<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 21, 1998
REGISTRATION NO. 333-40335
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
AMENDMENT NO. 3
TO
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
<TABLE>
<S> <C>
GLACIER WATER SERVICES, INC. GLACIER WATER TRUST I
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) (EXACT NAME OF CO-REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE DELAWARE
(STATE OR OTHER JURISDICTION OF (STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION) INCORPORATION OR ORGANIZATION)
33-0493559 33-0779340
(I.R.S. EMPLOYER IDENTIFICATION NO.) (I.R.S. EMPLOYER IDENTIFICATION NO.)
5962 6719
(PRIMARY STANDARD INDUSTRIAL (PRIMARY STANDARD INDUSTRIAL
CLASSIFICATION CODE NUMBER) CLASSIFICATION CODE NUMBER)
2261 COSMOS COURT 2261 COSMOS COURT
CARLSBAD, CA 92009 CARLSBAD, CA 92009
TELEPHONE: (760) 930-2420 TELEPHONE: (760) 930-2420
(ADDRESS INCLUDING ZIP CODE, AND (ADDRESS, INCLUDING ZIP CODE, AND
TELEPHONE NUMBER, INCLUDING AREA CODE, TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICE) OF CO-REGISTRANT'S PRINCIPAL EXECUTIVE OFFICE)
</TABLE>
JERRY A. GORDON
PRESIDENT AND CHIEF OPERATING OFFICER
GLACIER WATER SERVICES, INC.
2261 COSMOS COURT
CARLSBAD, CALIFORNIA 92009
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
--------------
COPIES TO:
<TABLE>
<S> <C>
KENNETH J. BARONSKY, ESQ. WILLIAM T. QUICKSILVER, ESQ.
MILBANK, TWEED, HADLEY & MCCLOY MANATT, PHELPS & PHILLIPS, LLP
601 SOUTH FIGUEROA STREET, 30TH FLOOR 11355 WEST OLYMPIC BOULEVARD
LOS ANGELES, CALIFORNIA 90017 LOS ANGELES, CA 90064-1614
TELEPHONE: (213) 892-4000 TELEPHONE: (310) 312-4210
</TABLE>
--------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
--------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item
11(a)(1) of this form, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
--------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
PROPOSED
PROPOSED MAXIMUM
MAXIMUM AGGREGATE AMOUNT OF
TITLE OF SHARES TO BE AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED(1) REGISTERED(1) PER UNIT(1) PRICE(1) FEE
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<S> <C> <C> <C> <C>
% Cumulative Trust Preferred
Securities of Glacier Water
Trust I........................ 3,400,000 $25 $85,000,000 $25,597(5)
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% Junior Subordinated
Deferrable Interest Debentures
of Glacier Water Services,
Inc.(2)........................
- ----------------------------------------------------------------------------------------------
Glacier Water Services, Inc.
Guarantee with respect to %
Cumulative Trust Preferred
Securities(3)..................
- ----------------------------------------------------------------------------------------------
Total(4)........................ $25,597(5)
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</TABLE>
(1) Estimated solely for the purpose of determining the registration fee
pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
(2) The Junior Subordinated Deferrable Interest Debentures will be purchased
by Glacier Water Trust I with the proceeds from the sale of the %
Cumulative Trust Preferred Securities. Such securities may later be
distributed for no additional consideration to the holders of the %
Cumulative Trust Preferred Securities of Glacier Water Trust I upon its
dissolution and the distribution of its assets.
(3) No separate consideration will be received for the Glacier Water Services,
Inc. Guarantee.
(4) This Registration Statement is deemed to cover the Junior Subordinated
Deferrable Interest Debentures of Glacier Water Services, Inc., the rights
of holders of Junior Subordinated Deferrable Interest Debentures of
Glacier Water Services, Inc. under the Indenture, the rights of holders of
Trust Preferred Securities of Glacier Water Trust I under the Trust
Agreement, the rights of holders of the % Cumulative Trust Preferred
Securities under the Guarantee Agreement and the Expense Agreement entered
into by Glacier Water Services, Inc., which taken together, fully,
irrevocably and unconditionally guarantee all of the obligations of
Glacier Water Trust I under the % Cumulative Trust Preferred Securities.
(5) Such amount has been previously paid.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JANUARY 21, 1998
PROSPECTUS
3,400,000 TRUST PREFERRED SECURITIES
GLACIER WATER TRUST I
% CUMULATIVE TRUST PREFERRED SECURITIES (LIQUIDATION AMOUNT $25 PER TRUST
PREFERRED SECURITY) FULLY AND UNCONDITIONALLY GUARANTEED BY
[LOGO OF GLACIER WATER SERVICES, INC.]
GLACIER WATER SERVICES, INC.
-----------
The % Cumulative Trust Preferred Securities (the "Trust Preferred
Securities") offered hereby represent preferred undivided beneficial interests
in the assets of Glacier Water Trust I, a statutory business trust created
under the laws of the State of Delaware ("Water Trust I"). Glacier Water
Services, Inc., a Delaware corporation (referred to as the "Company" when such
reference includes Glacier Water Services, Inc. and its subsidiaries,
(Continued on page 3)
SEE "RISK FACTORS" COMMENCING ON PAGE 16 HEREIN FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
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UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) WATER TRUST I(2)
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<S> <C> <C> <C>
Per Trust Preferred Security............. $25 (2) $25
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Total.................................... $85,000,000 (2) $85,000,000
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</TABLE>
(1) Glacier and Water Trust I have each agreed to indemnify the Underwriters
against certain liabilities, including liabilities under the Securities Act
of 1933, as amended (the "Securities Act"). See "Underwriting."
(2) In view of the fact that all of the proceeds of the sale of the Trust
Preferred Securities will be used to purchase the Junior Subordinated
Debentures, Glacier has agreed to pay the Underwriters as compensation for
arranging the investment therein of such proceeds, $ per Trust
Preferred Security or $ in the aggregate. See "Underwriting."
Glacier has also agreed to pay the expenses of the offering estimated to be
$470,000.
-----------
The Trust Preferred Securities are being offered by the Underwriters named
herein subject to prior sale and when, as and if delivered to and accepted by
the Underwriters. It is expected that the Trust Preferred Securities will be
ready for delivery in book-entry form only through the facilities of The
Depository Trust Company in New York, New York, on or about , 1998,
against payment therefor in immediately available funds.
SUTRO & CO. INCORPORATED
EVEREN SECURITIES, INC.
CROWELL, WEEDON & CO.
, 1998
<PAGE>
[PHOTOS HERE]
[Photos of in-store and outdoor water vending machines of the Company.]
[Map of United States with highlighted regions where the Company operates
water vending machines.]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE TRUST PREFERRED
SECURITIES OFFERED HEREBY, INCLUDING BIDDING FOR AND PURCHASING SUCH TRUST
PREFERRED SECURITIES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN
THE OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
SUCH STABILIZING TRANSACTIONS, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
(Continued from cover page)
collectively, or "Glacier" when referring only to the parent company), will be
the owner of all of the beneficial interests represented by common securities
of Water Trust I (the "Common Securities" and, collectively with the Trust
Preferred Securities, the "Trust Securities"). Water Trust I exists for the
sole purpose of issuing the Trust Securities and investing the proceeds
thereof in an equivalent amount of % Junior Subordinated Deferrable
Interest Debentures (the "Junior Subordinated Debentures") to be issued by
Glacier. The Junior Subordinated Debentures will mature on , 2028,
which date may be shortened (such date, as it may be shortened, the "Stated
Maturity") to a date not earlier than , 2003. The Trust Preferred
Securities will have a preference under certain circumstances with respect to
cash distributions and amounts payable on liquidation, redemption or otherwise
over the Common Securities, which will be held by Glacier. See "Description of
the Trust Preferred Securities--Subordination of Common Securities of Water
Trust I Held by Glacier."
Holders of the Trust Preferred Securities will be entitled to receive
preferential cumulative cash distributions accruing from the date of original
issuance and payable monthly in arrears on the 15th day of each calendar month
of each year (subject to possible deferral as described below), commencing
, 1998, at the annual rate of % of the Liquidation Amount (as
defined herein) of $25 per Trust Preferred Security ("Distributions"). The
amount of each Distribution due with respect to the Trust Preferred Securities
will include amounts accrued through the date the Distribution payment is due.
Glacier will have the right, so long as no Debenture Event of Default (as
defined herein) has occurred and is continuing, to defer payments of interest
on the Junior Subordinated Debentures at any time or from time to time for a
period not exceeding 60 consecutive months with respect to each deferral
period (each, an "Extension Period"), provided that no Extension Period may
extend beyond the Stated Maturity of the Junior Subordinated Debentures. Upon
the termination of any such Extension Period and the payment of all amounts
then due, Glacier may elect to begin a new Extension Period subject to the
requirements set forth herein. If interest payments on the Junior Subordinated
Debentures are so deferred, Distributions on the Trust Preferred Securities
will also be deferred and Glacier will not be permitted, subject to certain
exceptions described herein, to declare or pay any cash distributions with
respect to its capital stock or to make any payment with respect to its debt
securities that rank pari passu with or junior to the Junior Subordinated
Debentures. During an Extension Period, interest on the Junior Subordinated
Debentures will continue to accrue (and the amount of Distributions to which
holders of the Trust Preferred Securities are entitled will accumulate) at the
rate of % per annum, compounded quarterly, and holders of the Trust
Preferred Securities will be required to accrue income and will be required to
pay United States federal income tax on that income. See "Description of
Junior Subordinated Debentures--Option to Defer Interest Payment Period" and
"Certain Federal Income Tax Consequences--Interest Income and Original Issue
Discount."
Glacier has, through the Guarantee, the Guarantee Agreement, the Trust
Agreement, the Junior Subordinated Debentures, the Indenture and the Expense
Agreement (each as defined herein), taken together, fully, irrevocably and
unconditionally guaranteed all of Water Trust I's obligations under the Trust
Preferred Securities. See "Relationship Among the Trust Preferred Securities,
the Junior Subordinated Debentures and the Guarantee--Full and Unconditional
Guarantee." Under the Guarantee, Glacier guarantees the payment of
Distributions by Water Trust I and payments on liquidation of or redemption of
the Trust Preferred Securities (subordinate to the right to payment of Senior
Debt and Subordinated Debt of Glacier, as defined herein) to the extent of
funds held by Water Trust I. See "Description of Guarantee." If Glacier does
not make required payments on the Junior Subordinated Debentures held by Water
Trust I, Water Trust I will have insufficient funds to pay Distributions on
the Trust Preferred Securities. The Guarantee does not cover payment of
Distributions when Water Trust I does not have sufficient funds to pay such
Distributions. In such event, a holder of the Trust Preferred Securities may
institute a legal proceeding directly against Glacier pursuant to the terms of
the Indenture to enforce payment of such Distributions to such holder. See
"Description of Junior Subordinated Debentures--Enforcement of Certain Rights
by Holders of Trust Preferred Securities." The obligations of Glacier under
the Guarantee and the Junior Subordinated Debentures are subordinate and
junior in right of payment to all Senior Debt and Subordinated Debt (as
defined in "Description of Junior Subordinated Debentures--Subordination") of
Glacier.
The Trust Preferred Securities are subject to mandatory redemption, in whole
or in part, upon repayment of the Junior Subordinated Debentures at the Stated
Maturity or their earlier redemption, in each case at a
(Continued on next page)
3
<PAGE>
(Continued from previous page)
redemption price equal to the aggregate liquidation preference of the Trust
Preferred Securities plus any accumulated and unpaid Distributions thereon to
the date of redemption. The Junior Subordinated Debentures are redeemable
prior to maturity at the option of Glacier (i) on or after , 2003, in
whole at any time or in part from time to time, or (ii) at any time, in whole
(but not in part), within 90 days following the occurrence of a Tax Event or
an Investment Company Event (each as defined herein), in each case at a
redemption price equal to the accrued and unpaid interest on the Junior
Subordinated Debentures to the date fixed for redemption, plus 100% of the
principal amount thereof. See "Description of the Trust Preferred Securities--
Redemption."
Glacier will have the right at any time to dissolve Water Trust I and, after
satisfaction of liabilities to creditors of Water Trust I as provided by
applicable law, cause a Like Amount (as defined herein) of the Junior
Subordinated Debentures to be distributed to the holders of the Trust
Securities in liquidation of Water Trust I. See "Description of the Trust
Preferred Securities--Liquidation Distribution Upon Dissolution."
In the event of the dissolution of Water Trust I, after satisfaction of
liabilities to creditors of Water Trust I as required by applicable law, the
holders of Trust Preferred Securities will be entitled to receive a
liquidation amount of $25 per Trust Preferred Security ("Liquidation Amount"),
plus accumulated and unpaid Distributions thereon to the date of payment,
which may be in the form of a Distribution of such Like Amount of Junior
Subordinated Debentures, subject to certain exceptions. See "Description of
the Trust Preferred Securities--Liquidation Distribution Upon Dissolution."
The Junior Subordinated Debentures and the Guarantee are unsecured and
subordinated to all Senior Debt and Subordinated Debt. The terms of the Junior
Subordinated Debentures and the Guarantee place no limitation on the amount of
Senior Debt and Subordinated Debt that Glacier can issue. Currently, the
Company has a bank credit agreement (the "Credit Facility") that provides for
borrowings of up to $35.0 million. The Company will apply a portion of the net
proceeds of this offering to pay off the outstanding balance under the Credit
Facility which was approximately $29.0 million as of the date hereof. The
Credit Facility will then be terminated. The Company has entered into
negotiations regarding a new credit facility, which will be for an amount
anticipated to be less than the Company's current Credit Facility. Because
Glacier is a holding company, substantially all of Glacier's assets consist of
the capital stock of its subsidiaries. All obligations of Glacier relating to
the securities described herein will be effectively subordinated to all
existing and future liabilities of Glacier's subsidiaries. Glacier may cause
additional Trust Preferred Securities to be issued by trusts similar to Water
Trust I in the future, and there is no limit on the amount of such securities
that may be issued. In this event, Glacier's obligations under the Junior
Subordinated Debentures to be issued to such other trusts and Glacier's
guarantees of the payments by such trusts will be pari passu with Glacier's
obligations under the Junior Subordinated Debentures and the Guarantee,
respectively.
The Trust Preferred Securities have been approved for listing on the
American Stock Exchange, subject to notice of issuance. In order to meet the
listing requirements of the American Stock Exchange, the Underwriters have
undertaken to distribute the Trust Preferred Securities to a minimum of 400
public shareholders. Although the Underwriters have indicated an intention to
make a market in the Trust Preferred Securities, the Underwriters are not
obligated to do so, and any market making may be discontinued at any time at
the sole discretion of any of the Underwriters. There can be no assurance that
a market will develop for the Trust Preferred Securities. See "Risk Factors--
Absence of Existing Public Market; Market Prices" and "Underwriting."
Each of the Trust Preferred Securities and the Junior Subordinated
Debentures will be represented by one or more global certificates registered
in the name of The Depository Trust Company (the "Depositary") or its nominee.
Beneficial interests in the Trust Preferred Securities and the Junior
Subordinated Debentures will be shown on, and transfers thereof will be
effected only through, records maintained by participants in the Depositary.
The Depositary and the Paying Agent will be responsible for interest and
dividend payments to holders of the Trust Preferred Securities and the Junior
Subordinated Debentures. Except as described herein, the Trust Preferred
Securities in certificated form will not be issued in exchange for global
certificates. See "Book-Entry Issuance."
(Continued on next page)
4
<PAGE>
(Continued from previous page)
As used herein, (i) the "Indenture" means the Junior Subordinated Indenture
dated as of , 1998, as amended and supplemented from time to
time, between Glacier and Wilmington Trust Company, as Trustee (the "Indenture
Trustee"), under which the Junior Subordinated Debentures will be issued,
(ii) the "Trust Agreement" means the Trust Agreement relating to Water Trust I
among Glacier, as depositor, Wilmington Trust Company, as Property Trustee
(the "Property Trustee"), Wilmington Trust Company, as Delaware Trustee (the
"Delaware Trustee"), the Administrative Trustees named therein (collectively,
with the Property Trustee and Delaware Trustee, the "Issuer Trustees") and the
holders, from time to time, of the trust securities, (iii) the "Guarantee
Agreement" means the Guarantee Agreement relating to the guarantee between
Glacier and Wilmington Trust Company, as Guarantee Trustee, and (iv) the
"Expense Agreement" means the Expense Agreement between Glacier and Water
Trust I.
5
<PAGE>
AVAILABLE INFORMATION
Glacier and Water Trust I have jointly filed with the Commission a
Registration Statement on Form S-2 (together with all amendments and exhibits
thereto the "Registration Statement") under the Securities Act, with respect
to the offering of the securities offered hereby. This Prospectus does not
contain all of the information set forth in the Registration Statement,
certain parts of which are omitted in accordance with the rules and
regulations of the Commission. For further information with respect to the
Company, Water Trust I and the securities offered hereby, reference is made to
the Registration Statement and the exhibits and the financial statements,
notes and schedules filed as a part thereof or incorporated by reference
therein, which may be inspected at the public reference facilities of the
Commission, at the addresses set forth below. Statements made in this
Prospectus concerning the contents of any documents referred to herein are not
necessarily complete, and in each instance are qualified in all respects by
reference to the copy of such document filed as an exhibit to the Registration
Statement.
Glacier is subject to the informational requirements of the Exchange Act,
and in accordance therewith files reports, proxy statements and other
information with the Commission. Reports, proxy statements and other
information filed by Glacier can be inspected and copies of such material can
be obtained at prescribed rates from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Room 1024, Judiciary Plaza, Washington,
D.C. 20549, and at the following Regional Offices of the Commission: Chicago
Regional Office, Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661; and New York Regional Office, 7 World Trade Center,
Suite 1300, New York, New York 10048. The Commission also maintains a Web site
(http://www.sec.gov) at which reports, proxy and information statements and
other information regarding Glacier may be accessed. In addition, such
reports, proxy statements and other information can also be inspected at the
offices of the American Stock Exchange, 86 Trinity Place, New York, New York
10006-1881.
No separate financial statements of Water Trust I have been included herein.
Glacier and Water Trust I do not consider that such financial statements would
be material to holders of the Trust Preferred Securities because Water Trust I
is a newly formed special purpose entity, has no operating history or
independent operations and is not engaged in and does not propose to engage in
any activity other than holding as trust assets the Junior Subordinated
Debentures of Glacier and issuing the Trust Securities. Water Trust I is a
wholly-owned subsidiary of Glacier, and Glacier will fully, irrevocably and
unconditionally guarantee all of Water Trust I's obligations under the Trust
Preferred Securities. See "Prospectus Summary--Glacier and Water Trust I,"
"Description of the Trust Preferred Securities," "Description of Junior
Subordinated Debentures" and "Description of Guarantee."
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated into this Prospectus by reference:
1. The Company's Annual Report on Form 10-K for the year ended December 31,
1996.
2. The Company's Quarterly Report on Form 10-Q for the quarter ended October
5, 1997.
3. The Company's Quarterly Report on Form 10-Q for the quarter ended July 4,
1997.
4. The Company's Quarterly Report on Form 10-Q for the quarter ended April
4, 1997.
5. The Company's Proxy Statement dated April 23, 1997.
6. The Company's Report on Form 8-K as filed on April 10, 1997.
7. The Company's Report on Form 8-K as filed on May 19, 1997.
8. The Company's Report on Form 8-K/A as filed on January 21, 1998.
9. The Company's Report on Form 8-K as filed on November 6, 1997.
6
<PAGE>
Any statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained
herein or in any other subsequently filed document which also is or is deemed
to be incorporated by reference herein modifies or supersedes such statement.
Any statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
As used herein, the terms "Prospectus" and "herein" means this Prospectus,
including the documents incorporated or deemed to be incorporated herein by
reference, as the same may be amended, supplemented or otherwise modified from
time to time. Statements contained in this Prospectus as to the contents of
any contract or other document referred to herein do not purport to be
complete, and where reference is made to the particular provisions of such
contract or other document, such provisions are qualified in all respects by
reference to all of the provisions of such contract or other document.
THE COMPANY WILL PROVIDE WITHOUT CHARGE TO ANY PERSON TO WHOM THIS
PROSPECTUS IS DELIVERED, ON THE WRITTEN OR ORAL REQUEST OF SUCH PERSON, A COPY
OF ANY OR ALL OF THE FOREGOING DOCUMENTS INCORPORATED BY REFERENCE HEREIN
(OTHER THAN EXHIBITS, UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY
REFERENCE IN SUCH DOCUMENTS). REQUESTS FOR SUCH DOCUMENTS SHOULD BE DIRECTED
TO: GLACIER WATER SERVICES, INC., 2261 COSMOS COURT, CARLSBAD, CALIFORNIA
92009, ATTN: INVESTOR RELATIONS (TELEPHONE (760) 930-2420).
The Company will provide to the holders of the Trust Preferred Securities
quarterly reports containing unaudited financial statements and annual reports
containing financial statements audited by the Company's independent auditors.
The Company will also furnish annual reports on Form 10-K and quarterly
reports on Form 10-Q free of charge to holders of the Trust Preferred
Securities who so request in writing to the Company.
7
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial information appearing elsewhere or
incorporated by reference in this Prospectus. Unless the context clearly
suggests otherwise, references to the "Company" include Glacier Water Services,
Inc. and its subsidiaries, collectively, and references to "Glacier" include
the parent company only. Except for historical information contained in this
Prospectus, the matters discussed herein contain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended
(the "Securities Act") and Section 21E of the Securities Exchange Act of 1934,
as amended (the "Exchange Act") such as plans for future growth, capital
spending and financing sources. Such forward-looking statements are inherently
uncertain, and investors must recognize that actual results may differ from
management's expectations. Factors that might cause such a difference include,
but are not limited to, those discussed under the caption "Risk Factors" as
well as those discussed elsewhere or incorporated by reference in this
Prospectus.
THE COMPANY
Glacier Water Services, Inc. is the leading provider of high quality, low
priced drinking water dispensed to consumers through self-service vending
machines. Since its inception in 1983, the Company has created a network of
over 12,000 water vending machines in Arizona, California, Florida, Georgia,
Illinois, Indiana, Iowa, Louisiana, Michigan, Mississippi, Nevada, New Mexico,
Ohio and Texas. The Company's water vending machines are placed at supermarkets
and other retail locations in order to take advantage of the regular customer
traffic at such locations. The Company's retail accounts include Albertson's,
Fiesta Markets, Fry's, HEB, Hughes, KashN'Karry, Kroger, Longs, Lucky,
Osco/Savon, Pantry, Publix, Ralphs, Randall's, Safeway, Smith's, Stater Bros.,
Thrifty/Payless, Vons, Wal-Mart, Winn Dixie and others. Based on information
contained in Bottled Water in the U.S.--1997 Edition, management believes that
sales by the Company account for over 75% of the volume of water sold through
water vending machines.
The Company's internally developed and manufactured water vending machines
are connected to the municipal water source at each of its retail locations.
The vending 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 is
significantly lower than the price of water sold off-the-shelf in retail
locations or sold through delivery services. The Company's water vending
machines are clustered in close proximity to one another within the geographic
areas served in order to assure cost-effective, quality service. Each water
vending machine is serviced and tested weekly.
The Company has experienced significant growth. The number of water vending
machines in operation has increased from 3,666 machines as of December 31, 1992
to 9,164 machines as of December 31, 1996, representing a compounded annual
growth rate of 25.7%. For the year ended December 31, 1996, the Company's
revenues, EBITDA (as defined herein) and net income were $46.1 million, $12.3
million and $3.3 million, respectively, representing compounded annual growth
rates over the prior four years of 14.1%, 24.4% and 19.2%, respectively. During
the nine months ended October 5, 1997, the Company added 3,006 machines,
primarily as a result of the acquisition in March 1997 of the Company's largest
competitor, Aqua-Vend, a division of McKesson Water Products Company. For such
nine-month period, the Company had revenues and EBITDA of $44.4 million and
$11.4 million, respectively. Net income was $319,000 for the same period after
recording non-recurring charges of approximately $3.1 million, representing
costs incurred to integrate Aqua-Vend's operations with the Company's.
Historically, the Company has operated water vending machines designed
primarily for outside use in fair-weather climates. Of the Company's 12,170
machines in operation as of October 5, 1997, 11,961 were located in nine
sunbelt states. Because it is impractical to use outdoor vending machines
outside in cold-weather climates, the Company has developed a new water vending
machine specifically designed to be installed inside
8
<PAGE>
retail locations. The "in-store" machine is smaller and has a sleeker exterior,
thereby making it more compatible with an interior retail layout. The Company
believes that the in-store machine affords the Company significant
opportunities to expand within its existing locations, as well as into new
market areas in cold-weather states. The Company currently operates machines at
less than 10% of the estimated 72,000 grocery stores (excluding convenience
stores) in the United States.
In addition to its growth strategy, the Company intends to maintain its
leading position in the water vending industry by: (i) providing high quality,
low priced water to consumers; (ii) developing and maintaining good
relationships with retail accounts; (iii) increasing brand and product
awareness; and (iv) maximizing operating efficiencies and asset productivity.
THE BOTTLED WATER INDUSTRY
According to a report entitled Bottled Water in the U.S.--1997 Edition,
published by the Beverage Marketing Corporation (the data from which is
referred to herein below), the bottled water market has grown from
approximately 300 million gallons sold in 1976 to approximately 3.1 billion
gallons sold in 1996, representing a compounded annual growth rate of 12.4%.
The bottled water market in the United States, which in 1996 totaled
approximately $3.6 billion, comprises four segments: nonsparkling, sparkling,
club soda/seltzer and imported water. Nonsparkling water is the segment in
which the Company competes and is consumed as an alternative to tap water.
Nonsparkling water is the largest of the four segments and represented
approximately 85% of the total market in terms of gallons sold and
approximately 65% of the total market in terms of dollars sold for 1996.
Nonsparkling water is distributed through three principal channels: packaged
water sold off-the-shelf in retail locations, packaged water delivered to homes
and offices and water sold through vending machines. Like water sold off-the-
shelf or through delivery services, vended water is processed using the reverse
osmosis or deionization methods. Although equivalent in quality, vended water
is sold at a substantially lower price than off-the-shelf and delivered water.
Vended water eliminates two principal cost components: packaging (because
consumers provide their own containers) and transportation. By competing on
price, management believes Glacier Water has become the leading brand sold in
the nonsparkling water market segment, with approximately a 6.8% share at the
end of 1996 based on gallons sold.
GROWTH STRATEGY
Supermarkets will continue to be the primary targets for the Company's
growth. To capitalize on the low penetration of water vending machines at
supermarkets and other retail locations, the Company will pursue the following
growth strategy:
. Increase Penetration of Existing Domestic Markets. The Company primarily
operates in nine sunbelt states through the use of its outdoor water
vending machine. Management believes it can place additional outdoor
machines with both existing and new retail accounts in those states.
Management also believes there are significant opportunities to add in-
store water vending machines at its current retail account locations,
without adversely affecting revenues generated by its outdoor machines
at such locations.
. Expand Into New Domestic Markets. The Company intends to place its in-
store water vending machines inside retail locations in cold weather
regions throughout the United States. In addition, the Company intends
to expand into new warm weather climate markets using both in-store and
outdoor machines.
. Expand Into Select International Markets. The Company intends to
capitalize on the demand for bottled water outside of the United States
by expanding into select international markets. The Company currently is
in the process of establishing operations in Mexico as its initial entry
into the international market.
9
<PAGE>
. Pursue Select Acquisition Opportunities. The Company intends to evaluate
and pursue select strategic acquisition opportunities, but has no firm
commitments with respect to acquisitions at this time.
RECENT ACQUISITION
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, for a purchase price of approximately $9
million, subject to certain post-closing adjustments. Prior to the acquisition,
Aqua-Vend was the Company's largest competitor, with approximately 3,000 water
vending machines. In connection with the acquisition, the Company developed a
detailed integration plan which included the removal of approximately 600 Aqua-
Vend machines and the rationalization and relocation of Aqua-Vend machines
within Glacier's network of machines. The revenues and operating costs
associated with these machines from March 29, 1997 are included in the
Company's results of operations for the nine-month period ended October 5,
1997.
GLACIER AND WATER TRUST I
Glacier was incorporated in Delaware on November 19, 1991. Substantially all
of its operations are conducted through a wholly-owned operating subsidiary, GW
Services, Inc. ("GW Services"), a California corporation. The Company maintains
its executive offices at 2261 Cosmos Court, Carlsbad, California 92009 and its
telephone number is (760) 930-2420.
Water Trust I is a statutory business trust created under Delaware law
pursuant to (i) the Trust Agreement and (ii) the filing of a Certificate of
Trust with the Delaware Secretary of State on November 13, 1997. Water
Trust I's business and affairs are conducted by the Property Trustee, the
Delaware Trustee and three individual Administrative Trustees who are officers
of the Company. Water Trust I exists for the exclusive purposes of (i) issuing
and selling the Trust Securities, (ii) using the proceeds from the sale of the
Trust Securities to acquire the Junior Subordinated Debentures issued by
Glacier, and (iii) engaging in only those other activities necessary, advisable
or incidental thereto. The Junior Subordinated Debentures will be the sole
assets of Water Trust I, and payments by Glacier under the Junior Subordinated
Debentures and the Expense Agreement will be the sole revenues of Water Trust
I. All of the Common Securities will be owned by Glacier. The Common Securities
will rank pari passu, and payments will be made thereon pro rata, with the
Trust Preferred Securities, except that upon the occurrence and during the
continuance of an event of default under the Trust Agreement resulting from an
event of default under the Indenture, the rights of Glacier as holder of the
Common Securities to payment in respect of Distributions and payments upon
liquidation, redemption or otherwise will be subordinated to the rights of the
holders of the Trust Preferred Securities. See "Description of the Trust
Preferred Securities--Subordination of Common Securities of Water Trust I Held
by Glacier." Glacier will acquire Common Securities in an aggregate liquidation
amount equal to 3% of the total capital of Water Trust I. Water Trust I has a
term of 31 years, but may dissolve earlier as provided in the Trust Agreement.
Water Trust I's principal offices are located at 2261 Cosmos Court, Carlsbad,
California 92009 and its telephone number is (760) 930-2420.
10
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OTHER INFORMATION
The following summary consolidated statements of income data and consolidated
balance sheet data of the Company as of and for the years ended December 31,
1996, 1995, 1994, 1993 and 1992 has been derived from the Company's audited
consolidated financial statements. The following summary consolidated
statements of income data and consolidated balance sheet data of the Company as
of and for the nine months ended October 5, 1997 and September 30, 1996 have
been derived from the Company's unaudited consolidated quarterly financial
statements which, in the opinion of management, include all adjustments
(consisting of normal recurring adjustments) considered necessary for a fair
presentation. The information contained herein should be read in conjunction
with the Company's consolidated financial statements and related notes included
elsewhere herein. The consolidated financial information for the nine months
ended October 5, 1997 is not necessarily indicative of the operating results to
be expected for the entire year.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------- SEPTEMBER 30, OCTOBER 5,
1992 1993 1994 1995 1996 1996 1997(1)
--------- --------- --------- --------- --------- ------------- ----------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS
OF INCOME DATA:(2)
Revenues................ $ 27,182 $ 30,636 $ 36,557 $ 42,409 $ 46,091 $ 35,760 $ 44,352
Costs and expenses:
Operating expenses..... 18,356 20,065 23,504 25,933 28,088 22,009 27,482
General and
administrative
expenses.............. 3,702 4,512 4,791 5,483 5,733 4,155 5,461
Depreciation and
amortization.......... 1,995 2,692 3,662 5,756 6,769 4,991 6,515
Non-recurring
charges(3)............ -- -- -- -- -- -- 3,062
--------- --------- --------- --------- --------- --------- ---------
Total costs and
expenses............ 24,053 27,269 31,957 37,172 40,590 31,155 42,520
--------- --------- --------- --------- --------- --------- ---------
Income from operations.. 3,129 3,367 4,600 5,237 5,501 4,605 1,832(9)
Interest expense, net... 476 38 317 723 783 553 1,370
--------- --------- --------- --------- --------- --------- ---------
Income before income
taxes.................. 2,653 3,329 4,283 4,514 4,718 4,052 462
Income tax provision.... 1,016 1,282 1,578 1,805 1,415 1,337 143
--------- --------- --------- --------- --------- --------- ---------
Net income.............. $ 1,637 $ 2,047 $ 2,705 $ 2,709 $ 3,303 $ 2,715 $ 319(9)
========= ========= ========= ========= ========= ========= =========
Net income per share.... $ 0.54 $ 0.62 $ 0.80 $ 0.80 $ 0.98 $ 0.80 $ 0.10(9)
========= ========= ========= ========= ========= ========= =========
Weighted average common
and common equivalent
shares outstanding..... 3,058,029 3,299,130 3,367,151 3,405,104 3,374,482 3,389,893 3,324,525
========= ========= ========= ========= ========= ========= =========
OTHER DATA (UNAUDITED):
EBITDA(4)............... $ 5,124 $ 6,059 $ 8,262 $ 10,993 $ 12,270 $ 9,596 $ 11,409
Net cash provided by
operating activities... 3,275 4,277 3,490 7,385 7,193 7,531 6,801
Net cash used in
investing
opportunities.......... (5,040) (6,131) (10,597) (10,791) (8,540) (5,478) (17,454)
Net cash provided by
financing activities... 2,752 901 7,095 3,362 1,329 (1,216) 10,652
MACHINE DATA:
Number of machines at
beginning of period.... 2,990 3,666 4,780 6,725 8,518 8,518 9,164
Number of machines added
during period, net..... 676 1,114 1,945 1,793 646 376 3,006
Number of machines at
end of period.......... 3,666 4,780 6,725 8,518 9,164 8,894 12,170
GROWTH RATES:
Revenue growth.......... * 12.7% 19.3% 16.0% 8.7% * 24.0 %
EBITDA growth(4)........ * 18.2% 36.4% 33.1% 11.6% * 18.9 %
Income from operations
growth................. * 7.6% 36.6% 13.8% 5.0% * (60.2)%(10)
MARGINS:
EBITDA margin(4)(5)..... 18.9% 19.8% 22.6% 25.9% 26.6% 26.8% 25.7 %
Income from operations
margin(6).............. 11.5% 11.0% 12.6% 12.3% 11.9% 12.9% 4.1 %(10)
RATIOS:
EBITDA to interest
expense, net(4)........ 10.8x 159.4x 26.1x 15.2x 15.7x 17.4x 8.3x
Earnings to fixed
charges(7)............. 8.8x 22.5x 9.0x 5.2x 5.1x 6.0x 1.3x
Pro forma ratio of
earnings to fixed
charges(7)(8).......... -- -- -- -- 3.6x -- 1.2x
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
AS ADJUSTED
DECEMBER 31, OCTOBER 5, OCTOBER 5,
1996 1997(1) 1997(11)(12)
------------ ---------- ------------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Total assets.............................. $46,067 $58,515 $113,623
Long-term debt............................ 15,820 26,022 --
Company obligated mandatorily redeemable
preferred securities of subsidiary trust
holding solely junior subordinated
debentures(11)........................... -- -- 85,000
Stockholders' equity...................... 23,986 24,502 24,502
</TABLE>
- --------
(1) The Company elected on May 8, 1997 to change its fiscal year end from
December 31 to the fifty-two or fifty-three week period ending on the
Friday closest to December 31. On October 23, 1997, the Company further
modified its fiscal year end to more closely align its fiscal reporting to
its business cycle to the fifty-two or fifty-three week period ending on
the Sunday closest to December 31.
(2) Certain amounts have been reclassified to conform to the current
presentation.
(3) Non-recurring charges in 1997 represent costs incurred to integrate Aqua-
Vend's operations with the Company's following the March 28, 1997 asset
purchase.
(4) EBITDA represents earnings before interest expense, income taxes,
depreciation and amortization and non-recurring charges. EBITDA is not
intended to represent cash flow from operations as defined by generally
accepted accounting principles and should not be considered as an
alternative to cash flow or as a measure of liquidity or as an alternative
to net earnings as indicative of operating performance. The Company's
reported EBITDA may not be comparable to similarly titled measures of
other companies that do not have non-recurring charges. EBITDA, EBITDA
margin, EBITDA growth and EBITDA to interest expense, net are included
herein because management believes they are useful for measuring the
Company's ability to service its debt.
(5) EBITDA margins represent EBITDA divided by revenues.
(6) Income from operations margins represents income from operations divided
by revenues.
(7) For purposes of calculating the ratio and pro forma ratio of earnings to
fixed charges, earnings consist of income before income taxes, plus fixed
charges. Fixed charges consist of the interest expense on all indebtedness
and the estimated representative interest factor of rental expense.
(8) The average outstanding debt balances for the year ending December 31,
1996 and the nine-month period ending October 5, 1997 were approximately
$13,454,000 and $22,621,000, respectively, and gross interest expense was
approximately $767,000 and $1,416,000, respectively. The pro forma ratios
assume the replacement of this indebtedness with a corresponding amount of
Junior Subordinated Debentures. If, on a consolidated basis, the entire
$85,000,000 principal amount of Junior Subordinated Debentures had been
outstanding throughout the periods, total interest expense would have been
approximately $7,756,000 and $5,817,000, respectively.
(9) Information presented in the table does not exclude non-recurring charges.
Excluding non-recurring charges of $3,062,000 for the nine months ended
October 5, 1997, income from operations, net income and net income per
share would have been $4,894,000, $2,432,000 and $.73, respectively.
(10) Information presented in the table does not exclude non-recurring charges.
Excluding non-recurring charges of $3,062,000 for the nine months ended
October 5, 1997, income from operations growth would have been 6.3% and
income from operations margin would have been 11.0%.
(11) The assets of Water Trust I consist solely of an aggregate principal
amount of $87,628,850 of Glacier's % Junior Subordinated Debentures.
(12) As adjusted to reflect the issuance by Water Trust I of the 3,400,000
Trust Preferred Securities offered hereby and the receipt by Glacier of
the proceeds, net of estimated underwriting compensation and other
estimated offering expenses, from the corresponding sale of the Junior
Subordinated Debentures to Water Trust I, and the application of the net
proceeds therefrom as described under "Use of Proceeds."
* Numbers are omitted as prior period has not been presented herein.
12
<PAGE>
THE OFFERING
Trust Preferred
Securities issuer......... Glacier Water Trust I ("Water Trust I")
Securities offered........ 3,400,000 Trust Preferred Securities having a
Liquidation Amount of $25 per Trust Preferred
Security. The Trust Preferred Securities represent
preferred undivided beneficial interests in Water
Trust I's assets, which will consist solely of the
Junior Subordinated Debentures and payments
thereunder.
Distributions............. The Distributions payable on each Trust Preferred
Security will be fixed at a rate per annum of
% of the Liquidation Amount of $25 per Trust
Preferred Security, will be cumulative, will
accrue from the date of issuance of the Trust
Preferred Securities, and will be payable monthly
in arrears on the 15th day of each calendar month
of each year, commencing on , 1998 (subject
to possible deferral as described below). The
amount of each Distribution due with respect to
the Trust Preferred Securities will include
amounts accrued through the date the Distribution
payment is due. See "Description of the Trust
Preferred Securities."
Extension periods......... So long as no Debenture Event of Default (as
defined herein) has occurred and is continuing,
Glacier will have the right, at any time, to defer
payments of interest on the Junior Subordinated
Debentures by extending the interest payment
period thereon for a period not exceeding 60
consecutive months with respect to each deferral
period (each an "Extension Period"), provided that
no Extension Period may extend beyond the Stated
Maturity of the Junior Subordinated Debentures. If
interest payments are so deferred, Distributions
on the Trust Preferred Securities will also be
deferred and Glacier will not be permitted,
subject to certain exceptions described herein, to
declare or pay any cash distributions with respect
to Glacier's capital stock or debt securities that
rank pari passu with or junior to the Junior
Subordinated Debentures. During an Extension
Period, Distributions will continue to accumulate
with income thereon compounded quarterly. Because
interest would continue to accrue and compound on
the Junior Subordinated Debentures, to the extent
permitted by applicable law, holders of the Trust
Preferred Securities will be required to accrue
income for United States federal income tax
purposes. See "Description of Junior Subordinated
Debentures--Option to Defer Interest Payment
Period" and "Certain Federal Income Tax
Consequences--Interest Income and Original Issue
Discount."
Maturity.................. The Junior Subordinated Debentures will mature on
, 2028 which date may be shortened (such
date, as it may be shortened, the "Stated
Maturity") to a date not earlier than ,
2003. Glacier might exercise its right to shorten
the maturity of the Junior Subordinated Debentures
under the circumstances where a Tax Event,
Investment Company Event or other undesirable
event could be avoided simply by shortening the
maturity of the Junior Subordinated Debentures.
See "Description of Junior Subordinated
Debentures--General."
13
<PAGE>
Redemption................ The Trust Preferred Securities are subject to
mandatory redemption upon repayment of the Junior
Subordinated Debentures at their Stated Maturity
or their earlier redemption at a redemption price
equal to the aggregate Liquidation Amount of the
Trust Preferred Securities plus accumulated and
unpaid Distributions thereon to the date of
redemption. The Junior Subordinated Debentures are
redeemable prior to maturity at the option of
Glacier (i) on or after , 2003 in whole
at any time or in part from time to time, or (ii)
at any time, in whole (but not in part), within
90 days following the occurrence of a Tax Event or
an Investment Company Event, in each case at a
redemption price equal to 100% of the principal
amount of the Junior Subordinated Debentures so
redeemed, together with any accrued but unpaid
interest to the date fixed for redemption. See
"Description of the Trust Preferred Securities--
Redemption" and "Description of Junior
Subordinated Debentures--Redemption."
Distribution of Junior
Subordinated Debentures.. Glacier has the right at any time to dissolve
Water Trust I, and, after satisfaction of
creditors of Water Trust I as required by
applicable law, to cause the Junior Subordinated
Debentures to be distributed to holders of Trust
Preferred Securities in liquidation of Water Trust
I. See "Description of the Trust Preferred
Securities--Distribution of Junior Subordinated
Debentures."
Guarantee................. Taken together, Glacier's obligations under the
various documents described herein, including the
Guarantee Agreement, provide a full and
unconditional guarantee of payments by Water Trust
I of Distributions and other amounts due on the
Trust Preferred Securities. Under the Guarantee
Agreement, Glacier guarantees the payment of
Distributions by Water Trust I and payments on
liquidation or redemption of the Trust Preferred
Securities (subordinate to the right to payment of
Senior Debt and Subordinated Debt of Glacier, as
defined herein) to the extent of funds held by
Water Trust I. If Water Trust I has insufficient
funds to pay Distributions on the Trust Preferred
Securities (i.e., if Glacier has failed to make
required payments under the Junior Subordinated
Debentures), a holder of the Trust Preferred
Securities would have the right to institute a
legal proceeding directly against Glacier to
enforce payment of such Distributions to such
holder. See "Description of Junior Subordinated
Debentures--Enforcement of Certain Rights by
Holders of Trust Preferred Securities,"
"Description of Junior Subordinated Debentures--
Debenture Events of Default" and "Description of
Guarantee."
Ranking................... The Trust Preferred Securities will rank pari
passu, and payments thereon will be made pro rata,
with the Common Securities of Water Trust I held
by Glacier, except as described under "Description
of the Trust Preferred Securities--Subordination
of Common Securities of Water Trust I Held by
Glacier." The obligations of Glacier under the
Guarantee, the Junior Subordinated Debentures and
other documents described herein are unsecured and
rank subordinate and junior in right of payment to
all current and future Senior Debt and
Subordinated Debt of Glacier, the amount of which
is unlimited. The Company will apply a portion of
the
14
<PAGE>
net proceeds of this offering to pay off the
outstanding balance under the Credit Facility,
which was approximately $29.0 million as of the
date hereof. The Credit Facility will then be
terminated. The Company has entered into
negotiations regarding a new credit facility,
which will be for an amount anticipated to be less
than the Company's current Credit Facility.
Because Glacier is a holding company, all
obligations of Glacier relating to the securities
described herein will be effectively subordinated
to all existing and future liabilities of
Glacier's subsidiaries, including GW Services,
Inc. Glacier may cause additional Trust Preferred
Securities to be issued by trusts similar to Water
Trust I in the future, and there is no limit on
the amount of such securities that may be issued.
In this event, Glacier's obligations under the
Junior Subordinated Debentures to be issued to
such other trusts and Glacier's guarantees of the
payments by such trusts will rank pari passu with
Glacier's obligations under the Junior
Subordinated Debentures and the Guarantee,
respectively.
Voting rights............. The holders of the Trust Preferred Securities will
have no voting rights except in limited
circumstances. Except as provided below, the
affirmative consent of the holders of at least a
majority of the outstanding Trust Preferred
Securities will be required by Water Trust I for
amendments to the Trust Agreement that would
affect adversely the rights or privileges of the
holders of the Trust Preferred Securities. The
Property Trustee, the Administrative Trustees and
Glacier may amend the Trust Agreement without the
consent of holders of the Trust Preferred
Securities to ensure that Water Trust I will be
classified for United States federal income tax
purposes as a grantor trust or to ensure that
Water Trust I will not be required to register as
an "investment company" under the Investment
Company Act, even if such action adversely affects
the interests of such holders. See "Description of
the Trust Preferred Securities--Voting Rights;
Amendment of the Trust Agreement."
ERISA considerations...... Prospective purchasers should carefully consider
the information set forth under the caption "ERISA
Considerations."
Proposed American Stock
Exchange symbol.......... HOO.Pr.A
Use of proceeds........... The proceeds to Water Trust I from the sale of the
Trust Preferred Securities offered hereby will be
invested by Water Trust I in the Junior
Subordinated Debentures of Glacier. Glacier will
use approximately $29.0 million of the net
proceeds of the offering to payoff in full the
indebtedness outstanding under the Credit
Facility. Glacier intends to use the remaining net
proceeds for general corporate purposes, which may
include without limitation, funding additional
investments in, or extensions of credit to, GW
Services or its other operating subsidiaries for
the expansion of operations and possible future
acquisitions if and when suitable opportunities
arise. Pending application as described above, the
net proceeds from the offering will be invested in
a portfolio of securities (which may include non-
investment grade debt and equity securities)
managed by Kayne Anderson Investment Management
("Kayne Anderson"), an affiliate of the Company.
Kayne Anderson manages funds for certain insurance
companies, other institutional investors and
individuals and will charge Glacier a reasonable
management fee for its services. Such management
fee will be on terms more favorable than that for
parties unaffiliated with Kayne Anderson. See "Use
of Proceeds."
15
<PAGE>
RISK FACTORS
Prospective investors should carefully consider the following factors in
addition to the other information set forth in this Prospectus before making
an investment in the Trust Preferred Securities offered hereby.
RISK FACTORS RELATING TO THE OFFERING
RANKING OF GLACIER'S OBLIGATIONS UNDER THE JUNIOR SUBORDINATED DEBT AND THE
GUARANTEE
All obligations of Glacier under the Guarantee, the Junior Subordinated
Debentures and other documents described herein are unsecured and rank
subordinate and junior in right of payment to all current and future Senior
Debt and Subordinated Debt of Glacier, the amount of which is unlimited. The
Company will use a portion of the proceeds from this offering to pay off the
outstanding balance of approximately $29.0 million under the Credit Facility.
The Credit Facility will then be terminated. The Company has entered into
negotiations regarding a new credit facility, which will be for an amount
which is anticipated to be less than the Company's current Credit Facility. No
assurances can be given that the Company will be successful in obtaining a
replacement credit facility that will be on terms favorable to the Company. In
addition, no assurance can be given that any such replacement credit facility
will not contain terms and conditions in addition to those already contained
in the Junior Subordinated Debentures which might cause Glacier to exercise
its existing right under the Junior Subordinated Debentures to defer the
payment of interest on the Junior Subordinated Debentures or otherwise
restrict the ability of Glacier to pay interest on the Junior Subordinated
Debentures and, consequently, Water Trust I's ability to pay Distributions on
the Trust Preferred Securities.
In addition, because Glacier is a holding company, substantially all of
Glacier's assets consist of the capital stock of its subsidiaries. All
obligations of Glacier relating to the securities described herein will be
effectively subordinated to all existing and future liabilities of Glacier's
subsidiaries, including GW Services, Glacier's primary operating subsidiary.
As a holding company, the right of Glacier to participate in any distribution
of assets of any subsidiary upon such subsidiary's liquidation or
reorganization or otherwise (and thus the ability of holders of the Trust
Preferred Securities to benefit indirectly from such distribution) is subject
to the prior claims of creditors of that subsidiary, except to the extent that
Glacier may itself be recognized as a creditor of that subsidiary.
Accordingly, the Junior Subordinated Debentures and all obligations of Glacier
relating to the Trust Preferred Securities will be effectively subordinated to
all existing and future liabilities of GW Services, and holders of the Trust
Preferred Securities should look only to the assets of Glacier, and not of its
subsidiaries, for principal and interest payments on the Junior Subordinated
Debentures. None of the Indenture, the Guarantee, the Guarantee Agreement or
the Trust Agreement places any limitation on the amount of secured or
unsecured debt, including Senior Debt and Subordinated Debt, that may be
incurred by Glacier or its subsidiaries. Further, there is no limitation on
Glacier's ability to issue additional Junior Subordinated Debentures in
connection with any further offerings of Trust Preferred Securities, and such
additional debentures would rank pari passu with the Junior Subordinated
Debentures. See "Description of Junior Subordinated Debentures--Subordination"
and "Description of Guarantee--Status of the Guarantee."
OPTION TO DEFER INTEREST PAYMENT PERIOD
So long as no Debenture Event of Default (as defined herein) has occurred
and is continuing, Glacier has the right under the Indenture to defer payment
of interest on the Junior Subordinated Debentures at any time or from time to
time for a period not exceeding 60 consecutive months with respect to each
Extension Period, provided that no Extension Period may extend beyond the
Stated Maturity of the Junior Subordinated Debentures. As a consequence of any
such deferral, monthly Distributions on the Trust Preferred Securities by
Water Trust I will be deferred (and the amount of Distributions to which
holders of the Trust Preferred Securities are entitled will accumulate
additional amounts thereon at the rate of % per annum, compounded
quarterly, from the relevant payment date for such Distributions) during any
such Extension Period. During any such Extension Period, Glacier will be
prohibited from making certain payments or distributions with respect to
Glacier's capital stock (including dividends on or redemptions of common or
preferred stock) and from making
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certain payments with respect to any debt securities of Glacier that rank pari
passu with or junior in interest to the Junior Subordinated Debentures;
however, Glacier will not be restricted from (a) paying dividends or
distributions in capital stock of Glacier, (b) redeeming rights or taking
certain other actions under a shareholders rights plan, (c) making payments
under the Guarantee or (d) making purchases of common stock related to the
issuance of common stock or rights under any of Glacier's benefit plans for
its directors, officers, employees or consultants. Further, during an
Extension Period, Glacier would have the ability to continue to make payments
on its Senior Debt and Subordinated Debt, if any. Prior to the termination of
any Extension Period, Glacier may further extend such Extension Period
provided that such extension does not cause such Extension Period to exceed 60
consecutive months or to extend beyond the Stated Maturity. Upon the
termination of any Extension Period and the payment of all interest then
accrued and unpaid (together with interest thereon at the annual rate of
%, compounded quarterly), Glacier may elect to begin a new extension
Period subject to the above requirements. There is no limitation on the number
of times that Glacier may elect to begin an Extension Period. As a consequence
of Glacier's deferral of interest payments, holders of the Trust Preferred
Securities will not receive cash distributions during such deferral periods
(although the Distributions to which holders of the Trust Preferred Securities
are entitled will continue to accumulate until payment in full), and the
market price of the Trust Preferred Securities is likely to be adversely
affected by such deferral. A holder that disposes of such holder's Trust
Preferred Securities during an Extension Period, therefore, might not receive
the same return on such holder's investment as a holder that continues to hold
Trust Preferred Securities. See "Description of the Trust Preferred
Securities--Distributions," "Description of Junior Subordinated Debentures--
Option to Defer Interest Payment Period," and "Description of Junior
Subordinated Debentures--Debenture Events of Default."
TAX CONSEQUENCES OF OPTION TO DEFER INTEREST PAYMENT PERIOD AND OF A DEFERRAL
OF INTEREST PAYMENT
Because Glacier has no current plan to exercise its option to defer payments
of interest and considers the likelihood of exercising the option to be a
remote contingency as of the issue date of the Junior Subordinated Debentures,
it is Glacier's position that the Junior Subordinated Debentures will be
treated as issued without "original issue discount" for United States federal
income tax purposes. As a result, holders of Trust Preferred Securities will
include interest in taxable income under their own methods of accounting
(i.e., cash or accrual). However, if the Internal Revenue Service were to
successfully challenge Glacier's position, or if Glacier exercises its right
to defer payments of interest, the holders of Trust Preferred Securities will
be required to include their pro rata share of original issue discount in
gross income as it accrues for United States federal income tax purposes in
advance of the receipt of cash. If the tax authorities successfully asserted
that, as of the issue date of the Junior Subordinated Debentures, exercise of
the deferment option is not a remote or incidental contingency, interest would
be reportable under the contingent payment debt rules of the Treasury
Regulations as of the issue date. See "Certain Federal Income Tax
Consequences--Interest Income and Original Issue Discount." Should Glacier
elect to exercise its right to defer payments of interest in the future, the
market price of the Trust Preferred Securities is likely to be adversely
affected. A holder that disposes of such holder's Trust Preferred Securities
during an Extension Period, therefore, might not receive the same return on
such holder's investment as a holder that continues to hold Trust Preferred
Securities. See "Description of Junior Subordinated Debentures--Option to
Defer Interest Payment Period" and "--Option to Defer Interest Payment
Period."
REDEMPTION PRIOR TO STATED MATURITY
Glacier may, at its option, on or after , 2003, redeem the
Junior Subordinated Debentures in whole at any time or in part from time to
time at 100% of the principal amount together with accrued but unpaid interest
to the date fixed for redemption and therefore cause a mandatory redemption of
the Trust Securities.
In addition, upon the occurrence and during the continuation of a Tax Event
or an Investment Company Event (whether occurring before or after
, 2003), Glacier has the right, if certain conditions are met, to
redeem the Junior Subordinated Debentures in whole (but not in part) at 100%
of the principal amount
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<PAGE>
together with accrued but unpaid interest to the date fixed for redemption
within 90 days following the occurrence of such Tax Event or Investment
Company Event and therefore cause a mandatory redemption of Trust Securities.
See "Description of the Trust Preferred Securities--Redemption."
A "Tax Event" means the receipt by Glacier and Water Trust I of an opinion
of counsel experienced in such matters to the effect that, as a result of any
amendment to, or change (including any announced prospective change) in, the
laws (or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein, or as a result of any
official administrative pronouncement or judicial decision interpreting or
applying such laws or regulations, which amendment or change is effective or
such prospective change, pronouncement or decision is announced on or after
the original issuance of the Trust Preferred Securities, there is more than an
insubstantial risk that (i) Water Trust I is, or will be within 90 days of the
date of such opinion, subject to United States federal income tax with respect
to income received or accrued on the Junior Subordinated Debentures, (ii)
interest payable by Glacier on the Junior Subordinated Debentures is not, or
within 90 days of such opinion, will not be, deductible by Glacier, in whole
or in part, for United States federal income tax purposes, or (iii) Water
Trust I is, or will be within 90 days of the date of the opinion, subject to
more than a de minimis amount of other taxes, duties or other governmental
charges.
An "Investment Company Event" means the receipt by Glacier and Water Trust I
of an opinion of counsel experienced in such matters to the effect that, as a
result of any change in law or regulation or a change in interpretation or
application of law or regulation by any legislative body, court, governmental
agency or regulatory authority, Water Trust I is or will be considered an
"investment company" that is required to be registered under the Investment
Company Act of 1940, as amended (the "Investment Company Act"), which change
becomes effective on or after the original issuance of the Trust Preferred
Securities.
If less than all of the Trust Securities issued by Water Trust I are to be
redeemed on a Redemption Date, then the aggregate Redemption Price for such
Trust Securities to be redeemed shall be allocated pro rata to the Trust
Preferred Securities and the Common Securities based upon the relative
Liquidation Amounts of such classes. The particular Trust Preferred Securities
to be redeemed shall be selected by the Property Trustee from the outstanding
Trust Preferred Securities not previously called for redemption, by such
method as the Property Trustee shall deem fair and appropriate and which may
provide for the selection for redemption of portions (equal to $25 or an
integral multiple thereof) of the Liquidation Amount of Trust Preferred
Securities.
POSSIBLE DISTRIBUTION OF JUNIOR SUBORDINATED DEBENTURES TO HOLDERS OF TRUST
PREFERRED SECURITIES; RISK OF TAXATION UPON A DISTRIBUTION
Glacier will have the right at any time to dissolve Water Trust I and, after
satisfaction of liabilities to creditors of Water Trust I as required by
applicable law, cause the Junior Subordinated Debentures to be distributed to
the holders of the Trust Preferred Securities in liquidation of Water Trust I.
Because holders of the Trust Preferred Securities may receive Junior
Subordinated Debentures in liquidation of Water Trust I and because
Distributions are otherwise limited to payments on the Junior Subordinated
Debentures, prospective purchasers of the Trust Preferred Securities are also
making an investment decision with regard to the Junior Subordinated
Debentures and should carefully review all the information regarding the
Junior Subordinated Debentures contained herein. See "Description of the Trust
Preferred Securities--Liquidation Distribution Upon Dissolution" and
"Description of Junior Subordinated Debentures." If a Tax Event were to occur
which would cause Water Trust I to be subject to United States federal income
tax with respect to income received or accrued on the Junior Subordinated
Debentures, a distribution of the Junior Subordinated Debentures by Water
Trust I could be a taxable event to Water Trust I and the holders of the Trust
Preferred Securities. See "Certain Federal Income Tax Consequences--
Distribution of Junior Subordinated Debentures to Holders of Trust Preferred
Securities."
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<PAGE>
SHORTENING OF STATED MATURITY OF JUNIOR SUBORDINATED DEBENTURES
Glacier will have the right at any time to shorten the maturity of the
Junior Subordinated Debentures to a date not earlier than five years from the
date of issuance and thereby cause the Trust Preferred Securities to be
redeemed on such earlier date. See "Description of Junior Subordinated
Debentures--Redemption."
LIMITATIONS ON DIRECT ACTIONS AGAINST GLACIER AND ON RIGHTS UNDER THE
GUARANTEE
The Guarantee guarantees to the holders of the Trust Preferred Securities
the following payments, to the extent not paid by Water Trust I: (i) any
accumulated and unpaid Distributions required to be paid on the Trust
Preferred Securities, to the extent that Water Trust I has funds on hand
available therefor at such time, (ii) the redemption price with respect to any
Trust Preferred Securities called for redemption, to the extent that Water
Trust I has funds on hand available therefor at such time, and (iii) upon a
voluntary or involuntary dissolution, winding-up or liquidation of Water Trust
I (unless the Junior Subordinated Debentures are distributed to holders of the
Trust Preferred Securities), the lesser of (a) the aggregate of the
Liquidation Amount and all accumulated and unpaid Distributions to the date of
payment to the extent that Water Trust I has funds on hand available therefor
at such time (the "Liquidation Distribution") and (b) the amount of assets of
Water Trust I remaining available for distribution to holders of the Trust
Preferred Securities after satisfaction of liabilities to creditors of Water
Trust I as required by applicable law. The holders of not less than a majority
in aggregate liquidation amount of the Trust Preferred Securities have the
right to direct the time, method and place of conducting any proceeding for
any remedy available to the Guarantee Trustee in respect of the Guarantee or
to direct the exercise of any trust power conferred upon the Guarantee Trustee
under the Guarantee Agreement. Any holder of the Trust Preferred Securities
may institute a legal proceeding directly against Glacier to enforce its
rights under the Guarantee without first instituting a legal proceeding
against Water Trust I, the Guarantee Trustee or any other person or entity. If
Glacier were to default on its obligation to pay amounts payable under the
Junior Subordinated Debentures, Water Trust I would lack funds for the payment
of Distributions or amounts payable on redemption of the Trust Preferred
Securities or otherwise, and, in such event, holders of the Trust Preferred
Securities would not be able to rely upon the Guarantee for payment of such
amounts. Instead, in the event a Debenture Event of Default shall have
occurred and be continuing and such event is attributable to the failure of
Glacier to pay interest on or principal of the Junior Subordinated Debentures
on the date on which such payment in due and payable, then a holder of Trust
Preferred Securities may institute a legal proceeding directly against Glacier
for enforcement of payment to such holder of the principal of or interest on
such Junior Subordinated Debentures having a principal amount equal to the
aggregate Liquidation Amount of the Trust Preferred Securities of such holder
(a "Direct Action"). In connection with such Direct Action, Glacier will have
a right of set-off under the Indenture to the extent of any payment made by
Glacier to such holder of Trust Preferred Securities in the Direct Action.
Except as described herein, holders of Trust Preferred Securities will not be
able to exercise directly any other remedy available to the holders of the
Junior Subordinated Debentures or assert directly any other rights in respect
of the Junior Subordinated Debentures. See "Description of Junior Subordinated
Debentures--Enforcement of Certain Rights by Holders of Trust Preferred
Securities" and "Description of Guarantee." The Trust Agreement provides that
each holder of Trust Preferred Securities by acceptance thereof agrees to the
provisions of the Guarantee Agreement and the Indenture.
ABILITY TO MAKE PAYMENTS ON THE TRUST PREFERRED SECURITIES AND JUNIOR
SUBORDINATED DEBENTURES; DEPENDENCE ON SUBSIDIARIES
The ability of Water Trust I to pay amounts due on the Trust Preferred
Securities is solely dependent upon Glacier making payments on the Junior
Subordinated Debentures as and when required. Glacier will have significant
interest expense under the Junior Subordinated Debentures. As of October 5,
1997, after giving effect to the offering and the application of net proceeds
therefrom, Glacier would have had approximately $85 million of indebtedness
outstanding on a consolidated basis. As a holding company without significant
assets other than its equity interest in GW Services, Glacier's ability to pay
interest on the Junior Subordinated Debentures to Water Trust I (and
consequently, Water Trust I's ability to pay distributions on the Trust
Preferred Securities and Glacier's ability to pay its obligations under the
Guarantee) depends primarily on cash and liquid investments at Glacier and
upon cash dividends and interest payments Glacier may receive in the future
from GW Services
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<PAGE>
and its other subsidiaries. Such subsidiaries' ability to make payments to
Glacier is subject to such subsidiaries' profitability, financial condition,
and capital expenditure and other cash flow requirements. In addition, the
Indenture does not prohibit Glacier or such subsidiaries from incurring
additional indebtedness including indebtedness secured by their assets or
properties, or from entering into credit agreements or other financial
arrangements that restrict such subsidiaries' from making payments to Glacier.
The Company has entered into negotiations regarding a new credit facility.
While the Company expects that its operating cash flow will be sufficient to
cover its expenses including interest costs, there can be no assurance with
respect thereto. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
LIMITED COVENANTS; ABSENCE OF SINKING FUND
The covenants in the Indenture are limited. The Company is not required
under the Indenture to meet any financial tests that measure the Company's
working capital, interest coverage or net worth in order to comply with the
terms of the Indenture. There are no covenants relating to Glacier in the
Trust Agreement. As a result, neither the Indenture nor the Trust Agreement
protects holders of Junior Subordinated Debentures, or Trust Preferred
Securities, respectively, in the event of a material adverse change in
Glacier's or the Company's financial condition or results of operations, or
limits the ability of Glacier or any subsidiary to incur additional
indebtedness. Therefore, the provisions of these governing instruments should
not be considered a significant factor in evaluating whether Glacier will be
able to comply with its obligations under the Junior Subordinated Debentures
or the Guarantee. Further, the Junior Subordinated Debentures do not have the
benefit of any sinking fund payments by Glacier.
LIMITED VOTING RIGHTS
The holders of the Trust Preferred Securities will have no voting rights
except in limited circumstances relating only to the modification of the Trust
Preferred Securities and the exercise of the rights of Water Trust I as
holders of the Junior Subordinated Debentures and the Guarantee. Except as
provided below, the affirmative consent of the holders of at least a majority
of the outstanding Trust Preferred Securities will be required by Water Trust
I for amendments to the Trust Agreement that would affect adversely the rights
or privileges of the holders of the Trust Preferred Securities. Holders of
Trust Preferred Securities will not be entitled to vote to appoint, remove or
replace the Property Trustee or the Delaware Trustee, and such voting rights
are vested exclusively in the holder of the Common Securities except upon the
occurrence of certain events described herein. In no event will the holders of
the Trust Preferred Securities have the right to vote to appoint, remove or
replace the Administrative Trustees; such voting rights are vested exclusively
in the holder of the Common Securities. The Property Trustee, the
Administrative Trustees and Glacier may amend the Trust Agreement without the
consent of holders of the Trust Preferred Securities to ensure that Water
Trust I will be classified for United States federal income tax purposes as a
grantor trust or to ensure that Water Trust I will not be required to register
as an "investment company" under the Investment Company Act, even if such
action adversely affects the interests of such holders. See "Description of
the Trust Preferred Securities--Voting Rights; Amendment of the Trust
Agreement" and "--Removal of Trustees."
ABSENCE OF EXISTING PUBLIC MARKET; MARKET PRICES
There is no existing market for the Trust Preferred Securities. The Trust
Preferred Securities have been approved for listing on the American Stock
Exchange, subject to notice of issuance. There can be no assurance, however,
that an active and liquid trading market for the Trust Preferred Securities
will develop or that a continued listing of the Trust Preferred Securities
will be available on the American Stock Exchange. Although the Underwriters
have informed Water Trust I and the Company that the Underwriters intend to
make a market in the Trust Preferred Securities offered hereby, the
Underwriters are not obligated to do so and any such market making activity
may be terminated at any time without notice to the holders of the Trust
Preferred Securities. Future trading prices of the Trust Preferred Securities
will depend on many factors including, among other things, prevailing interest
rates, the operating results and financial condition of the Company, and the
market for similar securities. As a result of the existence of Glacier's right
to defer interest payments on or shorten the Stated Maturity of the Junior
Subordinated Debentures, the market price of the Trust Preferred Securities
may be more
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<PAGE>
volatile than the market prices of debt securities that are not subject to
such optional deferrals or reduction in maturity. There can be no assurance as
to the market prices for the Trust Preferred Securities or the Junior
Subordinated Debentures that may be distributed in exchange for the Trust
Preferred Securities if Glacier exercises its right to terminate Water Trust
I. Accordingly, the Trust Preferred Securities that an investor may purchase,
or the Junior Subordinated Debentures that a holder of the Trust Preferred
Securities may receive in liquidation of Water Trust I, may trade at a
discount from the price that the investor paid to purchase the Trust Preferred
Securities offered hereby.
RISK FACTORS RELATING TO THE COMPANY
MANAGEMENT OF GROWTH
The Company's growth strategy includes adding new machines within the states
in which the Company currently operates, as well as placing new machines
throughout the United States and in select markets internationally. In
addition, the Company intends to evaluate and pursue select strategic
acquisition opportunities. There can be no assurance that the Company's growth
strategy will be successful or that the Company will be able to successfully
manage any such growth. Rapid growth may adversely affect the Company's
operating results because of many factors, including start-up costs, diversion
of management time and resources and difficulties and complications in
integrating expanded operations and acquisitions.
TRADE RELATIONS OF THE COMPANY
The Company's arrangements with its retail trade accounts generally are
evidenced by written contracts with durations ranging from 30 days up to five
years. However, substantially all of the Company's arrangements are terminable
by the retailers on short notice. Typically, supermarket chains and other
retailers in the food and beverage industry do not enter into long-term
contracts with suppliers. There can be no assurance that retailers will not
terminate their relationships with the Company or that the Company's retailers
will renew their contracts on similar terms.
The Company's most significant account in fiscal 1996 was Ralphs Grocery
Company, a California-based chain of supermarkets operating under the names
Ralphs, Food-4-Less, Cala Foods, Bell Markets and Foods Co. (referred to
collectively herein as "Ralphs"). During fiscal 1996, approximately 10% of the
Company's total revenues were derived from sales from machines located at
Ralphs stores. Prior to fiscal year 1996, the Company's most significant
account was Vons, a California-based chain of supermarkets. Approximately 9%
of the Company's total revenues were derived from sales from machines located
at Vons stores during fiscal 1996. The Company entered into its most recent
contract with Ralphs in December of 1996. This contract, which succeeds a
previous contract with certain Ralphs locations, has a five-year term. The
Company currently is negotiating a new contract with Safeway, the parent
company of Vons, to replace its recently expired written agreement with Vons.
During the negotiations, the Company and Vons are continuing to operate under
the terms of the prior contract. While the Company believes its relations with
Ralphs, Vons and its other accounts are good, any termination of the Company's
relationships with its significant accounts would adversely affect the
Company. See "Business--Business Strategy."
RISKS ASSOCIATED WITH INTERNATIONAL EXPANSION
Although the Company currently does not conduct significant operations
outside of the United States, the Company intends to expand its operations
into select international markets. The Company is planning to place water
vending machines in Mexico City, Mexico during 1998 as its initial entry into
the international market. Such operations may be affected by risks associated
with economic, political and governmental conditions in the countries where
the Company may choose to operate, such as exchange rate fluctuation, adverse
currency or exchange controls, restrictions imposed on the Company's
operations, general political instability or expropriation. If the Company
operates in foreign countries and such conditions occur in such countries, the
Company's international operations may be materially adversely affected.
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COMPETITION
The bottled water market is highly competitive. The Company competes in the
nonsparkling segment of the bottled water market with companies that deliver
water to homes and offices, with off-the-shelf marketers and with other water
vending machine operators. Many of the Company's competitors have
significantly greater resources than the Company. Since the Company's primary
competitive advantage over delivered water and off-the-shelf marketers is
price, a substantial decline in the price of either delivered or off-the-shelf
bottled water could adversely affect the demand for water dispensed from the
Company's water vending machines.
Although the Company believes that there are significant barriers to entry
to new and existing competitors in the water vending market due to, among
other things, the substantial capital outlay required to purchase the number
of machines needed to achieve competitive operating efficiencies, a competitor
with significant financial resources may be able to compete with the Company.
There can be no assurance that any competitors will not be able to raise the
required capital to effectively compete with the Company. See "Business--
Competition."
PRODUCT LIABILITY
The Company could be subject to claims for personal injury resulting from
the use or consumption of its products, including liability due to the
presence of contaminants in its vended water. The Company currently maintains
product liability insurance which it believes to be adequate. However, such
coverage is limited, and there can be no assurance that the Company will not
be subject to a damage award in excess of its coverage which could adversely
affect its business. In addition to direct losses resulting from product
liability claims, the Company may suffer adverse publicity and damage to its
reputation in the event of a claim regarding the quality of the Company's
vended water, which could have a material adverse effect on sales and
profitability regardless of the merits of such claim.
INTELLECTUAL PROPERTY PROTECTION OF THE COMPANY
The tradename and trademarks "Glacier Water" and "Glacier Water & Penguin
Design" used by the Company include the word "Glacier" which is commonly used
and has been registered in connection with other marks and designs by a number
of other entities for water and related services. The mark "Glacier Water," by
itself, is considered by the United States Patent and Trademark Office (the
"PTO") to be generic in relation to water and related services. One party
claiming to sell bottled water in a limited area near Incline Village, Nevada,
informed the Company that it objected to the Company's use of the mark
"Glacier Water." However, the PTO has cancelled this party's registration.
Accordingly, the Company believes that no party can claim exclusive rights in
"Glacier Water," and the Company may only claim rights to stylized forms of
the mark or the mark with design elements. Notwithstanding the foregoing, no
assurance can be given that other entities might not assert superior or
exclusive rights in the marks and seek to obtain damages from and injunctive
relief against the Company. Thus, there can be no assurance that the Company's
use of the tradename and trademarks "Glacier Water" and "Glacier Water &
Penguin Design" will not violate the proprietary rights of others, which, if
such party challenged the use of such name and marks, could have a material
adverse effect on the Company.
The Company does not hold any patents. Additionally, in response to a third
party alleging that certain features of the Company's water vending machines
violate such party's patents, the Company filed a lawsuit against such third
party on October 28, 1997, seeking a declaration that the patents held by such
third party are invalid under United States patent law and that the Company's
water vending machines do not infringe any valid claim of the patents. On
November 17, 1997, the defendant filed an answer to the complaint and a
counterclaim alleging that the Company is infringing its patents. There can be
no assurance that the lawsuit ultimately will be resolved in favor of the
Company or that the Company will not have to make modifications to its
machines. See "Business--Intellectual Property."
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GOVERNMENT REGULATION OF THE COMPANY'S OPERATIONS
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 of the vended water. The Company's vending machines are
subject to routine and random regulatory quality inspections. Although the
Company believes it is operating in substantial compliance with these laws and
regulations, such laws and regulations and their interpretations and
enforcement are subject to change. There can be no assurance that additional
or more stringent requirements will not be imposed on the Company's operations
in the future. Failure to comply with such current or future laws and
regulations could result in fines against the Company, a temporary shutdown of
the Company's operations, the loss of certification to sell its product or,
even in the absence of governmental action, a reduction in the Company's
profit margins based on increases in licensing or inspection fees payable by
the Company or other additional compliance costs. See "Business--Government
Regulation."
BROAD DISCRETION IN USE OF PROCEEDS; RISKS INHERENT TO INVESTMENT OF PROCEEDS
Although the Company will use approximately $29.0 million of the proceeds
from the offering to pay off the outstanding indebtedness under the Credit
Facility, the remaining proceeds from the offering will be used for general
corporate purposes, including financing the Company's expansion. Thus,
management will have broad discretion in allocating the remaining proceeds of
the offering. The Company may invest a portion of the proceeds of the offering
in investment grade and non-investment grade debt and equity securities, which
securities have varying risks of loss. See "Use of Proceeds" and "Certain
Relationships."
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USE OF PROCEEDS
All of the proceeds from the sale of Trust Preferred Securities will be
invested by Water Trust I in the Junior Subordinated Debentures. The net
proceeds to Glacier from the sale of the Junior Subordinated Debentures are
estimated to be approximately $81.1 million, net of estimated underwriting
compensation and other estimated offering expenses. Glacier will use
approximately $29.0 million of the net proceeds of the sale of the Trust
Preferred Securities to pay off its outstanding indebtedness under the Credit
Facility. Glacier intends to use the remaining net proceeds for general
corporate purposes, which may include, without limitation, funding additional
investments in, or extensions of credit to, GW Services and its other
operating subsidiaries for the expansion of operations and possible future
acquisitions. Thus, management will have broad discretion in allocating such
remaining proceeds.
Pending their application, the net proceeds may be invested in a portfolio
of securities (which may include non-investment grade debt or equity
securities) managed by Kayne Anderson, an affiliate of the Company. Kayne
Anderson manages funds for certain insurance companies, institutional
investors and individuals and will charge Glacier a reasonable management fee
for its services. Such management fee will be on terms more favorable than
that for parties unaffiliated with Kayne Anderson. Three members of the
Company's Board of Directors, including Mr. Welch, also serve as executive
officers of Kayne Anderson. See "Risk Factors--Broad Discretion in Use of
Proceeds; Risks Inherent to Investment of Proceeds" and "Certain
Relationships."
The Credit Facility provides for borrowings of up to $35.0 million, and
requires monthly interest payments at the bank's prime rate (8.5% per annum at
October 5, 1997) or LIBOR plus 1.75%. Approximately $26.0 million of
borrowings were outstanding under the Credit Facility as of October 5, 1997
and approximately $29.0 million as of the date hereof. The Credit Facility
provides for a two-year interest-only revolving period which converts into a
five-year term note due and payable on July 1, 2003. Borrowings under the
Credit Facility were used to finance the Aqua-Vend acquisition, to fund the
expansion of operations and for general corporate purposes.
ACCOUNTING TREATMENT
For financial reporting purposes, Water Trust I will be treated as a
subsidiary of Glacier and, accordingly, the accounts of Water Trust I will be
included in the consolidated financial statements of the Company. The Trust
Preferred Securities will be presented as a separate line item in the
consolidated balance sheet of the Company under the caption "Company Obligated
Mandatorily Redeemable Preferred Securities of Subsidiary Trust Holding Solely
Junior Subordinated Debentures," and appropriate disclosures about the Trust
Preferred Securities, the Guarantee and the Junior Subordinated Debentures
will be included in the notes to consolidated financial statements. For
financial reporting purposes, the Company will record Distributions payable on
the Trust Preferred Securities as interest expense in the consolidated
statements of operations.
Future reports of Glacier filed under the Exchange Act, will include a
footnote to the financial statements stating that (i) Water Trust I is wholly
owned, (ii) the sole assets of Water Trust I are the Junior Subordinated
Debentures (specifying the principal amount, interest rate and maturity date
of such Junior Subordinated Debentures), and (iii) the back up obligations, in
the aggregate, constitute a full and unconditional guarantee by Glacier of the
obligations of Water Trust I under the Trust Preferred Securities. Water Trust
I will not provide separate reports under the Exchange Act.
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CAPITALIZATION
The following table sets forth the cash and capitalization of the Company at
October 5, 1997 and as adjusted to reflect the issuance by Water Trust I of
the 3,400,000 Trust Preferred Securities offered hereby and the receipt by
Glacier of the proceeds, net of estimated underwriting compensation and other
estimated offering expenses, from the corresponding sale of the Junior
Subordinated Debentures to Water Trust I, and the application of the net
proceeds therefrom as described under "Use of Proceeds."
<TABLE>
<CAPTION>
OCTOBER 5, 1997
-----------------
AS
ACTUAL ADJUSTED
------- --------
(IN THOUSANDS)
<S> <C> <C>
Cash........................................................ $ 10 $ 55,118
======= ========
Long-term debt.............................................. $26,022 $ --
Company obligated mandatorily redeemable preferred
securities of subsidiary trust holding solely junior
subordinated debentures(1)................................. -- 85,000
Stockholders' Equity:
Preferred stock, $.01 par value: 100,000 shares
authorized, none outstanding............................. -- --
Common Stock, $.01 par value: 10,000,000 shares
authorized, 3,228,075 shares outstanding(2)(3)........... 34 34
Additional paid-in capital................................ 15,481 15,481
Retained earnings......................................... 12,550 12,550
Treasury stock, 170,500 shares, at cost(3)................ (3,563) (3,563)
------- --------
Total stockholders' equity.............................. 24,502 24,502
------- --------
Total capitalization.................................... $50,524 $109,502
======= ========
</TABLE>
- --------
(1) The subsidiary trust is Water Trust I, which will hold an aggregate
principal amount of $87,628,850 of Glacier's % Junior Subordinated
Debentures as its sole asset. The Trust Preferred Securities are issued by
Water Trust I. The sole asset of Water Trust I is the Junior Subordinated
Debentures issued by Glacier to Water Trust I. The Junior Subordinated
Debentures will bear interest at the rate of % per annum and will
mature on , 2028, which date may be shortened to a date not earlier
than , 2003 if certain conditions are met. The Junior Subordinated
Debentures are redeemable prior to maturity at the option of Glacier (i)
on or after , 2003, in whole at any time or in part from time to
time, or (ii) at any time, in whole (but not in part), within 90 days
following the occurrence and continuation of a Tax Event or an Investment
Company Event (each as defined herein). See "Description of Junior
Subordinated Debentures--Redemption." Glacier owns all of the Common
Securities of Water Trust I.
(2) Excludes 542,250 shares of Common Stock reserved for issuance under the
Company's 1994 Stock Compensation Program, of which 413,556 shares were
issuable upon exercise of options outstanding as of October 5, 1997.
(3) In December 1995 and December 1996, the board of directors of the Company
authorized the repurchase of an aggregate of 500,000 shares of Common
Stock, of which 170,500 had been repurchased as of October 5, 1997. An
additional 329,500 shares of Common Stock, approximately 10.2% of the
Company's total shares outstanding, remained available for repurchase
under the Company's stock repurchase program as of October 5, 1997.
25
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER INFORMATION
The following selected consolidated statements of income data and
consolidated balance sheet data of the Company as of and for the years ended
December 31, 1996, 1995, 1994, 1993 and 1992 has been derived from the
Company's audited consolidated financial statements. The following selected
consolidated statements of income data and consolidated balance sheet data of
the Company as of and for the nine months ended October 5, 1997 and September
30, 1996 have been derived from the Company's unaudited consolidated quarterly
financial statements which, in the opinion of management, include all
adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation. The information contained herein should be read in
conjunction with the Company's consolidated financial statements and related
notes included elsewhere herein. The consolidated financial information for
the nine months ended October 5, 1997 is not necessarily indicative of the
operating results to be expected for the entire year.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, ------------------------
----------------------------------------------------- SEPTEMBER 30, OCTOBER 5,
1992 1993 1994 1995 1996 1996 1997(1)
--------- --------- --------- --------- --------- ------------- ----------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS
OF INCOME DATA:(2)
Revenues................ $ 27,182 $ 30,636 $ 36,557 $ 42,409 $ 46,091 $ 35,760 $ 44,352
Costs and expenses:
Operating expenses..... 18,356 20,065 23,504 25,933 28,088 22,009 27,482
General and
administrative
expenses.............. 3,702 4,512 4,791 5,483 5,733 4,155 5,461
Depreciation and
amortization.......... 1,995 2,692 3,662 5,756 6,769 4,991 6,515
Non-recurring
charges(3)............ -- -- -- -- -- -- 3,062
--------- --------- --------- --------- --------- --------- ---------
Total costs and
expenses............ 24,053 27,269 31,957 37,172 40,590 31,155 42,520
--------- --------- --------- --------- --------- --------- ---------
Income from operations.. 3,129 3,367 4,600 5,237 5,501 4,605 1,832(9)
Interest expense, net... 476 38 317 723 783 553 1,370
--------- --------- --------- --------- --------- --------- ---------
Income before income
taxes.................. 2,653 3,329 4,283 4,514 4,718 4,052 462
Income tax provision.... 1,016 1,282 1,578 1,805 1,415 1,337 143
--------- --------- --------- --------- --------- --------- ---------
Net income.............. $ 1,637 $ 2,047 $ 2,705 $ 2,709 $ 3,303 $ 2,715 $ 319(9)
========= ========= ========= ========= ========= ========= =========
Net income per share.... $ 0.54 $ 0.62 $ 0.80 $ 0.80 $ 0.98 $ 0.80 $ 0.10(9)
========= ========= ========= ========= ========= ========= =========
Weighted average common
and common equivalent
shares outstanding..... 3,058,029 3,299,130 3,367,151 3,405,104 3,374,482 3,389,893 3,324,525
========= ========= ========= ========= ========= ========= =========
OTHER DATA (UNAUDITED):
EBITDA(4)............... $ 5,124 $ 6,059 $ 8,262 $ 10,993 $ 12,270 $ 9,596 $ 11,409
Net cash provided by
operating activities... 3,275 4,277 3,490 7,385 7,193 7,531 6,801
Net cash used in
investing
opportunities.......... (5,040) (6,131) (10,597) (10,791) (8,540) (5,478) (17,454)
Net cash provided by
financing activities... 2,752 901 7,095 3,362 1,329 (1,216) 10,652
MACHINE DATA:
Number of machines at
beginning of period.... 2,990 3,666 4,780 6,725 8,518 8,518 9,164
Number of machines added
during period, net..... 676 1,114 1,945 1,793 646 376 3,006
Number of machines at
end of period.......... 3,666 4,780 6,725 8,518 9,164 8,894 12,170
GROWTH RATES:
Revenue growth.......... * 12.7% 19.3% 16.0% 8.7% * 24.0 %
EBITDA growth(4)........ * 18.2% 36.4% 33.1% 11.6% * 18.9 %
Income from operations
growth................. * 7.6% 36.6% 13.8% 5.0% * (60.2)%(10)
MARGINS:
EBITDA margin(4)(5)..... 18.9% 19.8% 22.6% 25.9% 26.6% 26.8% 25.7 %
Income from operations
margin(6).............. 11.5% 11.0% 12.6% 12.3% 11.9% 12.9% 4.1 %(10)
RATIOS:
EBITDA to interest
expense, net(4)........ 10.8x 159.4x 26.1x 15.2x 15.7x 17.4x 8.3x
Earnings to fixed
charges(7)............. 8.8x 22.5x 9.0x 5.2x 5.1x 6.0x 1.3x
Pro forma ratio of
earnings to fixed
charges(7)(8).......... -- -- -- -- 3.6x -- 1.2x
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------
SEPTEMBER 30, OCTOBER 5,
1992 1993 1994 1995 1996 1996 1997(1)
------- ------- ------- ------- ------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET DATA:
Total assets............ $20,119 $23,415 $34,042 $40,638 $46,067 $43,443 $58,515
Long-term debt,
including current
portion................ 880 1,510 8,199 11,087 15,820 10,289 26,022
Stockholders' equity.... 15,218 17,265 20,376 24,087 23,986 26,384 24,502
</TABLE>
- -------
(1) The Company elected on May 8, 1997 to change its fiscal year end from
December 31 to the fifty-two or fifty-three week period ending on the
Friday closest to December 31. On October 23, 1997, the Company further
modified its fiscal year end to more closely align its fiscal reporting to
its business cycle to the fifty-two or fifty-three week period ending on
the Sunday closest to December 31.
(2) Certain amounts have been reclassified to conform to the current
presentation.
(3) Non-recurring charges in 1997 represent costs incurred to integrate Aqua-
Vend's operations with the Company's following the March 28, 1997 asset
purchase.
(4) EBITDA represents earnings before interest expense, income taxes,
depreciation and amortization and non-recurring charges. EBITDA is not
intended to represent cash flow from operations as defined by generally
accepted accounting principles and should not be considered as an
alternative to cash flow or as a measure of liquidity or as an alternative
to net earnings as indicative of operating performance. The Company's
reported EBITDA may not be comparable to similarly titled measures of
other companies that do not have non-recurring charges. EBITDA, EBITDA
margin, EBITDA growth and EBITDA to interest expense, net are included
herein because management believes they are useful for measuring the
Company's ability to service its debt.
(5) EBITDA margins represent EBITDA divided by revenues.
(6) Income from operations margins represents income from operations divided
by revenues.
(7) For purposes of calculating the ratio and pro forma ratio of earnings to
fixed charges, earnings consist of income before income taxes, plus fixed
charges. Fixed charges consist of the interest expense on all indebtedness
and the estimated representative interest factor of rental expense.
(8) The average outstanding debt balances for the year ending December 31,
1996 and the nine-month period ending October 5, 1997 were approximately
$13,454,000 and $22,621,000, respectively, and gross interest expense was
approximately $767,000 and $1,416,000, respectively. The pro forma ratios
assume the replacement of this indebtedness with a corresponding amount of
Junior Subordinated Debentures. If, on a consolidated basis, the entire
$85,000,000 principal amount of Junior Subordinated Debentures had been
outstanding throughout the periods, total interest expense would have been
approximately $7,756,000 and $5,817,000, respectively.
(9) Information presented in the table does not exclude non-recurring charges.
Excluding non-recurring charges of $3,062,000 for the nine months ended
October 5, 1997, income from operations, net income and net income per
share would have been $4,894,000, $2,432,000 and $.73, respectively.
(10) Information presented in the table does not exclude non-recurring
charges. Excluding non-recurring charges of $3,062,000 for the nine
months ended October 5, 1997, income from operations growth would have
been 6.3% and income from operations margin would have been 11.0%.
* Numbers are omitted as prior period has not been presented herein.
QUARTERLY DATA
The following table sets forth certain unaudited consolidated operating
results for each of the periods presented. This information has been prepared
on the same basis as the audited consolidated financial statements contained
herein and includes all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation of such periods.
The Company's revenues are subject to seasonal fluctuations with decreased
revenues during cold weather months and increased revenues during hot weather
months.
<TABLE>
<CAPTION>
SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, APRIL 4, JULY 4, OCT. 5,
1995 1995 1996 1996 1996 1996 1997 1997 1997
--------- --------- --------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $ 13,193 $ 9,553 $ 10,015 $ 12,036 $ 13,709 $ 10,331 $ 11,176 $ 16,038 $ 17,138
Costs and expenses:
Operating expenses...... 7,969 5,877 6,301 7,407 8,302 6,078 7,075 9,834 10,573
General and
administrative
expenses............... 1,451 1,355 1,286 1,460 1,408 1,579 1,613 1,856 1,992
Depreciation and
amortization........... 1,509 1,582 1,634 1,653 1,704 1,778 1,880 2,318 2,317
Non-recurring charges... -- -- -- -- -- -- 471 870 1,721
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Income from operations.. 2,264 739 794 1,516 2,295 896 137 1,160 535
Interest expense, net... 210 168 195 184 174 230 314 524 532
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Net income (loss) before
income taxes........... 2,054 571 599 1,332 2,121 666 (177) 636 3
Income tax provision
(benefit).............. 821 228 239 533 565 78 (66) 238 (29)
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Net income (loss)....... $ 1,233 $ 343 $ 360 $ 799 $ 1,556 $ 588 $ (111) $ 398 $ 32
========= ========= ========= ========= ========= ========= ========= ========= =========
Income (loss) per share. $ 0.36 $ 0.10 $ 0.11 $ 0.24 $ 0.46 $ 0.18 $ (0.03) $ 0.12 $ 0.01
========= ========= ========= ========= ========= ========= ========= ========= =========
Weighted average common
and common equivalent
shares................. 3,397,746 3,405,572 3,406,797 3,389,589 3,398,650 3,327,953 3,316,391 3,310,010 3,351,034
========= ========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, ------------------------
------------------- SEPTEMBER 30, OCTOBER 5,
1994 1995 1996 1996 1997
----- ----- ----- ------------- ----------
<S> <C> <C> <C> <C> <C>
Revenues...................... 100.0% 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Operating expenses.......... 64.3% 61.2% 60.9% 61.5% 62.0%
General and administrative
expenses................... 13.1% 12.9% 12.4% 11.6% 12.3%
Depreciation and
amortization............... 10.0% 13.6% 14.8% 14.0% 14.7%
Non-recurring charges....... -- -- -- -- 6.9%
----- ----- ----- ----- -----
Total costs and expenses.. 87.4% 87.7% 88.1% 87.1% 95.9%
----- ----- ----- ----- -----
Income from operations........ 12.6% 12.3% 11.9% 12.9% 4.1%
Interest expense, net......... .9% 1.7% 1.7% 1.6% 3.1%
----- ----- ----- ----- -----
Income before income taxes.... 11.7% 10.6% 10.2% 11.3% 1.0%
===== ===== ===== ===== =====
</TABLE>
RESULTS OF OPERATIONS
Nine Months Ended October 5, 1997 and September 30, 1996
OVERVIEW
The Company previously reported that effective January 1, 1997, it had
prospectively changed its fiscal year from twelve calendar months ending
December 31, to a 52- or 53-week fiscal year ending on the Friday closest to
December 31. In order to more closely align its fiscal reporting to its
business cycle, the Company has further modified its fiscal reporting to end
its fiscal year on the Sunday closest to December 31. As a result of these
changes, the Company's 1997 fiscal quarters each contained 13 calendar weeks.
Accordingly, the third quarter ended on October 5, 1997 and contained 93 days,
and the Company's fiscal year will end on January 4, 1998. The change in
fiscal reporting was not applied retroactively, as there would be no impact on
the operating results for the first two quarters.
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 assets purchased included
approximately 3,000 water vending machines. In connection with the
acquisition, the Company developed a detailed integration plan which included
the removal of approximately 600 Aqua-Vend machines from service, the
upgrading and modification of the majority of the remaining Aqua-Vend machines
and the rationalization and relocation of Aqua-Vend machines within Glacier's
network of machines. The revenues and operating costs associated with these
machines from March 29, 1997 are included in the Company's results of
operations.
During the third quarter, the Company substantially completed the Aqua-Vend
integration activities and incurred non-recurring expenses of $1,721,000
related to these activities. As of October 5, 1997, the Company had incurred
total non-recurring expenses of $3,062,000 to complete the integration of the
Aqua-Vend machines. The Company does not expect to incur any further non-
recurring expenses associated with the Aqua-Vend integration.
During the third quarter, the Company installed 109 new outside machines and
83 in-store machines and removed 326 Aqua-Vend machines, to finish the third
quarter with a total of 12,170 machines in operation, compared with 8,894 at
September 30, 1996. Included in the total at October 5, 1997 are 460 in-store
machines, compared with 87 at September 30, 1996.
28
<PAGE>
REVENUES
Revenues for the quarter ended October 5, 1997 increased 25.0% to
$17,138,000, from $13,709,000 in the third quarter of 1996. Revenues for the
first nine months of 1997 increased 24.0% to $44,352,000, from $35,760,000 in
the same period last year. The increases are primarily the result of the
increased number of machines in operation throughout the quarter and nine-
month periods. The increases in revenues, however, did not keep pace with the
36.8% increase in the number of machines in operation since September 30, 1996
due primarily to unusually mild weather during July and August in California,
the Company's largest and most important market.
COSTS AND EXPENSES
Operating expenses for the quarter increased to $10,573,000, or 61.7% of
revenues, compared to $8,302,000, or 60.6% of revenues in the third quarter of
1996. Operating expenses for the nine-month period increased to $27,482,000,
or 62.0% of revenues, compared to $22,009,000, or 61.5% of revenues in 1996.
The total dollar increase is due to the additional commissions and service
costs associated with the additional machines in 1997. The total dollar
increase in operating expenses is due also in part to inefficiencies in
servicing and other short term increases in service costs experienced as the
Company focused its efforts on completing the integration of Aqua-Vend in the
third quarter. These increased costs related to Aqua-Vend are in addition to
the specific costs associated with the Company's identified integration
projects that are reported separately as non-recurring charges. The increase
in operating expenses as a percentage of revenues for both the quarter and
nine-month period is a result of the increase in servicing costs, as well as
the effect of softer revenues in the third quarter, discussed above.
General and administrative expenses ("G&A") for the quarter increased to
$1,992,000, or 11.6% of revenues, compared to $1,408,000, or 10.3% of revenues
in the third quarter of 1996. G&A expenses for the nine-month period increased
to $5,461,000, or 12.3% of revenues, compared to $4,155,000, or 11.6% of
revenues in 1996. The increase in total dollars is due to an increase in the
Company's activities supporting and promoting the in-store machine program, as
well as additional administrative expenses incurred as a result of the Aqua-
Vend acquisition. The increase in G&A as a percentage of revenues for both the
quarter and nine-month period resulted primarily from the effect of softer
sales in the third quarter, discussed above.
Depreciation and amortization expense for the quarter increased to
$2,317,000, compared to $1,704,000 in the third quarter of 1996. Depreciation
and amortization expense for the nine-month period increased to $6,515,000,
compared to $4,991,000 in the prior year. The increases are the result of the
net installation of approximately 875 new Glacier machines and the addition of
approximately 2,400 Aqua-Vend machines since September 30, 1996.
The Company had expected to incur a total of approximately $3.5 million in
non-recurring expenses related to the integration of Aqua-Vend's operations
with Glacier's. Specifically, the integration plan included costs to close
certain Glacier locations and write-off obsolete assets, to upgrade the Aqua-
Vend machines to Glacier's servicing and operability standards, to rationalize
and relocate equipment between Aqua-Vend and Glacier locations and to change
the signage on Aqua-Vend machines to that used by Glacier. As of October 5,
1997, the Company has completed substantially all of these activities at a
total cost of $3,062,000. The Company does not expect to incur any additional
costs related to the integration project in the fourth quarter.
Interest expense for the quarter increased to $532,000, compared to $174,000
in the third quarter of 1996. Interest expense for the nine-month period
increased to $1,370,000 compared to $553,000 in the prior year. The increases
are due to the higher outstanding balances on the Company's bank line of
credit throughout 1997. Borrowings throughout the year were used to finance
the Company's investment in new machines, and to finance the acquisition of
Aqua-Vend.
In the third quarter, the Company recorded an income tax benefit to reflect
the cumulative effect of reducing the effective tax rate from 37.5% to 31.0%
for the nine-month period ended October 5, 1997. The Company
29
<PAGE>
reduced its tax rate to reflect the impact of certain tax credits, and it
expects the tax rate to approximate 31.0% for the fiscal year 1997. In the
third quarter of 1996, the Company's effective tax rate of 26.6% reflects a
similar cumulative adjustment to reduce the tax rate to 33.0% for the nine-
month period ended September 30, 1996.
As a result of the foregoing, net income for the quarter ended October 5,
1997 declined to $32,000, or $.01 per share, from $1,556,000, or $.46 per
share in the prior year. For the nine-month period ended October 5, 1997, net
income declined to $319,000, or $.10 per share, from $2,715,000, or $.80 per
share for the same period last year.
For the quarter ended October 5, 1997, EBITDA increased 14.4% to $4,573,000,
from $3,999,000 in the prior year. For the nine-month period ended October 5,
1997, EBITDA increased 18.9% to $11,409,000, from $9,596,000 for the same
period last year. The EBITDA margin for the quarter ended October 5, 1997 was
26.7%, compared to 29.2% last year, while the EBITDA margin for the nine-month
period was 25.7%, compared to 26.8% for the same period last year.
Years Ended December 31, 1996, 1995 and 1994
REVENUES
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.
COSTS AND EXPENSES
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 60.9% in
1996, compared to 61.2% in 1995 and 64.3% in 1994. The decreases were due
primarily to increased efficiencies in route servicing.
G&A expenses decreased as a percentage of revenues to 12.4% 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 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
The Company's primary sources of liquidity and capital resources are cash
flows from operations and funds available under the Company's Credit Facility.
The Credit Facility provides for borrowings of up to $35 million and requires
monthly interest payments at the bank's prime rate (8.5% per annum at October
5, 1997) or LIBOR
30
<PAGE>
plus 1.75%. The Credit Facility 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 assets of the
Company and requires, among other things, that the Company maintain certain
debt coverage and other financial ratios.
For the nine-month period ended October 5, 1997, net cash provided by
operations was approximately $6.8 million, the Company made capital
investments in vending machines and other equipment of approximately
$8.2 million, and invested approximately $9.4 million in the purchase of Aqua-
Vend. As of October 5, 1997, the Company had a deficit in working capital of
$1.4 million. Because the Company does not have significant trade accounts
receivable and product inventories, working capital will vary from time to
time depending on the timing of payables.
At October 5, 1997, approximately $26.0 million of borrowings were
outstanding and $9.0 million was available under the Credit Facility. The
purchase price of the Aqua-Vend assets was funded by additional borrowings
under the Company's Credit Facility. The Company will apply a portion of the
net proceeds of this offering to pay off the outstanding balance under the
Credit Facility, which was approximately $29.0 million as of the date hereof.
The Credit Facility will then be terminated. The Company has entered into
negotiations regarding a new credit facility, which will be for an amount
anticipated to be less than the Company's current Credit Facility. There can
be no assurances that a new credit facility will be made available to the
Company on favorable terms or that the Company will enter into a new credit
facility.
Glacier is a holding company and its ability to pay dividends and meet its
other obligations is dependent upon receiving dividends or other payments from
its operating subsidiaries. Such subsidiaries' ability to make payments to
Glacier is subject to such subsidiaries' profitability, financial condition
and capital expenditure and other cash flow requirements. It is anticipated
that upon the closing of the offering no contractual restrictions will exist
on Glacier's subsidiaries to pay dividends to Glacier, although any new credit
facility that Glacier may enter into after the closing of the offering may
contain such restrictions. The Company believes its cash flow generated from
operations and borrowings available under a replacement credit facility to be
entered into after consummation of the offering will be sufficient to meet its
anticipated operating and capital requirements, including its investment in
vending equipment, for at least the next twelve months.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
The Company has had no changes in or disagreements with its accountants on
its accounting and financial disclosure.
31
<PAGE>
BUSINESS
INTRODUCTION
Glacier Water Services, Inc. is the leading provider of high quality, low
priced drinking water dispensed to consumers through self-service vending
machines. Since its inception in 1983, the Company has created a network of
over 12,000 water vending machines in Arizona, California, Florida, Georgia,
Illinois, Indiana, Iowa, Louisiana, Michigan, Mississippi, Nevada, New Mexico,
Ohio and Texas. The Company's water vending machines are placed at
supermarkets and other retail locations in order to take advantage of the
regular customer traffic at such locations. The Company's retail accounts
include Albertsons, Fiesta Markets, Frys, HEB, Hughes, KashNKarry, Kroger,
Longs Drugs, Lucky, Osco/Savon, Pantry Foods, Publix, Ralphs, Randall's,
Safeway, Smith's, Stater Bros., Thrifty/Payless, Vons, Wal-Mart, Winn Dixie
and others. Based on information contained in Bottled Water in the U.S.--1997
Edition, management believes that sales by the Company account for over 75% of
the volume of water sold through water vending machines.
The Company's internally developed and manufactured water vending machines
are connected to the municipal water source at each of its retail locations.
The vending 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 is
significantly lower than the price of water sold off-the-shelf in retail
locations or sold through delivery services. The Company's water vending
machines are clustered in close proximity to one another within the geographic
areas served in order to assure cost-effective, quality service. Each water
vending machine is serviced and tested weekly.
The Company has experienced significant growth. The number of water vending
machines in operation has increased from 3,666 machines as of December 31,
1992 to 9,164 machines as of December 31, 1996, representing a compounded
annual growth rate of 25.7%. For the year ended December 31, 1996, the
Company's revenues, EBITDA and net income were $46.1 million, $12.3 million
and $3.3 million, respectively, representing compounded annual growth rates
over the prior four years of 14.1%, 24.4% and 19.2%, respectively. During the
nine months ended October 5, 1997, the Company added 3,006 machines, primarily
as a result of the acquisition in March 1997 of the Company's largest
competitor, Aqua-Vend, a division of McKesson Water Products Company. For such
nine-month period, the Company achieved revenues and EBITDA of $44.4 million
and $11.4 million, respectively. Net income was $319,000 for the same period
after recording non-recurring charges of approximately $3.1 million
representing costs incurred to integrate Aqua-Vend's operations with the
Company's.
Historically, the Company has operated water vending machines designed
primarily for outside use in fair-weather climates. Of the Company's 12,170
machines in operation as of October 5, 1997, 11,961 were located in nine
sunbelt states. Because it is impractical to use outdoor vending machines in
cold-weather climates, the Company has developed a new water vending machine
specifically designed to be installed inside retail locations. The "in-store"
machine is smaller and has a sleeker exterior, thereby making it more
compatible with an interior retail layout. The Company believes that the in-
store machine affords the Company significant opportunities to expand within
its existing locations, as well as into new market areas in cold-weather
states. The Company currently operates machines at less than 10% of the
estimated 72,000 grocery stores (excluding convenience stores) in the
United States.
In addition to its growth strategy, the Company intends to maintain its
leading position in the water vending industry by: (i) providing high quality,
low priced water to consumers; (ii) developing and maintaining good
relationships with retail accounts; (iii) increasing brand and product
awareness; and (iv) maximizing operating efficiencies and asset productivity.
32
<PAGE>
BUSINESS BACKGROUND
The following table presents the number of machines installed annually since
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
1997 (to date).................................................. 3,006
------
Total installed machines as of October 5, 1997.................... 12,170
======
</TABLE>
Total installed machines as of October 5, 1997 are distributed by state as
follows:
<TABLE>
<S> <C>
California........................................................ 6,990
Texas............................................................. 1,850
Florida........................................................... 1,746
Arizona........................................................... 803
Nevada............................................................ 288
Other............................................................. 493
------
12,170
======
</TABLE>
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.
Glacier's internally developed water vending machines utilize micron
filtration, reverse osmosis, carbon absorption and ultraviolet sterilization
in order to provide high quality drinking water. The design of the Company's
water vending machines provides a high degree of reliability and
serviceability through the use of interchangeable parts and a durable
fiberglass cabinet. The water vending machines are also designed to be easy
for consumers to use, with clear and simple instructions.
THE BOTTLED WATER INDUSTRY
According to a report entitled Bottled Water in the U.S.--1997 Edition, the
bottled water market has grown from approximately 300 million gallons sold in
1976 to approximately 3.1 billion gallons sold in 1996, representing a
compounded annual growth rate of 12.4%. The bottled water market in the United
States, which in 1996 totaled approximately $3.6 billion, comprises four
segments: nonsparkling, sparkling, club soda/seltzer and imported water.
Nonsparkling water is the segment in which the Company competes and is
consumed as an alternative to tap water. Nonsparkling water is the largest of
the four segments and represented approximately 85% of the total market in
terms of gallons sold and approximately 65% of the total market in terms of
dollars sold for 1996.
33
<PAGE>
Nonsparkling water is distributed through three principal channels: packaged
water sold off-the-shelf in retail locations, packaged water delivered to
homes and offices and water sold through vending machines. Like water sold
off-the-shelf or through home delivery services, vended water is processed
using the reverse osmosis or deionization methods. Although equivalent in
quality, vended water is sold at a substantially lower price than off-the-
shelf and delivered water. Vended water eliminates two principal cost
components, packaging, because consumers provides their own containers and
transportation. By competing on price, management believes Glacier Water has
become the leading brand sold in the nonsparkling water market segment, with
approximately a 6.8% share at the end of 1996 based on gallons sold.
BUSINESS STRATEGY
Provide High Quality, Low Priced Drinking Water. The Company intends to
maintain its leading position in the water vending industry by providing high
quality, low priced drinking water delivered to the consumer through a network
of conveniently located water vending machines. In order to maintain the
Company's superior quality standards, the Company provides frequent, regular
and reliable service and support to its network of water vending machines. The
Company's service technicians visit and service each vending machine on a
weekly basis. The service technicians test the quality of the Company's
processed water in order to assure compliance with all Company, federal, state
and local standards. The Company believes that providing clean, operating
water vending machines is a significant factor in the Company's ability to
continue to build consumer usage.
The Company's drinking water competes with nonsparkling water sold in
containers inside retail outlets and with water sold in containers delivered
directly to homes and offices. The principal costs associated with water sold
off-the-shelf and through delivery are packaging and distribution, which 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 the
packaging and distribution costs incurred by these competitors. Accordingly,
the Company passes on these savings to consumers by charging a retail price of
$0.25 to $0.35 per gallon, compared with retail pricing ranging from
approximately $0.69 to over a dollar 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.
Develop and Maintain Relationships With Retail Accounts. The Company
arranges to place its outdoor and in-store water vending machines on the
premises of supermarkets and other retail locations. The Company provides the
water vending machines and pays for all installation costs, while the retailer
provides and pays for the required municipally supplied water and for the
electricity to operate the machines. The Company generally pays monthly
commissions to retailers based upon a percentage of sales, typically ranging
from 25% to 60%. The Company believes it can continue to capitalize on its
existing relationships to place in-store water vending machines at locations
where the Company has already successfully placed its outdoor water vending
machines, as retailers become increasingly cognizant of the growing demand for
vended water.
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. The
Company aggressively competes to maintain existing retail accounts and to
establish new retail relationships. In some cases, the Company provides
marketing incentives in order to encourage certain retailers to promote the
Company's product.
Increase Brand and Product Awareness. The Company believes that it will
continue to benefit from increasing consumer awareness and trial usage. To
date, the Company has used point-of-purchase signage, special introductory and
promotional pricing, and promotional activities coinciding with the
installation of new machines as its primary marketing tools. Additionally,
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. The Company
is considering the testing of media
34
<PAGE>
advertising in markets with high population densities and where many Glacier
Water vending machines are installed.
Maximize Operating Efficiencies. The Company creates economies of scale in
its operations and achieves a competitive advantage over other vended water
suppliers by clustering machines in close proximity to one another within the
geographic areas served in order to assure cost-effective, frequent service.
This clustering has allowed the Company over the last five years to increase
the number of machines serviced by technicians from 40 machines to 70 machines
per week. The Company continuously strives to develop technical improvements
to its water vending machines that make them easier to use and easier to
service. To this end, the Company has made improvements to its water vending
machines including the introduction of its fast-flow nozzle which increases
the speed of water flow from the Company's water vending machines, thereby
cutting consumer fill-time, and the introduction of the Company's dual-vend
technology which doubles the number of nozzles on a machine to allow consumers
to fill two water containers simultaneously. The Company continually monitors
and evaluates demand for the Company's product at each location. This allows
the Company to continue to evaluate the productivity of each of its machines
and relocate machines as necessary to optimize their productivity.
GROWTH STRATEGY
According to an industry source, there are approximately 72,000 grocery
stores (excluding convenience stores) in the United States. The Company
currently operates water vending machines at less than 10% of such locations.
The Company intends to continue its expansion into these locations as well as
into select international markets. The Company's growth strategy includes the
following:
. Increase Penetration of Existing Domestic Markets. The Company primarily
operates in nine sunbelt states through the use of its outdoor water
vending machine. Management believes it can place additional outdoor
machines with both existing and new retail accounts in those states.
Management also believes there are significant opportunities to add in-
store water vending machines at its current retail account locations,
without adversely affecting revenues generated by its outdoor machines
at such locations.
. Expand Into New Domestic Markets. The Company intends to place its in-
store water vending machines inside retail locations in cold-weather
regions throughout the United States. In addition, the Company intends
to expand into new warm-weather markets using both in-store and outdoor
machines.
. Expand Into Select International Markets. The Company intends to
capitalize on the demand for bottled water outside of the United States
by expanding into select international markets. The Company currently is
in the process of establishing operations in Mexico as its initial entry
into the international market.
. Pursue Select Acquisition Opportunities. The Company intends to evaluate
and pursue select strategic acquisition opportunities, but has no firm
commitments with respect to acquisitions at this time.
THE AQUA-VEND ACQUISITION
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, for a purchase price of approximately $9
million, subject to certain post-closing adjustments. Prior to the
acquisition, Aqua-Vend was the Company's largest competitor, with
approximately 3,000 water vending machines. In connection with the
acquisition, the Company developed a detailed integration plan which included
the removal of approximately 600 Aqua-Vend machines and the rationalization
and relocation of Aqua-Vend machines within Glacier's network of machines.
35
<PAGE>
COMPETITION
The bottled water market is highly competitive. The Company competes in the
nonsparkling segment of the bottled water market with companies that deliver
water to homes and offices, with off-the-shelf marketers and with other water
vending machine operators. Many of the Company's competitors have
significantly greater resources than the Company. Since the Company's primary
competitive advantage over water delivery services and off-the-shelf marketers
is price, a substantial decline in the price of either delivered or off-the-
shelf bottled water could adversely affect the demand for water dispensed from
the Company's water vending machines.
Although the Company believes that there are significant barriers to entry
to new and existing competitors in the water vending market due to, among
other things, the substantial capital outlay required to purchase the number
of machines needed to achieve competitive operating efficiencies, a competitor
with significant financial resources may be able to compete with the Company.
There can be no assurance that any competitors will not be able to raise the
required capital to effectively compete with the Company. See "Risk Factors--
Competition."
SEASONALITY
The Company's revenues are subject to seasonal fluctuations with decreased
revenues during rainy or cold weather months and increased revenues during hot
weather months.
INTELLECTUAL PROPERTY
The tradename and trademarks "Glacier Water" and "Glacier Water & Penguin
Design" used by the Company include the word "Glacier" which is commonly used
and has been registered in connection with other marks and designs by a number
of other entities for water and related services. The mark "Glacier Water," by
itself, is considered by the United States Patent and Trademark Office (the
"PTO") to be generic in relation to water and related services. One party
claiming to sell bottled water in a limited area near Incline Village, Nevada,
informed the Company that it objected to the Company's use of the mark
"Glacier Water." However, the PTO has cancelled this party's registration.
Accordingly, the Company believes that no party can claim exclusive rights in
"Glacier Water," and the Company may only claim rights to stylized forms of
the mark or the mark with design elements. Notwithstanding the foregoing, no
assurance can be given that other entities might not assert superior or
exclusive rights in the marks and seek to obtain damages from and injunctive
relief against the Company. Thus, there can be no assurance that the Company's
use of the tradename and trademarks "Glacier Water" and "Glacier Water &
Penguin Design" will not violate the proprietary rights of others, which, if
such party challenged the use of such name and marks, could have a material
adverse effect on the Company.
The Company does not hold any patents. Additionally, in response to a third
party alleging that certain features of the Company's water vending machines
violate such party's patents, the Company filed a lawsuit against such third
party on October 28, 1997, seeking a declaration that the patents held by such
third party are invalid under United States patent law and that the Company's
water vending machines do not infringe any valid claim of the patents. On
November 17, 1997, the defendant filed an answer to the complaint and
counterclaim alleging that the Company is infringing its patents. Although the
Company believes, based on advise of patent counsel, that this litigation will
not have a material adverse effect on the Company's business, financial
condition or operating results, there can be no assurance that the lawsuit
ultimately will be resolved in favor of the Company or that the Company will
not have to make modifications to its machines. See "Risk Factors--
Intellectual Property Protection of the Company."
GOVERNMENT REGULATION
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
36
<PAGE>
and the vended water, and to continuously control the quality of the vended
water. The Company's vending machines are subject to routine and random
regulatory quality inspections. Although the Company believes it is operating
in substantial compliance with these laws and regulations, such laws and
regulations and their interpretations and enforcement are subject to change.
There can be no assurance that additional or more stringent requirements will
not be imposed on the Company's operations in the future. Failure to comply
with such current or future laws and regulations could result in fines against
the Company, a temporary shutdown of the Company's operations, the loss of
certification to sell its product or, even in the absence of governmental
action, a reduction in the Company's profit margins based on increases in
licensing or inspection fees payable by the Company or other additional
compliance costs. See "Risk Factors--Government Regulation of the Company's
Operations."
INSURANCE
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
As of October 5, 1997, the Company had 350 employees, including 56 in
administration and 294 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.
WATER TRUST I
Water Trust I is a statutory business trust created under Delaware law
pursuant to (i) the Trust Agreement and (ii) the filing of a Certificate of
Trust with the Delaware Secretary of State on November 13, 1997. Water
Trust I's business and affairs are conducted by the Property Trustee, the
Delaware Trustee and three individual Administrative Trustees who are officers
of the Company. Water Trust I exists for the exclusive purposes of (i) issuing
and selling the Trust Securities, (ii) using the proceeds from the sale of the
Trust Securities to acquire the Junior Subordinated Debentures issued by
Glacier, and (iii) engaging in only those other activities necessary,
advisable or incidental thereto. The Junior Subordinated Debentures will be
the sole assets of Water Trust I, and payments by Glacier under the Junior
Subordinated Debentures and the Expense Agreement will be the sole revenues of
Water Trust I. All of the Common Securities will be owned by Glacier. The
Common Securities will rank pari passu, and payments will be made thereon pro
rata, with the Trust Preferred Securities, except that upon the occurrence and
during the continuance of an event of default under the Trust Agreement
resulting from an event of default under the Indenture, the rights of Glacier
as holder of the Common Securities to payment in respect of Distributions and
payments upon liquidation, redemption or otherwise will be subordinated to the
rights of the holders of the Trust Preferred Securities. See "Description of
the Trust Preferred Securities--Subordination of Common Securities of Water
Trust I Held by Glacier." Glacier will acquire Common Securities in an
aggregate liquidation amount equal to 3% of the total capital of Water Trust
I. Water Trust I has a term of 31 years, but may dissolve earlier as provided
in the Trust Agreement.
37
<PAGE>
MANAGEMENT
The table below sets forth certain information for the directors and
executive officers of Glacier, as of January 4, 1998.
<TABLE>
<CAPTION>
NAME POSITION(S) AGE
---- ----------- ---
<C> <S> <C>
Jerry R. Welch.......... Chairman of the Board and Chief Executive
Officer of Glacier 47
Jerry A. Gordon......... President, Chief Operating Officer and
Director 52
Douglas C. Boyd......... Director 52
Peter B. Foreman........ Director 61
Richard A. Kayne........ Director 52
Scott H. Shlecter....... Director 44
Robert V. Sinnott....... Director 48
S. Dane Seibert......... Senior Vice President, Marketing and Sales 49
Glen A. Skumlien........ Executive Vice President 48
John T. Vuagniaux....... Senior Vice President, Operations 49
Gerald Compas........... Vice President, Sales 54
Brenda Foster........... Vice President, Controller and Secretary 31
Dana B. Gilbert......... Vice President, National Accounts 49
Roger J. Gilchrist...... Vice President, Eastern Operations 49
Luz E. Gonzales......... Vice President, Human Resources 45
Brian T. Nakagawa....... Vice President, Technology and Information
Systems 43
Raymond J. Schweitzer... Vice President, International Operations 50
</TABLE>
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 appointed
Chief Executive Officer of Glacier in 1994. From October 1991 until his
resignation in September 1992, Mr. Welch served as the Company's Chief
Executive Officer. He also served as Chairman of the Board from January 1992
through September 1992. Mr. Welch currently serves as a Senior Vice President
of Kayne Anderson Investment Management and has served in such a capacity
since January 1993. Mr. Welch is also the Chairman of the Board and Chief
Executive Officer of The Right Start, Inc. Kayne Anderson Investment
Management holds an equity ownership position in The Right Start, Inc.
JERRY A. GORDON. Mr. Gordon has been the Company's President and Chief
Operating Officer since September 1994 and Director of Glacier since June
1997. 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.
DOUGLAS C. BOYD. Mr. Boyd has been a Director of Glacier since June 1997.
Mr. Boyd is the President and Chief Executive Officer of Boyd Communications,
an integrated marketing communications company based in Los Angeles,
California. Mr. Boyd has served in such capacity since 1972.
PETER B. FOREMAN. Mr. Foreman has been a Director of Glacier since June
1989. Mr. Foreman is currently the President of Sirius Corporation, an
investment management firm located in Chicago, Illinois. From 1976 to January
1994, Mr. Foreman was a partner of Harris Associates, an investment advisory
firm located in Chicago, Illinois. Mr. Foreman presently serves on the board
of directors of National Picture and Framing Company, Eagle Food Centers, Inc.
and PCA International, Inc.
RICHARD A. KAYNE. Mr. Kayne has been a Director of the Company since March
1995. Mr. Kayne currently serves as President and Chief Executive Officer of
Kayne Anderson Investment Management and its broker-dealer affiliate, KA
Associates, Inc. Mr. Kayne has been with Kayne Anderson Investment Management
since 1985 when it was founded by Mr. Kayne and John E. Anderson. Mr. Kayne is
also a Director of Foremost Corporation of America and The Right Start, Inc.
38
<PAGE>
SCOTT H. SHLECTER. Mr. Shlecter has been a Director of the Company since
June 1997. Mr. Shlecter is President and founder of the North American
practice of LEK/Alcar Consulting Group, an international business consulting
firm. Mr. Shlecter has served in such capacity since 1974.
ROBERT V. SINNOTT. Mr. Sinnott has been a Director of the Company since
April 1993. Mr. Sinnott currently serves as a Senior Vice President of Kayne
Anderson Investment Management and has served in such a capacity since 1992.
Mr. Sinnott is also a Director of Plains Resources Inc. and National Energy
Group, Inc.
S. DANE SEIBERT. Mr. Seibert has been Glacier's Senior Vice President,
Marketing and Sales since March 1995. Prior to that, Mr. Seibert was Corporate
Vice President--International Marketing for Miller/Zell Inc., from 1990 until
joining the Company.
GLEN A. SKUMLIEN. Mr. Skumlien has been Glacier's 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.
JOHN T. VUAGNIAUX. Mr. Vuagniaux has been Glacier's 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.
GERALD COMPAS. Mr. Compas has served as Vice President, Sales since March
1997. From June 1991 to March 1997, Mr. Compas served as the Director of Sales
and Marketing for the Aqua-Vend Division of the McKesson Water Products
Company.
BRENDA 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 as an auditor 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.
RAYMOND J. SCHWEITZER. Mr. Schweitzer became the Company's Vice President,
International Operations in December 1997. From March 1993 to December 1997,
Mr. Schweitzer served as the Vice President, International Sales and Marketing
for Shelcor, Inc., an international toy manufacturer.
39
<PAGE>
DESCRIPTION OF THE TRUST PREFERRED SECURITIES
The Trust Preferred Securities will be issued pursuant to the terms of the
Trust Agreement. The Trust Agreement will be qualified as an indenture under
the Trust Indenture Act. Initially, Wilmington Trust Company will be the
Delaware Trustee and the Property Trustee. The Property Trustee is the
independent trustee whose sole responsibility is to fulfill the trustee
obligations specified in the Trust Indenture Act. Wilmington Trust Company
will act as trustee for the purpose of fulfilling these obligations. The terms
of the Trust Preferred Securities will include those stated in the Trust
Agreement and those made part of the Trust Agreement by the Trust Indenture
Act. This summary of certain terms and provisions of the Trust Preferred
Securities and the Trust Agreement does not purport to be complete and is
subject to, and is qualified in its entirety by reference to, all the
provisions of the Trust Agreement, including the definitions therein of
certain terms, and the Trust Indenture Act. However, all material provisions
of the Trust Agreement have been disclosed herein. Wherever particular defined
terms of the Trust Agreement (as amended or supplemented from time to time)
are referred to herein, such defined terms are incorporated herein. The form
of the Trust Agreement has been filed as an exhibit to the Registration
Statement of which this Prospectus forms a part.
GENERAL
Pursuant to the terms of the Trust Agreement, the Administrative Trustees on
behalf of Water Trust I will issue the Trust Preferred Securities and the
Common Securities (collectively, the "Trust Securities"). The Trust Preferred
Securities will represent preferred undivided beneficial interests in the
assets of Water Trust I and the holders thereof will be entitled to a
preference over the Common Securities of Water Trust I (which will be held by
Glacier) in certain circumstances with respect to Distributions and amounts
payable on redemption or liquidation, as well as other benefits as described
in the Trust Agreement.
The Trust Preferred Securities will rank pari passu, and payments will be
made thereon pro rata, with the Common Securities of Water Trust I, except as
described under "Subordination of Common Securities of Water Trust I Held by
Glacier" below. Legal title to the Junior Subordinated Debentures will be held
by the Property Trustee in trust for the benefit of the holders of the Trust
Securities. The Guarantee executed by Glacier for the benefit of the holders
of the Trust Preferred Securities (the "Guarantee") will be a guarantee on a
subordinated basis with respect to the Trust Preferred Securities but will not
guarantee payment of Distributions or amounts payable on redemption or on
liquidation of the Trust Preferred Securities if Water Trust I does not have
funds on hand available to make such payments. See "Description of Guarantee."
DISTRIBUTIONS
Payment of Distributions. Distributions on the Trust Preferred Securities
will be payable at the annual rate of % of the stated Liquidation Amount
of $25, payable monthly in arrears on the 15th day of each calendar month of
each year to the holders of the Trust Preferred Securities on the relevant
record dates (each date on which Distributions are payable in accordance with
the foregoing, a "Distribution Date"). The amount of each Distribution due
with respect to the Trust Preferred Securities will include amounts accrued
through the date the Distribution payment is due. Distributions on the Trust
Preferred Securities will be payable to the holders thereof as they appear on
the register of Water Trust I on the relevant record date which will be, so
long as such securities remain in book-entry form, one Business Day (as
defined below) prior to the relevant Distribution Date or, in the event that
the Trust Preferred Securities are not then in book-entry form, the relevant
record date will be the date 15 days prior to the relevant Distribution Date.
Distributions will accumulate from the date of original issuance. The first
Distribution Date for the Trust Preferred Securities will be , 1998.
The amount of Distributions payable for any period will be computed on the
basis of a 360-day year of twelve 30-day months. In the event that any date on
which Distributions are payable on the Trust Preferred Securities is not a
Business Day, payment of the Distribution payable on such date will be made on
the next Business Day (and without any interest or other payment in respect of
any such delay), with the same force and effect as if made on the date such
payment was originally payable. As used in this Prospectus, a "Business Day"
shall mean any day other than a Saturday or a Sunday, or a day on which
banking institutions in the State of
40
<PAGE>
California are authorized or required by law or executive order to remain
closed or a day on which the corporate trust office of the Property Trustee or
the Indenture Trustee in closed for business.
The funds of Water Trust I available for distribution to holders of its
Trust Preferred Securities will be limited to payments by Glacier under the
Junior Subordinated Debentures in which Water Trust I will invest the proceeds
from the issuance and sale of its Trust Preferred Securities. See "Description
of Junior Subordinated Debentures." If Glacier does not make interest payments
on the Junior Subordinated Debentures, the Property Trustee will not have
funds available to pay Distributions on the Trust Preferred Securities. The
payment of Distributions (if and to the extent Water Trust I has funds legally
available for the payment of such Distributions and cash sufficient to make
such payments) is guaranteed by Glacier. See "Description of Guarantee."
Extension Period. So long as no Debenture Event of Default has occurred and
is continuing, Glacier has the right under the Indenture to defer the payment
of interest on the Junior Subordinated Debentures at any time or from time to
time for a period not exceeding 60 consecutive months with respect to each
such period (each, an "Extension Period"), provided that no Extension Period
may extend beyond the Stated Maturity of the Junior Subordinated Debentures.
As a consequence of any such election, monthly Distributions on the Trust
Preferred Securities will be deferred by Water Trust I during any such
Extension Period. Distributions to which holders of Trust Preferred Securities
are entitled will accumulate additional amounts thereon at the rate per annum
of % thereof, compounded quarterly from the relevant Distribution Date,
to the extent permitted under applicable law. The term "Distribution," as used
herein shall include any such additional accumulated amounts. During any such
Extension Period, Glacier may not (i) declare or pay any dividends or
distributions on, or redeem, purchase, acquire, or make a liquidation payment
with respect to, any of Glacier's capital stock (which includes common and
preferred stock), (ii) make any payment of principal, interest or premium, if
any, on or repay, repurchase or redeem any debt securities of Glacier that
rank pari passu with or junior in interest to the Junior Subordinated
Debentures or make any guarantee payments with respect to any guarantee by
Glacier of the debt securities of any subsidiary of Glacier if such guarantee
ranks pari passu with or junior in interest to the Junior Subordinated
Debentures (other than (a) dividends or distributions in Glacier's capital
stock (which includes common and preferred stock), (b) any declaration of a
dividend in connection with the implementation of a stockholders' rights plan,
or the issuance of stock under any such plan in the future, or the redemption
or repurchase of any such rights pursuant thereto, (c) payments under the
Guarantee and (d) purchases of common stock related to the issuance of common
stock or rights under any of Glacier's benefit plans for its directors,
officers, employees or consultants) or (iii) redeem, purchase or acquire less
than all of the Junior Subordinated Debentures or any of the Trust Preferred
Securities. Prior to the termination of any such Extension Period, Glacier may
further extend such Extension Period, provided that such extension does not
cause such Extension Period to exceed 60 consecutive months or extend beyond
the Stated Maturity. Upon the termination of any such Extension Period and the
payment of all amounts then due, and subject to the foregoing limitations,
Glacier may elect to begin a new Extension Period. Subject to the foregoing,
there is no limitation on the number of times that Glacier may elect to begin
an Extension Period. Glacier has no current intention of exercising its right
to defer payments of interest by extending the interest payment period on the
Junior Subordinated Debentures.
REDEMPTION
Mandatory Redemption. Upon the repayment or redemption at any time, in whole
or in part, of any Junior Subordinated Debentures, the proceeds from such
repayment or redemption shall be applied by the Property Trustee to redeem a
Like Amount (as defined below) of the Trust Securities, upon not less than 30
nor more than 60 days' notice of a date of redemption (the "Redemption Date"),
at the Redemption Price (as defined below). See "Description of Junior
Subordinated Debentures--Redemption." If less than all of the Junior
Subordinated Debentures are to be repaid or redeemed on a Redemption Date,
then the proceeds from such repayment or redemption shall be allocated to the
redemption of the Trust Securities on a pro rata basis. The amount of premium,
if any, paid by Glacier upon the redemption of all or any part of the Junior
Subordinated Debentures to be repaid or redeemed on a Redemption Date shall be
allocated to the redemption pro rata of the Trust Securities.
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Optional Redemption. Glacier will have the right to redeem the Junior
Subordinated Debentures (i) on or after , 2003, in whole at any time
or in part from time to time at a redemption price equal to the accrued and
unpaid interest on the Junior Subordinated Debentures so redeemed to the date
fixed for redemption, plus 100% of the principal amount thereof, or (ii) at
any time, in whole (but not in part), upon the occurrence of a Tax Event or an
Investment Company Event at a redemption price equal to the accrued and unpaid
interest on the Junior Subordinated Debentures so redeemed to the date fixed
for redemption, plus 100% of the principal amount thereof. See "Description of
Junior Subordinated Debentures--Redemption."
Tax Event Redemption, Investment Company Event Redemption or Distribution of
Junior Subordinated Debentures. If a Tax Event or an Investment Company Event
shall occur and be continuing, Glacier has the right to redeem the Junior
Subordinated Debentures in whole (but not in part) and thereby cause a
mandatory redemption of the Trust Securities in whole (but not in part) at the
Redemption Price (as defined below) within 90 days following the occurrence of
such Tax Event or Investment Company Event. If a Tax Event or an Investment
Company Event has occurred and is continuing and Glacier does not elect to
redeem the Junior Subordinated Debentures and thereby cause a mandatory
redemption of the Trust Securities or to liquidate Water Trust I and cause the
Junior Subordinated Debentures to be distributed to holders of the Trust
Securities in liquidation of Water Trust I as described below, such Trust
Securities will remain outstanding and Additional Sums (as defined below) may
be payable on the Junior Subordinated Debentures.
DEFINITIONS
"Additional Sums" means the additional amounts an may be necessary to be
paid by Glacier with respect to the Junior Subordinated Debentures in order
that the amount of Distributions then due and payable by Water Trust I on the
outstanding Trust Securities of Water Trust I shall not be reduced an a result
of any additional taxes, duties and other governmental charges to which Water
Trust I has become subject as a result of a Tax Event.
"Like Amount" means (i) with respect to a redemption of Trust Securities,
Trust Securities having a Liquidation Amount (as defined below) equal to that
portion of the principal amount of Junior Subordinated Debentures to be
contemporaneously redeemed in accordance with the Indenture, allocated to the
Common Securities and to the Trust Preferred Securities based upon the
relative Liquidation Amounts of such classes and the proceeds of which will be
used to pay the Redemption Price of such Trust Securities, and (ii) with
respect to a distribution of Junior Subordinated Debentures to holders of
Trust Securities in connection with a dissolution or liquidation of Water
Trust I, Junior Subordinated Debentures having a principal amount equal to the
Liquidation Amount of the Trust Securities of the holder to whom such Junior
Subordinated Debentures are distributed.
"Liquidation Amount" means the stated amount of $25 per Trust Security.
"Redemption Price" means, with respect to any Trust Security, the
Liquidation Amount of such Trust Security, plus accumulated and unpaid
Distributions to the Redemption Date, allocated on a pro rata basis (based on
Liquidation Amounts) among the Trust Securities.
DISTRIBUTION OF JUNIOR SUBORDINATED DEBENTURES
Subject to Glacier and Water Trust I having received an opinion of counsel
to the effect that such distribution will not be a taxable event to the
holders of the Trust Preferred Securities, Glacier will have the right at any
time to dissolve Water Trust I and, after satisfaction of the liabilities of
creditors of Water Trust I as provided by applicable law, cause the Junior
Subordinated Debentures to be distributed to the holders of Trust Securities
in liquidation of Water Trust I. After the liquidation date fixed for any
distribution of Junior Subordinated Debentures for Trust Preferred Securities
(i) such Trust Preferred Securities will no longer be deemed to be
outstanding, and (ii) certificates representing Trust Preferred Securities
that are not then held by the Depositary or its nominee will be deemed to
represent the Junior Subordinated Debentures having a principal
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amount equal to the Liquidation Amount of such Trust Preferred Securities, and
bearing accrued and unpaid interest in an amount equal to the accrued and
unpaid Distributions on the Trust Preferred Securities until such certificates
are presented to the Administrative Trustees or their agent for transfer or
reissuance.
There can be no assurance as to the market prices for the Trust Preferred
Securities or the Junior Subordinated Debentures that may be distributed in
exchange for the Trust Preferred Securities if a dissolution and liquidation
of Water Trust I were to occur. Accordingly, the Trust Preferred Securities
that an investor may purchase, or the Junior Subordinated Debentures that the
investor may receive on dissolution and liquidation of Water Trust I, may
trade at a discount to the price that the investor paid to purchase the Trust
Preferred Securities offered hereby.
REDEMPTION PROCEDURES
Trust Preferred Securities redeemed on each Redemption Date shall be
redeemed at the Redemption Price with the applicable proceeds from the
contemporaneous redemption of the Junior Subordinated Debentures. Redemptions
of the Trust Preferred Securities shall be made and the Redemption Price shall
be payable on each Redemption Date only to the extent that Water Trust I has
funds on hand available for the payment of such Redemption Price. See "--
Subordination of Common Securities of Water Trust I Held by Glacier" herein
and "Description of Guarantee."
If Water Trust I gives a notice of redemption in respect of the Trust
Preferred Securities, then, by 12:00 noon, Eastern time on the Redemption
Date, to the extent funds are available, the Property Trustee will deposit
with the paying agent for such Trust Preferred Securities funds sufficient to
pay the aggregate Redemption Price and will give such paying agent irrevocable
instructions and authority to pay the Redemption Price to the holders thereof
upon surrender of their certificates evidencing such Trust Preferred
Securities. If such Trust Preferred Securities are no longer in book-entry
form, the Property Trustee, to the extent funds are available, will deposit
with the Depositary funds sufficient to pay the aggregate Redemption Price and
will give the Depositary irrevocable instructions and authority to pay the
Redemption Price to the holders of such Trust Preferred Securities.
Notwithstanding the foregoing, Distributions payable on or prior to the
Redemption Date shall be payable to the holders of such Trust Preferred
Securities on the relevant record dates for the related Distribution Dates. If
notice of redemption shall have been given and funds deposited as required,
then upon the date of such deposit, all rights of the holders of the Trust
Preferred Securities will cease, except the right of the holders of the Trust
Preferred Securities to receive the applicable Redemption Price, but without
interest on such Redemption Price, and such Trust Preferred Securities will
cease to be outstanding. In the event that any date fixed for redemption of
such Trust Preferred Securities is not a Business Day, then payment of the
Redemption Price payable on such date will be made on the next succeeding
Business Day (and without any interest or other payment in respect of any such
delay), with the same force and effect as if made on the date such payment was
originally payable. In the event that payment of the Redemption Price in
respect of Trust Preferred Securities called for redemption is improperly
withheld or refused and not paid either by Water Trust I or by Glacier
pursuant to the Guarantee, Distributions on such Trust Preferred Securities
will continue to accrue at the then applicable rate, from the Redemption Date
originally established by Water Trust I for such Trust Preferred Securities to
the date such Redemption Price is actually paid, in which case the actual
payment date will be the date fixed for redemption for purposes of calculating
the Redemption Price. See "Description of Guarantee."
Subject to applicable law (including, without limitation, United States
federal securities law), and further provided that Glacier is not then
exercising its right to defer interest payments on the Junior Subordinated
Debentures, the Company (other than Water Trust I) may at any time and from
time to time purchase outstanding Trust Preferred Securities by tender, in the
open market or by private agreement.
Payment of the Redemption Price on the Trust Preferred Securities and any
distribution of Junior Subordinated Debentures to holders of Trust Preferred
Securities shall be made to the applicable recordholders thereof as they
appear on the register for such Trust Preferred Securities on the relevant
record date, which date
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shall be, so long as such securities remain in book-entry form, one Business
Day prior to the Redemption Date or Liquidation Date, as applicable. In the
case of a liquidation, the record date shall be no more than 45 days before
the Liquidation Date. In the event that the Trust Preferred Securities are not
in book-entry form, the relevant record date for such Trust Preferred
Securities shall be the date 15 days prior to the relevant Redemption Date or
Liquidation Date, as applicable.
If less than all of the Trust Securities issued by Water Trust I are to be
redeemed on a Redemption Date, then the aggregate Redemption Price for such
Trust Securities to be redeemed shall be allocated pro rata to the Trust
Preferred Securities and Common Securities based upon the relative Liquidation
Amounts of such classes. The particular Trust Preferred Securities to be
redeemed shall be selected by the Property Trustee from the outstanding Trust
Preferred Securities not previously called for redemption, by such method as
the Property Trustee shall deem fair and appropriate and which may provide for
the selection for redemption of portions (equal to $25 or an integral multiple
thereof) of the Liquidation Amount of Trust Preferred Securities. The Property
Trustee shall promptly notify the Security registrar in writing of the Trust
Preferred Securities selected for redemption and, in the case of any Trust
Preferred Securities selected for partial redemption, the Liquidation Amount
thereof to be redeemed. For all purposes of the Trust Agreement, unless the
context otherwise requires, all provisions relating to the redemption of Trust
Preferred Securities shall relate to the portion of the aggregate Liquidation
Amount of Trust Preferred Securities which has been or is to be redeemed.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the Redemption Date to each holder of Trust Securities at such
holder's registered address. Unless Water Trust I defaults in payment of the
applicable Redemption Price, on and after the Redemption Date, Distributions
will cease to accrue on such Trust Preferred Securities called for redemption.
SUBORDINATION OF COMMON SECURITIES OF WATER TRUST I HELD BY GLACIER
Payment of Distributions on, and the Redemption Price of, the Trust
Preferred Securities and Common Securities, as applicable, shall be made pro
rata based on the Liquidation Amounts of the Trust Preferred Securities and
Common Securities; provided, however, that if on any Distribution Date or
Redemption Date a Debenture Event of Default shall have occurred and be
continuing, no payment of any Distribution on, or applicable Redemption Price
of, any of the Common Securities, and no other payment on account of the
redemption, liquidation or other acquisition of the Common Securities, shall
be made unless payment in full in cash of all accumulated and unpaid
Distributions on all of the outstanding Trust Preferred Securities for all
Distribution periods terminating on or prior thereto, or in the case of
payment of the applicable Redemption Price, the full amount of such Redemption
Price on all of the outstanding Trust Preferred Securities then called for
redemption, shall have been made or provided for, and all funds available to
the Property Trustee shall first be applied to the payment in full in cash of
all Distributions on, or Redemption Price of, the Trust Preferred Securities
then due and payable.
In the case of any Event of Default under the Trust Agreement resulting from
a Debenture Event of Default, Glacier as holder of the Common Securities, will
be deemed to have waived any right to act with respect to any such Event of
Default until the effect of all such Events of Default have been cured, waived
or otherwise eliminated. Until any such Events of Default have been so cured,
waived or otherwise eliminated, the Property Trustee shall act solely on
behalf of the holders of the Trust Preferred Securities and not on behalf of
Glacier as holder of the Common Securities, and only the holders of the Trust
Preferred Securities will have the right to direct the Property Trustee to act
on their behalf.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
Glacier will have the right at any time to dissolve Water Trust I and, after
satisfaction of liabilities to creditors of Water Trust I as required by
applicable law, cause the Junior Subordinated Debentures to be distributed to
the holders of the Trust Preferred Securities. See "--Distribution of Junior
Subordinated Debentures" above. Glacier might exercise its right to dissolve
Water Trust I under circumstances where a "Tax
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Event," "Investment Company Event" or other undesirable event could be avoided
simply by dissolving Water Trust I and causing the Junior Subordinated
Debentures to be distributed to holders of the Trust Preferred Securities.
In addition, pursuant to the Trust Agreement, Water Trust I shall
automatically dissolve upon expiration of its term and shall earlier dissolve
on the first to occur of: (i) certain events of bankruptcy, dissolution or
liquidation of Glacier; (ii) the distribution of a Like Amount of the Junior
Subordinated Debentures to the holders of its Trust Securities, if Glacier, as
Depositor, has delivered written direction to the Property Trustee to dissolve
Water Trust I (which direction is optional and, except an described above,
wholly within the discretion of Glacier, as Depositor); (iii) redemption of
all of the Trust Preferred Securities as described under "--Redemption--
Mandatory Redemption;" and (iv) the entry of an order for the dissolution of
Water Trust I by a court of competent jurisdiction.
If an early dissolution occurs as described in clause (i), (ii), or (iv)
above, Water Trust I shall be liquidated by the Trustees as expeditiously as
the Trustees determine to be possible by distributing, after satisfaction of
liabilities to creditors of Water Trust I as provided by applicable law, to
the holders of such Trust Securities a Like Amount of the Junior Subordinated
Debentures, unless such distribution is determined by the Property Trustee not
to be practical, in which event such holders will be entitled to receive out
of the assets of Water Trust I available for distribution to holders, after
satisfaction of liabilities to creditors of Water Trust I as provided by
applicable law, an amount equal to, in the case of holders of Trust Preferred
securities, the aggregate of the Liquidation Amount plus accrued and unpaid
Distributions thereon to the date of payment (such amount being the
"Liquidation Distribution"). If such Liquidation Distribution can be paid only
in part because Water Trust I has insufficient assets available to pay in full
the aggregate Liquidation Distribution, then the amounts payable directly by
Water Trust I on the Trust Preferred Securities shall be paid on a pro rata
basis. The holder(s) of the Common Securities will be entitled to receive
distributions upon any such liquidation on a pro rata basis with the holders
of the Trust Preferred Securities, except that if a Debenture Event of Default
has occurred and is continuing, the Trust Preferred Securities shall have a
priority over the Common Securities.
Under current United States federal income tax law and interpretations, and
assuming that Water Trust I is treated an a grantor trust, a distribution of
the Junior Subordinated Debentures should not be a taxable event to holders of
the Trust Preferred Securities. Should there be a change in law, a change in
distribution, a Tax Event or other circumstances, however, the distribution
could be a taxable event to Water Trust I and to holders of the Trust
Preferred Securities. See "Certain Federal Income Tax Consequences." If
Glacier elects neither to redeem the Junior Subordinated Debentures prior to
maturity nor to liquidate Water Trust I and distribute the Junior Subordinated
Debentures to holders of the Trust Preferred Securities, the Trust Preferred
Securities will remain outstanding until the repayment of the Junior
Subordinated Debentures.
If Glacier elects to dissolve Water Trust I and thereby causes the Junior
Subordinated Debentures to be distributed to holders of the Trust Preferred
Securities in liquidation of Water Trust I, Glacier shall continue to have the
right to shorten the Stated Maturity of such Junior Subordinated Debentures.
See "Description of Junior Subordinated Debentures--General."
EVENTS OF DEFAULT; NOTICE
Any one of the following events that has occurred and is continuing
constitutes an "Event of Default" under the Trust Agreement (an "Event of
Default") with respect to the Trust Preferred Securities (whatever the reason
for such event of Default and whether it shall be voluntary or involuntary or
be effected by operation of law or pursuant to any judgment, decree or order
of any court or any order, rule or regulation of any administrative or
governmental body):
(i) the occurrence of a Debenture Event of Default (see "Description of
Junior Subordinated Debentures--Debenture Events of Default"); or
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(ii) Default by the Property Trustee in the payment of any Distribution
when it becomes due and payable, and continuation of such default for a
period of 30 days; or
(iii) default by the Property Trustee in the payment of any Redemption
Price of any Trust Security when it becomes due and payable; or
(iv) default in the performance, or breach, in any material respect, of
any covenant or warranty of the Property Trustee in the Trust Agreement
(other than a default or breach in the performance of a covenant or
warranty which is addressed in clause (ii) or (iii) above), and
continuation of such default or breach, for a period of 60 days after there
has been given, by registered or certified mail, to the defaulting Property
Trustee by the holders of at least 25% in aggregate Liquidation Amount of
the outstanding Trust Preferred Securities, a written notice specifying
such default or breach and requiring it to be remedied and stating that
such notice is a "Notice of Default" under the Trust Agreement; or
(v) the occurrence of certain events of bankruptcy or insolvency with
respect to the Property Trustee and the failure by Glacier to appoint a
successor Property Trustee within 60 days thereof.
Within five Business Days after the occurrence of any event of Default
actually known to the Property Trustee, the Property Trustee shall transmit
notice of such Event of Default to the holders of the Trust Preferred
Securities, the Administrative Trustees and Glacier, as Depositor, unless such
Event of Default shall have been cured or waived. Glacier, as Depositor, and
the Administrative Trustees are required to file annually with the Property
Trustee a certificate as to whether or not they are in compliance with all the
conditions and covenants applicable to them under the Trust Agreement.
If a Debenture Event of Default has occurred and is continuing, the Trust
Preferred Securities shall have a preference over the Common Securities upon
termination of Water Trust I as described above. See "--Liquidation
Distribution upon Dissolution" herein. Upon a Debenture Event of Default
(other than with respect to certain events in bankruptcy, insolvency or
reorganization), unless the principal of all the Junior Subordinated
Debentures has already became due and payable, either the Property Trustee or
the holders of not less than 25% in aggregate principal amount of the Junior
Subordinated Debentures then outstanding may declare all of the Junior
Subordinated Debentures to be due and payable immediately by giving notice in
writing to Glacier (and to the Property Trustee, if notice is given by holders
of the Junior Subordinated Debentures). If the Property Trustee or the holders
of the Junior Subordinated Debentures fail to declare the principal of all of
the Junior Subordinated Debentures due and payable upon a Debenture Event of
Default, the holders of at least 25% in Liquidation Amount of the Trust
Preferred Securities then outstanding shall have the right to declare the
Junior Subordinated Debentures immediately due and payable. In either event,
payment of principal and interest on the Junior Subordinated Debentures shall
remain subordinated to the extent provided in the Indenture. In addition,
holders of the Trust Preferred Securities have the right in certain
circumstances to bring a Direct Action (as hereinafter defined). See
"Description of Junior Subordinated Debentures--Enforcement of Certain Rights
by Holders of Trust Preferred Securities."
If a Debenture Event of Default with respect to certain events in
bankruptcy, insolvency or reorganization occurs, the Junior Subordinated
Debentures shall automatically, and without any declaration or other action on
the part of the Property Trustee or the holders of the Junior Subordinated
Debentures, become immediately due and payable. In such event, payment of
principal and interest on the Junior Subordinated Debentures will also remain
subordinated to the extent provided in the Indenture.
REMOVAL OF TRUSTEES
Unless a Debenture Event of Default has occurred and is continuing, any of
the Property Trustee, the Depositary Trustee or the Administrative Trustees
may be removed at any time by the holder of the Common Securities. For
example, the holder of the Common Securities may seek to remove such trustees
upon substandard performance or non-performance of their duties or upon a
significant increase in a trustee's fee. If a Debenture Event of Default has
occurred and is continuing, the Property Trustee and the Delaware Trustee also
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may be removed at such time by the holders of a majority in Liquidation Amount
of the outstanding Trust Preferred Securities. In no event will the holders of
the Trust Preferred Securities have the right to vote to appoint, remove or
replace the Administrative Trustees, which voting rights are vested
exclusively in Glacier as the holder of the Common Securities. No resignation
or removal of a Trustee and no appointment of a successor trustee shall be
effective until the acceptance of appointment by the successor trustee in
accordance with the provisions of the Trust Agreement.
CO-TRUSTEES AND SEPARATE PROPERTY TRUSTEE
Unless an Event of Default shall have occurred and be continuing, at any
time or times, for the purpose of meeting the legal requirements of the Trust
Indenture Act or of any jurisdiction in which any part of Trust Property may
at the time be located, Glacier, as the holder of the Common Securities, and
the Administrative Trustees shall have power to appoint one or more persons
either to act as a co-trustee, jointly with the Property Trustee, of all or
any part of such Trust Property, or to act as separate trustee of any such
property, in either case with such powers as may be provided in the instrument
of appointment, and to vest in such person or persons in such capacity any
property, title, right or power deemed necessary or desirable, subject to the
provisions of the Trust Agreement. In case a Debenture Event of Default has
occurred and is continuing, the Property Trustee alone shall have power to
make such appointment.
MERGER OR CONSOLIDATION OF TRUSTEES
Any Person (as defined in the Trust Agreement) into which the Property
Trustee, the Delaware Trustee or any Administrative Trustee (that is not a
natural person) may be merged or converted or with which it may be
consolidated, or any Person resulting from any merger, conversion or
consolidation to which such Issuer Trustee shall be a party, or any person
succeeding to all or substantially all the corporate trust business of such
Issuer Trustee, shall be the successor of such Issuer Trustee under the Trust
Agreement, provided such corporation shall be otherwise qualified and
eligible.
MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF WATER TRUST I
Water Trust I may not merge with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any corporation or other Person, except as
described below or as described in "--Liquidation Distribution Upon
Dissolution." Water Trust I may, at the request of Glacier, with the consent
of the Administrative Trustees and without the consent of the holders of the
Trust Preferred Securities, merge with or into, consolidate, amalgamate, or be
replaced by or convey, transfer or lease its properties and assets
substantially as an entirety to a trust organized as such under the laws of
any State; provided, that (i) such successor entity either (a) expressly
assumes all of the obligations of Water Trust I with respect to the Trust
Preferred Securities or (b) substitutes for the Trust Preferred Securities
other securities having substantially the same terms as the Trust Preferred
Securities (the "Successor Securities") so long as the Successor Securities
rank the same as the Trust Preferred Securities rank in priority with respect
to distributions and payments upon liquidation, redemption and otherwise, (ii)
Glacier expressly appoints a trustee of such successor entity possessing the
same powers and duties as the Property Trustee as the holder of the Junior
Subordinated Debentures, (iii) the Successor Securities are listed, or any
Successor Securities will be listed upon notification of issuance, on any
national securities exchange, national stock market or other organization on
which the Trust Preferred Securities are then listed, if any, (iv) such
merger, consolidation, amalgamation, conveyance, transfer or lease does not
cause the Trust Preferred Securities to be downgraded by any nationally
recognized statistical rating organization which gives ratings to the Trust
Preferred Securities; (v) such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease does not adversely affect the
rights, preferences and privileges of the holders of the Trust Preferred
Securities (including any Successor Securities) in any material respect, (vi)
such successor entity has a purpose substantially identical to that of Water
Trust I, (vii) prior to such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease, Glacier has received an opinion from
independent counsel to Water Trust I experienced in such matters to the effect
that
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(a) such merger, consolidation, amalgamation, replacement, conveyance,
transfer or lease does not adversely affect the rights, preferences and
privileges of the holders of the Trust Preferred Securities (including any
Successor Securities) in any material respect, and (b) following such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease,
neither Water Trust I nor such successor entity will be required to register
as an investment company under the Investment Company Act and (viii) Glacier
or any permitted successor or designee owns all of the common securities of
such successor entity and guarantees the obligations of such successor entity
under the Successor Securities at least to the extent provided by the
Guarantee. Notwithstanding the foregoing, Water Trust I shall not, except with
the consent of holders of 100% in Liquidation Amount of the Trust Preferred
Securities, consolidate, amalgamate, merge with or into, or be replaced by or
convey, transfer or loan its properties and assets substantially as an
entirety to any other entity or permit any other entity to consolidate,
amalgamate, merge with or into, or replace it if such consolidation,
amalgamation, merger, replacement, conveyance, transfer or loan would cause
Water Trust I or the successor entity to be classified as other than a grantor
trust for United States federal income tax purposes.
VOTING RIGHTS; AMENDMENT OF THE TRUST AGREEMENT
Except as provided below and under "Description of Guarantee--Amendments and
Assignment" and as otherwise required by law and the Trust Agreement, the
holders of the Trust Preferred Securities will have no voting rights.
The Trust Agreement may be amended from time to time by Glacier, the
Property Trustee and the Administrative Trustees, without the consent of the
holders of the Trust Securities, (i) to cure any ambiguity, correct or
supplement any provisions in the Trust Agreement that may be inconsistent with
any other provision, or to make any other provisions with respect to matters
or questions arising under the Trust Agreement, which shall not be
inconsistent with the other provisions of the Trust Agreement, or (ii) to
modify, eliminate or add to any provisions of the Trust Agreement to such
extent as shall be necessary to ensure that Water Trust I will be classified
for United States federal income tax purposes an a grantor trust at all times
that any Trust Securities are outstanding or to ensure that Water Trust I will
not be required to register an "investment company" under the Investment
Company Act; provided, however, that in the case of clause (i), such action
shall not adversely affect in any material respect the interests of any holder
of Trust Securities, and any such amendments of the Trust Agreement shall
become effective when notice thereof is given to the holders of the Trust
Securities. The Trust Agreement may be amended by the Issuer Trustees and the
Company with (i) the consent of holders representing not less than a majority
of the aggregate Liquidation Amount of the outstanding Trust Securities, and
(ii) receipt by the Issuer Trustees of an opinion of counsel to the effect
that such amendment or the exercise of any power granted to the Issuer
Trustees in accordance with such amendment will not affect Water Trust I's
status as a grantor trust for United States federal income tax purposes or
Water Trust I's exemption from status as an "investment company" under the
Investment Company Act, provided that without the consent of each holder of
Trust Securities, the Trust Agreement may not be amended to (i) change the
amount or timing of any Distribution on the Trust Securities or otherwise
adversely affect the amount of any Distribution required to be made in respect
of the Trust Securities as of a specified date or (ii) restrict the right of a
holder of Trust Securities to institute suit for the enforcement of any such
payment on or after such date.
So long an any Junior Subordinated Debentures are held by the Property
Trustee, the issuer Trustees shall not (i) direct the time, method and place
of conducting any proceeding for any remedy available to the Indenture
Trustee, or executing any trust or power conferred on the Property Trustee
with respect to the Junior Subordinated Debentures, (ii) waive any past
default that is waivable under the Indenture, (iii) exercise any right to
rescind or annul a declaration that the principal of all the Junior
Subordinated Debentures shall be due and payable or (iv) consent to any
amendment, modification or termination of the Indenture or the Junior
Subordinated Debentures, where such consent shall be required, without, in
each case, obtaining the prior approval of the holders of a majority in
aggregate Liquidation Amount of all outstanding Trust Preferred
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Securities; provided, however, that where a consent under the Indenture would
require the consent of each holder of Junior Subordinated Debentures affected
thereby, no such consent shall be given by the Property Trustee without the
prior consent of each holder of the Trust Preferred Securities. The Issuer
Trustees shall not revoke any action previously authorized or approved by a
vote of the holders of the Trust Preferred Securities except by subsequent
vote of the holders of the Trust Preferred Securities. The Property Trustee
shall notify each holder of the Trust Preferred Securities of any notice of
default with respect to the Junior Subordinated Debentures. In addition to
obtaining the foregoing approvals of such holders of the Trust Preferred
Securities, prior to taking any of the foregoing actions, the Issuer Trustees
shall obtain an opinion of counsel experienced in such matters to the effect
that such action will not cause Water Trust I to fail to be classified as a
grantor trust for United States federal income tax purposes.
Any required approval of holders of the Trust Preferred Securities may be
given at a meeting of holders of Trust Preferred Securities convened for such
purpose or pursuant to written consent. The Property Trustee will cause a
notice of any meeting at which holders of the Trust Preferred Securities are
entitled to vote, or of any matter upon which action by written consent of
such holders is to be taken, to be given to each holder of record of the Trust
Preferred Securities in the manner set forth in the Trust Agreement.
No vote or consent of the holders of the Trust Preferred Securities will be
required for Water Trust I to redeem and cancel the Trust Preferred Securities
in accordance with the Trust Agreement.
Notwithstanding that holders of the Trust Preferred Securities are entitled
to vote or consent under any of the circumstances described above, any of the
Trust Preferred Securities that are owned by Glacier, the Trustees or any
affiliate of Glacier or any Trustees, shall, for purposes of such vote or
consent, be treated an if they were not outstanding.
GLOBAL TRUST PREFERRED SECURITIES
The Trust Preferred Securities will be represented by one or more global
certificates registered in the name of the Depositary or its nominee ("Global
Trust Preferred Security"). Beneficial interests in the Trust Preferred
Securities will be shown on, and transfers thereof will be effected only
through, records maintained by participants in the Depositary. Except as
described below, Trust Preferred Securities in certificated form will not be
issued in exchange for the global certificates. See "Book-Entry Issuance."
A global security shall be exchangeable for Trust Preferred Securities
registered in the names of persons other than the Depositary or its nominee
only if (i) the Depositary notifies Glacier that it is unwilling or unable to
continue as a depositary for such global security and no successor depositary
shall have been appointed, or if at any time the Depositary ceases to be a
clearing agency registered under the Exchange Act, at a time when the
Depositary is required to be so registered to act as such depositary, (ii)
Glacier in its sole discretion determines that such global security shall be
so exchangeable, or (iii) there shall have occurred and be continuing an Event
of Default under the Indenture. Any global security that is exchangeable
pursuant to the preceding sentence shall be exchangeable for definitive
certificates registered in such names as the Depositary shall direct. It is
expected that such instructions will be based upon directions received by the
Depositary with respect to ownership of beneficial interests in such global
security. In the event that Trust Preferred Securities are issued in
definitive form, such Trust Preferred Securities will be in denominations of
$25 and integral multiples thereof and may be transferred or exchanged at the
offices of the Depositary described below.
Unless and until it is exchanged in whole or in part for the individual
Trust Preferred Securities represented thereby, a Global Trust Preferred
Security may not be transferred except as a whole by the Depositary to a
nominee of such Depositary or by a nominee of the Depositary to such
Depositary or another nominee of such Depositary or by the Depositary or any
nominee to a successor Depositary or any nominee of such successor.
Payments on Trust Preferred Securities represented by a global security will
be made to the Depositary, as the depositary for the Trust Preferred
Securities. In the event the Trust Preferred Securities are issued in
definitive
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form, Distributions will be payable, the transfer of the Trust Preferred
Securities will be registrable, and Trust Preferred Securities will be
exchangeable for Trust Preferred Securities of other denominations of a like
aggregate Liquidation Amount, at the corporate office of the Property Trustee,
or at the offices of any paying agent or transfer agent appointed by the
Administrative Trustees, provided that payment of any Distribution may be made
at the option of the Administrative Trustees by check mailed to the address of
the persons entitled thereto or by wire transfer. In addition, if the Trust
Preferred Securities are issued in certificated form, the record dates for
payment of Distributions will be the first day of the month in which the
relevant Distribution Date occurs. For a description of the terms of the
depositary arrangements relating to payments, transfer, voting rights,
redemptions and other notices and other matters, see "Book-Entry Issuance."
Upon the issuance of a Global Trust Preferred Security, and the deposit of
such Global Trust Preferred Security with or on behalf of the Depositary, the
Depositary for such Global Trust Preferred Security or its nominee will
credit, on its book-entry registration and transfer system, the respective
aggregate Liquidation Amounts of the individual Trust Preferred Securities
represented by such Global Trust Preferred Securities to the accounts of
Participants. Such accounts shall be designated by the dealers, underwriters
or agents with respect to such Trust Preferred Securities. Ownership of
beneficial interests in a Global Trust Preferred Security will be limited to
Participants or persons that may hold interests through Participants.
Ownership of beneficial interests in such Global Trust Preferred Security will
be shown on, and the transfer of that ownership will be effected only through,
records maintained by the applicable Depositary or its nominee (with respect
to interests of Participants) and the records of Participants (with respect to
interests of persons who hold through Participants). The laws of some states
require that certain purchasers of securities take physical delivery of such
securities in definitive form. Such limits and such laws may impair the
ability to transfer beneficial interests in a Global Trust Preferred Security.
So long as the Depositary for a Global Trust Preferred Security, or its
nominee, is the registered owner of such Global Trust Preferred Security, such
Depositary or such nominee, as the case may be, will be considered the sole
owner or holder of the Trust Preferred Securities represented by such Global
Trust Preferred Security for all purposes under the Trust Agreement governing
such Trust Preferred Securities. Except as provided below, owners of
beneficial interests in a Global Trust Preferred Security will not be entitled
to have any of the individual Trust Preferred Securities represented by such
Global Trust Preferred Security registered in their names, will not receive or
be entitled to receive physical delivery of any such Trust Preferred
Securities in definitive form and will not be considered the owners or holders
thereof under the Trust Agreement.
None of Glacier, the Property Trustee, any Paying Agent, or the Securities
Registrar (defined below) for such Trust Preferred Securities will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests of the Global Trust
Preferred Security representing such Trust Preferred Securities or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
Glacier expects that the Depositary for Trust Preferred Securities or its
nominee, upon receipt of any payment of the Liquidation Amount or
Distributions in respect of a permanent Global Trust Preferred Security
immediately will credit Participants' accounts with payments in amounts
proportionate to their respective beneficial interest in the aggregate
Liquidation Amount of such Global Trust Preferred Security as shown on the
records of such Depositary or its nominee. Glacier also expects that payments
by Participants to owners of beneficial interests in such Global Trust
Preferred Security held through such Participants will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers in bearer form or registered in "street name."
Such payments will be the responsibility of such Participants.
If the Depositary for the Trust Preferred Securities is at any time
unwilling, unable or ineligible to continue as depositary and a successor
depositary is not appointed by Glacier within 90 days, Water Trust I will
issue individual Trust Preferred Securities in exchange for the Global Trust
Preferred Security. In addition, Water Trust I may at any time and in its sole
discretion, subject to any limitations described herein relating to such
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Trust Preferred Securities, determine not to have any Trust Preferred
Securities represented by one or more Global Trust Preferred Securities and,
in such event, will issue individual Trust Preferred Securities in exchange
for the Global Trust Preferred Security or Securities representing the Trust
Preferred Securities. Further, if Water Trust I so specifies with respect to
the Trust Preferred Securities, an owner of a beneficial interest in a Global
Trust Preferred Security representing Trust Preferred Securities may, on terms
acceptable to Glacier, the Property Trustee and the Depositary for such Global
Trust Preferred Security, receive individual Trust Preferred Securities in
exchange for such beneficial interests, subject to any limitations described
herein. In any such instance, an owner of a beneficial interest in a Global
Trust Preferred Security will be entitled to physical delivery of individual
Trust Preferred Securities represented by such Global Trust Preferred Security
equal in Liquidation Amount to such beneficial interest and to have such Trust
Preferred Securities registered in its name. Individual Trust Preferred
Securities so issued will be issued in denominations, unless otherwise
specified by Water Trust I, of $25 and integral multiples thereof.
PAYMENT AND PAYING AGENT
Payments in respect of the Trust Preferred Securities shall be made to the
Depositary, which shall credit the relevant accounts at the Depositary on the
applicable Distribution Dates or, if any of the Trust Preferred Securities are
not held by the Depositary, such payments shall be made by check mailed to the
address of the holder entitled thereto as such address shall appear on the
Register. The paying agent (the "Paying Agent") shall initially be the
Property Trustee and any co-paying agent chosen by the Property Trustee and
acceptable to the Administrative Trustees and Glacier. The Paying Agent shall
be permitted to resign as Paying Agent upon 30 days' written notice to the
Administrative Trustees, the Property Trustee and Glacier. In the event that
the Property Trustee shall no longer be the Paying Agent, the Administrative
Trustees shall appoint a successor (which shall be a bank or trust company
acceptable to the Administrative Trustees and Glacier) to act as Paying Agent.
REGISTRAR AND TRANSFER AGENT
The Property Trustee will act as registrar and transfer agent for the Trust
Preferred Securities. Registration of transfers of the Trust Preferred
Securities will be effected without charge by or on behalf of Water Trust I,
but upon payment of any tax or other governmental charges that may be imposed
in connection with any transfer or exchange. Water Trust I will not be
required to register or cause to be registered the transfer of the Trust
Preferred Securities after such Trust Preferred Securities have been called
for redemption.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, other than upon the occurrence and during the
continuance of an Event of Default, undertakes to perform only such duties as
are specifically set forth in the Trust Agreement and, after such Event of
Default, must exercise the same degree of care and skill as a prudent person
would exercise or use in the conduct of his or her own affairs. Subject to
this provision, the Property Trustee is under no obligation to exercise any of
the powers vested in it by the Trust Agreement at the request of any holder of
Trust Preferred Securities unless it is offered reasonable indemnity against
the costs, expenses and liabilities that might be incurred thereby. If no
Event of Default has occurred and is continuing and the Property Trustee is
required to decide between alternative causes of action, construe ambiguous
provisions in the Trust Agreement or is unsure of the application of any
provision of the Trust Agreement, and the matter is not one on which holders
of the Trust Preferred Securities are entitled under the Trust Agreement to
vote, then the Property Trustee shall take such action as is directed by
Glacier and if not so directed, shall take such action as it deems advisable
and in the best interests of the holders of the Trust Securities and will have
no liability except for its own bad faith, negligence or willful misconduct.
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MISCELLANEOUS
The Administrative Trustees are authorized and directed to conduct the
affairs of and to operate Water Trust I in such a way that Water Trust I will
not be deemed to be an "investment company" required to be registered under
the Investment Company Act or fail to be classified as a grantor trust for
United States federal income tax purposes and so that the Junior Subordinated
Debentures will be treated as indebtedness of Glacier for United States
federal income tax purposes. In this connection, Glacier and the
Administrative Trustees are authorized to take any action, not inconsistent
with applicable law, the certificate of trust of Water Trust I or the Trust
Agreement, that Glacier and the Administrative Trustees determine in their
discretion to be necessary or desirable for such purposes, as long as such
action does not materially adversely affect the interests of the holders of
the Trust Preferred Securities. Holders of the Trust Preferred Securities have
no preemptive or similar rights.
Water Trust I may not borrow money, issue debt or mortgage or pledge any of
its assets.
DESCRIPTION OF JUNIOR SUBORDINATED DEBENTURES
Concurrently with the issuance of the Trust Preferred Securities, Water
Trust I will invest the proceeds thereof, together with the consideration paid
by Glacier for the Common Securities, in Junior Subordinated Debentures issued
by Glacier. The Junior Subordinated Debentures will be issued as unsecured
debt under the Junior Subordinated Indenture, dated as of , 1998
(the "Indenture"), between Glacier and the Indenture Trustee. The following
summary of the terms and provisions of the Junior Subordinated Debentures and
the Indenture does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, the Indenture, which has been filed
as an exhibit to the Registration Statement of which this Prospectus forms a
part, and to the Trust Indenture Act. However, all material provisions of the
Indenture have been described herein. The Indenture is qualified under the
Trust Indenture Act. Whenever particular defined terms of the Indenture are
referred to herein, such defined terms are incorporated herein or therein by
reference.
GENERAL
The Junior Subordinated Debentures will bear interest at the annual rate of
% of the principal amount thereof, payable monthly in arrears on the 15th
day of each calendar month of each year (each, an "Interest Payment Date"),
commencing January , 1998, to the person in whose name each Junior
Subordinated Debenture is registered, subject to certain exceptions, at the
close of business on the first day of the month in which such payment is made.
Notwithstanding the above, in the event that either the (i) Junior
Subordinated Debentures are held by the Property Trustee and the Trust
Preferred Securities are registered in book-entry only form or (ii) the Junior
Subordinated Debentures are represented by a Global Subordinated Debenture (as
defined herein), the record date for such payment shall be the Business Day
next preceding such Interest Payment Date. The amount of each interest payment
due with respect to the Junior Subordinated Debentures will include amounts
accrued through the date the interest payment is due. It is anticipated that,
until the liquidation, if any, of Water Trust I, each Junior Subordinated
Debenture will be held in the name of the Property Trustee, in trust for the
benefit of the holders of the Trust Preferred Securities. The amount of
interest payable for any period will be computed on the basis of a 360-day
year of twelve 30-day months. In the event that any date on which interest is
payable on the Junior Subordinated Debentures is not a Business Day, then
payment of the interest payable on such date will be made on the next Business
Day (and without any interest or other payment in respect of any such delay),
in each case with the same force and effect as if made on the date such
payment was originally payable. Accrued interest that is not paid on the
applicable Interest Payment Date will bear additional interest on the amount
thereof (to the extent permitted by law) at the rate per annum of %
thereof. The term "interest" as used herein shall include monthly interest
payments, interest on monthly interest payments not paid on the applicable
Interest Payment Date and Additional Sums (as defined below), as applicable.
The Junior Subordinated Debentures will mature on , 2028 (such
date, as it may be shortened as hereinafter described, the "Stated Maturity").
Such date may be shortened at any time by Glacier to any date
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not earlier than , 2003. Glacier might exercise its right to shorten
the maturity of the Junior Subordinated Debentures under circumstances where a
"Tax Event," "Investment Company Event" or other undesirable event could be
avoided simply by shortening the maturity of the Junior Subordinated
Debentures. In the event that Glacier elects to shorten the Stated Maturity of
the Junior Subordinated Debentures, it shall give notice to the Indenture
Trustee, and the Indenture Trustee shall give notice of such shortening to the
holders of the Junior Subordinated Debentures no less than 60 days prior to
the effectiveness thereof.
The Junior Subordinated Debentures will be unsecured and will rank junior
and be subordinate in right of payment to all Senior Debt and Subordinated
Debt of Glacier. Because Glacier is a holding company, the right of Glacier to
participate in any distribution of assets of any subsidiaries, including GW
Services, upon any such subsidiaries' liquidation or reorganization or
otherwise (and thus the ability of holders of the Trust Preferred Securities
to benefit indirectly from such distribution), is subject to the prior claims
of creditors of that subsidiary, except to the extent that Glacier may itself
be recognized as a creditor of that subsidiary. Accordingly, the Junior
Subordinated Debentures will be effectively subordinated to all existing and
future liabilities of GW Services and any other subsidiaries of Glacier, and
holders of Junior Subordinated Debentures should look only to the assets of
Glacier for payments on the Junior Subordinated Debentures. The Indenture does
not limit the incurrence or issuance of other secured or unsecured debt of
Glacier, including Senior Debt and Subordinated Debt, whether under the
Indenture or any existing or other indenture that Glacier may enter into in
the future or otherwise. See "--Subordination" below.
OPTION TO DEFER INTEREST PAYMENT PERIOD
So long as no Debenture Event of Default has occurred and is continuing,
Glacier has the right under the Indenture at any time during the term of the
Junior Subordinated Debentures to defer the payment of interest at any time or
from time to time for a period not exceeding 60 consecutive months (each such
period an "Extension Period"), provided that no Extension Period may extend
beyond the Stated Maturity. At the end of such Extension Period, Glacier must
pay all interest then accrued and unpaid (together with interest thereon at
the annual rate of %, compounded quarterly, to the extent permitted by
applicable law). During an Extension Period, interest will continue to accrue
and holders of Junior Subordinated Debentures will be required to accrue
interest income for United States federal income tax purposes. See "Certain
Federal Income Tax Consequences--Interest Income and Original Issue Discount."
Neither the default by Glacier on any Senior Debt and Subordinated Debt, nor a
default with respect to Senior Debt and Subordinated Debt resulting in
acceleration of the maturity thereof, constitutes a Debenture Event of
Default. See "--Debenture Events of Default" below.
During any such Extension Period, Glacier may not (i) declare or pay any
dividends or distributions on, or redeem, purchase, acquire, or make a
liquidation payment with respect to, any of Glacier's capital stock (which
includes common and preferred stock), or (ii) make any payment of principal,
interest or premium, if any, on or repay, repurchase or redeem any debt
securities of Glacier (including other Junior Subordinated Debentures) that
rank pari passu with or junior in interest to the Junior Subordinated
Debentures, (iii) make any guarantee payments with respect to any guarantee by
Glacier of the debt securities of any subsidiary of Glacier if such guarantee
ranks pari passu with or junior in interest to the Junior Subordinated
Debentures (other than (a) dividends or distributions in capital stock of
Glacier (which includes common and preferred stock), (b) any declaration of a
dividend in connection with the implementation of a stockholders' rights plan,
or the issuance of stock under any such plan in the future, or the redemption
or repurchase of any such rights pursuant thereto, (c) payments under the
Guarantee, and (d) purchases of common stock related to the issuance of common
stock or rights under any of Glacier's benefit plans for its directors,
officers or employees), or (iv) redeem, purchase or acquire less than all of
the Junior Subordinated Debentures or any of the Trust Preferred Securities.
Prior to the termination of any such Extension Period, Glacier may further
extend such Extension Period, provided that such extension does not cause such
Extension Period to exceed 60 consecutive months or extend beyond the Stated
Maturity. Upon the termination of any such Extension Period and the payment of
all amounts then due on any Interest Payment Date, Glacier may elect to begin
a new Extension Period subject to the above requirements. No interest shall be
due and payable during an Extension Period, except at the end thereof. Glacier
must give notice to the Property Trustee, the Administrative Trustees and the
Indenture Trustee of its election of any Extension
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Period at least one Business Day prior to the earlier of (i) the date the
Distributions on the Trust Preferred Securities would have been payable except
for the election to begin or extend such Extension Period, (ii) the date the
Administrative Trustees are required to give notice to the American Stock
Exchange, the New York Stock Exchange, The Nasdaq Stock Market or any
applicable stock exchange or automated quotation system on which the Trust
Preferred Securities are then listed or quoted or to the holders of the Trust
Preferred Securities on the record date or (iii) the date such Distributions
are payable, but in any event not less than one Business Day prior to such
record date. The Indenture Trustee shall give notice of Glacier's election to
begin or extend a new Extension Period to the holders of the Trust Preferred
Securities. There is no limitation on the number of times that Glacier may
elect to begin an Extension Period.
Distributions on the Trust Preferred Securities will be deferred by Water
Trust I during any such Extension Period. See "Description of the Trust
Preferred Securities--Distributions." For a description of certain federal
income tax consequences and special considerations applicable to any such
Junior Subordinated Debentures, see "Certain Federal Income Tax Consequences."
ADDITIONAL SUMS
If Water Trust I is required to pay any additional taxes, duties or other
governmental charges as a result of a Tax Event, Glacier will pay as
additional amounts on the Junior Subordinated Debentures such amounts
("Additional Sums") as shall be required so that the Distributions payable by
Water Trust I shall not be reduced as a result of any such additional taxes,
duties or other governmental charges.
REDEMPTION
The Junior Subordinated Debentures are redeemable prior to maturity at the
option of Glacier (i) on or after , 2003, in whole at any time or in
part from time to time, or (ii) at any time in whole (but not in part), within
90 days following the occurrence of a Tax Event or an Investment Company
Event, in each case at a redemption price equal to the accrued and unpaid
interest on the Junior Subordinated Debentures so redeemed to the date fixed
for redemption, plus 100% of the principal amount thereof.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each holder of Junior Subordinated
Debentures to be redeemed at such holder's registered address. Unless Glacier
defaults in payment of the redemption price, on and after the redemption date
interest ceases to accrue on such Junior Subordinated Debentures or portions
thereof called for redemption.
If Water Trust I is required to pay additional taxes, duties or other
governmental charges as a result of a Tax Event, Glacier will pay as
additional amounts on the Junior Subordinated Debentures the Additional Sums
(as defined herein).
The Junior Subordinated Debentures will not be subject to any sinking fund.
DISTRIBUTION UPON LIQUIDATION
As described under "Description of the Trust Preferred Securities--
Liquidation Distribution Upon Dissolution," under certain circumstances
involving the dissolution of Water Trust I, the Junior Subordinated Debentures
may be distributed to the holders of the Trust Preferred Securities in
liquidation of Water Trust I after satisfaction of liabilities to creditors of
Water Trust I as provided by applicable law. If the Junior Subordinated
Debentures are distributed to the holders of Trust Preferred Securities upon
the liquidation of Water Trust I, Glacier will use its best efforts to list
the Junior Subordinated Debentures on the American Stock Exchange or such
other stock exchanges or automated quotation system, if any, on which the
Trust Preferred Securities are then listed or quoted. There can be no
assurance as to the market price of any Junior Subordinated Debentures that
may be distributed to the holders of Trust Preferred Securities.
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RESTRICTIONS ON CERTAIN PAYMENTS
If at any time (i) there shall have occurred a Debenture Event of Default,
(ii) Glacier shall have given notice of its election of an Extension Period as
provided in the Indenture with respect to the Junior Subordinated Debentures
and shall not have rescinded such notice, or such Extension Period, or any
extension thereof, shall be continuing, or (iii) while the Junior Subordinated
Debentures are held by Water Trust I, Glacier shall be in default with respect
to its payment of any obligation under the Guarantee, then Glacier will not
(1) declare or pay any dividends or distributions on, or redeem, purchase,
acquire, or make a liquidation payment with respect to, any of Glacier's
capital stock, (2) make any payment of principal, interest or premium, if any,
on or repay, repurchase or redeem any debt securities of Glacier (including
other Junior Subordinated Debt) that rank pari passu with or junior in
interest to the Junior Subordinated Debentures or make any guarantee payments
with respect to any guarantee by Glacier of the debt securities of any
subsidiary of Glacier if such guarantee ranks pari passu with or junior in
interest to the Junior Subordinated Debentures (other than (a) dividends or
distributions in capital stock of Glacier, (b) any declaration of a dividend
in connection with the implementation of a stockholders' rights plan, or the
issuance of stock under any such plan in the future or the redemption or
repurchase of any such rights pursuant thereto, (c) payments under the
Guarantee and (d) purchases of common stock related to issuance of common
stock or rights under any of Glacier's benefit plans for its directors,
officers, employees or consultants) or (3) redeem, purchase or acquire less
than all of the Junior Subordinated Debentures or any of the Trust Preferred
Securities.
SUBORDINATION
In the Indenture, Glacier has covenanted and agreed that any Junior
Subordinated Debentures issued thereunder will be subordinate and junior in
right of payment to all Senior Debt and Subordinated Debt to the extent
provided in the Indenture. Upon any payment or distribution of assets to
creditors upon any liquidation, dissolution, winding up, reorganization,
assignment for the benefit of creditors, marshaling of assets or any
bankruptcy, insolvency, debt restructuring or similar proceedings in
connection with any insolvency or bankruptcy proceeding of Glacier, the
holders of Senior Debt and Subordinated Debt will first be entitled to receive
payment in full of principal of all Allocable Amounts (as defined below) on
such Senior Debt and Subordinated Debt before the holders of Junior
Subordinated Debentures will be entitled to receive or retain any payment in
respect thereof.
In the event of the acceleration of the maturity of any Junior Subordinated
Debentures, the holders of all Senior Debt and Subordinated Debt outstanding
at the time of such acceleration will first be entitled to receive payment in
full of all amounts due thereon (including any amounts due upon acceleration)
before the holders of Junior Subordinated Debentures will be entitled to
receive or retain any payment in respect of the Junior Subordinated
Debentures.
No payments on account of principal or interest, if any, in respect of the
Junior Subordinated Debentures may be made if there shall have occurred and be
continuing a default in any payment with respect to Senior Debt and
Subordinated Debt or an event of default with respect to any Senior Debt and
Subordinated Debt resulting in the acceleration of the maturity thereof, or if
any judicial proceeding shall be pending with respect to any such default.
"Allocable Amounts," when used with respect to any Senior Debt and
Subordinated Debt, means all amounts due or to become due on such Senior Debt
and Subordinated Debt less, if applicable, any amount which would have been
paid to, and retained by, the holders of such Senior Debt and Subordinated
Debt (whether as a result of the receipt of payments by the holders of such
Senior Debt and Subordinated Debt from Glacier or any other obligor thereon or
from any holders of, or trustee in respect of, other indebtedness that is
subordinate and junior in right of payment to such Senior Debt and
Subordinated Debt pursuant to any provision of such indebtedness for the
payment over of amounts received on account of such indebtedness to the
holders of such Senior Debt and Subordinated Debt or otherwise) but for the
fact that such Senior Debt and Subordinated Debt is subordinated or junior in
right of payment to (or subject to a requirement that amounts received on such
Senior
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Debt and Subordinated Debt be paid over to obligees on) trade accounts payable
or accrued liabilities arising in the ordinary course of business.
"Debt" means, with respect to any person, whether recourse is to all or a
portion of the assets of such person and whether or not contingent: (i) every
obligation of such person for money borrowed; (ii) every obligation of such
person evidenced by bonds, debentures, notes or other similar instruments,
including obligations incurred in connection with the acquisition of property,
assets or businesses; (iii) every reimbursement obligation of such person with
respect to letters of credit, bankers' acceptances or similar facilities
issued for the account of such person; (iv) every obligation of such person
issued or assumed as the deferred purchase price of property or services (but
excluding trade accounts payable or accrued liabilities arising in the
ordinary course of business); (v) every capital lease obligation of such
person; (vi) all indebtedness of such person whether incurred on or prior to
the date of the Indenture or thereafter incurred, for claims in respect of
derivative products including interest rate, foreign exchange rate and
commodity forward contracts, options and swaps and similar arrangements; and
(vii) every obligation of the type referred to in clauses (i) through (vi) of
another person and all dividends of another person the payment of which, in
either case, such person has guaranteed or is responsible or liable, directly
or indirectly, as obligor or otherwise.
"Senior Debt and Subordinated Debt" means the principal of (and premium, if
any) and interest, if any (including interest accruing on or after the filing
of any petition in bankruptcy or for reorganization relating to Glacier
whether or not such claim for post-petition interest is allowed in such
proceeding), on Debt of Glacier whether incurred on or prior to the date of
the Indenture or thereafter incurred, unless, in the instrument creating or
evidencing the same or pursuant to which the same in outstanding, it is
provided that such obligations are not superior in right of payment to the
Junior Subordinated Debentures or to other Debt which is pari passu with, or
subordinated to, the Junior Subordinated Debentures; provided, however, that
Senior Debt and Subordinated Debt shall not be deemed to include (i) any Debt
of Glacier which when incurred and without respect to any election under
Section 1111(b) of the United States Bankruptcy Code of 1978, as amended, was
without recourse to Glacier, (ii) any Debt of Glacier to any of its
subsidiaries, (iii) Debt to any employee of Glacier, and (iv) any other debt
securities issued pursuant to the Indenture.
The Indenture places no limitation on the amount of additional Senior Debt
and Subordinated Debt that may be incurred by Glacier. Glacier expects from
time to time to incur additional indebtedness constituting Senior Debt and
Subordinated Debt.
DENOMINATIONS, REGISTRATION AND TRANSFER
The Junior Subordinated Debentures will be represented by global
certificates registered in the name of the Depositary or its nominee (the
"Global Subordinated Debentures"). Beneficial interests in the Junior
Subordinated Debentures will be shown on, and transfers thereof will be
effected only through, records maintained by the Depositary. Except as
described below, Junior Subordinated Debentures in certificated form will not
be issued in exchange for the global certificates. See "Book-Entry Issuance."
Unless and until a Global Subordinated Debenture is exchanged in whole or in
part for the individual Junior Subordinated Debentures represented thereby, it
may not be transferred except as a whole by the Depositary for such Global
Subordinated Debenture to a nominee of such Depositary or by a nominee of such
Depositary to such Depositary or another nominee of such Depositary or by the
Depositary or any nominee to a successor Depositary or any nominee of such
successor.
A global security shall be exchanged for Junior Subordinated Debentures
registered in the names of persons other than the Depositary or its nominee
only if (i) the Depositary notifies Glacier that it is unwilling or unable to
continue as a depositary for such global security and no successor depositary
shall have been appointed, or if at any time the Depositary ceases to be a
clearing agency registered under the Securities Exchange Act, at a time when
the Depositary is required to be so registered to act as such depositary, (ii)
Glacier in its sole discretion determines that such global security shall be
so exchangeable or (iii) there shall have occurred and be continuing
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a Debenture Event of Default with respect to such global security. Any global
security that is exchanged pursuant to the preceding sentence shall be
exchangeable for definitive certificates registered in such names as the
Depositary shall direct. It is expected that such instructions will be based
upon directions received by the Depositary from its Participants with respect
to ownership of beneficial interests in such global security. In the event
that Junior Subordinated Debentures are issued in definitive form, such Junior
Subordinated Debentures will be in denominations of $25 and integral multiples
thereof and may be transferred or exchanged at the offices described below.
Payments on Junior Subordinated Debentures represented by a global security
will be made to the Depositary, as the depositary for the Junior Subordinated
Debentures. In the event Junior Subordinated Debentures are issued in
definitive form, principal and interest will be payable, the transfer of the
Junior Subordinated Debentures will be registrable, and Junior Subordinated
Debentures will be exchangeable for Junior Subordinated Debentures of other
denominations of a like aggregate principal amount, at the corporate office of
the Indenture Trustee, or at the offices of any paying agent or transfer agent
appointed by Glacier, provided that payment of interest may be made at the
option of Glacier by check mailed to the address of the persons entitled
thereto or by wire transfer. In addition, if the Junior Subordinated
Debentures are issued in certificated form, the record dates for payment of
interest will be the first day of the month in which such payment is to be
made. For a description of the Depositary and the terms of the depositary
arrangements relating to payments, transfers, voting rights, redemptions and
other notices and other matters, see "Book-Entry Issuance."
Glacier will appoint the Indenture Trustee as securities registrar under the
Indenture (the "Securities Registrar"). Junior Subordinated Debentures may be
presented for exchange as provided above, and may be presented for
registration of transfer (with the form of transfer endorsed thereon, or a
satisfactory written instrument of transfer, duly executed), at the office of
the Securities Registrar. Glacier may at any time rescind the designation of
any such transfer agent or approve a change in the location through which any
such transfer agent acts, provided that Glacier maintains a transfer agent in
the place of the payment. Glacier may at any time designate additional
transfer agents with respect to the Junior Subordinated Debentures.
In the event of any redemption, neither Glacier not the Indenture Trustee
shall be required to (i) issue, register the transfer of or exchange Junior
Subordinated Debentures during a period beginning at the opening of business
15 days before the day of selection for redemption of Junior Subordinated
Debentures and ending at the close of business on the day of mailing of the
relevant notice of redemption or (ii) transfer or exchange any Junior
Subordinated Debentures so selected for redemption, except, in the case of any
Junior Subordinated Debentures being redeemed in part, any portion thereof not
to be redeemed.
GLOBAL SUBORDINATED DEBENTURES
Upon the issuance of the Global Subordinated Debenture, and the deposit of
such Global Subordinated Debenture with or on behalf of the Depositary, the
Depositary for such Global Subordinated Debenture or its nominee will credit,
on its book-entry registration and transfer system, the respective principal
amounts of the individual Junior Subordinated Debentures represented by such
Global Subordinated Debenture to the accounts of persons that have accounts
with such Depositary ("Participants"). Ownership of beneficial interests in a
Global Subordinated Debenture will be limited to Participants or persons that
may hold interests through Participants. Ownership of beneficial interests in
such Global Subordinated Debenture will be shown on, and the transfer of that
ownership will be effected only through, records maintained by the applicable
Depositary or its nominee (with respect to interests of Participants) and the
records of Participants (with respect to interests of persons who hold through
Participants). The laws of some states require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
limits and such laws may impair the ability to transfer beneficial interests
in a Global Subordinated Debenture.
So long as the Depositary for a Global Subordinated Debenture, or its
nominee, is the registered owner of such Global Subordinated Debenture, such
Depositary or such nominee, as the case may be, will be considered the sole
owner or holder of the Junior Subordinated Debentures represented by such
Global Subordinated
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Debenture for all purposes under the Indenture governing such Junior
Subordinated Debentures. Except as provided below, owners of beneficial
interests in a Global Subordinated Debenture will not be entitled to have any
of the individual Junior Subordinated Debentures represented by such Global
Subordinated Debenture registered in their names, will not receive or be
entitled to receive physical delivery of any such Junior Subordinated
Debentures in definitive form and will not be considered the owners or holders
thereof under the Indenture.
Payments of principal of and interest on individual Junior Subordinated
Debentures represented by a Global Subordinated Debenture registered in the
name of the Depositary or its nominee will be made to the Depositary or its
nominee, as the case may be, as the registered owner of the Global
Subordinated Debenture representing such Junior Subordinated Debentures. None
of Glacier, the Indenture Trustee, any Paying Agent, or the Securities
Registrar for such Junior Subordinate Debentures will have any responsibility
or liability for any aspect of the records relating to or payments made on
account of beneficial ownership interests of the Global Subordinated Debenture
representing such Junior Subordinated Debentures or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
Glacier expects that the Depositary or its nominee, upon receipt of any
payment of principal or interest in respect of a permanent Global Subordinated
Debenture representing the Junior Subordinated Debentures, immediately will
credit Participants' accounts with payments in amounts proportionate to their
respective beneficial interest in the principal amount of the Global
Subordinated Debenture as shown on the records of such Depositary or its
nominee. Glacier also expects that payments by Participants to owners of
beneficial interests in such Global Subordinated Debenture held through such
Participants will be governed by standing instructions and customary
practices, as is now the case with securities held for the accounts of
customers in bearer form or registered in "street name." Such payments will be
the responsibility of such Participants.
If the Depositary is at any time unwilling, unable or ineligible to continue
as depositary and a successor depositary is not appointed by Glacier within 90
days, Glacier will issue individual Junior Subordinated Debentures in exchange
for the Global Subordinated Debenture. In addition, Glacier may at any time
and in its sole discretion, determine not to have the Junior Subordinated
Debentures represented by one or more Global Subordinated Debentures and, in
such event, will issue individual Junior Subordinated Debentures in exchange
for the Global Subordinated Debenture. Further, if Glacier so specifies with
respect to the Junior Subordinated Debentures, an owner of a beneficial
interest in a Global Subordinated Debenture representing Junior Subordinated
Debentures may, on terms acceptable to Glacier, the Indenture Trustee and the
Depositary for such Global Subordinated Debenture, receive individual Junior
Subordinated Debentures in exchange for such beneficial interests. In any such
instance, an owner of a beneficial interest in a Global Subordinated Debenture
will be entitled to physical delivery of individual Junior Subordinated
Debentures equal in principal amount to such beneficial interest and to have
such Junior Subordinated Debentures registered in its name. Individual Junior
Subordinated Debentures so issued will be issued in denominations, unless
otherwise specified by Glacier, of $25 and integral multiples thereof.
PAYMENT AND PAYING AGENTS
Payment of principal of (and premium, if any) and any interest on the Junior
Subordinated Debentures will be made at the office of the Indenture Trustee,
except that at the option of Glacier payment of any interest may be made (i)
except in the case of Global Junior Subordinated Debentures, by check mailed
to the address of the person entitled thereto as such address shall appear in
the securities register or (ii) by transfer to an account maintained by the
person entitled thereto as specified in the securities register, provided that
proper transfer instructions have been received by the regular record date.
Payment of any interest on Junior Subordinated Debentures will be made to the
person in whose name such Junior Subordinated Debenture is registered at the
close of business on the regular record date for such interest. Glacier may at
any time designate additional Paying Agents or rescind the designation of any
Paying Agent; however Glacier will at all times be required to maintain a
Paying Agent in each place of payment for the Junior Subordinated Debentures.
Any moneys deposited with the Indenture Trustee or any Paying Agent, or then
held by Glacier in trust, for the payment of the principal of
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or interest on the Junior Subordinated Debentures and remaining unclaimed for
two years after such principal or interest has become due and payable shall,
at the request of Glacier, be repaid to Glacier and the holder of such Junior
Subordinated Debenture shall thereafter look, as a general unsecured creditor,
only to Glacier for payment thereof.
MODIFICATION OF INDENTURE
From time to time Glacier and the Indenture Trustee may, without the consent
of the holders of the Junior Subordinated Debentures, amend, waive or
supplement the Indenture for specified purposes, including, among other
things, curing ambiguities, defects or inconsistencies (provided that any such
action does not materially adversely affect the interests of the holders of
the Junior Subordinated Debentures or the Trust Preferred Securities so long
as they remain outstanding) and qualifying, or maintaining the qualification
of, the Indenture under the Trust Indenture Act. The Indenture contains
provisions permitting Glacier and the Indenture Trustee, with the consent of
the holders of not less than a majority in principal amount of the outstanding
Junior Subordinated Debentures, to modify the Indenture in a manner affecting
the rights of the holders of the Junior Subordinated Debentures; provided,
that no such modification may, without the consent of the holder of each
outstanding Subordinated Debenture, (i) change the Stated Maturity of the
Junior Subordinated Debentures, or reduce the principal amount thereof, or
reduce the rate or extend the time of payment of interest thereon or
(ii) reduce the percentage of principal amount of Junior Subordinated
Debentures, the holders of which are required to consent to any such
modification of the Indenture, provided that so long as any of the Trust
Preferred Securities remain outstanding, no such modification may be made that
adversely affects the holders of such Trust Preferred Securities in any
material respect, and no termination of the Indenture may occur, and no waiver
of any Debenture Event of Default or compliance with any covenant under the
Indenture may be effective, without the prior consent of the holders of at
least a majority of the aggregate Liquidation Amount of the Trust Preferred
Securities unless and until the principal of the Junior Subordinated
Debentures and all accrued and unpaid interest thereon have been paid in full
and certain other conditions have been satisfied. Where a consent under the
Indenture would require the consent of each holder of Junior Subordinated
Debentures, no such consent shall be given by the Property Trustee without the
prior consent of each holder of Trust Preferred Securities. In addition,
Glacier and the Indenture Trustee may execute, without the consent of any
holder of Junior Subordinated Debentures, any supplemental Indenture for the
purpose of creating any new series of Junior Subordinated Debentures.
DEBENTURE EVENTS OF DEFAULT
The Indenture provides that any one or more of the following described
events with respect to the Junior Subordinated Debentures that has occurred
and is continuing constitutes a "Debenture Event of Default," with respect to
the Junior Subordinated Debentures:
(i) failure for 30 days to pay any interest on the Junior Subordinated
Debentures, when due (subject to the deferral of any due date in the case
of an Extension Period), or
(ii) failure to pay any principal on the Junior Subordinated Debentures
when due whether at maturity, upon redemption by declaration or otherwise;
or
(iii) failure to observe or perform in any material respect certain other
covenants contained in the Indenture for 90 days after written notice to
Glacier from the Indenture Trustee or to Glacier and the Indenture Trustee
by the holders of at least 25% in aggregate outstanding principal amount of
the Junior Subordinated Debentures; or
(iv) certain events in bankruptcy, insolvency or reorganization of
Glacier.
The holders of a majority in aggregate outstanding principal amount of the
Junior Subordinated Debentures have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Indenture
Trustee. The Indenture Trustee or the holders of not less than 25% in
aggregate outstanding principal
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amount of the Junior Subordinated Debentures may declare the principal due and
payable immediately upon a Debenture Event of Default. If the Indenture
Trustee or such holders of such Junior Subordinated Debentures fail to make
such declaration, the holders of at least 25% in aggregate Liquidation Amount
of the Trust Preferred Securities shall have such right. The holders of a
majority in aggregate outstanding principal amount of the Junior Subordinated
Debentures may annul such declaration and waive the default if the default
(other than the non-payment of the principal of the Junior Subordinated
Debentures which has become due solely by such acceleration) has been cured
and a sum sufficient to pay all matured installments of interest and principal
due otherwise than by acceleration has been deposited with the Indenture
Trustee. Should the holders of the Junior Subordinated Debentures fail to
annul such declaration and waive such default, the holders of a majority in
aggregate Liquidation Amount of the Trust Preferred Securities shall have such
right.
The holders of a majority in aggregate outstanding principal amount of
Junior Subordinated Debentures affected thereby may, on behalf of the holders
of all the Junior Subordinated Debentures, waive any past default, except a
default in the payment of principal or interest (unless such default has been
cured and a sum sufficient to pay all matured installments of interest and
principal due otherwise than by acceleration has been deposited with the
Indenture Trustee) or a default in respect of a covenant or provision which
under the Indenture cannot be modified or amended without the consent of the
holder of each outstanding Junior Subordinated Debenture.
In case a Debenture Event of Default shall occur and be continuing as to the
Junior Subordinated Debentures, the Property Trustee will have the right to
declare the principal of and the interest on such Junior Subordinated
Debentures, and any other amounts payable under the Indenture, to be forthwith
due and payable and to enforce its other rights as a creditor with respect to
such Junior Subordinated Debentures.
Glacier is required to file annually with the Indenture Trustee a
certificate as to whether or not Glacier is in compliance with all the
conditions and covenants applicable to it under the Indenture.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF TRUST PREFERRED SECURITIES
If a Debenture Event of Default has occurred and is continuing and such
event is attributable to the failure of Glacier to pay interest or principal
on the Junior Subordinated Debentures on the date such interest or principal
is otherwise payable, a holder of Trust Preferred Securities may institute a
legal proceeding directly against Glacier for enforcement of payment to such
holder of the principal of or interest on such Junior Subordinated Debentures
having a principal amount equal to the aggregate Liquidation Amount of the
Trust Preferred Securities of such holder (a "Direct Action"). Glacier may not
amend the Indenture to remove the foregoing right to bring a Direct Action
without the prior written consent of the holders of all of the Trust Preferred
Securities outstanding. If the right to bring a Direct Action is removed,
Water Trust I may become subject to the reporting obligations under the
Exchange Act. Glacier shall have the right under the Indenture to set-off any
payment made to such holder of Trust Preferred Securities by Glacier in
connection with a Direct Action.
The holders of the Trust Preferred Securities would not be able to exercise
directly any remedies other than those set forth in the preceding paragraph
available to the holders of the Junior Subordinated Debentures unless there
shall have been an Event of Default under the Trust Agreement. See
"Description of the Trust Preferred Securities--Events of Default; Notice."
CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS
The Indenture provides that Glacier shall not consolidate with or merge into
any other Person or convey, transfer or lease its properties and assets
substantially as an entirety to any Person, and no Person shall consolidate
with or merge into Glacier or convey, transfer or lease its properties and
assets substantially as an entirety to Glacier, unless (i) in case Glacier
consolidates with or merges into another Person or conveys, transfers or
leases its properties and assets substantially as an entirety to any Person,
the successor Person is organized under the laws of the United States or any
state or the District of Columbia, and such successor Person expressly assumes
Glacier's obligations on the Junior Subordinated Debentures issued under the
Indenture;
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(ii) immediately after giving effect thereto, no Debenture Event of Default,
and no event which, after notice or lapse of time or both, would become a
Debenture Event of Default, shall have occurred and be continuing; and
(iii) certain other conditions an prescribed in the Indenture are met.
The general provisions of the Indenture do not afford holders of the Junior
Subordinated Debentures protection in the event of a highly leveraged or other
similar transaction involving Glacier that may adversely affect holders of the
Junior Subordinated Debentures.
SATISFACTION AND DISCHARGE
The Indenture provides that when, among other things, all Junior
Subordinated Debentures not previously delivered to the Indenture Trustee for
cancellation (i) have become due and payable or (ii) will become due and
payable at their Stated Maturity within one year, and Glacier deposits or
causes to be deposited with the Indenture Trustee trust funds, in trust, for
the purpose and in an amount in the currency or currencies in which the Junior
Subordinated Debentures are payable sufficient to pay and discharge the entire
indebtedness on the Junior Subordinated Debentures not previously delivered to
the Indenture Trustee for cancellation, for the principal and interest to the
date of the deposit or to the Stated Maturity, as the case may be, then the
Indenture will cease to be of further effect (except as to Glacier's
obligations to pay all other sums due pursuant to the Indenture and to provide
the officers, certificates and opinions of counsel described therein), and
Glacier will be deemed to have satisfied and discharged the Indenture.
COVENANTS OF GLACIER
Glacier will covenant in the Indenture, as to the Junior Subordinated
Debentures, that if and so long as (i) Water Trust I in the holder of all such
Junior Subordinated Debentures, (ii) a Tax Event in respect of Water Trust I
has occurred and is continuing and (iii) Glacier has elected, and has not
revoked such election, to pay Additional Sums (as defined under "Description
of the Trust Preferred Securities--Redemption") in respect of the Trust
Preferred Securities, Glacier will pay to Water Trust I such Additional Sums.
Glacier will also covenant, as to the Junior Subordinated Debentures, (i) to
maintain directly or indirectly 100% ownership of the Common Securities of
Water Trust I to which Junior Subordinated Debentures have been issued,
provided that certain successors which are permitted pursuant to the Indenture
may succeed to Glacier's ownership of the Common Securities, (ii) not to
voluntarily dissolve, wind up or liquidate Water Trust I, except (a) in
connection with a distribution of Junior Subordinated Debentures to the
holders of the Trust Preferred Securities in liquidation of Water Trust I or
(b) in connection with certain mergers, consolidations, or amalgamations
permitted by the Trust Agreement and (iii) to use its reasonable efforts,
consistent with the terms and provisions of the Trust Agreement, to cause
Water Trust I to remain classified as a grantor trust and not an association
taxable as a corporation for United States federal income tax purposes.
GOVERNING LAW
The Indenture and the Junior Subordinated Debentures will be governed by and
construed in accordance with the laws of the State of California, except that
the immunities and standard of care of the Indenture Trustee will be governed
by Delaware law.
INFORMATION CONCERNING THE INDENTURE TRUSTEE
The Indenture Trustee shall have and be subject to all the duties and
responsibilities specified with respect to an indenture trustee under the
Trust Indenture Act. Subject to such provisions, the Indenture Trustee is
under no obligation to exercise any of the powers vested in it by the
Indenture at the request of any holder of Junior Subordinated Debentures,
unless offered reasonable indemnity by such holder against the costs, expenses
and liabilities which might be incurred thereby. The Indenture Trustee is not
required to expend or risk its own funds or otherwise incur personal financial
liability in the performance of its duties if the Indenture Trustee reasonably
believes that repayment or adequate indemnity is not reasonably assured to it.
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BOOK-ENTRY ISSUANCE
The Depositary will act as securities depositary for all of the Trust
Preferred Securities and the Junior Subordinated Debentures. The Trust
Preferred Securities and the Junior Subordinated Debentures will be issued
only as fully-registered securities registered in the name of Cede & Co. (the
Depositary's nominee). One or more fully-registered global certificates will
be issued for the Trust Preferred Securities and the Junior Subordinated
Debentures and will be deposited with the Depositary.
The Depositary is a limited purpose trust company organized under the New
York Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Exchange
Act. The Depositary holds securities that its Participants deposit with the
Depositary. The Depositary also facilitates the settlement among Participants
of securities transactions, such as transfers and pledges, in deposited
securities through electronic computerized book-entry changes in Participants'
accounts, thereby eliminating the need for physical movement of securities
certificates. "Direct Participants" include securities brokers and dealers,
banks, trust companies, clearing corporations and certain other organizations.
The Depositary is owned by a number of its Direct Participants and by the New
York Stock Exchange, Inc., the American Stock Exchange, Inc. and the National
Association of Securities Dealers, Inc. Access to the Depositary system is
also available to others such as securities brokers and dealers, banks and
trust companies that clear through or maintain custodial relationships with
Direct Participants, either directly or indirectly ("Indirect Participants").
The rules applicable to the Depositary and its Participants are on file with
the Commission.
Purchases of Trust Preferred Securities or Junior Subordinated Debentures
within the Depositary system must be made by or through Direct Participants,
which will receive a credit for the Trust Preferred Securities or Junior
Subordinated Debentures on the Depositary's records. The ownership interest of
each actual purchaser of each Trust Preferred Security and each Junior
Subordinated Debenture ("Beneficial Owner") will be recorded on the Direct and
Indirect Participants' records. Beneficial Owners will not receive written
confirmation from the Depositary of their purchases, but Beneficial Owners are
expected to receive written confirmations providing details of the
transactions, as well as periodic statements of their holdings, from the
Direct or Indirect Participants through which the Beneficial Owners purchased
Trust Preferred Securities or Junior Subordinated Debentures. Transfers of
ownership interests in the Trust Preferred Securities or Junior Subordinated
Debentures are to be accomplished by entries made on the books of Participants
acting on behalf of Beneficial Owners. Beneficial Owners will not receive
certificates representing their ownership interests in Trust Preferred
Securities or Junior Subordinated Debentures, except in the event that use of
the book-entry system for the Junior Subordinated Debentures is discontinued.
The Depositary has no knowledge of the actual Beneficial owners of the Trust
Preferred Securities or Junior Subordinated Debentures; the Depositary's
records reflect only the identity of the Direct Participants to whose accounts
such Trust Preferred Securities or Junior Subordinated Debentures are
credited, which may or may not be the Beneficial Owners. The Participants will
remain responsible for keeping account of their holdings on behalf of their
customers.
Conveyance of notices and other communications by the Depositary to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners and the voting
rights of Direct Participants, Indirect Participants and Beneficial Owners
will be governed by arrangements among them, subject to any statutory or
regulatory requirements as may be in effect from time to time.
Redemption notices will be sent to Cede & Co. as the registered holder of
the Trust Preferred Securities or Junior Subordinated Debentures. If less than
all of the Trust Preferred Securities or the Junior Subordinated Debentures
are being redeemed, the Depositary will determine by lot or pro rata the
amount of the Trust Preferred Securities of each Direct Participant to be
redeemed.
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Although voting with respect to the Trust Preferred Securities or the Junior
Subordinated Debentures is limited to the holders of record of the Trust
Preferred Securities or Junior Subordinated Debentures, as applicable, in
those instances in which a vote is required, neither the Depositary nor Cede &
Co. will itself consent or vote with respect to Trust Preferred Securities or
Junior Subordinated Debentures. Under its usual procedures, the Depositary
would mail an omnibus proxy (the "Omnibus Proxy") to the relevant Trustee as
soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s
consenting or voting rights to those Direct Participants to whose accounts
such Trust Preferred Securities or Junior Subordinated Debentures are credited
on the record date (identified in a listing attached to the Omnibus Proxy).
Distribution payments on the Trust Preferred Securities or the Junior
Subordinated Debentures will be made by the relevant Trustee to the
Depositary. The Depositary's practice is to credit Direct Participants'
accounts on the relevant payment date in accordance with their respective
holdings shown on the Depositary's records unless the Depositary has reason to
believe that it will not receive payments on such payment date. Payments by
Participants to Beneficial Owners will be governed by standing instructions
and customary practices and will be the responsibility of such Participant and
not of the Depositary, the relevant Trustee, Water Trust I or Glacier, subject
to any statutory or regulatory requirements as may be in effect from time to
time. Payment of Distributions to the Depositary is the responsibility of the
relevant Trustee, disbursement of such payments to Direct Participants is the
responsibility of the Depositary, and disbursements of such payments to the
Beneficial Owners is the responsibility of Direct and Indirect Participants.
The Depositary may discontinue providing its services as securities
depositary with respect to any of the Trust Preferred Securities or the Junior
Subordinated Debentures at any time by giving reasonable notice to the
relevant Trustee and Glacier. In the event that a successor securities
depositary is not obtained, definitive Trust Preferred Securities or Junior
Subordinated Debenture certificates representing such Trust Preferred
Securities or Junior Subordinated Debentures are required to be printed and
delivered. Glacier, at its option, may decide to discontinue use of the system
of book-entry transfers through the Depositary (or a successor depositary).
After a Debenture Event of Default, the holders of a majority in liquidation
preference of Trust Preferred Securities or aggregate principal amount of
Junior Subordinated Debentures may determine to discontinue the system of
book-entry transfers through the Depositary. In any such event, definitive
certificates for such Trust Preferred Securities or Junior Subordinated
Debentures will be printed and delivered.
The information in this section concerning the Depositary and the
Depositary's book-entry system has been obtained from sources that Water Trust
I and Glacier believe to be accurate, but Water Trust I and Glacier assume no
responsibility for the accuracy thereof. Neither Water Trust I nor Glacier has
any responsibility for the performance by the Depositary or its Participants
of their respective obligations as described herein or under the rules and
procedures governing their respective operations.
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DESCRIPTION OF GUARANTEE
The Guarantee Agreement will be executed and delivered by Glacier
concurrently with the issuance of the Trust Preferred Securities for the
benefit of the holders of the Trust Preferred Securities. Wilmington Trust
Company will act as Guarantee Trustee under the Guarantee Agreement for the
purposes of compliance with the Trust Indenture Act, and the Guarantee will be
qualified as an Indenture under the Trust Indenture Act. The following summary
of certain provisions of the Guarantee does not purport to be complete and is
subject to, and qualified in its entirety by reference to, all of the
provisions of the Guarantee Agreement, including the definition therein of
certain terms, and the Trust Indenture Act. However, all material provisions
of the Guarantee have been described herein. The form of the Guarantee has
been filed as an exhibit to the Registration Statement of which this
Prospectus forms a part. The Guarantee Trustee will hold the Guarantee for the
benefit of the holders of the Trust Preferred Securities.
GENERAL
The Guarantee will be an irrevocable guarantee on a subordinated basis of
Water Trust I's obligations under the Trust Preferred Securities, but will
apply only to the extent that Water Trust I has funds sufficient to make such
payments, and is not a guarantee of collection.
Glacier will irrevocably agree to pay in full on a subordinated basis, to
the extent set forth herein, the Guarantee Payments (as defined below) to the
holders of the Trust Preferred Securities, as and when due, regardless of any
defense, right of set-off or counterclaim that Water Trust I may have or
assert other than the defense of payment. The following payments with respect
to the Trust Preferred Securities, to the extent not paid by or on behalf of
Water Trust I (the "Guarantee Payment"), will be subject to the Guarantee:
(i) any accumulated and unpaid Distributions required to be paid on the Trust
Preferred Securities, to the extent that Water Trust I has funds on hand
available therefor at such time, (ii) the redemption price with respect to any
Trust Preferred Securities called for redemption, to the extent that Water
Trust I has funds on hand available therefor at such time, and (iii) upon a
voluntary or involuntary dissolution, winding up or liquidation of Water Trust
I (unless the Junior Subordinated Debentures are distributed to holders of the
Trust Preferred Securities), the lesser of (a) the Liquidation Distribution
and (b) the amount of assets of Water Trust I remaining available for
distribution to holders of Trust Preferred Securities after satisfaction of
liabilities to creditors of Water Trust I as required by law. Glacier's
obligation to make a Guarantee Payment may be satisfied by direct payment of
the required amounts by Glacier to the holders of the Trust Preferred
Securities or by causing Water Trust I to pay such amounts to such holders.
If Glacier does not make interest payments on the Junior Subordinated
Debentures held by Water Trust I, Water Trust I will not be able to pay
Distributions on the Trust Preferred Securities and will not have funds
legally available therefor. The Guarantee will rank subordinate and junior in
right of payment to all Senior Debt and Subordinated Debt of Glacier. See "--
Status of the Guarantee" below. Because Glacier is a holding company, the
right of Glacier to participate in any distribution of assets of any
subsidiary upon such subsidiary's liquidation or reorganization or otherwise,
is subject to the prior claims of creditors of that subsidiary, except to the
extent Glacier may itself be recognized as a creditor of that subsidiary.
Accordingly, Glacier's obligations under the Guarantee will be effectively
subordinated to all existing and future liabilities of Glacier's subsidiaries,
and claimants should look only to the assets of Glacier for payments
thereunder. Except as otherwise described herein, the Guarantee does not limit
the incurrence or issuance of other secured or unsecured debt of Glacier,
including Senior Debt and Subordinated Debt whether under the Indenture, any
other indenture that Glacier may enter into in the future, or otherwise.
Glacier has, through the Guarantee, the Guarantee Agreement, the Trust
Agreement, the Junior Subordinated Debentures, the Indenture and the Expense
Agreement, taken together, fully, irrevocably and unconditionally guaranteed
all of Water Trust I's obligations under the Trust Preferred Securities. No
single document standing alone or operating in conjunction with fewer than all
of the other documents constitutes such guarantee. It is only the combined
operation of these documents that has the effect of providing a full,
irrevocable and
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unconditional guarantee of Water Trust I's obligations under the Trust
Preferred Securities. See "Relationship Among the Trust Preferred Securities,
the Junior Subordinated Debentures and the Guarantee."
STATUS OF THE GUARANTEE
The Guarantee will constitute an unsecured obligation of Glacier and will
rank subordinate and junior in right of payment to all Senior Debt and
Subordinated Debt in the same manner as the Junior Subordinated Debentures.
The Guarantee will constitute a guarantee of payment and not of collection.
For example, the guaranteed party may institute a legal proceeding directly
against Glacier to enforce its rights under the Guarantee without first
instituting a legal proceeding against any other person or entity. The
Guarantee will be held for the benefit of the holders of the Trust Preferred
Securities. The Guarantee will not be discharged except by payment of the
Guarantee Payments in full to the extent not paid by Water Trust I or upon
distribution to the holders of the Trust Preferred Securities of the Junior
Subordinated Debentures to the holders of the Trust Preferred Securities. The
Guarantee does not place a limitation on the amount of additional Senior Debt
and Subordinated Debt that may be incurred by Glacier. Glacier expects from
time to time to incur additional indebtedness constituting Senior Debt and
Subordinated Debt.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes which do not materially adversely affect
the rights of holders of the Trust Preferred Securities (in which case no vote
will be required), the Guarantee Agreement may not be amended without the
prior approval of the holders of not less than a majority of the aggregate
Liquidation Amount of such outstanding Trust Preferred Securities. See
"Description of the Trust Preferred Securities-- Voting Rights; Amendment of
the Trust Agreement." All guarantees and agreements contained in the Guarantee
Agreement shall bind the successors, assigns, receivers, trustees and
representatives of Glacier and shall inure to the benefit of the holders of
the Trust Preferred Securities then outstanding.
EVENTS OF DEFAULT
An event of default under the Guarantee Agreement will occur upon the
failure of Glacier to perform any of its payment or other obligations
thereunder. The holders of not less than a majority in aggregate Liquidation
Amount of the Trust Preferred Securities have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Guarantee Trustee in respect of the Guarantee or to direct the exercise of any
trust or power conferred upon the Guarantee Trustee under the Guarantee
Agreement. Any holder of the Trust Preferred Securities may institute a legal
proceeding directly against Glacier to enforce its rights under the Guarantee
without first instituting a legal proceeding against Water Trust I, the
Guarantee Trustee or any other person or entity.
Glacier, as guarantor, is required to file annually with the Guarantee
Trustee a certificate as to whether or not Glacier is in compliance with all
the conditions and covenants applicable to it under the Guarantee Agreement.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, other than during the occurrence and continuance of a
default by Glacier in performance of the Guarantee, has undertaken to perform
only such duties as are specifically set forth in the Guarantee Agreement and,
after default with respect to the Guarantee, must exercise the same degree of
care and skill as a prudent person would exercise or use in the conduct of his
or her own affairs. Subject to this provision, the Guarantee Trustee is under
no obligation to exercise any of the powers vested in it by the Guarantee
Agreement at the request of any holder of the Trust Preferred Securities
unless it is offered reasonable indemnity against the costs, expenses and
liabilities that might be incurred thereby.
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TERMINATION OF THE GUARANTEE
The Guarantee will terminate and be of no further force and effect upon full
payment of the Redemption Price of the Trust Preferred Securities, upon full
payment of the amounts payable upon liquidation of Water Trust I or upon
distribution of Junior Subordinated Debentures to the holders of the Trust
Preferred Securities. The Guarantee will continue to be effective or will be
reinstated, as the case may be, if at any time any holder of the Trust
Preferred Securities must restore payment of any sums paid under the Trust
Preferred Securities or the Guarantee.
GOVERNING LAW
The Guarantee Agreement will be governed by and construed in accordance with
the laws of the State of California.
EXPENSE AGREEMENT
Pursuant to the Expense Agreement entered into by Glacier under the Trust
Agreement, Glacier will irrevocably and unconditionally guarantee to each
person or entity to whom Water Trust I becomes indebted or liable, the full
payment of any costs, expenses or liabilities of Water Trust I (including,
without limitation, expenses relating to the offering of the Trust Securities
and any expenses the Property Trustee may incur relating to the enforcement of
the rights of the holders of the Trust Preferred Securities or the Junior
Subordinated Debentures pursuant to the Trust Agreement and the Indenture,
respectively) other than obligations of Water Trust I to pay to the holders of
the Trust Preferred Securities or other similar interests in Water Trust I of
the amounts due such holders pursuant to the terms of the Trust Preferred
Securities or such other similar interests, as the case may be. The Expense
Agreement may be enforced against Glacier by any person or entity to whom
Water Trust I is or becomes indebted or liable.
RELATIONSHIP AMONG THE TRUST PREFERRED
SECURITIES, THE JUNIOR SUBORDINATED
DEBENTURES AND THE GUARANTEE
FULL AND UNCONDITIONAL GUARANTEE
Payments of Distributions and other amounts due on the Trust Preferred
Securities (to the extent Water Trust I has funds available for the payment of
such Distributions) are irrevocably guaranteed by Glacier as and to the extent
set forth under "Description of Guarantee." Taken together, Glacier's
obligations under the Junior Subordinated Debentures, the Indenture, the Trust
Agreement, the Expense Agreement, the Guarantee Agreement and the Guarantee
provide, in the aggregate, a full, irrevocable and unconditional guarantee of
payments of distributions and other amounts due on the Trust Preferred
Securities. No single document standing alone or operating in conjunction with
fewer than all of the other documents constitutes such guarantee. It is only
the combined operation of those documents that has the effect of providing a
full, irrevocable and unconditional guarantee of Water Trust I's obligations
under the Trust Preferred Securities. If and to the extent that Glacier does
not make payments on the Junior Subordinated Debentures, Water Trust I will
not pay Distributions or other amounts due on the Trust Preferred Securities.
The Guarantee does not cover payment of Distributions when Water Trust I does
not have sufficient funds to pay such Distributions. In such event, the remedy
of a holder of the Trust Preferred Securities is to institute a legal
proceeding directly against Glacier for enforcement of payment of such
Distributions to such holder. The obligations of Glacier under the Guarantee
are subordinate and junior in right of payment to all Senior Debt and
Subordinated Debt of Glacier.
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SUFFICIENCY OF PAYMENTS
As long as payments of interest and other payments are made when due on the
Junior Subordinated Debentures, such payments will be sufficient to cover
Distributions and other payments due on the Trust Preferred Securities,
primarily because: (i) the aggregate principal amount of the Junior
Subordinated Debentures will be equal to the sum of the aggregate Liquidation
Amount of the Trust Preferred Securities and Common Securities; (ii) the
interest rate and interest and other payment dates on the Junior Subordinated
Debentures will match the Distribution rate and Distribution and other payment
dates for the Trust Preferred Securities; (iii) Glacier shall pay for all and
any costs, expenses and liabilities of Water Trust I except Water Trust I's
obligations to holders of Trust Preferred Securities; and (iv) the Trust
Agreement further provides that Water Trust I will not engage in any activity
that is not consistent with its limited purposes.
Notwithstanding anything to the contrary in the Indenture, Glacier has the
right to set-off any payment it is otherwise required to make thereunder with
and to the extent Glacier has theretofore made, or is concurrently on the date
of such payment making, a payment under the Guarantee.
ENFORCEMENT RIGHTS OF HOLDERS OF THE TRUST PREFERRED SECURITIES UNDER THE
GUARANTEE
A holder of any the Trust Preferred Securities may institute a legal
proceeding directly against Glacier to enforce its rights under the Guarantee
without first instituting a legal proceeding against the Guarantee Trustee,
Water Trust I or any other person or entity.
A default or event of default under any Senior Debt and Subordinated Debt
would not constitute a default or Event of Default. However, in the event of
payment defaults under, or acceleration of, Senior Debt and Subordinated Debt,
the Subordination provisions of the Indenture provide that no payments may be
made in respect of the Junior Subordinated Debentures until such Senior Debt
and Subordinated Debt has been paid in full or any payment default thereunder
has been cured or waived. Failure to make required payments on Junior
Subordinated Debentures would constitute an Event of Default.
LIMITED PURPOSE OF WATER TRUST I
The Trust Preferred Securities evidence a beneficial interest in Water Trust
I, and Water Trust I exists for the sole purpose of issuing the Trust
Securities and investing the proceeds thereof in Junior Subordinated
Debentures. A principal difference between the rights of a holder of the Trust
Preferred Securities and a holder of a Junior Subordinated Debenture is that a
holder of a Junior Subordinated Debenture is entitled to receive from Glacier
the principal amount of and interest accrued on Junior Subordinated Debentures
held, while a holder of the Trust Preferred Securities is entitled to receive
Distributions from Water Trust I (or from Glacier under the Guarantee) if and
to the extent Water Trust I has funds available for the payment of such
Distributions.
RIGHTS UPON DISSOLUTION
Upon any voluntary or involuntary dissolution, winding-up or liquidation of
Water Trust I involving the liquidation of the Junior Subordinated Debentures,
after satisfaction of liabilities to creditors of Water Trust I as provided by
applicable law, the holders of Trust Preferred Securities will be entitled to
receive, out of assets held by Water Trust I, the Liquidation Distribution in
cash. See "Description of the Trust Preferred Securities-- Liquidation
Distribution Upon Dissolution." Upon any voluntary or involuntary liquidation
or bankruptcy of Glacier, the Property Trustee, as holder of the Junior
Subordinated Debentures, would be a subordinated creditor of Glacier,
subordinated in right of payment to all Senior Debt and Subordinated Debt as
set forth in the Indenture, but entitled to receive payment in full of
principal and interest, before any stockholders of Glacier receive payments or
distributions. Since Glacier is the guarantor under the Guarantee and has
agreed to pay for all costs, expenses and liabilities of Water Trust I (other
than Water Trust I's obligations to the holders of its Trust Preferred
Securities), the positions of a holder of the Trust Preferred Securities and a
holder of Junior Subordinated Debentures relative to other creditors and to
stockholders of Glacier in the event of liquidation or bankruptcy of Glacier
are substantially the same.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
It is the opinion of Milbank, Tweed, Hadley & McCloy, counsel to the Company
("Counsel") that the following is accurate in all material respects and, subject
to the limitations stated herein, represents the material federal income tax
consequences to holders of the Trust Preferred Securities arising from the
purchase, ownership and disposition thereof. The following opinions assume the
accuracy of the facts set forth in the prospectus. The opinions set forth in
this section, unless otherwise stated, deal only with Trust Preferred Securities
held as capital assets by United States Persons (defined below) who purchase the
Trust Preferred Securities upon original issuance at their original offering
price. As used herein, a "United States Person" means a person that is (i) a
citizen or resident of the United States, (ii) a corporation, partnership or
other entity created or organized in or under the laws of the United States or
any political subdivision thereof, (iii) an estate the income of which is
subject to United States federal income taxation regardless of its source, or
(iv) a trust if a U.S. court is able to exercise primary supervision over the
administration of such trust and one or more United States fiduciaries have the
authority to control all substantial decisions of such trust. The tax treatment
of holders may vary depending on their particular situation. The following does
not address all the tax consequences that may be relevant to a particular holder
or to holders who may be subject to special tax treatment, such as banks, real
estate investment trusts, regulated investment companies, insurance companies,
dealers in securities or currencies, tax-exempt investors, foreign investors,
investors that hold the Trust Preferred Securities as part of a hedging,
straddle or conversion transaction or whose functional currency is not the U.S.
dollar. In addition, the following opinions do not include any description of
any alternative minimum tax consequences or the tax laws of any state, local or
foreign government that may be applicable to a holder of Trust Preferred
Securities. The opinions set forth herein are based on the Internal Revenue Code
of 1986, as amended (the "Code"), the Treasury regulations promulgated
thereunder and administrative and judicial interpretations thereof, as of the
date hereof, all of which are subject to change, possibly on a retroactive
basis.
The following opinions do not address the tax consequences that might be
relevant to persons that are not United States Persons ("non-United States
Persons"). Non-United States Persons should consult their own tax advisors an
to the specific United States federal income tax consequences of the purchase,
ownership and disposition of Trust Preferred Securities.
The authorities on which the opinions set forth herein are based are subject
to various interpretations, and opinions of Counsel are not binding on the
Internal Revenue Service ("Service") or the courts, either of which could take
a contrary position. Moreover, no rulings have been or will be sought from the
Service with respect to the transactions described herein. Accordingly, there
can be no assurance that the Service will not challenge the opinions expressed
herein or that a court would not sustain such a challenge.
HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE TRUST
PREFERRED SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL,
FOREIGN, AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED
STATES FEDERAL OR OTHER TAX LAWS. FOR A DISCUSSION OF THE POSSIBLE REDEMPTION
OF THE TRUST PREFERRED SECURITIES UPON THE OCCURRENCE OF CERTAIN TAX EVENTS,
SEE "DESCRIPTION OF THE TRUST PREFERRED SECURITIES--REDEMPTION."
CLASSIFICATION OF WATER TRUST I
In connection with the issuance of the Trust Preferred Securities, Counsel
is of the opinion that, under current law and assuming compliance with the
terms of the Trust Agreement, and based on certain facts and assumptions
contained in such opinion, Water Trust I will be classified as a grantor trust
and not as an association taxable as a corporation for United States federal
income tax purposes. As a result, each beneficial owner of the Trust Preferred
Securities (a "Securityholder") will be treated as owning an undivided
beneficial interest in the Junior Subordinated Debentures. Accordingly, each
Securityholder will be required to include in its gross income its pro rata
share of the interest income or original issue discount ("OID") that is paid
or accrued on the Junior Subordinated Debentures. See "--Interest Income and
Original Issue Discount" herein. No amount included in income with respect to
the Trust Preferred Securities will be eligible for the dividends received
deduction.
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CLASSIFICATION OF THE JUNIOR SUBORDINATED DEBENTURES
The Company intends to take the position that the Junior Subordinated
Debentures will be classified for United States federal income tax purposes as
indebtedness of the Company under current law, and, by acceptance of a Trust
Preferred Security, each holder covenants to treat the Junior Subordinated
Debentures as indebtedness and the Trust Preferred Securities as evidence of
an indirect beneficial ownership interest in the Junior Subordinated
Debentures. Counsel has not delivered any opinion relating to the
classification of the Junior Subordinated Debentures as indebtedness and no
assurance can be given, however, that such position of the Company will not be
challenged by the Internal Revenue Service or, if challenged, that such a
challenge will not be successful. The remainder of this "Certain Federal
Income Tax Consequences" section assumes that the Junior Subordinated
Debentures will be classified for United States federal income tax purposes as
indebtedness of the Company.
INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT
Except as set forth below, stated interest on the Junior Subordinated
Debentures generally will be included in income by a Securityholder at the
time such interest income is paid or accrued in accordance with such
Securityholder's regular method of tax accounting.
Under the applicable Treasury regulations, the Junior Subordinated
Debentures will not be considered to have been issued with OID within the
meaning of Section 1273(a) of the Code, so long as the Junior Subordinated
Debentures have terms and conditions that render the likelihood of Glacier's
exercising its right to defer payments of interest on the Junior Subordinated
Debentures to be remote. Glacier believes that the terms and conditions of the
Junior Subordinated Debentures are such that the likelihood of its exercising
such right is remote, and intends to take the position that the Junior
Subordinated Debentures are not issued with OID. Because this issue is
inherently factual, Counsel is unable to express any opinion regarding whether
the Junior Subordinated Debentures are issued with OID. If, however, Glacier
exercises its right to defer payments of interest on the Junior Subordinated
Debentures, the Junior Subordinated Debentures will become OID instruments at
such time and all Securityholders will be required to accrue the stated
interest on the Junior Subordinated Debentures on a daily basis during the
Extension Period, even though Glacier will not pay such interest until the end
of the Extension Period, and even though some Securityholders may use the cash
method of tax accounting. Moreover, thereafter the Junior Subordinated
Debentures will be taxed as OID instruments for as long as they remain
outstanding. Thus, even after the end of the Extension Period, all
Securityholders will be required to continue to include the stated interest on
the Junior Subordinated Debentures in income on a daily economic accrual
basis, regardless of their method of tax accounting and in advance of receipt
of the cash attributable to such interest income. Under the economic accrual
rules, a Securityholder is required to accrue an amount of interest income
each year that approximates the stated interest payments called for under the
Junior Subordinated Debentures, and actual cash payments of interest on the
Junior Subordinated Debentures are not reported separately as taxable income.
The Treasury regulations described above have not yet been addressed in any
definitive interpretations by the Service, and it is possible that the Service
could take a contrary position. If the Service were to assert successfully
that the stated interest on the Junior Subordinated Debentures was OID
regardless of whether Glacier exercises its right to defer payments of
interest on such debentures, all Securityholders will be required to include
such stated interest in income on a daily economic accrual basis as described
above.
DISTRIBUTION OF JUNIOR SUBORDINATED DEBENTURES TO HOLDERS OF TRUST PREFERRED
SECURITIES
Under current law, a distribution by Water Trust I of the Junior
Subordinated Debentures as described under the caption "Description of the
Trust Preferred Securities--Liquidation Distribution Upon Dissolution" will be
non-taxable and will result in the Securityholder receiving directly its pro
rata share of the Junior Subordinated Debentures previously held indirectly
through Water Trust I, with a holding period and aggregate tax basis equal to
the holding period and aggregate tax basis such Securityholder had in its
Trust Preferred Securities before
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such distribution. If, however, the liquidation of Water Trust I were to occur
because Water Trust I is subject to United States federal income tax with
respect to income accrued or received on the Junior Subordinated Debentures as
a result of a Tax Event or otherwise, the distribution of Junior Subordinated
Debentures to Securityholders by Water Trust I could be a taxable event to
Water Trust I and each Securityholder, and a Securityholder would recognize
gain or loss as if the Securityholder had exchanged its Trust Preferred
Securities for the Junior Subordinated Debentures it received upon the
liquidation of Water Trust I. A Securityholder would recognize interest income
in respect of Junior Subordinated Debentures received from Water Trust I in
the manner described above under "--Interest Income and Original Issue
Discount" herein.
SALES OR REDEMPTION OF TRUST PREFERRED SECURITIES
Gain or loss will be recognized by a Securityholder on a sale of Trust
Preferred Securities (including a redemption for cash) in an amount equal to
the difference between the amount realized (which for this purpose, will
exclude amounts attributable to accrued interest or OID not previously
included in income) and the Securityholder's adjusted tax basis in the Trust
Preferred Securities sold or so redeemed. Gain or loss recognized by a
Securityholder on Trust Preferred Securities held for more than one year will
generally be taxable as long-term capital gain or loss, although the
preferential 20% rate applicable to individuals applies only in the case of a
capital asset sold or exchanged having a holding period in excess of 18
months. Amounts attributable to accrued interest or OID with respect to a
Securityholder's pro rata share of the Junior Subordinated Debentures not
previously included in income will be taxable as ordinary income.
BACKUP WITHHOLDING TAX AND INFORMATION REPORTING
The amount of interest and OID accrued on the Trust Preferred Securities
held of record by United States Persons (other than corporations and other
exempt Securityholders), if any, will be reported to the Service. "Backup"
withholding at a rate of 31% will apply to payments of interest to non-exempt
United States Persons unless the Securityholder furnishes its taxpayer
identification number in the manner prescribed in applicable Treasury
Regulations, certifies that such number is correct, certifies as to no loss of
exemption from backup withholding and meets certain other conditions. Any
amounts withheld from a Securityholder under the backup withholding rules will
be allowed as a refund or a credit against such Securityholder's United States
federal income tax liability, provided the required information is furnished
to the Service.
POSSIBLE TAX LAW CHANGES AFFECTING THE TRUST PREFERRED SECURITIES
There can be no assurance that future legislative proposals or final
legislation will not affect the ability of the Company to deduct interest on
the Junior Subordinated Debentures. Such a change could give rise to a Tax
Event, which may permit Glacier to cause a redemption of the Trust Preferred
Securities. See "Description of the Trust Preferred Securities--Redemption--
Tax Event Redemption, Investment Company Event Redemption or Distribution of
Junior Subordinated Debentures" and "Description of Junior Subordinated
Debentures--Redemption."
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ERISA CONSIDERATIONS
GENERAL
A fiduciary of an employee benefit plan subject to Title I of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") should consider
the fiduciary standards under ERISA in the context of the particular
circumstances of such plan before authorizing an investment in the Trust
Preferred Securities. Such fiduciary should consider whether the investment
satisfies ERISA's diversification and prudence requirements, whether the
investment constitutes an unauthorized delegation of fiduciary authority and
whether the investment is in accordance with the documents and instruments
governing the plan. In addition, ERISA and the Code prohibit a wide range of
transactions ("Prohibited Transactions") involving the assets of a plan
subject to ERISA or the assets of an individual retirement account or plan
subject to Section 4975 of the Code or any entity in which such plan invests
whose assets are deemed "plan assets" (hereinafter an "ERISA Plan") and
persons who have certain specified relationships to the ERISA Plan ("parties
in interest," within the meaning of ERISA, and "disqualified persons," within
the meaning of the Code). Such transactions may require "correction" and may
cause the ERISA Plan fiduciary to incur certain liabilities and the parties in
interest or disqualified persons to be subject to excise taxes.
Governmental plans and certain church plans (each as defined under ERISA)
are not subject to the Prohibited Transactions rules. Such plans may, however,
be subject to federal, state or local laws or regulations which may affect
their investment in the Trust Preferred Securities. Any fiduciary of such a
governmental or church plan considering an investment in the Trust Preferred
Securities should determine the need for, and the availability, if necessary,
of any exemptive relief under such laws or regulations.
TRUST ASSETS AS "PLAN ASSETS"
The Department of Labor has issued final regulations (the "Labor
Regulations") as to what constitutes assets of an employee benefit plan ("plan
asset") under ERISA. The Labor Regulations provide that, as a general rule,
when an ERISA Plan acquires an equity interest in an entity and such interest
does not represent a "publicly offered security" nor a security issued by an
investment company registered under the 1940 Act, the ERISA Plan's assets
include both the equity interest and an undivided interest in each of the
underlying assets of the entity, unless it is established either that the
entity is an operating company or that equity participation in the entity by
"benefit plan investors," as defined in the Labor Regulations, is not
"significant." For purposes of the Labor Regulations, Water Trust I will be
neither an investment company nor an operating company.
Under the Labor Regulations, equity participation by benefit plan investors
will not be considered "significant" on any date only if, immediately after
the most recent acquisition of Trust Preferred Securities, the aggregate
interest in the Trust Preferred Securities held by benefit plan investors will
be less than 25% of the aggregate outstanding principal amount of the Trust
Preferred Securities. Although it is possible that the equity participation by
benefit plan investors on any date will not be "significant" for purposes of
the Labor Regulations, such result cannot be assured. Consequently, if ERISA
Plans or investors using plan assets of ERISA Plans purchase the Trust
Preferred Securities, Water Trust I's assets could be deemed to be "plan
assets" of such ERISA Plans for purposes of the fiduciary responsibility
provisions of ERISA and the Prohibited Transactions rules of ERISA and the
Code. Under ERISA, any person who exercises any authority or control
respecting the management or disposition of the assets of an ERISA Plan is
considered to be fiduciary of such ERISA Plan. For example, the Property
Trustee could therefore become a fiduciary of the ERISA Plans that invest in
the Trust Preferred Securities and be subject to the general fiduciary
requirements of ERISA in exercising its authority with respect to the
management of the assets of Water Trust I. However, the Property Trustee will
have only limited discretionary authority with respect to Water Trust I assets
and the remaining functions and responsibilities performed by the Property
Trustee will be for the most part custodial and ministerial in nature.
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PROHIBITED TRANSACTIONS
Glacier or the Property Trustee may be a party in interest or a disqualified
person with respect to an ERISA Plan investing in the Trust Preferred
Securities or acquiring Junior Subordinated Debentures, and therefore, such
investment by an ERISA Plan may give rise to a Prohibited Transaction in the
form of a direct or indirect extension of credit by the investing ERISA Plan
to the Company. Consequently, before investing in the Trust Preferred
Securities or acquiring Junior Subordinated Debentures, any person who is, or
who is acquiring such securities for, or on behalf of, an ERISA Plan should
determine that either a statutory or an administrative exemption from the
Prohibited Transaction rules discussed below or otherwise available is
applicable to such investment in the Trust Preferred Securities or acquisition
of Junior Subordinated Debentures, or that such investment in, or acquisition
of, such securities will not result in a non-exempt Prohibited Transaction.
The statutory or administrative exemptions from the Prohibited Transaction
rules under ERISA and the Code which may be available to an ERISA Plan which
is investing in the Trust Preferred Securities include: Prohibited Transaction
Class Exemption ("PTCE") 90-1, regarding investments by insurance company
pooled separate accounts; PTCE 91-38, regarding investments by bank collective
investment funds; PTCE 84-14, regarding transactions effected by qualified
professional asset managers; PTCE 96-23, regarding transactions effected by
in-house asset managers; and PTCE 95-60, regarding investments by insurance
company general accounts (collectively referred to as the "ERISA Investor
Exemptions").
Notwithstanding the foregoing, Trust Preferred Securities may not be
acquired by any person who is, or who in acquiring such Trust Preferred
Securities is using the assets of, an ERISA Plan unless one of the ERISA
Investor Exemptions or another applicable exemption is available to the ERISA
Plan. The acquisition of the Trust Preferred Securities by any person who is,
or who in acquiring such Trust Preferred Securities is using the assets of, an
ERISA Plan shall be deemed to constitute a representation by such person to
the Water Trust I that such person is eligible for exemptive relief available
pursuant to one or more of the ERISA Investor Exemptions or another applicable
exemption with respect to the acquisition and holding of such Trust Preferred
Securities and will not result in a non-exempt Prohibited Transaction.
THE DISCUSSION HEREIN OF ERISA IS GENERAL IN NATURE AND IS NOT INTENDED TO
BE ALL INCLUSIVE. ANY FIDUCIARY OF AN ERISA PLAN, GOVERNMENTAL PLAN OR CHURCH
PLAN CONSIDERING AN INVESTMENT IN THE TRUST PREFERRED SECURITIES SHOULD
CONSULT WITH ITS LEGAL ADVISORS REGARDING THE CONSEQUENCES OF SUCH INVESTMENT
AND CONSIDER WHETHER THE ERISA PLAN CAN MAKE THE REPRESENTATIONS NOTED ABOVE.
72
<PAGE>
CERTAIN RELATIONSHIPS
As of the date hereof, affiliates of Kayne Anderson owned approximately
1,317,680 shares or approximately 41% of the outstanding common stock of
Glacier. In addition, three members of Glacier's Board of Directors, including
Mr. Welch, also serve as executive officers of Kayne Anderson. See
"Management." Pending their application, the net proceeds from this offering
may be invested in a portfolio of securities (which may include non-investment
grade debt or equity securities) managed by Kayne Anderson. Kayne Anderson
manages funds for certain insurance companies, institutional investors and
individuals, and will charge Glacier a reasonable management fee for its
services. Such management fee will be on terms more favorable than that for
parties unaffiliated with Kayne Anderson. See "Use of Proceeds." In addition,
an affiliate of Kayne Anderson, KA Associates, Inc., may participate as a
member of the selling group in this Offering, on the same terms and conditions
as other members of the selling group. See "Underwriting."
73
<PAGE>
UNDERWRITING
The Underwriters named below, represented by Sutro & Co. Incorporated,
EVEREN Securities, Inc. and Crowell, Weedon & Co. (the "Representatives"),
have severally agreed, subject to the terms and conditions set forth in the
Underwriting Agreement, to purchase from Water Trust I the number of Trust
Preferred Securities set forth opposite their respective names below. The
several Underwriters have agreed in the Underwriting Agreement, subject to the
terms and conditions set forth therein, to purchase all the Trust Preferred
Securities offered hereby if any of the Trust Preferred Securities are
purchased. In the event of default by an Underwriter, the Underwriting
Agreement provides that, in certain circumstances, purchase commitments of the
nondefaulting Underwriters may be increased or the Underwriting Agreement may
be terminated.
<TABLE>
<CAPTION>
NUMBER OF TRUST
PREFERRED
UNDERWRITERS SECURITIES
------------ ---------------
<S> <C>
Sutro & Co. Incorporated.....................................
EVEREN Securities, Inc. .....................................
Crowell, Weedon & Co.........................................
---------
Total.................................................... 3,400,000
=========
</TABLE>
The Representatives have advised Glacier and Water Trust I that they propose
initially to offer the Trust Preferred Securities to the public at the public
offering price set forth on the cover page of this Prospectus, and to certain
dealers at such price less a concession not in excess of $ per Trust
Preferred Security. The Underwriters may allow, and such dealers may reallow,
a discount not in excess of $ per Trust Preferred Security to certain
other dealers. After the initial public offering, the public offering price,
concession and discount may be changed.
In view of the fact that the proceeds of the sale of the Trust Preferred
Securities will be used to purchase the Junior Subordinated Debentures of
Glacier, the Underwriting Agreement provides that Glacier will pay as
compensation to the Underwriters arranging the investment therein of such
proceeds, an amount in immediately available funds of $ per Trust
Preferred Security (or $ in the aggregate) for the accounts of the
Underwriters.
In connection with the offering of the Trust Preferred Securities, the
Underwriters and any selling group members and their respective affiliates may
engage in transactions effected in accordance with Rule 104 of the
Commission's Regulation M that are intended to stabilize, maintain or
otherwise affect the market price of the Trust Preferred Securities. Such
transactions may include stabilizing transactions in which the Underwriters
bid for and purchase shares of the Trust Preferred Securities at a level above
that which might otherwise prevail in the open market for the purpose of
preventing or retarding a decline in the market price of the Trust Preferred
Securities. The Underwriters also may reclaim any selling concession allowed
to an Underwriter or dealer. Any of the foregoing transactions may result in
the maintenance of a price for the Trust Preferred Securities at a level above
that which might otherwise prevail in the open market. Neither the Company nor
the Underwriters makes any representation or prediction as to the direction or
magnitude of any effect that the transactions described above may have on the
price of the Trust Preferred Securities. The Underwriters are not required to
engage in any of the foregoing transactions and, if commenced, such
transactions may be discounted at any time without notice.
During a period of 180 days from the date of this Prospectus, neither Water
Trust I nor the Company will, subject to certain exceptions, without the prior
written consent of Sutro & Co. Incorporated, directly or indirectly, sell,
offer to sell, grant any option for sale of, or otherwise dispose of, any
Trust Preferred Securities, any security convertible into or exchangeable into
or exercisable for Trust Preferred Securities or Junior Subordinated
Debentures or any debt securities substantially similar to the Junior
Subordinated Debentures or equity securities substantially similar to the
Trust Preferred Securities (except for Junior Subordinated Debentures and the
Trust Preferred Securities offered hereby).
74
<PAGE>
The Trust Preferred Securities are a new issue of securities with no
established trading market. The Trust Preferred Securities have been approved
for listing on the American Stock Exchange, subject to notice of issuance. In
order to meet the listing requirements of the American Stock Exchange, the
Underwriters have undertaken to distribute the Trust Preferred Securities to a
minimum of 400 public shareholders. The Underwriters have advised Glacier and
Water Trust I that they presently intend to make a market in the Trust
Preferred Securities after the commencement of trading on the American Stock
Exchange, but no assurances can be made as to the liquidity of the Trust
Preferred Securities or that an active and liquid trading market will develop
or, if developed, that it will continue. The offering price and distribution
rate have been determined by negotiations among representatives of Glacier and
the Representatives, and the offering price of the Trust Preferred Securities
may not be indicative of the market price following the offering. The
Underwriters will have no obligation to make a market in the Trust Preferred
Securities, however, and may cease market-making activities, if commenced, at
any time.
Glacier and Water Trust I have agreed to indemnify the Underwriters against,
or contribute to payments that the Underwriters may be required to make in
respect of, certain liabilities, including liabilities under the Securities
Act.
The Representatives have informed Glacier that the Underwriters do not
intend to confirm sales to any account over which they exercise discretionary
authority, without the prior specific written approval of the customer.
LEGAL MATTERS
Certain matters of Delaware law relating to the validity of the Trust
Preferred Securities, the enforceability of the Trust Agreement and the
creation of Water Trust I will be passed upon by Richards, Layton & Finger,
P.A., Wilmington, Delaware, special counsel to Glacier and Water Trust I. The
validity of the Guarantee and the Junior Subordinated Debentures will be
passed upon for the Company by Milbank, Tweed, Hadley & McCloy, Los Angeles,
California, counsel to the Company. Certain legal matters in connection with
this Offering will be passed upon for the Underwriters by Manatt, Phelps &
Phillips, LLP. Milbank, Tweed, Hadley & McCloy and Manatt, Phelps & Phillips,
LLP will rely on the opinions of Richards, Layton & Finger, P.A. as to matters
of Delaware law. Certain matters relating to United States federal income tax
considerations will be passed upon for the Company by Milbank, Tweed, Hadley &
McCloy.
EXPERTS
The consolidated financial statements of Glacier Water Services, Inc. as of
December 31, 1995 and 1996, and for the years ended December 31, 1994, 1995
and 1996, included and incorporated by reference in this Prospectus have been
audited by Arthur Andersen LLP, independent public accountants, as indicated
in their report with respect thereto, and in reliance upon the authority of
said firm as experts in accounting and auditing in giving such reports.
The financial statements of the Aqua-Vend Business (Certain Operations of
McKesson Water Products Company) as of and for the years ended March 31, 1996
and 1997, included and incorporated by reference in this Prospectus have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report appearing herein and incorporated by reference, and in reliance upon
the report of such firm as experts in accounting and auditing.
75
<PAGE>
GLACIER WATER SERVICES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Public Accountants................................ F-2
Consolidated Balance Sheets as of December 31, 1996 and 1995............ F-3
Consolidated Statements of Income for the years ended December 31, 1996,
1995 and 1994.......................................................... F-4
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1996, 1995 and 1994....................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1995 and 1994.................................................... F-6
Notes to Consolidated Financial Statements.............................. F-7
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited Consolidated Balance Sheet as of October 5, 1997.............. F-14
Unaudited Consolidated Statements of Income for the Nine and Three
Months ended October 5, 1997 and September 30, 1996.................... F-15
Unaudited Consolidated Statements of Cash Flows for the Nine Months
ended October 5, 1997 and September 30, 1996........................... F-16
Notes to Unaudited Consolidated Financial Statements.................... F-17
AUDITED FINANCIAL STATEMENTS OF AQUA-VEND BUSINESS
Independent Auditors' Report............................................ F-19
Statements of Assets to Be Sold as of March 31, 1996 and 1997........... F-20
Statements of Revenues, Direct Expenses and Identified Corporate
Expenses Before Interest and Income Taxes for the years ended March 31,
1996 and 1997.......................................................... F-21
Notes to Financial Statements........................................... F-22
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Summary Information Related to the Pro Forma Consolidated Financial
Information............................................................ F-24
Unaudited Consolidated Balance Sheet as of April 4, 1997................ F-25
Unaudited Pro Forma Consolidated Statement of Operations for the Quarter
Ended April 4, 1997.................................................... F-26
Unaudited Pro Forma Consolidated Statement of Operations for the year
ended December 31, 1996................................................ F-27
Notes to Unaudited Pro Forma Consolidated Statements of Operations...... F-28
</TABLE>
F-1
<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
F-2
<PAGE>
GLACIER WATER SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1996 1995
------- -------
ASSETS
------
<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
======= =======
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
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.
F-3
<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........................... 28,088 25,933 23,504
General and administrative expenses.......... 5,733 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.
F-4
<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.
F-5
<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 activities...... (8,540) (10,791) (10,597)
-------- -------- --------
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.
F-6
<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>
F-7
<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:
<TABLE>
<S> <C>
Vending equipment............................................ 10 years
Equipment, furniture and fixtures............................ 5 to 10 years
Leasehold improvements....................................... Life of Lease
</TABLE>
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>
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.
F-8
<PAGE>
GLACIER WATER SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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>
<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.
F-9
<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
------ ------ ------
<S> <C> <C> <C>
Federal Income Taxes:
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
====== ====== ======
</TABLE>
Deferred tax liabilities and assets result from the following at December 31
(in thousands):
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
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
======= =======
</TABLE>
The Company's effective income tax rate differs from the federal statutory
rate as follows:
<TABLE>
<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.
F-10
<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.
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.
F-11
<PAGE>
GLACIER WATER SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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>
WEIGHTED AVERAGE
SHARES EXERCISE 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>
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.
F-12
<PAGE>
GLACIER WATER SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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>
F-13
<PAGE>
GLACIER WATER SERVICES, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
OCTOBER 5,
1997
-----------
(UNAUDITED)
<S> <C>
ASSETS
------
Current assets:
Cash............................................................. $ 10
Accounts receivable.............................................. 290
Inventories...................................................... 2,251
Prepaid commissions and other.................................... 1,044
-------
Total current assets........................................... 3,595
Property and equipment, net of accumulated depreciation............ 48,619
Other assets....................................................... 6,301
-------
Total assets................................................... $58,515
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable................................................. $ 871
Accrued commissions.............................................. 2,193
Accrued liabilities.............................................. 1,948
-------
Total current liabilities...................................... 5,012
Long-term debt..................................................... 26,022
Deferred income taxes.............................................. 2,979
Stockholders' equity:
Preferred stock, $.01 par value; 100,000 shares authorized, no
shares issued or outstanding.................................... --
Common stock, $.01 par value; 10,000,000 shares authorized,
3,228,075 shares issued and outstanding......................... 34
Additional paid-in capital......................................... 15,481
Retained earnings.................................................. 12,550
Treasury stock; 170,500 shares, at cost............................ (3,563)
-------
Total stockholders' equity..................................... 24,502
-------
Total liabilities and stockholders' equity..................... $58,515
=======
</TABLE>
See accompanying notes.
F-14
<PAGE>
GLACIER WATER SERVICES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------- ------------------------
OCTOBER 5, SEPTEMBER 30, OCTOBER 5, SEPTEMBER 30,
1997 1996 1997 1996
---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Revenues..................... $ 17,138 $ 13,709 $ 44,352 $ 35,760
Operating costs and expenses:
Operating expenses......... 10,573 8,302 27,482 22,009
Selling, general and
administrative expenses... 1,992 1,408 5,461 4,155
Depreciation and
amortization.............. 2,317 1,704 6,515 4,991
Non-recurring acquisition
charges................... 1,721 -- 3,062 --
--------- --------- --------- ---------
Total operating costs and
expenses................ 16,603 11,414 42,520 31,155
--------- --------- --------- ---------
Income from operations....... 535 2,295 1,832 4,605
Interest expense (net) and
other....................... 532 174 1,370 553
--------- --------- --------- ---------
Income before income taxes... 3 2,121 462 4,052
Income tax provision
(benefit)................... (29) 565 143 1,337
--------- --------- --------- ---------
Net income................... $ 32 $ 1,556 $ 319 $ 2,715
========= ========= ========= =========
Net income per common and
common equivalent share..... $ .01 $ .46 $ .10 $ .80
========= ========= ========= =========
Weighted average common and
common equivalent shares
outstanding................. 3,351,034 3,398,650 3,324,525 3,389,893
========= ========= ========= =========
</TABLE>
See accompanying notes.
F-15
<PAGE>
GLACIER WATER SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------
OCTOBER 5, SEPTEMBER 30,
1997 1996
---------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income.......................................... $ 319 $ 2,715
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization..................... 6,515 4,991
Loss on disposal of assets........................ 195 --
Change in operating assets and liabilities:
Accounts receivable............................... (108) 262
Inventories....................................... (383) (711)
Prepaid commissions and other..................... 296 (370)
Payments for prepaid marketing incentives......... (1,295) (502)
Other assets...................................... (61) (139)
Accounts payable, accrued commissions and other
accrued liabilities.............................. 1,323 1,285
-------- --------
Net cash provided by operating activities....... 6,801 7,531
-------- --------
Cash flows from investing activities:
Purchase of property and equipment.................. (241) (411)
Net investment in vending equipment................. (7,969) (5,067)
Proceeds from sale of property and equipment........ 111 --
Purchase of Aqua-Vend............................... (9,355) --
-------- --------
Net cash used in investing activities........... (17,454) (5,478)
-------- --------
Cash flows from financing activities:
Proceeds from long-term borrowings.................. 25,140 10,010
Principal payments on long-term borrowings.......... (14,684) (10,808)
Proceeds from issuance of stock..................... 196 111
Purchase of treasury stock.......................... -- (529)
-------- --------
Net cash provided by (used in) financing
activities..................................... 10,652 (1,216)
-------- --------
Net increase (decrease) in cash....................... (1) 837
Cash, beginning of period............................. 11 29
-------- --------
Cash, end of period................................... $ 10 $ 866
======== ========
Supplemental disclosure of cash flow information:
Interest paid....................................... $ 1,506 $ 702
======== ========
Income taxes paid................................... $ 365 $ 563
======== ========
</TABLE>
See accompanying notes
F-16
<PAGE>
GLACIER WATER SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 5, 1997
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Change in Fiscal Year
In the first quarter of 1997, the Company reported that it had prospectively
changed its financial reporting year from a fiscal year of twelve calendar
months ending December 31 to a fiscal year of 52 or 53 weeks ending on the
Friday closest to December 31. In order to more closely align its fiscal
reporting to its business cycle, the Company has modified its fiscal reporting
to end its fiscal year on the Sunday closest to December 31. Accordingly, the
third quarter ended on October 5, 1997 and contained 93 days, and the
Company's fiscal year will end on January 4, 1998. The period from December
31, 1996 to January 3, 1997 is not significant to the Company's nine-month
operations, and has not been reported separately.
Basis of Presentation
In the opinion of the Company's management, the accompanying consolidated
financial statements reflect all adjustments (consisting only of normal
recurring accruals) necessary for a fair presentation of the consolidated
financial position of the Company and the consolidated results of its
operations and its cash flows for the three- and nine-month periods ending
October 5, 1997 and September 30, 1996. Although the Company believes that the
disclosures in these financial statements are adequate to make the information
presented not misleading, certain information, including footnote information,
normally included in financial statements prepared in accordance with
generally accepted accounting principles has been condensed or omitted
pursuant to the rules and regulations of the Securities and Exchange
Commission. Results of operations for the period ended October 5, 1997 are not
necessarily indicative of results to be expected for the full year. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1996.
Reclassification
Certain prior year amounts have been reclassified to conform to the current
presentation.
2. ACQUISITION
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, for $9.0 million in cash plus certain
direct costs, including sales tax on assets purchased. The transaction was
accounted for under the purchase method, and the purchase price and related
direct costs were allocated based on the estimated fair values of assets
acquired and liabilities assumed, as follows (in thousands):
<TABLE>
<S> <C>
Inventories...................................................... $ 208
Prepaid expenses................................................. 255
Vending equipment................................................ 7,565
Other fixed assets............................................... 145
Prepaid marketing incentives..................................... 1,225
Other non-current assets......................................... 110
Sales tax liability.............................................. (153)
------
$9,355
======
</TABLE>
F-17
<PAGE>
GLACIER WATER SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
OCTOBER 5, 1997
(UNAUDITED)
The unaudited consolidated pro forma results of operations for the nine
months ended October 5, 1997 and September 30, 1996 presented below assume
that the transaction occurred as of the beginning of the respective periods
(in thousands, except per share amounts):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------
OCTOBER 5, SEPTEMBER 30,
1997 1996
---------- -------------
<S> <C> <C>
Net revenues...................................... $47,580 $48,943
Income from operations............................ 825 3,961
Net loss.......................................... (506) (2,785)(1)
Net loss per common share......................... $ (.15) $ (.82)(1)
</TABLE>
- --------
(1) Excluding the $7.0 million charge for the reduction in carrying value of
equipment, pro forma net income and pro forma net income per share for the
nine months ended September 30, 1996 would be $1,905,000 and $.56,
respectively.
3. INVENTORIES
Inventories consist of raw materials, repair and spare 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 machines are completed, at which time the costs
are transferred to property and equipment.
At October 5, 1997 and December 31, 1996, inventories consisted primarily of
raw materials and repair and spare parts.
4. SUPPLEMENTARY BALANCE SHEET INFORMATION
Included in the Prepaid commissions and other are commission payments made
to certain retailers based on a percentage of estimated quarterly vending
machine revenues, as well as other prepaid expenses incurred in the normal
course of business. Prepaid commissions were $79,000 and $490,000 at October
5, 1997 and December 31, 1996, respectively.
Included in Other assets are prepaid marketing incentives which represent
payments made to the Company's retailers for the placement of the Company's
machines at store locations. Prepaid marketing incentives, net of accumulated
amortization were $5,695,000 and $4,606,000 at October 5, 1997 and December
31, 1996, respectively.
5. NET INCOME PER SHARE
Net income per share of common stock is computed on the basis of weighted
average shares of common stock outstanding plus common equivalent shares
arising from the effect of dilutive stock options, using the treasury stock
method.
In March, 1997, the Financial Accounting Standards Board adopted Statement
No. 128 "Earnings Per Share" ("Statement No. 128"), which is effective for the
periods ending after December 15, 1997. Pro forma net income per share
computed pursuant to Statement No. 128 would be $.01 and $.10, respectively,
for the three- and nine-month periods ended October 5, 1997, and $.46 and
$.80, respectively, for the three- and nine-month periods ended September 30,
1996.
F-18
<PAGE>
INDEPENDENT AUDITORS' REPORT
McKesson Corporation
San Francisco, California:
We have audited the accompanying statements of assets to be sold of the
Aqua-Vend Business ("Aqua-Vend"), which consist of certain operations of
McKesson Water Products Company ("MWPC"), a wholly owned subsidiary of
McKesson Corporation, as of March 31, 1996 and 1997 and the related statements
of revenues, direct expenses and identified corporate expenses before interest
and income taxes for the years then ended. These financial statements are the
responsibility of Aqua-Vend'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, such financial statements present fairly, in all material
respects, the assets to be sold of Aqua-Vend as of March 31, 1996 and 1997,
and its revenues, direct expenses, and identified corporate expenses before
interest and income taxes for the years ended March 31, 1996 and 1997 in
conformity with generally accepted accounting principles.
As discussed in Note 2 to the financial statements, Aqua-Vend consists of
certain operations of MWPC. Aqua-Vend receives managerial and administrative
services from MWPC. Certain expenses included in the financial statements
represent allocations of amounts applicable to McKesson Corporation and MWPC.
As a result, Aqua-Vend's assets to be sold and its revenues, direct expenses
and identified corporate expenses before interest and income taxes may not be
indicative of conditions that would have existed or results that would have
occurred had Aqua-Vend operated as a stand-alone entity.
Deloitte & Touche LLP
San Francisco, California
May 9, 1997
F-19
<PAGE>
AQUA-VEND BUSINESS
(CERTAIN OPERATIONS OF MCKESSON WATER PRODUCTS COMPANY)
STATEMENTS OF ASSETS TO BE SOLD
MARCH 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
----------- ----------
<S> <C> <C>
Assets to be sold:
Current assets--
Prepaid expenses and other assets................... $ 1,054,000 $ 488,000
Property, plant and equipment, Net (Note 4)........... 13,756,000 6,189,000
Other assets.......................................... 1,695,000 1,229,000
----------- ----------
Assets to be sold................................... $16,505,000 $7,906,000
=========== ==========
</TABLE>
See notes to financial statements.
F-20
<PAGE>
AQUA-VEND BUSINESS
(CERTAIN OPERATIONS OF MCKESSON WATER PRODUCTS COMPANY)
STATEMENTS OF REVENUES, DIRECT EXPENSES AND IDENTIFIED
CORPORATE EXPENSES BEFORE INTEREST AND INCOME TAXES
YEARS ENDED MARCH 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Revenues............................................. $18,416,000 $15,956,000
Cost of sales........................................ 15,675,000 13,671,000
----------- -----------
Gross margin......................................... 2,741,000 2,285,000
Selling, general and administrative (Note 5)......... 5,080,000 4,716,000
Reduction in carrying value of property, plant and
equipment (Note 4).................................. -- 7,000,000
----------- -----------
Loss before interest and income taxes................ $(2,339,000) $(9,431,000)
=========== ===========
</TABLE>
See notes to financial statements.
F-21
<PAGE>
AQUA-VEND BUSINESS
(CERTAIN OPERATIONS OF MCKESSON WATER PRODUCTS COMPANY)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1996 AND 1997
1. ORGANIZATION AND OPERATIONS
The Aqua-Vend Business ("Aqua-Vend"), which consists of certain operations
of McKesson Water Products Company ("MWPC"), a wholly owned subsidiary of
McKesson Corporation ("McKesson"), owns and operates water vending machines
throughout the United States.
On March 28, 1997 McKesson and MWPC entered into an asset purchase agreement
with Glacier Water Services Inc. ("Glacier") whereby Glacier purchased for $9
million in cash certain assets and assumed certain real and personal property
lease obligations of Aqua-Vend.
2. BASIS OF PRESENTATION
Aqua-Vend has no separate legal status but rather is owned and operated by
McKesson through its wholly owned subsidiary, MWPC. The accompanying financial
statements have been prepared from the books and records of MWPC and present
substantially all of the operations of Aqua-Vend (including corporate
allocations) for the years ended March 31, 1996 and 1997 and the assets that
MWPC sold to Glacier as they existed at March 31, 1996 and 1997.
The statements of revenues, direct expenses and identified corporate
expenses before interest and income taxes may not necessarily be indicative of
the results of operations that would have resulted had Aqua-Vend been operated
as a stand-alone entity and include allocations of certain MWPC and McKesson
corporate expenses. Such allocations are based on formulas and include
compensation, facilities, administrative and other corporate costs (see Note
5).
Payroll, capital expenditures and all other expenditures are funded by
McKesson. Sales are collected and deposited by Aqua-Vend but immediately swept
into McKesson cash accounts. Accordingly, Aqua-Vend maintains only a minimal
petty cash balance. Statements of cash flows are not presented as separate and
complete cash flow information is not maintained.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Year-End--McKesson sold Aqua-Vend on March 28, 1997. Aqua-Vend describes its
operations through and as of the sale date as March 31, 1997.
Property, Plant and Equipment--Property, plant and equipment is initially
recorded at cost. Depreciation is provided for using the straight-line method
over the estimated useful lives of the assets, generally eight to twelve
years. The carrying amount of long-lived assets is evaluated whenever events
or changes in circumstances have indicated that such amounts may not be
recoverable (see Note 4).
Other Assets--Included in other assets are costs incurred to obtain sites
for water vending machines. These costs are amortized over the contract
period.
Revenue Recognition--Sales are recorded at the time of the water vend.
Commissions and other revenue sharing costs are included in cost of sales.
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and disclosure of
contingent assets and reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-22
<PAGE>
AQUA-VEND BUSINESS
(CERTAIN OPERATIONS OF MCKESSON WATER PRODUCTS COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1996 AND 1997
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment primarily consist of water vending machines.
Purchases of equipment for the years ended March 31, 1996 and 1997 were
$4,676,000 and $1,564,000, respectively. Depreciation expense for the years
ended March 1996 and 1997 was $1,807,000 and $1,846,000, respectively, and is
included in cost of sales. Accumulated depreciation for the years ended March
31, 1996 and 1997 were $13,917,000 and $12,557,000, respectively.
During fiscal 1997, MWPC reviewed the carrying value of Aqua-Vend's assets
for recoverability in connection with the possible sale of Aqua-Vend and
determined that the carrying value should be reduced by $7.0 million to
reflect the fair value of the assets less costs to sell.
5. CORPORATE ALLOCATIONS
Aqua-Vend does not maintain stand-alone corporate treasury, legal, tax and
other similar corporate support functions. Aqua-Vend does record certain
direct expenses related primarily to employee payroll and benefits, insurance
and corporate facilities costs. For purposes of preparing the Aqua-Vend
statements of revenues, direct expenses and identified corporate expenses
before interest and income taxes, certain expenses of MWPC and McKesson were
allocated based upon a variety of factors, which included Aqua-Vend sales, the
number of Aqua-Vend employees, Aqua-Vend facility usage and the identification
of costs specifically attributable to Aqua-Vend. Allocated costs include
employee benefit expenses, such as pension and postretirement, of $171,000 and
$170,000 for the years ended March 31, 1996 and 1997, respectively. MWPC
management believes that these allocations are reasonable; however, they are
not necessarily indicative of expenses that would have been incurred by Aqua-
Vend on a stand-alone basis.
The following represents a summary of the corporate costs allocated to Aqua-
Vend which were included in the statements of revenues, direct expenses and
identified corporate expenses before interest and income taxes:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------
1996 1997
---------- ----------
<S> <C> <C>
Selling, general and administrative:
McKesson costs allocated through MWPC to Aqua-Vend... $ 659,000 $ 633,000
MWPC costs allocated to Aqua-Vend.................... 1,051,000 1,009,000
</TABLE>
F-23
<PAGE>
GLACIER WATER SERVICES, INC.
SUMMARY INFORMATION RELATED TO THE PRO FORMA
CONSOLIDATED FINANCIAL INFORMATION
The unaudited pro forma consolidated financial information presented herein
reflects the pro forma effect of Glacier Water Services, Inc.'s purchase of
substantially all of the assets of the Aqua-Vend division of McKesson Water
Products Company ("Aqua-Vend"), a wholly-owned subsidiary of McKesson
Corporation effective as of March 28, 1997 (the "Acquisition").
The accompanying historical balance sheet of Glacier Water Services, Inc. as
of April 4, 1997, reflects the Acquisition, accordingly, no pro forma
adjustments are necessary. The unaudited pro forma consolidated statements of
operations present the historical operations of Glacier Water Services, Inc.
and Aqua-Vend for the quarter and year ended April 4, 1997 and December 31,
1996, respectively, as if the Acquisition had been consummated on January 1,
1996.
The unaudited pro forma consolidated statements of operations are not
necessarily indicative of either the results of operations that might have
occurred had the Acquisition actually occurred on January 1, 1996, or the
results of operations of Glacier Water Services, Inc. for any future period.
F-24
<PAGE>
GLACIER WATER SERVICES, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
APRIL 4,
1997
--------
<S> <C>
ASSETS
------
Current assets:
Cash................................................................ $ 11
Accounts receivable................................................. 320
Inventories......................................................... 2,244
Prepaid commissions and other....................................... 1,390
-------
Total current assets.............................................. 3,965
Property and equipment, net of accumulated depreciation............. 47,298
Other assets........................................................ 6,507
-------
Total assets...................................................... $57,770
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable.................................................... $ 806
Accrued commissions................................................. 1,421
Accrued liabilities................................................. 1,725
-------
Total current liabilities......................................... 3,952
Long-term debt........................................................ 26,958
Deferred income taxes................................................. 2,979
Stockholders' equity:
Preferred stock, $.01 par value, 100,000 shares authorized, no
shares issued or outstanding....................................... --
Common stock, $.01 par value, 10,000,000 shares authorized,
3,209,075 shares issued and outstanding ........................... 34
Additional paid-in capital.......................................... 15,290
Retained earnings................................................... 12,120
Treasury stock, 170,500 shares, at cost............................. (3,563)
-------
Total stockholders' equity........................................ 23,881
-------
Total liabilities and stockholders' equity........................ $57,770
=======
</TABLE>
F-25
<PAGE>
GLACIER WATER SERVICES, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
QUARTER ENDED APRIL 4, 1997
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
GLACIER WATER PRO FORMA PRO FORMA
SERVICES INC. AQUAVEND ADJUSTMENT CONSOLIDATED
------------- -------- ---------- ------------
<S> <C> <C> <C> <C>
Revenues........................ $ 11,176 $ 3,228 $ (71) $ 14,333
Operating costs and expenses:
Operating expenses............ 7,075 2,962 (61) 9,976
Selling, general and
administrative expenses...... 1,613 789 (35) 2,367
Depreciation and amortization. 1,880 485 (237) 2,128
Non-recurring charges......... 471 -- -- 471
--------- ------- ----- ---------
Total operating costs and
expenses................... 11,039 4,236 (333) 14,942
--------- ------- ----- ---------
Income (loss) from operations... 137 (1,008) 262 (609)
Interest expense (net) and
other.......................... 314 -- 188 502
--------- ------- ----- ---------
Income (loss) before income
taxes.......................... (177) (1,008) 74 (1,111)
Income tax provision (benefit).. (66) -- (351) (417)
--------- ------- ----- ---------
Net income (loss)............... $ (111) $(1,008) $ 425 $ (694)
========= ======= ===== =========
Net income (loss) per common and
common equivalent share........ $ (.03) $ (.21)
========= =========
Weighted average common and
common equivalent shares
outstanding.................... 3,316,391 3,316,391
========= =========
</TABLE>
See notes to pro forma consolidated statements of operations
F-26
<PAGE>
GLACIER WATER SERVICES, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
GLACIER WATER PRO FORMA PRO FORMA
SERVICES INC. AQUA-VEND ADJUSTMENT CONSOLIDATED
------------- --------- ---------- ------------
<S> <C> <C> <C> <C>
Revenues..................... $ 46,091 $16,810 $ (227) $ 62,674
Operating costs and expenses:
Operating expenses......... 28,095 14,110 (227) 41,978
Selling, general and
administrative expenses... 5,726 3,207 (69) 8,864
Reduction in carrying value
of equipment.............. -- 7,000 -- 7,000
Depreciation and
amortization.............. 6,769 1,838 (846) 7,761
--------- ------- ------ ---------
Total operating costs and
expenses................ 40,590 26,155 (1,142) 65,603
--------- ------- ------ ---------
Income from operations....... 5,501 (9,345) 915 (2,929)
Interest expense (net) and
other....................... 783 -- 753 1,536
--------- ------- ------ ---------
Income (loss) before income
taxes....................... 4,718 (9,345) 162 (4,465)
Income tax provision
(benefit)................... 1,415 -- (2,888) (1,473)
--------- ------- ------ ---------
Net income (loss)............ $ 3,303 $(9,345) $3,050 $ (2,992)(1)
========= ======= ====== =========
Net income (loss) per common
and common equivalent share. $ .98 $ (.89)(1)
========= =========
Weighted average common and
common equivalent shares
outstanding................. 3,374,482 3,374,482
========= =========
</TABLE>
- --------
(1) Excluding the $7.0 million charge for reduction in carrying value of
equipment, pro forma consolidated net income and pro forma net income per
common and common equivalent share would be $1,698,000 and $.50,
respectively.
See notes to pro forma consolidated statements of operations
F-27
<PAGE>
GLACIER WATER SERVICES, INC.
NOTES TO PRO FORMA CONSOLIDATED
STATEMENTS OF OPERATIONS
APRIL 4, 1997 AND DECEMBER 31, 1996
The unaudited pro forma consolidated statements of operations for the
quarter and year ended April 4, 1997 and December 31, 1996 combine the
following:
(a) The historical consolidated statements of operations of Glacier Water
Services, Inc. for the quarter and year ended April 4, 1997 and December
31, 1996, respectively.
(b) The historical statements of operations of Aqua-Vend for the quarter
and year ended March 28, 1997 and December 31, 1996, respectively.
(c) Pro forma adjustments.
These unaudited pro forma statements of operations reflect the consolidated
results of operations of Glacier Water Services, Inc. for the quarter and year
ended April 4, 1997 and December 31, 1996, respectively, (through the income
(loss) before income taxes financial statement line item) as if the
Acquisition had been consummated on January 1, 1996. These statements are not
necessarily indicative of the results which would have been obtained had the
Acquisition actually been consummated at such date. The pro forma adjustments
relating to the Acquisition set forth in the accompanying pro forma
consolidated statements of operations for the quarter and year ended April 4,
1997 and December 31, 1996, respectively, were made to reflect the following
(in thousands):
<TABLE>
<CAPTION>
QUARTER ENDED YEAR ENDED
APRIL 4, 1997 DECEMBER 31, 1996
------------- -----------------
<S> <C> <C>
Decrease in revenue to reflect the elimination
of revenue generated by Aqua-Vend assets and
operations not acquired....................... $ (71) $ (227)
Decrease in operating expenses representing
costs incurred related specifically to the
Aqua-Vend assets and operations not acquired.. (61) (227)
Decrease in selling, general and administrative
expenses representing certain expenses
allocated to Aqua-Vend from McKesson
Corporation that do not relate to the assets
and operations acquired....................... (35) (69)
Pro forma adjustment reducing depreciation
expense to reflect calculation under Glacier's
methodology, based on the fair value of the
assets acquired............................... (237) (846)
Pro forma adjustment to reflect additional
interest expense. Interest expense represents
the Company's estimated effective borrowing
rate for the period of 8% multiplied by the
additional borrowing on the Company's line of
credit to finance the acquisition. ........... 188 753
Pro forma adjustment to income taxes to record
the tax benefit of the Aqua-Vend loss before
income taxes and the pro forma adjustments
above......................................... (351) (2,888)
</TABLE>
F-28
<PAGE>
[Company Logo]
[Picture depicting filtration process, people using the Company's water
vending machine and Company ad with Penguins holding banners with Company
slogans.]
[List of the Company's retail accounts.]
[Company slogan - "Great Taste! Great Price!"]
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCE CREATE AN IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING
SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT
IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
---------------
TABLE OF CONTENTS
---------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... 6
Incorporation of Certain Documents by Reference........................... 6
Prospectus Summary........................................................ 8
Risk Factors.............................................................. 16
Use of Proceeds........................................................... 24
Accounting Treatment...................................................... 24
Capitalization............................................................ 25
Selected Consolidated Financial and Other Information..................... 26
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 28
Business.................................................................. 32
Management................................................................ 38
Description of the Trust Preferred Securities............................. 40
Description of Junior Subordinated Debentures............................. 52
Book-Entry Issuance....................................................... 62
Description of Guarantee.................................................. 64
Expense Agreement......................................................... 66
Relationship Among the Trust Preferred Securities, the Junior Subordinated
Debentures and the Guarantee............................................. 66
Certain Federal Income Tax Consequences................................... 68
ERISA Considerations...................................................... 71
Certain Relationships..................................................... 73
Underwriting.............................................................. 74
Legal Matters............................................................. 75
Experts................................................................... 75
Index to Consolidated Financial Statements................................ F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
3,400,000 TRUST
PREFERRED SECURITIES
GLACIER WATER TRUST I
% CUMULATIVE TRUST
PREFERRED SECURITIES
(LIQUIDATION AMOUNT $25 PER TRUST PREFERRED SECURITY)
FULLY AND UNCONDITIONALLY GUARANTEED BY
[LOGO OF GLACIER WATER SERVICES, INC.]
GLACIER WATER SERVICES, INC.
---------------
PROSPECTUS
---------------
SUTRO & CO. INCORPORATED
EVEREN SECURITIES, INC.
CROWELL, WEEDON & CO.
, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee................ $ 25,758
NASD fee........................................................... 7,000
American Stock Exchange fees....................................... 15,000
Trustees' fees and expenses........................................ 12,000*
Legal fees and expenses............................................ 200,000*
Blue Sky fees and expenses......................................... 10,000*
Accounting fees and expenses....................................... 60,000*
Printing expenses.................................................. 120,000*
Miscellaneous expenses............................................. 20,242*
--------
TOTAL.......................................................... $470,000
========
</TABLE>
- --------
* Estimated Amounts
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of Delaware permits the
indemnification of directors, officers, employees and agents of Delaware
corporations.
As permitted by Sections 102 and 145 of the Delaware General Corporation
Law, the Registrant's certificate of incorporation eliminates a director's
personal liability for monetary damages to the Registrant and its stockholders
arising from a breach or alleged breach of a director's fiduciary duty except
for liability under Section 174 of the Delaware General Corporation Law or
liability for any breach of the director's duty of loyalty to the Registrant
or its stockholders, for acts or omissions not in good faith or which involve
unintentional misconduct or a knowing violation of law or for any transaction
in which the director derived an improper personal benefit. The effect of this
provision in the certificate of incorporation is to eliminate the rights of
the Registrant and its stockholders (through stockholders' derivative suits on
behalf of the Registrant) to recover monetary damages against a director for
breach of fiduciary duty as a director (including breaches resulting from
negligent or grossly negligent behavior) except in the situations described
above.
The Registrant's bylaws provide for indemnification of officers, directors
and employees and the Company has entered into an indemnification agreement
("Indemnification Agreement") with each officer and director of the Registrant
(an "Indemnitee"). Under the bylaws and these Indemnification Agreements, the
Registrant must indemnify an Indemnitee to the fullest extent permitted by
Delaware Law for losses and expenses incurred with actions in which the
Indemnitee is involved by reason of having been a director or employee of the
Registrant. The Registrant is also obligated to advance expenses an Indemnitee
may incur in connection with such actions before any resolution of the action,
and the Indemnitee may sue to enforce his or her right to indemnification or
advancement of expenses.
The Registrant has entered into indemnification agreements with its officers
directors in the form incorporated by reference hereto as Exhibit 10.5.
Under the Trust Agreement, Glacier will agree to indemnify each of the
Trustees of Water Trust I or any predecessor Trustee for Water Trust I, and to
hold each Trustee harmless against any loss, damage, claims, liability or
incurred without negligence or bad faith on its part, arising out of or
connection with the acceptance or administration of the Trust Agreement, the
costs and expenses of defending itself against any claim or in connection with
the exercise or performance of any of its powers or duties under the Trust
Agreement.
Glacier and Water Trust I have agreed to indemnify the Underwriters, the
Underwriters have agreed to indemnify Water Trust I and Glacier for certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. Reference is made to the Underwriting Agreement filed as Exhibit 1.1
herewith.
II-1
<PAGE>
ITEM 16. EXHIBITS
(a) Exhibits
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.+
4.1 Form of Subordinated Indenture to be entered into between Glacier
Water Services, Inc. and Wilmington Trust Company, as the
Indenture Trustee.+
4.2 Form of Officers' Certificate and Company Order.+
4.3 Certificate of Trust of Water Trust I dated November 13, 1997.+
4.4 Trust Agreement of Water Trust I dated as of November 13, 1997.+
4.4.1 Form of Amended and Restated Trust Agreement of Water Trust I.+
4.5 Form of Trust Preferred Certificate of Water Trust I.+
4.6 Form of Common Securities Certificate of Water Trust I.+
4.7 Form of Guarantee Agreement.+
4.8 Form of Agreement as to Expenses and Liabilities.+
4.9 Form of Junior Subordinated Deferrable Interest Debenture of
Glacier.+
5.1 Opinion and Consent of Milbank, Tweed, Hadley & McCloy.+
5.2 Opinion and Consent of Richards, Layton & Finger, P.A.+
8.1 Opinion and Consent of Milbank, Tweed, Hadley & McCloy, as counsel
to Glacier Water Services, Inc., as to certain federal income tax
matters.+
10.1 Amended and Restated 1992 Stock Incentive Plan.(2)
10.2 Vending Machine Agreement between the Vons Companies, Inc. and
BWVI.(1)
10.3 Location Agreement between Food 4 Less Supermarkets, Inc. and GW
Services, Inc.(7)
10.4 Location Agreement between Ralphs Grocery Company, Cala Co., and GW
Services, Inc.(8)
10.5 Form of Indemnification Agreement with Officers and Directors.(1)
10.6 Lease Agreement between Enterprise Leasing and GW Services, Inc.(3)
10.7 Lease Agreement between Robert N. and Jean K. Rindt and Glacier
Water Services, Inc. relating to the Carlsbad, CA facility.(4)
10.8 1994 Stock Compensation Plan.(5)
10.8.1 Amendment No. 1 to 1994 Stock Compensation Plan.(6)
10.8.2 Amendment No. 2 to 1994 Stock Compensation Plan.(8)
10.9 Asset Purchase Agreement dated March 28, 1997 by and between
Glacier Water Services, Inc., McKesson Corp. and McKesson Water
Products Company.(8)
10.10 Credit Agreement between Tokai Bank of California, Glacier Water
Services, Inc. and GW Services, Inc.(6)
10.10.1 Modification of Note and Credit Agreement between Tokai Bank of
California, Glacier Water Services, Inc. and GW Services, Inc.
effective February 6, 1996.(7)
10.10.2 Modification of Note and Credit Agreement between Tokai Bank of
California, Glacier Water Services, Inc. and GW Services, Inc.
effective June 20, 1996.(8)
10.10.3 Modification of Note and Credit Agreement between Tokai Bank of
California, Glacier Water Services, Inc. and GW Services, Inc.
effective March 28, 1997.(8)
10.10.4 Amendment to Guarantee of Note and Credit Agreement.(8)
12.1 Statement re Computation of Ratios.+
23.1 Consent of Arthur Andersen LLP.
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
23.2 Consent of Deloitte & Touche LLP.
23.3 Consent of Milbank, Tweed, Hadley & McCloy (included in Exhibit 5.1
and 8.1 above).+
23.4 Consent of Richards, Layton & Finger, P.A. (included in Exhibit 5.2
above).+
23.5 Consent of Beverage Marketing Corporation.+
24.1 Power of Attorney (set forth on the signature page of the Registration
Statement).+
25.1 Form T-1 Statement of Eligibility of Wilmington Trust Company to act
as trustee under the Subordinated Indenture.+
25.2 Form T-1 Statement of Eligibility of Wilmington Trust Company to act
as trustee under the Amended and Restated Trust Agreement.+
25.3 Form T-1 Statement of Eligibility of Wilmington Trust Company to act
as trustee under the Trust Preferred Securities Guarantee Agreement.+
27.1 Financial Data Schedule of Glacier Water Trust I.+
</TABLE>
- --------
+Previously filed.
(1) Incorporated by reference to the Company's Registration Statement on Form
S-1 (File No. 33-61942), and the amendments thereto.
(2) Incorporated by reference to the Company's Registration Statement on Form
S-8 (File Number 33-61942) filed April 30, 1993.
(3) 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.
(4) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the three months ended March 31, 1994.
(5) Incorporated by reference to the Company's Registration Statement on Form
S-8 (File Number 33-80016) filed June 8, 1994.
(6) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995.
(7) Incorporated by reference to the Company's proxy statement from the 1995
Annual Meeting of Stockholders filed May 1, 1995.
(8) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1996.
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrants hereby undertake that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrants' annual reports pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrants pursuant to the foregoing provisions, or otherwise, the
Registrants have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrants of expenses or paid by a director, officer or controlling
person of the Registrants in the successful defense of any action, suit or
proceeding) is asserted by such officer or controlling person in connection
with the securities being registered, the Registrants will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
II-3
<PAGE>
(c) The Registrants hereby undertake that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in the
form of prospectus filed by the Registrants pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
for filing on Form S-2 and has duly caused this Amendment No. 3 to the
registration statement to be signed on its behalf by the undersigned,
thereunto duly in the City of Carlsbad, State of California, on January 21,
1998.
GLACIER WATER SERVICES, INC.
/s/ Jerry A. Gordon
By: _________________________________
Jerry A. Gordon
President and Chief Operating
Officer
Pursuant to the Requirements of the Securities Act of 1933, as amended, this
Amendment No. 2 to the Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
<TABLE>
<S> <C>
Dated: January 21, 1998 *
___________________________________________
Douglas C. Boyd, Director
Dated: January 21, 1998 *
___________________________________________
Peter B. Foreman, Director
Dated: January 21, 1998 /s/ Jerry A. Gordon
___________________________________________
Jerry A. Gordon, President, Chief Operating
Officer and Director
Dated: January 21, 1998 *
___________________________________________
Richard A. Kayne, Director
Dated: January 21, 1998 *
___________________________________________
Scott H. Shlecter, Director
Dated: January 21, 1998 *
___________________________________________
Robert V. Sinnott, Director
Dated: January 21, 1998 *
___________________________________________
Jerry R. Welch, Chairman of the Board and
Chief Executive Officer
Dated: January 21, 1998 *
___________________________________________
Brenda K. Foster, Vice President,
Controller (principal financial and
accounting officer)
</TABLE>
/s/ Jerry A. Gordon
By: _____________________________
Jerry A. Gordon
Attorney-in-Fact
II-5
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-2 and has duly caused this
Amendment No. 3 to the registration statement to be signed on its behalf by
the undersigned, thereunto duly in the City of Carlsbad, State of California,
on January 21, 1998.
GLACIER WATER TRUST I
<TABLE>
<S> <C>
Dated: January 21, 1998 *
___________________________________________
Jerry R. Welch
Administrative Trustee
Dated: January 21, 1998 /s/ Jerry A. Gordon
___________________________________________
Jerry A. Gordon
Administrative Trustee
Dated: January 21, 1998 *
___________________________________________
Brenda K. Foster
Administrative Trustee
</TABLE>
/s/ Jerry A. Gordon
By: _____________________________
Jerry A. Gordon
Attorney-in-Fact
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.+
4.1 Form of Subordinated Indenture to be entered into between Glacier
Water Services, Inc. and Wilmington Trust Company, as Indenture
Trustee.+
4.2 Form of Officers' Certificate and Company Order.+
4.3 Certificate of Trust of Water Trust I dated November 13, 1997.+
4.4 Trust Agreement of Water Trust I dated as of November 13, 1997.+
4.4.1 Form of Amended and Restated Trust Agreement of Water Trust I.+
4.5 Form of Trust Preferred Certificate of Water Trust I.+
4.6 Form of Common Securities Certificate of Water Trust I.+
4.7 Form of Guarantee Agreement.+
4.8 Form of Agreement as to Expenses and Liabilities.+
4.9 Form of Junior Subordinated Deferrable Interest Debenture of Glacier.+
5.1 Opinion and Consent of Milbank, Tweed, Hadley & McCloy.+
5.2 Opinion and Consent of Richards, Layton & Finger, P.A.+
8.1 Opinion and Consent of Milbank, Tweed, Hadley & McCloy, as counsel to
Glacier Water Services, Inc., as to certain federal income tax
matters.+
10.1 Amended and Restated 1992 Stock Incentive Plan.(2)
10.2 Vending Machine Agreement between the Vons Companies, Inc. and
BWVI.(1)
10.3 Location Agreement between Food 4 Less Supermarkets, Inc. and GW
Services, Inc.(7)
10.4 Location Agreement between Ralphs Grocery Company, Cala Co., and GW
Services, Inc.(8)
10.5 Form of Indemnification Agreement with Officers and Directors.(1)
10.6 Lease Agreement between Enterprise Leasing and GW Services, Inc.(3)
10.7 Lease Agreement between Robert N. and Jean K. Rindt and Glacier Water
Services, Inc. relating to the Carlsbad, CA facility.(4)
10.8 1994 Stock Compensation Plan.(5)
10.8.1 Amendment No. 1 to 1994 Stock Compensation Plan.(6)
10.8.2 Amendment No. 2 to 1994 Stock Compensation Plan.(8)
10.9 Asset Purchase Agreement dated March 28, 1997 by and between Glacier
Water Services, Inc., McKesson Corp. and McKesson Water Products
Company.(8)
10.10 Credit Agreement between Tokai Bank of California, Glacier Water
Services, Inc. and GW Services, Inc.(6)
10.10.1 Modification of Note and Credit Agreement between Tokai Bank of
California, Glacier Water Services, Inc. and GW Services, Inc.
effective February 6, 1996.(7)
10.10.2 Modification of Note and Credit Agreement between Tokai Bank of
California, Glacier Water Services, Inc. and GW Services, Inc.
effective June 20, 1996.(8)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.10.3 Modification of Note and Credit Agreement between Tokai Bank of
California, Glacier Water Services, Inc. and GW Services, Inc.
effective March 28, 1997.(8)
10.10.4 Amendment to Guarantee of Note and Credit Agreement.(8)
12.1 Statement re Computation of Ratios.+
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Deloitte & Touche LLP.
23.3 Consent of Milbank, Tweed, Hadley & McCloy (included in Exhibit 5.1
and 8.1 above).+
23.4 Consent of Richards, Layton & Finger, P.A. (included in Exhibit 5.2
above).+
23.5 Consent of Beverage Marketing Corporation.+
24.1 Power of Attorney (set forth on the signature page of the Registration
Statement).+
25.1 Form T-1 Statement of Eligibility of Wilmington Trust Company to act
as trustee under the Subordinated Indenture.+
25.2 Form T-1 Statement of Eligibility of Wilmington Trust Company to act
as trustee under the Amended and Restated Trust Agreement.+
25.3 Form T-1 Statement of Eligibility of Wilmington Trust Company to act
as trustee under the Trust Preferred Securities Guarantee Agreement.+
27.1 Financial Data Schedule of Glacier Water Trust I.+
</TABLE>
- --------
+ Previously filed.
(1) Incorporated by reference to the Company's Registration Statement on Form
S-1 (File No. 33-61942), and the amendments thereto.
(2) Incorporated by reference to the Company's Registration Statement on Form
S-8 (File Number 33-61942) filed April 30, 1993.
(3) 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.
(4) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the three months ended March 31, 1994.
(5) Incorporated by reference to the Company's Registration Statement on Form
S-8 (File Number 33-80016) filed June 8, 1994.
(6) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995.
(7) Incorporated by reference to the Company's proxy statement from the 1995
Annual Meeting of Stockholders filed May 1, 1995.
(8) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1996.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
(and to all references to our Firm) included in or made part of this
registration statement.
Arthur Andersen LLP
San Diego, California
January 21, 1998
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference and the use in this Amendment No.
3 to the Registration Statement of Glacier Water Services, Inc. on Form S-2 of
our report dated May 9, 1997 relating to the financial statements of the Aqua-
Vend Business (Certain Operations of McKesson Water Products Company)
appearing in the Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
Deloitte & Touche LLP
San Francisco, California
January 21, 1998
