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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended: December 31, 1996
Commission file number: 1-11012
GLACIER WATER SERVICES, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 33-0493559
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2261 Cosmos Court
Carlsbad, CA 92009
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including
area code: (760) 930-2420
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Securities registered purusant to Section
12(b) of the Act:
Title of each class Name of each exchange on which
registered
Common Stock, $.01 Par Value Per Share American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [x] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of the Form 10-K of any amendment to this
Form 10-K. [ ]
As of March 14, 1997, the aggregate market value of the voting stock held by
non-affiliates of the registrant was $42,370,738 (calculated at the closing
price on the American Stock Exchange multiplied by outstanding shares held by
non-affiliates). For purposes of the foregoing calculation, certain persons who
have filed reports on Schedule 13D with the SEC with respect to their beneficial
ownership of more than 5% of the registrant's outstanding common stock and
directors and officers have been excluded from the group of stockholders deemed
to be non-affiliates of the registrants.
As of March 14, 1997, the registrants had 3,208,575 shares of common stock
outstanding.
The total number of pages in this Form 10-K is 28; the Index to Exhibits is
located on page 27.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III (Items 10, 11, 12 and 13) is incorporated
by reference to portions of the registrant's definitive proxy statement for the
1997 Annual Meeting of Stockholders which will be filed with the Securities and
Exchange Commission within 120 days after the close of the 1996 year.
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Statements in this Annual Report that are not purely historical are forward
looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995. These forward looking statements with respect to the
financial condition and results of operations of the Company involve risks and
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uncertainties including, but not limited to, trade relations, dependence on
certain locations and competition, as described in Part I below, that could
cause actual results to differ materially from those projected.
PART I
ITEM 1. BUSINESS
INTRODUCTION
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Glacier Water Services, Inc. ("Glacier" or the "Company") is a leading
provider of high quality, low priced drinking water dispensed to consumers
------
through self-service vending machines that are designed, developed and assembled
by the Company. The Company's machines, which are currently located in the
---
states of California, Texas, Florida, Arizona, Nevada, Louisiana, New Mexico,
- ---------
Mississippi, Georgia, and Illinois, are placed at supermarkets and other retail
locations in order to take advantage of the regular customer traffic at such
locations and to provide easy access for consumers.
The Company has grown from approximately 3,700 machines in operation as of
December 31, 1992 to over 9,100 machines in operation as of December 31, 1996.
This expansion in installed machines has resulted in significant growth in
revenues, which have increased from $27 million in 1992 to $46 million in 1996.
Other than the Company, the water vending market is comprised primarily of
smaller independent operators. The Company's growth strategy includes the
continued addition of machines in existing markets and selective expansion into
new markets. Generally, the cost to the Company of adding new machines in
existing markets is approximately $5,400 to $6,500 per machine, including
manufacturing and installation costs. On March 28, 1997, the Company purchased
substantially all of the assets of the Aqua-Vend division of McKesson Water
Products Company.
Glacier's vending machines are connected to municipal water sources at each
retail location. The machines reduce impurities in the water through a
combination of micron filtration, reverse osmosis, carbon absorption and
ultraviolet sterilization. The Company generally charges $.25 to $.35 per
gallon, which represents a significant discount to the price of water sold off-
the-shelf in retail locations or sold through home delivery services. The
Company's machines are clustered in close proximity to one another within the
geographic areas served in order to assure cost-effective, quality service.
Machines are serviced and tested weekly by technicians whose routes are
structured to allow each technician to service approximately 70 machines per
week.
Glacier Water Services, Inc. was incorporated in Delaware on November 19,
1991. Substantially all of its operations are conducted by GW Services, Inc.
(the "Subsidiary"), a California corporation and a wholly-owned subsidiary of
Glacier. The Company conducts substantially all of its operations through the
Subsidiary which was incorporated in California on April 12, 1983. The Company
maintains its executive offices at 2261 Cosmos Court, Carlsbad, California 92009
and its telephone number is (760) 930-2420.
BUSINESS BACKGROUND
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The Company commenced operations in 1983 in southern California. The Company
then expanded into Arizona in 1984, Nevada in 1986, Florida and Texas in 1988,
New Mexico in 1993, Louisiana and Mississippi in 1994, Georgia in 1995 and
Illinois in 1996. The following table sets forth the number of machines
installed annually from December 31, 1992:
<TABLE>
<S> <C>
Total installed machines as of December 31, 1992... 3,666
Machines added during the year:
1993.......................................... 1,114
1994.......................................... 1,945
1995.......................................... 1,793
1996.......................................... 646
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Total installed machines as of December 31, 1996... 9,164
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</TABLE>
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Total machines installed as of December 31, 1996 are distributed by state as
follows:
<TABLE>
<S> <C>
California....................................... 5,121
Texas............................................ 1,564
Florida.......................................... 1,495
Arizona.......................................... 667
Nevada........................................... 142
Other............................................ 175
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9,164
=====
</TABLE>
The Company has continued its expansion strategy emphasizing a high quality,
efficient water vending machine, low price to the consumer, a high level of
service for its network of machines and the clustering of machines within a
market area to realize significant operating economies of scale in the operation
of its business. The Company competes with other marketers of nonsparkling
water primarily on the basis of price, providing a product of comparable quality
at a significantly lower price to the consumer. See "Retail Pricing" below.
Glacier's internally developed water vending machines utilize micron
filtration, reverse osmosis, carbon adsorption and ultraviolet sterilization in
order to provide high quality drinking water. The design of the Company's
machines provides a high degree of reliability and servicability through the
use of interchangeable parts and a durable fiberglass cabinet. The machines are
also designed to be easy for consumers to use, with clear and simple
instructions.
The Company provides frequent, regular and reliable service and support to its
network of vending machines through an extensive route servicing system. The
Company believes that its strong commitment to the maintenance of its network,
ensuring cleanliness and operability, is a significant factor in the Company's
ability to continue to build consumer usage. In order to provide this high
level of service and support in a cost-effective manner, the Company has pursued
a strategy of placing machines in close proximity to one another which fosters
operating efficiencies and important economies of scale. See "Route Servicing
System" below.
TRADE RELATIONS
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The Company arranges to place its water vending machines on the premises of
supermarkets and other retail locations. The Company provides the machines and
pays for all installation costs, while the retailer provides and pays for the
required municipally supplied water and electricity. The Company generally pays
monthly commissions to the retailers based upon a percentage of sales, typically
ranging from 25% to 60%. The Company believes that retailers are increasingly
cognizant of the benefits of vended water, which provides additional revenues to
the retailers without occupying valuable and limited shelf space and without the
related investment in inventory.
Substantially all of the Company's arrangements with its retail trade accounts
are evidenced by written contracts, some of which contain termination clauses as
well as automatic renewal clauses. The terms of these agreements range from 30
days to five years, during which time the Company has the exclusive right to
provide water vending machines at specified locations. In some cases, the
Company provides marketing incentives in order to encourage certain retailers to
promote the Company's products.
The Company's most significant account in 1996 was Ralph's Grocery Company
(Ralph's), a California-based chain of supermarkets. During the fiscal year
ended December 31, 1996, approximately 10% of the Company's total revenues were
derived from sales from machines located at Ralph's stores. Prior to 1996, the
Company's most significant account was Vons Companies, Inc. (Vons), a
California-based chain of supermarkets. During the fiscal years ended December
31, 1996, 1995, and 1994, approximately 9%, 10% and 13%, respectively, of the
total revenues of the Company were derived from sales from machines located at
Vons stores. The Company entered into a written contract with Ralph's in
December 1996. This contract, which succeeds a previous contract with certain
Ralph's locations, has a five-year term and is not terminable by Ralph's except
in the event of a material breach of the contract by the Company. While the
Company believes its relations with
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Ralph's and its other accounts are good, any termination of the Company's
contract with Ralph's or Vons would adversely affect the Company.
LOCATION SELECTION
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In accordance with the Company's expansion strategy, the placement of the
Company's vending machines at retail locations is based upon a thorough review
of each site. Included in the site review is an analysis of the surrounding
trade area in order to determine the neighborhood demographics, the level of
overall retail activity, the level of direct competition and the proximity of
the site to other vending machines operated by the Company. Further, the
Company reviews each site in order to ensure high visibility and easy access for
the consumer, along with appropriate access to the retailer's water supply and
power source. Upon completion of this review, the Company makes a determination
as to the viability of the location and whether a single machine or multiple
machines are required at the time of initial installation. With large chains of
supermarkets, the Company generally places machines at all of the chains'
locations as part of its business agreements. To attain optimum efficiency,
multiple vending machines may be installed at a site if the volume of sales so
warrants.
ROUTE SERVICING SYSTEM
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The Company believes that providing frequent, regular and reliable service and
support is one of the most important elements in the operation of its machine
network. In order to maintain this level of service and support, the Company
has implemented its route servicing system, utilizing well-trained technicians
to perform the Company's regularly scheduled service procedures. A service
technician has a route consisting of approximately 70 machines, each of which
are visited and serviced on a weekly basis. The service technician tests the
quality and quantity of the Company's processed water in order to assure
compliance with all Company, federal, state and local standards. Records of
these tests are prepared and maintained for the appropriate regulatory
authorities.
The other key components of the Company's route servicing system are regional
service centers located in Glendale, California; Carlsbad, California;
Pleasanton, California; Gilbert, Arizona; Houston, Texas; Orlando, Florida; and
Riviera Beach, Florida, which are designed to support the activities of the
service technicians. All coin collections are delivered to and verified by a
service center for bank deposit preparation. Inventories of filters, supplies
and machine parts are maintained at the service centers for the service
technicians' use in making service calls. Finally, the Company maintains 24-
hour, toll-free telephone support for responding to consumer calls regarding
machine operation problems. Instructions and the toll-free number are posted on
the machines.
RETAIL PRICING
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The Company's drinking water competes with nonsparkling water sold in
containers inside retail outlets and with water sold in containers delivered
directly to consumers' homes. As with many consumer products, the costs of
packaging and distributing drinking water sold by these competing methods
represent a significant portion of the total cost of the product, and these
costs are reflected in the retail price to the consumer. Because the Company's
water is processed on-site in its vending machines and the consumer provides the
container for the Company's product, the Company is able to avoid certain costs
incurred by its competitors. Accordingly, the Company passes on these savings
to consumers by charging a retail price per gallon which represents a
substantial discount from the price of bottled water sold by non-vending machine
sources. In the Company's current market areas, it generally offers drinking
water at a retail price of $.25 to $.35 per gallon, compared with retail prices
ranging from $.69 to $.99 per gallon for water sold in containers in retail
outlets. Nonsparkling water sold in containers delivered directly to consumers'
homes generally sells at an effective price in excess of $1.00 per gallon,
including the cost of renting the dispensing unit.
CONSUMER MARKETING
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With respect to consumer marketing, the Company believes it benefits most
from consumer awareness and trial usage and also believes that utilizing
promotional activities at individual machine locations is the most cost-
effective approach for achieving these objectives. To date, the Company has used
point-of-purchase signage,
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special introductory and promotional pricing, and promotional activities
coinciding with the installation of new machines as its primary marketing tools.
Since 1994, with the introduction of a new logo, the Company's marketing
efforts have focused on the development and promotion of "Glacier" as a
recognizable brand to the consumer and the supermarket industry.
COMPETITION
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The bottled water market is highly competitive. The Company competes in the
nonsparkling segment of the bottled water market with companies which deliver
water to the home, with off-the-shelf marketers and with other vending machine
operators. The Company's primary competitive advantage over home delivery and
off-the-shelf marketers is price. A substantial decline in the price of either
home-delivered or off-the-shelf bottled water could adversely affect the demand
for water dispensed from the Company's vending machines.
The Company's principal competitor within the vended water sector has
historically been Aqua-Vend, a division of McKesson Water Products Company, a
wholly-owned subsidiary of McKesson Corporation. On March 28, 1997, the Company
purchased substantially all of the assets of the Aqua-Vend division of McKesson
Water Products Company, which acquisition will include approximately 2,600
machines at various locations. The Company's remaining competitors in the vended
water sector are primarily smaller, independent operators, many of which the
Company believes lack significant financial resources. The Company believes
there are significant barriers to entry to new and existing competitors,
including the substantial capital outlay required to purchase a sufficient
number of machines to achieve competitive operating efficiencies and the time
and cost involved in developing a sophisticated service network, obtaining
locations at which to place vending machines, acquiring expertise in the
industry and developing operating procedures.
Certain of the Company's potential customers may use portable or permanent
water filtration systems installed in their homes. These systems are relatively
expensive to install and maintain, and the Company believes that these systems
have not had and will not have a material effect on the Company's operations.
SEASONALITY
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The Company's revenues are subject to seasonal fluctuations, with decreased
revenues during cold weather months and increased revenues during hot weather
months.
PATENTS AND TRADEMARKS
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The Company does not hold any patents. The basic technologies used in the
Company's water vending machines cannot be patented as they are in the public
domain. The tradename and trademark "Glacier Water" used by the Company has the
word "Glacier" in common with marks that have been used and registered by a
number of other entities. To date, the Company has been unable to register the
mark due principally to one party, which registered the trademark "Glacier".
However, there can be no assurance that other entities might not assert superior
or exclusive rights in the mark and seek or obtain damages from or injunctive
relief against the Company. Additionally, there can be no assurance that the
loss of the Company's mark would not affect sales.
GOVERNMENT REGULATION
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The water vending industry is subject to various federal, state and local laws
and regulations, which require the Company, among other things, to obtain
licenses for its business and vending machines, to pay annual license and
inspection fees, to comply with certain detailed design and quality standards
regarding the vending machines and the vended water, and to continuously control
the quality and quantity of the vended water. The Company believes that it is
operating in substantial compliance with these laws and regulations. The
Company's vending machines are subject to routine and random regulatory quality
inspections.
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INSURANCE
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The Company carries general and product liability insurance. Its combined
coverage is $26,000,000 per occurrence and $27,000,000 in the aggregate, which
amounts the Company believes to be adequate. Although the Company is not aware
of any actions having ever been filed and believes that the technology contained
in its machines makes unlikely any contamination of the products dispensed by
its machines, any significant damage awards against the Company in excess of the
Company's insurance coverage could result in a material loss to the Company.
EMPLOYEES
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As of December 31, 1996, the Company had 282 employees, including 50 in
administration and 232 in operations. The Company's employees are not
represented by a labor union and the Company has experienced no work stoppages.
The Company believes that its employee relations are good.
ITEM 2. PROPERTIES
The Company's principal facility, a 30,000-square-foot building in Carlsbad,
California containing its executive offices, assembly shop and one area service
center, is under lease through May 1999. The Company also leases various other
facilities containing its remaining area service centers. These leases range in
square footage from 2,100 to 5,900 square feet, and expire on various dates from
March 1997 through October 2001.
ITEM 3. LEGAL PROCEEDINGS
The Company is not currently a party to any material legal proceeding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the security holders of the Company
during the fourth quarter of 1996.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock of Glacier is traded on the American Stock Exchange under the
symbol "HOO." The following table sets forth the range of high and low sales
prices on the American Stock Exchange for the Common Stock for the periods
indicated.
<TABLE>
<CAPTION>
High Low
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<S> <C> <C>
1996
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First Quarter $19.50 $16.50
Second Quarter 20.00 18.13
Third Quarter 23.00 19.00
Fourth Quarter 23.25 19.63
1995
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First Quarter $21.38 $18.50
Second Quarter 19.88 18.75
Third Quarter 22.50 19.75
Fourth Quarter 21.88 18.63
</TABLE>
The Company did not pay dividends on its Common Stock in 1996 and 1995 and
presently intends to continue this policy. In addition, the Company's credit
agreement contains a number of financial covenants, which may, among other
things, limit the Company's ability to pay dividends. The Company had
approximately 45 stockholders of record as of December 31, 1996.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following sets forth selected financial data as of and for the periods
presented. This data should be read in conjunction with the Consolidated
Financial Statements and the accompanying Notes thereto and other financial
information appearing elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
Year Ended December 31,
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1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(in thousands, except shares and per share amounts)
<S> <C> <C> <C> <C> <C>
Consolidated Statements of Income Data:
Revenues.............................................. $ 46,091 $ 42,409 $ 36,557 $ 30,636 $ 27,182
Costs and expenses:
Operating expenses............................... 27,926 25,933 23,504 20,061 18,351
General and administrative expenses.............. 5,895 5,483 4,791 4,516 3,707
Depreciation and amortization.................... 6,769 5,756 3,662 2,692 1,995
---------- ---------- ---------- ---------- ----------
Total costs and expenses.................... 40,590 37,172 31,957 27,269 24,053
---------- ---------- ---------- ---------- ----------
Income from operations................................ 5,501 5,237 4,600 3,367 3,129
Other expenses:
Interest expense, net............................ 783 723 317 38 182
Guaranty expense................................. -- -- -- -- 294
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Total other expenses........................ 783 723 317 38 476
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Income before provision for income taxes.............. 4,718 4,514 4,283 3,329 2,653
Provision for income taxes............................ 1,415 1,805 1,578 1,282 1,016
---------- ---------- ---------- ---------- ----------
Net income............................................ $ 3,303 $ 2,709 $ 2,705 $ 2,047 $ 1,637
========== ========== ========== ========== ==========
Net income per share.................................. $ .98 $ .80 $ .80 $ .62 $ .54
========== ========== ========== ========== ==========
Weighted average common and common
equivalent shares outstanding........................ 3,374,482 3,405,104 3,367,151 3,299,130 3,058,029
========== ========== ========== ========== ==========
</TABLE>
SELECTED BALANCE SHEET DATA
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<TABLE>
<CAPTION>
As of December 31,
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1996 1995 1994 1993 1992
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(in thousands)
<S> <C> <C> <C> <C> <C>
Working capital (deficit).................................. $ 1,070 $ 1,366 $ 61 $ (185) $ 1,648
Total assets............................................... $ 46,067 $ 40,638 $ 34,042 $ 23,415 $ 20,119
Long-term debt, including current portion.................. $ 15,820 $ 11,087 $ 8,199 $ 1,510 $ 880
Stockholders' equity....................................... $ 23,986 $ 24,087 $ 20,376 $ 17,265 $ 15,218
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This discussion should be read in conjunction with the information contained
in the Consolidated Financial Statements and the accompanying Notes thereto of
the Company appearing elsewhere in this Form 10-K.
GENERAL
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The Company has continued to expanded its business by placing water vending
machines in new and existing market areas. The number of machines in operation
increased to 9,164 at the end of 1996 from 8,518 for 1995, and 6,725 for 1994.
RESULTS OF OPERATIONS
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Revenues consist primarily of revenues generated from consumer use of the
Company's water vending machines. Revenues in 1996 increased by 8.7% over 1995,
to $46.1 million. Revenues in 1995 increased by 16.0% over 1994, to $42.4
million. The growth in revenues in both years is primarily attributable to the
increase in the number of Company vending machines in operation.
The following table sets forth, for the periods indicated, the percentage of
revenues represented by certain items included in the Consolidated Statements of
Income.
<TABLE>
<CAPTION>
As Percentage of Revenues
Year Ended December 31,
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1996 1995 1994
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<S> <C> <C> <C>
Revenues........................................ 100.0% 100.0% 100.0%
Costs and expenses:
Operating expenses......................... 60.6 61.2 64.3
General and administrative expenses........ 12.8 12.9 13.1
Depreciation and amortization.............. 14.7 13.6 10.0
----- ----- -----
Total costs and expenses.............. 88.1 87.7 87.4
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Income from operations.......................... 11.9 12.3 12.6
Interest expense, net........................... 1.7 1.7 0.9
----- ----- -----
Income before income taxes...................... 10.2% 10.6% 11.7%
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</TABLE>
Operating expenses and general and administrative expenses increased in
absolute dollars from 1995 to 1996 and from 1994 to 1995 principally due to the
increase in the number of Company vending machines in operation described above.
Operating expenses decreased as a percentage of revenues to 60.6% in 1996,
compared to 61.2% in 1995 and 64.3% in 1994. The decreases were due primarily
to increased efficiencies in route servicing. General and administrative
expenses decreased as a percentage of revenues to 12.8% in 1996, from 12.9% in
1995 and 13.1% in 1994. The decreases as a percentage of revenue in each year
result from the Company's ability to more efficiently utilize its corporate
infrastructure in supporting the growth in its installed base of machines.
Depreciation and amortization increased 17.6% over 1995 to $6.8 million in
1996, and 57.2% over 1994 to $5.8 million in 1995. The increases are due
primarily to the Company's continued investment in new vending machines.
Net interest expense was 1.7% of revenues in both 1996 and 1995, compared to
0.9% in 1994. The increase is due to higher outstanding balances on the
Company's bank loans during 1996 and 1995. The increased
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borrowings were utilized to fund the increased installation of machines in both
years, and in 1996 were also used to fund the Company's repurchase of 170,500
shares.
The Company's effective income tax rate decreased to 30% in 1996 from 40% in
1995 as the Company realized the cumulative effect of certain income tax
credits. The Company's effective rate in 1994 was approximately 37%.
LIQUIDITY AND CAPITAL RESOURCES
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The Company's primary sources of liquidity and capital resources are cash
flows from operations and funds available under the Company's bank credit
agreement. As of December 31, 1996, the Company had a credit agreement with a
bank which provides for long-term borrowings of up to $18.0 million. This credit
agreement requires monthly interest payments at the bank's prime rate (8.25% at
December 31, 1996) or the LIBOR plus 1.75% (7.4% at December 31, 1996). The
credit agreement provides for a two year interest-only revolving period which
converts to a five-year term note due and payable July 1, 2003. The agreement is
collateralized by substantially all the Company's assets and provides, among
other things, that the Company meets a debt coverage ratio, a debt to tangible
net worth ratio, and other financial covenants, as set forth in the agreement.
During 1996, net cash provided by operations was approximately $7.2 million,
and the Company made capital expenditures for vending machines and other
equipment aggregating approximately $8.5 million. As of December 31, 1996, the
Company had working capital of approximately $1.1 million. Approximately $15.8
million of borrowings were outstanding, with $2.2 million of additional funds
were available under the credit agreement.
In March 1997, the Company's credit agreement was amended to provide for
borrowings of up to $35.0 million. On March 28, 1997, the Company purchased
substantially all of the assets of the Aqua-Vend division of McKesson Water
Products Company, a wholly-owned subsidiary of McKesson Corporation. The
purchase price of $9.0 million was financed with additional borrowings under the
Company's credit agreement. The Company will finance any additional capital
expenditures and operating costs related to the acquisition through cash flow
generated from the operation of the acquired machines, as well as additional
borrowings on the line of credit.
The Company believes its cash balances, funds generated from operations, and
borrowings available under its amended credit facility will be sufficient to
meet its operating and capital requirements for at least the next twelve months.
The ability of the Company to meet its debt service requirements and the ability
of the Company to comply with the restrictive covenants will be dependent upon
future performance, which is subject to financial, economic, competitive,
regulatory and other factors affecting the Company, many of which are beyond its
control.
SEASONALITY
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The revenues of the Company are subject to seasonal fluctuations, with
decreased revenues during cold weather months and increased revenues during hot
weather months.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's Consolidated Financial Statements together with accompanying
Notes and the Report of Arthur Andersen LLP Independent Public Accountants are
set forth on pages 14 through 26 after Part IV of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
There is incorporated herein by reference the information required by this
Item in the Company's definitive proxy statement for the 1997 Annual Meeting of
Stockholders which will be filed with the Securities and Exchange Commission no
later than 120 days after the close of the year ended December 31, 1996.
EXECUTIVE OFFICERS OF THE REGISTRANT
------------------------------------
<TABLE>
<CAPTION>
Name Position Age
- ---- -------- ---
<S> <C> <C>
Jerry R. Welch Chairman of the Board, Chief Executive Officer 46
and Director
Jerry A. Gordon President and Chief Operating Officer 51
Glen A. Skumlien Executive Vice President, Operations 47
Dane Seibert Senior Vice President, Marketing & Sales 48
John T. Vuagniaux Senior Vice President, Operations 48
Brenda K. Foster Vice President, Controller and Secretary 30
Dana B. Gilbert Vice President, National Accounts 48
Roger J. Gilchrist Vice President, Eastern Operations 48
Luz E. Gonzales Vice President, Human Resources 44
Brian T. Nakagawa Vice President, Technology & Information Systems 43
</TABLE>
The executive officers are elected by and serve at the discretion of the Board
of Directors until their successors are duly chosen and qualified.
JERRY R. WELCH
Mr. Welch has been a director of the Company since October 1991, has been the
Chairman of the Board since April 1993 and was elected Chief Executive Officer
in September 1994. He also served as Chairman of the Board from January 1992
through September 1992. From October 1991 until his resignation in September
1992, Mr. Welch served as the Company's Chief Executive Officer. Mr. Welch
currently serves as a Senior Vice President of Kayne Anderson Investment
Management and has served in such a capacity since January 1993.
JERRY A. GORDON
Mr. Gordon has served as the President and Chief Operating Officer of Glacier
Water Services, Inc. since September 1994. Mr. Gordon joined the Company in
June 1993 as Vice President of Marketing. From 1992 to 1993, Mr. Gordon was a
business consultant specializing in management operations in start-up companies.
GLEN A. SKUMLIEN
Mr. Skumlien has served as Executive Vice President, Operations since
September 1994. Prior to that, Mr. Skumlien served as Vice President-Operations
from November 1991. Mr. Skumlien served as the Company's Director of Field
Operations from 1989 to November 1991.
DANE SEIBERT
Mr. Seibert joined the Company in March 1995 as Senior Vice President of
Marketing & Sales. From 1990 until joining the Company Mr. Seibert was
Corporate Vice President - International Marketing for Miller/Zell Inc., a
retail and merchandising consulting and design firm located in Atlanta, GA.
10
<PAGE>
JOHN T. VUAGNIAUX
Mr. Vuagniaux has served as Senior Vice President, Operations since November
1996, after joining the Company in January 1995 as Vice President, Service
Support. From April 1994 to January 1995, Mr. Vuagniaux was owner of Logistics
Solutions, a consulting firm specializing in logistics and operations
management. From January 1992 to April 1994, Mr. Vuagniaux was Director of
Distribution for Blockbuster Entertainment Corporation.
BRENDA K. FOSTER
Ms. Foster has served as Vice President, Controller since February 1996, after
joining the Company as Controller in September 1995. Ms. Foster is a Certified
Public Accountant, and worked for Ernst & Young LLP from 1988 to 1995.
DANA B. GILBERT
Mr. Gilbert has served as Vice President, National Accounts since February
1996. Mr. Gilbert joined the Company in January 1992 as a Sales Manager. From
January 1994 to February 1996, Mr. Gilbert served as Regional Sales Manager for
the Western Division.
ROGER J. GILCHRIST
Mr. Gilchrist has served as Vice President, Eastern Operations since February
1996. Mr. Gilchrist joined the Company in April 1988 as District Manager. In
May 1993, Mr. Gilchrist assumed the position of Regional Sales Manager for the
Eastern Division.
LUZ E. GONZALES
Mrs. Gonzales joined the Company in February 1995 as Vice President of Human
Resources. From 1981 to February 1995, Mrs. Gonzales was Corporate Director of
Human Resources for Southwest Water Company, a water service company.
BRIAN T. NAKAGAWA
Mr. Nakagawa has served as Vice President, Technology and Information Systems
since February 1996, after joining the Company as Director of Technology and
Information Systems in June 1995. Prior to joining the Company Mr. Nakagawa was
the owner of New Frontier Technologies an information systems consulting
company.
ITEM 11. EXECUTIVE COMPENSATION
There is incorporated herein by reference the information required by this
Item in the Company's definitive proxy statement for the 1997 Annual Meeting of
Stockholders which will be filed with the Securities and Exchange Commission no
later than 120 days after the close of the year ended December 31, 1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
There is incorporated herein by reference the information required by this
Item in the Company's definitive proxy statement for the 1997 Annual Meeting of
Stockholders which will be filed with the Securities and Exchange Commission no
later than 120 days after the close of the year ended December 31, 1996.
11
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There is incorporated herein by reference the information required by this
Item in the Company's definitive proxy statement for the 1997 Annual Meeting of
Stockholders which will be filed with the Securities and Exchange Commission no
later than 120 days after the close of the year ended December 31, 1996.
12
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents Filed with Report
---------------------------
1. Consolidated Financial Statements
---------------------------------
The consolidated financial statements listed on the accompanying Index to
Consolidated Financial Statements are filed as part of this report. The
financial statement schedules have been omitted as they are either not
required or not applicable.
2. Exhibits
--------
The exhibits listed on the accompanying Index to Exhibits on page 27 are
filed as part of this report.
(b) Reports on Form 8-K
-------------------
The registrant did not file any reports on Form 8-K during the last
quarter for the year for which this report is filed.
13
<PAGE>
<TABLE>
<CAPTION>
INDEX
-----
Page
Number
------
<S> <C>
Consolidated Financial Statements
---------------------------------
Report of Independent Public Accountants................................................ 15
Consolidated Balance Sheets at December 31, 1996 and December 31, 1995.................. 16
Consolidated Statements of Income for the years ended December 31, 1996,
December 31, 1995, and December 31, 1994.............................................. 17
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1996,
December 31, 1995, and December 31, 1994.............................................. 18
Consolidated Statements of Cash Flows for the years ended December 31, 1996,
December 31, 1995, and December 31, 1994.............................................. 19
Notes to Consolidated Financial Statements.............................................. 20
</TABLE>
14
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
Glacier Water Services, Inc.
We have audited the accompanying consolidated balance sheets of Glacier Water
Services, Inc. (a Delaware corporation) and subsidiaries as of December 31, 1996
and 1995, and the related consolidated statements of income, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 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 financial position of Glacier Water Services, Inc.
and subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
San Diego, California
January 23, 1997
15
<PAGE>
GLACIER WATER SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
------
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Current assets:
Cash......................................................................... $ 11 $ 29
Accounts receivable.......................................................... 311 614
Inventories.................................................................. 2,946 2,200
Prepaid commissions and other................................................ 1,084 888
------- -------
Total current assets........................................................ 4,352 3,731
Property and equipment, net of accumulated depreciation....................... 36,754 33,272
Other assets.................................................................. 4,961 3,635
------- -------
Total assets.................................................................. $46,067 $40,638
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable............................................................. $ 640 $ 342
Accrued commissions.......................................................... 988 734
Accrued liabilities.......................................................... 1,654 1,289
------- -------
Total current liabilities................................................... 3,282 2,365
Long-term debt................................................................ 15,820 11,087
Deferred income taxes......................................................... 2,979 3,099
Commitments and Contingencies
Stockholders' equity:
Preferred stock, $.01 par value, 100,000 shares
authorized, no shares issued and outstanding............................... -- --
Common stock, $.01 par value, 10,000,000 shares
authorized, 3,208,575 and 3,367,825 shares issued and
outstanding in 1996 and 1995, respectively................................. 34 34
Additional paid-in capital................................................... 15,284 15,125
Retained earnings............................................................ 12,231 8,928
Treasury stock, 170,500 shares, at cost...................................... (3,563) --
------- -------
Total stockholders' equity................................................. 23,986 24,087
------- -------
Total liabilities and stockholders equity..................................... $46,067 $40,638
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
16
<PAGE>
GLACIER WATER SERVICES, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenues........................................................... $ 46,091 $ 42,409 $ 36,557
Costs and expenses:
Operating expenses............................................ 27,926 25,933 23,504
General and administrative expenses........................... 5,895 5,483 4,791
Depreciation and amortization................................. 6,769 5,756 3,662
---------- ---------- ----------
Total costs and expenses.................................. 40,590 37,172 31,957
---------- ---------- ----------
Income from operations............................................. 5,501 5,237 4,600
Interest expense, net.............................................. 783 723 317
---------- ---------- ----------
Income before provision for income taxes........................... 4,718 4,514 4,283
Provision for income taxes......................................... 1,415 1,805 1,578
---------- ---------- ----------
Net income......................................................... $ 3,303 $ 2,709 $ 2,705
========== ========== ==========
Net income per share............................................... $ .98 $ .80 $ .80
========== ========== ==========
Weighted average common and common
equivalent shares outstanding..................................... 3,374,482 3,405,104 3,367,151
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
17
<PAGE>
GLACIER WATER SERVICES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION> COMMON STOCK ADDITIONAL
------------------- PAID-IN RETAINED TREASURY
SHARES AMOUNT CAPITAL EARNINGS STOCK TOTAL
---------- ------ ---------- -------- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993....................... 3,236,986 $ $33 $ 13,718 $ 3,514 $ -- $ 17,265
Exercise of Stock Options........................ 57,108 -- 406 -- -- 406
Net Income....................................... -- -- -- 2,705 - 2,705
--------- ------ --------- -------- -------- --------
Balance, December 31, 1994....................... 3,294,094 33 14,124 6,219 -- 20,376
Exercise of Stock Options........................ 73,731 1 1,001 -- -- 1,002
Net Income....................................... -- -- -- 2,709 -- 2,709
--------- ------ --------- -------- -------- --------
Balance, December 31, 1995....................... 3,367,825 34 15,125 8,928 -- 24,087
Exercise of Stock Options........................ 11,250 -- 159 -- -- 159
Purchase of Treasury Stock....................... (170,500) -- -- -- (3,563) (3,563)
Net Income....................................... -- -- -- 3,303 -- 3,303
--------- ------ --------- -------- -------- --------
Balance, December 31, 1996....................... 3,208,575 $ $34 $ 15,284 $ 12,231 $ (3,563) $ 23,986
========= ====== ========= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
18
<PAGE>
GLACIER WATER SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 3,303 $ 2,709 $ 2,705
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 6,769 5,756 3,662
Loss (gain) on disposal of assets 74 13 (46)
Deferred tax provision (benefit) (120) 682 596
Change in operating assets and
liabilities:
Accounts receivable 303 105 (323)
Inventories (746) (573) 11
Prepaid commissions and other (196) 99 (109)
Payments for prepaid marketing
incentives (2,966) (750) (2,144)
Other assets (124) (201) (1,093)
Accounts payable, accrued liabilities and accrued commissions 896 (455) 231
-------- -------- --------
Total adjustments 3,890 4,676 785
-------- -------- --------
Net cash provided by operating activities 7,193 7,385 3,490
-------- -------- --------
Cash flows from investing activities:
Purchase of property and equipment (476) (182) (525)
Net investment in vending equipment (8,064) (10,609) (10,874)
Proceeds from sales of equipment -- -- 802
-------- -------- --------
Net cash used in investing (8,540) (10,791) (10,597)
activities -------- -------- --------
Cash flows from financing activities:
Proceeds from long-term debt 19,778 15,588 16,897
Principal payments on long-term debt (15,045) (12,700) (10,208)
Proceeds from issuance of stock 159 474 406
Purchase of treasury stock (3,563) -- --
-------- -------- --------
Net cash provided by financing activities 1,329 3,362 7,095
-------- -------- --------
Net decrease in cash (18) (44) (12)
Cash, beginning of year 29 73 85
-------- -------- --------
Cash, end of year $ 11 $ 29 $ 73
======== ======== ========
SUPPLEMENTAL INFORMATION
Cash paid for interest $ 748 $ 735 $ 235
======== ======== ========
Cash paid for income taxes $ 1,010 $ 580 $ 793
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
19
<PAGE>
GLACIER WATER SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
The Company is primarily engaged in the operation of self-service vending
machines that dispense drinking water to consumers. The machines are placed
at supermarkets and other retail outlets under commission arrangements with
the retailers. The Company's revenues are subject to seasonal fluctuations,
with decreased revenues during cold weather months and increased revenues
during hot weather months. The Company's machines are located in California,
Nevada, Arizona, New Mexico, Texas, Louisiana, Mississippi, Georgia, Florida,
and Illinois.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Glacier Water Services, Inc. and its wholly owned subsidiaries. All
significant inter-company accounts and transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires that management make certain estimates
and assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses, and the disclosure of contingent assets and
liabilities. Actual results could differ from those estimates.
Inventories
Inventories consist of raw materials, repair parts and vending machines in
process of assembly, and are stated at the lower of cost (moving weighted
average) or market. Costs associated with the assembly of vending machines
are accumulated until finished machines are ready for installation at a retail
location, at which time the costs are transferred to property and equipment.
Inventories consist primarily of raw materials and repair parts at December
31, 1996 and 1995.
Prepaid Commissions
Prepaid commissions represent payments made to certain retailers based on a
percentage of estimated monthly or quarterly vending machine revenues.
Prepaid commissions at December 31, 1996 and 1995 were $490,000 and $371,000,
respectively. Commission expense for the years ended December 31, 1996, 1995
and 1994 was $21,678,000, $19,643,000 and $17,320,000, respectively.
Property and Equipment and Depreciation
Property and equipment are recorded at cost and consist of the following at
December 31 (in thousands):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Vending equipment................................. $ 51,433 $ 44,415
Equipment, furniture and fixtures................. 1,617 1,186
Leasehold improvements............................ 520 437
-------- --------
53,570 46,038
Less: Accumulated depreciation and amortization... (16,816) (12,766)
-------- --------
$ 36,754 $ 33,272
======== ========
</TABLE>
20
<PAGE>
GLACIER WATER SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Depreciation is provided using the straight-line method over the estimated
useful lives of the assets as follows:
Vending equipment 10 years
Equipment, furniture and fixtures 5 to 10 years
Leasehold improvements Life of Lease
The Company's vending equipment is depreciated to a 20% salvage value.
Costs associated with installing vending equipment are capitalized and
depreciated over five years.
All maintenance, repair and refurbishment costs are charged to operations
as incurred. Additions and major improvements are capitalized.
Income Taxes
Income taxes have been provided for using the liability method in
accordance with FASB Statement No. 109, Accounting for Income Taxes.
Net Income Per Share
Net income per share of common stock is computed on the basis of the
weighted average shares of common stock outstanding plus common equivalent
shares arising from the effect of dilutive stock options, using the treasury
stock method.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current
presentation.
2. SUPPLEMENTARY BALANCE SHEET INFORMATION
Accounts Receivable
Included in accounts receivable at December 31, 1996 is a $100,000 note
receivable from Jerry A. Gordon, the Company's President and Chief Operating
Officer. The note, issued during 1996, is non-interest bearing, and was repaid
in full subsequent to December 31, 1996.
Other Assets
Other assets consist of the following at December 31 (in thousands):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Prepaid marketing incentives, net of accumulated amortization
of $3,167 in 1996 and $2,867 in 1995........................... $4,606 $3,180
Other........................................................... 355 455
------ ------
$4,961 $3,635
====== ======
</TABLE>
21
<PAGE>
GLACIER WATER SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Prepaid marketing incentives consist of fees paid to retailers for future
benefits associated with the ongoing placement of the Company's vending
equipment at those locations. These fees are amortized over the life of the
contract, generally ranging from three to five years.
Accrued liabilities consist of the following at December 31 (in thousands):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Accrued compensation and related taxes................. $ 789 $ 570
Accrued income and other taxes......................... 639 500
Other accrued liabilities.............................. 226 219
------ ------
$1,654 $1,289
====== ======
</TABLE>
3. LONG-TERM DEBT
Long-term debt at December 31, 1996 and 1995 represents borrowings under
the Company's bank credit agreement.
The credit agreement provides for long-term borrowings of up to
$18,000,000. Borrowings bear interest at the bank's prime rate (8.25% at
December 31, 1996) or LIBOR plus 1.75% (7.4% at December 31, 1996), and the
entire principal balance is due July 1, 2003. As of December 31, 1996, the
Company had approximately $2,200,000 of funds available under the agreement.
Borrowings under the agreement are secured by substantially all of the assets
of the Company. The agreement provides, among other things, that the Company
maintain certain debt coverage and other financial ratios, as defined in the
agreement. The agreement also limits the payment of dividends and additional
borrowings by the Company.
4. LEASES
The Company leases certain vehicles, warehouse and office facilities under
non-cancelable operating leases which expire on various dates through 2001.
Future minimum lease payments under non-cancelable operating leases with
initial terms of one or more years for the years ending December 31 are as
follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
1997........................... $1,019
1998........................... 653
1999........................... 332
2000........................... 21
2001........................... 16
------
Total minimum lease payments... $2,041
======
</TABLE>
Total lease expense for the years ended December 31, 1996, 1995 and 1994 was
$1,284,000, $1,109,000, and $864,000, respectively.
22
<PAGE>
GLACIER WATER SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. INCOME TAXES
Significant components of the provision (benefit) for income taxes for the
years ended December 31, 1996, 1995 and 1994 are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
Federal Income Taxes:
<S> <C> <C> <C>
Current........................................... $ 1,418 $ 934 $ 835
Deferred.......................................... (75) 460 507
------- ------- -------
1,343 1,394 1,342
State and Local Income Taxes and
Other:
Current............................................ 117 189 147
Deferred........................................... (45) 222 89
------- ------- -------
72 411 236
------- ------- -------
Total $ 1,415 $ 1,805 $ 1,578
======= ======= =======
Deferred tax liabilities and assets result from the following at December 31 (in thousands):
1996 1995
---- ----
Deferred tax liabilities:
Property and equipment....................................... $ 4,801 $ 4,431
Other........................................................ -- 43
------- -------
Total deferred tax liabilities................................ 4,801 4,474
------- -------
Deferred tax assets:
Alternative minimum tax credit............................... (1,183) (1,091)
Manufacturer's investment credit............................. (492) --
State deferred tax adjustment................................ (16) (238)
Accruals and reserves........................................ (131) (46)
------- -------
Total deferred tax assets..................................... (1,822) (1,375)
------- -------
Net deferred tax liabilities.................................. $ 2,979 $ 3,099
======= =======
The Company's effective income tax rate differs from the federal statutory rate as follows:
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Federal statutory rate................................ 34.0% 34.0% 34.0%
State and local taxes, net of federal benefit......... 6.7% 6.0% 2.8%
Manufacturer's investment credit generated............ (10.7%) -- --
------- ------- -------
Effective rate........................................ 30.0% 40.0% 36.8%
======= ======= =======
</TABLE>
The Company is currently under examination by the Internal Revenue Service for
the year ended December 31, 1992. Management does not anticipate that the
results of such audit will have a material impact on the Company's financial
statements.
23
<PAGE>
GLACIER WATER SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. STOCKHOLDERS' EQUITY
Preferred Stock
The Company's Certificate of Incorporation authorizes the issuance of
100,000 shares of preferred stock, par value $.01 per share. The rights,
preferences and privileges of the authorized shares (none of which have been
issued) may be established by the Board of Directors without further action by
the holders of the Company's common stock.
Treasury Stock
In December 1995, the Board of Directors authorized the purchase of up to
250,000 shares of the Company's common stock in the open market. During 1996,
170,500 shares were repurchased under this program. In December 1996, the
Board of Directors authorized the additional purchase of up to 250,000 shares
of the Company's common stock. As of December 31, 1996, the Company was
authorized to repurchase 329,500 shares, approximately 10.3% of the Company's
total shares outstanding.
7. STOCK OPTION PLANS
The Company has two stock option plans, the 1992 Stock Option Plan, which
was terminated in 1994, and the 1994 Stock Compensation Program. The Company
accounts for these plans under APB Opinion No. 25, under which no compensation
cost has been recognized. The following pro forma disclosures represent what
the Company's net income and earnings per share would have been had the
Company recorded compensation cost for these plans in accordance with the
provisions of FASB Statement No. 123, "Accounting for Stock-Based
Compensation." (Statement No. 123).
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Pro Forma Net Income (in thousands) $2,984 $2,568
Pro Forma EPS $ .88 $ .75
</TABLE>
Because the method of accounting required under Statement No. 123 has not
been applied to options granted prior to January 1, 1995, the resulting pro
forma compensation cost may not be representative of that to be expected in
future years.
The Company has reserved 275,000 shares of common stock under the 1994
Stock Compensation Program, as amended, for issuance under a stock option plan
that provides for the issuance of incentive and non-qualified stock options to
key employees, including directors and consultants. Incentive stock options
are granted at no less than the fair market value on the date of the grant.
Non-qualified options may be granted at prices determined by the Board of
Directors, but at no less than 85% of the fair market value on the date of the
grant. Options generally have a term of 10 years and become exercisable at a
rate of 25% per annum. The Program also allows directors to receive stock
options in lieu of their annual directors' fees. Options granted under this
provision (Deferral Options) have a term of five years and become exercisable
one year following the date of grant.
24
<PAGE>
GLACIER WATER SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company had reserved 360,000 shares of common stock under the 1992
Stock Option Plan for issuance under a stock option plan that provides for the
issuance of incentive and non-qualified stock options to key employees,
including directors and consultants. Incentive stock options are granted at
no less than the fair market value on the date of the grant. Non-qualified
options may be granted at prices determined by the Board of Directors, but
at no less than 85% of the fair market value on the date of the grant.
Options become exercisable at a rate of 25% per annum. The 1992 Stock
Compensation Plan was terminated in 1994 with a balance of 42,250 shares of
common stock available for grant which were transferred to the 1994 Stock
Compensation Program.
A summary of the status of the Company's two stock option plans at December
31, 1996 and activity during the year then ended follows:
<TABLE>
<CAPTION>
Wtd. Avg.
Exercise
Shares Price
--------- --------
<S> <C> <C>
Balance at December 31, 1995..................... 305,354 $15.08
Granted.......................................... 76,300 $19.45
Exercised........................................ (11,250) $ 9.88
Canceled......................................... (25,750) $19.63
-------- ------
Balance at December 31, 1996..................... 344,654 $15.88
Exercisable at December 31, 1996................. 153,604 $13.76
Weighted average fair value of options granted... $8.57
</TABLE>
The 136,750 shares under the 1992 plan outstanding at December 31, 1996
have exercise prices between $8.25 and $13.63, with a weighted average
exercise price of $11.39 and a weighted average remaining contractual life
of 6.4 years. 98,500 of these options are exercisable; their weighted
average exercise price is $11.08.
The 207,904 shares under the 1994 plan outstanding at December 31, 1996
have exercise prices between $15.25 and $19.88, with a weighted average
exercise price of $18.82 and a weighted average remaining contractual life of
7.5 years. 55,104 of these options are exercisable; their weighted average
exercise price is $18.55.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted average
assumptions used for grants in 1995 and 1996, respectively: risk-free interest
rates of 7.2% and 5.8%; no expected dividend yield; expected lives of 7 years
for regular options and 5 years for Deferral Options in both years; expected
volatility of 30% in both years.
8. SIGNIFICANT CUSTOMERS
The following table sets forth the percentage of the Company's total
revenues that were derived from major customers for the years ended December
31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Company A 10.2% 5.8% --
Company B 9.0% 9.8% 13.3%
</TABLE>
25
<PAGE>
GLACIER WATER SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. SUBSEQUENT EVENT (UNAUDITED)
On March 28, 1997, the Company acquired substantially all of the assets of
the Aqua-Vend division of McKesson Water Products Company, a wholly-owned
subsidiary of McKesson Corporation, for $9.0 million. The transaction was
accounted for under the purchase method of accounting, resulting in the
valuation of the purchased assets at fair market value, with no resulting
goodwill. In March 1997, the Company's bank line of credit was amended to
provide for borrowings of up to $35 million. The asset purchase was funded
with additional borrowing on this line of credit.
10. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
First Quarter Second Quarter Third Quarter Fourth Quarter
------------- -------------- ------------- --------------
(in thousands, except shares and per share amounts)
<S> <C> <C> <C> <C>
Year Ended December 31, 1996:
Net revenues $ 10,015 $ 12,036 $ 13,709 $ 10,331
Income from operations 794 1,516 2,295 896
Net income 360 799 1,556 588
Earnings per share .11 .24 .46 .18
Weighted average shares 3,406,797 3,389,589 3,398,650 3,327,953
Year Ended December 31, 1995:
Net revenues $ 9,193 $ 10,470 $ 13,193 $ 9,553
Income from operations 925 1,309 2,264 739
Net income 472 661 1,233 343
Earnings per share .14 .20 .36 .10
Weighted average shares 3,419,851 3,385,400 3,397,746 3,405,572
</TABLE>
26
<PAGE>
<TABLE>
INDEX TO EXHIBITS
Exhibit
No.
- -------
<S> <C>
3.1 Certificate of Incorporation of Registrant (i.)
3.2 Bylaws of Registrant (i.)
4.1 Specimen Stock Certificate of Registrant (i.)
10.1 Amended and Restated 1992 Stock Incentive Plan (ii.)
10.2 Vending Machine Agreement between the Vons Companies, Inc. and BWVI (i.)
10.3 Location Agreement between Food 4 Less Supermarkets, Inc. and Services, Inc. (vii.)
10.4 Location Agreement between Ralph's Grocery Company, Cala Co., and Services, Inc.
10.5 Form of Indemnification Agreement with Officers and Director (i.)
10.6 Lease Agreement between Enterprise Leasing and GW Services, Inc. (iii.)
10.7 Lease Agreement between Robert N. and Jean K. Rindt and Glacier Water Services Inc.
relating to the Carlsbad, CA facility (iv.)
10.8 1994 Stock Compensation Plan (v.)
10.8.1 Amendment No. 1 to 1994 Stock Compensation Plan (vi.)
10.8.2 Amendment No. 2 to 1994 Stock Compensation Plan
10.9 Asset Purchase Agreement by and between Glacier Water Services, Inc.
and McKesson Corp. and McKesson Water Products Company
10.10 Credit Agreement between Tokai Bank of California and Glacier Water
Services, Inc. and GW Services, Inc. (vi.)
10.10.1 Modification of Note and Credit Agreement between Tokai Bank of
California and Glacier Water Services, Inc. and GW Services, Inc.
effective February 6, 1996 (viii.)
10.10.2 Modification of Note and Credit Agreement between Tokai Bank of
California and Glacier Water Services, Inc. and GW Services, Inc.
effective June 20, 1996
10.10.3 Modification of Note and Credit Agreement between Tokai Bank of
California and Glacier Water Services, Inc. and GW Services, Inc.
effective March 28, 1997
10.10.4 Amendment to Guarantee
21.1 Subsidiaries of the Registrant
23.1 Consent of Arthur Andersen LLP Independent Public Accountants
- --------------------
(i.) Incorporated by reference to the Company's Registration Statement on Form S-1 (File No. 33-45360)
amendments thereto.
(ii.) Incorporated by reference to the Company's Registration Statement on Form S-8 (File Number 33-61942)
filed April 30, 1993.
(iii. Incorporated by reference to the Company's Annual Report on Form 10-K and amendments thereto
dated March 11, 1994 for the year ended December 31, 1993.
(iv.) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the three months ended
March 31, 1994.
(v.) Incorporated by reference to the Company's Registration Statement on Form S-8 (File Number 33-80016)
filed June 8, 1994.
(vi.) Incorporated by reference to the Company's Annual Report on Form 10-K dated March 15, 1995.
(vii.) Incorporated by reference to the Company's proxy statement from the 1995 Annual Meeting of Stockholders
filed May 1, 1995.
(viii.) Incorporated by reference to the Company's Annual Report on Form 10-K dated March 15, 1996.
</TABLE>
27
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
GLACIER WATER SERVICES, INC.
By /s/Jerry A. Gordon
--------------------------------------------
Jerry A. Gordon
President and Chief Operating Officer
By /s/Brenda K. Foster
---------------------------------------------
Brenda K. Foster
Vice President, Controller
Date: March 31, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on March 31, 1997.
Signature Title
- --------- -----
Principal Executive Officer:
/s/Jerry A. Gordon President, Chief Operating Officer
- ----------------------------
Jerry A. Gordon
/s/Jerry R. Welch Chairman of the Board, Chief Executive
- ----------------------------
Jerry R. Welch Officer and Director
/s/Timothy G. Clark Director
- ----------------------------
Timothy G. Clark
/s/Peter B. Foreman Director
- ----------------------------
Peter B. Foreman
/s/Richard A. Kayne Director
- ---------------------------
Richard A. Kayne
/s/Robert V. Sinnott Director
- ----------------------------
Robert V. Sinnott
/s/Brenda K. Foster Vice President, Controller
- ---------------------------
Brenda K. Foster
28
<PAGE>
Exhibit 10.4
LOCATION AGREEMENT
- --------------------------------------------------------------------------------
This Agreement is made as of December 13, 1996 by and between Ralph's
Grocery Company, a California corporation ("Account"), and GW Services, Inc., a
California corporation ("Glacier"). This Agreement constitutes the entire
agreement between the parties with regard to the subject matter hereof. The
Agreement supersedes and cancels the Agreement between Food-4-Less Supermarkets,
Inc. and Glacier dated November 11, 1994.
Glacier is the owner of vended self-serve water dispensing machines, both
coin operated and non-coin operated ("Machines"), and desires to place its
machines at all supermarket location now or hereafter owned or leased by Account
(the "Locations"), including without limitation all Locations operating under
the "Ralph's", "Food-4-Less", "Cala Foods", "Bell Markets" or "Foods Co" names,
in order to sell processed water to the public.
Account is agreeable to permitting the Machines to be placed at the
Locations on terms and conditions set forth below:
1. Term. This Agreement shall commence December 13, 1996, and shall
----
remain in effect for a period of 60 months after all of the Machines have been
installed at the Locations listed on Schedule A (the "Initial Term"). After the
Initial Term, this Agreement shall automatically renew for successive one-year
terms unless it is canceled by either party upon 60 days' written notice prior
to the commencement of any such one-year term. Glacier will send to Account a
reminder of impending termination date between 60 and 90 days prior to the end
of this Agreement.
2. Placement of Machines. Account grants Glacier the exclusive right to
---------------------
place Machines at such places as Glacier and Account shall mutually determine
inside and/or outside the supermarket buildings located at all existing
Locations owned or leased by Account, including but not limited to those
Locations listed on Schedule A, and at any additional locations not previously
listed on Schedule A owned or leased by Account during the term of the Agreement
(a "New Location"). On or prior to the operation of any New Location by the
Company, Account shall provide Glacier with written notice of the New Location,
and the New Location shall be added to Schedule A. During the term of this
Agreement, Account shall not authorize or permit the placement of any other
water vending device inside or outside of any existing or New Location without
obtaining the prior written consent of Glacier. If a new Location is acquired or
operated after the date of this Agreement and Account reasonably determines that
because of the format of such store that it does not desire to supply the new
Location with machines under this Agreement, such new Location shall not be
subject to this Agreement.
3. Costs.
-----
(a) Account's Costs. Account shall incur the costs of providing
---------------
electrical current and city tap water necessary for the operation of the
Machines.
(b) Glacier's Costs. Glacier shall incur the costs of water, electrical
---------------
and drain connection improvements necessary for the operation of the Machines.
Glacier shall secure and pay all permits, licenses, regulatory fees and
inspections necessary for the proper maintenance of chemicals and equipment in
connection
<PAGE>
with the operation of the Machines. Glacier shall incur the costs of the removal
of its Machines from any Location and shall repair any damage caused by such
removal.
4. Collection of Sales. Glacier shall be responsible for collecting sales
-------------------
from coin operated Machines at each of the Locations. Account shall be
responsible for collecting sales from non-coin operated Machines at each of the
Locations.
5. Commissions.
-----------
(a) Amount. Glacier agrees to pay Account a commission (the "Commission")
------
with respect to each Location in an amount equal to fifty-three
percent (53%), multiplied by each month's sales from the Machines at
such Locations, less taxes, fees (including without limitation
permits, licenses, regulatory fees and inspections), and losses due
to vandalism and theft relating to the operation of the Machines.
(b) Payment. On or before the first day of each month during the term of
this Agreement:
(i) with respect to Locations where only coin operated Machines are
located, Glacier Shall pay Account estimated Commissions based upon
estimated sales for such month,
(ii) with respect to Locations where only non-coin operated Machines are
located, Account shall pay Glacier the amount by which estimated
sales to be collected by Account for such month exceed estimated
Commissions for such month, and
(iii) with respect to Locations where both coin operated and non-coin
operated Machines are located, (A) if estimated Commissions based
upon estimated sales for the month exceed the amount of estimated
sales to be collected by Account for such month, Glacier shall pay
Account the net difference or (B) if estimated sales to be
collected by Account for the such month exceed estimated
Commissions for such month, Account shall pay Glacier the net
difference.
Payments for any subsequent month shall be adjusted by an amount equal to the
difference between the estimated Commission paid for any previous month and the
actual Commission for such month.
(c) Accounting. Glacier shall provide Account with a monthly accounting
----------
of financial data on each Machine relating to the collection of sales
and calculation of Commissions.
6. Compensation and Marketing Allowances.
-------------------------------------
[Confidential information has been omitted from this section. The information
that has been omitted has been filed with the Securities and Exchange
Commission.]
(a) Compensation Allowance. Upon the execution of this Agreement, Glacier
----------------------
agrees to pay Account a nonrefundable Compensation Allowance of
_________________________________________ for such expenses as have
been incurred to do feasibility studies, market research, financial
analysis, stock surveys, set up and other activities.
(b) Marketing Allowance. Upon the execution of this Agreement, Glacier
-------------------
agrees to pay Account a pre-paid Marketing Allowance of_____________
(b) (c) Should this contract be terminated for any reason during the
first seventeen (17) months of the initial term, Account shall pay
Glacier _______________________. If Glacier is unable to operate its
Machine(s) at any of the original ___ Locations during the remaining
term of forty-three (43) months , Glacier shall be entitled to
receive a refund (a "Refund") with respect to such Location in an
amount equal to
<PAGE>
______________________ multiplied by the number of months remaining
on this contract; provided, however, that Glacier shall not be
entitled to a Refund if Glacier's inability to operate its
Machines(s) at such Location arises primarily from breach of
Glacier's obligations hereunder.
(d) Additional Marketing Allowance. So long as Glacier has installed and
------------------------------
continues to operate Machines at not less than ___ Locations, Glacier
shall pay Account an additional marketing allowance ("Additional
Marketing Allowance") equal to ______________ multiplied by the
number of months remaining until the expiration of the Initial Term
on the date one or more Machines are initially installed at any New
Location. The Additional Marketing Allowance shall be paid on or
prior to the date of such initial installation. If Glacier is unable
to operate its Machine(s) at any new Location during the Initial
Term, Glacier shall be entitled to receive a refund (a "Refund") with
respect to such Location in an amount equal to ____________________
multiplied by the number of months remaining until the expiration of
the Initial Term on the date Glacier first becomes unable to operate
its Machine(s) at such Location; provided, however, that Glacier
shall not be entitled to a Refund if Glacier's inability to operate
its Machine(s) at such Location arises primarily from breach of
Glacier's obligations hereunder.
7. Pricing. Glacier shall advise and consult with Account prior to
-------
determining the vend price for water at any Location, taking into consideration
the area and the competitive market.
8. Maintenance of Machines; Compliance with Laws.
---------------------------------------------
(a) Glacier shall maintain its Machines in good condition and repair.
Account shall promptly report to Glacier the theft or, damage to, or
malfunction of any Machine.
(b) Each party warrants and represents that it shall in every manner of
its business related to this agreement obey and conform to all valid
federal, state and local laws, regulations and directives. Any breach
of said warranty and representation or claim of breach shall be the
sole responsibility of the breaching party and the breaching party
will, for said breach or claim of breach, hold the other party
completely safe and harmless.
9. Insurance. Glacier shall at all times carry adequate insurance to
---------
cover the products, equipment and materials supplied, used or consumed in
connection with the operation of the Machines, including without limitation, the
insurance described in Exhibit B.
10. No Conflicts. Account represents and warrants to Glacier that at all
------------
times during the term of this Agreement, (i) the transactions contemplated by
this Agreement and the performance of the terms and provisions of this Agreement
will not contravene, conflict with or result in any breach of, or constitute a
default under, any agreement or instrument to which Account is a party or by
which Account or any of its properties is bound and (ii) Account is not and will
not become a party to any other agreement with respect to the products and
services of the type covered by this Agreement. If a store is acquired in any
manner after the date hereof and is subject to a supply agreement for products
similar to products to be provided under this agreement, then such acquired
store shall become subject to this agreement only upon the expiration of such
other supply agreement.
11. Indemnification.
---------------
(a) Indemnification of Account. Glacier shall indemnify and hold
--------------------------
harmless Account and its directors, officers, parent corporations,
sister corporations, subsidiaries, assigns, liability, damage, injury
to property or person, death or expense (including reasonable
attorney's fees and expenses) which directly or indirectly arise from
Glacier's products, services, actions or omissions, including without
limitation, any action or claim brought by Glacier's employees,
agents and representatives, pertaining to or arising out of Glacier's
performance under this Agreement at any Location or otherwise or
alleging design, manufacture, marketing or distribution or a
defective product or product liability matter; provided, however,
that Glacier shall not be liable to Account for any claim,
litigation, judgment, loss, liability, damage, injury to property or
person, death or expense arising from or based upon the negligence of
Account.
<PAGE>
(b) Indemnification of Glacier. Account shall indemnify and hold harmless
--------------------------
Glacier and its directors, officers, parent corporations, sister
corporations, subsidiaries, assigns, agents and employees from any
claim, litigation, judgment, loss, liability, damage, injury to
property or person, death or expense (including reasonable attorneys'
fees and expenses) which directly or indirectly arise from Account's
actions or omissions, including without limitation any action or
claim brought by Account's employees, agents and representatives,
pertaining to or arising out of Account's performance under this
Agreement or arising out of or based upon the breach of any
representation or warranty of Account contained in this Agreement'
provided, however, that Account shall not be liable to Glacier for
any claim, litigation, judgment, loss, liability, damage, injury to
property or person, death or expense arising from or based upon the
negligence of Glacier.
12. Termination.
-----------
(a) Material Breach. This Agreement only may be terminated by a party, in
---------------
the event of a material breach hereof by the non-terminating party
that is not cured within twenty days (excluding Saturdays, Sundays
and any days on which banks located in the State of California are
authorized or obligated to close) following written notice thereof by
the terminating party. Upon any termination of this Agreement by
Glacier in the event of a material breach hereof by Account, Glacier
shall be entitled to receive a Refund (calculated in accordance with
Section 6(c) above) with respect to each Location. The obligation of
Account to pay the Refund shall be unconditional, in addition to any
liability Account may otherwise have to Glacier and may not be offset
against any liability Glacier may have to Account.
13. Use, Control and Ownership. Glacier acknowledges that this Agreement
--------------------------
constitutes only a license to use a portion of the property at each
Location and shall not be construed as a lease, easement or any other
interest in real property. Subject to Section 6(b), Account shall at
all times retain the right to temporarily or permanently discontinue
its supermarket operations at any Location. Account acknowledges that
the Machines shall at all times remain the sole property of Glacier.
Glacier shall have the right to remove Machines from any Location if,
in Glacier's sole discretion, such Machines are not sufficiently
profitable to merit continued operation at such Location.
14. Entry; Cooperation.
------------------
(a) Maintenance. Account shall allow Glacier's agents, contractors and
-----------
employees to enter each Location for the purpose of maintaining and
servicing the Machines during regular business hours.
(b) Promotional Activities. Account shall cooperate with Glacier in
----------------------
promoting Glacier's products and services and shall not interfere
with sales from or discourage the use of the Machines by any means
whatsoever. Without limiting the foregoing, Account shall permit
Glacier and its authorized agents and representatives to demonstrate
Glacier's products and conduct other promotional activities or point
of purchase programs at the Locations as Glacier shall deem
appropriate, at no cost to Glacier.
15. Assignment. This Agreement shall be binding upon the parties hereto,
----------
as well as their respective legal representatives, successors and assigns. No
assignment of this Agreement by Account shall be effective without the prior
written consent of Glacier. Any assignment of this Agreement by Account in
contravention of this Agreement shall constitute a material breach hereof by
Account.
16. Confidentiality. Glacier and Account shall keep the terms and
---------------
conditions of this Agreement strictly confidential, except as otherwise required
by law, including the filing of this Agreement with any governmental agency
pursuant to public reporting requirements.
17. Governing Law. This Agreement shall be governed by the laws of the
-------------
State of California.
<PAGE>
18. Independent Contractor. Nothing in this Agreement shall be construed
----------------------
as creating a joint venture or partnership between Account and Glacier. Account
and Glacier agree that Glacier is an independent contractor and not an employee,
agent or representative of Account.
19. Notices. Any notice which one party desires to give the other shall
-------
be in writing and shall be wither delivered personally or sent by United States
mail, postage prepaid, certified, return receipt requested to the current
address of each party:
If to Account: Ralphs Grocery Company
1100 W. Artesia Blvd.
Compton, CA 90220
Attn: Legal Department
If to Glacier: Glacier Water Services, Inc.
2261 Cosmos Court
Carlsbad, CA 92009
Attn: Jerry Gordon
20. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.
This Agreement is signed this 13th day of December, 1996.
Ralphs Grocery Company
By: /s/ Tom Dahlen
----------------------------------------
Name: Tom Dahlen
Title: Senior Vice President, Marketing
Cala Co.
By: /s/ Tom Dahlen
----------------------------------------
Name: Tom Dahlen
Title: Senior Vice President, Marketing
GW Services, Inc.
By: /s/ Jerry A. Gordon
----------------------------------------
Name: Jerry A. Gordon
Title: President, Chief Operating Officer
<PAGE>
EXHIBIT A
LOCATIONS
---------
[Confidential information has been omitted from this section. The information
that has been omitted has been filed with the Securities and Exchange
Commission.]
<PAGE>
EXHIBIT B
INSURANCE REQUIREMENTS
----------------------
1. Glacier shall provide evidence of Public Liability and Broad Form Property
Damage Insurance. The limits of said coverage shall be not less than
$1,000,000 Combined Single Limit for Bodily Injury, Death and/or Property
Damage.
2. Glacier shall provide evidence of Automobile Bodily Injury and Property
Damage Insurance covering all vehicles moving under their own power and
engaged in the work under contract. Coverage shall be no less than
$1,000,000 Combined Single Limit for Bodily Injury, Death and/or Property
Damage.
3. Glacier shall provide evidence of Workers' Compensation Insurance on its and
subcontractor's employees in accordance with applicable law.
4. Seller shall submit to Account evidence of the above required insurance which
shall contain certification by the insurance companies that such insurance
shall not be canceled or materially changed without at least thirty (30) days
prior notification to Account.
5. All insurance must be placed with the company rated by "Best" and have a
"Best" rating of at least B+,VII
<PAGE>
AMENDMENT NO. 1 TO LOCATION AGREEMENT
The Location Agreement ("Agreement"). Made as of the 13th day of December, 1996,
in Los Angeles County, California, by and between GW Services, Inc., a
California corporation (hereinafter referred to as "Glacier") and Ralphs Grocery
Company, a Delaware corporation (hereinafter referred to as "Account") shall be
amended as follows:
1. In the first paragraph, the first and second lines shall be deleted and in
their place shall be:
"This Agreement is made as of December 13, 1996 by and between Ralphs
Grocery Company, a Delaware corporation ("Account") and GW Services, Inc.,
a California..."
2. In the first paragraph, Account shall include the following:
"Cala Co., a Delaware corporation."
3. The second paragraph shall have the third, fourth and fifth lines deleted
and in their place shall be:
"...locations now or hereafter owned or leased by Account (the "Locations"),
including without limitation all Locations operating under the "Ralphs",
"Food 4 Less", "Cala Foods", "Bell Markets", or "Foods Co." names by Account
or its subsidiaries in order to sell processed water to the public."
4. Paragraph 1, Term, shall have the first, second and third lines deleted and
----
in their place shall be:
Term. This Agreement shall commence on the day, month and year first
----
hereinabove written and shall continue for a period of sixty (60) months
(the "Initial Term"). After the Initial Term, this Agreement shall..."
5. Paragraph 1, Term, shall have the sixth and seventh lines deleted and in
----
their place shall be:
"...Account a reminder of impending termination date between 80 and 90 days
prior to the end of this Agreement; failure of Glacier to send such reminder
notice will relieve Account of its obligation to give 60 days notice so the
Account may the renewed Agreement at any time thereafter, at will and
without cause, upon sixty (60) days' written notice."
6. Paragraph 2, Placement of Machines, shall have the third line deleted and in
---------------------
its place shall be:
"...outside the supermarket buildings located at all existing Locations
owned or leased by Account, subject to any approvals required by the
landlord(s) of Account..."
7. Paragraph 2, Placement of Machines, shall have the eighth line deleted and
---------------------
in its place shall be:
"...Location shall be added to Schedule A. However the term for such
additions to Schedule A subsequent to execution hereof shall coincide with
the terms set forth in Paragraph 1 above. During the term of this Agreement,
Account shall not..."
<PAGE>
8. Paragraph 2, Placement of Machines, shall have the twelfth line deleted and
---------------------
in its place shall be:
"...determines, in its sole discretion, that because of the format of such
store it does not desire to supply the new..."
9. Paragraph 8, Maintenance of Machines; Compliance with Laws, Subparagraph
---------------------------------------------
(a), shall have the second line deleted and in its place shall be:
"...shall endeavor to promptly report to Glacier the theft of, damage to, or
malfunction of any Machine."
10. Paragraph 10, No Conflicts, shall have the first line deleted and in its
------------
Place shall be:
"10. No Conflicts. Account state that at all times..."
------------
11. Paragraph 11, Indemnification, Subparagraph (b), Indemnification of Glacier,
--------------- --------------------------
shall have the seventh and eighth lines deleted and in its place shall be:
"...arising out of Account's performance under the Agreement provided..."
12. Paragraph 12, Termination, shall have the following Subparagraph (a) added
-----------
and the present Subparagraph (s) shall be renumbered Subparagraph (b):
"(a) Termination Provision. Should this Agreement terminate prior to the end
---------------------
of the term hereof, Account agrees to repay any unearned portion of the
Marketing Allowance received by Account in accordance with the provisions
of Section 6(c) and 6(d) of the Agreement, which payment shall be
Glacier's sole and exclusive remedy for such termination."
13. Paragraph 12, Termination, Subparagraph (b) [originally Subparagraph (a)],
-----------
Material Breach, shall have the fourth line deleted and in its place shall
have the fourth line deleted and in its place shall be:
"..authorized or obligated to close) following receipt of written notice
thereof by the terminating party, Upon..."
14. Paragraph 12, Termination, Subparagraph (b), Material Breach, shall have the
----------- ---------------
seventh, eighth and ninth lines deleted and in its place shall be:
"...with respect to each Location."
15. Paragraph 14, Entry; Cooperation, Subparagraph (b), Promotional Activities,
------------------ ----------------------
shall have the sixth line deleted and in its place shall be:
"...appropriate, with the consent of Account, at no cost to Account."
16. Paragraph 15, Assignment, shall have the third line deleted and in its place
----------
shall be:
"15. Assignment. This Agreement shall be binding upon the parties hereto, as
----------
well as their respective legal representatives, successors and assigns. No
assignment of this Agreement by either party
<PAGE>
shall be effective without the prior written consent of the other. Any
assignment of this Agreement in contravention of this Agreement shall
constitute a material breach hereof."
17. Force Maleure. Neither party shall be liable for delay or failure to
-------------
perform in whole or part any of the promises or responsibilities of this
Agreement by reason of contingencies beyond it control, including lack or
failure of raw materials, labor disturbances (including strikes and
lockouts), ware, acts of God, hurricanes, fires, storms, accidents,
government regulation or interference of any other cause whatever beyond its
control.
18. Exhibit B, Insurance Requirements, shall have the first and second lines
deleted and in their place shall be:
19.
"5. Glacier shall submit to Account, before commencement of work, a
certificate of insurance evidencing the above-required insurance which shall
name Account as an additional insured and shall contain certification by the
insurance companies that such insurance shall not be canceled or
materially..."
20. All other terms and conditions of the Agreement by and between Glacier and
Account shall remain the same. In the event of any conflict in the language
of the Agreement and this Addendum relating to specific terms, conditions or
obligations dealt with herein between the parties, the language of this
Addendum shall supersede and shall prevail over those conflicting terms.
21. The Agreement (including this Addendum) may be amended only by a written
instrument signed by all parties hereto.
22. The effective date of this Addendum and the Agreement of which it is a part
shall be the same.
23. The Agreement with Addendum set forth the entire agreement between Glacier
and Account relating to the subject matter hereof. Neither party relies upon
any representation or warranty, express or implied, not expressly set forth
therein.
All of the terms and conditions of the location agreement and addendum are
hereby fully agreed to by the parties.
GW Services, Inc. Ralph's Grocery Company
- ----------------- -----------------------
/s/ Jerry A. Gordon /s/ Tom Dahlen
------------------------------ --------------------------------
Jerry A. Gordon, Tom Dahlen,
President & COO Senior Vice President, Marketing
Cala Co.
--------
/s/ Tom Dahlen
--------------------------------
Tom Dahlen,
Senior Vice President, Marketing
<PAGE>
Exhibit 10.8.2
SECOND AMENDMENT TO GLACIER WATER SERVICES, INC.
1994 STOCK COMPENSATION PROGRAM
1. Purpose
-------
The purpose of this Second Amendment to Glacier Water Services, Inc. 1994
Stock Compensation Program (the "Amendment") is to modify certain provisions
pursuant to which members of the Board of Directors of Glacier Water Services,
Inc. may elect to receive Deferral Election stock options in lieu of cash
director fees.
2. Definitions
-----------
Terms used in this Amendment and not defined herein shall have the meaning
ascribed to them in the Glacier Water Services, Inc. 1994 Stock Compensation
Program ( the "Program").
3. Vesting
-------
The last sentence of Paragraph 3 of the 1994 Non-Employee Directors Stock
Option Plan is amended by deleting the text "10 years" and replacing it with the
text "five (5) years".
4. Date of the Amendment
---------------------
This Second Amendment is dated September 17, 1996, and shall be effective
for all Deferral Election Stock Options granted prior to the date hereof or
granted hereafter.
<PAGE>
Exhibit 10.9
ASSET PURCHASE AGREEMENT
dated as of March 28, 1997
by and between
GLACIER WATER SERVICES, INC.
and
MCKESSON CORPORATION and
MCKESSON WATER PRODUCTS COMPANY
with respect to the assets of its
AQUA-VEND DIVISION
<PAGE>
TABLE OF CONTENTS
-----------------
This Table of Contents is not part of the Agreement to which it is
attached but is inserted for convenience only.
ARTICLE I
SALE OF ASSETS AND CLOSING
<TABLE>
<CAPTION>
Page
No.
----
<S> <C>
1.01 Assets........................................................ 1
1.02 Liabilities................................................... 4
1.03 Purchase Price; Allocation.................................... 5
1.04 Closing....................................................... 6
1.05 Prorations; Reimbursements.................................... 6
1.06 Further Assurances............................................ 7
1.07 Third-Party Consents.......................................... 8
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF MWP AND MCKESSON
2.01 Organization.................................................. 9
2.02 Authority..................................................... 9
2.03 No Conflicts.................................................. 10
2.04 Governmental Approvals and Filings............................ 10
2.05 Books and Records............................................. 11
2.06 Financial Statements.......................................... 11
2.07 No Undisclosed Liabilities.................................... 11
2.08 Tax........................................................... 11
2.09 Legal Proceedings............................................. 11
2.10 Compliance With Laws and Orders............................... 12
2.11 Benefit Plans; ERISA.......................................... 12
2.12 Real Property................................................. 12
2.13 Tangible Personal Property.................................... 13
2.14 Intellectual Property Rights.................................. 13
2.15 Business Contracts............................................ 14
2.16 Location Agreements........................................... 14
2.17 Licenses...................................................... 14
2.18 Employees; Labor Relations.................................... 15
2.19 Environmental Matters......................................... 15
2.20 Inventory..................................................... 16
2.21 Vehicles...................................................... 16
2.22 Entire Business............................................... 16
2.23 Brokers....................................................... 16
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF GLACIER
</TABLE>
-i-
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<TABLE>
<CAPTION>
Page
No.
----
<S> <C>
3.01 Organization.................................................. 17
3.02 Authority..................................................... 17
3.03 No Conflicts.................................................. 17
3.04 Governmental Approvals and Filings............................ 18
3.05 Brokers....................................................... 18
ARTICLE IV
COVENANTS OF MWP AND MCKESSON
4.01 Delivery of Books and Records, etc............................ 18
4.02 Noncompetition................................................ 18
4.03 Licenses...................................................... 20
ARTICLE V
COVENANTS OF GLACIER
5.01 Nonsolicitation of Employees.................................. 21
5.02 Removal of Property........................................... 21
5.03 Use of Tradename.............................................. 22
5.04 Use of Toll-Free Telephone Number............................. 22
ARTICLE VI
TAX MATTERS AND POST-CLOSING TAXES
6.01 Transfer Taxes............................................... 22
ARTICLE VII
EMPLOYEE BENEFITS MATTERS
7.01 Offers........................................................ 23
7.02 Severance..................................................... 23
7.03 COBRA Continuation Coverage................................... 23
7.04 Benefit Plans................................................. 24
7.05 Welfare Benefit and Worker's Compensation Claims.............. 24
7.06 WARN; Certain Indemnities..................................... 25
ARTICLE VIII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
8.01 Survival of Representations and Warranties.................... 25
ARTICLE IX
INDEMNIFICATION
9.01 Indemnification............................................... 25
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
Page
No.
----
<S> <C>
9.02 Method of Asserting Claim..................................... 27
9.03 Tax Treatment of Indemnity Payments........................... 27
ARTICLE X
DEFINITIONS
10.01 Definitions.................................................. 27
ARTICLE XI
MISCELLANEOUS
11.01 Notices...................................................... 34
11.02 Entire Agreement............................................. 35
11.03 Expenses..................................................... 35
11.04 Confidentiality.............................................. 35
11.05 Waiver....................................................... 36
11.06 Amendment.................................................... 36
11.07 No Third Party Beneficiary................................... 36
11.08 No Assignment; Binding Effect................................ 36
11.09 Headings..................................................... 37
11.10 Governing Law................................................ 37
11.11 Counterparts................................................. 38
</TABLE>
EXHIBITS
Exhibit A General Assignment and Bill of Sale
Exhibit B Assumption Agreement
Exhibit C Secretary's Certificate of MWP
Exhibit D Opinion of Counsel to MWP and McKesson
Exhibit E Secretary's Certificate of Glacier
-iii-
<PAGE>
This ASSET PURCHASE AGREEMENT dated as of March 28, 1997, is made and
entered into by and between GLACIER WATER SERVICES, INC., a Delaware corporation
("Glacier"), and MCKESSON WATER PRODUCTS COMPANY, a California corporation
-------
("MWP") and a wholly-owned subsidiary of MCKESSON CORPORATION, a Delaware
---
corporation ("McKesson"). Capitalized terms not otherwise defined herein have
--------
the meanings set forth in Section 10.01.
-------------
WHEREAS, MWP is engaged through its Aqua-Vend division in the business
of manufacturing and operating coin-operated vending machines which filter and
otherwise reduce impurities from "tap" water and dispense water ("Machines") to
--------
customers (the "Business"); and
--------
WHEREAS, MWP desires to sell, transfer and assign to Glacier, and
Glacier desires to purchase and acquire from MWP, certain of the assets of MWP
relating to the operation of the Business, and in connection therewith, Glacier
has agreed to assume certain of the liabilities of MWP relating to the Business,
all on the terms set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth in this Agreement, and for other good and valuable
consideration, the receipt and suffi ciency of which are hereby acknowledged,
the parties hereto agree as follows:
ARTICLE I
SALE OF ASSETS AND CLOSING
1.01 Assets. (a) Assets Transferred. On the terms and subject to
------ ------------------
the conditions set forth in this Agreement, MWP will sell, transfer, convey,
assign and deliver to Glacier, and Glacier will purchase and pay for, at the
Closing, free and clear of all Liens, all of MWP's right, title and interest in,
to and under the following Assets and Properties of MWP used or held for use in
connection with the Business, except as otherwise provided in Section 1.01(b),
---------------
as the same shall exist on the Closing Date (the "Assets"):
------
(i) Real Property Leases. The leases and subleases of real property
--------------------
described in Section 1.01(a)(ii)(B) - Real Property LeasesSection
-------
1.01(a)(i) of the Disclosure Schedule leased in connection with the
-------------------------------------
Business, including all "Water Stop" vending machine leases and subleases,
to which MWP is the lessee or sublessee, together with any options to
purchase the underlying property and leasehold improvements thereon, and in
each case all other rights, subleases, licenses, permits, deposits and
profits
1
<PAGE>
appurtenant to or related to such leases and subleases (the "Real Property
-------------
Leases");
------
(ii) Inventory. All inventories of bottles, parts, coins in coin-
---------
changing mechanisms in Machines (for which Glacier shall reimburse MWP
pursuant to Section 1.05(c)), office and other supplies, demonstration
equipment, pack aging materials and other accessories related thereto, in
each case, which are used or held for use by MWP in the conduct of the
Business, together with all rights of MWP against suppliers of such
inventories (the "Inventory");
---------
(iii) Tangible Personal Property. All Machines (on location and in
--------------------------
storage) and all furniture, fixtures, equipment, and other tangible
personal property (other than Inventory and Vehicles) used or held for use
by MWP solely in the conduct of the Business (including but not limited to
the Machines and other items listed in Section 1.01(a)(iii) of the
---------------------------
Disclosure Schedule) (the "Tangible Personal Property");
------------------- --------------------------
(iv) Personal Property Leases. The leases of Tangible Personal
------------------------
Property (including but not limited to the leases described in Section
-------
1.01 (a) (iv) of the Disclosure Schedule as to which MWP is the lessee
----------------------------------------
or sublessee, together with any options to purchase the underlying
property (the "Personal Property Leases");
-----------------------
(v) Business Contracts. The Contracts relating to the location and
------------------
placement of Machines and such other customer location agreements (the
"Location Agreements"), Machine maintenance agreements, purchase orders,
--------------------
and marketing, manufacturing and distribution arrangements described in
Section 1.01(a)(v) of the Disclosure Schedule to which MWP is a party and
---------------------------------------------
utilized in the conduct of the Business (the "Business Contracts");
------------------
(vi) Prepaid Expenses. All fees, taxes and other prepaid expenses
----------------
(other than Trade Payments) paid by MWP relating to the Business or the
Assets (the "Prepaid Expenses");
----------------
(vii) Intangible Personal Property. All goodwill, rights, privileges,
----------------------------
claims, causes of action and options relating to the Business and the
Assets, all of MWP's right, title and interest in, to and under the names
"Aqua-Vend" or "The Water Stop" or any derivative thereof, and the Aqua-
Vend logo, and all of MWP's trademarks, applications for trademarks,
unregistered trademarks, Intellectual Property licenses, patents and
applications for patents each as
2
<PAGE>
described in Section 1.01(a)(vii) of the Disclosure Schedule (the
-----------------------------------------------
"Intangible Personal Property");
-----------------------------
(viii) Licenses. All Licenses (including applications therefor)
--------
utilized in the conduct of the Business (the "Business Licenses");
-----------------
(ix) Vehicles. The motor vehicles listed in Section 1.01(a)(ix) of
-------- ----------------------
the Disclosure Schedule owned by MWP and used or held for use in the
-----------------------
conduct of the Business (the "Vehicles");
--------
(x) Security Deposits. All utility, tenant and other security
-----------------
deposits deposited by MWP relating or pertaining to the Business or the
Assets (the "Security Deposits");
-----------------
(xi) Books and Records. The Books and Records listed in Section
----------------- -------
1.01(a)(xi) of the Disclosure Schedule used or held for use by MWP in the
--------------------------------------
conduct of the Business or otherwise relating to the Assets, other than the
minute books, stock transfer books and corporate seal of MWP (the "Business
--------
Books and Records");
-----------------
(xii) Trade Payments. All trade bonuses, slotting fees, machine
--------------
placement fees and prepaid commissions paid by MWP relating to the Business
or the Assets (the "Trade Payments"), including, without limitation, those
--------------
listed in Section 1.01(a)(xii) of the Disclosure Schedule; and
-----------------------------------------------
(xiii) Other Assets and Properties. All other Assets and Properties of
---------------------------
MWP used or held for use solely in connection with the Business except as
otherwise provided in Section 1.01(b) (the "Other Assets").
--------------- ------------
To the extent any of the Business Books and Records are items
susceptible to duplication and are either (x) used in connection with any of
MWP's businesses other than the Business or (y) are required by Law to be
retained by MWP, MWP may deliver photostatic copies or other reproductions from
which, in the case of Business Books and Records referred to in clause (xi),
information solely concerning MWP's businesses other than the Business has been
deleted.
(b) Excluded Assets. Notwithstanding anything in this Agreement to
---------------
the contrary, the following Assets and Properties of MWP (the "Excluded Assets")
---------------
shall be excluded from and shall not constitute Assets:
(i) Cash. Cash (including coins deposited into Machines for the
----
purchase of water prior to the Closing Date, but excluding coins in coin-
changing mechanisms in the
3
<PAGE>
Machines), commercial paper, certificates of deposit and other bank
deposits, treasury bills and other cash equivalents;
(ii) Insurance. Life insurance policies of officers and other
---------
employees of MWP and all other insurance policies whether or not relating
to the operation of the Business;
(iii) Employee Benefit Plans. All assets owned or held by any trust or
----------------------
other funding vehicle established pursuant to any Benefit Plan;
(iv) Tax Refunds. All refunds or credits, if any, of Taxes due to
-----------
MWP;
(v) Corporate Records. All Books and Records of MWP other than those
-----------------
listed in Section 1.01(a)(xi) of the Disclosure Schedule.
----------------------------------------------
(vi) Litigation Claims. Any rights (including indemnification) and
-----------------
claims and recoveries under litigation of MWP against third parties arising
out of or relating to events prior to the Closing Date;
(vii) Excluded Obligations. The rights of MWP in, to and under all
--------------------
Contracts of any nature, the obligations of MWP under which expressly are
not assumed by Glacier pursuant to Section 1.02(b);
---------------
(viii) Leased Vehicles. The motor vehicles leased by MWP, whether or
---------------
not used or held for use in connection with the Business (the "Leased
------
Vehicles");
--------
(ix) Regeneration Facility. All Assets and Properties used or held
---------------------
for use by MWP solely in connection with the regeneration of resins.
(x) Other Assets. The items described in Section 1.01(b)(viii) of the
------------ ----------------------------
Disclosure Schedule; and
-------------------
(xi) Rights under this Agreement. MWP's rights under this Agreement.
---------------------------
1.02 Liabilities. (a) Assumed Liabilities. In connection with the
----------- -------------------
sale, transfer, conveyance, assignment and delivery of the Assets pursuant to
this Agreement, on the terms and subject to the conditions set forth in this
Agreement, at the Closing, Glacier will assume and agree to pay, perform and
discharge when due the following obligations of MWP arising in connection with
the operation of the Business, as the same shall
4
<PAGE>
exist on the Closing Date (the "Assumed Liabilities"), and no others:
-------------------
(i) Real Property Lease Obligations. All obligations of MWP under the
-------------------------------
Real Property Leases arising and to be performed on or after the Closing
Date, and excluding any such obligations arising or to be performed prior
to the Closing Date;
(ii) Personal Property Lease Obligations. All obligations of MWP
-----------------------------------
under the Personal Property Leases arising and to be performed on or after
the Closing Date, and excluding any such obligations arising or to be
performed prior to the Closing Date; and
(iii) Obligations under Contracts and Licenses. All obligations of MWP
----------------------------------------
under the Business Contracts and Business Licenses arising and to be
performed on or after the Closing Date, and excluding any such obligations
arising or to be performed prior to the Closing Date.
(b) Retained Liabilities. Except for the Assumed Liabilities, Glacier
--------------------
shall not assume by virtue of this Agreement or the transactions contemplated
hereby, and shall have no liability for, any Liabilities of MWP (including,
without limitation, those related to the Business) of any kind, character or
description whatsoever (the "Retained Liabilities"). MWP shall discharge in a
--------------------
timely manner or shall make adequate provision for all of the Retained
Liabilities, provided that MWP shall have the ability to contest, in good faith,
--------
any such claim relating to any of the Retained Liabilities asserted in respect
thereof by any Person other than Glacier and its Affiliates.
1.03 Purchase Price; Allocation. (a) Purchase Price. The aggregate
-------------------------- --------------
purchase price for the Assets and for the covenant of MWP contained in Section
-------
4.02 is $9,000,000 (the "Purchase Price") and is payable at the Closing in cash,
- ---- --------------
in the manner provided in Section 1.04.
------------
(b) Allocation of Purchase Price. Glacier and MWP shall negotiate in
----------------------------
good faith to determine the allocation of the consideration paid by Glacier for
the Assets, such allocation to be decided upon within 60 days after the Closing
Date. Each party hereto agrees (i) that any such allocation shall be consistent
with the requirements of Section 1060 of the Code and the regulations
thereunder, (ii) to complete jointly and to file separately Form 8594 with its
Federal income Tax Return consistent with such allocation for the tax year in
which the Closing Date occurs and (iii) that no party will take a position
on any income, transfer or gains Tax Return, before any Governmental or
Regulatory Authority charged with the collection
5
<PAGE>
of any such Tax or in any judicial proceeding, that is in any manner
inconsistent with the terms of any such allocation without the consent of the
other party.
1.04 Closing. The Closing will take place at the offices of Milbank,
-------
Tweed, Hadley & McCloy, 601 South Figueroa Street, 30th Floor, Los Angeles,
California, or at such other place as Glacier and MWP mutually agree, at 10:00
A.M. local time on the Closing Date. At the Closing, Glacier will deliver,
among other things, the Purchase Price by wire transfer of immediately available
funds to such account as MWP may reasonably direct by written notice delivered
to Glacier. Simultaneously, (a) MWP will assign and transfer to Glacier good
and valid title in and to the Assets (free and clear of all Liens) by delivery
of (i) a General Assignment and Bill of Sale substantially in the form of
Exhibit A hereto (the "General Assignment"), duly executed by MWP, (ii) an
- --------- ------------------
assignment of the Intellectual Property in form and substance reasonably
satisfactory to Glacier, (iii) such other good and sufficient instruments of
conveyance, assignment and transfer, in form and substance reasonably acceptable
to Glacier's counsel, as shall be effective to vest in Glacier good title to the
Assets (the General Assignment and the other instruments referred to in clauses
(ii) and (iii) being collectively referred to herein as the "Assignment
----------
Instruments"), and (b) Glacier will assume from MWP the due payment, performance
- -----------
and discharge of the Assumed Liabilities by delivery of (i) an Assumption
Agreement substantially in the form of Exhibit B hereto (the "Assumption
--------- ----------
Agreement"), duly executed by Glacier, and (ii) such other good and sufficient
- ---------
instruments of assumption, in form and substance reasonably acceptable to MWP's
counsel, as shall be effective to cause Glacier to assume the Assumed
Liabilities as and to the extent provided in Sec tion 1.02(a) (the Assumption
----------------
Agreement and such other instruments referred to in clause (ii) being
collectively referred to herein as the "Assumption Instruments"). At the
----------------------
Closing, there shall also be delivered to MWP and Glacier the opinions,
certificates and other contracts, documents and instruments as reasonably
requested by Glacier or MWP.
1.05 Prorations; Reimbursements. The following prorations relating
--------------------------
to the Assets and the ownership and operation of the Business will be made as of
the Closing Date, with MWP liable to the extent such items relate to any time
period prior to the Closing Date and Glacier liable to the extent such items
relate to periods beginning with and subsequent to the Closing Date: (a) rents,
taxes and other items payable by MWP under the Real Property Leases; and (b) the
amount of rents, taxes (including, without limitation, any personal property
taxes) and charges for sewer, water, telephone, electricity and other utilities
relating to the Business and the Assets. In addition, Glacier shall reimburse
MWP for the following items as of the
6
<PAGE>
Closing Date: (x) the unamortized portion of all Prepaid Expenses, (y) all
refundable Security Deposits, and (z) coins in coin-changing mechanisms in the
Machines being sold by MWP hereunder. Except as otherwise agreed by the parties,
the net amount of all such prorations and reimbursements will be settled and
paid as soon as reasonably practicable after the Closing Date and at such time
as the amount of the expenses listed in (a) and (b) above are known to the
parties.
1.06 Further Assurances; Post-Closing Cooperation. (a) At any time
--------------------------------------------
or from time to time, at Glacier's request and without further consideration,
MWP shall execute and deliver to Glacier such other instruments of sale,
transfer, conveyance, assignment and confirmation, provide such materials and
infor mation and take such other actions as Glacier may reasonably deem
necessary or desirable in order more effectively to transfer, convey and assign
to Glacier, and to confirm Glacier's title to, all of the Assets, and, to the
full extent permitted by Law, to put Glacier in actual possession and operating
control of the Business and the Assets and to assist Glacier in exercising all
rights with respect thereto, and otherwise to cause MWP to fulfill its
obligations under this Agreement and the Operative Documents.
(b) MWP hereby agrees to fully cooperate and promptly assist Glacier
and its Representatives in a commercially reason able manner: (i) to demand and
receive from time to time any and all the Assets and to make endorsements and
give receipts and releases for and in respect of the same and any part thereof;
(ii) to institute, prosecute, compromise and settle any and all Actions or
Proceedings that Glacier may deem proper in order to collect, assert or enforce
any claim, right or title of any kind in or to the Assets; (iii) to defend or
compromise any or all Actions or Proceedings in respect of any of the Assets;
and (iv) to do all such acts and things in relation to the matters set forth in
the preceding clauses (i) through (iii) as Glacier may reasonably request,
including, without limitation, full and prompt cooperation and assistance with
Glacier's efforts to dispute or reduce any property taxes assessed against the
Business or the Assets by a Governmental or Regulatory Authority. Glacier
hereby agrees to fully cooperate and promptly assist MWP and its counsel in a
commercially reasonable manner to defend or compromise any or all Actions or
Proceedings with respect to the Business.
(c) Each party will afford the other party, its counsel and its
accountants, during normal business hours, reasonable access to the books,
records and other data relating to the Business in its possession with respect
to periods prior to the Closing and the right to make copies and extracts there
from, to the extent that such access may be reasonably required
7
<PAGE>
by the requesting party in connection with (i) the preparation of Tax Returns,
(ii) the determination or enforcement of rights and obligations under this
Agreement, (iii) compliance with the requirements of any Governmental or
Regulatory Authority, (iv) the determination or enforcement of the rights and
obligations of any Indemnified Party or (v) in connection with any actual or
threatened Action or Proceeding. Further each party agrees for a period
extending six (6) years after the Closing Date not to destroy or otherwise
dispose of any such books, records and other data unless such party shall first
offer in writing to surrender such books, records and other data to the other
party and such other party shall not agree in writing to take possession thereof
during the ten (10) day period after such offer is made.
(d) If, in order properly to prepare its Tax Returns, other documents
or reports required to be filed with Governmental or Regulatory Authorities or
its financial statements or to fulfill its obligations hereunder, it is
necessary that a party be furnished with additional information, documents or
records relating to the Business not referred to in paragraph (c) above, and
such information, documents or records are in the possession or control of the
other party, such other party shall use its best efforts to furnish or make
available such information, documents or records (or copies thereof) at the
recipient's request, cost and expense. Any information obtained by McKesson,
MWP or Glacier in accordance with this paragraph shall be held confidential by
such party in accordance with Section 11.04.
-------------
(e) Notwithstanding anything to the contrary contained in this
Section, if the parties are in an adversarial relation ship in litigation or
arbitration, the furnishing of information, documents or records in accordance
with paragraphs (c) or (d) of this Section shall be subject to applicable rules
relating to discovery.
(f) Glacier acknowledges that the listing of Assets in the Disclosure
Schedule referenced in this Agreement has been prepared by MWP on the basis of
the most recent compilation of data that was available to MWP at the time of
preparation and is not necessarily correct in all respects as of the Closing
Date. MWP agrees that the Disclosure Schedules shall be deemed to include all
additions to such compilations from the date of the compilation through the
Closing Date. To the best knowledge of MWP, since the date of such compilations
there have been no material dispositions of Assets outside the ordinary course
of the Business which are not included in such compilations.
1.07 Third-Party Consents. To the extent that any Real Property
--------------------
Lease, Personal Property Lease, Business Contract or Business License is not
assignable without the consent of another party, this Agreement shall not
constitute an assignment
8
<PAGE>
or an attempted assignment thereof if such assignment or attempted assignment
would constitute a breach thereof. MWP and Glacier shall use their best efforts
on a commercially reasonable basis to obtain the consent of such other party to
the assignment of any such Real Property Lease, Personal Property Lease, Bus
iness Contract or Business License to Glacier in all cases in which such consent
is or may be required for such assignment. If any such consent shall not be
obtained, MWP shall cooperate with Glacier in any reasonable arrangement
designed to provide for Glacier the benefits intended to be assigned to Glacier
under the relevant Real Property Lease, Personal Property Lease, Busi ness
Contract or Business License, including (i) entering into a mutually
satisfactory subcontracting or similar agreement with Glacier and (ii)
enforcement at the cost and for the account of Glacier of any and all rights of
MWP against the other party thereto arising out of the breach or cancellation
thereof by such other party or otherwise. If and to the extent that such
arrangement cannot be made, Glacier shall have no obligation pursuant to Section
-------
1.02 or otherwise with respect to any such Real Property Lease, Personal
- ----
Property Lease, Business Contract or Business License.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF MWP AND MCKESSON
MWP and McKesson, jointly and severally, hereby represent and warrant
to Glacier as follows:
2.01 Organization. Each of MWP and McKesson is a corporation duly
------------
organized, validly existing and in good standing under the laws of its state of
incorporation. MWP has full corporate power and authority to conduct the
Business as and to the extent now conducted and to own, use and lease the
Assets. MWP is duly qualified as a foreign corporation and is in good standing
in each jurisdiction in which it conducts the Business or holds any of the
Assets except such jurisdictions, if any, in which the failure to be so
qualified or in good standing would not have a material adverse effect upon the
Business.
2.02 Authority. Each of MWP and McKesson has full corporate power
---------
and authority to execute and deliver this Agreement and the Operative Documents
to which it is a party, to perform its obligations hereunder and thereunder and
to consummate the transactions contemplated hereby and thereby, including
without limitation to sell and transfer (pursuant to this Agreement) the Assets.
The execution and delivery by each of MWP and McKesson of this Agreement and the
Operative Documents to which it is a party, and the performance by each of MWP
and McKesson of its obligations hereunder and thereunder, have been
9
<PAGE>
duly and validly authorized by the Board of Directors of MWP and McKesson,
respectively, no other corporate action on the part of MWP, McKesson or their
respective stockholders being necessary. This Agreement has been duly and
validly executed and delivered by each of MWP and McKesson and constitutes, and
upon the exe cution and delivery by each of MWP and McKesson of the Operative
Documents to which it is a party, such Operative Documents will constitute,
legal, valid and binding obligations of MWP and McKesson enforceable against MWP
and McKesson in accordance with their terms.
2.03 No Conflicts. The execution and delivery by each of MWP and
------------
McKesson of this Agreement do not, and the execution and delivery by each of MWP
and McKesson of the Operative Docu ments to which it is a party, the performance
by each of MWP and McKesson of its obligations under this Agreement and such
Operative Documents and the consummation of the transactions contemplated hereby
and thereby will not:
(a) conflict with or result in a violation or breach of any of the
terms, conditions or provisions of the articles of incorporation or by-laws (or
other comparable corporate charter documents) of MWP or McKesson;
(b) subject to obtaining the consents, approvals and actions, making
the filings and giving the notices disclosed in Section 2.04 of the Disclosure
------------------------------
Schedule, conflict with or result in a violation or breach of any term or
- --------
provision of any Law or Order applicable to MWP, McKesson or any of their Assets
and Properties, except where such conflict could not reasonably be expected to
have a material adverse effect on the Business or the Assets; or
(c) except as disclosed in Section 2.03 of the Disclosure Schedule,
---------------------------------------
(i) conflict with or result in a violation or breach of, (ii) constitute (with
or without notice or lapse of time or both) a default under, (iii) require MWP
or McKesson to obtain any consent, approval or action of, make any filing with
or give any notice to any Person as a result or under the terms of, or (iv)
result in the creation or imposition of any Lien upon MWP, McKesson or any of
their Assets and Properties under, any Contract or License to which MWP or
McKesson is a party or by which any of their Assets and Properties is bound,
except where such conflict, default, failure or result could not reasonably be
expected to have a material adverse effect on the Business or the Assets.
2.04 Governmental Approvals and Filings. Except as disclosed in
----------------------------------
Section 2.04 of the Disclosure Schedule, no consent, approval or action of,
- ---------------------------------------
filing with or notice to any Governmental or Regulatory Authority on the part of
MWP or McKesson is required in connection with the execution, delivery and per
formance of this Agreement or any of the Operative Documents to
10
<PAGE>
which it is a party or the consummation of the transactions contemplated hereby
or thereby.
2.05 Books and Records. Except as set forth in Section 2.05 of the
----------------- -------------------
Disclosure Schedule, none of the Business Books and Records is recorded, stored,
- -------------------
maintained, operated or otherwise wholly or partly dependent upon or held by any
means (including any electronic, mechanical or photographic process, whether
computerized or not) which (including all means of access thereto and therefrom)
are not under the exclusive ownership and direct control of one or more
Employees.
2.06 Financial Statements. All of the financial statements to be
--------------------
delivered to Glacier pursuant to Section 4.04 of this Agreement (i) will be
------------
prepared from the Books and Records of MWP in accordance with GAAP, (ii) will
fairly present the financial condition and results of operations of the Business
as of the respective dates thereof and for the respective periods covered
thereby, and (iii) will be compiled from Business Books and Records regularly
maintained by management and used to prepare the financial statements of MWP in
accordance with the principles stated therein. MWP has maintained the Business
Books and Records in a manner sufficient to permit the preparation of such
financial statements in accordance with GAAP, the Business Books and Records
fairly reflect, in all material respects, the income, expenses, assets and
liabilities of the Business and the Business Books and Records provide a fair
and accurate basis for the preparation of the financial statements to be
delivered to Glacier in accordance with Section 4.04.
------------
2.07 No Undisclosed Liabilities. Except as disclosed in Section 2.07
-------------------------- ------------
of the Disclosure Schedule or any other Section of the Disclosure Schedule,
- --------------------------
there are no Liabilities against, relating to or affecting the Business or any
of the Assets, other than Liabilities incurred in the ordinary course of
business consistent with past practice which in the aggregate are not material
to the Condition of the Business.
2.08 Taxes. There are no Liens for Taxes upon any of the Assets and,
-----
to the Knowledge of MWP and McKesson, no event has occurred which with the
passage of time or the giving of notice, or both, could reasonably be expected
to result in a Lien for Taxes on any of the Assets. Glacier will not assume or
otherwise become liable for any Taxes relating to the Business or the Assets for
any period ending on or before the Closing Date.
2.09 Legal Proceedings. Except as disclosed in Section 2.09 of the
----------------- -------------------
Disclosure Schedule (with paragraph references corresponding to those set forth
- -------------------
below):
11
<PAGE>
(a) there are no Actions or Proceedings pending or, to the Knowledge
of MWP or McKesson, threatened against, relating to or affecting MWP or McKesson
with respect to the Business or any of its Assets and Properties which (i) could
reasonably be expected to result in the issuance of an Order restraining,
enjoining or otherwise prohibiting or making illegal the consummation of any of
the transactions contemplated by this Agreement or any of the Operative
Documents or otherwise result in a material diminution of the benefits
contemplated by this Agreement or any of the Operative Documents to Glacier, or
(ii) if determined adversely to MWP or McKesson, could reasonably be expected to
result in any injunction or other equitable relief that would interfere in any
material respect with the Business;
(b) there are no facts or circumstances Known to MWP or McKesson that
could reasonably be expected to give rise to any Action or Proceeding that would
be required to be disclosed pursuant to clause (a) above; and
(c) there are no Orders outstanding against MWP or McKesson with
respect to the Business.
2.10 Compliance With Laws and Orders. Except as disclosed in Section
------------------------------- -------
2.10 of the Disclosure Schedule, each of MWP and McKesson is not, nor has it at
- -------------------------------
any time within the last five (5) years been, nor has it received any notice
that it is or has at any time within the last five (5) years been, in violation
of or in default under, in any material respect, any Law or Order applicable to
the Business or the Assets, except where such violation or default could not
reasonably be expected to have a material adverse effect on the Business or the
Assets.
2.11 Benefit Plans; ERISA. MWP does not have an obligation to
--------------------
contribute to a "multiemployer plan" within the meaning of Section 3(37) of
ERISA with respect to any Employee or former Employee and no Employee is covered
by a collective bargaining agreement. No transaction contemplated by this
Agreement will result in liability to the Pension Benefit Guaranty Corporation
under Section 4069 of ERISA with respect to Glacier, MWP, McKesson or any
corporation or organization controlled by or under common control with any of
the foregoing within the meaning of Section 4001 of ERISA, and no event,
condition or set of circumstances exists or existed that could result in any
such liability with respect to Glacier, MWP, McKesson or any such corporation or
organization.
2.12 Real Property. (a) MWP has a valid and subsisting leasehold
-------------
estate in and the right to quiet enjoyment of the real properties subject to the
Real Property Leases described in Section 1.01(a)(i) of the Disclosure Schedule
---------------------------------------------
for the full term thereof. Each Real Property Lease is a legal,
12
<PAGE>
valid and binding agreement, enforceable in accordance with its terms, of MWP
and of each other Person that is a party thereto, and except as set forth in
Section 2.12(a) of the Disclosure Schedule, there is no, nor has MWP received
- ------------------------------------------
any notice of any, default (or any condition or event which, after notice or
lapse of time or both, would constitute a default) thereunder. MWP does not owe
any brokerage commissions with respect to any such leased space.
(b) MWP has delivered to Glacier prior to the execution of this
Agreement true and complete copies of all Real Property Leases (including any
amendments and renewal letters).
(c) Except as disclosed in Section 2.12(c) of the Disclosure Schedule,
------------------------------------------
the improvements on the real properties subject to the Real Property Leases are
in good operating condition and in a state of good maintenance and repair,
ordinary wear and tear excepted, are adequate and suitable for the purposes for
which they are presently being used.
2.13 Tangible Personal Property. MWP is in possession of and has
--------------------------
good title to, or has valid leasehold interests in or valid rights under
Contract to use, all the Tangible Personal Property. All the Tangible Personal
Property is free and clear of all Liens other than Liens disclosed in Section
-------
2.13 of the Disclosure Schedule, and is in good working order and condition,
- -------------------------------
ordinary wear and tear excepted other than as disclosed in Section 1.01(a)(iii)
--------------------
of the Disclosure Schedule, and its use complies in all material respects with
- --------------------------
all applicable Laws.
2.14 Intellectual Property Rights. MWP has interests in or uses only
----------------------------
the Intellectual Property disclosed in Section 1.01(a)(vii) of the Disclosure
--------------------------------------
Schedule in connection with the conduct of the Business, each of which MWP
- --------
either has all right, title and interest in or a valid and binding rights under
Contract to use. Except as disclosed in Section 2.14 of the Disclosure
------------------------------
Schedule, (i) MWP has the exclusive right to use the Intellectual Property
- --------
disclosed in Section 1.01(a)(vii) of the Disclosure Schedule, (ii) all
-----------------------------------------------
registrations with and applications to Governmental or Regulatory Authorities in
respect of such Intellectual Property are valid and in full force and effect and
are not subject to the payment of any Taxes or maintenance fees or the taking of
any other actions by MWP to maintain their validity or effectiveness, (iii) MWP
has taken reasonable security measures to protect the secrecy, confiden tiality
and value of its trade secrets in respect of the Business and (iv) to the
Knowledge of MWP and McKesson, no such Intellec tual Property is being infringed
by any other Person. Except as disclosed in Section 2.14 of the Disclosure
------------------------------
Schedule, neither MWP nor McKesson has received notice that MWP is infringing
- --------
any Intellectual Property of any other Person in connection with the
13
<PAGE>
conduct of the Business, no claim is pending or, to the Knowledge of MWP and
McKesson, has been made to such effect that has not been resolved and, to the
Knowledge of MWP and McKesson, MWP is not infringing any Intellectual
Property of any other Person in connection with the conduct of the Business.
2.15 Business Contracts. (a) Section 1.01(a)(v) of the Disclosure
------------------ ------------------------------------
Schedule contains a true and complete list of all material Business Contracts
- --------
used or held for use in the Business. Each Business Contract is in full force
and effect and constitutes a legal, valid and binding agreement, enforceable in
accordance with its terms, of each party thereto; and except as disclosed in
Section 2.15(a) of the Disclosure Schedule none of MWP, McKesson or, to the
- ------------------------------------------
Knowledge of MWP and McKesson, any other party to such Business Contract is, or
has received notice that it is, in violation or breach of or default under any
such Business Contract (or with notice or lapse of time or both, would be in
violation or breach of or default under any such Business Contract) in any
material respect; and
(b) Except as disclosed in Section 2.15(b) of the Disclosure Schedule,
------------------------------------------
(i) the execution, delivery and performance by each of MWP and McKesson of this
Agreement and the Operative Documents to which it is a party, and the
consummation of the transactions contemplated hereby and thereby, will not (A)
result in or give to any Person any right of termination, cancellation,
acceleration or modification in or with respect to, (B) result in or give to any
Person any additional rights or entitlement to increased, additional,
accelerated or guaranteed payments under, or (C) result in the creation or
imposition of any Lien upon MWP or McKesson or any of its Assets and Properties
under, any Business Contract, and (ii) neither MWP nor McKesson is a party to or
bound by any Business Contract that has been or could reasonably be expected to
be, individually or in the aggregate with any other Business Contracts,
materially adverse to the Condition of the Business.
2.16 Location Agreements. Except as disclosed in Section 2.16 of the
------------------- -------------------
Disclosure Schedule, the execution, delivery and performance by each of MWP and
- -------------------
McKesson of this Agreement and the Operative Documents to which it is a party,
and the consummation of the transactions contemplated hereby and thereby, will
not result in or give to any Person any right to retain any of the unamortized
portion of the Trade Payments paid under each Location Agreement should any such
Location Agreement be terminated prior to its term.
2.17 Licenses. Except as disclosed in Section 2.17 of the Disclosure
-------- ------------------------------
Schedule, (with paragraph references corresponding to those set forth below):
- --------
14
<PAGE>
(a) MWP owns or validly holds all Licenses that are material,
individually or in the aggregate, to the Business;
(b) Each Business License (other than pending applications therefor)
is valid, binding and in full force and effect, except where a failure to
maintain such License could not reasonably be expected to have a material
adverse effect on the Business or the Assets.
(c) MWP is not, nor has MWP or McKesson received any notice that MWP
is, in default (or with the giving of notice or lapse of time or both,
would be in default) under any Business License, except where such default
could not reasonably be expected to have a material adverse effect on the
Business or the Assets; and
(d) the execution, delivery and performance by each of MWP and
McKesson of this Agreement and the Operative Docu ments to which it is a
party, and the consummation of the transactions contemplated hereby and
thereby, will not (A) result in or give to any Person any right of termi
nation, cancellation, acceleration or modification in or with respect to,
(B) result in or give to any Person any additional rights or entitlement to
increased, additional, accelerated or guaranteed payments under, or (C)
result in the creation or imposition of any Lien upon MWP, McKesson or any
of their Assets and Properties under, any Business License.
2.18 Employees; Labor Relations. Except as disclosed in Section 2.18
-------------------------- ------------
of the Disclosure Schedule, no Employee is presently a member of a collective
- --------------------------
bargaining unit and, to the Knowledge of MWP and McKesson, there are no
threatened or con templated attempts to organize for collective bargaining
purposes any of the Employees.
2.19 Environmental Matters. (a) Except as disclosed in Section
--------------------- -------
2.19(a) of the Disclosure Schedule, to the knowledge of MWP or McKesson, neither
- ----------------------------------
MWP, McKesson nor any previous owner, lessee, tenant, occupant or user of the
real property which is subject to the Real Property Leases (the "Real Property")
-------------
used, generated, manufactured, treated, handled, refined, processed, released,
discharged, stored or disposed of any Hazardous Materials on or under the Real
Property in violation of any Hazardous Materials Laws, or transported any
Hazardous Materials to or from the Real Property in violation of any Hazardous
Materials Laws. Except as disclosed in Section 2.19(a) of the Disclosure
---------------------------------
Schedule, to the knowledge of MWP or McKesson, no underground tanks or
- --------
underground deposits of Hazardous Materials exist on, under or in the Real
Property, in each case except in compliance with all Hazardous Materials Laws.
15
<PAGE>
(b) Except as disclosed in Section 2.19(b) to the Disclosure Schedule,
------------------------------------------
to the knowledge of MWP or McKesson, as of the Closing Date, there are no (i)
enforcement, clean-up, removal, mitigation or other governmental or regulatory
actions instituted or, to the knowledge of MWP or McKesson, contemplated or
threatened pursuant to any Hazardous Materials Laws affecting the Real Property,
(ii) claims made or threatened by any person or Governmental Body relating to
the Real Property against the Real Property, MWP or McKesson relating to damage,
contribution, cost recovery, compensation, loss or injury resulting from any
Hazardous Materials nor (iii) any occurrence or condition on the Real Property
that could subject to the Real Property to any material restrictions on
occupancy, transferability or use under any Hazardous Materials Laws.
2.20 Inventory. All the Inventory consists of a quality and quantity
---------
usable and salable in the ordinary course of business consistent with past
practice, subject to normal and customary allowances in the industry for damage
and outdated items. All items included in the Inventory are the property of
MWP, free and clear of any Lien, have not been pledged as collateral, are not
held by MWP on consignment from others and conform in all material respects to
all standards applicable to such inventory or its use or sale imposed by
Governmental or Regulatory Authorities.
2.21 Vehicles. Section 1.01(a)(ix) of the Disclosure Schedule
-------- ----------------------------------------------
contains a true and complete list of all motor vehicles owned by MWP and used or
held for use in the conduct of the Business (except for the Leased Vehicles
included in the Excluded Assets). Except as disclosed in Section 2.21 of the
-------------------
Disclosure Schedule, MWP has good and valid title to each Vehicle, free and
- -------------------
clear of all Liens.
2.22 Entire Business. The sale of the Assets by MWP to Glacier
---------------
pursuant to this Agreement will effectively convey to Glacier the entire
Business and all of the tangible and intan gible property used by MWP (whether
owned, leased or held under license by MWP, by any of MWP's Affiliates or by
others) solely in connection with the conduct of the Business as heretofore
conducted by MWP (except for the Excluded Assets). Except as disclosed in
Section 2.22 of the Disclosure Schedule, there are no shared facilities or
- ---------------------------------------
services which are used in connection with the Business and any other business
or operations of MWP or any of MWP's Affiliates.
2.23 Brokers. All negotiations relative to this Agreement and the
-------
transactions contemplated hereby have been carried out by MWP and McKesson
directly with Glacier without the intervention of any Person on behalf of MWP or
McKesson in such manner as to give rise to any valid claim by any Person against
16
<PAGE>
Glacier for a finder's fee, brokerage commission or similar payment.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF GLACIER
Glacier hereby represents and warrants to MWP and McKesson as follows:
3.01 Organization. Glacier is a corporation duly organized, validly
------------
existing and in good standing under the Laws of the State of Delaware. Glacier
has full corporate power and authority to enter into this Agreement and the
Operative Documents to which it is a party, to perform its obligations hereunder
and thereunder and to consummate the transactions contemplated hereby and
thereby.
3.02 Authority. The execution and delivery by Glacier of this
---------
Agreement and the Operative Documents to which it is a party, and the
performance by Glacier of its obligations here under and thereunder, have been
duly and validly authorized by the Board of Directors of Glacier, no other
corporate action on the part of Glacier or its stockholders being necessary.
This Agreement has been duly and validly executed and delivered by Glacier and
constitutes, and upon the execution and delivery by Glacier of the Operative
Documents to which it is a party, such Operative Documents will constitute,
legal, valid and binding obligations of Glacier enforceable against Glacier in
accordance with their terms.
3.03 No Conflicts. The execution and delivery by Glacier of this
------------
Agreement do not, and the execution and delivery by Glacier of the Operative
Documents to which it is a party, the performance by Glacier of its obligations
under this Agreement and such Operative Documents and the consummation of the
transactions contemplated hereby and thereby will not:
(a) conflict with or result in a violation or breach of any of the
terms, conditions or provisions of the certificate of incorporation or bylaws of
Glacier;
(b) conflict with or result in a violation or breach of any term or
provision of any Law or Order applicable to Glacier or any of its Assets and
Properties; or
(c) (i) conflict with or result in a violation or breach of, (ii)
constitute (with or without notice or lapse of time or both) a default under,
(iii) require Glacier to obtain any consent, approval or action of, make any
filing with or give
17
<PAGE>
any notice to any Person as a result or under the terms of, or (iv) result in
the creation or imposition of any Lien upon Glacier or any of its Assets or
Properties under, any Contract or License to which Glacier is a party or by
which any of its Assets and Properties is bound.
3.04 Governmental Approvals and Filings. No consent, approval or
----------------------------------
action of, filing with or notice to any Governmental or Regulatory Authority on
the part of Glacier is required in connection with the execution, delivery and
performance of this Agreement or the Operative Documents to which it is a party
or the consummation of the transactions contemplated hereby or thereby.
3.05 Brokers. All negotiations relative to this Agreement and the
-------
transactions contemplated hereby have been carried out by Glacier directly with
MWP and McKesson without the intervention of any Person on behalf of Glacier in
such manner as to give rise to any valid claim by any Person against MWP or
McKesson for a finder's fee, brokerage commission or similar payment.
ARTICLE IV
COVENANTS OF MWP AND MCKESSON
MWP and McKesson, jointly and severally, covenant and agree with
Glacier that after, for the period specified herein or, if no period is
specified herein, indefinitely, MWP and McKesson will comply with all covenants
and provisions of this Article IV, except to the extent Glacier may otherwise
----------
consent in writing.
4.01 Delivery of Books and Records, etc. On the Closing Date, MWP
-----------------------------------
and McKesson will deliver or make available to Glacier at the locations at which
the Business is conducted all of the Business Books and Records and such other
Assets as are in MWP's or McKesson's possession at other locations, and if at
any time MWP or McKesson discovers in its possession or under its control any
other Business Books and Records or other Assets, it will forthwith deliver such
Business Books and Records or other Assets to Glacier.
4.02 Noncompetition. (a) Each of MWP and McKesson will, for a
--------------
period of five (5) years from the Closing Date, refrain from, either alone or in
conjunction with any other Person, or directly or indirectly through its present
or future Affiliates:
18
<PAGE>
(i) participating or engaging in (other than through the beneficial
ownership of 5% or less of any class of securities registered under the
Securities Exchange Act of 1934, as amended), or otherwise lending
assistance (financial or otherwise) to any Person participating or engaged
in, the business of manufacturing and/or operating vending machines which
filter and otherwise reduce impuri ties from "tap" water and dispense such
water to customers (the "Water Vending Business") in any jurisdiction
----------------------
within the United States;
(ii) employing, engaging or seeking to employ or engage (other than
through a general solicitation to which such employee independently
responds) any Person who within the prior 12 months had been an employee of
Glacier or any of its Affiliates engaged in the Business, unless such
employee (A) resigns voluntarily (without any solicitation from MWP or any
of its Affiliates) or (B) is terminated by Glacier or any of its Affiliates
after the Closing Date;
(iii) causing or attempting to cause (A) any client, customer or
supplier of the Business to terminate or materially reduce its business
with Glacier or any of its Affiliates or (B) any officer, employee or
consultant of Glacier or any of its Affiliates engaged in the Business to
resign or sever a relationship with Glacier or any of its Affiliates; or
(iv) disclosing (unless compelled by judicial or administrative
process) or using any confidential or secret information relating to the
Business, Glacier or any customer or supplier of the Business or Glacier;
provided, however, the foregoing shall not prohibit MWP, McKesson or any of
- -------- -------
their Affiliates from (i) operating vending machines that dispense water
exclusively in prefilled, prepackaged bot tles, (ii) supplying regenerated resin
to other water companies within the United States, (iii) selling bottles that
transport vended water or such other products that facilitate the sale of vended
water, or (iv) purchasing all or substantially all of the stock or assets of (x)
any other Person engaged in the Water Vending Business so long as the Water
Vending Business is not the principal line of business of such other Person or
(y) any other Person who operates a plant or facility that directly vends water
through machines attached to a central purification facility. If MWP or any of
its Affiliates purchase all or substantially all of the stock or assets of any
other Person pursuant to the preceding clause (iv), MWP or McKesson shall, or
shall cause such Affiliate to, promptly offer the assets comprising the Water
Vending Business of such other Person to Glacier and, if Glacier is interested
in purchasing such assets, the parties shall negotiate
19
<PAGE>
in good faith to consummate a sale of such assets to Glacier for fair
consideration. If Glacier determines that it is not interested in purchasing
such assets, or if the parties cannot agree on a fair purchase price for the
assets, MWP or any of its Affiliates may operate such business.
(b) The parties hereto recognize that the Laws and public policies of
the various states of the United States may differ as to the validity and
enforceability of covenants similar to those set forth in this Section. It is
the intention of the parties that the provisions of this Section be enforced to
the fullest extent permissible under the Laws and policies of each jurisdiction
in which enforcement may be sought, and that the unenforceability (or the
modification to conform to such Laws or policies) of any provisions of this
Section shall not render unenforceable, or impair, the remainder of the
provisions of this Section. Accordingly, if any provision of this Section shall
be determined to be invalid or unenforceable, such invalidity or
unenforceability shall be deemed to apply only with respect to the operation of
such provision in the particular jurisdiction in which such determination is
made and not with respect to any other provision or jurisdiction.
(c) The parties hereto acknowledge and agree that any remedy at Law
for any breach of the provisions of this Section would be inadequate, and MWP
and McKesson hereby consent to the granting by any court of an injunction or
other equitable relief, without the necessity of actual monetary loss being
proved, in order that the breach or threatened breach of such provisions may be
effectively restrained.
4.03 Licenses. MWP and McKesson will make available true and
--------
complete copies of all material Licenses used or held for use in the Business
(and all pending applications for any such Licenses), setting forth the grantor,
the grantee, the function and the expiration and renewal date of each.
4.04 Financial Statements. MWP and McKesson agree to provide to
--------------------
Glacier, within 60 days after the Closing Date and at MWP's sole cost and
expense, true and complete copies of the following financial statements:
(a) the audited balance sheets of the Business as of March 31, 1997,
1996, 1995 and 1994, and the related audited consolidated statements of
operations, Stockholders' equity and cash flows for each of the fiscal years
then ended, together with a true and correct copy of the report on such audited
information by Deloitte & Touche LLP, and all letters from such accountants with
respect to the results of such audits; and
20
<PAGE>
(b) the unaudited balance sheets of the Business as of December 31,
1996, and the related unaudited consolidated statements of operations,
stockholders' equity and cash flows for the nine months then ended;
provided, however, that MWP may provide Glacier, in lieu of those items in
- -------- -------
paragraphs (a) and (b) above, with the financial state ments of the Business for
those periods and in such form as the Securities and Exchange Commission (the
"Commission") deems necessary to allow Glacier to meet its obligation to file
- -----------
such financial statements regarding the transaction contemplated hereby with the
Commission, pursuant to the provisions of the Securities Exchange Act of 1934,
as amended, and the rules and regulations related thereto.
(c) MWP agrees to provide Glacier, within 30 days after the Closing
Date and at MWP's sole cost and expense, (i) the unaudited internal monthly
income statements of the Business for each of the monthly periods ending January
31, 1996 through March 28, 1997, and (ii) the unaudited quarterly income
statements of the Business for each of the quarters ended March 31, June 30,
September 30, and December 31, 1996.
ARTICLE V
COVENANTS OF GLACIER
Glacier covenants and agrees with MWP and McKesson that Glacier will
comply with all covenants and provisions of this Article V, except to the extent
---------
MWP or McKesson may otherwise consent in writing.
5.01 Nonsolicitation of Employees. (a) Glacier will, for a period
----------------------------
of five (5) years from the Closing Date, refrain from, either alone or in
conjunction with any other Person, or directly or indirectly through its present
or future Affiliates, employing, engaging or seeking to employ or engage (other
than through a general solicitation to which such employee indepen dently
responds) any Person who within the prior 12 months had been an employee of
McKesson or any of its Affiliates who have not been engaged in the Business,
unless such employee (A) was transferred to Glacier at Closing in connection
with the sale of the Business, (B) resigns voluntarily (without any solicitation
from Glacier or any of its Affiliates), or (C) is terminated by McKesson or any
of its Affiliates after the Closing Date.
5.02 Removal of Property. To the extent that MWP or McKesson retains
-------------------
any facility or related real property lease that is used in connection with both
the Business and the businesses of MWP or McKesson which are not being
transferred to Glacier
21
<PAGE>
under this Agreement, within sixty (60) days after the Closing Date, Glacier
shall remove all Assets and Properties being sold to Glacier hereunder from such
facilities. Such removal shall be at the sole cost and risk of Glacier,
including risk of loss and damage to such Assets and Properties. MWP shall have
no liabi lity to Glacier with respect to such removal and transportation.
Glacier shall be responsible for any repairs to MWP's retained facilities that
become necessary as a result of damage caused by Glacier, its employees or
agents in connection with the removal of Glacier's Assets and Properties.
5.03 Use of Tradename. Within 60 days after the Closing Date,
----------------
Glacier shall remove the trade name "Sparkletts" or any reference thereto from
the Assets.
5.04 Use of Toll-Free Telephone Number. Within 60 days after the
---------------------------------
Closing Date, Glacier will use its best efforts to transfer to Glacier and
assume operation of, with the commerci ally reasonably cooperation of MWP, the
operation and maintenance of the toll-free, customer service telephone number
that is currently displayed on the Machines (the "800 Numbers"). MWP shall
maintain the 800 Numbers and the customer service personnel related thereto
until such time as Glacier notifies MWP that the 800 Numbers have been
transferred. Upon the receipt of appropriate documentation, Glacier shall
promptly reimburse MWP for all reasonable costs incurred by MWP to maintain the
800 Numbers, including salaries of customer service personnel, through the date
that Glacier notifies MWP of such transfer.
ARTICLE VI
TAX MATTERS AND POST-CLOSING TAXES
6.01 Transfer Taxes. McKesson and MWP, on the one hand, and Glacier,
--------------
on the other hand, shall each pay one-half of all sales, use, transfer, real
property transfer, recording, gains, stamp, duty, stock transfer and other
similar taxes and fees or liability for such taxes or fees ("Transfer Taxes")
arising out of or in connection with the transactions effected pursuant to this
Agreement. Within 60 days after the Closing Date, each party shall provide to
the other party copies of all Tax Returns and other documents required to be
filed by such party with respect to Transfer Taxes that arise out of or in
connection with the transactions effected pursuant to this Agreement, with
evidence of payment thereof. McKesson and MWP, on the one hand, and Glacier, on
the other hand, shall indemnify, defend, and hold harmless the other party on an
after-Tax basis with respect to such party's portion of such Transfer Taxes, as
provided in this Section 6.01.
------------
22
<PAGE>
ARTICLE VII
EMPLOYEE BENEFITS MATTERS
7.01 Offers. Glacier intends to offer employment to the Employees
------
listed on Exhibit A hereto on an at-will basis on the Closing Date (a
---------
"Probationary Offer"). Each Employee who accepts a Probationary Offer shall be
- -------------------
compensated at the same salary paid by MWP immediately prior to the Closing
Date, until such Employee is either terminated within the 90-day period or
offered continued employment (a "Non-probationary Offer") with Glacier. Glacier
----------------------
shall have no obligation to (i) make any Non-probationary Offers to any of the
Employees or (ii) offer compensation substantially the same as the compensation
provided by MWP immediately prior to the Closing Date for Employees given a Non-
probationary Offer.
7.02 Severance. MWP shall make available severance payments and
---------
other benefits in accordance with the terms of MWP's severance plan, as it is in
effect on the Closing Date (the "Severance Plan"), to any Employee who accepts
--------------
a Probationary Offer if that Employee should cease to be employed by Glacier on
or before the 90th day after the Closing Date for any reason other than
voluntary termination by the Employee; provided, however, that MWP shall also
-----------------
make available benefits under the Severance Plan for any Employee who
voluntarily terminates employment with Glacier on or before the 90th day after
the Closing Date if a Non-probationary Offer by Glacier (i) would require the
Employeeto work at a location more than 50 surface miles farther from Employee's
residence than was required when the Employee was employed by MWP, or (ii) would
pay the Employee a salary that was less than 90% of the salary the Employee was
being paid by MWP immediately prior to the Closing Date.
7.03 COBRA Continuation Coverage. MWP shall offer continued coverage
---------------------------
under MWP's group health plan to the extent required by the Consolidated Omnibus
Budget Reconciliation Act of 1985, as amended ("COBRA"), to each Employee. MWP
shall pay an amount equal to its current contribution for group health coverage
on behalf of any Employee who accepts a Probationary Offer for such continued
coverage until the 90th day following the Closing Date, provided that: (i) the
--------
Employee has elected to continue coverage; (ii) the Employee pays an amount
equal to the employee's rate of contribution in effect as of the Closing Date
for such continued coverage; and (iii) the Employee remains in the employ of
Glacier during the 90-day period. Glacier shall reimburse MWP for all amounts
paid pursuant to this Section 7.03. MWP and McKesson shall indemnify and hold
------------
harmless Glacier and its Affiliates from and against any Liability, costs, and
expenses, with respect to any obligation of MWP or McKesson to
23
<PAGE>
provide health care continuation coverage under COBRA for any Employee who
accepts a Non-Probationary Offer.
7.04 Benefit Plans. Any Employee who accepts a Non-probationary
-------------
Offer and who begins active employment with Glacier (a "Transferred Employee"),
--------------------
shall cease to participate in all Benefit Plans (except as otherwise stated
herein or as may be required by any Laws or by the terms of any Benefit Plan)
and shall be eligible to participate in Glacier's employee pension and welfare
benefit plans, programs, policies and arrangements ("Glacier's Benefit Plans")
-----------------------
as of the effective date of such Transferred Employee's hire date. Glacier
shall provide a Transferred Employee with employee benefits based under
Glacier's current employee benefit plan(s), giving each Transferred Employee
credit for all periods of employment with MWP up to a maximum of 5 years of
employment with MWP. MWP and McKesson shall indemnify and hold harmless Glacier
and its Affiliates from any Liability, costs, and expenses, with respect to any
Liability of MWP or McKesson that may arise under any Benefit Plan.
7.05 Welfare Benefit and Worker's Compensation Claims. (a) MWP shall
------------------------------------------------
retain sole responsibility for all dental, medical, life insurance and
disability expenses and benefits for each Transferred Employee and covered
dependents of such Transferred Employee with respect to claims incurred prior to
the Closing Date by such person. Glacier shall have sole responsibility, in
accordance with the terms of any of Glacier's welfare plans, for expenses and
benefits with respect to claims incurred in respect of the Transferred
Employeeof any Trans ferred Employee on or after the Closing Date. For purposes
of this Section 7.05, a claim is deemed to be incurred when (A) with respect to
------------
medical or dental benefits, the medical or dental services giving rise to such
claim are performed and (B) with respect to life or disability benefits, when
the event giving rise to such claim occurs.
(b) MWP shall retain all Liabilities covered by MWP's workers'
compensation plan to the extent any such Liability arises out of or relates to
work-related illnesses or injuries caused by events occurring prior to the
Closing Date, even if such illnesses or injuries continue after the Closing
Date. Glacier shall be responsible for any such Liability after the Closing
Date, provided, however, that MWP shall reimburse Glacier for any Liability
-------- -------
arising out of or relating to a stress-related claim by any Employee who accepts
a Probationary Offer but does not receive a Non-probationary Offer. Glacier
will reimburse MWP for MWP's costs of providing workers' compensation coverage
for Liabilities that are Glacier's responsibility pursuant to this paragraph
---------
7.05(b).
- -------
24
<PAGE>
(c) All Employees shall, as of the Closing Date, be covered by
Glacier's workers' compensation plan. Any Employee who does not become a
Transferred Employee shall continue to be covered by MWP's workers' compensation
plan to the extent required by law.
7.06 WARN; Certain Indemnities. Without limiting the generality of
-------------------------
the obligations of MWP and McKesson under Sec tion 7.03, MWP shall indemnify and
-------------
hold harmless Glacier and its Affiliates from and against any and all Liability,
costs and expenses that may arise (i) with respect to any obligations and
liabilities under the Worker Adjustment and Retraining Notification Act of 1988,
as amended, and any similar state law with respect to any Employees terminated
by MWP (at any time after the Closing date) or by Glacier (if such termination
is within 90 days after the Closing date), or (ii) by reason of the severance
from the service of MWP of any Employee not offered, or continued in, employment
by Glacier.
ARTICLE VIII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
8.01 Survival of Representations and Warranties. Notwithstanding any
------------------------------------------
right of Glacier (whether or not exercised) to investigate the Business, or any
right of any party (whether or not exercised) to investigate the accuracy of the
representations and warranties of the other party contained in this Agreement,
Glacier, MWP and McKesson have the right to rely fully upon the representations
and warranties of the other contained in this Agreement. The representations and
warranties of Glacier, MWP and McKesson contained in this Agreement will survive
the Closing until the first anniversary of the Closing Date; provided that any
representation or warranty that would otherwise terminate in accordance with the
foregoing will continue to survive with respect to a particular claim for
indemnification if a written notice shall have been timely given under Article
-------
IX on or prior to such termination date, until such claim for indemnification
- --
has been satisfied or otherwise resolved.
ARTICLE IX
INDEMNIFICATION
9.01 Indemnification.
---------------
25
<PAGE>
(a) MWP and McKesson shall indemnify the Glacier Indemnified Parties
in respect of, and hold each of them harmless from and against, any and all
Losses suffered, incurred or sustained by any of them or to which any of them
becomes subject, resulting from, arising out of or relating to (i) any
misrepresentation, breach of warranty or nonfulfillment of or failure to perform
any covenant or agreement on the part of MWP or McKesson contained in this
Agreement or (ii) a Retained Liability, up to an aggregate amount of $4,500,000;
provided, however, that indemnification for any misrepresentation or breach of
- -----------------
warranty under Section 2.08 or Section 2.19 of this Agreement shall not exceed
------------ ------------
an aggregate amount of $9,000,000, taking into account any other sums paid or to
be paid pursuant to this Article XI under an indemnification claim.
(b) Notwithstanding the foregoing paragraph (a), MWP and McKesson
shall only be obligated to indemnify the Glacier Indemnified Parties for a
misrepresentation or breach of warranty under Section 2.16 of this Agreement
------------
resulting from, arising out of or relating to a termination of any Location
Agreement after the Closing Date, in an amount not to exceed the unamortized
portion of the Trade Payment, only if (i) Glacier has not committed a material
breach under such terminated Location Agreement after the Closing Date, (ii)
Glacier does not enter into a new location contract with such terminating party
relating to the Water Vending Business after the Closing Date and (iii) Glacier
does not recover the unamortized portion of the Trade Payment from such
terminating party.
(c) No amounts of indemnity shall be payable in the case of a claim by
a Glacier Indemnified Party under this Section 9.01, unless a Glacier
------------
Indemnified Party has suffered, incurred, sustained or become subject to Losses
referred to in such Sections in excess of $90,000 in the aggregate, in which
event a Glacier Indemnified Party shall be entitled to claim indemnity for the
full amount of such Losses.
(d) Glacier shall indemnify the MWP Indemnified Parties in respect of,
and hold each of them harmless from and against, any and all Losses suffered,
incurred or sustained by any of them or to which any of them becomes subject,
resulting from, arising out of or relating to (i) any misrepresentation, breach
of warranty or nonfulfillment of or failure to perform any covenant or agreement
on the part of Glacier contained in this Agreement or (ii) an Assumed Liability.
No amounts of indemnity shall be payable in the case of a claim by an MWP
Indemnified Party under this Section 9.01, unless an MWP Indemnified Party has
------------
suffered, incurred, sustained or become subject to Losses referred to in such
Sections in excess of $90,000 in the aggregate, in which event an MWP
Indemnified Party shall be entitled to claim indemnity for the full amount of
such Losses.
26
<PAGE>
9.02 Method of Asserting Claim. In the event that any claim is
-------------------------
asserted against any party hereto, or any party hereto is made a party defendant
in any Action or Proceeding, and such claim, Action or Proceeding involves a
matter which is the subject of a claim for indemnification under this Article,
then such party (an "Indemnified Party") shall give written notice to Glacier or
-----------------
MWP and McKesson, as the case may be (the "Indemnifying Party"), of such claim,
------------------
Action or Proceeding, and such Indemnifying Party shall have the right to join
in the defense of said claim, Action or Proceeding at such Indemnifying Party's
own cost and expense and, if the Indemnifying Party agrees in writing to be
bound by and to promptly pay the full amount of any final judgment from which no
further appeal may be taken and if the Indemnified Party is reasonably assured
of the Indemnifying Party's ability to satisfy such agreement, then at the
option of the Indemnifying Party, such Indemnifying Party may take over the
defense of such claim, Action or Proceeding, except that, in such case, the
Indemnified Party shall have the right to join in the defense of said claim,
Action or Proceeding at its own cost and expense.
9.03 Tax Treatment of Indemnity Payments. Any indemnity payment made
-----------------------------------
under this Agreement shall for all tax purposes be deemed as an adjustment to
the Purchase Price.
ARTICLE X
DEFINITIONS
10.01 Definitions. (a) Defined Terms. As used in this Agreement,
----------- -------------
the following defined terms have the meanings indicated below:
"Actions or Proceedings" means any action, suit, proceeding,
----------------------
arbitration or Governmental or Regulatory Authority investigation or audit.
"Affiliate" means any Person that directly, or indirectly through one
---------
of more intermediaries, controls or is controlled by or is under common control
with the Person speci fied. For purposes of this definition, control of a
Person means the power, direct or indirect, to direct or cause the direction of
the management and policies of such Person whether by Contract or otherwise and,
in any event and without limitation of the previous sentence, any Person owning
ten percent (10%) or more of the voting securities of another Person shall be
deemed to control that Person.
27
<PAGE>
"Agreement" means this Asset Purchase Agreement and the Exhibits, the
---------
Disclosure Schedule and the Schedules hereto, as the same shall be amended from
time to time.
"Assets" has the meaning ascribed to it in Section 1.01(a).
------ ---------------
"Assets and Properties" of any Person means all assets and properties
---------------------
of every kind, nature, character and description (whether real, personal or
mixed, whether tangible or intangible, whether absolute, accrued, contingent,
fixed or otherwise and wherever situated), including the goodwill related
thereto, operated, owned or leased by such Person, including without limitation
cash, cash equivalents, investment assets, accounts and notes receivable,
chattel paper, documents, instruments, general intangibles, real estate,
equipment, inventory, goods and intellectual property.
"Assignment Instruments" has the meaning ascribed to it in Section
---------------------- -------
1.04.
- ----
"Assumed Liabilities" has the meaning ascribed to it in Section
------------------- -------
1.02(a).
- -------
"Assumption Agreement" has the meaning ascribed to it in Section 1.04.
-------------------- ------------
"Assumption Instruments" has the meaning ascribed to it in Section
---------------------- -------
1.04.
- ----
"Benefit Plan" means any Plan established by MWP, or any predecessor
------------
or Affiliate of MWP, existing at the Closing Date or prior thereto, to which MWP
contributes or has contributed on behalf of any Employee, former Employee or
director, or under which any Employee, former Employee or director of MWP or any
beneficiary thereof is covered, is eligible for coverage or has benefit rights.
"Books and Records" of any Person means all files, documents,
-----------------
instruments, papers, books and records relating to the business, operations,
condition of (financial or other), results of operations and Assets and
Properties of such Person, including without limitation, financial statements,
Tax Returns and related work papers and letters from accountants, budgets,
pricing guidelines, ledgers, journals, deeds, title policies, minute books,
stock certificates and books, stock transfer ledgers, Contracts, Licenses,
customer lists, computer files and programs, retrieval programs, operating data
and plans and environmental studies and plans.
28
<PAGE>
"Business" has the meaning ascribed to it in the forepart of this
--------
Agreement.
"Business Books and Records" has the meaning ascribed to it in Section
-------------------------- -------
1.01(a)(xi).
- -----------
"Business Combination" means with respect to any Person, any merger,
--------------------
consolidation or combination to which such Person is a party, any sale,
dividend, split or other disposition of capital stock or other equity interests
of such Person or any sale, dividend or other disposition of all or
substantially all of the Assets and Properties of such Person.
"Business Contracts" has the meaning ascribed to it in Section
------------------ -------
1.01(a)(v).
- ----------
"Business Day" means a day other than Saturday, Sunday or any day on
------------
which banks located in the State of California are authorized or obligated to
close.
"Business Licenses" has the meaning ascribed to it in Section
----------------- -------
1.01(a)(viii).
- -------------
"Closing" means the closing of the transactions contemplated by
-------
Section 1.04.
- ------------
"Closing Date" means March 28, 1997.
------------
"Code" means the Internal Revenue Code of 1986, as amended, and the
----
rules and regulations promulgated thereunder.
"Condition of the Business" means the business, condition (financial
-------------------------
or otherwise), results of operations and Assets and Properties of the Business.
"Contract" means any agreement, lease, license, evidence of
--------
Indebtedness, mortgage, indenture, security agreement or other contract (whether
written or oral).
"Disclosure Schedule" means the record delivered to Glacier by MWP
-------------------
herewith and dated as of the date hereof, containing all lists, descriptions,
exceptions and other information and materials as are required to be included
therein by MWP pursuant to this Agreement.
"Employee" means, as at any time, each employee of MWP then engaged
--------
solely in the operation of the Business.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended, and the rules and regulations promulgated thereunder.
29
<PAGE>
"Excluded Assets" has the meaning ascribed to it in Section 1.01(b).
--------------- ---------------
"GAAP" means generally accepted accounting principles, consistently
----
applied throughout the specified period and in the immediately prior comparable
period.
"General Assignment" has the meaning ascribed to it in Section 1.04.
------------------ ------------
"Glacier" has the meaning ascribed to it in the forepart of this
-------
Agreement.
"Glacier Indemnified Parties" means Glacier and its officers,
---------------------------
directors, employees, agents and Affiliates.
"Governmental or Regulatory Authority" means any court, tribunal,
------------------------------------
arbitrator, authority, agency, commission, official or other instrumentality of
the United States, any foreign country or any domestic or foreign state, county,
city or other political subdivision.
"Hazardous Materials" shall mean any flammable, explosive, radioactive
-------------------
materials, asbestos, compounds known as polychlorinated biphenyls, chemicals now
known to cause cancer or reproductive toxicity, pollutants, contaminants,
hazardous wastes, toxic substances or related materials, including, without
limitation, any substances defined as or included in the definition of
"hazardous substances," "hazardous wastes," "hazardous materials," or "toxic
substances" under the Hazardous Materials Laws.
"Hazardous Materials Laws" means any and all present and future
------------------------
federal, state and local laws that relate to or impose liability or standards of
conduct concerning the environment, as now or hereafter in effect and as have
been or hereafter may be amended or reauthorized, including without limitation,
the Comprehensive Environmental Response, Compensation and Liability Act (42
U.S.C. 9601 et seq.), Hazardous Materials Transportation Act (42 U.S.C. 1802 et
seq.), the Resource Conservation and Recovery Act (42 U.S.C. 6901 et seq.), the
Federal Water Pollution Control Act (33 U.S.C. 1251 et seq.), the Toxic
Substances Control Act (14 U.S.C. 2601 et seq.), the Clean Air Act (42 U.S.C.
7901 et seq.), the National Environmental Policy Act (42 U.S.C. 4231 et seq.),
the Refuse Act (33 U.S.C. 407 et seq.), the Safe Drinking Water Act (42 U.S.C.
300(f) et seq.), and all rules, regulations, codes, ordinances and guidance
documents promulgated or published thereunder, and the provisions of any
licenses, permits, orders and decrees issued pursuant to any of the foregoing.
30
<PAGE>
"Indebtedness" of any Person means all obligations of such Person (i)
------------
for borrowed money, (ii) evidenced by notes, bonds, debentures or similar
instruments, (iii) for the deferred purchase price of goods or services (other
than trade payables or accruals incurred in the ordinary course of business),
(iv) under capital leases and (v) in the nature of guarantees of the obligations
described in clauses (i) through (iv) above of any other Person.
"Indemnified Party" has the meaning ascribed to it in Section 9.02.
----------------- ------------
"Indemnifying Party" has the meaning ascribed to it in Section 9.02.
------------------ ------------
"Intangible Personal Property" has the meaning ascribed to it in
----------------------------
Section 1.01(a)(vii).
- --------------------
"Intellectual Property" means all patents and patent rights,
---------------------
trademarks and trademark rights, trade names and trade name rights, service
marks and service mark rights, service names and service name rights, brand
names, inventions, processes, formulae, copyrights and copyright rights, trade
dress, business and product names, logos, slogans, trade secrets, industrial
models, processes, designs, methodologies, computer programs (including all
source codes) and related documentation, technical information, manufacturing,
engineering and technical drawings, know-how and all pending applications for
and registrations of patents, trademarks, service marks and copyrights.
"Inventory" has the meaning ascribed to it in Section 1.01(a)(ii).
--------- -------------------
"Knowledge" or "Known" means, with respect to any corporation, the
--------- -----
knowledge of any officer, director or employee of such corporation.
"Laws" means all laws, statutes, rules, regulations, ordinances and
----
other pronouncements having the effect of law of the United States, any foreign
country or any domestic or foreign state, county, city or other political
subdivision or of any Governmental or Regulatory Authority.
"Liabilities" means all Indebtedness, obligations and other
-----------
liabilities of a Person (whether absolute, accrued, contingent, fixed or
otherwise, or whether due or to become due).
"Licenses" means all licenses, permits, certificates of authority,
--------
authorizations, approvals, registrations, franchises and similar consents
granted or issued by any Governmental or Regulatory Authority.
31
<PAGE>
"Liens" means any mortgage, pledge, assessment, security interest,
-----
lease, lien, adverse claim, levy, charge or other encumbrance of any kind, or
any conditional sale Contract, title retention Contract or other Contract to
give any of the foregoing.
"Loss" means any and all damages, fines, fees, penalties,
----
deficiencies, losses and expenses (including without limitation interest, court
costs, fees of attorneys, accountants and other experts or other expenses of
litigation or other proceedings or of any claim, default or assessment).
"MWP" has the meaning ascribed to it in the forepart of this
---
Agreement.
"MWP Indemnified Parties" means MWP and its officers, directors,
-----------------------
employees, agents and Affiliates.
"Operative Documents" means, collectively, the General Assignment and
-------------------
the other Assignment Instruments, and the Assumption Agreement and the other
Assumption Instruments.
"Order" means any writ, judgment, decree, injunction or similar order
-----
of any Governmental or Regulatory Authority (in each such case whether
preliminary or final).
"Other Assets" has the meaning ascribed to it in Section 1.01(a)(xiv).
------------ --------------------
"Person" means any natural person, corporation, general partnership,
------
limited partnership, proprietorship, other business organization, trust, union,
association or Governmental or Regulatory Authority.
"Personal Property Leases" has the meaning ascribed to it in Section
------------------------ -------
1.01(a)(iv).
- -----------
"Plan" means any bonus, incentive compensation, deferred compensation,
----
pension, profit sharing, retirement, stock purchase, stock option, stock
ownership, stock appreciation rights, phantom stock, leave of absence, layoff,
vacation, day or dependent care, legal services, cafeteria, life, health,
accident, disability, workmen's compensation or other insurance, severance,
separation or other employee benefit plan, practice, policy or arrangement of
any kind, whether written or oral, including, but not limited to, any "employee
benefit plan" within the meaning of Section 3(3) of ERISA.
"Prepaid Expenses" has the meaning ascribed to it in Section
---------------- -------
1.01(a)(vi).
- -----------
32
<PAGE>
"Purchase Price" has the meaning ascribed to it in Section 1.03(a).
-------------- ---------------
"Real Property Leases" has the meaning ascribed to it in Section
-------------------- -------
1.01(a)(i).
- ----------
"Representatives" are the officers, directors, employees, agents,
---------------
counsel, accountants, financial advisors, consultants and other representatives
of a specified company.
"Retained Liabilities" has the meaning ascribed to it in Section
-------------------- -------
1.02(b).
- -------
"Security Deposits" has the meaning ascribed to it in Section
----------------- -------
1.01(a)(x).
- ----------
"Tangible Personal Property" has the meaning ascribed to it in Section
-------------------------- -------
1.01(a)(vii).
- ------------
"Tax Returns" means all tax returns, reports, statements and other
-----------
documents (including any amendments) required to be supplied to any Governmental
or Regulatory Authority with respect to Taxes.
"Taxes" means all taxes, charges, fees, levies or other assessments,
-----
including but not limited to all net income, gross income, gross receipts,
sales, use, ad valorem, transfer, franchise, profits, withholding, payroll,
employment, social security, unemployment, excise, estimated, stamp, occupation,
property or other taxes, fees, assessments or charges of any kind whatsoever,
including all interest and penalties thereon, and additions to tax or additional
amounts imposed by any taxing authority, domestic or foreign, upon a Person or
its Assets and Properties.
"Trade Payments" has the meaning ascribed to it in Section
-------------- -------
1.01(a)(xii).
- ------------
"Vehicles" has the meaning ascribed to it in Section 1.01(a)(ix).
-------- -------------------
(b) Construction of Certain Terms and Phrases. Unless the context of
-----------------------------------------
this Agreement otherwise requires, (i) words of any gender include each other
gender; (ii) words using the singular or plural number also include the plural
or singular number, respectively; (iii) the terms "hereof," "herein," "hereby"
and derivative or similar words refer to this entire Agreement; (iv) the terms
"Article" or "Section" refer to the specified Article or Section of this
Agreement; and (v) the phrases "ordinary course of business" and "ordinary
course of business consistent with past practice" refer to the business and
33
<PAGE>
practice of MWP in connection with the Business. Whenever this Agreement refers
to a number of days, such number shall refer to calendar days unless Business
Days are specified. All accounting terms used herein and not expressly defined
herein shall have the meanings given to them under GAAP.
ARTICLE XI
MISCELLANEOUS
11.01 Notices. All notices, requests and other communications
-------
hereunder must be in writing and will be deemed to have been duly given only if
delivered personally or by facsimile transmission or mailed (first class postage
prepaid) to the parties at the following addresses or facsimile numbers:
If to Glacier, to:
Glacier Water Services, Inc.
2261 Cosmos Court
Carlsbad, CA 92009
Facsimile No.: (619) 930-1206
Attn: Mr. Jerry R. Welch
with a copy to:
Milbank, Tweed, Hadley & McCloy
601 South Figueroa Street, 30th Floor
Los Angeles, CA 90017
Facsimile No.: (213) 629-5063
Attn: Kenneth J. Baronsky, Esq.
If to MWP, to:
McKesson Water Products Company
3280 East Foothill Boulevard, Suite 400
Pasadena, CA 91107
Facsimile No.: (818) 585-9923
Attn: Mr. Charles Norris
with a copy to:
McKesson Corporation
One Post Street, 34th Floor
San Francisco, CA 94104-5296
Facsimile No.: (415) 983-9369
Attn: Vice President and General Counsel
All such notices, requests and other communications will (i) if delivered
personally to the address as provided in this Section,
34
<PAGE>
be deemed given upon delivery, (ii) if delivered by facsimile transmission to
the facsimile number as provided in this Section, be deemed given upon
receipt,if delivered by mail in the manner described above to the address as
provided in this Section, be deemed given upon receipt (in each case regardless
of whether such notice, request or other communication is received by any other
Person to whom a copy of such notice, request or other communication is to be
delivered pursuant to this Section). Any party from time to time may change its
address, facsimile number or other information for the purpose of notices to
that party by giving notice specifying such change to the other party hereto.
11.02 Entire Agreement. This Agreement and the Operative Documents
----------------
and the other agreements contemplated hereby and thereby supersede all prior
discussions and agreements between the parties with respect to the subject
matter hereof and thereof between the parties, and contain the sole and entire
agreement between the parties hereto with respect to the subject matter hereof
and thereof.
11.03 Expenses. Except as otherwise expressly pro vided in this
--------
Agreement, each party will pay its own costs and expenses incurred in connection
with the negotiation, execution and closing of this Agreement and the Operative
Documents and the transactions contemplated hereby and thereby.
11.04 Confidentiality. Each party hereto will hold, and will use its
---------------
best efforts to cause its Affiliates, and their respective Representatives to
hold, in strict confidence from any Person (other than any such Affiliate or
Representative), unless (i) compelled to disclose by judicial or administrative
process (including without limitation in connection with obtaining the necessary
approvals of this Agreement and the transactions contemplated hereby of
Governmental or Regulatory Authorities) or by other requirements of Law or (ii)
disclosed in an Action or Proceeding brought by a party hereto in pursuit of its
rights or in the exercise of its remedies hereunder, all documents and
information concerning the other party or any of its Affiliates furnished to it
by the other party or such other party's Representatives in connection with this
Agreement or the trans actions contemplated hereby, except to the extent that
such documents or information can be shown to have been (a) previously known by
the party receiving such documents or information, (b) in the public domain
(either prior to or after the furnishing of such documents or information
hereunder) through no fault of such receiving party or (c) later acquired by the
receiving party from another source if the receiving party is not aware that
such source is under an obligation to another party hereto to keep such
documents and information confidential; provided that following the Closing the
--------
foregoing restrictions will not apply
35
<PAGE>
to Glacier's use of documents and information concerning the Business, the
Assets or the Assumed Liabilities furnished by MWP hereunder. In the event the
transactions contemplated hereby are not consummated, upon the request of the
other party, each party hereto will, and will cause its Affiliates and their
respective Representatives to, promptly redeliver or cause to be redelivered all
copies of documents and information furnished by the other party in connection
with this Agreement or the transactions contemplated hereby and destroy or cause
to be destroyed all notes, memoranda, summaries, analyses, compilations and
other writings related thereto or based thereon prepared by the party furnished
such documents and information or its Representatives.
11.05 Waiver. Any term or condition of this Agreement may be waived
------
at any time by the party that is entitled to the benefit thereof, but no such
waiver shall be effective unless set forth in a written instrument duly executed
by or on behalf of the party waiving such term or condition. No waiver by any
party of any term or condition of this Agreement, in any one or more instances,
shall be deemed to be or construed as a waiver of the same or any other term or
condition of this Agreement on any future occasion. All remedies, either under
this Agreement or by Law or otherwise afforded, will be cumulative and not
alternative.
11.06 Amendment. This Agreement may be amended, supplemented or
---------
modified only by a written instrument duly executed by or on behalf of each
party hereto.
11.07 No Third Party Beneficiary. The terms and pro visions of this
--------------------------
Agreement are intended solely for the benefit of each party hereto and their
respective successors or permitted assigns, and it is not the intention of the
parties to confer third-party beneficiary rights upon any other Person other
than any Person entitled to indemnity under Article IX.
----------
11.08 No Assignment; Binding Effect. Neither this Agreement nor any
-----------------------------
right, interest or obligation hereunder may be assigned by any party hereto
without the prior written consent of the other party hereto and any attempt to
do so will be void, except (a) for assignments and transfers by operation of Law
and (b) that Glacier may assign any or all of its rights, interests and
obligations hereunder (including without limitation its rights under Article IX)
----------
to a wholly-owned subsidiary, provided that any such subsidiary agrees in
writing to be bound by all of the terms, conditions and provisions contained
herein, but no such assignment shall relieve Glacier of its obligations
hereunder. Subject to the preceding sentence, this Agreement is binding upon,
inures to the benefit of and is enforceable by the parties hereto and their
respective successors and assigns.
36
<PAGE>
11.09 Headings. The headings used in this Agreement have been
--------
inserted for convenience of reference only and do not define or limit the
provisions hereof.
11.10 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the Laws of the State of California applicable to a
contract executed and performed in such State, without giving effect to the
conflicts of laws principles thereof.
37
<PAGE>
11.11 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
IN WITNESS WHEREOF, this Agreement has been duly exe cuted and
delivered by the duly authorized officer of each party as of the date first
above written.
GLACIER WATER SERVICES, INC.
By: /s/ Jerry R. Welch
___________________________
Jerry R. Welch
Chief Executive Officer and
Chairman of the Board
MCKESSON WATER PRODUCTS COMPANY
By: /s/ Charles A. Norris
___________________________
Charles A. Norris
President
MCKESSON CORPORATION
By: /s/ Charles A. Norris
____________________________
Charles A. Norris
Vice President
38
<PAGE>
Exhibit 10.10.2
MODIFICATION OF NOTE AND CREDIT AGREEMENT
-----------------------------------------
This Modification of Note and Credit Agreement ("Modification
Agreement") is entered into effective on June 20, 1996 by and among TOKAI BANK
OF CALIFORNIA, a California banking corporation, hereinafter referred to as
"Lender," GW SERVICES, INC., a California corporation, hereinafter referred to
as "Borrower," and GLACIER WATER SERVICES, INC., a Delaware corporation,
hereinafter referred to as "Guarantor."
RECITALS
A. On or about February 14, 1994 Lender, Borrower and Guarantor entered
into a Credit Agreement (hereinafter the "Credit Agreement") dated February 14,
1994.
B. Pursuant to the terms of the Credit Agreement the Borrower executed a
Promissory Note (hereinafter the "Note") dated February 28, 1994 payable to the
order of the Lender in the full amount of $12,000,000.00.
C. The Lender, the Borrower and the Guarantor executed those certain
Modifications of Note and Credit Agreement dated February 13, 1995, amending
certain terms and provisions of said Note and Credit Agreement, which includes
the increase of the credit facility from $12,000,000.00 to $16,000,000.00.
D. The Lender, the Borrower and the Guarantor executed that certain
Modification of Note and Credit Agreement dated February 6, 1996, amending
certain terms and provisions of said Note and Credit Agreement.
E. All capitalized terms herein which are not otherwise defined herein
shall have the meanings set forth in the Credit Agreement.
F. The Lender and Guarantor have requested and the Lender has agreed to
further modify the terms of the Note and Credit Agreement as set forth below.
NOW THEREFORE, for valuable consideration and the mutual promises and
agreements hereinafter contained, Lender, Borrower and Guarantor hereby amend as
follows, the terms and provisions of the Note and Credit Agreement as previously
amended:
A. The Note, as previously amended, is modified as follows:
<PAGE>
1. In the first paragraph of the Note the amount which was previously
amended to read "Sixteen Million and No/100 Dollars ($16,000,000.00)" is amended
to read "Eighteen Million and No/100 Dollars ($18,000,000.00)."
2. In paragraph (a.) on page one of the Note, as previously amended,
the date which reads "June 1, 1997" is hereby further amended to read "July 1,
1998."
B. The Credit Agreement, as previously amended, is modified as follows:
1. The definition of the following capitalized term in Section 1.1 is
amended in entirety to read as follows:
"Primary Maturity Date" means and refers to July 1, 1998.
-----------------------
2. In Section 2.1 the dollar amount which was previously amended to
read "Sixteen Million and No/100 Dollars ($16,000,000.00)" is hereby amended to
read "Eighteen Million and No/100 Dollars ($18,000,000.00)."
3. In Section 2.3 the dollar amount which was previously amended to
read "Sixteen Million and No/100 Dollars ($16,000,000.00)" is hereby amended to
read "Eighteen Million and No/100 Dollars ($18,000,000.00)."
4. In Section 2.4 the dollar amount which was previously amended to
read "Sixteen Million and No/100 Dollars ($16,000,000.00)" is hereby amended to
read "Eighteen Million and No/100 Dollars ($18,000,000.00)" and the date which
was previously amended to read "June 1, 2002" is hereby amended to read "July 1,
2003."
5. In Section 2.7 the date which was previously amended to read "June
1, 2002" is hereby amended to read "July 1, 2003."
6. In Section 6.1(m) the dollar amount which reads "One Hundred
Thousand Dollars ($100,000.00)" is hereby amended to read "Three Hundred
Thousand Dollars ($300,000.00)."
7. In Section 6.16(f) the dollar amount which reads "One Hundred
Thousand Dollars ($100,000.00)" is hereby amended to read "Three Hundred
Thousand Dollars ($300,000.00)."
8. In Exhibit N-1 to the Credit Agreement the dollar amount which was
previously amended to read "Sixteen
-2-
<PAGE>
Million Dollars and No/100 ($16,000,000.00)" is hereby amended to read "Eighteen
Million and No/100 Dollars ($18,000,000.00)."
9. In Exhibit N-2 to the Credit Agreement the dollar amount which was
previously amended to read "Sixteen Million and No/100 Dollars ($16,000,000.00)"
is hereby amended to read "Eighteen Million and No/100 Dollars
($18,000,000.00)."
C. Borrower hereby represents and warrants to Lender and covenants and
agrees with Lender as follows:
1. Borrower is a corporation, duly organized and validly existing and
in good standing under the laws of the State of California. There have been no
amendments to the Articles of Incorporation (Articles) of the Borrower
subsequent to February 1, 1994.
2. Borrower has full legal right, power and authority to enter into
and perform this Modification Agreement. The execution and delivery of this
Modification Agreement by Borrower and the consummation by Borrower of the
transactions contemplated hereby have been duly authorized by all necessary
action on behalf of Borrower. This Modification Agreement is a valid and
binding obligation of Borrower, enforceable against Borrower in accordance with
its terms.
3. Neither the execution and delivery of this Modification Agreement
by Borrower nor the consummation by Borrower of the transactions contemplated
hereby conflicts with or constitutes a violation or a default under the
Articles, any statute, law, regulation, order to decree applicable to Borrower,
or any contract, commitment, agreement, arrangement or restriction of any kind
to which Borrower is a party, by which Borrower is bound or to which any of
Borrower's property or assets are subject.
4. There are no actions, suits or proceedings pending, or to the
knowledge of Borrower, threatened against or affecting Borrower in relation to
its obligations to Lender, or involving the validity and enforceability of this
Modification Agreement, the Loan Documents, or the priority of any liens given
by Borrower to Lender in accordance with the Loan Documents, at law or in
equity, or before or by any governmental agency, or which could have material
adverse effect on the financial condition, operations, properties, assets,
liabilities or earning of Borrower, or the ability of Borrower to perform its
obligations to Lender.
D. This Modification Agreement is, in part, a reaffirmation of the
obligations and indebtedness of Borrower to
-3-
<PAGE>
Lender, as evidenced by the Loan Documents. Therefore, Borrower and Guarantor
represent and warrant that, except as specified herein, all of the terms and
conditions of the Loan Documents are and shall remain in full force an effect,
without waiver or modification of any kind whatsoever, and are ratified and
confirmed in all respects.
E. This Modification Agreement shall be binding upon and inure to the
benefit of successors and assignees of the parties hereto.
F. Borrower and Guarantor, by execution of this Modification
Agreement, hereby each declare that it has no set-offs, counterclaims, defenses
or other causes of action against Bank arising out of the Loan, evidenced by the
Note or any document executed in connection with the Loan. To the extent that
any such set-offs, counterclaims, defenses or other causes of action may exist,
such matters are hereby waived, released and forever discharged by Borrower and
Guarantor.
G. This Modification Agreement may only be modified or amended by
written agreement duly executed by the party to be charged.
H. This Modification Agreement constitutes the product of the negotiation
of the parties hereto and the enforcement hereof shall be interpreted in a
neutral manner, and not more strongly for or against any party based upon the
source of the draftsmanship hereof.
I. This Modification Agreement is not a novation, nor, except as provided
for herein, it is to be construed as a release or modification of any of the
terms, conditions, warranties, waivers, or rights set forth in the Loan
Documents. Nothing contained in this Modification Agreement shall be deemed to
constitute a waiver by Lender or any required performance by Borrower, or to
require any forbearance or extension other than that which is specifically
agreed to herein by Lender, and no other forbearance or extension is to be
implied from the language used herein, by operations of law, or otherwise.
-4-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement this
12th day of March, 1996.
LENDER: BORROWER:
TOKAI BANK OF CALIFORNIA, GW SERVICES, INC.,
a California banking a California corporation
corporation
By:/s/ Rick T. Beatty By:/s/ Jerry A. Gordon
--------------------- ----------------------
Rick T. Beatty Jerry A. Gordon
Vice President President
San Diego Office
By: By:/s/ John T. Vuagniaux
--------------------- ----------------------
Flordeliza S. Herrera John T. Vuagniaux
Assistant Vice President Vice President, Service
Loan Documentation Support
Department
GUARANTOR:
GLACIER WATER SERVICES, INC.,
a Delaware corporation
By:/s/ Jerry A. Gordon
----------------------
Jerry A. Gordon
President
By:/s/ Brenda K. Foster
----------------------
Brenda K. Foster
Vice President,
Controller
Secretary
-5-
<PAGE>
Exhibit 10.10.3
MODIFICATION OF NOTE AND CREDIT AGREEMENT
-----------------------------------------
This Modification of Note and Credit Agreement ("Modification Agreement")
is entered into effective on March 28, 1997 by and among TOKAI BANK OF
CALIFORNIA, a California banking corporation, hereinafter referred to as
"Lender," GW SERVICES, INC., a California corporation, hereinafter referred to
as "Borrower," and GLACIER WATER SERVICES, INC., a Delaware corporation,
hereinafter referred to as "Guarantor."
RECITALS
A. On or about February 14, 1994 Lender, Borrower and Guarantor entered
into a Credit Agreement (hereinafter the "Credit Agreement") dated February 14,
1994.
B. Pursuant to the terms of the Credit Agreement the Borrower executed a
Promissory Note (hereinafter the "Note") dated February 28, 1994 payable to the
order of the Lender in the full amount of $12,000,000.00.
C. The Lender, the Borrower and the Guarantor executed those certain
Modifications of Note and Credit Agreement dated February 13, 1995, February 6,
1996 and June 20, 1996, amending certain terms and provisions of said Note and
Credit Agreement, which included the increase of the credit facility from
$12,000,000.00 to $18,000,000.00.
D. All capitalized terms herein which are not otherwise defined herein
shall have the meanings set forth in the Credit Agreement.
E. The Lender and Guarantor have requested and the Lender has agreed to
further modify the terms of the Note and Credit Agreement as set forth below.
NOW THEREFORE, for valuable consideration and the mutual promises and
agreements hereinafter contained, Lender, Borrower and Guarantor hereby amend as
follows, the terms and provisions of the Note and Credit Agreement as previously
amended:
A. The Note, as previously amended, is modified as follows:
1. In the first paragraph of the Note the amount which reads "Eighteen
Million Dollars ($18,000,000.00)" is amended to read "Thirty-Five Million
Dollars ($35,000,000.00) on or before January 2, 1999 and thereafter
$25,000,000.00."
<PAGE>
2. In paragraph (a.) on page one of the Note, as previously amended,
the date which reads "July 1, 1998" is hereby further amended to read "July 1,
1999."
B. The Credit Agreement, as previously amended, is modified as follows:
1. The definition of the following capitalized term in Section 1.1 is
amended in entirety to read as follows:
"Primary Maturity Date" means and refers to July 1, 1999.
---------------------
2. Section 2.1 is amended to read as follows:
2.1 Primary Facility. So long as no Unmatured Event
----------------
of Default or Event of Default has occurred hereunder and
subject to the terms and conditions of this Agreement, Bank
agrees to make Primary Facility Loans to Borrower from the
Closing Date to but not including the Primary Maturity Date,
at such times and in such amounts as Borrower may request,
which amounts may be borrowed, repaid and reborrowed subject
to the lim itations set forth herein; provided, however,
-----------------
that the aggregate principal amount of the obligations
outstanding at any time including, without limitation, the
Primary Facility Loans and Term Facility Loans made and
requested to be made by Bank shall not exceed the sum of
$35,000,000.00 on or before January 2, 1999 and thereafter
shall not exceed $25,000,000.00. On or before Jan uary 2,
1999 an amount ("Reduction Amount") equal to the outstanding
Loans less an amount equal to $25,000,000.00 shall be paid
in full. No portion of the Reduction Amount shall bear
interest at a LIBOR Rate for an Interest Period which
extends beyond January 2, 1999.
Notwithstanding anything to the contrary contained in
this Agreement, no Primary Facility Loan bearing interest at
a LIBOR Rate may be repaid or reborrowed until the
expiration of the applicable Interest Period with respect
thereto. Except as otherwise provided in Section 2.7 below,
on the Primary Maturity Date, all of the Primary Facility
Loans shall be immediately due and payable.
-2-
<PAGE>
If, at any time or for any reason, the aggregate
principal balance of the Primary Facility Loans exceeds the
above limitation (an "Over Advance"), Borrower shall immedi-
ately pay to Bank, in immediately available funds, the
amount of such Over Advance.
3. In Section 2.3 the dollar amount which reads "Eighteen
Million Dollars ($18,000,000.00)" is amended to read "Thirty-Five Million
Dollars ($35,000,000.00)."
4. Section 2.4 is amended to read as follows:
Term Facility. So long as no Unmatured Event of
-------------
Default or Event of Default has occurred hereunder and
subject to the terms and conditions of this Agreement, Bank
agrees to make Term Facility Loans to Borrower from the
Closing Date to but not including the Primary Maturity Date,
at such times as Borrower may request and in an amount not
less than One Million Dollars each, provided, however, that
the aggregate principal amount at any time outstanding of
all of the Obligations including, without limitation, the
Primary Facility Loans and Term Facility Loans made and
requested to be made by Bank shall not exceed the sum of
$35,000,000.00 on or before January 2, 1999 and thereafter
shall not exceed $25,000,000.00 and any aggregate principal
amount at any time outstanding of Term Facility Loans shall
not exceed $25,000,000.00. Except as to the Conversion
Loans, each Term Facility Loan shall mature five years (a
"Term Maturity Date") and be fully due and payable five
years from the date of funding of such loan; provided no
Term Maturity Date shall be no later than January 2, 2004.
5. Section 6.2 is amended in its entirety to read as follows:
"Dividends. Borrower shall not make or declare any
dividend or distribution without the prior written consent
of Bank."
6. Section 6.3(a) is amended in its entirety to read as
follows:
(a) Ratio of Total Liabilities to Tangible Net Worth.
------------------------------------------------
Guarantor and its
-3-
<PAGE>
Subsidiaries shall maintain on a consolidated basis a ratio
of Total Liabilities less Subordinated Debt to Tangible Net
Worth plus Subordinated Debt of not more than one and fifty
one hundredths to one (1.50:1.00) to be measured as of
December 31, 1997 and at all times thereafter.
(b) Ratio of Debt to Cash Flow. At all times Guarantor
--------------------------
and its Subsidiaries shall maintain on a consolidated basis
a ratio of Debt to Cash Flow of not more than 3.0 to 1.0
through December 31, 1997 and not more than 2.5 to 1.0
thereafter.
(c) Ratio of Cash Flow to Debt Service. At all times
----------------------------------
Guarantor and its Subsidiaries shall maintain on a
consolidated basis a ratio of Cash Flow to Debt Service of
not less than 1.5 to 1.0.
(d) As of the end of each of Guarantor's fiscal years,
Guarantor and its Subsidiaries shall show and demonstrate a
positive profitability determined on a consolidated basis
and in accordance with GAAP for the fiscal year just ended.
For the purposes of this Section 6.3 the following terms
shall have the meanings indicated:
Cash Flow means the following for the preceding twelve (12)
---------
months (on a rolling basis): net income (or net loss plus
----
the sum of (a) net interest expense; (b) income tax expense;
(c) depreciation expense; (d) amortization expense less
amortization of pre-marketing incentives; (e) rent expense
under operating leases of real; personal or mixed property;
and (f) non-cash write-downs or write-offs of assets, less
----
the sum of (i) net extraordinary gains included in net
income; and (ii) net gains on the sale of assets other than
asset sales in the ordinary course of business in each case
determined in accordance with GAAP.
Debt means Debt as defined in Section 1.1 but excluding all
----
accrued expenses incurred and trade payable arising in the
ordinary course of business.
-4-
<PAGE>
Debt Service means the sum of the following for the
------------
preceding twelve (12) months; (a) net interest expense on
all Debt, other than Capitalized Leases, during such period,
plus; (b) rent expense under operating leases or real or
----
personal, or mixed property during such period; plus (c)
----
payments made under Capitalized Leases during such period;
plus (d) scheduled principal amounts of Debt payable during
----
such period.
Subordinated Debt means loans which are subordinated to the
-----------------
Loans in a manner acceptable to Lender.
Total Liabilities means total liabilities as defined by
-----------------
GAAP.
7. In Exhibit N-1 to the Credit Agreement the dollar amount
which reads "Eighteen Million Dollars ($18,000,000.00)" is amended to read
"Thirty-Five Million Dollars ($35,000,000.00) on or before January 2, 1999 and
thereafter shall not exceed $25,000,000.00."
8. In Exhibit N-2 to the Credit Agreement the dollar amount
which reads "Eighteen Million Dollars ($18,000,000.00)" is amended to read
"Thirty-Five Million Dollars ($35,000,000.00) on or before January 2, 1999 and
thereafter shall not exceed $25,000,000.00."
C. Notwithstanding anything herein to the contrary in the event
purchase of assets as set forth in the Asset Purchase Agreement dated March 1997
between Guarantor and McKesson Corp. and McKesson Water Products is not
completed by March 31, 1997 the amount which reads "Thirty-Five Million Dollars
($35,000,000.00)" in A(1), B(2), B(3), B(7) and B(8) above shall be deemed
amended to read "Twenty-Five Million Dollars."
D. Borrower agrees to pay to Lender concurrently herewith a fee of
$100,000.00 for this Modification Agreement.
E. The parties hereto agree to execute such further agreements and
instruments as may be deemed necessary by Lender to implement the intent of the
parties as set forth above and to assure and perfect Lender's interest in the
Collateral now or hereafter acquired by the Borrower or the Guarantor.
F. Borrower hereby represents and warrants to Lender and covenants
and agrees with Lender as follows:
1. Borrower is a corporation, duly organized and validly
existing and in good standing under the laws of the State
-5-
<PAGE>
of California. There have been no amendments to the Articles of Incorporation
(Articles) of the Borrower subsequent to February 1, 1994.
2. Borrower has full legal right, power and authority to enter
into and perform this Modification Agreement. The execution and delivery of
this Modification Agreement by Borrower and the consummation by Borrower of the
transactions contemplated hereby have been duly authorized by all necessary
action on behalf of Borrower. This Modification Agreement is a valid and
binding obligation of Borrower, enforceable against Borrower in accordance with
its terms.
3. Neither the execution and delivery of this Modification
Agreement by Borrower nor the consummation by Borrower of the transactions
contemplated hereby conflicts with or constitutes a violation or a default under
the Articles, any statute, law, regulation, order to decree applicable to
Borrower, or any contract, commitment, agreement, arrangement or restric tion of
any kind to which Borrower is a party, by which Borrower is bound or to which
any of Borrower's property or assets are subject.
4. There are no actions, suits or proceedings pending, or to
the knowledge of Borrower, threatened against or affecting Borrower in relation
to its obligations to Lender, or involving the validity and enforceability of
this Modification Agreement, the Loan Documents, or the priority of any liens
given by Borrower to Lender in accordance with the Loan Documents, at law or in
equity, or before or by any governmental agency, or which could have material
adverse effect on the financial con dition, operations, properties, assets,
liabilities or earning of Borrower, or the ability of Borrower to perform its
obligations to Lender.
G. This Modification Agreement is, in part, a reaffirmation of the
obligations and indebtedness of Borrower to Lender, as evidenced by the Loan
Documents. Therefore, Borrower and Guarantor represent and warrant that, except
as specified herein, all of the terms and conditions of the Loan Documents are
and shall remain in full force an effect, without waiver or mod ification of any
kind whatsoever, and are ratified and confirmed in all respects.
H. This Modification Agreement shall be binding upon and inure to
the benefit of successors and assignees of the parties hereto.
I. Borrower and Guarantor, by execution of this Modification
Agreement, hereby each declare that it has no set-offs, counterclaims, defenses
or other causes of action against Bank arising out of the Loan, evidenced by the
Note or any
-6-
<PAGE>
document executed in connection with the Loan. To the extent that any such set-
offs, counterclaims, defenses or other causes of action may exist, such matters
are hereby waived, released and forever discharged by Borrower and Guarantor.
J. This Modification Agreement may only be modified or amended by
written agreement duly executed by the party to be charged.
K. This Modification Agreement constitutes the product of the
negotiation of the parties hereto and the enforcement hereof shall be
interpreted in a neutral manner, and not more strongly for or against any party
based upon the source of the draftsmanship hereof.
L. This Modification Agreement is not a novation, nor, except as
provided for herein, it is to be construed as a release or modification of any
of the terms, conditions, warranties, waivers, or rights set forth in the Loan
Documents. Nothing contained in this Modification Agreement shall be deemed to
constitute a waiver by Lender or any required performance by Borrower, or to
require any forbearance or extension other than that which is specifically
agreed to herein by Lender, and no other forbearance or extension is to be
implied from the language used herein, by operations of law, or otherwise.
-7-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
this 28th day of March, 1997.
LENDER: BORROWER:
TOKAI BANK OF CALIFORNIA, GW SERVICES, INC.,
a California banking a California corporation
corporation
By: /s/ Robert W. Bartlett By: /s/ Jerry A. Gordon
------------------------- -------------------------
Robert W. Bartlett Jerry A. Gordon
Senior Vice President President
By: /s/ Larry D. Freedman By: /s/ Brenda K. Foster
------------------------- -------------------------
Larry D. Freedman Brenda K. Foster
Vice President V.P. Controller and
Secretary
GUARANTOR:
GLACIER WATER SERVICES, INC.,
a Delaware corporation
By: /s/ Jerry A. Gordon
-------------------------
Jerry A. Gordon
President
By: /s/ Brenda K. Foster
-------------------------
Brenda K. Foster
V.P. Controller and
Secretary
-8-
<PAGE>
Exhibit 10.4
AMENDMENT TO GUARANTY
---------------------
The Amendment to Guaranty is made March 28, 1997 by Glacier Water Services,
Inc. (Guarantor) in favor of Tokai Bank of California (Bank).
RECITALS
A. Guarantor has signed a Continuing Guaranty (Guaranty) dated February
28, 1994 with reference to Credit as defined in the Guaranty extended or to be
extended by Bank to GW Services, Inc. (Debtor).
B. Debtor has requested that Bank increase to $35,000,000.00 the line of
credit available to Debtor and Bank has agreed to do so subject to terms and
conditions agreed to by Debtor and subject to the dollar limit contained in
section 2 of the Guaranty being increased to $35,000,000.00.
C. Guarantor will benefit from the increase in the line of credit
available to Debtor.
TERMS
For valuable consideration receipt of which is hereby acknowledged,
Guarantor agrees as follows:
1. In section 2 of the Guaranty the amount which reads "Twelve Million
Dollars" is hereby amended to read "Thirty-Five Million Dollars."
2. The Guaranty as amended by Section 1 above is in full force and effect
and is hereby ratified and confirmed in all respects.
Dated: March 28, 1997 "Guarantor"
Glacier Water Services, Inc. a Delaware
corporation
By: /s/ Jerry A. Gordon
---------------------
Jerry A. Gordon
President
By: /s/ Brenda K. Foster
----------------------
Brenda K. Foster
V.P. Controller
<PAGE>
Exhibit 21.1
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
NAME OF STATE OF NAME UNDER WHICH
SUBSIDIARY INCORPORATION SUBSIDIARY OPERATES
- -------------------- ------------- -------------------
<S> <C> <C>
GW Services, Inc. California GW Services Inc.,
except for the state of Texas
where DBA is Bottle Water
Vending, Inc. and the State
of Arizona where DBA is
Glacier Water, Inc.
</TABLE>
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in the Form 10K, into Glacier Water Services, Inc.'s previously
filed Registration Statements File No. 33-61942 and File No. 33-80016.
Arthur Anderson LLP
San Diego, California
March 28, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 11
<SECURITIES> 0
<RECEIVABLES> 311
<ALLOWANCES> 0
<INVENTORY> 2,946
<CURRENT-ASSETS> 4,352
<PP&E> 53,570
<DEPRECIATION> 16,816
<TOTAL-ASSETS> 46,067
<CURRENT-LIABILITIES> 3,282
<BONDS> 0
0
0
<COMMON> 34
<OTHER-SE> 23,952
<TOTAL-LIABILITY-AND-EQUITY> 46,067
<SALES> 46,091
<TOTAL-REVENUES> 46,091
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 40,590
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 783
<INCOME-PRETAX> 4,718
<INCOME-TAX> 1,415
<INCOME-CONTINUING> 3,303
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,303
<EPS-PRIMARY> .98
<EPS-DILUTED> .98
</TABLE>
