90
Regulation S Temporary Global
Notes.......................... 90
Restricted Subsidiary............ 90
Revolving Credit Facility........ 26
Rule 144A Global Note............ 90
SEC.............................. 2
Securities Act................... 1
Shelf Registration Statement..... 9
Subsidiary Guarantors............ 1
Term Loans....................... 26
TIN.............................. 94
Transactions..................... 5
Transactions Closings............ 25
Transfer Restricted Securities... 81
Trust............................ 58
Trustee.......................... 62
U.S. Alien Holder................ 92
U.S. Holder...................... 92
</TABLE>
88
<PAGE> 89
INDEX TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
AMERISERVE FOOD DISTRIBUTION, INC.
Unaudited Pro Forma Consolidated Balance Sheet as of June 28, 1997.................. P-2
Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet as of June 28,
1997............................................................................. P-3
Unaudited Pro Forma Consolidated Statement of Income for the Fiscal Year 1996....... P-5
Unaudited Pro Forma Consolidated Statement of Income for the Six Months Ended June
28, 1997......................................................................... P-6
Notes to Unaudited Pro Forma Consolidated Statements of Income for Fiscal Year 1996
and the Six Months Ended June 28, 1997........................................... P-7
</TABLE>
P-1
<PAGE> 90
AMERISERVE FOOD DISTRIBUTION, INC.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following sets forth the Unaudited Pro Forma Consolidated Balance Sheet
and the Unaudited Pro Forma Consolidated Statements of Income of AmeriServe Food
Distribution, Inc., in each case giving effect to the Transactions and the
Refinancing as if such Transactions and Refinancing had been consummated on June
28, 1997 (in the case of the Unaudited Pro Forma Consolidated Balance Sheet) and
at the beginning of the earliest period presented (in the case of the Unaudited
Pro Forma Consolidated Statements of Income). The Unaudited Pro Forma
Consolidated Financial Statements of the Company do not purport to present the
financial position or results of operations of the Company had the transactions
assumed herein occurred on the dates indicated, nor are they necessarily
indicative of the results of operations which may be expected to occur in the
future.
AMERISERVE FOOD DISTRIBUTION, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF JUNE 28, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
PRO FORMA PRO FORMA ADJUSTMENTS FOR
HISTORICAL HISTORICAL ADJUSTMENTS FOR FOR FOR TRANSACTIONS
AMERISERVE POST TRANSACTIONS TRANSACTIONS REFINANCING AND REFINANCING
---------- ---------- --------------- ------------ ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...... $ 3,413 $ 61 $ 24,382(1) $ 27,856 $ 134,000(5) $ 161,856
Accounts receivable............ 410,074 14,505 (378,821)(2) 45,758 -- 45,758
Undivided interest in accounts
receivable
trust........................ -- -- 153,821(2) 153,821 -- 153,821
Inventories.................... 150,759 6,644 -- 157,403 -- 157,403
Other current assets........... 13,448 6,086 (4,700)(4) 14,834 -- 14,834
---------- ------- --------- ---------- ------- ----------
Total current assets......... 577,694 27,296 (205,318) 399,672 134,000 533,672
Property and equipment, net...... 122,232 3,426 -- 125,658 -- 125,658
Other assets:
Goodwill....................... 684,085 4,630 -- 688,715 -- 688,715
Other.......................... 32,581 230 24,100(1) 52,411 11,000(5) 56,311
(2,000)(1) (7,100)(6)
(2,500)(4)
---------- ------- --------- ---------- ------- ----------
$1,416,592 $ 35,582 $(185,718) $1,266,456 $ 137,900 $ 1,404,356
========== ======= ========= ========== ======= ==========
LIABILITIES & STOCKHOLDER'S EQUITY
Current liabilities:
Current maturities of
long-term debt............... $ 5,540 $ 489 $ (1,958)(1) $ 4,071 $ -- $ 4,071
Accounts payable............... 291,572 12,935 -- 304,507 -- 304,507
Accrued liabilities............ 67,515 484 (12,800)(1) 55,199 -- 55,199
---------- ------- --------- ---------- ------- ----------
Total current liabilities.... 364,627 13,908 (14,758) 363,777 -- 363,777
Non-current liabilities.......... 20,260 2,413 -- 22,673 -- 22,673
Long-term debt:
Existing credit facilities..... 137,650 10,642 (148,292)(1) -- -- --
Note payable to PepsiCo,
Inc. ........................ 830,000 -- (830,000)(1,2,3) -- -- --
Term Loans..................... -- -- 205,000(1) 205,000 (205,000)(5) --
Senior Notes................... -- -- -- -- 350,000(5) 350,000
Senior Subordinated Notes...... -- -- 500,000(1) 500,000 -- 500,000
Other.......................... 22,425 2,342 (4,768)(1) 19,999 -- 19,999
---------- ------- --------- ---------- ------- ----------
Total long-term debt......... 990,075 12,984 (278,060) 724,999 145,000 869,999
---------- ------- --------- ---------- ------- ----------
Total liabilities.......... 1,374,962 29,305 (292,818) 1,111,449 145,000 1,256,449
---------- ------- --------- ---------- ------- ----------
Stockholder's equity:
Preferred...................... 45,000 -- (45,000)(3) -- -- --
Common......................... (3,370) 6,277 175,000(3) 155,007 (7,100)(6) 147,907
(13,700)(1)
(2,000)(3)
(7,200)(4)
---------- ------- --------- ---------- ------- ----------
Total stockholder's equity... 41,630 6,277 107,100 155,007 (7,100) 147,907
---------- ------- --------- ---------- ------- ----------
$1,416,592 $ 35,582 $(185,718) $1,266,456 $ 137,900 $ 1,404,356
========== ======= ========= ========== ======= ==========
</TABLE>
See accompanying notes to unaudited pro forma consolidated balance sheet.
P-2
<PAGE> 91
AMERISERVE FOOD DISTRIBUTION, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF JUNE 28, 1997
(IN THOUSANDS)
(1) Represents the following:
<TABLE>
<S> <C>
Sources of funds:
Proceeds under the New Credit Facility............................ $205,000
Proceeds from the Senior Subordinated Notes Offering.............. 500,000
--------
$705,000
========
Use of Proceeds:
Reduction of existing indebtedness:
Current maturities of long-term debt............................ $ 1,958
Existing credit facilities...................................... 148,292
Other........................................................... 4,768
Deferred financing fees and offering costs........................ 24,100
One time commitment and securitization fees and other costs
expensed at closing............................................. 13,700
Partially repay PepsiCo, Inc. note payable (excludes $11 million
payable
subsequent to closing).......................................... 475,000
Payment of accrued transaction costs at closing................... 12,800
Cash for working capital.......................................... 24,382
--------
$705,000
========
</TABLE>
In connection with the reduction of existing indebtedness, $2,000 of
deferred financing costs were writtten off.
(2) Represents the transfer of accounts receivable ($378,821) to AmeriServe
Funding Corporation (Funding), a wholly-owned, special purpose, bankruptcy
remote subsidiary of the Company, for $225,000 in cash (which was used to
partially repay the PepsiCo, Inc. note payable), and a $153,821 undivided
interest in the AmeriServe Master Trust (Trust). Under the Accounts
Receivable Program, all of the trade receivables generated by the Company
and its subsidiaries will be transferred on a daily basis to Funding.
Funding will then sell the receivables to the Trust, which will issue a
series of short-term notes to investors, currently yielding 6.875%,
representing undivided interests in the assets of the Trust. Currently,
$225,000 under the Accounts Receivable Program is available to Funding for a
period of five years. Under the provisions of Statement of Financial
Accounting Standards No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities," the transaction has
been recorded as a transfer of receivables to an unconsolidated, special
purpose entity. The Company intends to hold to maturity the retained
interest in the transferred receivables and, therefore, will carry the
investment on the cost basis in accordance with Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt
and Equity Securities."
(3) Adjustments to stockholder's equity:
<TABLE>
<S> <C>
Equity Contribution of $130,000 by NEHC to partially repay
PepsiCo, Inc. note payable...................................... $130,000
Addition to common stock pursuant to the Preferred Stock
Contribution.................................................... 45,000
Elimination of existing preferred stock pursuant to the Preferred
Stock Contribution.............................................. (45,000)
Write off deferred financing costs................................ (2,000)
</TABLE>
P-3
<PAGE> 92
AMERISERVE FOOD DISTRIBUTION, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET -- (CONTINUED)
AS OF JUNE 28, 1997
(IN THOUSANDS)
(4) In connection with the contribution of Post to AmeriServe by NEHC, eliminate
AmeriServe's investment in NEHC preferred stock of $2,500 and declare a
dividend of $4,700 on Post to eliminate the intercompany balance.
(5) Represents the following:
<TABLE>
<S> <C>
Proceeds from the Senior Notes Offering........................... $350,000
========
Use of Proceeds:
Repay Term Loans.................................................. $205,000
Deferred financing fees and offering costs........................ 8,750
Payment of accrued transaction costs at closing................... 2,250
Cash for working capital.......................................... 134,000
--------
$350,000
========
</TABLE>
(6) Represents write-off of the deferred financing costs of $7,100 related to
the Term Loans.
P-4
<PAGE> 93
AMERISERVE FOOD DISTRIBUTION, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE FISCAL YEAR 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ACQUISITION PRO FORMA PRO FORMA PRO FORMA
HISTORICAL HISTORICAL HISTORICAL OF ADJUSTMENTS FOR FOR ADJUSTMENTS
AMERISERVE PFS POST AMERISERV(9) TRANSACTIONS TRANSACTIONS FOR REFINANCING
---------- ---------- ---------- ------------ --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales(13)............ $1,280,598 $3,422,086 $ 119,444 $ 52,852 $ -- $ 4,874,980 $ --
Cost of goods sold....... 1,151,749 3,080,602 106,938 47,640 -- 4,386,929 --
---------- ---------- -------- ------- -------- ---------- -------
Gross profit............. 128,849 341,484 12,506 5,212 -- 488,051 --
---------- ---------- -------- ------- -------- ---------- -------
Operating expenses:
Distribution, selling
and administrative... 102,808 241,911 10,560 5,850 (11,100)(1) 361,398 --
(8,100)(2)
15,469(6)
4,000(4)
Depreciation........... 5,251 19,830 295 134 (1,000)(3) 24,510 --
Amortization........... 4,810 -- 142 404 14,721(7) 20,077 --
Other -- net........... 1,691 -- (4,283) -- 2,109(10) (483) --
---------- ---------- -------- ------- -------- ---------- -------
Total operating
expenses............... 114,560 261,741 6,714 6,388 16,099 405,502 --
---------- ---------- -------- ------- -------- ---------- -------
Operating income......... 14,289 79,743 5,792 (1,176) (16,099) 82,549 --
Interest expense......... 10,471 15,566 1,338 739 44,485(5) 72,599 13,080(12)
---------- ---------- -------- ------- -------- ---------- -------
Income (loss) before
income taxes........... 3,818 64,177 4,454 (1,915) (60,584) 9,950 (13,080)
Provision (credit) for
income taxes........... 1,300 24,597 1,886 17 (23,920)(8) 3,880 (5,101)(8)
---------- ---------- -------- ------- -------- ---------- -------
Net income (loss)........ $ 2,518 $ 39,580 $ 2,568 $ (1,932) $ (36,664) $ 6,070 $(7,979)
========== ========== ======== ======= ======== ========== =======
<CAPTION>
PRO FORMA
FOR
TRANSACTIONS
AND REFINANCING
---------------
<S> <C>
INCOME STATEMENT DATA:
Net sales(13)............ $ 4,874,980
Cost of goods sold....... 4,386,929
----------
Gross profit............. 488,051
----------
Operating expenses:
Distribution, selling
and administrative... 361,398
Depreciation........... 24,510
Amortization........... 20,077
Other -- net........... (483)
----------
Total operating
expenses............... 405,502
----------
Operating income......... 82,549
Interest expense......... 85,679
----------
Income (loss) before
income taxes........... (3,130)
Provision (credit) for
income taxes........... (1,221)
----------
Net income (loss)........ $ (1,909)
==========
</TABLE>
See accompanying notes to unaudited pro forma consolidated statements of income.
P-5
<PAGE> 94
AMERISERVE FOOD DISTRIBUTION, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 28, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA PRO FORMA
ADJUSTMENTS PRO FORMA ADJUSTMENTS FOR
HISTORICAL HISTORICAL HISTORICAL FOR FOR FOR TRANSACTIONS
AMERISERVE PFS POST TRANSACTIONS TRANSACTIONS REFINANCING AND REFINANCING
---------- ---------- ---------- ------------ ------------ ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales(13).......... $741,009 $1,498,345 $ 65,467 $ (3,577)(11) $2,301,244 $ -- $ 2,301,244
Cost of goods sold..... 668,544 1,342,659 58,731 (3,387)(11) 2,066,547 -- 2,066,547
-------- ---------- ------- -------- ---------- ------- ----------
Gross profit........... 72,465 155,686 6,736 (190) 234,697 -- 234,697
-------- ---------- ------- -------- ---------- ------- ----------
Operating expenses:
Distribution, selling
and
administrative..... 60,722 112,131 5,752 (5,550)(1) 178,929 -- 178,929
190(11)
(4,050)(2)
7,734(6)
2,000(4)
Depreciation......... 4,092 8,814 315 (500)(3) 12,721 -- 12,721
Amortization......... 2,319 -- 65 7,361(7) 9,745 -- 9,745
-------- ---------- ------- -------- ---------- ------- ----------
Total operating
expenses............. 67,133 120,945 6,132 7,185 201,395 -- 201,395
-------- ---------- ------- -------- ---------- ------- ----------
Operating income....... 5,332 34,741 604 (7,375) 33,302 -- 33,302
Interest expense....... 7,006 8,041 804 21,169(5) 37,020 6,540(12) 43,560
-------- ---------- ------- -------- ---------- ------- ----------
Income (loss) before
income taxes......... (1,674) 26,700 (200) (28,544) (3,718) (6,540) (10,258)
Provision (credit) for
income taxes......... (629) 9,924 -- (10,745)(8) (1,450) (2,551)(8) (4,001)
-------- ---------- ------- -------- ---------- ------- ----------
Net income (loss)...... $ (1,045) $ 16,776 $ (200) $(17,799) $ (2,268) $(3,989) $ (6,257)
======== ========== ======= ======== ========== ======= ==========
</TABLE>
See accompanying notes to unaudited pro forma consolidated statements of income.
P-6
<PAGE> 95
AMERISERVE FOOD DISTRIBUTION, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
(1) Represents net cost reductions in accordance with the terms of the Asset
Purchase Agreement for the following items:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL JUNE 28,
1996 1997
------- ----------------
<S> <C> <C>
Reduction in lease expense for existing PFS facilities
being retained by PepsiCo, Inc. ...................... $ 4,100 $2,050
Net reduction in data processing costs charged by
PepsiCo, Inc. to PFS under the terms of a one year
data processing service contract...................... 4,100 2,050
Reduction of employee retirement expense due to the
termination of pension and retirement plans of
PepsiCo, Inc., net of amounts to be paid under
AmeriServe's plans.................................... 1,900 950
Compensation of certain PFS employees retained by
PepsiCo, Inc. ........................................ 1,000 500
------- -------
Net cost savings........................................ $11,100 $5,550
======= =============
</TABLE>
Management Information System (MIS) costs for fiscal 1996 for PFS
aggregated $13,700, which included $5,100 of allocated costs for use of the
PepsiCo, Inc. data processing facilities. The Company plans to integrate
the MIS Systems of both businesses, which will eliminate PFS's reliance on
the PepsiCo, Inc. data processing facilities and result in all of the
Company's distribution centers operating under the same computer systems
and operating policies and practices. Annual MIS cost savings are expected
to be $6,600, which includes $2,500 due to the reduction of MIS personnel
as discussed in Note (2) below.
(2) Represents the net reduction in costs in accordance with the Company's
business plan to integrate PFS:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL JUNE 28,
1996 1997
------ ----------------
<S> <C> <C>
Payroll reductions for the elimination of duplicative
administrative personnel............................... $3,800 $1,900
Reduction in warehouse facilities and operating
personnel.............................................. 1,800 900
Reduction of MIS costs................................... 2,500 1,250
------ ------
Net cost savings......................................... $8,100 $4,050
====== ======
</TABLE>
In addition, there are $7,900 of anticipated cost savings that have not
been reflected in the pro forma statements of income because they are not
directly attributable to the acquisition of the PFS business but result
from actions taken by the Company in the third quarter of 1997 to
restructure existing AmeriServe operations. The restructuring charge taken
by the Company in the third quarter of 1997 is $31,000 (composed of $18,000
related to impairment of assets, $9,000 related to future lease
terminations and employee displacements and $4,000 related to current
integration costs associated with a previous acquisition). The Company has
also identified $28,800 of synergistic cost savings related primarily to
transportation and insurance which also are not included in the pro forma
statements of income.
(3) Represents reduction of $1,000 annually in depreciation expense as a result
of the closure of certain distribution centers.
(4) Represents an annual management fee of $4,000 to be paid by the Company to
Holberg Industries, Inc. in accordance with the management agreement.
P-7
<PAGE> 96
AMERISERVE FOOD DISTRIBUTION, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
(5) Represents the change in interest expense related to the Transactions:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT FISCAL SIX MONTHS ENDED
OF DEBT 1996 JUNE 28, 1997
-------- -------- ----------------
<S> <C> <C> <C>
Recording of pro forma interest:
Term Loans at rates from 8.375% to
9.375%................................. $205,000 $ 18,124 $ 9,062
Revolving Credit Facility................. -- -- --
Senior Subordinated Notes due 2007 at
10.125%................................ 500,000 50,625 25,313
Letters of credit......................... 12,000 300 150
Capital leases at 9.0%.................... 770 1,105
------- -------
Cash interest expense..................... 69,819 35,630
Amortization of deferred financing
costs.................................. 2,780 1,390
------- -------
Total interest expense...................... 72,599 37,020
Less: historical interest................... (28,114) (15,851)
------- -------
Pro forma interest adjustment............... $ 44,485 $ 21,169
======= =======
</TABLE>
(6) Represents the discount of $15,469 annually and $7,734 for six months on
the sale of accounts receivable pursuant to the Accounts Receivable Program
($225,000 at a rate of 6.875%).
(7) Represents the amortization of goodwill incurred in connection with the
Acquisition of $14,721 annually and $7,361 for six months, assuming a
40-year amortization period.
(8) Represents adjustments to reconcile income taxes to an effective income tax
rate of 39%.
(9) Represents AmeriServ net sales and expenses for the month of January 1996
prior to its acquisition by AmeriServe on January 26, 1996.
(10) Eliminates AmeriServe's 45% equity interest in the net income of Post for
the period January 26, 1996 through November 25, 1996. Effective November
25, 1996, NEHC acquired the remaining 50% interest in Post and AmeriServe's
equity interest was transferred to NEHC. Post is being contributed to
AmeriServe in connection with the Transactions.
(11) Represents elimination of intercompany sales.
(12) Represents adjustment to record interest expense and amortization of
deferred financing costs on the Senior Notes incurred to repay the Term
Loans, calculated as follows:
<TABLE>
<CAPTION>
FISCAL SIX MONTHS ENDED
1996 JUNE 28, 1997
-------- ----------------
<S> <C> <C>
Senior Notes ($350,000 at 8 7/8%)........................ $ 31,062 $ 15,531
Eliminate interest on Term Loans......................... (18,124) (9,062)
-------- ----------------
12,938 6,469
Amortization of deferred financing costs................. 1,222 611
Elimination of amortization of deferred financing costs
on Term Loans.......................................... (1,080) (540)
-------- ----------------
$ 13,080 $ 6,540
======== =============
</TABLE>
(13) PFS sales are reported net of $5,694 and $4,957, for the fiscal year 1996
and the six months ended June 28, 1997, respectively, as a result of profit
limitation agreements with Pizza Hut, Inc. and its franchisees. Such profit
limitation agreements continue after the Transactions Closing.
P-8
<PAGE> 97
INDEX TO HISTORICAL FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
AMERISERVE FOOD DISTRIBUTION, INC.
Report of Ernst & Young LLP, Independent Auditors.................................. F-2
Consolidated Balance Sheets as of December 30, 1995 and December 28, 1996, and as
of June 28, 1997 (unaudited).................................................... F-3
Consolidated Statements of Income for each of the three fiscal years in the period
ended December 28, 1996, and for the six month periods ended June 29, 1996 and
June 28, 1997 (unaudited)....................................................... F-4
Consolidated Statements of Stockholder's Equity for each of the three fiscal years
in the period ended December 28, 1996, and for the six month period ended June
28, 1997 (unaudited)............................................................ F-5
Consolidated Statements of Cash Flows for each of the three fiscal years in the
period ended December 28, 1996, and for the six month periods ended June 29,
1996 and June 28, 1997 (unaudited).............................................. F-6
Notes to Consolidated Financial Statements......................................... F-7
PFS
Report of KPMG Peat Marwick LLP, Independent Auditors.............................. F-18
Balance Sheets as of December 27, 1995 and December 25, 1996, and as of June 11,
1997 (unaudited)................................................................ F-19
Statements of Income for each of the years in the three year period ended December
25, 1996, and for the six month periods ended June 12, 1996 and June 11, 1997
(unaudited)..................................................................... F-20
Statements of Divisional Equity for each of the years in the three year period
ended December 25, 1996, and for the six month period ended June 11, 1997
(unaudited)..................................................................... F-21
Statements of Cash Flows for each of the years in the three year period ended
December 25, 1996, and for the six month periods ended June 12, 1996 and June
11, 1997 (unaudited)............................................................ F-22
Notes to Financial Statements...................................................... F-23
AMERISERV FOOD COMPANY
Report of Ernst & Young LLP, Independent Auditors.................................. F-28
Consolidated Statements of Operations for each of the two fiscal years in the
period ended December 30, 1995.................................................. F-29
Consolidated Statements of Stockholders' Equity (Deficit) for each of the two
fiscal years in the period ended December 30, 1995.............................. F-30
Consolidated Statements of Cash Flows for each of the two fiscal years in the
period ended December 30, 1995.................................................. F-31
Notes to Consolidated Financial Statements......................................... F-32
</TABLE>
F-1
<PAGE> 98
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
AmeriServe Food Distribution, Inc.
We have audited the accompanying consolidated balance sheets of AmeriServe
Food Distribution, Inc. (formerly known as NEBCO EVANS Distribution, Inc.) (the
Company) as of December 30, 1995 and December 28, 1996, and the related
consolidated statements of income, stockholder's equity and cash flows for each
of the three years in the period ended December 28, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of the Company at
December 30, 1995 and December 28, 1996, and consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 28, 1996 in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Milwaukee, Wisconsin
August 6, 1997
F-2
<PAGE> 99
AMERISERVE FOOD DISTRIBUTION, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
JUNE 28,
1997
DECEMBER 30, DECEMBER 28, ------------
1995 1996
------------ ------------ (UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash................................................ $ 575 $ 2,162 $ 3,413
Accounts receivable, less allowance for doubtful
accounts of $1,170, $4,896 and $4,824,
respectively..................................... 25,127 68,635 410,074
Other receivables................................... 2,234 3,764 3,750
Inventories......................................... 15,230 47,714 150,759
Due from Holberg.................................... 623 -- 2,709
Prepaid expenses and other current assets........... 707 4,313 6,989
------- -------- --------
Total current assets........................ 44,496 126,588 577,694
Property and equipment, net........................... 6,912 33,837 122,232
Other assets:
Intangible assets, net.............................. 20,189 122,451 707,086
Note receivable from Holberg........................ 3,516 3,516 3,516
Other noncurrent assets............................. 2,390 4,711 6,064
------- -------- --------
$ 77,503 $291,103 $ 1,416,592
======= ======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current maturities of long-term debt................ $ -- $ 3,266 $ 5,540
Accounts payable.................................... 32,751 89,440 291,572
Due to Holberg...................................... -- 907 --
Accrued liabilities................................. 1,232 14,931 67,515
------- -------- --------
Total current liabilities................... 33,983 108,544 364,627
Noncurrent liabilities................................ 584 13,245 20,260
Note payable to PepsiCo, Inc. ........................ -- -- 830,000
Long-term debt........................................ 32,779 126,639 160,075
Commitments
Stockholder's equity:
Senior preferred stock, $1 par value; 765 shares
authorized, 600 shares outstanding, $33,492
liquidation value................................ -- 30,000 30,000
Preferred stock, $50,000 par value; 150 shares
authorized and outstanding, $8,325 liquidation
value............................................ 7,500 7,500 7,500
Preferred stock, $25,000 par value; 400 shares
authorized, 300 shares outstanding, $8,213
liquidation value................................ 7,500 7,500 7,500
Common stock, $10 par value; 2,000 shares
authorized, 600 shares outstanding............... 6 6 6
Accumulated deficit................................. (4,849) (2,331) (3,376)
------- -------- --------
Total stockholder's equity.................. 10,157 42,675 41,630
------- -------- --------
$ 77,503 $291,103 $ 1,416,592
======= ======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE> 100
AMERISERVE FOOD DISTRIBUTION, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
------------------------------------------------- ---------------------
DECEMBER 31, DECEMBER 30, DECEMBER 28, JUNE 29, JUNE 28,
1994 1995 1996 1996 1997
------------- ------------- ------------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales.................... $ 358,516 $ 400,017 $ 1,280,598 $584,791 $741,009
Cost of goods sold........... 320,602 359,046 1,151,749 525,780 668,544
-------- -------- ---------- -------- --------
Gross profit................. 37,914 40,971 128,849 59,011 72,465
Distribution, selling and
administrative expenses.... 34,488 36,695 114,560 53,328 67,133
-------- -------- ---------- -------- --------
Operating income............. 3,426 4,276 14,289 5,683 5,332
-------- -------- ---------- -------- --------
Other income (expense):
Interest expense........... (3,294) (3,936) (10,999) (5,281) (7,243)
Interest income -- Holberg
and affiliate........... 533 749 528 215 237
-------- -------- ---------- -------- --------
(2,761) (3,187) (10,471) (5,066) (7,006)
-------- -------- ---------- -------- --------
Income (loss) before income
taxes...................... 665 1,089 3,818 617 (1,674)
Provision (credit) for income
taxes...................... 523 583 1,300 340 (629)
-------- -------- ---------- -------- --------
Net income (loss)............ $ 142 $ 506 $ 2,518 $ 277 $ (1,045)
======== ======== ========== ======== ========
</TABLE>
See accompanying notes.
F-4
<PAGE> 101
AMERISERVE FOOD DISTRIBUTION, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SENIOR PREFERRED PREFERRED ADDITIONAL
PREFERRED STOCK, STOCK, COMMON PAID-IN ACCUMULATED
STOCK $50,000 SERIES $25,000 SERIES STOCK CAPITAL DEFICIT TOTAL
--------- -------------- -------------- ------ ---------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 2, 1994...... $ -- $7,500 $5,000 $ 6 $ 5,068 $(2,795) $14,779
Issuance of 100 shares of
preferred stock, $25,000
Series................... -- -- 2,500 -- -- -- 2,500
Dividends on preferred
stock.................... -- -- -- -- (1,200) -- (1,200)
Contribution of capital..... -- -- -- -- 984 -- 984
Net income.................. -- -- -- -- -- 142 142
------- ------ ------ --- ------- ------- -------
Balance, December 31, 1994.... -- 7,500 7,500 6 4,852 (2,653) 17,205
Dividends:
Preferred stock.......... -- -- -- -- -- (2,494) (2,494)
Common stock............. -- -- -- -- (6,086) (208) (6,294)
Contribution of capital..... -- -- -- -- 1,234 -- 1,234
Net income.................. -- -- -- -- -- 506 506
------- ------ ------ --- ------- ------- -------
Balance, December 30, 1995.... -- 7,500 7,500 6 -- (4,849) 10,157
Issuance of 600 shares of
senior preferred stock... 30,000 -- -- -- -- -- 30,000
Net income.................. -- -- -- -- -- 2,518 2,518
------- ------ ------ --- ------- ------- -------
Balance, December 28, 1996.... 30,000 7,500 7,500 6 -- (2,331) 42,675
Net loss (unaudited)........ -- -- -- -- -- (1,045) (1,045)
------- ------ ------ --- ------- ------- -------
Balance, June 28, 1997
(unaudited)................. $ 30,000 $7,500 $7,500 $ 6 $ -- $(3,376) $41,630
======= ====== ====== === ======= ======= =======
</TABLE>
See accompanying notes.
F-5
<PAGE> 102
AMERISERVE FOOD DISTRIBUTION, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
------------------------------------------ ----------------------
DECEMBER 31, DECEMBER 30, DECEMBER 28, JUNE 29, JUNE 28,
1994 1995 1996 1996 1997
------------ ------------ ------------ --------- ----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)................................ $ 142 $ 506 $ 2,518 $ 277 $ (1,045)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of property and
equipment................................... 1,786 1,463 5,251 2,137 4,092
Amortization of intangible assets.............. 1,498 1,299 4,810 2,103 2,319
Deferred income taxes.......................... (465) 48 -- -- --
Contribution of capital........................ 984 1,234 -- -- --
Other.......................................... 83 131 83 36 --
Changes in assets and liabilities, net of
effect of businesses acquired:
Accounts receivable......................... (3,567) (1,645) (4,924) (13,015) (17,689)
Other receivables........................... (69) (645) (426) (237) 14
Inventories................................. 237 (5) (6,497) (10,726) (16,935)
Prepaid expenses and other assets........... (261) (2,425) 1,696 (188) 725
Accounts payable............................ 2,831 5,035 6,741 20,986 29,663
Accrued liabilities......................... 1,077 (393) (5,309) 1,369 (4,031)
Noncurrent liabilities...................... -- -- (66) (6,979) (2,985)
Other....................................... -- (98) (2,664) 1,892 (2,671)
------- ------- --------- ---------- --------
Net cash provided by (used in) operating
activities..................................... 4,276 4,505 1,213 (2,345) (8,543)
------- ------- --------- ---------- --------
INVESTING ACTIVITIES
Businesses acquired, net of cash acquired........ -- -- (94,411) (94,411) --
Expenditures for property and equipment.......... (1,331) (2,496) (12,518) (2,783) (7,275)
Proceeds from disposals of property and
equipment...................................... 14 22 2,866 -- --
Amounts received from Holberg.................... 6,432 28,969 11,121 4,616 12,261
Amounts paid to Holberg.......................... (7,797) (30,659) (9,591) (6,201) (15,877)
Net increase in deposits with affiliates......... (2,720) (315) (2,480) (1,880) (2,355)
Expenditures for intangible and other assets..... (20) (1,095) -- -- --
------- ------- --------- ---------- --------
Net cash used in investing activities............ (5,422) (5,574) (105,013) (100,659) (13,246)
------- ------- --------- ---------- --------
FINANCING ACTIVITIES
Proceeds from issuance of preferred stock........ 2,500 -- 30,000 30,000 --
Proceeds from long-term debt..................... -- -- -- -- 5,000
Net increase in borrowings under revolving line
of credit...................................... 15 4,635 120,000 116,700 19,700
Repayments of long-term debt..................... (2,025) (4,016) (44,613) (42,967) (1,660)
------- ------- --------- ---------- --------
Net cash provided by financing activities........ 490 619 105,387 103,733 23,040
------- ------- --------- ---------- --------
Net increase (decrease) in cash.................. (656) (450) 1,587 729 1,251
Cash at beginning of period...................... 1,681 1,025 575 575 2,162
------- ------- --------- ---------- --------
Cash at end of period............................ $ 1,025 $ 575 $ 2,162 $ 1,304 $ 3,413
======= ======= ========= ========== ========
Supplemental cash flow information:
Cash paid during the period for:
Interest.................................... $ 3,100 $ 3,622 $ 9,504 4,638 7,317
Income taxes, net of refunds................ 406 332 1,256 733 2,443
Businesses acquired:
Fair value of assets acquired............... -- -- 187,907 187,907 1,069,117
Cash paid/note payable issued............... -- -- (94,411) (94,411) (830,000)
------- ------- --------- ---------- --------
Liabilities assumed......................... $ -- $ -- $ 93,496 93,496 $ 239,117
======= ======= ========= ========== ========
Supplemental noncash investing and financing
activities:
Payment of dividends to reduce deposits and
advances with Holberg and affiliate......... $ 1,200 $ 8,788 $ -- $ -- $ --
Property and equipment purchased with capital
leases (included in long-term debt)......... -- -- 11,845 3,487 12,670
</TABLE>
See accompanying notes.
F-6
<PAGE> 103
AMERISERVE FOOD DISTRIBUTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 28, 1996
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
AmeriServe Food Distribution, Inc. (formerly known as NEBCO EVANS
Distribution, Inc.) has four subsidiaries: AmeriServ Food Company, Inc., (100%
owned), Northland Transportation Services, Inc. (100% owned), Chicago
Consolidated Corporation (CCC) (87% owned), and Delta Transportation Inc. (100%
owned) (collectively, the Company). The Company, through its divisions and
subsidiaries, is a system foodservice distributor specializing in distribution
to chain restaurants. The Company distributes a wide variety of items, including
fresh and frozen meat and poultry, frozen foods, canned and dry goods, fresh and
preprocessed produce, beverages, dairy products, paper goods, cleaning and other
supplies and small equipment.
The majority of revenues arise from sales to franchisees and/or franchisers
of several national limited-menu restaurant concepts. One customer represented
approximately 11% of consolidated net sales for the year ended December 28,
1996. The Company's accounts receivable generally are unsecured.
The Company is a wholly owned subsidiary of Nebco Evans Holding Company
(NEHC), which is ultimately controlled by Holberg Industries, Inc. (Holberg).
Holberg Industries, Inc., is a diversified service company with subsidiaries
operating within the food distribution and parking services industries in North
America.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany accounts and transactions
have been eliminated in consolidation.
Fiscal Year
The Company has elected a 52- or 53-week fiscal year ending on the Saturday
nearest to December 31. The fiscal years ended December 31, 1994 (fiscal 1994),
December 30, 1995 (fiscal 1995) and December 28, 1996 (fiscal 1996) are 52-week
periods.
Inventories
Inventories, which consist of purchased goods held for sale, are stated at
the lower of cost (determined on a first-in, first-out basis) or market.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed over
the estimated useful lives of the assets, using either the straight-line or
double-declining balance method. Amortization of leasehold improvements is
recorded over the respective lease terms or useful lives of the assets,
whichever is shorter. Amortization of assets under capital leases is included in
depreciation expense. Useful lives for amortization and depreciation
calculations are as follows:
<TABLE>
<CAPTION>
DESCRIPTION LIFE
------------------------------------------------ ------------
<S> <C>
Buildings and improvements...................... 5 - 40 years
Delivery and automotive equipment............... 3 - 9 years
Warehouse equipment............................. 5 - 12 years
Furniture, fixtures and equipment............... 5 - 10 years
</TABLE>
F-7
<PAGE> 104
AMERISERVE FOOD DISTRIBUTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During 1995, the Company completed a review of the estimated useful lives
of its property and equipment. The Company determined that, as a result of
preventative maintenance programs and improved product quality, actual useful
lives for certain assets were generally longer than the useful lives originally
estimated. Therefore, the Company extended the estimated useful lives of certain
categories of equipment, effective January 1, 1995. The effect of this change in
estimated reduced depreciation expense for the year ended December 30, 1995 by
$514,000 and increased net income by $308,000.
Goodwill and Other Intangibles
Costs in excess of the net identifiable assets of businesses acquired are
amortized on a straight line basis over periods not to exceed 40 years. Customer
lists and other intangible assets acquired in business acquisitions, deferred
financing costs and other intangibles are being amortized using primarily the
straight-line method over their respective estimated useful lives, which
generally range from 3 to 40 years. The Company periodically reviews the
carrying value of goodwill and other intangibles to assess recoverability and
other than temporary impairments by comparing the estimated future undiscounted
cash flows associated with the asset to the asset's carrying amount.
Investment in Affiliate
On May 30, 1995, the Company invested $550,000 to acquire 45% of the
outstanding common stock of Holberg Warehouse Properties, Inc. (HWPI), an
affiliate of Holberg. HWPI owns a warehouse and office facility in Omaha,
Nebraska, which is leased to the Company (see Note 7). The investment is
accounted for using the equity method and is included in other noncurrent assets
in the accompanying consolidated balance sheets. The results of operations of
HWPI are not significant.
Group Insurance
The Company participates in a self-insured group casualty risk program with
an affiliate, which determines the insurance expenses to be allocated to the
Company. The Company accrues for incurred but not yet reported or settled
claims.
Revenue Recognition
Revenue from the sale of the Company's products is recognized upon shipment
to the customer.
Income Taxes and Tax Sharing Agreement
The Company is part of a consolidated group for income tax purposes and,
accordingly, has a tax-sharing agreement with Holberg which requires the Company
to make tax sharing payments to Holberg for those entities within the Company's
consolidated subgroup that have taxable income. Income taxes have been provided
as if the Company were a separate taxpayer.
Deferred income tax assets or liabilities are recognized for the estimated
future tax effects attributable to temporary differences, including operating
loss carryforwards. The currently enacted statutory rate is used to estimate
differences between the financial statement and income tax bases of inventories,
property and equipment, intangible assets, certain accrued liabilities and
allowances and net operating losses. Because of the Company's prior operating
losses in certain of the Company's taxable entities, a valuation allowance has
been established to offset the entire amount of the net deferred tax assets.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and
F-8
<PAGE> 105
AMERISERVE FOOD DISTRIBUTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Fair Value Information
The Company believes the carrying value of its financial instruments
(notes, accounts and other receivables, accounts payable and long-term debt) are
a reasonable estimate of the fair value of these instruments. Related party
financial instruments are recorded at cost.
Reclassifications
Certain reclassifications have been made to the 1994 and 1995 financial
statements to conform to the 1996 presentation. In addition, the 1994 and 1995
financial statements have been restated to conform to the requirements of the
Securities and Exchange Commission Staff Accounting Bulletin Number 55 (SAB 55).
SAB 55 requires the historical financial statements of the Company to
reflect all of its costs of doing business. Accordingly, the financial
statements have been revised to include expenses incurred by Holberg or
affiliates on the Company's behalf. The expenses that have been included in the
Company's financial statements are described in Note 10.
Interim Financial Data
The unaudited consolidated balance sheet as of June 28, 1997, and the
related consolidated statements of income and cash flows for the six-month
periods ended June 29, 1996 and June 28, 1997 and the consolidated statement of
stockholder's equity for the six months ended June 28, 1997, have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and notes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting only of adjustments of a normal and
recurring nature) considered necessary for a fair presentation of the financial
position and results of operations have been included. Operating results for the
six-month period ended June 28, 1997, are not necessarily indicative of the
results that might be expected for the year ending January 3, 1998.
2. ACQUISITIONS AND DISPOSITIONS
On January 25, 1996, the Company acquired the common and preferred stock of
AmeriServ Food Company (AmeriServ), a system foodservice distributor
specializing in distribution of food and supplies to chain restaurants. The
total cash outlay for the acquisition, including all direct costs, was $92.9
million. Of this amount, $44 million related to the retirement of all of
AmeriServ's existing bank debt and accrued interest, which occurred concurrently
with the closing of the purchase transaction. The transaction was financed
through the issuance of $30 million of preferred stock issued to NEHC, as well
as borrowings under a new Credit Agreement.
The acquisition has been accounted for under the purchase method;
accordingly, its results are included in the consolidated financial statements
from the acquisition date. The purchase price was allocated based on the
estimated fair values of identifiable intangible and tangible assets acquired
and liabilities assumed at the acquisition date. The excess of the purchase
price over the net assets acquired was $85 million and has been recorded as
goodwill, which is being amortized on a straight-line basis over 40 years.
F-9
<PAGE> 106
AMERISERVE FOOD DISTRIBUTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following unaudited pro forma results of operations for the years ended
December 30, 1995 and December 28, 1996 assume the acquisition of AmeriServ
occurred at the beginning of each fiscal year (in thousands):
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Net sales................................... $1,224,200 $1,335,700
Net income (loss)........................... (7,134) 600
</TABLE>
This pro forma information does not purport to be indicative of the results
that actually would have been obtained if the combined operations had been
conducted during the periods presented and is not intended to be a projection of
future results.
At the time of the acquisition, the Company and AmeriServ held ownership
interests of 20% and 18%, respectively, in the outstanding common stock of CCC.
CCC operates redistribution facilities that sell dry goods to independent
wholesale distributors. In March 1996, the Company acquired 49% of CCC's
outstanding common stock for $1.5 million in cash, bringing the consolidated
ownership interest in CCC to approximately 87%. The acquisition has been
accounted for under the purchase method. The Company had accounted for its
original 20% investment in CCC under the cost method. The operating results of
CCC are not significant to the consolidated results of the Company.
At the time of the acquisition, AmeriServ (through a wholly owned holding
company) effectively owned approximately 47% of the outstanding common stock of
Harry H. Post Company (Post). Post was an operating division of AmeriServ, also
engaged in system foodservice distribution. As part of the acquisition, the
Company effectively acquired approximately 44% of the outstanding common stock
of Post. The Company has accounted for this investment under the equity method.
In November of 1996, the Company sold its interest in Post to NEHC for $2.5
million in preferred stock, which approximated the carrying value of the equity
investment. As a result of other concurrent transactions, NEHC owns 93.6% of the
outstanding common stock of Post.
At the time of the acquisition, both the Company and AmeriServ owned
minority interests in the common stock of Independent Distributors of America
(IDA), a nonprofit cooperative providing purchasing services to the Company and
AmeriServ as well as other foodservice distributors. As a result of the
acquisition, on a consolidated basis, the Company owns 40% of the outstanding
stock of IDA and accounts for approximately 75% of IDA's purchasing activity.
IDA arranges large-quantity pricing from food and supply vendors on behalf of
its stockholders. As part of their cooperative function, IDA receives volume
rebates from vendors for purchases made by the stockholders of IDA. IDA remits
those rebates to its stockholders, net of administrative fees, in proportion to
each stockholder's purchases from each vendor. The investment in IDA is
accounted for using the equity method. Volume rebates received from IDA are
accounted for on the accrual basis. IDA volume rebates recognized by the Company
for the years ended December 31, 1994, December 30, 1995 and December 28, 1996
were $403, $488 and $1,761, respectively. The operating results of IDA are not
significant to the consolidated results of the Company.
F-10
<PAGE> 107
AMERISERVE FOOD DISTRIBUTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28,
1995 1996
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Land............................................... $ -- $ 1,479
Buildings and improvements......................... 2,379 10,036
Delivery and automotive equipment.................. 6,322 15,929
Warehouse equipment................................ 2,604 4,617
Furniture, fixtures and equipment.................. 3,413 11,842
Construction in progress........................... -- 2,412
------- -------
14,718 46,315
Less accumulated depreciation and amortization..... 7,806 12,478
------- -------
$ 6,912 $ 33,837
======= =======
</TABLE>
4. INTANGIBLE ASSETS
Intangible assets consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28,
1995 1996
------------ ------------
<S> <C> <C>
Goodwill, less accumulated amortization of $2,823
and $5,332....................................... $ 17,187 $100,201
Customer lists, deferred financing costs and other
intangibles, less accumulated amortization of
$6,076 and $8,370................................ 3,002 22,250
------- -------
$ 20,189 $122,451
======= =======
</TABLE>
5. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28,
1995 1996
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Revolving credit facility under Bank Credit
Agreement........................................ $ 21,779 $ 69,100
Term loans under Credit Agreement.................. 11,000 45,000
Other notes payable................................ -- 6,034
------- -------
32,779 120,134
Capital lease obligations (see Note 7)............. -- 9,771
------- -------
32,779 129,905
Less current maturities............................ -- 3,266
------- -------
$ 32,779 $126,639
======= =======
</TABLE>
The weighted average interest rates on the outstanding bank borrowings at
December 30, 1995 and December 28, 1996, were 8.61% and 7.99%, respectively. The
Company paid Holberg a guarantee fee of $180,000, $180,000 and $14,000 in 1994,
1995 and 1996, respectively.
In January 1996, in connection with the AmeriServ acquisition (see Note 2),
the Company refinanced its borrowings under a new Credit Agreement. The new
credit facility provided for borrowings of $25,000,000 and
F-11
<PAGE> 108
AMERISERVE FOOD DISTRIBUTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$20,000,000 under a Term A and Term B loan, respectively, and up to $85,000,000
under a revolving credit facility.
In March 1997, the Credit Agreement was amended. The Amended and Restated
Credit Agreement (Current Agreement), provides for borrowings of $20,000,000 and
$30,000,000 under a Term A and Term B loan, respectively. The amount available
under the revolving credit facility was increased to $100,000,000. Borrowings
under the revolving credit facility are limited to percentages of eligible
accounts receivable and inventories, as defined, and are reduced for letters of
credit outstanding ($8,536,000 outstanding at December 28, 1996). The revolving
credit facility expires on January 25, 2001. The term loans mature in annual
installments through 2002. In addition, mandatory prepayments are required based
on excess cash flow, as defined, and proceeds from sales of assets or issuances
of shares of equity.
Depending on leverage ratios, as defined in the Current Agreement, interest
on the revolving credit facility and the Term A loan is payable at LIBOR plus
.75% to 2.5% or an alternate reference rate plus 0% to 1.25% as selected by the
Company. Interest on the Term B loan is payable at LIBOR plus 2.75% to 3.00% or
an alternate reference rate plus 1.5% to 1.75%, as selected by the Company. The
alternate rate is the higher of the federal funds rate plus .50% and the prime
rate, as defined. A commitment fee of .25% to .50% is payable on the unutilized
revolving line of credit.
Borrowings under the Current Agreement are collateralized by substantially
all the assets of the Company. The Current Agreement contains various
restrictive covenants with respect to additional borrowings, acquisitions and
dispositions of assets, rental liabilities, dividends, transactions with
affiliates and certain financial ratios and requirements.
Other notes payable represent indebtedness assumed in the acquisition of
AmeriServ and consist primarily of subordinated term notes payable to former
stockholders of companies acquired by AmeriServ. These notes mature in 1999 and
bear interest ranging from 8.5% to 10.0%.
In February 1996, the Company entered into an interest rate swap agreement
under which the Company receives a variable rate on a notional amount of
$30,000,000 based on three-month LIBOR and pays a fixed rate of 5.05% through
March 1, 1999. In March 1996, the Company entered into two additional interest
rate swap agreements under which the Company receives a variable rate on a
notional amount of $30,000,000 based on three-month LIBOR and pays a fixed rate
of 5.995% through March 26, 1999. The swap agreements effectively change a
portion of the Company's interest rate exposure from a floating rate to a fixed
rate. In August 1996, the Company entered into an interest rate cap agreement on
a notional amount of $5,000,000. The interest rate cap sets the maximum LIBOR
rate at 9% through August 1999. The initial cost of the interest rate cap
agreement is amortized over the term of the agreement. The counterparties to the
interest rate swap agreements are large financial institutions. Credit loss from
counterparty nonperformance is not anticipated. Net settlements are accrued over
the term of the swap agreements as an adjustment to interest expense.
Aggregate annual principal payments (excluding capital leases) required as
of December 28, 1996, are as follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDING
--------------------------------------------------
<S> <C>
1997.............................................. $ 933
1998.............................................. 7,968
1999.............................................. 8,833
2000.............................................. 6,450
2001.............................................. 80,625
Thereafter........................................ 15,325
--------
$120,134
========
</TABLE>
F-12
<PAGE> 109
AMERISERVE FOOD DISTRIBUTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. STOCKHOLDER'S EQUITY
The authorized capital of the Company consists of 2,000 shares of common
stock at a par value of $10; 765 shares of senior nonconvertible, nonvoting
preferred stock with a liquidation preference of $50,000 per share and
cumulative dividends at a rate of $6,250 per share; 150 shares of Series $50,000
par value nonconvertible, nonvoting preferred stock with a liquidation
preference of $50,000 per share and cumulative dividends at a rate of $5,500 per
share; and 400 shares of Series $25,000 par value nonconvertible, nonvoting
preferred stock with a liquidation preference of $25,000 per share and
cumulative dividends at a rate of $2,375 per share. In connection with the
AmeriServ acquisition, the Company issued 600 shares of senior nonconvertible
preferred stock for $30,000,000. In addition, the $50,000 and $25,000 series
preferred stock outstanding at December 30, 1995 was modified to be expressly
subordinate to the new issue, as well as to be nonconvertible. Accumulated
dividends in arrears at December 28, 1996 are $5,030,000.
7. LEASE COMMITMENTS
The Company has noncancelable commitments under both capital and long-term
operating leases, primarily for office and warehouse facilities, transportation
and office equipment. The leases often contain fixed escalation features,
purchase and renewal options and provisions for payment of certain expenses by
the Company. Rent expense was approximately $5,408,000, $5,709,000 and
$13,757,000 (including contingent rentals based on miles driven) for the years
ended December 31, 1994, December 30, 1995 and December 28, 1996, respectively.
The Company leases a warehouse and office facility in Waukesha, Wisconsin
from an affiliated partnership owned by certain former shareholders of an
acquired company for approximately $810,000 per year through May 31, 2008.
On February 9, 1995, HWPI exercised the Company's option to purchase a
leased warehouse and office facility in Omaha, Nebraska. The Company will lease
the facility from HWPI for a fixed term of 13 years. Under the terms of the
lease, rent is $500,000 for the first 5-year period of the lease, and includes
fixed escalation provisions for the 8 years thereafter. The lease contains no
renewal or purchase options and the Company is responsible for all facility
expenses. In connection with the lease, the Company paid HWPI a security deposit
of $750,000, which is included in other noncurrent assets in the accompanying
consolidated balance sheets.
Property and equipment include the following amounts under capital leases
at December 28, 1996 (in thousands):
<TABLE>
<S> <C>
Delivery and automotive equipment.................................. $ 8,358
Furniture, fixtures and equipment.................................. 3,487
-------
11,845
Less accumulated amortization...................................... 1,741
-------
Property and equipment under capital leases, net................... $10,104
=======
</TABLE>
F-13
<PAGE> 110
AMERISERVE FOOD DISTRIBUTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a schedule of aggregate future minimum lease payments
(excluding contingent rentals) required under terms of the aforementioned leases
at December 28, 1996 (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
FISCAL YEAR ENDING LEASES LEASES
-------------------------------------------------------- ------- --------
<S> <C> <C>
1997.................................................... $ 3,347 $ 9,414
1998.................................................... 2,398 9,389
1999.................................................... 2,064 9,429
2000.................................................... 1,656 8,667
2001.................................................... 1,246 7,646
Thereafter.............................................. 2,656 69,080
------- --------
Total................................................... 13,367 $113,625
========
Less amount representing interest....................... 3,596
-------
Present value of net minimum lease commitments.......... $ 9,771
=======
</TABLE>
8. INCOME TAXES
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------
DECEMBER 31, DECEMBER 30, DECEMBER 28,
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Current:
Federal......................................... $ 908 $ 437 $1,104
State........................................... 80 98 196
------ ------ ------
988 535 1,300
Deferred.......................................... (465) 48 --
------ ------ ------
$ 523 $ 583 $1,300
====== ====== ======
</TABLE>
The provision for income taxes differs from the amount computed by applying
the federal statutory rate of 34% to income before income taxes, as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------------
DECEMBER 31, DECEMBER 30, DECEMBER 28,
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Provision at statutory rate................... $ 226 $ 370 $1,298
State income taxes, net of federal tax 53 66 130
benefit.....................................
Nondeductible goodwill........................ 167 167 758
Equity in earnings of unconsolidated -- -- (644)
subsidiary..................................
Other......................................... 77 (20) (242)
------ ------ ------
Provision for income taxes.................... $ 523 $ 583 $1,300
====== ====== ======
</TABLE>
F-14
<PAGE> 111
AMERISERVE FOOD DISTRIBUTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of the Company's deferred income tax assets and liabilities
are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 28,
1995 1996
------------ ------------
<S> <C> <C>
Deferred income tax liabilities:
Property and equipment................................... $ 380 $ --
Intangible assets other than nondeductible goodwill...... 582 7,974
Other.................................................... 38 --
------ --------
Total deferred tax liabilities........................ 1,000 7,974
Deferred income tax assets:
Allowances and reserves.................................. 682 3,155
Property and equipment................................... -- 1,701
Accrued liabilities...................................... 321 9,045
Federal net operating loss carryforwards................. -- 10,566
Other.................................................... 136 --
------ --------
1,139 24,467
Valuation allowance for deferred tax assets.............. (139) (16,493)
------ --------
Total deferred tax assets............................. 1,000 7,974
------ --------
Net deferred tax asset..................................... $ -- $ --
====== ========
</TABLE>
Under the Company's tax sharing agreement with Holberg, no current tax
benefit is provided for those entities within the Company with current operating
losses. As of December 28, 1996, the Company has net operating loss
carryforwards of $27,000,000, including $11,000,000 of losses incurred by
AmeriServ prior to its acquisition, which are subject to limitation under
Sections 382 and 1504 of the Internal Revenue Code. Under those Sections, after
a change of control, which occurred on January 25, 1996, with respect to
AmeriServ, no more than approximately $2,000,000 of operating loss carryforwards
incurred by AmeriServ prior to that date will be available annually and only to
the extent of future separate taxable income of AmeriServ during the permitted
carryover period.
The $11,000,000 separate return net operating loss carryforwards of
AmeriServ will expire in 2007 to 2010. The $16,000,000 balance of net operating
loss carryforwards of the Company will expire in 2011. As of its acquisition by
the Company, AmeriServ had net operating losses and other deferred tax benefits
(the Acquired Tax Attributes) of $46,000,000, which was entirely offset by a
valuation reserve. Goodwill will be reduced to the extent of any tax benefit
realized from the Acquired Tax Attributes.
9. BENEFIT PLANS
The Company and its subsidiaries have four 401(k) retirement savings plans
covering substantially all union and nonunion employees under which eligible
participants may elect to contribute a specified percentage of their earnings,
subject to certain limitations. The Company matches the contributions of
participating employees on the basis of percentages specified in the respective
plans. At its discretion, the Company may also elect to make a profit-sharing
contribution to the nonunion plans. Company contributions charged to operations
under the plans was approximately $67,000, $109,000 and $515,000 for the years
ended December 31, 1994, December 30, 1995 and December 28, 1996, respectively.
10. OTHER RELATED-PARTY TRANSACTIONS
The current amounts due from/to Holberg represent interest-bearing advances
which are made in the normal course of business as part of the cash management
strategy of Holberg. The note receivable from Holberg bears interest at 5% and
is due January 1, 2007.
The Company participates in a self-insured group casualty (including
workers' compensation and auto liability) risk program with an affiliate, which
determines the insurance expenses to be allocated to the
F-15
<PAGE> 112
AMERISERVE FOOD DISTRIBUTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company. In fiscal year 1994 and 1995, the affiliate paid $1,694,000 and
$1,128,000 of the Company's casualty insurance expense, respectively. In
addition, the affiliate paid $378,000 of the health insurance expenses of the
Company in 1995. These payments have been charged to operations and are
reflected as contributed capital in the accompanying consolidated financial
statements. In connection with the insurance program, the Company placed a
deposit with an affiliate for insurance collateral purposes of $2,480,000 as of
December 28, 1996, which is included in prepaid expenses and other current
assets in the accompanying 1996 consolidated balance sheet.
During 1995, distribution, selling and administrative expenses included
$554,000 for certain expenses, including salary, severance, relocation and
computer systems costs, which arose as a result of initiatives directed by
Holberg.
Interest income from Holberg and an affiliate of approximately $533,000,
$749,000 and $528,000 in fiscal 1994, 1995 and 1996, respectively, represents
interest on the advances and note receivable from Holberg and interest on the
insurance deposits with an affiliate, less the guarantee fee to Holberg.
11. SUBSEQUENT EVENT (UNAUDITED)
On May 23, 1997, NEHC entered into a definitive agreement to acquire, in an
asset purchase transaction, the U.S. and Canadian operations of the PFS division
of PepsiCo, Inc. for $830 million in cash, subject to adjustment, and assumption
of certain liabilities (the Acquisition). PFS is engaged in the distribution of
food products and supplies to franchised and company-owned restaurants in
PepsiCo, Inc.'s Pizza Hut, Taco Bell and KFC systems. PepsiCo has announced its
intention to pursue a spin-off of its restaurant operations. The U.S. and
Canadian operations of PFS posted revenues of $3.4 billion for the fiscal year
ended December 28, 1996. The effective date of the Acquisition was June 11,
1997, the end of PFS's second quarter. The table below reflects the estimated
current value of the net assets acquired from PFS (the final purchase price
allocation will be based upon a final determination of the fair value of the net
assets acquired) (in thousands):
<TABLE>
<S> <C>
Accounts receivable............................................... $323,750
Inventories....................................................... 86,110
Property and equipment............................................ 72,542
Goodwill.......................................................... 585,300
Other assets...................................................... 1,415
Accounts payable.................................................. (172,502)
Accrued liabilities............................................... (46,615)
Restructuring reserves............................................ 20,000
--------
Note payable to PepsiCo., Inc. ................................... $830,000
========
</TABLE>
The consolidated balance sheet of the Company as of June 28, 1997 includes
the current value of the net assets acquired from PFS as of June 11, 1997. The
restructuring reserves of $20,000,000 were included in the acquisition cost
allocation in connection with the Company's business plan to integrate the
operations of PFS. The reserves represent the accruals for costs to be incurred
by the Company related to the termination of redundant administrative and
operating employees ($4,000,000); lease termination costs in connection with the
closing of duplicative distribution centers and administrative facilities which
will not be used by the Company ($15,000,000) and certain other costs to exit
PFS activities ($1,000,000). It is anticipated that the integration activities
will be substantially completed during 1998. The final purchase price is subject
to a negotiated price adjustment for working capital. The operations of PFS for
the period from June 12, 1997 through June 28, 1997 will be included in the
third quarter results of operations of the Company.
In connection with the Acquisition, on July 11, 1997, the Company (i)
issued $500 million principal amount of 10 1/8% Senior Subordinated Notes due
2007 in a Rule 144A private placement, (ii) entered into a $355 million senior
credit facility, (iii) entered into a $250 million accounts receivable program,
whereby the Company transfers, on a daily basis, all trade receivables generated
by the Company to a wholly-owned, special purpose bankruptcy-remote subsidiary,
(iv) received an equity contribution of $130 million from
F-16
<PAGE> 113
AMERISERVE FOOD DISTRIBUTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NEHC, (v) acquired the remaining 6.4% of the outstanding common stock of Post
from the minority stockholder and the capital stock of Post was transferred to
the Company from NEHC and (vi) paid in full the $830 million note payable to
PepsiCo, Inc. In addition, on October 15, 1997 the Company issued $350 million
principal amount of 8 7/8% Senior Notes due 2006 in a Rule 144A private
placement. The Company used the proceeds to repay term loans of $205 million
outstanding under the senior credit facility, to pay expenses of the offering
and to provide additional working capital of approximately $134 million.
The following unaudited pro forma results of operations for the year ended
December 28, 1996 and the six months ended June 29, 1996 and June 28, 1997,
respectively, assume the acquisition of PFS and the related transactions
discussed above occurred at the beginning of each period presented (in
thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
------------------------
YEAR ENDED JUNE 29, JUNE 28,
1996 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Net sales............................... $4,874,980 $2,243,750 $2,301,244
Net loss................................ (1,909) (7,171) (6,257)
</TABLE>
This pro forma information does not purport to be indicative of the results
that actually would have been obtained if the combined operations had been
conducted during the periods presented and is not intended to be a projection of
future results.
12. SUBSIDIARY GUARANTORS
The Company's subsidiaries fully, unconditionally, jointly and severally
guarantee the notes issued in the private placements discussed in Note 11. The
guarantor subsidiaries are direct or indirect wholly owned subsidiaries of the
Company and the Company and the guarantor subsidiaries conduct substantially all
of the operations of the Company and its subsidiaries on a consolidated basis.
Separate financial statements of the guarantor subsidiaries are not separately
presented because, in the opinion of management, such financial statements are
not material to investors.
The following is summarized combined financial information (in accordance
with Rule 1-02(bb) of Regulation S-X) for the guarantor subsidiaries of the
Company (in thousands):
<TABLE>
<CAPTION>
DECEMBER 28, JUNE 29, JUNE 28,
1996 1996 1997
------------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
Current assets................................ $ 63,910 $ 78,232 $ 80,527
Current liabilities........................... 78,961 94,159 92,807
Non current assets............................ 31,772 33,695 37,357
Non current liabilities....................... 5,495 14,272 7,740
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-------------------
YEAR ENDED JUNE 29, JUNE 28,
1996 1996 1997
------------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
Net sales..................................... $ 820,882 $364,981 $468,445
Gross profit.................................. 90,175 36,941 45,478
Net income (loss)............................. 956 127 (452)
</TABLE>
Summarized combined financial information for the years ended December 31,
1994 and December 30, 1995 are not presented because there were no guarantor or
non-guarantor subsidiaries of the Company in those periods.
On July 11, 1997 the Company established an unconsolidated special purpose
bankruptcy-remote subsidiary which purchases, on a revolving basis,
substantially all trade receivables generated by the Company. The subsidiary is
not a guarantor of the notes issued in either of the private placements
described in Note 11. The Company sold trade receivables of approximately $380
million to this non-guarantor subsidiary on July 11, 1997.
F-17
<PAGE> 114
REPORT OF KPMG PEAT MARWICK LLP, INDEPENDENT AUDITORS
The Management of PFS
(A Division of PepsiCo, Inc. Held for Sale):
We have audited the accompanying balance sheets of PFS (A Division of
PepsiCo, Inc. Held for Sale) as of December 27, 1995 and December 25, 1996, and
the related statements of income, divisional equity, and cash flows for each of
the years in the three-year period ended December 25, 1996. These financial
statements are the responsibility of the management of PFS. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of PFS as of December 27, 1995
and December 25, 1996, and the results of its operations and its cash flows for
each of the years in the three-year period ended December 25, 1996, in
conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Dallas, Texas
April 18, 1997
F-18
<PAGE> 115
PFS
(A DIVISION OF PEPSICO, INC. HELD FOR SALE)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 27, DECEMBER 25, JUNE 11,
1995 1996 1997
------------ ------------ -----------
(UNAUDITED)
-----------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash.................................................. $ 203 $ 1,625 $ 32
Receivables:
Franchisees and licensees, net of allowance for
doubtful accounts of $11,941 in 1995 and $7,733 in
1996............................................... 115,004 117,729 132,679
Affiliates............................................ 206,658 162,485 191,006
Inventories........................................... 101,767 94,418 86,068
Prepaid expenses and other current assets............. 1,877 4,690 5,915
Deferred income taxes (note 7)........................ 10,105 10,629 9,975
--------- --------- ---------
Total current assets.......................... 435,614 391,576 425,675
Property and equipment, net (notes 3 and 6)........... 80,351 87,017 82,460
Other assets.......................................... 323 328 320
--------- --------- ---------
$516,288 $478,921 $ 508,455
========= ========= =========
LIABILITIES AND DIVISIONAL EQUITY
Current liabilities:
Accounts payable -- trade............................. $196,695 $170,611 $ 200,026
Accrued liabilities (note 7).......................... 79,512 79,728 71,395
Advances from Parent and affiliates, net (note 4)..... 122,957 108,257 125,282
--------- --------- ---------
Total current liabilities..................... 399,164 358,596 396,703
Other liabilities and deferred credits (notes 6 and
9).................................................... 23,449 22,400 20,568
Deferred income taxes (note 7).......................... 5,096 4,520 3,545
Divisional equity (note 4).............................. 88,579 93,405 87,639
Commitments (note 6)
--------- --------- ---------
$516,288 $478,921 $ 508,455
========= ========= =========
</TABLE>
See accompanying notes to financial statements.
F-19
<PAGE> 116
PFS
(A DIVISION OF PEPSICO, INC. HELD FOR SALE)
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED TWENTY-FOUR WEEKS ENDED
-------------------------------------------- -------------------------
DECEMBER 28, DECEMBER 27, DECEMBER 25, JUNE 12, JUNE 11,
1994 1995 1996 1996 1997
(53 WEEKS) (52 WEEKS) (52 WEEKS) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Sales:
Affiliates (note 4).......... $2,378,963 $2,463,464 $2,292,423 $1,058,666 $ 957,528
Franchisees and licensees.... 905,874 999,988 1,136,201 497,003 544,425
---------- ---------- ---------- -------- --------
3,284,837 3,463,452 3,428,624 1,555,669 1,501,953
Less discounts and
allowances................ 5,000 4,508 6,538 3,194 3,608
---------- ---------- ---------- -------- --------
Net sales............ 3,279,837 3,458,944 3,422,086 1,552,475 1,498,345
---------- ---------- ---------- -------- --------
Costs and expenses:
Cost of sales and
operating................. 3,155,422 3,331,866 3,297,381 1,498,587 1,443,274
General and administrative
(notes 4, 6 and 8)........ 37,515 47,606 44,962 21,564 20,330
---------- ---------- ---------- -------- --------
3,192,937 3,379,472 3,342,343 1,520,151 1,463,604
---------- ---------- ---------- -------- --------
Income from
operations......... 86,900 79,472 79,743 32,324 34,741
Interest expense to Parent
(note 4)..................... 12,934 17,613 15,566 7,102 8,041
---------- ---------- ---------- -------- --------
Income before income
taxes.............. 73,966 61,859 64,177 25,222 26,700
Provision for income taxes
(note 7)..................... 28,874 23,844 24,597 9,928 9,924
---------- ---------- ---------- -------- --------
Net income........... $ 45,092 $ 38,015 $ 39,580 $ 15,294 $ 16,776
========== ========== ========== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-20
<PAGE> 117
PFS
(A DIVISION OF PEPSICO, INC. HELD FOR SALE)
STATEMENTS OF DIVISIONAL EQUITY
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
Divisional equity at December 29, 1993......................................... $100,146
Transfers to Advances from Parent and affiliates, net (note 4)................. (59,531)
Net income..................................................................... 45,092
--------
Divisional equity at December 28, 1994......................................... 85,707
Transfers to Advances from Parent and affiliates, net (note 4)................. (35,143)
Net income..................................................................... 38,015
--------
Divisional equity at December 27, 1995......................................... 88,579
Transfers to Advances from Parent and affiliates, net (note 4)................. (34,754)
Net income..................................................................... 39,580
--------
Divisional equity at December 25, 1996......................................... 93,405
Transfers to Advances from Parent and affiliates, net (note 4)(unaudited)...... (22,542)
Net income (unaudited)......................................................... 16,776
--------
Divisional equity at June 11, 1997 (unaudited)................................. $ 87,639
========
</TABLE>
See accompanying notes to financial statements.
F-21
<PAGE> 118
PFS
(A DIVISION OF PEPSICO, INC. HELD FOR SALE)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED
------------------------------------------ TWENTY-FOUR WEEKS
ENDED
DECEMBER 28, DECEMBER 27, DECEMBER 25, -------------------
1994 1995 1996
------------ ------------ ------------ JUNE 12, JUNE 11,
(53 WEEKS) (52 WEEKS) (52 WEEKS) 1996 1997
-------- --------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows -- operating activities:
Net income.............................. $ 45,092 $ 38,015 $ 39,580 $ 15,294 $ 16,776
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization........ 17,053 18,764 19,830 8,819 8,814
Loss on sale of property and
equipment.......................... 1,788 2,324 1,065 72 (209)
Deferred income taxes................ (6,800) (3,075) (1,100) (274) (321)
Change in assets and liabilities:
Receivables........................ (22,614) (22,051) 41,448 (6,769) (43,471)
Inventories........................ 4,839 (5,046) 7,349 8,429 8,350
Accounts payable................... 9,524 (2,347) (26,084) (8,519) 29,415
Accrued liabilities................ 13,105 (4,672) 216 (11,278) (8,333)
Other.............................. 2,730 7,668 (3,867) (4,877) (3,049)
------- ------- ------- ------- -------
Net cash provided by operating
activities.................... 64,717 29,580 78,437 897 7,972
------- ------- ------- ------- -------
Cash flows -- investing activities:
Additions to property and equipment..... (21,310) (25,245) (28,771) (14,214) (12,291)
Transfers of property and equipment to
affiliates........................... -- -- -- -- 7,338
Proceeds from sale of property and
equipment............................ 1,047 857 1,210 1,032 905
------- ------- ------- ------- -------
Net cash used for investing
activities.................... (20,263) (24,388) (27,561) (13,182) (4,048)
------- ------- ------- ------- -------
Cash flows -- financing
activities -- (repayment of)/additions
to advances from Parent and affiliates,
net..................................... (44,360) (5,163) (49,454) 12,661 (5,517)
------- ------- ------- ------- -------
Net increase (decrease) in cash......... 94 29 1,422 376 (1,593)
Cash at beginning of period............. 80 174 203 203 1,625
------- ------- ------- ------- -------
Cash at end of period................... $ 174 $ 203 $ 1,625 $ 579 $ 32
======= ======= ======= ======= =======
</TABLE>
During 1994, 1995, and 1996 PFS made the following transfers to Parent
through the intercompany account:
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
State income tax.............................. $ 4,135 $ 3,808 $ 3,475
======= ======= =======
Federal income tax............................ $18,876 $19,887 $18,800
======= ======= =======
Interest on advances.......................... $12,994 $17,613 $15,566
======= ======= =======
Divisional equity reclassifications........... $59,531 $35,143 $34,754
======= ======= =======
</TABLE>
See accompanying notes to financial statements.
F-22
<PAGE> 119
PFS
(A DIVISION OF PEPSICO, INC. HELD FOR SALE)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 27, 1995 AND DECEMBER 25, 1996
(IN THOUSANDS)
(1) GENERAL AND BASIS OF PRESENTATION
PFS (A Division of PepsiCo, Inc. Held for Sale) ("PFS") operates as a
division of PepsiCo, Inc. ("Parent") and has no separate legal status or
existence. In January 1997, the Parent announced its intent to spin off its
restaurant business. Concurrent with this announcement, the Parent also
announced that it would explore the possible sale of PFS. The accompanying
financial statements present the business of PFS which is being held for sale.
Accordingly, they include only the assets, liabilities and results of operations
of the PFS business to be sold. The principal nature of this business is to
provide food, equipment, and supply items primarily to Taco Bell, Pizza Hut and
KFC restaurants, which restaurants are either owned or franchised by the Parent
in both the United States and Canada. The Division also has other transactions
with the Parent and affiliates of the Parent ("Affiliates") (notes 4, 5, 7, 8
and 9). PFS' fiscal year ends on the last Wednesday in December and, as a
result, a fifty-third week is added every five or six years. The fiscal year
ended December 28, 1994 consisted of 53 weeks.
The financial statements of the Company as of June 11, 1997 and for the
periods ended June 12, 1996 and June 11, 1997 are unaudited, but in the opinion
of management reflect all adjustments (consisting only of normal recurring
accruals) which are necessary for a fair statement of the results of the interim
periods presented. Results for interim periods are not necessarily indicative of
the results to be expected for a full year or for periods which have been
previously reported.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Inventories
Inventories are valued at the lower of cost, as determined by the first-in,
first-out ("FIFO") method, or net realizable value.
(b) Income Taxes
PFS is included in the consolidated federal income tax return of the
Parent. For financial reporting purposes, federal income taxes are computed on a
separate return basis. State income taxes are computed at a composite rate (6.3%
in 1994 and 5.8% in 1995 and 1996) based upon actual taxes incurred by the
Parent on behalf of the Division.
PFS accounts for income taxes using the asset and liability method. Under
the asset and liability method of accounting for 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.
(c) Property and Equipment
Property and equipment are stated at cost less accumulated depreciation.
Depreciation and amortization are calculated on a straight-line basis over the
estimated useful lives of the assets, generally 3 to 10 years.
F-23
<PAGE> 120
PFS
(A DIVISION OF PEPSICO, INC. HELD FOR SALE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(d) Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(3) PROPERTY AND EQUIPMENT
Property and equipment at December 27, 1995 and December 25, 1996 is
summarized as follows:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Land................................................... $ 756 $ 756
Transportation equipment............................... 81,741 87,039
Warehouse and office equipment......................... 33,654 38,916
Buildings and leasehold improvements .................. 38,490 46,651
Construction in progress............................... 2,656 2,937
Leased computer and material handling equipment........ 5,712 5,750
-------- --------
163,009 182,049
Less accumulated depreciation and amortization......... 82,658 95,032
-------- --------
$ 80,351 $ 87,017
======== ========
</TABLE>
(4) RELATED PARTY TRANSACTIONS
The Parent provides certain corporate general and administrative services
to PFS, including legal, treasury and benefits administration, among others. The
Company estimates the costs of these services to be approximately $1,100 based
on management's assessment of the relative benefit received from the Parent for
each of the years 1994, 1995 and 1996. The Company believes this method is
reasonable and inclusion of such costs would not have a material impact on the
accompanying financial statements.
Transactions with the Parent include utilization of cash management
services under which net cash balances of PFS are transferred to or provided by
the Parent daily. In addition, the Parent provides payments under its incentive
compensation plans to certain key employees of PFS.
In 1994, 1995 and 1996, respectively, approximately 29%, 28% and 27% of the
gross sales of PFS were to restaurants owned by Pizza Hut, Inc., 31%, 31% and
28% of gross sales were to restaurants owned by Taco Bell Corp., and 13%, 11%
and 12% of gross sales were to restaurants owned by KFC Corporation.
PFS and the Parent have agreed to reclassify amounts between advances and
divisional equity in order to maintain a preestablished debt to equity ratio, as
defined, as part of the agreements between PFS and Pizza Hut, Inc. and its
franchisees.
Advances from Parent and Affiliates bear interest at the prime rate (8.25%
at December 25, 1996) and are not subject to stated repayment terms.
Accordingly, such advances are classified as current liabilities in the
accompanying balance sheets. The carrying amount of Advances from the Parent and
Affiliates at December 27, 1995 and December 25, 1996 approximates the fair
value since the borrowings bear interest at current market rates.
F-24
<PAGE> 121
PFS
(A DIVISION OF PEPSICO, INC. HELD FOR SALE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(5) PROFIT LIMITATION
"Gross profit" and "net pretax profit" on certain sales of PFS to Pizza Hut
restaurants, as defined in the agreements with Pizza Hut, Inc. and its
franchisees, are limited to amounts not to exceed 14% and 2.5% of sales,
respectively. Such limitations apply only to sales of food, paper products, and
similar restaurant supplies and exclude other nonfood items such as furnishings,
interior and exterior decor items, and equipment. As a result of the profit
limitation, sales are reported net of $3,039, $4,449 and $5,249 in 1994, 1995
and 1996, respectively, for distributions to Pizza Hut, Inc. and its
franchisees.
(6) LEASE COMMITMENTS
PFS occupies warehouse and office facilities under noncancellable operating
lease agreements expiring at various dates through 2006. Most of the leases
contain renewal options for periods ranging from one to five years, with rentals
generally equal to those stated for the initial term of the lease.
PFS also rents transportation equipment under operating leases which
provide for both short-term and long-term rentals.
Rental expense for the years ended December 28, 1994, December 27, 1995 and
December 25, 1996 is summarized as follows:
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Transportation equipment:
Fixed rentals............................... $ 336 $ 409 $ 442
Variable rentals............................ 2,173 1,776 1,059
Warehouse and office space.................... 8,110 8,531 10,252
Equipment..................................... 3,993 2,773 2,947
------- ------- -------
$14,612 $13,489 $14,700
======= ======= =======
</TABLE>
The future minimum rental commitments as of December 25, 1996 for all
noncancellable operating transportation, warehouse, office, and other equipment
leases are as follows:
<TABLE>
<S> <C>
1997............................................... $10,783
1998............................................... 9,493
1999............................................... 8,110
2000............................................... 6,986
2001............................................... 7,020
Thereafter......................................... 17,027
-------
$59,419
=======
</TABLE>
F-25
<PAGE> 122
PFS
(A DIVISION OF PEPSICO, INC. HELD FOR SALE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
PFS leases computer equipment and material handling equipment under capital
lease arrangements. The minimum lease payments as of December 25, 1996 for the
remainder of the lease periods are as follows:
<TABLE>
<S> <C>
1997.................................................. $692
1998.................................................. 118
----
Total minimum lease payments.......................... 810
Less amount representing interest..................... 22
----
Present value of net minimum lease payments........... 788
Less current obligations.............................. 673
----
Long-term obligations................................. $115
====
</TABLE>
Included in property and equipment as of December 25, 1996 are assets
recorded under capital leases as follows:
<TABLE>
<S> <C>
Computer and material handling equipment............ $5,750
Less accumulated amortization....................... 5,114
------
$ 636
======
</TABLE>
(7) INCOME TAXES
The provision for income taxes is comprised of the following:
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Current:
Federal..................................... $29,875 $24,227 $23,127
State....................................... 5,799 2,692 2,570
Deferred:
Federal..................................... (5,780) (2,639) (846)
State....................................... (1,020) (436) (254)
------- ------- -------
$28,874 $23,844 $24,597
======= ======= =======
</TABLE>
The differences between the statutory and effective federal income tax
rates are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Statutory federal rate.................................. 35% 35% 35%
State income tax, net of federal benefit................ 4 4 4
-- -- --
Effective rate........................................ 39% 39% 39%
== == ==
</TABLE>
Federal income taxes currently payable to the Parent of $35,714 at December
27, 1995 and $36,441 at December 25, 1996 are included in accrued liabilities in
the accompanying balance sheets.
The primary components of deferred taxes result from accelerated
depreciation methods, bad debt provisions and the deferral of certain expenses
related to postretirement benefits for tax purposes.
(8) RETIREMENT PLANS
PFS participates in two defined benefit noncontributory pension plans for
salaried and nonsalaried employees (the "Plans") which are administered directly
or indirectly by the Parent. Substantially all
F-26
<PAGE> 123
PFS
(A DIVISION OF PEPSICO, INC. HELD FOR SALE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
employees of the Division are covered by these Plans. PFS's participation is
accounted for as a multiemployer plan.
Generally, benefits for salaried and nonsalaried employees are based on
years of service and the employees' highest consecutive five-year average annual
earnings. The Parent funds the Plans in amounts not less than the minimum
statutory funding requirements nor more than the maximum amount which can be
deducted for federal income tax purposes by the Parent. The Plans' assets
consist principally of equity securities, government and corporate debt
securities, and other fixed income obligations. Capital stock of the Parent
accounted for approximately 24% and 22% of the total market value of the
domestic Parent sponsored Plans' assets for 1995 and 1996.
PFS was allocated pension expense of $1,211, $1,174 and $2,374 in 1994,
1995 and 1996, respectively.
(9) POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
PFS participates in a postretirement benefit plan administered by the
Parent. The plan provides postretirement health care and life insurance benefits
to eligible retired U.S. employees. Employees who have 10 years of service and
attain age 55 while in service with the Division are eligible to participate in
the postretirement benefit plan. The plan in effect through 1994 was largely
noncontributory and was not funded. PFS accrues the cost of postretirement
benefits over the years employees provide services to the date of their full
eligibility for such benefits.
Postretirement benefit expense amounted to $919, $481 and $1,047 in 1994,
1995 and 1996, respectively. The liability for postretirement benefits of $8,967
at December 25, 1995 and $9,962 at December 27, 1996 is included in other
liabilities and deferred credits in the accompanying balance sheets.
Effective in 1994, certain features of the plan were amended to expand
retiree cost-sharing provisions and limit the Division's share of future
increases in health care costs.
F-27
<PAGE> 124
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
AmeriServ Food Company
We have audited the accompanying consolidated statements of operations,
stockholders' equity, and cash flows of AmeriServ Food Company (the Company) for
the years ended December 31, 1994 and December 30, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated results of operations and cash flows
of the Company for the years ended December 31, 1994 and December 30, 1995, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Dallas, Texas
March 22, 1996
F-28
<PAGE> 125
AMERISERV FOOD COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------
DECEMBER 31, DECEMBER 30,
1994 1995
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Net sales............................................................ $873,309 $939,096
Operating expenses:
Cost of sales, including delivery and warehouse expenses........... 841,408 907,597
Selling, general, and administrative............................... 19,314 20,209
Depreciation....................................................... 2,778 2,768
Amortization of goodwill and covenants not to compete.............. 888 677
Losses of divested operations...................................... 313 --
-------- --------
Total operating expenses............................................. 864,701 931,251
-------- --------
Income from operations............................................... 8,608 7,845
Other expense:
Interest expense................................................... 6,442 7,465
Interest expense, related parties.................................. 226 216
Amortization of financing costs.................................... 236 302
Other expense, net................................................. 28 1,472
-------- --------
Income (loss) before minority interest............................... 1,676 (1,610)
Minority interest.................................................... 4 (2)
-------- --------
Income (loss) before income taxes.................................... 1,680 (1,612)
Income tax provision................................................. 108 270
-------- --------
Income (loss) before extraordinary items............................. 1,572 (1,882)
Extraordinary gain on early extinguishment of debt................... 312 --
-------- --------
Net income (loss).................................................... $ 1,884 $ (1,882)
======== ========
</TABLE>
See accompanying notes.
F-29
<PAGE> 126
AMERISERV FOOD COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON ADDITIONAL
STOCK PAID-IN ACCUMULATED
PAR VALUE CAPITAL DEFICIT TOTAL
--------- ---------- ----------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance at January 1, 1994...................... $ 25 $ 8,742 $ (17,032) $(8,265)
Contribution of dividend promissory notes and
accrued interest to equity................. -- 5,678 -- 5,678
Accretion of redemption value of Series A
Redeemable Preferred Stock................. -- -- (1,125) (1,125)
Net income.................................... -- -- 1,884 1,884
---- ------- -------- -------
Balance at December 31, 1994.................... 25 14,420 (16,273) (1,828)
One for ten reverse stock split............... (22) 22 -- --
Accretion of redemption value of Series A
Redeemable Preferred Stock................. -- -- (675) (675)
Net loss...................................... -- -- (1,882) (1,882)
---- ------- -------- -------
Balance at December 30, 1995.................... $ 3 $ 14,442 $ (18,830) $(4,385)
==== ======= ======== =======
</TABLE>
See accompanying notes.
F-30
<PAGE> 127
AMERISERV FOOD COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------
DECEMBER 31, DECEMBER 30,
1994 1995
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss).................................................... $ 1,884 $ (1,882)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation....................................................... 2,778 2,768
Amortization of goodwill and covenants not to compete.............. 888 677
Amortization of financing costs.................................... 236 302
Other non-cash expenses............................................ -- 1,079
Deferred income tax provision...................................... (347) 45
Provision for doubtful accounts.................................... 410 181
Minority interest.................................................. (4) 2
Extraordinary gain................................................. (312) --
Changes in operating assets and liabilities:
Accounts and other receivables.................................. (3,116) (664)
Inventories..................................................... (5,929) (2,880)
Prepaid expenses and other...................................... (1,272) (730)
Accounts payable................................................ 10,143 7,228
Accrued liabilities............................................. 67 (844)
--------- ---------
Net cash provided by operating activities............................ 5,426 5,282
--------- ---------
INVESTING ACTIVITIES
Acquisitions of businesses........................................... (1,625) --
Capital expenditures for property, plant, and equipment.............. (1,263) (3,030)
Proceeds from sale of property, plant, and equipment................. 71 112
Other................................................................ 190 (229)
--------- ---------
Net cash used in investing activities................................ (2,627) (3,147)
--------- ---------
FINANCING ACTIVITIES
Borrowings under line of credit agreements........................... 929,724 960,744
Repayments under line of credit agreements........................... (933,505) (958,785)
Proceeds from long-term debt......................................... 5,896 --
Repayments of long-term debt......................................... (6,855) (3,617)
Maturity of certificates of deposit.................................. 1,620 --
Proceeds from issuance of Series A Redeemable Preferred Stock........ 2,000 --
Other................................................................ (1,335) (490)
--------- ---------
Net cash used in financing activities................................ (2,455) (2,148)
--------- ---------
Net increase (decrease) in cash...................................... 344 (13)
Cash at beginning of year............................................ 502 846
--------- ---------
Cash at end of year.................................................. $ 846 $ 833
========= =========
Supplemental disclosure of cash flow information -- Cash paid for
interest........................................................... $ 6,526 $ 7,097
</TABLE>
See accompanying notes.
F-31
<PAGE> 128
AMERISERV FOOD COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER 31, 1994 AND DECEMBER 30, 1995
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Disposition
AmeriServ Food Company (the Company or AmeriServ) was formed in September
1989 and was majority owned by J. Lewis Partners, L.P. (Lewis Partners). On
January 26, 1996, all of the Company's outstanding stock (common and preferred)
was acquired by AmeriServe Food Distribution, Inc. (formerly NEBCO EVANS
Distribution, Inc.) (NEBCO). In conjunction with the acquisition, the Company's
revolving line of credit, its term notes payable to five co-lenders, and its
note to Signal Capital Corporation were paid off. The Company continues to
operate as a wholly-owned subsidiary of NEBCO with NEBCO providing any working
capital needed for the Company's operations.
The consolidated financial statements of the Company include the accounts
of the Company and the following subsidiaries:
<TABLE>
<CAPTION>
SUBSIDIARY OWNERSHIP
-------------------------------------------------- ---------
<S> <C>
Post Holding Company and subsidiary (Post)........ 50%
Delta Transportation, Ltd. (Delta)................ 100%
</TABLE>
The Company was formed through a series of acquisitions. Interstate
Distributors, Inc. (IDI), and The Sonneveldt Company (Sonneveldt) represent
holding companies formed for the purpose of acquiring the respective operating
subsidiaries. Lewis Partners acquired a 70% ownership interest in Sonneveldt and
an 81% ownership interest in IDI on December 19, 1988, and August 1, 1989,
respectively. In 1989, Lewis Partners transferred its ownership interests in
these two entities to the Company in exchange for shares of the Company's common
stock. Concurrent with the transfer of Lewis Partners' ownership interests in
the subsidiaries to the Company, the Company acquired the remaining 30% minority
interest in Sonneveldt by exchanging shares of the Company's common stock for
the minority interest holders' shares of Sonneveldt. The Company acquired Post
Holding Company (Post) in 1989, First Choice Food Distributors, Inc. (FCF), in
1990, Alpha Distributors, Ltd., Delta Transportation, Ltd., and Omega
Distributions Services, Ltd. (collectively Alpha), and Food Service Systems
(FSS) in 1991. The Company merged FSS into IDI in December 1992.
On January 11, 1994, the Company completed a series of transactions
including a private equity offering, a corporate restructuring, and a
refinancing of the majority of the Company's debt. As a part of these
transactions, the Company purchased the 19% minority interest in IDI, and
simultaneously merged all of its subsidiaries into AmeriServ, except Post and
Delta Transportation, Ltd. (Delta), which were not merged for regulatory
reasons.
Nature of Operations
The Company, through its divisions and subsidiaries, is a system
foodservice distributor specializing in distribution to chain restaurants. The
Company distributes a wide variety of items, including fresh and frozen meat and
poultry, frozen foods, canned and dry goods, fresh and pre-processed produce,
beverages, dairy products, paper goods, cleaning and other supplies and small
equipment.
At December 30, 1995, the Company served approximately 4,300 restaurant
locations within 38 different restaurant chains (or "concepts") in 38 states,
Mexico and the Caribbean from 14 distribution centers in the United States.
F-32
<PAGE> 129
AMERISERV FOOD COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. Upon consolidation, all intercompany accounts,
transactions, and profits have been eliminated.
Fiscal Year
The Company's fiscal year is the 52- or 53-week period ending on the
Saturday closest to December 31. The fiscal years ended December 31, 1994
(fiscal 1994) and December 30, 1995 (fiscal 1995) are 52-week periods.
Inventories
Merchandise inventories are valued at the lower of cost (first-in,
first-out method) or market.
Property, Plant, and Equipment
Property, plant, and equipment are stated at cost. Depreciation is computed
over the estimated useful lives of the assets, using either the straight-line or
double-declining balance method. Amortization of leasehold improvements is
recorded over the respective lease terms or useful lives, whichever are shorter;
and assets recorded under capital leases are amortized over the respective lease
terms. Amortization of capital leases is included in depreciation expense.
Useful lives for amortization and depreciation calculations are as follows:
<TABLE>
<S> <C>
Buildings and improvements..................... 5 - 40 years
Delivery and automotive equipment.............. 5 - 9 years
Warehouse equipment............................ 5 - 12 years
Furniture, fixtures, and equipment............. 5 - 10 years
</TABLE>
Other Assets
Goodwill represents the excess of the purchase prices over the fair values
of net assets of acquired businesses and is amortized over 40 years using the
straight-line method. On January 11, 1994, the Company purchased the remaining
minority interest in IDI resulting in additional goodwill of $1,160. The
carrying value of goodwill is reviewed if the facts and circumstances suggest it
may be impaired. If this review indicates that goodwill may not be recoverable,
as determined based on the estimated future undiscounted cash flows of the
entity acquired over the remaining amortization period, the Company's carrying
value of the goodwill is reduced by the estimated shortfall.
The costs of covenants not to compete, incurred in connection with
acquisitions, are being amortized over the lives of the respective covenants
(three to five years) using the straight-line method. Deferred financing costs
are being amortized over the terms of the respective agreements, generally three
to five years, using the straight-line method, which does not differ
significantly from the interest method.
Federal Income Taxes
The Company and its subsidiaries (excluding Post) file a consolidated
federal income tax return. Under federal tax regulations, Post is required to
file a separate consolidated federal income tax return.
F-33
<PAGE> 130
AMERISERV FOOD COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Losses of Divested Operations
In fiscal 1994, the Company incurred losses of $313, consisting of costs
incurred to close the two remaining FSS distribution facilities. The majority of
these expenses were related to operating, legal, severance, and shut-down costs
associated with the decision to close these facilities. The closing and
divesting of these operations was deemed necessary due to continued operating
losses with respect to these two facilities.
Other Expenses, Net
In fiscal 1995, other expense, net, of $1,472 in the consolidated statement
of operations, included expenses of $827 related to an attempted public offering
of the Company's common stock, and an accrual of $600 representing payments due
under contract to two former owners of a company acquired by AmeriServ in 1988.
As the two former owners are no longer involved in the business, these amounts
have been written off.
2. LEASES
The Company leases warehouse facilities and certain transportation
equipment under operating leases expiring at various dates through 1999. Minimum
annual rental commitments under noncancelable operating leases are as follows at
December 30, 1995:
<TABLE>
<S> <C>
1996............................................. $ 8,233
1997............................................. 7,509
1998............................................. 6,604
1999............................................. 5,134
2000............................................. 3,700
Thereafter....................................... 5,887
-------
$37,067
=======
</TABLE>
Rent expense for fiscal 1994 and 1995 was approximately $9,363 and $11,243,
respectively. Under certain truck leases, various subsidiaries of the Company
are obligated to pay contingent rentals based on miles driven each period.
The Madison, Wisconsin, warehouse facility lease grants the Company an
option to purchase the warehouse facility at any time during the initial or
extended lease terms for $6,000. Additionally, the lease grants the lessors a
put option to require the Company to purchase the warehouse facility for $6,000
should the Company either default on future monthly rental payments or fail to
exercise, or not be entitled under the terms of the lease to exercise, any of
its options to extend the initial 10-year term of the lease.
The Company leases operating facilities and certain delivery and warehouse
equipment under capital lease agreements. The leases are for various terms
through 2002, with interest payable at rates ranging from 10 to 12.75%. The
facilities are leased from a partnership, which is partially owned by
stockholders of the Company. Payments representing principal on the facility
leases totaled $133 and $150 in fiscal 1994 and 1995, respectively. The Company
is required to pay real estate and other occupancy costs under the leases.
3. STOCK COMPENSATION PLAN
In 1991, the Company adopted a Stock Compensation Plan (the Plan), which
became effective on December 31, 1991. The Plan covers the issuance of incentive
and nonqualified stock options and restricted stock grants to directors and key
employees of the Company and its subsidiaries. The Plan is administered by a
committee (the Committee) appointed by the Company's Board of Directors. The
Committee generally has the authority to fix the terms and numbers of options to
be granted and to determine the employees or other parties who will receive the
options and the grants. The number of shares that may be issued under the Plan
F-34
<PAGE> 131
AMERISERV FOOD COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
shall not exceed 56. Incentive stock options granted by the Committee shall
expire on the date determined by the Committee, but in no event shall any
incentive stock option expire later than 10 years after the grant date. The
exercise price per share for shares issued pursuant to the exercise of incentive
stock options shall not be less than the fair market value of common stock at
the time of the grant of the option. All options granted will expire between
January 1, 2002, and January 11, 2004.
Common share stock options outstanding at December 31, 1994, and December
30, 1995, are as follows adjusted for a 1 for 10 reverse stock split effective
September 1, 1995 (in thousands except per share data):
<TABLE>
<CAPTION>
NUMBER OF PRICE PER OPTIONS
SHARES SHARE EXERCISABLE
--------- --------------- -----------
<S> <C> <C> <C>
Outstanding at December 31, 1994................ 23 $53.33 -- $93.33 23
Outstanding at December 30, 1995................ 24 $53.33 -- $93.33 24
</TABLE>
4. INCOME TAXES
Significant components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------
DECEMBER 31, DECEMBER 30,
1994 1995
------------ ------------
<S> <C> <C>
Current:
Federal.................................................... $ 72 $ --
State...................................................... 383 289
---- ----
Total current................................................ 455 289
Deferred
Federal.................................................... (347) (19)
---- ----
Total deferred............................................... (347) (19)
---- ----
$108 $270
==== ====
</TABLE>
A reconciliation of the Company's income tax provision calculated at
federal statutory rates to the provision for income taxes reported is as
follows:
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------
DECEMBER 31, DECEMBER 30,
1994 1995
------------ ------------
<S> <C> <C>
Federal statutory tax rate (34%) applied to income
(loss) before taxes........................................ $571 $ (548)
Net operating losses not benefited........................... -- 267
Benefit of net operating loss carryovers..................... (827) --
AMT credit not benefited..................................... 72 --
State income taxes........................................... 383 289
Tax return settlements....................................... (347) --
Amortization of goodwill..................................... 124 124
Meals and entertainment...................................... 97 119
Other........................................................ 35 19
---- -----
$108 $ 270
==== =====
</TABLE>
At December 30, 1995, the Company has consolidated net operating loss
carryforwards of $8,707 for federal income tax purposes that expire in years
2004 through 2009. Additionally, at December 30, 1995, Post
F-35
<PAGE> 132
AMERISERV FOOD COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
has net operating loss carryforwards of $1,360, which are available to offset
Post's separate taxable income. The Company establishes a valuation allowance
for its deferred tax assets until, based on available evidence, it is more
likely than not that a portion or all of the deferred tax assets will be
realized.
Section 382 of the 1986 Internal Revenue Code provides for limitations on
the utilization of net operating loss carryovers subsequent to certain ownership
changes. If the Company experiences an ownership change, as defined under
Section 382, the availability of its net operating loss carryovers may be
limited.
5. OTHER RELATED PARTY TRANSACTIONS
The Company and its subsidiaries incurred monitoring and acquisition fees
of $415 to Lewis Partners for management advisory, investment banking, and
acquisition services during both fiscal 1994 and 1995.
6. CAPITAL STOCK
Effective November 10, 1994, the Board of Directors approved a
three-for-four reverse stock split and effective September 1, 1995, the Board of
Directors approved a one-for-ten reverse stock split. All references to stock
related data has been restated to reflect the effect of the splits.
The Board of Directors of the Company is authorized, without action by the
stockholders, to divide authorized preferred stock into one or more series and
to fix, for each series, the number of shares, powers, designations,
preferences, relative rights, qualifications, limitations, and restrictions. The
Company is authorized to issue 500 shares of Preferred Stock with a par value of
$0.01. The Company issued 45 shares of $.01 par value non-voting preferred
shares designated as Series A Redeemable Preferred Stock for $4,500. The
Preferred Stock is convertible into shares of common stock at a rate of 2.5
shares of common for each share of Series A Redeemable Preferred Stock. The
holders of shares of Series A Redeemable Preferred Stock are entitled to receive
dividends as declared by the Board of Directors from time to time. The Series A
Redeemable Preferred Stock is redeemable in whole at any time or from time to
time in part, at the option of the Company, at a redemption price of $125.00 per
share, with such redemption price increasing by 12% per year commencing on
January 1, 1995, and being increased by a per share amount equal to any then
declared but unpaid dividends. The redemption of the Series A Redeemable
Preferred Stock is mandatory on December 31, 2003, or earlier in the event of an
initial public offering, sale of the Company or merger, consolidation, or other
form of business combination in which the Company is not the surviving entity.
In the event of any form of liquidation of the Company, the holders of the
Series A Redeemable Preferred Stock hold preference over all other forms of
capital stock at an amount equal to $100.00 per share with the amount increasing
by 12% per year compounded annually. Commencing on January 1, 1995, this amount
is further increased by a per share amount equal to any then declared but unpaid
dividends.
Under the terms of an agreement with two of the Company's stockholders, the
Company must obtain an affirmative vote by at least one of the directors, if
any, nominated by each of the two stockholders and Lewis Partners, prior to the
consummation of any of the following events: (i) the issuance by the Company or
any subsidiary of any shares of its capital stock or other equity securities or
options, rights, or warrants; (ii) a transfer, as defined, by the Company of any
of the shares of capital stock of Post currently owned by it; (iii) the approval
of any amendments to the Certificate of Incorporation of the Company or its
subsidiaries; (iv) the merger, consolidation, liquidation, or dissolution of the
Company or any of its subsidiaries or the sale or other disposition of all, or
substantially all, of the assets of the Company or its subsidiaries; (v) the
declaration or payment of any dividend on or distribution to holders of the
common equity stock of the Company or any subsidiary that is not wholly owned by
the Company; or (vi) the amendment, modification, supplementation, or
termination of various agreements currently in effect or hereinafter to be
executed by the stockholders.
F-36
<PAGE> 133
AMERISERV FOOD COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In connection with the acquisition of Sonneveldt and the related financing
obtained, a warrant was issued to Signal Capital Corporation to purchase 25% of
the common stock of the Company's former subsidiary for an aggregate exercise
price of $0.25. The warrant was exercisable upon issuance. As a part of the
refinancing and restructuring completed January 11, 1994 (Note 9), the warrant
was purchased by the Company for $100.
7. CONCENTRATIONS OF CREDIT RISK
The Company and its subsidiaries perform periodic credit evaluations of its
customers' financial conditions and generally do not require collateral.
Franchiser-owned and franchisee-owned stores of three national limited-menu
concepts accounted for approximately 40%, 10%, and 10% in 1994 and 40%, 11%, and
10% in fiscal 1995 of the Company's consolidated revenues. One customer
represented approximately 15% and 14% of consolidated revenues for fiscal 1994
and 1995, respectively.
8. EMPLOYEE BENEFIT PLANS
The Company and its subsidiaries have two benefit plans, the AmeriServ
401(k) Savings Plan and The Sonneveldt Company 401(k) Plan. The AmeriServ 401(k)
Plan covers all hourly and salaried employees of AmeriServ and its subsidiaries,
except those covered in The Sonneveldt Plan. The Sonneveldt Company 401(k) Plan
covers all hourly warehouse and transportation employees of a former subsidiary,
The Sonneveldt Company. Under the plans, participants may elect to defer up to
15% of compensation, and the Company matches a portion of the participant's
salary deferral, up to plan-specified maximums. The Company's contributions to
the plans totaled $389 and $323 in fiscal 1994 and 1995, respectively.
9. REFINANCING
On January 11, 1994, the Company entered into a series of transactions that
resulted in capital contributions of $10,178, the refinancing of a majority of
the Company's debt, and the restructuring of the Company's corporate
organization.
The Company issued 45 shares of Series A Redeemable Preferred Stock for
$4,500 (Note 6). The consideration for these shares was a combination of cash
and the contribution of the Company's $2,500 promissory note payable to Lewis
Partners. Additionally, the stockholders of the Company, as a group, contributed
the $5,000 balance of the dividend promissory notes, together with accrued
interest of $678 thereon, to the Company in the form of additional paid-in
capital.
In fiscal 1994, the Company recognized a $313 extraordinary gain as a
result of the refinancing of its revolving credit notes payable and certain term
notes payable. The Company purchased the warrants in a subsidiary from one
lender for less than book value, generating a $275 gain, prepaid a note
obtaining a $263 discount in exchange for early extinguishment, and repaid
several issues of debt before the due date resulting in $225 in prepayment
penalties.
The corporate structure of the Company was also simplified with the merger
of all the Company's subsidiaries, except Post and Delta, into the Company. The
mergers were also consummated on January 11, 1994.
F-37
<PAGE> 134
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NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE INITIAL PURCHASERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE
SECURITIES TO WHICH IT RELATES, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary...................... 3
The Company............................. 3
Risk Factors............................ 10
The Exchange Offer......................
Certain Federal Income Tax Consequences
of the Exchange Offer.................
The Transactions........................ 15
Use of Proceeds......................... 17
Capitalization.......................... 18
Selected AmeriServe Historical Financial
Data.................................. 19
Selected PFS Historical Financial
Data.................................. 20
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 21
The Business............................ 28
The Acquisition......................... 38
Management.............................. 39
Security Ownership of Certain Beneficial
Holders and Management................ 45
Certain Relationships and Related Party
Transactions.......................... 47
Description of Indebtedness............. 48
Description of New Notes................ 52
Description of Certain Federal Income
Tax Consequences...................... 82
Plan of Distribution.................... 85
Legal Matters........................... 86
Experts................................. 86
Change in Company's Accountant.......... 87
Index of Certain Defined Terms.......... 88
Index to Unaudited Pro Forma Financial
Statements............................ P-1
Index to Historical Financial
Statements............................ F-1
</TABLE>
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[AMERISERVE LOGO]
AMERISERVE FOOD
DISTRIBUTION, INC.
10 1/8% NEW SENIOR
SUBORDINATED NOTES
DUE 2007
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PROSPECTUS
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DECEMBER 11, 1997
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